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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
or
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
Commission file No.000-23423
C&F FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1680165
(State of incorporation) (I.R.S. Employer Identification No.)
Eighth and Main Streets, West Point, VA 23181
(Address of principal executive offices)
Registrant's telephone number (804) 843-2360
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$1.00 Par
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant was approximately $69,327,000 as of February 26, 2002.
The number of shares of the registrant's common stock outstanding as of February
26, 2002 was 3,529,726.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated March 15, 2002 to be delivered
to shareholders in connection with the Annual Meeting of Shareholders to be held
April 16, 2002 are incorporated by reference into Part III.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS ........................................................ page 1
ITEM 2. PROPERTIES ...................................................... page 2
ITEM 3. LEGAL PROCEEDINGS ............................................... page 3
ITEM 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS ................................. page 3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS ............................... page 3
ITEM 6. SELECTED FINANCIAL DATA ......................................... page 4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION .................. page 5
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...... page 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................... page 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ........................ page 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT ............................................. page 43
ITEM 11. EXECUTIVE COMPENSATION .......................................... page 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ......................................... page 43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS .................................................. page 44
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K ................................ page 44
ITEM 1. BUSINESS
--------
General
C&F Financial Corporation (the "Corporation") is a bank holding company
which was incorporated under the laws of the Commonwealth of Virginia in March,
1994. The Corporation owns all of the stock of its sole subsidiary, Citizens and
Farmers Bank (the "Bank"), which is an independent commercial bank chartered
under the laws of the Commonwealth of Virginia. The Bank has a total of twelve
branches including the main office. The Bank has its main office at Eighth and
Main Streets, West Point, Virginia, and has branch offices in Richmond, Norge,
Middlesex, Midlothian, Providence Forge, Quinton, Sandston, Varina, Williamsburg
(two branches), and West Point (two branches). The Bank was originally opened
for business under the name Farmers and Mechanics Bank on January 22, 1927.
The local community served by the Bank is generally defined as those
portions of King William County, King and Queen County, Hanover County and
Henrico County which are east of Route 360; Essex, Middlesex, New Kent, Charles
City, and James City Counties; that portion of York County which is directly
north of James City County; that portion of Gloucester County which is north and
west of Routes 14 and 17; Northwestern Chesterfield County, the western portion
of the City of Richmond and western Henrico County along the Route 250 corridor.
The Corporation, through its subsidiaries, offers a wide range of banking
services available to both individuals and businesses. These services include
various types of checking and savings deposit accounts, and the making of
business, real estate, development, mortgage, home equity, automobile, and other
installment, demand and term loans. The Bank also offers ATMs, internet banking
services, credit card services, trust services, travelers' checks, money orders,
safe deposit rentals, collections, notary public, wire services, and other
customary bank services to its customers.
The Bank has four wholly-owned subsidiaries, C&F Title Agency, Inc., C&F
Investment Services, Inc., C&F Insurance Services, Inc., and C&F Mortgage
Corporation, all incorporated under the laws of the Commonwealth of Virginia.
The Bank also operates Citizens and Commerce Bank (CCB), a division of the Bank,
to offer banking services to the Richmond Market. CCB operates two of the Bank's
Richmond Branches. C&F Title Agency, Inc. organized in October 1992, sells title
insurance. C&F Investment Services, Inc., organized April 1995, is a
full-service brokerage firm offering a comprehensive range of investment options
including stocks, bonds, annuities, and mutual funds. C&F Insurance Services,
Inc., organized in July 1999, owns 2.4% of the Virginia Bankers Insurance
Center, LLC which currently offers insurance products to commercial customers.
C&F Mortgage Corporation, organized in September 1995, originates and sells
residential mortgages. C&F Mortgage Corporation provides mortgage services
through seven locations in Virginia and three in Maryland. The Virginia offices
are in Richmond (two locations), Williamsburg, Newport News, Charlottesville,
Lynchburg, and Chester. The Maryland offices are in Annapolis, Crofton, and
Ellicott City. See Note 16 to the Consolidated Financial Statements for
summarized financial information by business segment.
As of December 31, 2001, a total of 311 persons were employed by the
Corporation, of whom 32 were part-time. The Corporation considers relations with
its employees to be excellent.
1
Competition
The Bank is subject to competition from various financial institutions
and other companies or firms that offer financial services. The Bank's principal
competition in its market area consists of all the major statewide and national
banks. The Bank also competes for deposits with savings associations, credit
unions, money-market funds, and other community banks. In making loans, the Bank
competes with consumer finance companies, credit unions, leasing companies, and
other lenders.
C&F Mortgage Corporation competes for mortgage loans in its market areas
with other mortgage companies, commercial banks, and other financial
institutions.
C&F Investment Services and C&F Insurance Services compete with other
investment companies, brokerage firms, and insurance companies to provide these
services.
C&F Title Agency competes with other title companies.
Regulation and Supervision
The Corporation is subject to regulation by the Federal Reserve Bank
under the Bank Holding Company Act of 1956. The Corporation is also under the
jurisdiction of the Securities and Exchange Commission and certain state
securities commissions with respect to matters relating to the offer and sale of
its securities. In addition, the Bank is subject to regulation and examination
by the State Corporation Commission and the Federal Deposit Insurance
Corporation.
ITEM 2. PROPERTIES
----------
The following describes the location and general character of the
principal offices and other materially important physical properties of the
Corporation and its subsidiary.
The Corporation owns the headquarters building located at Eighth and
Main Streets in the business district of West Point, Virginia. The building,
originally constructed in 1923, has three floors totaling 15,000 square feet.
This building houses the Citizens and Farmers Bank main office branch and office
space for the Corporation's administrative personnel.
The Corporation owns a building located at Seventh and Main Streets in
West Point, Virginia. The building provides space for Citizens and Farmers Bank
operations functions and staff. The building was originally constructed prior to
1935 and remodeled by the Corporation in 1991. The two-story building has 20,000
square feet.
The Corporation owns a building located at Sixth and Main Streets in
West Point, Virginia. The building provides space for Citizens and Farmers Bank
loan operations functions and staff. The building was bought and remodeled by
the Corporation in 1998. The building has 5,000 square feet.
2
The Corporation owns a building located at 1400 Alverser Drive in
Midlothian, Virginia. The building provides space for CCB's main office and
branch and for C&F Mortgage Corporation's administrative office. This two-story
building has 25,000 square feet
Citizens and Farmers Bank owns ten other branch locations in Virginia.
Also, the Bank owns several lots in West Point, Virginia, and one other lot in
New Kent County, Virginia.
C&F Mortgage Corporation has ten leased offices, seven in Virginia and
three in Maryland. Rental expense for these locations totaled $580,000 for the
year ended December 31, 2001.
All of the Corporation's properties are in good operating condition and
are adequate for the Corporation's present and anticipated future needs.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material pending legal proceedings to which the Corporation
is a party or to which the property of the Corporation is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Corporation through
a solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The Corporation's common stock is traded on the over-the-counter market and is
listed on the Nasdaq Stock Market under the symbol "CFFI." As of March 5, 2002,
there were approximately 1,100 shareholders of record. Following are the high
and low closing prices along with the dividends that were paid quarterly in 2001
and 2000. Over-the-counter market quotations reflect interdealer prices, without
retail mark up, mark down, or commission, and may not necessarily represent
actual transactions.
2001 2000
-------------------------- --------------------------
Quarter High Low Dividends High Low Dividends
First $16.50 $14.50 $0.14 $18.00 $11.25 $0.13
Second 17.20 15.90 0.14 17.75 11.25 0.13
Third 18.20 16.25 0.15 17.38 15.00 0.13
Fourth 21.00 18.68 0.15 16.25 14.50 0.14
3
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
FIVE YEAR FINANCIAL SUMMARY
- ---------------------------
2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
Selected Year-End Balances:
Total assets $404,075,974 $347,471,672 $329,241,321 $320,863,629 $278,105,969
Total capital 44,743,023 38,780,450 35,129,710 36,647,493 31,800,533
Total loans (net) 246,112,369 229,943,715 206,115,896 169,918,428 154,744,620
Total deposits 323,912,501 290,688,036 260,853,635 251,673,159 231,513,152
- -----------------------------------------------------------------------------------------------------------------------------
Summary of Operations:
Interest income 28,234,385 26,421,479 23,643,557 22,617,509 19,763,048
Interest expense 11,984,392 11,309,399 9,067,867 9,558,059 8,002,301
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 16,249,993 15,112,080 14,575,690 13,059,450 11,760,747
Provision for loan losses 400,000 400,000 600,000 600,000 330,000
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses 15,849,993 14,712,080 13,975,690 12,459,450 11,430,747
Other operating income 17,420,619 8,945,062 11,004,456 10,835,243 6,657,608
Other operating expenses 21,964,093 15,998,380 15,829,550 14,807,306 11,537,565
- -----------------------------------------------------------------------------------------------------------------------------
Income before taxes 11,306,519 7,658,762 9,150,596 8,487,387 6,550,790
Income tax expense 3,317,802 1,822,731 2,394,366 2,353,351 1,613,963
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 7,988,717 $ 5,836,031 $ 6,756,230 $ 6,134,036 $ 4,936,827
=============================================================================================================================
Per share
Earnings per common share--assuming
dilution $ 2.23 $ 1.60 $ 1.81 $ 1.56 $ 1.25
Dividends .58 .53 .49 .44 .35
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares--assuming
dilution 3,587,307 3,640,314 3,738,234 3,919,775 3,952,756
- -----------------------------------------------------------------------------------------------------------------------------
Significant Ratios 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Return on average assets 2.09% 1.76% 2.19%
Return on average equity 18.93 15.99 19.22
Dividend payout ratio 25.74 32.74 26.60
Average equity to average assets 11.05 10.99 11.38
- -----------------------------------------------------------------------------------------------------------------------------
4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATION
- ------------
OVERVIEW
Net income totaled $8.0 million in 2001, an increase of 36.9% compared
to 2000. Included in earnings for 2001 was $776,000 in other operating income
(after taxes) which resulted from a gain on the sale of the Bank's Tappahannock
branch. Excluding this gain, net income increased 23.6% compared to 2000. In
2000, net income totaled $5.8 million, a 13.6% decrease compared to 1999.
Diluted earnings per share were $2.23, $1.60, and $1.81, in 2001, 2000, and
1999, respectively. Excluding the gain on the sale of the branch, diluted
earnings per share were $2.01 in 2001. The increase in earnings per share for
2001 was a result of higher net income and the repurchase of 59,981 shares of
the Corporation's common stock. The decrease in earnings per share for 2000 was
a result of lower net income offset by the repurchase of 85,000 shares of the
Corporation's common stock.
Profitability as measured by the Corporation's return on average equity
(ROE) was 18.93% in 2001, 15.99% in 2000, and 19.22% in 1999. Another key
indicator of performance, the return on average assets (ROA) for 2001, was
2.09%, compared to 1.76% in 2000, and 2.19% for 1999.
5
TABLE 1: Average Balances, Income and Expense, Yields and Rates
The following table shows the average balance sheets for each of the years
ended December 31, 2001, 2000, and 1999. In addition, the amounts of interest
earned on earning assets, with related yields and interest on interest-bearing
liabilities, together with the rates, are shown. Loans include loans held for
sale. Loans placed on a non-accrual status are included in the balances and were
included in the computation of yields, upon which they had an immaterial effect.
Interest on tax-exempt securities is on a taxable-equivalent basis, which was
computed using the federal corporate income tax rate of 34% for all three years.
2001 2000 1999
-------------------------- --------------------------- ---------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- --------------------------------------------------------------------------------------------------------------------------------
Assets
Securities:
Taxable $ 8,402 $ 591 7.03% $ 16,089 $ 1,157 7.19% $ 15,293 $ 1,097 7.17%
Tax-exempt 51,185 4,088 7.99 52,068 4,196 8.06 49,049 4,013 8.18
- --------------------------------------------------------------------------------------------------------------------------------
Total securities 59,587 4,679 7.85 68,157 5,353 7.85 64,342 5,110 7.94
Loans, net 293,056 24,810 8.47 241,291 22,245 9.22 216,295 18,850 8.71
Interest-bearing deposits
in other banks and fed funds 3,216 100 3.11 3,482 215 6.17 9,621 458 4.76
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets 355,859 $29,589 8.31% 312,930 $27,813 8.89% 290,258 $24,418 8.41%
Reserve for loan losses (3,730) (3,451) (3,003)
Total non-earning assets 29,638 22,723 21,710
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $381,767 $332,202 $308,965
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Time and savings deposits:
Interest-bearing deposits $ 54,481 $ 1,046 1.92% $ 50,977 $ 1,236 2.42% $ 45,627 $ 1,084 2.38%
Money market deposit accounts 26,290 802 3.05 25,938 877 3.38 25,207 807 3.20
Savings accounts 38,921 952 2.45 38,640 1,150 2.98 39,131 1,164 2.97
Certificates of deposit,
$100M or more 32,421 1,769 5.46 22,955 1,266 5.52 17,977 857 4.77
Other certificates of deposit 119,535 6,639 5.55 96,004 5,203 5.42 89,467 4,416 4.94
- --------------------------------------------------------------------------------------------------------------------------------
Total time and savings deposits 271,648 11,208 4.13 234,514 9,732 4.15 217,409 8,328 3.83
- --------------------------------------------------------------------------------------------------------------------------------
Borrowings 19,628 836 4.26 25,774 1,577 6.12 15,002 740 4.93
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 291,276 12,044 4.14% 260,288 11,309 4.34% 232,411 9,068 3.90%
- --------------------------------------------------------------------------------------------------------------------------------
Demand deposits 39,240 31,511 35,697
Other liabilities 9,060 3,895 5,701
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 339,576 295,694 273,809
Shareholders' equity 42,191 36,508 35,156
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
Shareholders' equity $381,767 $332,202 $308,965
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income $17,545 $16,504 $15,350
- --------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 4.17 4.55 4.51
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense to
average earning assets 3.38 3.61 3.12
- --------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.93% 5.27% 5.29%
================================================================================================================================
6
RESULTS OF OPERATIONS
NET INTEREST INCOME
During 2001, net interest income, on a taxable equivalent basis,
increased 6.3% to $17.5 million from $16.5 million. This was a result of a 13.7%
increase in the average balance of interest earning assets offset by a decrease
in the net interest margin to 4.93% in 2001 from 5.27% in 2000. The increase in
average earning assets was the result of an increase in the average balance of
the loan portfolio at the Bank and an increase in the average balance of loans
held for sale by C&F Mortgage Corporation (the "Mortgage Corporation") offset by
a decrease in the Bank's securities portfolio and an increase in non-earning
assets. The increase in loans at the Bank was a result of overall higher loan
demand. The decrease in the average balance of securities was a result of calls
and maturities of securities during 2001. The increase in non-earning assets
principally resulted from the addition of new branch locations. Numerous
securities were called as a result of the lower interest rate environment in
2001. The increase in loans held for sale at the Mortgage Corporation was a
result of an increase in loan originations to $627 million in 2001 from $294
million in 2000 and an increase in loan fundings (sales) to $575 million in 2001
from $302 million in 2000. The decrease in the net interest margin was a result
of a decrease in the yield on average earning assets from 8.89% in 2000 to 8.31%
in 2001 offset by a decrease in the cost of funds from 4.34% in 2000 to 4.14% in
2001. The decrease in the average yield on interest earning assets was primarily
a result of the declining interest rate environment. The decrease in the cost of
funds was primarily a result of the declining interest rate environment during
2001 and a decrease in the average balance of borrowings from the Federal Home
Loan Bank ("FHLB"). During 2001, the Federal Reserve decreased the federal funds
rate 11 times for a total of 475 basis points.
During 2000, net interest income, on a taxable equivalent basis,
increased 7.5% to $16.5 million from $15.4 million, excluding the one-time
interest collected on a non-accrual loan in 1999. This was a result of a 7.8%
increase in the average balance of interest earning assets offset by a slight
decrease in the net interest margin to 5.27% in 2000 from 5.29% in 1999. The
increase in average earning assets was the result of an increase in the average
balance of the loan portfolio and securities portfolio at the Bank offset by a
decrease in the average balance of loans held for sale by the Mortgage
Corporation, and a decrease in the average balance in interest earning deposits
in other banks and fed funds sold. The increase in loans at the Bank was a
result of overall higher loan demand. The increase in the average balance of
securities was a result of the purchase of securities during the last six months
of 1999. A large number of securities were called in the first half of 1999 and
were replaced in the second half of 1999. The current year reflects the effect
of a full year of these purchases. The decrease in loans held for sale at the
Mortgage Corporation was a result of a decrease in loan originations to $294
million in 2000 from $457 million in 1999 and a decrease in loan fundings
(sales) to $302 million in 2000 from $499 million in 1999. The decrease in the
average balance in interest earning deposits in other banks and fed funds sold
was a result of excess liquidity being invested in higher yielding loans and
securities. The decrease in the net interest margin was a result of an increase
in the cost of funds from 3.90% in 1999 to 4.34% in 2000 offset by an increase
in the yield on average earning assets from 8.41% in 1999 to 8.89% in 2000. The
increase in the cost of funds was a result of the overall higher interest rate
environment during 2000 and an increase in the average balance of higher cost
borrowings from the FHLB. From August 1999 to March 2000, the interest rates on
fed funds increased 150 basis points. This increase was clearly reflected in the
average cost of certificates of deposit paid by the Corporation. The increase in
the average balance of borrowings from the FHLB was a result of loan growth
outpacing deposit growth during most of 2000. In addition to providing funding
for loans originated and subsequently sold by the Mortgage Corporation,
borrowings from the FHLB are occasionally used for funding of the Bank's loan
portfolio. The increase in the average yield on interest earning assets was
mainly a result of the higher interest rate environment and the decrease in the
average balance of lower yielding loans held for sale at the Mortgage
Corporation.
7
TABLE 2: Rate-Volume Recap
Interest income and expense are affected by fluctuations in interest
rates, by changes in the volume of earning assets and interest-bearing
liabilities, and by the interaction of rate and volume factors. The following
analysis shows the direct causes of the year-to-year changes in the components
of net interest earnings on a taxable-equivalent basis. The rate and volume
variances are calculated by a formula prescribed by the Securities and Exchange
Commission. Rate/volume variances, the third element in the calculation, are not
shown separately, but are allocated to the rate and volume variances in
proportion to the relationship of the absolute dollar amounts of the change in
each. Loans include both non-accrual loans and loans held for sale.
2001 from 2000 2000 from 1999
------------------------------- ---------------------------------
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
(Dollars in thousands) Rate Volume (Decrease) Rate Volume (Decrease)
- -------------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans $ (1,925) $ 4,490 $ 2,565 $ 1,133 $ 2,262 $ 3,395
Securities:
Taxable (25) (541) (566) 3 57 60
Tax-exempt (37) (71) (108) (61) 244 183
- ------------------------------------------------------------------------------------------------------------------------------
Total securities (62) (612) (674) (58) 301 243
- ------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in other banks
and fed funds (97) (18) (115) 43 (286) (243)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income (2,084) 3,860 1,776 1,118 2,277 3,395
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Time and savings deposits:
Interest-bearing deposits (270) 80 (190) 23 129 152
Money market deposit accounts (87) 12 (75) 46 24 70
Savings accounts (206) 8 (198) 1 (15) (14)
Certificates of deposit, $100M or more (14) 517 503 148 261 409
Other certificates of deposit 132 1,304 1,436 451 336 787
- ------------------------------------------------------------------------------------------------------------------------------
Total time and savings deposits (445) 1,921 1,476 669 735 1,404
Other borrowings (415) (326) (741) 210 627 837
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense (860) 1,595 735 879 1,362 2,241
- ------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ (1,224) $ 2,265 $ 1,041 $ 239 $ 915 $ 1,154
==============================================================================================================================
8
NON-INTEREST INCOME
TABLE 3: Non-Interest Income
Year Ended December 31,
------------------------
(Dollars in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Gain on sale of loans $10,390 $ 5,009 $ 6,692
Service charges on deposit accounts 1,442 1,336 1,154
Other service charges and fees 3,211 1,675 1,950
Gain on calls of available for sale securities 6 100 139
Gain on sale of branch 1,176 -- --
Other income 1,196 825 1,069
- -----------------------------------------------------------------------------------------------------------------------------
$17,421 $ 8,945 $11,004
=============================================================================================================================
2001 vs. 2000
Non-interest income increased by $8.5 million, or 94.8%, in 2001. The
increase was mainly a result of a $5.4 million increase in the gain on sale of
loans at the Mortgage Corporation. This increase was a result of the overall
increase in production at the Mortgage Corporation which was a result of the
lower interest rate environment in 2001 compared to 2000. Other service charges
and fees increased $1,536,000 as a result of increased production at the
Mortgage Corporation and other income increased $371,000 largely due to
increased production at the Mortgage Corporation and C&F Title Agency. The gain
on sale of branch was a result of the sale of the Bank's Tappahannock branch
office during the fourth quarter of 2001. Management believed this location did
not fit into the Bank's geographic focus.
2000 vs. 1999
Non-interest income decreased by $2.1 million, or 18.7%, in 2000. The
decrease was mainly a result of a $1.7 million decrease in the gain on sale of
loans at the Mortgage Corporation. This decrease was a result of the overall
decrease in production at the Mortgage Corporation which was a result of the
higher interest rate environment in 2000 compared to 1999. In addition, other
service charges and fees at the Mortgage Corporation declined $309,000 and other
income at the Title Company, declined $132,000. These decreases were partially
offset by an increase in service charges on deposit accounts at the Bank of
$181,000 which was due to the overall growth of the Bank during 2000.
NON-INTEREST EXPENSE
TABLE 4: Non-Interest Expense
Year Ended December 31,
-----------------------
(Dollars in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits $13,443 $ 9,603 $ 9,366
Occupancy expense 2,886 2,378 2,044
Goodwill amortization 268 275 275
Other expenses 5,367 3,742 4,145
- -----------------------------------------------------------------------------------------------------------------------------
$21,964 $15,998 $15,830
=============================================================================================================================
9
2001 vs. 2000
Non-interest expense increased $5,966,000, or 37.3%, over 2000. This
increase was primarily a result of increased salaries and variable compensation
at the Mortgage Corporation due to an increase in production. Salaries and
benefits at the Bank also increased as a result of overall growth, the opening
of a new branch by CCB, and the opening of a branch of the Bank in Sandston
during the fourth quarter of 2001. The opening of the two new branches along
with investments in imaging and internet banking technology resulted in an
increase in occupancy expenses. Other expenses increased mainly as a result of
increased production at the Mortgage Corporation.
2000 vs. 1999
Non-interest expense increased $168,000, or 1.1%, over 1999. This
increase was a result of increased salaries and benefits at the Bank offset by
decreased salaries and variable compensation at the Mortgage Corporation due to
a decrease in production. The increase in salaries and benefits at the Bank was
due to overall growth including the formation of CCB, and the opening of a
branch of the Bank in Williamsburg, Virginia during the second quarter of 2000.
CCB was formed in the second half of 1999. The growth of the Bank also resulted
in an increase in occupancy expense. Other expenses declined mainly as a result
of decreased production at the Mortgage Corporation.
INCOME TAXES
Applicable income taxes on 2001 earnings amounted to $3,318,000,
resulting in an effective tax rate of 29.3% compared to $1,823,000, or 23.8% in
2000, and $2,394,000, or 26.1% in 1999. The increase in the effective tax rate
for 2001 as compared to 2000 was a result of a decrease in earnings from tax
exempt assets as a percentage of total income mainly resulting from the
increased earnings at the Mortgage Corporation. The decrease for 2000 compared
to 1999 was a result of the increase in earnings from tax exempt assets as a
percentage of total income mainly resulting from the decrease in earnings at the
Mortgage Corporation.
TABLE 5: Allowance for Loan Losses
Year Ended December 31,
------------------------------------
(Dollars in thousands) 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Reserve, beginning of period $3,609 $3,302 $2,760 $2,234 $1,927
Provision for loan losses 400 400 600 600 330
Loans charged off:
Real estate--mortgage -- -- 10 33 12
Real estate--construction 32 31 -- -- --
Commercial, financial, and agricultural 126 -- -- -- 3
Consumer 192 71 76 66 12
- --------------------------------------------------------------------------------------------------------------------------------
Total loans charged off 350 102 86 99 27
Recoveries of loans previously charged off:
Real estate--mortgage -- -- -- 25 --
Commercial, financial, and agricultural -- -- 13 -- --
Consumer 25 9 15 -- 4
- --------------------------------------------------------------------------------------------------------------------------------
Total recoveries 25 9 28 25 4
Net loans charged off 325 93 58 74 23
- --------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $3,684 $3,609 $3,302 $2,760 $2,234
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average total loans
outstanding during period .11% .04% .03% .04% .01%
================================================================================================================================
10
TABLE 6: Allocation of Allowance for Possible Loan Losses
The allowance for loan losses is a general allowance applicable to all
loan categories; however, management has allocated the allowance to provide an
indication of the relative risk characteristics of the loan portfolio. The
allocation is an estimate and should not be interpreted as an indication that
charge-offs in 2002 will occur in these amounts, or that the allocation
indicates future trends. The allocation of the allowance at December 31 for the
years indicated and the ratio of related outstanding loan balances to total
loans are as follows:
(Dollars in thousands) 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Allocation of allowance for loan losses, end of year:
Real estate--mortgage $ 619 $ 743 $ 753 $ 667 $ 692
Real estate--construction 263 251 160 108 89
Commercial, financial, and agricultural 2,203 2,005 1,686 1,211 926
Equity lines 113 116 103 86 71
Consumer 290 267 380 251 167
Unallocated 196 227 220 437 289
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31 $3,684 $3,609 $3,302 $2,760 $2,234
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of loans to total year-end loans:
Real estate--mortgage 32% 37% 43% 50% 57%
Real estate--construction 4 4 4 3 3
Commercial, financial, and agricultural 55 49 42 36 31
Equity lines 4 5 5 5 4
Consumer 5 5 6 6 5
- --------------------------------------------------------------------------------------------------------------------------------
100% 100% 100% 100% 100%
================================================================================================================================
ASSET QUALITY-ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses is to provide for potential losses in the
loan portfolio. Among other factors, management considers the Corporation's
historical loss experience, the size and composition of the loan portfolio, the
value and adequacy of collateral and guarantors, non-performing credits, and
current economic conditions. There are additional risks of future loan losses
which cannot be precisely quantified or attributed to particular loans or
classes of loans. Since those risks include general economic trends as well as
conditions affecting individual borrowers, the allowance for loan losses is an
estimate. The allowance is also subject to regulatory examinations and
determination as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance and the size of the allowance in
comparison to peer banks identified by regulatory agencies.
In 2001, the provision for loan losses was $400,000 compared to
$400,000 in 2000 and $600,000 in 1999. Over the past several years, the
Corporation has substantially increased its portfolio of commercial, financial,
and agricultural loans. The risks associated with increasing the volume of such
loans resulted in an increase in the provision for loan losses for 1999 when
compared to years prior to 1998. While the Corporation continues to increase its
commercial, financial and agricultural loan portfolio, the portfolio also
continues to become "more seasoned" allowing management to better assess the
risk associated with the portfolio. Accordingly, management was able to reduce
the provision for loan losses in 2001 and 2000 to $400,000 from $600,000 in
1999. Table 6 presents the allocation of the allowance for possible loan losses
by loan category.
Loans charged off during 2001 amounted to $350,000 compared to $102,000
in 2000 and $86,000 in 1999. Recoveries amounted to $24,000, $9,000, and $28,000
in 2001, 2000, and 1999, respectively. The ratio of net charge-offs to average
outstanding loans was .11% in 2001,.04% in 2000, and .03% in 1999. Management
believes that the reserve is
11
adequate to absorb any losses on existing loans that may become uncollectible.
Table 5 presents the Corporation's loan loss and recovery experience for the
past five years.
NON-PERFORMING ASSETS
Total non-performing assets, which consist of the Corporation's
non-accrual loans and real estate owned, were $1,026,000 at December 31, 2001,
an increase of $506,000 from December 31, 2000. The increase in non-performing
assets is a result of certain lending relationships being put on non-accrual
status during the year. The Corporation is closely monitoring these
relationships and does not anticipate a significant loss.
Loans are generally placed on non-accrual status when the collection of
principal or interest is ninety days or more past due, or earlier, if collection
is uncertain based on an evaluation of the net realizable value of the
collateral and the financial strength of the borrower. Loans greater than ninety
days past due may remain on accrual status if management determines it has
adequate collateral to cover the principal and interest. For those loans which
are carried on non-accrual status, interest is recognized on the cash basis.
$91,000, $37,000, and $8,000 in additional gross interest income would have been
recorded if non-accrual loans had been current throughout the period outstanding
for 2001, 2000, and 1999, respectively. Interest income received on non-accrual
loans was $2,000, $2,000, and $551,000 for the periods ended December 31, 2001,
2000, and 1999, respectively.
Impaired loans are measured based on the present value of expected
future cash flows discounted at the effective interest rate of the loan (or, as
a practical expedient, at the loan's observable market price) or the fair value
of the collateral if the loan is collateral dependent. The Corporation considers
a loan impaired when it is probable that the Corporation will be unable to
collect all interest and principal payments as scheduled in the loan agreement.
A loan is not considered impaired during a period of delay in payment if the
ultimate collectibility of all amounts due is expected. A valuation allowance is
maintained to the extent that the measure of the impaired loan is less than the
recorded investment. The balances of impaired loans at December 31, 2001 and
2000, was $1,026,000 and $473,000 respectively, with no specific valuation
allowance associated with these loans. The average balances of impaired loans
for 2001 and 2000 were $513,000 and $357,000, respectively.
Table 7 summarizes non-performing assets for the past five years.
TABLE 7: Non-Performing Asset Activity
(Dollars in thousands) 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Non-accrual loans $1,026 $ 473 $ 49 $463 $497
Real estate owned -- 47 -- -- 444
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets 1,026 520 49 463 941
- ---------------------------------------------------------------------------------------------------------------------------------
Principal and/or interest past due for 90 days or more $ 913 $1,586 $786 $958 $768
- ---------------------------------------------------------------------------------------------------------------------------------
Non-performing loans to total loans .41% .20% .02% .27% .31%
Allowance for loan losses to total loans 1.47 1.55 1.58 1.60 1.42
Allowance for loan losses to non-performing loans 359.06 763.00 6,738.78 596.11 449.30
Non-performing assets to total assets .25% .15% .01% .14% .34%
=================================================================================================================================
12
FINANCIAL CONDITION
SUMMARY
A financial institution's primary sources of revenue are generated by
its earning assets, while its major expenses are produced by the funding of
those assets with interest-bearing liabilities. Effective management of these
sources and uses of funds is essential in attaining a financial institution's
maximum profitability while maintaining an acceptable level of risk.
At the end of 2001, the Corporation had total assets of $404 million,
up 16.4% over the previous year-end. In 2000, there was an increase of 5.5% in
total assets over year-end 1999. Asset growth in 2001 is attributable to an
increase in loans at the Bank and an increase in loans held for sale at the
Mortgage Corporation.
TABLE 8: Summary of Total Loans
Year Ended December 31,
------------------------------------------------------------------
(Dollars in thousands) 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Real estate--mortgage $ 80,977 $ 86,453 $ 89,952 $ 86,311 $ 88,973
Real estate--construction 8,819 9,099 7,968 5,359 4,454
Commercial, financial, and agricultura/l/ 137,374 113,570 89,135 62,885 48,737
Equity lines 11,284 11,616 10,272 8,580 7,131
Consumer 11,342 12,815 12,091 9,543 7,684
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 249,796 233,553 209,418 172,678 156,979
Less allowance for loan losses (3,684) (3,609) (3,302) (2,760) (2,234)
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans, net $246,112 $229,944 $206,116 $169,918 $154,745
==================================================================================================================================
/1/ Includes loans secured by real estate
TABLE 9: Maturity/Repricing Schedule of Loans
December 31, 2001
------------------------------------
Commercial, financial, Real estate
(Dollars in thousands) and agricultural construction
- -------------------------------------------------------------------------------------------------------------------------
Variable Rate:
Within 1 year $49,523 $ --
1 to 5 years 19,846 --
After 5 years 9,657 --
Fixed Rate:
Within 1 year 8,695 8,819
1 to 5 years 18,540 --
After 5 years 31,113 --
=========================================================================================================================
LOAN PORTFOLIO
At December 31, 2001, loans, net of unearned income and reserve for
loan losses, totaled $246.1 million, an increase of 7.0% over the 2000 total of
$229.9 million. Net loans increased 11.6% and 21.3% in 2000 and 1999,
respectively.
The corporation's lending activities are its principal source of
income. All loans are attributable to domestic operations. Residential real
estate loans, both construction and permanent, and commercial, including,
commercial real
13
estate, represent the major portion of the Corporation's loan portfolio. Tables
8 and 9 present information pertaining to the composition of loans and the
maturity/repricing of loans.
TABLE 10: Maturity of Securities
Year Ended December 31,
------------------------------------------------
2001 2000 1999
---------------------- -------------------- ----------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
(Dollars in thousands) Cost Yield Cost Yield Cost Yield
- -------------------------------------------------------------------------------------------------------------------------------
U.S. government agencies and corporations:
Maturing after 5 years, but within 10 years $ -- --% $ 4,500 7.03% $ 4,500 7.03%
Maturing after 10 years -- -- 9,000 7.08 9,000 7.08
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. government agencies and corporations -- -- 13,500 7.07 13,500 7.07
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasuries:
Maturing within 1 year -- -- 1,000 8.01 -- --
Maturing after 1 year, but within 5 years -- -- -- -- 1,000 8.01
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasuries -- -- 1,000 8.01 1,000 8.01
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage backed securities:
Maturing after 1 year, but within 5 years 1,948 5.83 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total mortgage backed securities 1,948 5.83 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
States and municipals:1
Maturing within 1 year 1,164 8.55 2,028 10.43 155 9.77
Maturing after 1 year, but within 5 years 4,234 8.20 4,378 8.42 4,190 8.87
Maturing after 5 years, but within 10 years 19,061 7.54 15,871 7.61 14,352 7.97
Maturing after 10 years 20,817 7.22 23,907 7.29 28,496 7.52
- ------------------------------------------------------------------------------------------------------------------------------
Total states and municipals 45,276 7.48 46,184 7.64 47,193 7.66
- ------------------------------------------------------------------------------------------------------------------------------
Total securities:2
Maturing within 1 year 1,164 8.55 3,028 9.63 155 9.77
Maturing after 1 year, but within 5 years 6,182 7.46 4,378 8.42 5,190 8.71
Maturing after 5 years, but within 10 years 19,061 7.54 20,371 7.48 18,852 7.95
Maturing after 10 years 20,817 7.22 32,907 7.24 37,496 1.36
- ------------------------------------------------------------------------------------------------------------------------------
Total securities $ 47,224 7.41% $ 60,684 7.52% $ 61,693 7.54%
==============================================================================================================================
/1/ Yields on tax-exempt securities have been computed on a taxable-equivalent
basis.
/2/ Total securities excludes preferred stock at amortized cost of $5,899,358,
$5,504,870, and $5,209,736 at December 31, 2001, 2000, and 1999,
respectively ($5,468,496, $5,054,587, and $4,738,879 estimated fair value at
December 31, 2001, 2000, and 1999, respectively).
SECURITIES
The investment portfolio plays a primary role in the management of
interest rate sensitivity of the Corporation and generates substantial interest
income. In addition, the portfolio serves as a source of liquidity and is used
as needed to meet collateral requirements.
The investment portfolio consists of two components, securities held to
maturity and securities available for sale. Securities are classified as held to
maturity based on management's intent and the Corporation's ability, at the time
of purchase, to hold such securities to maturity. These securities are carried
at amortized cost. Securities which may be sold in response to changes in market
interest rates, changes in the securities' prepayment risk, increases in loan
demand, general liquidity needs, and other similar factors are classified as
available for sale and are carried at estimated fair value.
At year-end 2001, total securities were $53.9 million, down 17.90% from
$65.7 million at year-end 2000. Mortgage backed securities represented 3.6% of
the total securities portfolio, obligations of states and political subdivisions
were 86.3%, and preferred stocks were 10.1% at December 31, 2001.
14
The Company adopted Financial Accounting Standards Board Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, effective
January 1, 2001 and, as permitted by the Statement, transferred securities with
a book value of $33,770,000 and a market value of $34,836,000 to the
available-for-sale category.
Table 10 presents information pertaining to the composition of the
securities portfolio.
DEPOSITS
The Corporation's predominant source of funds is depository accounts.
The Corporation's deposit base is comprised of demand deposits, savings and
money market accounts, and time deposits. The Corporation's deposits are
provided by individuals and businesses located within the communities served.
Total deposits increased $33.2 million, or 11.4%, in 2001 over 2000. In
2001, the growth by deposit category was a 7.7% increase in non-interest-bearing
deposits, an 11.9% increase in savings and interest-bearing demand deposits, and
a 12.0% increase in time deposits. In 2000, total deposits increased $29.8
million, or 11.4%, over 1999. Deposit growth in 2001 over 2000 was attributed to
growth at existing branch locations and to the opening of two new branches, CCB
in Midlothian and the Bank in Sandston, offset by the sale of the Bank's
Tappahannock branch during 2001. Table 11 presents the average deposit balances
and average rates paid for the years 2001, 2000, and 1999. Table 12 details
maturities of certificates of deposit with balances of $100,000 and over at
December 31, 2001.
TABLE 11: Average Deposits and Rates Paid
Year Ended December 31,
---------------------------------------------
2001 2000 1999
--------- --------- ---------
Average Average Average Average Average Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing demand deposits $ 39,240 $ 31,511 $ 35,697
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing transaction accounts 54,481 1.92% 50,977 2.42% 45,627 2.38%
Money market deposit accounts 26,290 3.05 25,938 3.38 25,207 3.20
Savings accounts 38,921 2.45 38,640 2.98 39,131 2.97
Certificates of deposit, $100M or more 32,421 5.46 22,955 5.52 17,977 4.77
Other certificates of deposit 119,535 5.55 96,004 5.42 89,467 4.94
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 271,648 4.13% 234,514 4.15% 217,409 3.83%
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits $310,888 $266,025 $253,106
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 12: Maturities of Certificates of Deposit with Balances of $100,000 or
More
(Dollars in thousands) December 31, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
3 months or less $ 11,169
3-6 months 9,208
6-12 months 14,870
Over 12 months 3,234
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 38,481
- ------------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY
Liquidity represents an institution's ability to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds through liability management.
Liquid assets include
15
cash and due from banks, interest-bearing deposits with banks, federal funds
sold, securities available for sale, and investments and loans maturing within
one year. As a result of the Corporation's management of liquid assets and the
ability to generate liquidity through liability funding, management believes
that the Corporation maintains overall liquidity sufficient to satisfy its
depositors' requirements and to meet customers' credit needs.
At December 31, 2001, cash and cash equivalents and securities
classified as available for sale were 17.9% of total earning assets, compared to
14.6% at December 31, 2000.
Additional sources of liquidity available to the Corporation include
the Bank's capacity to borrow funds through an established line of credit with a
regional correspondent bank and from the FHLB.
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such
as asset quality, liquidity, earnings performance, and changing competitive
conditions and economic forces. The adequacy of the Corporation's capital is
reviewed by management on an ongoing basis. Management seeks to maintain a
structure that will assure an adequate level of capital to support anticipated
asset growth and to absorb potential losses.
During 2001 the Corporation repurchased 59,981 shares of its common
stock in the open market at prices between $14.88 and $18.00 per share. During
2000, the Corporation repurchased 85,000 shares of its common stock, in the open
market at prices between $13.69 and $17.00 per share. During March of 1999, the
Corporation repurchased 235,000 shares of its common stock in privately
negotiated transactions at prices between $19.88 and $20.00 per share and during
the second half of 1999, the Corporation repurchased an additional 12,500 shares
of its common stock in the open market at prices between $17.00 and $18.00 per
share. These repurchases were made to reduce capital since it was high relative
to the Corporation's asset size.
The Corporation's capital position continues to exceed regulatory
requirements. The primary indicators relied on by bank regulators in measuring
the capital position are the Tier I capital, total risk-based capital, and
leverage ratios. Tier I capital consists of common and qualifying preferred
shareholders' equity less goodwill. Total capital consists of Tier I capital,
qualifying subordinated debt, and a portion of the allowance for loan losses.
Risk-based capital ratios are calculated with reference to risk-weighted assets.
The Corporation's Tier I capital ratio was 13.3% at December 31, 2001, compared
to 14.4% at December 31, 2000. The total capital ratio was 14.4% at December 31,
2001 compared to 15.6% at December 31, 2000. These ratios are in excess of the
mandated minimum requirements of 4.0% and 8.0%, respectively.
Shareholders' equity was $44.7 million at year-end 2001 compared to
$38.8 million at year-end 2000. The leverage ratio consists of Tier I capital
divided by average assets. At December 31, 2001, the Corporation's leverage
ratio was 10.8%, compared to 10.9% at December 31, 2000, which exceeds the
required minimum leverage ratio of 4.0%. The dividend payout ratio was 25.7%,
32.7%, and 26.6%, in 2001, 2000, and 1999, respectively. During 2001, the
Corporation paid dividends of $0.58 per share, up 9.4% from $0.53 per share paid
in 2000.
The Corporation is not aware of any current recommendations by any
regulatory authorities which, if they were implemented, would have a material
effect on the Corporation's liquidity, capital resources, or results of
operations.
NEW 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. Statement 141 eliminates the pooling method of
16
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 intangibles 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.
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 is not expected
to have a material impact on the Corporation's financial statements.
In June 2001, the Financial Accounting Standards Board issued Statement
143 Accounting for Asset Retirement Obligations. This Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and associated retirement costs. It
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred and the associated asset
retirement costs be capitalized as part of the carrying amount of the long-lived
asset. This Statement is not expected to have a material effect on the
Corporation's financial statements.
In August 2001, the Financial Accounting Standards Board issued
Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
The Statement addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. It also establishes a single accounting model for
long-lived assets to be disposed of by sale, which includes long-lived assets
that are part of a discontinued operation. This Statement is effective for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2001. The Statement is not expected to have a material effect on
the Corporation's financial statements.
EFFECTS OF INFLATION
The effect of changing prices on financial institutions is typically
different from other industries as the Corporation's assets and liabilities are
monetary in nature. Interest rates are significantly impacted by inflation, but
neither the timing nor the magnitude of the changes are directly related to
price-level indices. The consolidated financial statements reflect the impacts
of inflation on interest rates, loan demands, and deposits.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this annual report that are not historical
facts may constitute "forward-looking statements" as defined by federal
securities laws. These statements may address issues that involve estimates and
assumptions made by management, risks and uncertainties, and actual results
could differ materially from historical results or those anticipated by such
statements. Factors that could have a material adverse effect on the operations
and future prospects of the company include, but are not limited to, changes in:
interest rates, general economic conditions,
17
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Board of Governors
of the Federal Reserve System, the quality or composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in the Corporation's market area and accounting
principles, policies and guidelines. These risks and uncertainties should be
considered in evaluating the forward-looking statements, and readers are
cautioned not to place undue reliance on such statements, which speak only as of
their dates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
MARKET RISK MANAGEMENT
As the holding company for a commercial bank, the Corporation's primary
component of market risk is interest rate volatility. Fluctuation in interest
rates will ultimately impact the level of both income and expense recorded on a
large portion of the Bank's assets and liabilities, and the market value of all
interest-earning assets and interest-bearing liabilities, other than those which
possess a short term to maturity. Since the majority of the Corporation's
interest-earning assets and all of the Corporation's interest-bearing
liabilities are held by the Bank, virtually all of the Corporation's interest
rate risk exposure lies at the Bank level. Therefore, all significant interest
rate risk management procedures are performed by management of the Bank. Based
on the nature of the Bank's operations, the Bank is not subject to foreign
currency exchange or commodity price risk. The Bank's loan portfolio is
concentrated primarily in the Virginia counties of King William, King and Queen,
Hanover, Henrico, Chesterfield, Middlesex, New Kent, Charles City, York, and
James City, and is, therefore, subject to risks associated with the local
economy. As of December 31, 2001, the Corporation does not own any trading
assets nor does it have any hedging transactions in place such as interest rate
swaps and caps.
The Bank's interest rate management strategy is designed to stabilize
net interest income and preserve capital. The Bank manages interest rate risk
through the use of a simulation model which measures the sensitivity of future
net interest income and the net portfolio value to changes in interest rates. In
addition, the Bank monitors interest rate sensitivity through analysis,
measuring the terms to maturity or next repricing date of interest-earning
assets and interest-bearing liabilities. The matching of the maturities of
assets and liabilities may be analyzed by examining the extent to which assets
and liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap." An asset or liability is said to be "interest
rate sensitive" within a specific time period if it will mature or reprice
within that time period. The interest rate sensitivity "gap" is defined as the
difference between the amount of interest-earning assets anticipated, based on
certain assumptions, to mature or reprice within a specific time period and the
amount of interest-bearing liabilities anticipated, based on certain
assumptions, to mature or reprice within that time period. A gap is considered
negative when the amount of interest-rate-sensitive liabilities maturing or
repricing within a specific time period exceeds the amount of
interest-rate-sensitive assets maturing or repricing within that same time
period. During a period of rising interest rates, a negative gap would tend to
result in a decrease in net interest income while a positive gap would tend to
result in an increase in net interest income. In a declining interest rate
environment, an institution with a negative gap would generally be expected,
absent the effect of other factors, to experience a greater decrease in the cost
of its liabilities relative to the yield of its assets and thus an increase in
the institution's net interest income, whereas an institution with a positive
gap would be expected to experience the opposite result.
Certain shortcomings are inherent in any method of rate analysis used
to estimate a financial institution's interest rate sensitivity gap. The
analysis is based at a given point in time and does not take into consideration
that changes in interest rates do not affect all assets and liabilities equally.
For example, although certain assets and liabilities may have
18
similar maturities or repricing, they may react differently to changes in market
interest rates. The interest rates on certain types of assets and liabilities
also may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates. The
interest rates on loans with call features may or may not change depending on
their interest rates relative to market interest rates.
The Corporation is also subject to prepayment risk, particularly in
falling interest rate environments or in environments where the slope of the
yield curve is relatively flat or negative. Such changes in the interest rate
environment can cause substantial changes in the level of prepayments of loans,
which may also affect the Corporation's interest rate sensitivity gap position.
As part of its borrowings, the Corporation may utilize, from time to
time, daily, convertible and adjustable rate advances from the FHLB. Convertible
advances generally provide for a fixed rate of interest for a portion of the
term of the advance, an ability for the FHLB to convert the advance from a fixed
rate to an adjustable rate at some predetermined time during the remaining term
of the advance (the "conversion" feature), and a concurrent opportunity for the
Corporation to prepay the advance with no prepayment penalty in the event the
FHLB elects to exercise the conversion feature. At December 31, 2001, the Bank
did not hold convertible advances from the FHLB. Also, the methodology used
estimates various rates of withdrawal for money market deposits, savings, and
checking accounts, which may vary significantly from actual experience.
TABLE 13: Interest Sensitivity Analysis
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 2001, that are
subject to repricing or that mature in each of the time periods shown.
Additionally, loans and securities with call provisions are included in the
period in which they may first be called. Except as stated above, the amount of
assets and liabilities shown that reprice or mature during a particular period
were determined in accordance with the contractual terms of the asset or
liability.
Interest-Sensitive Periods
----------------------------------------------------------
Within 91-365 1-5 Over
(Dollars in thousands) 90 Days Days Years 5 Years Total
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 2001
Earning assets:
Loans, net of unearned income $149,019 $ 25,283 $ 78,018 $66,739 $319,059
Securities 2,711 1,945 24,131 25,931 54,718
Federal funds sold and other short-term investments 930 - - - 930
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 152,660 27,228 102,149 92,670 374,707
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing transaction accounts 9,002 27,006 24,006 - 60,014
Savings accounts 6,213 18,640 16,569 - 41,422
Money market deposit accounts 4,511 13,533 12,029 - 30,073
Certificates of deposit, $100M or more 11,169 24,078 3,234 - 38,481
Other certificates of deposit 22,802 69,541 22,847 243 115,433
Borrowings 27,204 - - - 27,204
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 80,901 152,798 78,685 243 $312,627
- -----------------------------------------------------------------------------------------------------------------------------------
Period gap 71,759 (125,570) 23,464 92,427
Cumulative gap $ 71,759 $ (53,811) $(30,347) $62,080
Ratio of cumulative gap to total earning assets 19.15% (14.36)% (8.10)% 16.57%
- -----------------------------------------------------------------------------------------------------------------------------------
19
The following table provides information about the Corporation's
financial instruments that are sensitive to changes in interest rates as of
December 31, 2001 and 2000, based on the information and assumptions set forth
in the notes. The Corporation believes that the assumptions utilized are
reasonable. The expected maturity date values for loans were calculated by
adjusting the instruments' contractual maturity date for expectations of
prepayments, as set forth in the notes. Similarly, expected maturity date values
for interest-bearing core deposits were calculated based on estimates of the
period over which the deposits would be outstanding, as set forth in the notes.
From a risk-management perspective, however, the Corporation utilizes both
maturity and repricing dates, as opposed to solely using expected maturity
dates.
As shown in the table, there has been no significant changes in the
maturities of interest-earning assets or interest-bearing liabilities as
compared to 2000. The increase in loans held for sale maturing within one year
is a result of increased production at the Mortgage Corporation. All loans
originated at the Mortgage Corporation are usually sold within one month. The
increase in borrowings is also a result of the increase in loans held for sale.
The decrease in the yield on interest earning assets and amount paid on
interest-bearing liabilities is a result of the decrease in interest rates
throughout 2001.
20
TABLE 14: Maturity of Interest-Bearing Assets/Liabilities
Principal Amount Maturing in:
------------------------------------------------------------
(Dollars in thousands) 1 Year 2 Years 3 Years 4 Years 5 Years Thereafter Total Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
Interest-Earning Assets:
Fixed rate loans /1, 2/
December 31, 2001 $ 28,366 $14,235 $10,870 $ 8,154 $ 7,183 $49,907 $118,715 $124,139
December 31, 2000 23,371 11,329 9,830 8,457 6,740 44,280 104,007 104,356
Average interest rate
December 31, 2001 8.12% 8.68% 8.43% 8.34% 8.25% 8.27% 8.30%
December 31, 2000 9.43% 8.89% 8.71% 8.53% 8.38% 8.43% 8.74%
Variable rate loans /1, 2/
December 31, 2001 $ 52,599 $16,492 $4,108 $ 4,759 $ 4,054 $50,026 $132,038 $135,612
December 31, 2000 46,426 10,372 5,489 5,039 4,516 58,690 130,532 130,574
Average interest rate
December 31, 2001 6.78% 6.76% 9.98% 8.12% 7.96% 7.74% 7.32%
December 31, 2000 10.43% 9.44% 8.90% 8.88% 8.79% 8.34% 9.23%
Loans held for sale
December 31, 2001 $ 69,263 $ - $ - $ - $ - $ - $ 69,263 $ 70,166
December 31, 2000 17,600 - - - - - 17,600 17,984
Average interest rate
December 31, 2001 6.69% - - - - - 6.69%
December 31, 2000 9.26% - - - - - 9.26%
Securities /3, 4/
December 31, 2001 $ 944 $ 1,504 $ 705 $ 781 $ 1,017 $49,767 $ 54,718 $ 55,548
December 31, 2000 1,385 1,148 1,504 806 1,084 61,856 67,783 68,484
Average interest rate
December 31, 2001 5.77% 5.85% 6.01% 5.58% 5.25% 5.27% 5.31%
December 31, 2000 5.43% 4.67% 4.73% 4.72% 4.39% 5.39% 5.34%
Interest-Bearing Liabilities:
Money market, savings, and interest-
bearing transaction accounts /5/
December 31, 2001 $ 78,905 $13,151 $13,151 $13,151 $13,151 $ - $131,509 $132,312
December 31, 2000 70,540 11,757 11,757 11,757 11,756 - 117,567 118,590
Average interest rate
December 31, 2001 1.79% 1.79% 1.79% 1.79% 1.79% - 1.79%
December 31, 2000 2.72% 2.72% 2.72% 2.72% 2.72% - 2.72%
Certificates of deposit
December 31, 2001 $127,590 $17,309 $ 5,488 $ 1,450 $ 1,833 $ 244 $153,914 $156,115
December 31, 2000 117,552 12,186 4,232 1,385 1,387 645 137,387 137,505
Average interest rate
December 31, 2001 4.40% 4.77% 5.17% 6.20% 5.35% 2.38% 4.49%
December 31, 2000 6.07% 5.86% 5.83% 5.21% 6.23% 4.36% 6.03%
Borrowings
December 31, 2001 $ 22,204 $ 5,000 $ - $ - $ - $ - $ 27,204 $ 27,190
December 31, 2000 13,969 - - - - - 13,969 13,969
Average interest rate
December 31, 2001 1.74% 5.35% - - - - 2.40%
December 31, 2000 5.66% - - - - - 5.66%
- ----------------------------------------------------------------------------------------------------------------------------
/1/ Net of undisbursed loan proceeds and does not include net deferred loan
fees or the allowance for loan losses.
/2/ For single-family residential loans, assumes annual prepayment rate of 12%.
No prepayment assumptions were used for all other loans.
/3/ Includes the Corporation's investment in Federal Home Loan Bank stock.
/4/ Average interest rates are the average of stated coupon rates and have not
been adjusted for taxes.
/5/ Assumes an annual decay rate of 60% for year 1 and 10% for each of the
years 2 through 5.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------
2001 2000
- -----------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 10,127,368 $ 8,922,524
Interest-bearing deposits in other banks 929,549 5,915,378
- -----------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 11,056,917 14,837,902
Securities--available for sale at fair value, amortized cost of
$53,123,058 and $32,418,548, respectively 53,952,938 31,913,344
Securities--held to maturity at amortized cost, fair value of
$0 and $34,835,759, respectively -- 33,769,925
Loans held for sale, net 69,263,294 17,600,164
Loans, net of reserve for loan losses of $3,683,658 and $3,608,966,
respectively 246,112,369 229,943,715
Federal Home Loan Bank stock 1,595,000 1,595,000
Corporate premises and equipment, net 14,638,441 9,889,649
Accrued interest receivable 2,134,218 2,403,921
Other assets 5,322,797 5,518,052
- -----------------------------------------------------------------------------------------------------------
Total assets $404,075,974 $347,471,672
- -----------------------------------------------------------------------------------------------------------
Liabilities
Deposits
Non-interest-bearing demand deposits $ 38,489,428 $ 35,734,625
Savings and interest-bearing demand deposits 131,508,973 117,566,594
Time deposits 153,914,100 137,386,817
- -----------------------------------------------------------------------------------------------------------
Total deposits 323,912,501 290,688,036
Borrowings 27,203,667 13,969,173
Accrued interest payable 811,088 992,852
Other liabilities 7,405,695 3,041,161
- -----------------------------------------------------------------------------------------------------------
Total liabilities 359,332,951 308,691,222
- -----------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
Shareholders' Equity
Preferred stock ($1.00 par value, 3,000,000 shares authorized) -- --
Common stock ($1.00 par value, 8,000,000 shares authorized,
3,526,126 and 3,571,039 shares issued and outstanding at
December 31, 2001 and 2000, respectively) 3,526,126 3,571,039
Additional paid-in capital 46,871 20,133
Retained earnings 40,622,304 35,522,711
Accumulated other comprehensive income (loss), net of tax of
$282,159 and ($171,771), respectively 547,722 (333,433)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 44,743,023 38,780,450
- -----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $404,075,974 $347,471,672
- -----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
22
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Interest income
Interest and fees on loans $24,809,972 $22,244,860 $19,405,445
Interest on money market investments
Federal funds sold 2,005 -- 90,964
Other money market investments 97,846 563,687 366,971
Interest on securities
U.S. Treasury securities 29,663 80,193 109,112
U.S. government agencies and corporations 439,380 953,900 864,461
Tax-exempt obligations of states and political subdivisions 2,385,946 2,455,762 2,347,868
Corporate bonds and other 469,573 123,077 458,736
- ------------------------------------------------------------------------------------------------------------------------
Total interest income 28,234,385 26,421,479 23,643,557
- ------------------------------------------------------------------------------------------------------------------------
Interest expense
Savings and interest-bearing deposits 2,799,884 3,263,427 3,055,792
Certificates of deposit, $100M or more 1,768,972 1,266,707 856,670
Other time deposits 6,639,327 5,202,728 4,415,594
Short-term borrowings and other 776,209 1,576,537 739,811
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense 11,984,392 11,309,399 9,067,867
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 16,249,993 15,112,080 14,575,690
Provision for loan losses 400,000 400,000 600,000
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 15,849,993 14,712,080 13,975,690
- ------------------------------------------------------------------------------------------------------------------------
Other operating income
Gain on sale of loans 10,389,684 5,008,850 6,691,998
Service charges on deposit accounts 1,442,253 1,335,679 1,154,373
Other service charges and fees 3,210,921 1,674,937 1,949,714
Gain on calls of available for sale securities 6,000 100,157 138,830
Gain on sale of branch 1,176,279 -- --
Other income 1,195,482 825,439 1,069,541
- ------------------------------------------------------------------------------------------------------------------------
Total other operating income 17,420,619 8,945,062 11,004,456
- ------------------------------------------------------------------------------------------------------------------------
Other operating expenses
Salaries and employee benefits 13,442,765 9,603,442 9,365,548
Occupancy expenses 2,886,245 2,377,608 2,044,013
Goodwill amortization 267,860 275,160 275,160
Other expenses 5,367,223 3,742,170 4,144,829
- ------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 21,964,093 15,998,380 15,829,550
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 11,306,519 7,658,762 9,150,596
Income tax expense 3,317,802 1,822,731 2,394,366
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 7,988,717 $ 5,836,031 $ 6,756,230
- ------------------------------------------------------------------------------------------------------------------------
Earnings per common share--basic $ 2.25 $ 1.62 $ 1.83
- ------------------------------------------------------------------------------------------------------------------------
Earnings per common share--assuming dilution $ 2.23 $ 1.60 $ 1.81
- ------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income (Loss) Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 $3,866,888 $ 475,928 $31,739,483 $ 565,194 $36,647,493
Repurchase of common stock (247,500) (690,351) (3,971,173) -- (4,909,024)
Stock options exercised 25,068 228,819 -- -- 253,887
Comprehensive income
Net income $ 6,756,230 6,756,230 6,756,230
Other comprehensive income, net of
tax
Unrealized holding losses arising
during the period net of tax of
$938,495 (1,821,784) (1,821,784) (1,821,784)
-----------
Comprehensive income $ 4,934,446
-----------
Cash dividends ($.49 per share) -- -- (1,797,092) -- (1,797,092)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 3,644,456 14,396 32,727,448 (1,256,590) 35,129,710
Repurchase of common stock (85,000) (114,272) (1,130,139) -- (1,329,411)
Stock options exercised 11,583 120,009 -- -- 131,592
Comprehensive income
Net income $ 5,836,031 5,836,031 5,836,031
Other comprehensive income, net of
tax
Unrealized holding gains arising
during the period net of tax of
$475,566 923,157 923,157 923,157
-----------
Comprehensive income $ 6,759,188
-----------
Cash dividends ($.53 per share) -- -- (1,910,629) -- (1,910,629)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 3,571,039 20,133 35,522,711 (333,433) 38,780,450
Repurchase of common stock (59,981) (121,308) (833,031) -- (1,014,320)
Stock options exercised 15,068 148,046 -- -- 163,114
Comprehensive income
Net income $ 7,988,717 7,988,717 7,988,717
Other comprehensive income, net of
tax
Unrealized holding gains arising
during the period net of tax of
$453,928 881,155 881,155 881,155
-----------
Comprehensive income $ 8,869,872
-----------
Cash dividends ($.58 per share) -- -- (2,056,093) -- (2,056,093)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2001 $3,526,126 $ 46,871 $40,622,304 $ 547,722 $44,743,023
===================================================================================================================================
Disclosure of reclassification amount for the year ended December 31:
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------
Unrealized net holding gains (losses) arising during period $885,115 $989,272 $(1,730,156)
Less: reclassification adjustment for gains
included in net income 3,960 66,115 91,628
-------- -------- ------------
Net unrealized gains (losses) on securities $881,155 $923,157 $(1,821,784)
======== ======== ============
See notes to consolidated financial statements.
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 7,988,717 $ 5,836,031 $ 6,756,230
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 1,336,192 1,018,342 928,314
Amortization of goodwill 267,860 275,160 275,160
Deferred income taxes (37,024) (154,178) (123,139)
Provision for loan losses 400,000 400,000 600,000
Accretion of discounts and amortization of premiums
on securities, net (49,035) (45,047) (69,467)
Net realized gain on securities (6,000) (100,157) (138,830)
Origination of loans held for sale (627,303,955) (294,483,773) (456,926,073)
Sale of loans 575,640,825 301,770,123 499,032,881
Gain on sale of branch (1,176,279) -- --
Change in other assets and liabilities:
Accrued interest receivable 269,703 (267,828) 237,690
Other assets (489,510) (485,864) (881,041)
Accrued interest payable (181,764) 426,386 (31,680)
Other liabilities 4,364,534 384,756 (4,353,878)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (38,975,736) 14,573,951 45,306,167
- -----------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Proceeds from maturities of securities held to maturity -- 1,060,000 3,628,850
Proceeds from maturities and calls of securities available for
sale 17,297,400 906,576 10,806,084
Purchase of securities available for sale (4,176,950) (1,107,101) (21,287,142)
Redemption (purchase) of FHLB stock -- (10,000) 121,200
Net increase in customer loans (19,233,654) (24,227,819) (36,797,468)
Purchase of corporate premises and equipment (6,426,178) (2,503,902) (2,867,029)
Sale of branch (10,857,527) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,396,909) (25,882,246) (46,395,505)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase (decrease) in demand, interest-bearing demand
and savings deposits