UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

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FORM 10-Q

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x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2007

 

or

 

o Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the transition period from ____________ to _____________

 

Commission File Number: 0-50576

 

CITIZENS BANCORP OF VIRGINIA, INC.

(Exact name of registrant as specified in its charter)

 

 

 

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.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 2,440,750 shares of Common Stock as of August 10, 2007.

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FORM 10-Q

For the Period Ended June 30, 2007

 

INDEX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Part I. Financial Information

 

Item 1. Financial Statements

 

Consolidated Balance Sheets

(Dollars in thousands, except share data)

 

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Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

 

 

See accompanying Notes to Interim Consolidated Financial Statements.

 

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See accompanying Notes to Interim Consolidated Financial Statements.

 

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See accompanying Notes to Interim Consolidated Financial Statements.

 

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Notes to Interim Consolidated Financial Statements

(Unaudited)

 

 

 

 

 

 

 

 

 

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Information pertaining to securities with gross unrealized losses at June 30, 2007 and December 31, 2006, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is summarized as follows:

 

 

 

The unrealized losses in the investment portfolio as of June 30, 2007 are considered temporary and are a result of general market fluctuations that occur daily. The unrealized losses are from 81 securities that are all of investment grade, backed by insurance, U.S. government agency guarantees, or the full faith and credit of local municipalities throughout the United States. Market prices change daily and are affected by conditions beyond the control of the Company. Investment decisions are made by the management group of the Company and reflect the overall liquidity and strategic asset/liability

 

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objectives of the Company. Management analyzes the securities portfolio frequently and manages the portfolio to provide an overall positive impact to the Company’s income statement and balance sheet. As management has the ability and intent to hold debt securities for the foreseeable future, no declines are deemed to be other than temporary.

 

 

The loan portfolio was composed of the following:

 

 

 

The following is a summary of transactions in the allowance for loan losses:

 

 

The following is a summary of impaired loans:

 

                

 

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Non-accrual loans excluded from the impairment disclosure above under Statement of Financial Accounting Standards No. 118, “Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures” (“SFAS No. 118”), totaled $534 thousand and $36 thousand at June 30, 2007 and December 31, 2006, respectively. Income on non-accrual and impaired loans under the original terms would have been approximately $92 thousand and $120 thousand for the six months ended June 30, 2007 and June 30, 2006, respectively. The Company had $ 473 thousand in loans that were ninety days or more past due and still accruing at June 30, 2007. There were no loans ninety days or more past due and still accruing at December 31, 2006.

 

 

The weighted average number of shares used in computing earnings per share was 2,440,750 shares for the six months ended June 30, 2007 and June 30, 2006.

 

 

The components of Net Periodic Benefit Cost for the six months ended June 30, 2007 and June 30, 2006 were as follows:

The pension plan has a fiscal year ending September 30, providing the Company the flexibility as to the calendar year in which it makes pension plan contributions. The Company made its required 2007 fiscal year contribution to the pension plan in December 2006 in the amount of $240,000. The Company anticipates making the 2008 contribution by December 31, 2007. The Company estimates this contribution to be approximately $250,000.

 

 

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements but may change current practice for some entities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. The Company does not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.

 

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this Statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by this Statement

 

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permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is in the process of evaluating the impact SFAS 159 may have on its consolidated financial statements.

 

 

 

The following discussion provides information about the major components of the results of operations and financial condition, liquidity, and capital resources of Citizens Bancorp of Virginia, Inc. (the Company). This discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to the Interim Consolidated Financial Statements included in this quarterly report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

The Company’s primary revenue comes from retail banking in the form of interest income received on loans and investments. This income is partially offset by the Company’s interest expense on deposits and borrowed funds, resulting in net interest income. The Company’s earnings also come from noninterest income in the form of deposit fees, gains on the sale of loans and investments, ATM fees, Bank-owned Life Insurance, and other financial services. The Company’s combined noninterest income and net interest income are offset by the Company’s noninterest expense which includes employee compensation and benefits, occupancy, equipment and other operating expenses.

 

CRITICAL ACCOUNTING POLICIES

 

General

 

The financial condition and results of operations presented in the Consolidated Financial Statements, accompanying Notes to Interim Consolidated Financial Statements and management's discussion and analysis are, to a large degree, dependent upon the accounting policies of the Company. The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change.

 

Presented below is a discussion of those accounting policies (Critical Accounting Policies) that management believes are the most important to the portrayal and understanding of the Company’s financial condition and results of operations. The Critical Accounting Policies require management's most difficult, subjective and complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, materially different financial condition or results of operations is a reasonable likelihood.

 

Allowance for Loan Losses

 

The Company monitors and maintains an allowance for loan losses to absorb an estimate of probable losses inherent in the loan portfolio. The Company maintains policies and procedures that address the systems of controls over the following areas of maintenance of the allowance: the systematic methodology used to determine the appropriate level of the allowance to provide assurance that the systems are maintained in accordance with accounting principles generally accepted in the United States of America; the accounting policies for loan charge-offs and recoveries; the assessment and measurement of impairment in the loan portfolio; the loan grading system; and the general economic environment.

 

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The Company evaluates various loans individually for impairment as required by Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. Loans evaluated individually for impairment include non-performing loans, such as loans on non-accrual, loans past due by 90 days or more, restructured loans and other loans selected by management. The evaluations are based upon discounted expected cash flows or collateral valuations. If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment. If a loan evaluated individually is not impaired, then the loan is assessed for impairment under SFAS No. 5, Accounting for Contingencies, with a group of loans that have similar characteristics.

 

For loans without individual measures of impairment, the Company makes estimates of losses for groups of loans as required by SFAS No. 5. Loans are grouped by similar characteristics, including the type of loan, the assigned loan grade and the general collateral type. A loss rate reflecting the expected loss inherent in a group of loans is derived based upon estimates of default rates for a given loan grade, the predominant collateral type for the group and the terms of the loan. The resulting estimate of losses for groups of loans are adjusted for relevant environmental factors and other conditions of the portfolio of loans, including: borrower and industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience, ability and depth of lending management; and national and local economic conditions.

 

The amount of estimated impairment for individually evaluated loans and groups of loans is added together for a total estimate of loan losses. This estimate of losses is compared to the allowance for loan losses of the Company as of the evaluation date and, if the estimate of losses is greater than the allowance, an additional provision to the allowance would be made. If the estimate of losses is less than the allowance, the degree to which the allowance exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates. If the estimate of losses is below the range of reasonable estimates, the allowance would be reduced by way of a credit to the provision for loan losses. The Company recognizes the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high. If different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new estimate of probable losses, an additional provision for loan losses would be made, which amount may be material to the Consolidated Financial Statements.

 

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Balance Sheet

 

Total assets for the Company increased to $287.6 million at June 30, 2007 compared to $280.9 million at December 31, 2006, representing an increase of $6.7 million or 2.3%. Total net loans at June 30, 2007 were $207.7 million, an increase of $9.5 million from the December 31, 2006 amount of $198.2 million. Loan origination activity for the first six months of 2007 was strong with $43.9 million in new loans. Net loans as a percent of total assets were 72.2% at June 30, 2007, an increase of 1.6% from December 31, 2006. Investment securities decreased to $47.1 million at June 30, 2007, or 16.7% of total assets, which is a decrease of $4.0 million from $51.1 million at December 31, 2006. The investment portfolio’s cash flow will typically be used to fund loan demand if deposit account growth is insufficient to meet loan demand. The decline in the investment securities balances between December 31, 2006 and June 30, 2007 was to fund the higher loan demand not being met by deposit account growth. Federal funds sold decreased $1.5 million from $4.1 million at December 31, 2006 to $2.6 million at June 30, 2007.

 

Allowance for Loan Losses

 

The allowance for loan losses at June 30, 2007 was $1.940 million compared to $1.935 million at December 31, 2006. The allowance for loan losses, as a percentage of total outstanding loans, decreased to 0.93% at June 30, 2007 from 0.97% at December 31, 2006. During the six months ended June 30,

 

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2007, the Company charged off $42 thousand in loans, recovered $47 thousand from previous write-offs, and did not provide any additional provision to the allowance.

 

Management believes the allowance for loan losses is adequate to cover credit losses inherent in the loan portfolio at June 30, 2007. Loans classified as loss, doubtful, substandard or special mention are adequately reserved for and are not expected to have a material impact beyond what has been reserved. For a more detailed discussion of Management’s analysis of the loan portfolio, please see the “Allowance for Loan Losses” discussion above.

 

Criticized loans are defined by management as loans that, after having undergone normal credit review, presently indicate, or have the potential for, significant weakness or high likeliness that the loans will not perform under the original terms of the loans. Criticized loans may or may not be currently accruing interest and, while they are not classified as impaired loans, management has computed probable loss amounts should the loans not perform as originally agreed. Criticized loan balances at June 30, 2007 and December 31, 2006 totaled $2.5 million and $2.2 million, respectively. At June 30, 2007 and December 31, 2006, $211 thousand and $208 thousand, respectively, were included in the allowance for loan losses to cover for the possible losses on these loans.

 

The Company had $1.0 million in non-accruing loans at June 30, 2007, or 0.48% of gross loans, compared to $1.7 million at December 31, 2006, or 0.87% of gross loans, a decrease of $0.7 million or 41.2%.

 

Deposits

 

Total deposits of $243.7 million at June 30, 2007 represented an increase of $4.4 million from $239.3 million at December 31, 2006. Total certificates of deposit at June 30, 2007 were $133.9 million, up $1.2 million from $132.7 million at December 31, 2006. Non-interest bearing deposits totaled $40.6 million at June 30, 2007, which is a 6.6% increase from $38.1 million at December 31, 2006. Interest-bearing deposits accounted for 83.3% of total deposits at June 30, 2007 as compared to 84.1% of total deposits at December 31, 2006. Bank management remained focused on growing low-cost deposit account balances during the first half of 2007; this strategy has assisted in managing the overall interest cost of deposit accounts.

 

Short Term Borrowings

 

The Company utilizes one main source of short term borrowings, overnight repurchase agreements from commercial customers that utilize the Business Investment Sweeps product. A secondary source of short term borrowings would be overnight advances from the Federal Home Loan Bank of Atlanta or from lines of credit established with its correspondent banks. For additional details on borrowing sources, see the “Liquidity” section later in this report. At June 30, 2007, the Company had total short term borrowings of $5.4 million that consisted entirely of customer repurchase agreements. This is compared to $4.4 million in short term borrowings at December 31, 2006, which was also entirely from customer repurchase agreements.

 

Stockholders’ Equity

 

Stockholders’ equity was $35.6 million at June 30, 2007 compared to $35.1 million at December 31, 2006. The book value per common share was $14.60 at June 30, 2007 compared to $14.36 at December 31, 2006. On April 13, 2007, shareholders were paid a quarterly dividend of $0.16 per share. On June 27, 2007, the Board of Directors approved a cash dividend of $0.16 per share, or $390 thousand, payable to shareholders on July 20, 2007. Total average outstanding shares for the first two quarters of 2007 and the average outstanding for the year ended December 31, 2006 were 2,440,750 shares.

 

The change in Accumulated Other Comprehensive Loss at June 30, 2007 versus December 31, 2006 was a result of the change in net unrealized losses on available for sale securities. At June 30, 2007, the

 

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Company reflected a net unrealized loss of $1.210 million or an increase of $344 thousand from $866 thousand at December 31, 2006.

 

Net Income

 

For the six months ended June 30, 2007, the Company reported net income of $1.715 million as compared to $1.665 million for the same period in 2006, an increase of 3.0%. Income per basic and diluted share was $0.70 for the six months ended June 30, 2007, as compared to $0.68 per basic and diluted share for the period ended June 30, 2006.

 

The Company had an annualized return on average assets of 1.22% and an annualized return on average equity of 9.67% for the six months ended June 30, 2007, as compared to an annualized return on average assets and average equity of 1.21% and 9.85%, respectively, for the same period in 2006.

 

For the three months ended June 30, 2007, the Company reported net income of $906 thousand as compared to $884 thousand for the same period in 2006, an increase of 2.49%. Income per basic and diluted share was $0.37 for the three months ended June 30, 2007, as compared to $0.36 per basic and diluted for the period in 2006.

 

The increase in net income for the three months ended June 30, 2007 as compared to the same period for 2006 is attributable to several factors, including an increase of $12 thousand or 0.4% in net interest income before provision for loan losses, a decrease of $19 thousand in loan loss provision, and a decrease of $9 thousand or 0.4% in total non-interest expense.

 

Continued higher short term interest rates, competition for deposits, and the ability to continue growing non-interest bearing demand deposits will continue to put pressure on the cost of funds during the next several months as it did during the first half of 2007.

 

For the first six months of 2007, the asset quality of the loan portfolio remained high, and based upon the review of the allowance for loan losses, management did not have to provide any additional provision to the allowance. For the same six months of 2006, a total of $34 thousand was provided to the allowance. Based upon the current asset quality of the loan portfolio, management anticipates loan quality to remain high during 2007; additional provision for loan losses might be necessary as a result of the overall growth of the loan portfolio, rather than a deterioration of asset quality.

 

Noninterest income for the first six months of 2007 was $1.152 million or $43 thousand greater than the same period in 2006. The results, excluding non-recurring items such as gains on Other Real Estate Owned sales, give a better indication of the core improvement in non-interest income over the previous year. Exclusive of the $15 thousand in OREO gains for the first six months of 2007, and the $77 thousand in OREO gains for the same period of 2006, non-interest income would have been $1.137 million, or $105 thousand greater than the $1.032 million for the first six months of 2006, or a 10.2% increase.

 

Net Interest Income

 

Net interest income is the Company’s primary source of earnings and represents the difference between interest and fees earned on loans, investments and other earning assets and the interest expense paid on deposits and other interest bearing liabilities. The cost of funds represents interest expense on deposits and other borrowings. Non-interest bearing deposits and capital are other components representing funding sources. Changes in the volume and mix of earning assets and funding sources, along with the changes in yields earned and rates paid, determine changes in net interest income.

 

For the six months ended June 30, 2007, net interest income was $5.424 million, which was $37 thousand greater than $5.387 million for the same period in 2006. The average loan balances for the six months

 

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ended June 30, 2007 were .66% lower or $1.4 million less than the six months ended June 30, 2006. The loan yield increased 59 basis points to 7.38% for the six months ended June 30, 2007 from 6.79% for the comparable period in 2006. The average investment securities balance for the first six months of 2007 was $48.9 million or $2.3 million greater than the average of $46.6 million for the same period in 2006. The tax-equivalent yield on investment securities for the period in 2007 was 4.68% as compared to 4.58% for 2006, or an increase of 10 basis points from the year-earlier period. The yield on earning assets for the six months ended June 30, 2007 was 6.84%, an increase of 46 basis points from the yield of 6.38% reported in the comparable period of 2006. The increase in the earning assets yield for the year-to-date in 2007 as compared to the same period in 2006 is primarily the result of higher short-term rates. The net interest margin includes the effect of non-interest bearing sources in its calculation and net interest income is expressed as a percentage of average earning assets. The net interest margin decreased by 4 basis points to 4.33% for the six months ended June 30, 2007 as compared to 4.37% for the same period in 2006.

 

A significant component of the Company’s increase in the net interest income has been the ability to manage interest bearing deposit rates and to attract and retain low cost core deposits, especially non-interest bearing demand deposit accounts. Interest bearing deposit accounts and short-term borrowings were also affected by higher short term interest rate increases with the time deposit accounts increasing 81 basis points and short-term borrowings increasing 12 basis points over the comparable period in 2006. Average time deposit balances for the first six months of 2007 increased to $134.1 million as compared to $129.4 million for the prior year period, while short-term borrowings decreased $171 thousand from an average of $5.2 million during the first six months of 2006 to an average of $5.0 million for the first six months of 2007. Meanwhile, lower costing money market and savings accounts averaged $69.7 million for the first six months of 2007 as compared to $71.0 million during the same period in 2006. Overall, interest bearing liabilities averaged $208.8 million for the first six months of 2007, an increase of $3.2 million when compared to $205.6 million for the same period in 2006. The average balance for non-interest bearing deposit accounts for the first six months of 2007 was $36.1 million or $391 thousand greater than the average balance of $35.7 million for the comparable period in 2006.

 

The table on the following page labeled “Average Balances, Interest Yields and Rates, and Net Interest Margin” presents the average balances and rates of the various categories of the Company’s assets and liabilities. Included in the table is a measurement of interest rate spread and margin. Interest rate spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest expense on the interest bearing liabilities. While net interest spread provides a quick comparison of earnings rates versus the cost of funds, management believes that the interest margin provides a better measurement of performance.

 

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Average Balances, Interest Yields and Rates, and Net Interest Margin

 

 

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Noninterest Income

 

Noninterest income includes deposit fees, gains on the sales of investments, OREO and Loans Held for Sale, and ATM fees. Noninterest income increased 3.87% to $1.152 million for the six months ended June 30, 2007 compared to $1.109 million for the same period in 2006. Below is a representation of the changes to the significant components:

 

 

 

 

 

 

 

Noninterest Expense

 

Noninterest expense includes employee-related costs, occupancy and equipment expense and other overhead costs. Noninterest expense for the six months ended June 30, 2007 increased $27 thousand to $4.163 million as compared to $4.136 million for the comparable period in 2006, or an increase of 0.65%. Management has been working, over the last 2 years, to establish stricter controls over noninterest expenses, and these efforts are being realized by the moderate increases in non-interest expenses over the previous year. The following table outlines the changes in significant components:

 

                

 

 

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Liquidity

 

Liquidity represents an institution’s ability to meet present and future obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquidity is also defined as the Company’s ability to meet the borrowing and deposit withdrawal requirements of the customers of the company in addition to meeting current and planned expenditures. The Company maintains its liquidity position through cash on hand, correspondent bank balances and investment in federal funds sold, by maintaining its investment portfolio in available for sale status and through the availability of borrowing lines at the Federal Home Loan Bank of Atlanta, the Federal Reserve Bank of Richmond and at its correspondent banks. Federal funds lines of credit are maintained with four correspondent banks. As of June 30, 2007, the Company has the following lines of credit available.

 

 

The Company had $5.4 million in outstanding borrowings at June 30, 2007, which represented a $1.0 million or 23.2% increase from $4.4 million at December 31, 2006. At June 30, 2007, outstanding borrowings were entirely from balances outstanding in the Investment Sweeps Account product, which is an overnight repurchase agreement product, not insured by FDIC, but guaranteed by the Bank with US Government and Federal Agency securities. This product is offered to commercial customers only.

 

The Company monitors its liquidity position on a regular basis and continuously adjusts its assets to maintain adequate liquidity levels. The Company has established satisfactory liquidity targets, monitors its liquidity position daily, and reports its liquidity ratios to the Board of Directors on a monthly basis. The Company considers its sources of liquidity to be sufficient to meet its estimated needs.

 

Capital Resources

 

Stockholders’ equity at June 30, 2007 and December 31, 2006 was $35.6 million and $35.0 million, respectively. Total number of common shares outstanding at each of June 30, 2007 and December 31, 2006 was 2,440,750.

 

At June 30, 2007, the Company’s Tier 1 and total risk-based capital ratios were 19.1% and 20.1%, respectively, compared to 19.1% and 20.2% at December 31, 2006. The Company’s leverage ratio was 12.9% at June 30, 2007 compared to 12.6% at December 31, 2006. The Bank’s capital structure places it well above the regulatory guidelines, which affords the Company the opportunity to take advantage of business opportunities while ensuring that it has the resources to protect against risk inherent in its business.

 

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FORWARD LOOKING STATEMENTS

 

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, (the “Exchange Act”) as amended. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import. Such forward-looking statements involve known and unknown risks including, but not limited to, the following factors:

 

 

Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

 

 

 

In order to more closely measure interest sensitivity, the Company uses earnings simulation models on a quarterly basis. These models utilize the Company’s financial data and various management assumptions as to growth and earnings to forecast a base level of net interest income and earnings over a one-year period. This base level of earnings is then shocked assuming a sudden increase or decrease in interest rates.

 

There have been no changes that would significantly alter the disclosure previously reported as of December 31, 2006. For more information, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

 

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

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Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, the Company has concluded that these controls and procedures are effective. In addition, there was no change in the Company’s internal control over financial reporting that occurred during the three months ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

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Part II. Other Information

 

Item 1. Legal Proceedings

 

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company, including its subsidiaries, is a party or of which the property of the Company is subject.

 

Item 1A. Risk Factors

 

There are no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The Company did not repurchase any of its equity securities during the three months ended June 30, 2007.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

The Annual Meeting of Shareholders was held May 16, 2007 at the Main Office of the Company, 126 South Main Street, Blackstone, Virginia. The Company had 2,440,750 shares outstanding and eligible to vote at the Annual Meeting. The following Directors were elected by the shareholders at the Annual Meeting:

 

        

 

In addition, the shareholders ratified the selection of Yount, Hyde & Barbour, P.C. as independent public accountants for the Company for the fiscal year 2007, as follows:

 

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

See Exhibit Index.

 

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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.

 

 

 

Joseph D. Borgerding

President and Chief Executive Officer

 

Ronald E. Baron

Senior Vice President and Chief Financial Officer

 

 

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EXHIBIT INDEX

 

Exhibit Number