SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-21285
MID-ATLANTIC COMMUNITY BANKGROUP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
VIRGINIA 54-1809409
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
7171 George Washington Mem. Hwy.
Gloucester, Virginia 23061
(Address of Principal Executive Offices)
(804) 693-0628
(Issuer's Telephone Number, Including Area Code)
- -------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of September 30, 1996.
Common stock, $5 par value--944,333
<PAGE>
<TABLE>
INDEX
MID-ATLANTIC COMMUNITY BANKGROUP, INC. Page No.
Part I. Financial Information
<S> <C>
Item 1. Financial Statements 3
Consolidated Balance Sheets--
September 30, 1996 and December 31, 1995
Consolidated Statements of Income-- 4
Nine months ended September 30, 1996 and 1995
Three months ended September 30, 1996 and 1995
Consolidated Statements of Stockholders Equity-- 5
Nine months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows-- 6
Nine months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 7 - 9
Supplemental Financial Data (Tables I - III) 10 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 15
Part II. Other Information: 16 - 19
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports of Form 8-K
</TABLE>
<PAGE>
Item 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
September 30, December 31,
ASSETS: 1996 1995
------------- ------------
<S> <C> <C>
Cash and due from bank $ 4,438 $ 4,580
Securities Available for Sale 27,325 24,793
(Amortized Cost $27,934 in 1996
and $24,730 in 1995)
Federal Funds Sold 1,402 4,679
Loans, Net of Unearned Income of 84,824 69,556
$438 in 1996, $421 in 1995 and
Allowance for Loan Losses of $1,048
in 1996 and $865 in 1995
Premises and equipment 4,342 3,308
Other assets 2,172 1,398
--------- ---------
TOTAL ASSETS $ 124,503 $ 108,314
========= =========
LIABILITIES:
Deposits
Demand $ 15,325 $ 14,334
Interest-bearing Demand 20,695 17,605
Savings 14,076 9,332
Large Denomination Certificates
of Deposit 8,992 8,798
Other Time 50,121 44,046
--------- ----------
TOTAL DEPOSITS 109,209 94,115
Short-term Debt 366 123
Long-term Debt 46 55
Other Liabilities 870 686
--------- ----------
TOTAL LIABILITIES 110,491 94,979
--------- ----------
SHAREHOLDERS' EQUITY:
Common stock, par value $5 per share,
10,000,000 shares authorized, 944,333
Shares Issued in 1996 and 1995 4,722 4,722
Surplus 6,700 6,700
Undivided Profits 2,992 1,872
Net Unrealized Gain (Loss) on
Available for Sale Securities (402) 41
--------- ----------
TOTAL STOCKHOLDERS' EQUITY 14,012 13,335
--------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 124,503 $ 108,314
========== ==========
</TABLE>
Notes to financial statements are an integral part of these statements.
<PAGE>
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30 September 30
1996 1995 1996 1995
---- ---- ---- ----
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans and Fees $ 2243 $ 1691 $ 6337 $ 4800
Federal Funds Sold 54 141 166 303
Securities Held for Sale 480 329 1259 778
------- ------- ------ -------
Total Interest Income 2777 2161 7762 5881
INTEREST EXPENSE:
Demand Deposits 191 129 494 388
Savings Deposits 96 79 262 222
Large Denomination Certificates
of Deposit 124 121 365 285
Other Time Deposits 709 634 2043 1551
Short-term Debt 2 3 6 6
Long-term Debt 1 1 2 3
------- ------- ------ ----------
Total Interest Expense 1123 967 3172 2455
------- ------- ------ -------
Net Interest Income 1654 1194 4590 3426
ADDITION TO ALLOWANCE FOR LOAN
AND LEASE LOSSES 81 74 239 213
------- ------- ------ --------
Net Interest Income After
Addition to Allowance for Loan
and Lease Losses 1573 1120 4351 3213
OTHER INCOME:
Service Chgs on Deposit Accts 111 106 326 282
Other Service Charges & Fees 37 23 103 72
------- ------- ------ ---------
Securities Gains (Losses) (6) (3) (3) (3)
------- ------- ------ ----------
Total Other Income 142 126 426 351
OTHER EXPENSES:
Salaries & Employee Benefits 533 517 1577 1333
Occupancy Expenses 38 38 104 86
Furniture & Equipment Expenses 145 99 405 252
Other Operating Expenses 349 337 948 945
------- ------- ------ -------
Total Other Expenses 1065 991 3034 2616
------- ------- ------ ------
Income Before Income Taxes 650 255 1743 948
Applicable Income Taxes 246 30 624 263
------- ------- ------ -------
Net Income $ 404 $ 225 $ 1119 $ 685
======= ======= ====== =======
NET INCOME PER SHARE .41 .26 1.15 .88
========= ========= ======== =========
</TABLE>
Notes to financial statements are an integral part of these statements.
<PAGE>
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Balance at Beginning of Year $ 13,335 $ 7,900
Net Income 1,119 685
Exercise of warrants 0 25
Sale of stock 0 2,529
Unrealized gain (loss) on securities available for sale (442) 180
----------- -----------
Balance at End of Period $ 14,012 $ 11,319
========= =========
</TABLE>
Notes to financial statements are an integral part of these statements.
<PAGE>
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 1,119 $ 685
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 195 154
Provision for loan losses 239 213
Loss on sale of investment securities 3 3
Changes in operating assets and liabilities:
(Increase) in other assets (774) (486)
Increase in other liabilities 540 159
----------- ------------
Net Cash Provided By Operating Activities $ 1,322 $ 728
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in loans ($ 15,506) ($ 9,350)
Purchase of investment securities (16,912) (10,874)
Proceeds from sales of investment securities 13,934 945
(Increase) decrease in federal funds sold - net 3,277 (968)
Purchase of premises and equipment 1,229) (710)
----------- -----------
Net Cash (Used In) Investing Activities ($16,436) ($20,957)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits - net $ 15,094 $ 19,099
Dividends paid (113) (101)
Proceeds from issuance of stock - net 0 2,530
Proceeds from exercise of warrants 0 24
Curtailment of other borrowed funds (9) (9)
----------- -----------
Net Cash Provided by Financing Activities $ 14,972 $ 21,543
----------- -----------
Net Increase (Decrease) In Cash and Due From Banks (142) 1,314
CASH AND DUE FROM BANKS - BEGINNING OF PERIOD 4,580 2,829
----------- -----------
CASH AND DUE FROM BANKS - END OF PERIOD $ 4,438 $ 4,143
=========== ===========
</TABLE>
Notes to financial statements are an integral part of these statements.
<PAGE>
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The consolidated statements include the accounts of Mid-Atlantic Community
BankGroup, Inc. and its affiliate, Peninsula Trust Bank. All significant
intercompany balances and transactions have been eliminated. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial positions as of
September 30, 1996 and December 31, 1995, and the results of operations
and cash flows for the nine months ended September 30, 1996 and 1995.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full
year.
2. Investment Securities
Amortized cost and carrying amount (estimated fair value) of securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
US Government Agencies and Corporations 17,420 18 454 16,984
Obligations of States and Political Subdivisions 6,086 14 117 5,983
Mortgage-backed Securities 4,085 10 80 4,015
Other Debt Securities 343 -- -- 343
---------- -------- -------- ---------
$ 27,934 $ 42 $ 651 $ 27,325
========== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
US Government Agencies and Corporations 12,967 63 16 13,014
Obligations of States & Political Subdivisions 5,860 39 66 5,833
Mortgage-backed Securities 5,613 47 3 5,657
Other Debt Securities 289 289
---------- ------- ------ ----------
$ 24,730 $ 150 $ 87 $ 24,793
========== ======= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
(In Thousands of Dollars)
<S> <C> <C>
Gross proceeds from sales of securities 13,934 945
========= ===========
Gross Gains on Sale of Securities 22 --
Gross Losses on Sale of Securities (25) (3)
------------ -------------
Net Securities Losses (3) (3)
============= =============
</TABLE>
<PAGE>
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Loans
The following is a summary of loans outstanding at the end of the periods
indicated:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(In Thousands of Dollars)
<S> <C> <C>
Commercial Mortgage 17,048 10,581
Residential Mortgage 23,151 21,608
Home Equity 8,860 7,742
Construction 6,520 6,806
Commercial 10,184 6,534
Installment 20,063 16,856
All Other 484 717
------- -------
86,310 70,844
Less Unearned Income 438 423
------- -------
85,872 70,421
Less Allowance for Loan and Lease Losses 1,048 865
-------- --------
$ 84,824 $ 69,556
========== ===========
</TABLE>
The following schedule summarizes the changes in the allowance for loan and
lease losses:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ending Ending
September 30, September 30, December 31,
1996 1995 1995
(In Thousands of Dollars)
<S> <C> <C> <C>
Balance, Beginning 865 712 712
Provision Charged Against Income 239 213 288
Recoveries 23 26 34
Loans Charged Off (79) (112) (169)
---------- -------- --------
Balance, Ending $ 1,048 $ 839 $ 865
========== ======== ========
</TABLE>
Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(In Thousands of Dollars)
<S> <C> <C>
Nonaccrual Loans $ 103 $ 137
Restructured Loans -- ---
------ -------
Nonperforming Loans 103 137
Foreclosed Properties --- ---
------ ------
Nonperforming Assets $ 103 $ 137
======== ========
</TABLE>
Total loans past due 90 days or more and still accruing were $171 on September
30, 1996 and $71 on December 31, 1995.
<PAGE>
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Short-term Debt
<TABLE>
<CAPTION>
Short-term debt consists of the following:
September 30, December 31,
1996 1995
(In Thousands of Dollars)
<S> <C> <C>
Treasury, Tax and Loan Note Option $ 366 $ 123
------- -------
Total Short-term Debt $ 366 $ 123
======= ========
</TABLE>
5. Earnings Per Share
Earnings per share are computed on the weighted average common shares
outstanding of 975,247 and 862,430 for the three months ended September 30, 1996
and 1995, respectively, and 974,791 and 782,344 for the nine months ended
September 30, 1996 and 1995, respectively.
6. Capital Requirements
A comparison of the Company's capital as of September 30, 1996 with the
minimum requirements is presented below:
<TABLE>
<CAPTION>
Minimum
Actual Requirements
<S> <C> <C>
Tier I Risk-based Capital 16.91 % 4.00 %
Total Risk-based Capital 18.13 % 8.00 %
Leverage Ratio 11.78 % 4.00 %
</TABLE>
7. Commitments and Contingent Liabilities
The Operations Center and fifth branch office of Peninsula Trust Bank is
currently under construction in Glenns, Virginia. As of September 30, 1996, the
outstanding balances on the building and vault contracts total $420,121.
<PAGE>
TABLE I
Consolidated Selected Financial Data
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996
Third Second First
Quarter Quarter Quarter
<S> <C> <C> <C>
Interest Income $ 2,778 $ 2,568 $ 2,416
Interest Expense 1,123 1,053 997
Net Interest Income 1,655 1,515 1,419
Provision for Loan Losses 81 81 77
Net Income 404 371 346
Per Share Data:
Net Income 0.41 0.38 0.35
Cash Dividends Paid -- -- 0.12
Total Average Stockholders' Equity 14,242 13,846 $ 13,491
Total Average Assets 122,642 114,384 $105,910
Ratios:
Average Stockholders' Equity
to Total Average Assets 11.61% 12.10% 12.74%
Return on Average Equity 11.35% 10.72% 10.26%
Return on Average Assets 1.32% 1.30% 1.31%
</TABLE>
<TABLE>
<CAPTION>
1995
Fourth Third Second First
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Interest Income $ 2,342 $ 2,160 $ 1,981 $ 1,739
Interest Expense 1,014 967 833 656
Net Interest Income 1,328 1,193 1,148 1,083
Provision for Loan Losses 75 74 72 68
Net Income 338 225 215 245
Per Share Data:
Net Income .39 .26 .27 .36
Cash Dividends Paid --- --- --- ---
Total Average Stockholders' Equity $ 11,531 $ 11,183 $ 8,465 $ 8,231
Total Average Assets $103,984 $ 98,643 $ 88,192 $ 77,586
Ratios:
Average Stockholders' Equity to
to Total Average Assets 11.09% 11.34% 9.60% 10.61%
Return on Average Equity 11.72% 8.05% 10.16% 11.91%
Return on Average Assets 1.30% .91% .98% 1.26%
</TABLE>
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES, STOCKHOLDERS' EQUITY, TABLE II
INTEREST RATES AND INTEREST DIFFERENTIAL
The following schedule presents the condensed consolidated average rates earned
and paid by Mid-Atlantic Community BankGroup, Inc. and its affiliate on a fully
taxable equivalent basis assuming a 34% tax rate for the nine months ended
September 30, 1996 and 1995. Nonaccruing loans are included in the total loans.
<TABLE>
<CAPTION>
1996 1995
----------------------------------- ---------------------------------
Average Interest Yield/ Average Interest Yield/
Balance And Fees(1) Rate Balance And Fees Rate
(In Thousands of Dollars) (In Thousands of Dollars)
Assets
Interest-earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans and Leases $ 78,868 $ 8,449 10.71% $ 59,600 $ 6,400 10.74%
US Govt. Agencies & Corp. 17,566 1,251 7.12% 11,853 767 6.47%
Other Securities 6,549 428 6.54% 4,179 272 6.51%
Federal Funds Sold 3,918 221 5.64% 6,995 404 5.78%
-------- ------- -------- ------- ------- --------
Total Interest-
earning Assets $106,901 $ 10,349 9.68% $ 82,627 $ 7,843 9.49%
Noninterest-earning Assets:
Cash & Noninterest-
bearing Deposits $ 3,715 $ 2,562
Other Assets 5,166 4,165
Less Allowance for
Loan and Lease Losses (954) (772)
Less Deferred Loan Fees (424) (364)
-------- ---------
Total Assets $114,404 $ 88,218
======== ========
Liabilities and Stockholders' Equity
Interest-bearing Liabilities:
Demand Deposits $ 18,149 $ 657 3.62% $ 16,366 $ 516 3.15%
Savings Deposits 12,874 349 2.71% 8,827 296 3.35%
Other Time Deposits 55,417 3,211 5.79% 42,725 2,448 5.73%
Short-term Borrowings 222 8 3.60% 196 8 4.08%
Long-term Debt 51 3 5.88% 62 3 4.84%
-------- -------- ------ -------- -------- ------
Total Interest-bearing
Liabilities $ 86,713 $ 4,228 4.88% $ 68,176 $ 3,271 4.80%
Noninterest-bearing Liabilities:
Demand Deposits $ 13,112 $ 9,662
Other Liabilities 718 1,076
Stockholders' Equity 13,861 9,304
-------- --------
Total Liabilities and
Stockholders' Equity $114,404 $ 88,218
======== ========
Net Interest Differential 4.80% 4.69%
Net Interest Earnings $ 6,121 $ 4,572
======== ========
Net Yield on Interest-earning
Assets 5.73% 5.53%
</TABLE>
(1) Interest and fees annualized.
<PAGE>
TABLE III
A summary of the increases and decreases of the items included in the
Consolidated Statements of Income are shown below:
<TABLE>
<CAPTION>
Net Increases (Decreases)
Nine Months Ended
September 30,
1996 and 1995
(In Thousands of Dollars)
INTEREST INCOME: Amount Percent
<S> <C> <C>
Loans and Fees $ 1,537 32.02%
Federal Funds Sold (137) 45.21%
Securities Held for Sale 481 61.83%
----------- --------
Total Interest Income $ 1,881 31.98%
=========== ========
INTEREST EXPENSE:
Demand Deposits $ 106 27.32%
Savings Deposits 40 18.02%
Large Denomination Certificates of Deposit 80 28.07%
Other Time Deposits 492 31.72%
Short-term Debt 0 0.00%
Long-term Debt (1) -33.33%
----------- --------
Total Interest Expense $ 717 29.21%
----------- --------
Net Interest Income $ 1,164 33.98%
----------- --------
ADDITION TO ALLOWANCE FOR LOAN
AND LEASE LOSSES $ 26 12.21%
----------- --------
Net Interest Income After Addition to Allowance
for Loan and Lease Losses $ 1,138 35.42%
----------- --------
OTHER INCOME:
Service Charges on Deposit Accounts $ 44 15.60%
Other Service Charges and Fees 31 43.06%
Securities Gains (Losses) 0 0.00%
----------- --------
Total Other Income $ 75 21.37%
----------- --------
OTHER EXPENSES:
Salaries and Employee Benefits $ 244 18.30%
Occupancy 18 20.93%
Furniture and Equipment 153 60.71%
Other Operating 3 0.32%
----------- --------
Total Other Expense $ 418 15.98%
----------- --------
Income Before Income Taxes $ 795 83.68%
Applicable Income Taxes 361 137.26%
----------- --------
Net Income $ 434 63.36%
=========== ========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis
PENINSULA TRUST BANK
Results of Operation
The share exchange between Mid-Atlantic Community BankGroup, Inc. (MABG) and
Peninsula Trust Bank (the Bank) became effective August 15, 1996. The results of
operations, although consolidated, are representative of the Bank's performance
as financial operations in the parent company are insignificant at this point.
Asset growth slowed during the third quarter 1996 after brisk expansion in the
previous quarter. Total assets increased $4.9 million or 4.1% for the quarter
ended September 30, 1996. The growth was funded primarily through $3.8 million
in new consumer time deposits. Competition for these deposits intensified in the
current quarter due to the opening of a new bank in the Bank's primary trade
area. Additionally, two other competitor banks in the trade area launched
premium rate promotional CDs during the quarter associated with name changes and
branch openings in the respective organizations. Management does not consider
the factors to have a long-term negative effect on the Bank's competitive
position in its market.
Loan demand remained steady as reflected by the $4.6 million increase in net
total loans for third quarter 1996. The portfolio has grown $15.3 million (22%)
since December 31, 1995.
Other shifts in balance sheet composition included a $2.5 million reduction in
correspondent bank balances, a $1.5 million reduction in overnight Federal funds
sales and a $3.2 million expansion of the investment portfolio. Management
evaluated the purchasing decisions in the investment portfolio over the previous
twelve months. From September 30, 1995 to September 30, 1996 the coupon interest
yield was improved by 47 basis points from 6.9% to 7.37%. This was accomplished
primarily through the purchase of U.S. Government agency issues with 10 to 15
year maturities and 3 to 6 month "call" features.
These instruments performed well relative to interest income, but have
demonstrated more volatility in market value positions than management desires.
Therefore, a directional change in future purchases will result in a focus on
single maturity, "bullet" type bonds. Some callable bonds may be purchased if
the non-call feature is at least 2 to 3 years. As opportunities allow,
management will attempt to sell those bonds with the greatest degree of market
price volatility. This may result in lowered overall interest yield, but
improved market value stability and improved total return. The Bank continues to
classify the entire investment account as "Available For Sale". The portfolio
was comprised of 76.7% U S Government Agencies, 21.6% State, County, and
Municipal governments, and 1.7% other bank-qualified Private label CMOs and
Federal Reserve Bank stock.
Asset quality continues to be strong, evidenced by a decline in the current
quarter of more than $0.5 million in total loans past due 30 days or more to a
level of slightly under $2 million at September 30, 1996, or 2.29% of total
outstanding loans. Included in the 30 day total are loans of $170,500 that are
90 days delinquent and still accruing interest. These are deemed to be
adequately collateralized and protected from loss.
Nonperforming assets totaled $103,000 at the end of the current quarter. This
compares favorably to the $309,000 at June 30, 1996, and represented a modest
0.12% of total loans and a manageable 9.9% of the allowance for loan losses.
The "Allowance for Loan Losses", as a percentage of net total loans, remained
constant from June 30, 1996 to September 30, 1996 at 1.2%. The monthly expense
accrual of $27,000 has been adequate during the third quarter 1996 to expand the
Allowance commensurate with growth of the loan portfolio. The current level of
the Allowance is considered adequate to absorb
<PAGE>
potential problem credits. Management intends to preserve the Allowance at a
minimum of 1.2% of net total loans for the foreseeable future.
Deposits represent 98.8% of total liabilities of the Bank, including
non-interest bearing checking accounts which represent 14.0% of total deposits.
There continues to be no brokered deposits. The Bank has accepted some
unsolicited institutional deposits (credit unions) in the form of CDs less than
$100,000 with original maturities ranging from 12 to 36 months. Total deposits
of this type are less than $695,000 and are monitored by Management monthly.
Management, in fact, is consciously reducing the level of these funds as each CD
matures.
Earnings
The Bank continued to enjoy robust earnings performance with current quarter net
after tax income of $404,000, a $179,000 (79.6%) increase over the third quarter
1995. Year-to-date 1996 net income reached $1,119,000, a $434,000 (63.4%)
increase over the first three quarters of 1995.
Net interest income of $4,590,000 for the nine months ended 9-30-96 represented
a $1,165,000 increase (34.0%) over the same period in 1995. As a percentage of
average earning assets, the annualized 1996 figure of 5.73% compared favorably
to the 5.53% annualized figure through 9-30-95. The Bank has enjoyed upward
repricing on a portion of its mortgages which are structured as three year
balloons. The average repricing has approximated 100 basis points above the
origination rate in these mortgages. However, by far the largest contributor to
the improving net interest margin has been the investment account. In this area,
U.S. Government Agency holdings have seen an increase in average balances from
$11.9 million through 9-30-95 to $17.6 million through 9-30-96, and average
yield has improved from 6.47% to 7.12% over the same period.
Total non-interest income for the nine months ended 9-30-96 was $426,000
compared with $351,000 for the corresponding period in 1995. Non-interest
expense of $3,034,000, increased $418,000 (16.0%) over 9-30-95.
Capital and Liquidity
Equity capital at 9-30-96 totaled $14.0 million, representing 11.25% of total
assets. This level of capital should be adequate to support growth in operations
to an asset level in excess of $150 million without additional external
injections.
Liquidity is provided through several sources. The most readily convertible to
cash is "Federal funds sold," or the overnight sale of excess reserves to other
banks. Sales of Fed funds averaged $3.9 million for the nine months ended
9-30-96, or 12.5% of total deposits. The Bank also maintains confirmed lines of
credit with its primary correspondent banks to purchase Federal funds in amounts
up to $5.4 million. Additional liquidity exists within the investment account
where $1,875,000 either matures or has "call" dates with projected "call"
exercises within the next 90 days. The Bank's ability to satisfy credit demands,
routine deposit withdrawals, and other corporate needs is considered adequate.
Management is not aware of any known trends, demands, events, commitments, or
uncertainties that either will result or reasonably might result in a material
decrease in liquidity.
Future Plans
Construction of the Bank's Operations Center and fifth branch office, located at
the intersection of U.S. Routes 17 and 33, Glenns, Gloucester County, is
underway and slated for completion in January 1997. The total estimated cost of
the project is $1.0 million. The Bank's growth necessitates the expansion of the
support services, such as bookkeeping, data processing,
<PAGE>
personnel and accounting, which will move from the Main Office in Gloucester to
the operations center in Glenns.
The Bank closed on a contract to purchase a 75,794 square foot parcel located at
737 J. Clyde Morris Boulevard, Newport News for $610,000 on September 10, 1996.
The Bank plans to delay construction of a permanent branch office building at
this location until the second half of 1997. Upon approval from the appropriate
regulatory authorities, the Bank expects to occupy the building prior to the
expiration of the lease of the current site at 832 Newport Square Shopping
Center, Newport News in October 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
11 Statement re: computation of per share earnings
b) Form 8-K - None
<PAGE>
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.
MID-ATLANTIC COMMUNITY BANKGROUP, INC.
Date: November 8, 1996 BY /s/ W. J. Farinholt
---------------------------
W. J. Farinholt, President & CEO
Date: November 8, 1996 BY /s/ Kenneth E. Smith
----------------------------
Kenneth E. Smith, Exec. Vice President
& Chief Financial Officer
Date: November 8, 1996 BY /s/ Kathleen C. Healy
-----------------------------
Kathleen C. Healy, Vice President &
Chief Accounting Officer
MID-ATLANTIC COMMUNITY BANKGROUP, INC.
Exhibit (11)--Statement re: computation of per share earnings
<TABLE>
<CAPTION>
3 Months Ended September 30,
1996 1995
PRIMARY
<S> <C> <C>
Average shares outstanding 944,333 825,073
Net effect of dilutive stock
options--based on the treasury
stock method using average
market price 30,914 37,357
----------- -----------
TOTAL 975,247 862,430
=========== ===========
Net Income $ 403,625 $ 225,000
=========== ===========
Per Share Amount $ 0.41 $ 0.26
=========== ===========
FULLY DILUTED
Average shares outstanding 944,333 825,073
Net effect of dilutive stock
options--based on the treasury
stock method using the year
end market price, if higher
than average market price 33,064 39,151
----------- -----------
TOTAL 977,397 864,224
=========== ===========
Net Income $ 403,625 $ 225,000
=========== ==========
Per Share Amount $ 0.41 $ 0.26
=========== ==========
</TABLE>
<PAGE>
MID-ATLANTIC COMMUNITY BANKGROUP, INC.
Exhibit (11)--Statement re: computation of per share earnings
<TABLE>
<CAPTION>
9 Months Ended September 30,
1996 1995
PRIMARY
<S> <C> <C>
Average shares outstanding 944,333 749,662
Net effect of dilutive stock
options--based on the treasury
stock method using average
market price 30,458 32,682
------------ ------------
TOTAL 974,791 782,344
============ ============
Net Income $1,119,085 $ 685,112
============ ============
Per Share Amount $ 1.15 $ 0.88
============ ============
FULLY DILUTED
Average shares outstanding 944,333 749,662
Net effect of dilutive stock
options--based on the treasury
stock method using the year
end market price, if higher
than average market price 33,064 39,151
------------ -----------
TOTAL 977,397 788,813
============ ===========
Net Income $ 1,119,085 $ 685,112
============ ===========
Per Share Amount $ 1.14 $ 0.87
============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,438
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,402
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,325
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 86,310
<ALLOWANCE> 1,048
<TOTAL-ASSETS> 124,503
<DEPOSITS> 109,209
<SHORT-TERM> 366
<LIABILITIES-OTHER> 870
<LONG-TERM> 46
0
0
<COMMON> 4,722
<OTHER-SE> 9,290
<TOTAL-LIABILITIES-AND-EQUITY> 14,012
<INTEREST-LOAN> 6,337
<INTEREST-INVEST> 1,259
<INTEREST-OTHER> 166
<INTEREST-TOTAL> 7,762
<INTEREST-DEPOSIT> 3,164
<INTEREST-EXPENSE> 3,172
<INTEREST-INCOME-NET> 4,590
<LOAN-LOSSES> 239
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 3034
<INCOME-PRETAX> 1743
<INCOME-PRE-EXTRAORDINARY> 1743
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1119
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 5.73
<LOANS-NON> 103
<LOANS-PAST> 171
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 979
<CHARGE-OFFS> 21
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 1,048
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,048
</TABLE>
