UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-8622 For the Period Ended June 30, 1996
MAINSTREET BANKGROUP INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1046817
-------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
P. O. Box 4831 Martinsville, Virginia 24115
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(540) 666-6724
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
-----
Former Name, Former Address, and Formal Fiscal Year, if Changed Since Last
Report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
- -
Indicate the number of shares outstanding at each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 31, 1996
----- ----------------------------
COMMON STOCK $5.00 PAR VALUE 8,587,245
---------------------------- ---------
MAINSTREET BANKGROUP INCORPORATED
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1996 and
December 31, 1995
Consolidated Statements of Income -- Three Months and
Six Months Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flow -- Six Months
Ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
<TABLE>
MAINSTREET BANKGROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(IN 000's EXCEPT SHARE DATA)
<CAPTION>
<S> <C> <C>
JUNE 30 DECEMBER 31
ASSETS 1996 1995
---- ----
Cash and Due From Banks $ 26,319 $ 25,680
Interest-Earning Deposits in Domestic Banks 506 875
Federal Funds Sold 1,735 ---
Mortgage Loans Held for Sale 1,329 1,780
Securities Available for Sale (Approximate Cost
of $207,587 in June, 1996, and $183,904 in
December, 1995) 203,404 184,169
Securities Held to Maturity (Approximate Market
Values of $94,371 in June, 1996 and $102,484
in December, 1995)
Taxable 57,451 61,184
Nontaxable 36,194 36,808
-------- --------
93,645 97,992
Loans, Net of Unearned Income 621,719 565,784
Less: Allowance for Loan Losses ( 8,680) ( 8,076)
-------- --------
Loans, Net 613,039 557,708
Bank Premises and Equipment, Net 10,563 10,767
Other Real Estate Owned 823 1,583
Other Assets 16,303 15,247
-------- --------
TOTAL ASSETS $967,666 $895,801
======== ========
LIABILITIES
Deposits:
Demand Deposits (Noninterest-Bearing) $ 96,371 $ 95,664
Interest Checking Accounts 70,979 76,802
Savings Deposits 109,977 115,202
Money Market Investment Accounts 53,540 55,015
Time Deposits
Certificates of Deposit $100,000 and Over 75,088 68,434
Other 307,402 289,396
-------- --------
TOTAL DEPOSITS 713,357 700,513
Short -Term Debt 95,323 111,736
FHLB Advances, Callable 2/97 45,000 ---
Other Long-Term FHLB Advances 25,857 929
Accrued Interest Payable 3,210 2,674
Other Liabilities 6,635 4,232
-------- --------
TOTAL LIABILITIES 889,382 820,084
-------- --------
SHAREHOLDERS' EQUITY
Preferred Stock, (Par Value $5 Per Share,
Authorized 1,000,000 Shares; None
Outstanding) --- ---
Common Stock, (Par Value $5 Per Share,
Authorized 20,000,000 Shares; Issued and
Outstanding 8,587,245 Shares in June,
1996 and 8,535,072 in December, 1995) 42,936 42,675
Capital in Excess of Par 12,325 11,740
Retained Earnings 26,874 22,364
Unearned Compensation ( 405) ---
Unrealized Gains (Losses) on Securities Net ( 3,446) ( 1,062)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 78,284 75,717
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $967,666 $895,801
======== ========
</TABLE>
<TABLE>
MAINSTREET BANKGROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN 000's) UNAUDITED
<CAPTION>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -----------------
JUNE 30 JUNE 30 JUNE 30 JUNE 30
INTEREST INCOME 1996 1995 1996 1995
---- ---- ---- ----
Interest and Fees on Loans:
Taxable $14,251 $12,438 $27,957 $24,242
Nontaxable 22 45 52 91
Interest on Mortgage Loans
Held for Sale 40 29 98 48
Interest and Dividends on
Securities Available for
Sale 3,100 2,182 5,798 4,186
Interest and Dividends on
Securities Held to
Maturity
Taxable 1,095 1,468 2,259 2,947
Nontaxable 489 536 992 1,092
Other Interest Income 69 27 160 41
------- ------- ------- -------
Total Interest Income 19,066 16,725 37,316 32,647
INTEREST EXPENSE
Deposits 6,860 7,068 13,696 13,578
Short-Term Borrowings 940 424 1,938 701
Long-Term Debt 900 --- 1,336 ---
7% Convertible Subordinated
Debenture --- 156 --- 312
------- ------- ------- -------
Total Interest Expense 8,700 7,648 16,970 14,591
------- ------- ------- -------
Net Interest Income 10,366 9,077 20,346 18,056
Provisions for Loan Losses 510 329 1,332 657
------- ------- ------- -------
Net Interest Income
After Provision for Loan
Losses 9,856 8,748 19,014 17,399
NONINTEREST INCOME
Service Charges, Fees and
Other 1,548 1,546 3,383 2,751
Trust Department Income 706 535 1,431 1,030
Securities Gains (Losses),
Net 421 12 639 19
------- ------- ------- -------
2,675 2,093 5,453 3,800
NONINTEREST EXPENSE
Salaries 2,971 2,859 5,882 5,801
Employee Benefits 1,125 1,261 2,306 2,286
Net Occupancy Expense 337 312 676 652
Equipment 829 763 1,688 1,508
FDIC Assessment 5 422 6 851
Stationery and Supplies 187 174 393 371
Advertising 181 113 320 228
Other 1,879 1,472 3,678 2,994
------- ------- ------- -------
7,514 7,376 14,949 14,691
------- ------- ------- -------
Income Before Income Taxes 5,017 3,465 9,518 6,508
Income Tax Expense 1,603 1,011 2,940 1,879
------- ------- ------- -------
NET INCOME $ 3,414 $ 2,454 $ 6,578 $ 4,629
======= ======= ======= =======
Per Share
Primary:
NET INCOME $ .40 $ .32 $ .77 $ .61
======= ======= ======= =======
Dividends Per Share $ .115 $ .10 $ .23 $ .19
======= ======= ======= =======
Average Shares Outstanding 8,605 7,592 8,598 7,580
======= ======= ======= =======
Fully Diluted:
NET INCOME $ .40 $ .30 $ .77 $ .57
======= ======= ======= =======
Average Shares Outstanding 8,605 8,550 8,598 8,546
======= ======= ======= =======
</TABLE>
<TABLE>
MAINSTREET BANKGROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN 000's)
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30 JUNE 30
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
---- ----
Net Income $ 6,578 $ 4,629
Adjustments to Reconcile Net Income to
Net Cash Provided (Used)by Operating
Activities:
Provision for Loan Losses 1,332 657
Depreciation and Amortization 1,060 964
Amortization of Securities Premiums
and Discounts, Net (72) (155)
Provision for Deferred Income Taxes (21) 47
Unearned Compensation 82 ---
Gain on Sale of Securities, Net (639) (19)
Amortization of Intangibles 115 134
Mortgage Loan Originations Held
for Sale (7,114) (2,895)
Mortgage Loans Sold 7,565 2,621
Changes in Other Assets and Other
Liabilities:
Other Assets 159 3,882
Accrued Interest 536 480
Accrued Loss Contingencies --- (1,341)
Other Liabilities 2,403 895
------ -------
Net Cash Provided by Operating
Activities: 11,984 9,899
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Federal Funds Sold (1,735) (5,220)
(Increase) Decrease in Interest-Earning Deposits 369 (806)
Purchases of Securities Available for Sale (94,814) (37,783)
Purchases of Securities Held to Maturity (13,502) (79)
Proceeds from Sale of Securities Available
for Sale 55,097 5,029
Proceeds from Calls and Maturities of Securities
Available for Sale 16,596 2,907
Proceeds from Calls and Maturities of Securities
Held to Maturity 18,753 5,020
Net Increase in Loans (56,663) (30,431)
Purchases of Bank Premises and Equipmen (856) (662)
Net Decrease in Other Real Estate Owned 760 431
------- -------
Net Cash Used in Investing Activities (75,995) (61,594)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 12,844 5,444
Net Increase (Decrease) in Short-Term Debt (16,413) 47,244
Net Increase in FHLB Advances, Callable 2/97 45,000 ---
Net Increase in Other Long-Term FHLB Advances 24,928 1,000
Cash Dividends (1,973) (1,396)
Proceeds from Issuance of Common Stock 264 261
------- -------
Net Cash Provided by Financing Activities 64,650 52,553
------- -------
Net Increase in Cash and Due From Banks 639 858
Cash and Due From Banks at Beginning of Period 25,680 24,680
------- -------
Cash and Due From Banks at End of Per $ 26,319 $ 25,538
======= =======
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of MainStreet BankGroup Incorporated
and its subsidiaries conform to generally accepted accounting principles and to
general banking industry practices. The interim period consolidated financial
statements are unaudited; however, in the opinion of management, all adjustments
of a normal and recurring nature which are necessary for a fair presentation of
the consolidated financial statements herein have been included. The financial
statements herein should be read in conjunction with the notes to financial
statements included in the corporation's 1995 Form 10-K to the SEC.
2. Cash Equivalents
----------------
For purposes of the Statements of Cash Flow, BankGroup considers all Cash and
Due From Bank Accounts to be cash equivalents.
3. Securities Available for Sale
-----------------------------
The following sets forth the composition of securities available for sale, which
are carried at approximate market value at June 30, 1996:
<TABLE>
Gross Gross Approx.
Carrying Unrealized Unrealized Market
Value Gains Losses Value
----- ----- ------ -----
<S> <C> <C> <C> <C>
Obligations of U.S.
Government Agencies $ 30,072 $ 12 $ (968) $ 29,116
Mortgage-Backed Securities 57,865 134 (940) 57,059
Collateralized Mortgage
Obligations and REMICs 100,900 93 (2,738) 98,255
Corporate Bonds 9,762 276 (161) 9,877
Other Securities 8,612 114 --- 8,726
Obligations of States and
Political Subdivisions 376 --- (5) 371
-------- ------- -------- -----
Total Securities
Available for Sale $207,587 $ 629 $ (4,812) $203,404
======== ======= ======== ========
</TABLE>
At June 30, 1996 net unrealized losses of $2.7 million, net of tax, are
reflected in shareholders' equity.
Proceeds from sales and calls of securities available for sale year to date were
$59.6 million. Gross gains and losses of $722,000 and $130,000, respectively,
were realized on these transactions.
4. Securities Held to Maturity
---------------------------
The carrying and approximate market values and gross unrealized gains and losses
of securities held to maturity are as follows at June 30, 1996:
<TABLE>
Gross Gross Approx.
Carrying Unrealized Unrealized Market
Value Gains Losses Value
----- ----- ------ -----
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 4,959 $ 47 $ --- $ 5,006
Obligations of U.S.
Government Agencies 19,721 766 --- 20,487
Mortgage-Backed Securities 29,800 --- (402) 29,398
Obligations of State and
Political Subdivisions 39,165 695 (380) 39,480
-------- ------- -------- -------
Total Securities Held to Maturity $ 93,645 $ 1,508 $ (782) $ 94,371
======== ======= ======== ========
</TABLE>
At December 31, 1994, BankGroup transferred securities available for sale with
an approximate market value of $72.5 million and a carrying value of $76.5
million to securities held to maturity. The unrealized loss of approximately
$4,038,000 included as a separate component of shareholders' equity, is being
amortized over the remaining life of the securities. This separate component of
shareholders' equity at June 30, 1996 net of the related tax effect, was $.7
million.
Proceeds from calls of securities held to maturity year to date were $14.3
million. Gross gains and losses of $60,000 and $13,000, respectively, were
realized on these on these transactions.
5. Loan Portfolio
--------------
Major classifications of loans at June 30, 1996 and December 31, 1995 are
summarized below:
<TABLE>
(In 000's)
June 1996 December 1995
--------- -------------
<S> <C> <C>
Commercial $292,707 $264,924
Real Estate 149,645 135,830
Consumer 191,591 176,110
-------- --------
Total Loans 633,943 576,864
Less: Unearned Income and
Deferred Fees (12,224) (11,080)
-------- --------
Loans, Net of Unearned Income
and Deferred Fees 621,719 565,784
Less: Allowance for Loan Losses (8,680) (8,076)
-------- --------
Loans, Net $613,039 $557,708
======== ========
</TABLE>
Interest on loans is computed by methods which generally result in level rates
of return on principal amounts outstanding. Loans are placed on nonaccrual
status when it becomes probable that the borrower will have difficulty meeting
either interest or principal payments and the loan is not in the process of
collection and is not well collateralized. For loans placed on nonaccrual, all
interest accrued in the current fiscal year is reversed against income while
prior year accrued interest is charged against the allowance for loan losses.
For payments on nonaccrual loans and impaired loans, amounts are applied first
as a recovery of principal and then as interest under the cost recovery method.
BankGroup considers a loan to be impaired when, based upon current information
and events, it believes it is probable that BankGroup will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
BankGroup's impaired loans within the scope of SFAS 114 include nonaccrual loans
(excluding those collectively reviewed for impairment), troubled debt
restructurings, and certain other nonperforming loans. For collateral dependent
loans, BankGroup bases the measurement of these impaired loans on the fair value
of the loan's collateral properties. For all other loans, BankGroup bases the
measurement of these impaired loans on the more readily determinable of the
present value of expected future cash flows discounted at the loan's effective
interest rate or the observable market price. Impairment losses are recognized
through an increase in the allowance for loan losses and a corresponding charge
to the provision for loan losses. Adjustments to impairment losses due to
changes in the fair value of impaired loans' collateral properties are included
in the provision for loan losses. When an impaired loan is either sold,
transferred to other real estate owned or written down, any related valuation
allowance is charged off against the allowance for loan losses.
An allowance for loan losses is maintained in order to provide for losses in
collection of loans that can be currently estimated. The level of the allowance
for loan losses is based upon the quality of the loan portfolios as determined
by management after consideration of historical loan loss experience,
diversification as to the type of loans in the portfolios, the amount of
collateralized as compared to uncollateralized loans, banking industry standards
and averages, and general economic conditions. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
consolidated balance sheet and income and expense for the period. Actual
results could differ significantly from these estimates. In connection with the
determination of the allowance for loan losses and the valuation of real estate
owned, management obtains independent appraisals for significant properties.
Management believes that the allowance for loan losses and the valuation of real
estate owned are adequate. While management uses available information to
recognize losses on loans and real estate owned, future additions to the
allowance for loan losses and additional write-downs in the valuation of real
estate owned may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review BankGroup's allowance for loan losses and valuation
of real estate owned. The following table shows the changes in the allowance
for loan losses arising from loans charged off and recoveries on loans
previously charged off by loan category; and additions to the allowance which
have been charged to operating expenses:
<TABLE>
June 30 June 30
1996 1995
---- ----
<S> <C> <C>
(In 000's)
Balance at December 31, 1995 and
December 31, 1994 $ 8,076 $ 8,191
Charge-offs:
Commercial, Financial and Agricultural 569 538
Real Estate - Mortgage 19 31
Installment 719 313
-------- --------
$ 1,307 $ 882
Recoveries:
Commercial, Financial and Agricultural 409 59
Real Estate - Mortgage 1 3
Installment 169 96
-------- --------
579 158
Net Charge-offs 728 724
Provision for Loan Losses 1,332 657
-------- --------
Balance at June 30, 1996 and 1995 $ 8,680 $ 8,124
======== ========
</TABLE>
Nonaccrual loans and loans 90-days past due or more as to interest or principal
payments are considered by BankGroup to be nonperforming loans. Nonperforming
loans were .53% of loans, net of unearned income at June 30, 1996.
The following table present aggregate loan amounts for nonaccrual and 90-day due
loans as of June 30, 1996 and 1995:
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Nonaccrual Loans $ 2,213 $ 4,187
Loans Past Due 90 Days or More 1,106 1,026
-------- --------
Total Nonperforming Loans 3,319 5,213
-------- --------
Other Real Estate Owned 823 2,021
Other Repossessed Assets 60 111
-------- --------
Total Foreclosed/Repossessed Assets 883 2,132
-------- --------
Total Nonperforming Loans and
Foreclosed/Repossessed Assets $ 4,202 $ 7,345
======== ========
</TABLE>
The effect of nonaccrual loans on interest income for the six months ended June
30, 1996 and 1995 was as follows:
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Gross Amount of Interest That Would Have
Been Recorded at Original Rate $ 124 $ 191
Interest That Was Reflected in Income 15 8
-------- --------
Net Impact on Interest Income $ 109 $ 183
======== ========
</TABLE>
At June 30, 1996, the recorded investment in loans which have been identified by
BankGroup as impaired loans in accordance with Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of A Loan",
totaled $2.3 million. The total allowance for loan losses related to such loans
was $.3 million.
6. Contingencies and Other Matters
-------------------------------
BankGroup and its subsidiaries, in the normal course of business, are involved
in various legal actions and proceedings. It is the opinion of management that
any liabilities arising from these matters and not covered by insurance, would
not have a material effect on BankGroup's financial position.
7. Accounting for Stock Based Compensation
---------------------------------------
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation. As permitted by
SFAS 123, the Company has chosen to apply APB Opinion 25 and related
Interpretations in accounting for its stock based compensation plans.
Accordingly, no compensation cost has been recognized for its fixed stock plans.
Compensation cost for the Company's stock based compensation plans based on the
fair value at the grant dates for awards under those plans consistent with the
method of SFAS 123 was determined to be immaterial on an income or per share
disclosure basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
- ------ ----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
OVERVIEW
- --------
MainStreet BankGroup Incorporated reported year-to-date earnings at June 30,
1996 of $6.6 million which was an increase of $42.1% over year-to-date earnings
at June 30, 1995 of $4.6 million. The 1996 and 1995 incomes equated to $.77 and
$.57 per fully diluted share, respectively. The 1996 year-to-date income
produced a return on assets and a return on equity of 1.44% and 16.73%,
respectively. The return on assets and return on equity for year-to-date 1995
was 1.16% and 16.56%, respectively.
Net income for the three months ended June 30, 1996 was $3.4 million compared to
$2.5 million at June 30, 1995, an increase of 39.1%. These second quarter
earnings for 1996 produced a return on assets of 1.46% and a return on equity of
17.28%. The return on assets and the return on equity for the same period in
1995 were 1.21% and 16.75%, respectively.
NET INTEREST INCOME
- -------------------
Net interest income at June 30, 1996 was $20.3 million, an increase of 12.7%
over the $18.1 million at June 30, 1995. The increase in net interest income
was principally due to rising loan demand. Average loans, net of unearned
income, increased $ 78.9 million, or 15.53%, over the same period a year ago.
Average investment volume also increased $33.9 million, or 13.72% over 1995.
The net interest margin was 4.78% for 1996 compared to 4.96% in 1995. This
decline in the margin was due to rates on interest-earning assets dropping
faster than on interest-bearing deposits coupled with the shift in deposit
accounts from savings and money market accounts into time deposits.
Net interest income for the three months ended June 30, 1996 was $10.4 million
compared to $9.1 million for the second quarter of 1995, producing an increase
of 14.2%. The net interest margin for the second quarter of 1996 and 1995 was
4.74% and 4.87%, respectively. Average interest-earning assets for the three
months ended June 30, 1996 compared to June 30, 1995 grew $127.5 million, or
16.57%.
PROVISION FOR LOAN LOSSES
- -------------------------
The addition to the provision for loan losses year-to-date June 30, 1996 was
$1.3 million compared to $.7 million for the same period in 1995. This increase
was mainly due to increased loan volumes over the past year. This expense for
the second quarter of 1996 was $.5 million compared to $.3 million in the second
quarter of 1995.
NONINTEREST INCOME
- ------------------
Total noninterest income, excluding securities gains, at June 30, 1996 increased
$1.0 million, or 27.32%, over noninterest income at June 30, 1995. Trust income
was $1.4 million in 1996, an increase of 38.93% over the $1.0 million in 1995.
Service charges, fees, and other income was $3.4 million in 1996 compared to
$2.8 million in 1995, an increase of 23.0%. This was mainly due to a gain on
sale of other real estate in 1996 of $373 thousand compared to a loss in 1995 of
$66 thousand.
Noninterest income, excluding securities gains, for the three months ended June
30, 1996 was $2.3 million, an increase $.2 million, or 8.3%, over the three
months ended June 30, 1995. This increase was primarily due to an increase in
trust department income.
SECURITIES GAINS
- ----------------
Securities gains were $639 thousand at the end of the second quarter of 1996
compared to $19 thousand at the end of the second quarter of 1995. For the
three months ended June 30, 1996, gains on securities were $421 thousand which
was $409 thousand greater than the $12 thousand gain on securities for the three
months ended June 30, 1995.
NONINTEREST EXPENSE
- -------------------
Total noninterest expense at June 30, 1996 was $14.9 million, up slightly from
the $14.7 million at June 30, 1995. The significant deviation was the decrease
in FDIC expense from $851 thousand to the minimum statutory requirement of $6
thousand. Offsetting this decline was an increase in other noninterest expenses
of $.8 million mainly due to new marketing initiatives and professional fees
associated with the new defined benefit plan, insurance plans, and the planning
for the nonbank subsidiary of MainStreet Trust Corporation, and planning for the
acquisitions of the First National Bank of Clifton Forge and Hanover Bank.
Total noninterest expense for the three months ended June 30, 1996 was $7.5
million, stable with $7.4 million at the end of the second quarter of June,
1995. The same shifts were present in the second quarter as in the year-to-date
numbers. FDIC expense dropped $.4 million offset by an increase in other
noninterest expense.
FINANCIAL CONDITION
- -------------------
Total assets at June 30, 1996 were $967.7 million, up $110.1 million, or 12.84%,
from June 30, 1995. Period end assets increased $71.9 million, or 8.02% from
December 31, 1995.
After the second quarter of 1995, the Company invested in collateralized
mortgage obligations (CMO's) funded by repurchase agreements. Also, Federal
Home Loan Bank (FHLB) borrowings were utilized to fund loan growth. Securities
available for sale, at period June 30, 1996 increased $46.7 million, or 29.81%
over June 30, 1995 dollars. Securities held to maturity declined to $93.6
million, or 20.17% in comparison to June 30, 1995. Also, in the fourth quarter
of 1995, $15.8 million in securities were transferred from held to maturity to
the available for sale portfolio in a one time opportunity given by the
Financial Accounting Standards Board (FASB). Loans, net of unearned income,
rose $92.3 million, or17.43%, over June 30, 1995 volumes.
Federal funds sold increased $1.7 million from December 31, 1995, securities
available for sale decreased $19.2 million and securities held to maturity
declined $4.3 million from year end 1995. Loans, net of unearned income
increased $55.9 million principally funded by an increase in advances from FHLB.
Other real estate owned was $.8 million at June 30, 1996, representing a decline
of $1.2 million and $.8 million from June 30, 1995 and December 31, 1995,
respectively.
In comparison to June 30, 1995 dollars, deposits increased $3.3 million, or .47%
at June 30, 1996. The shift in deposits, however, was the trend, as rates
declined, from interest checking, savings, and money market accounts into time
deposits. Demand deposits at June 30, 1996 decreased $10.6 million, or 9.91%,
over period end assets at June 30, 1995.
At June 30, 1996, deposits were $713.4 million, an increase of $12.8 million, or
1.83%, over December 31, 1995 deposits. The primary increase was in time
deposits at $24.7 million caused by the increased volume and the shift from
interest checking, savings, and money market accounts.
At June 30, 1996 other borrowings were $166.2 million which consisted of $10.6
million in overnight corporate cash management accounts; $9.9 million in TT&L
notes; $23.2 million in federal funds purchased; $24.2 million in repurchase
agreements; $27.4 million in short-term FHLB borrowings; and $70.9 million in
long-term FHLB borrowings. As previously mentioned the FHLB borrowings were
utilized for the most part to fund loan growth and to aid in leveraging the
balance sheet through the purchase of CMO's. Of the long-term FHLB borrowings,
$45 million were for a period of three years but callable in February, 1997. At
June 30, 1995, other borrowings consisted of $15.0 million in corporate cash
management accounts; $7.0 million in FHLB borrowings; $39.5 million in
repurchase agreements; and $10.0 million in TT&L notes. Other borrowings at
June 30, 1996 increased $53.5 million, or 47.50%, over December 31, 1995
borrowings. At December 31, 1995 other borrowings consisted of $31.3 in federal
funds purchased; $10.8 in corporate cash management accounts; $.2 million in
TT&L notes; $37.1 million in repurchase agreements; $32.4 million in short-term
FHLB borrowings; and $.9 million in long-term FHLB borrowings.
ASSET QUALITY
- -------------
Nonperforming loans at the end of June 30, 1996 totaled $3.3 million, compared
to $5.2 million for the same period in 1995, and $5.3 million at December 31,
1995. The ratio of nonperforming loans to loans, net of unearned income,
improved to .53% compared to .98% a year earlier and .93% at year-end 1995. Of
the June 30, 1996 nonperforming loans, $2.2 million consisted of nonaccrual
loans, compared to $4.2 million at June 30, 1995 and $3.4 million at December
31, 1995. The ratio of the allowance for loan loss reserves to nonperforming
loans was 261.52%, 155.84%, and 153.65% at June 30, 1996, June 30, 1995, and
December 31, 1995, respectively. The net charge-off ratio at June 30, 1996 was
.25% of average loans, net of unearned income, compared to .29% for the same
period in 1995, and .27% at December 31, 1995.
SHAREHOLDERS' EQUITY
- --------------------
Total Shareholders' Equity at June 30, 1996 was $78.3 million compared to $60.8
million at June 30, 1995, and $75.7 million at December 31, 1995. At June 30,
1996, the leverage and total risk-based capital ratios were 8.37% and 14.63%,
respectively. This compares to the same ratios of 7.33% and 14.59% at June 30,
1995 and 8.51% and 14.82% at December 31, 1995. Our capital position remains
strong with ratios substantially above regulatory prescribed minimums.
Financial reporting in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115 requires an adjustment to Shareholders' Equity for net
unrealized losses in the available for sale securities portfolio. This
unrealized loss, net of tax, at June 30, 1996 was $3.4 million compared to $2.8
million at June 30, 1995 and $1.1 million at year end 1995.
LIQUIDITY
- ---------
While the actual loan-to-deposit ratio increased to 85.9% from 73.0% the
previous year, and from 79.5% at year end 1995, liquidity remains adequate.
Management believes the shifting of the deposit mix to time deposits should
ultimately provide a greater level of stability in overall deposits. Demand
deposits at June 30, 1996 decreased $10.6 million comparison to the previous
year, but increased slightly by $.7 million from year end 1995.
CONTINGENCIES AND OTHER MATTERS
- -------------------------------
As reported in prior forms, MainStreet BankGroup Incorporated has entered into
agreements to acquire The First National Bank of Clifton Forge, Clifton Forge,
Virginia and Hanover Bank, Mechanicsville, Virginia subject to regulatory
approval and approval by the shareholders of the respective banks. Both
transactions will be conducted and recorded using the pooling of interests
method.
Under terms of agreement with The First National Bank of Clifton Forge,
Registrant agreed to exchange a maximum of 5.55 and a minimum of 4.89 shares of
its Common Stock for each share of The First National Bank of Clifton Forge's
315,000 shares of Common Stock. Holders of up to 9.9% of the Bank's shares will
be given the option of exchanging Bank shares for $83.20 cash. If no
shareholder elects cash and the 5.55 share maximum is used for the exchange
ratio, 1,748,250 shares of Registrant's Common Stock will be issued in the
transaction.
Under terms of the agreement with Hanover Bank, Registrant agreed to exchange a
maximum of 1.034 and a minimum of .884 shares of its common stock for each share
of Hanover Bank's 1,471,536 shares of common stock. Outstanding employee
options to acquire 145,900 shares of Hanover Bank stock will be converted into
options to acquire Registrant's Common Stock, with the exercise price adjusted
to reflect the exchange ratio in the transaction. If Registrant's Common Stock
price exceeds $20.50 per share during a measurement period prior to closing, the
exchange ratio will be adjusted downward to reflect a maximum valuation of
$18.125 per share of Hanover Bank Common Stock. Provisions have been made for
dissenting shareholders. If no shareholder elects cash and the 1.034 share
maximum is the exchange ratio, 1,521,568 shares of Registrant's Common Stock
will be issued in the transaction.
BankGroup and its subsidiaries, in the normal course of business, are involved
in various legal actions and proceedings. It is the opinion of management that
any liabilities, except as disclosed above, arising from these matters and not
covered by insurance, would not have a material effect on BankGroup's financial
position.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
The information required by Part II, Item 1, of the Form 10-Q appears on page 9
of Part I, Item 1, Note 6, of this report and is herein incorporated by
reference.
SIGNATURE
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 thereof duly authorized.
MAINSTREET BANKGROUP INCORPORATED
(Registrant)
Date
----------------------- -----------------------------------
James E. Adams
Chief Financial Officer/Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 26319
<INT-BEARING-DEPOSITS> 506
<FED-FUNDS-SOLD> 1735
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 203404
<INVESTMENTS-CARRYING> 93645
<INVESTMENTS-MARKET> 94371
<LOANS> 621719
<ALLOWANCE> (8680)
<TOTAL-ASSETS> 967666
<DEPOSITS> 713357
<SHORT-TERM> 95323
<LIABILITIES-OTHER> 9845
<LONG-TERM> 70857
0
0
<COMMON> 42936
<OTHER-SE> 35348
<TOTAL-LIABILITIES-AND-EQUITY> 967666
<INTEREST-LOAN> 28009
<INTEREST-INVEST> 9049
<INTEREST-OTHER> 160
<INTEREST-TOTAL> 37316
<INTEREST-DEPOSIT> 13696
<INTEREST-EXPENSE> 16970
<INTEREST-INCOME-NET> 20346
<LOAN-LOSSES> 1332
<SECURITIES-GAINS> 639
<EXPENSE-OTHER> 14949
<INCOME-PRETAX> 9518
<INCOME-PRE-EXTRAORDINARY> 9518
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6578
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 8.67
<LOANS-NON> 2213
<LOANS-PAST> 1106
<LOANS-TROUBLED> 263
<LOANS-PROBLEM> 8708
<ALLOWANCE-OPEN> (8076)
<CHARGE-OFFS> 728
<RECOVERIES> (579)
<ALLOWANCE-CLOSE> (8680)
<ALLOWANCE-DOMESTIC> (8680)
<ALLOWANCE-FOREIGN> 2213
<ALLOWANCE-UNALLOCATED> (8351)
</TABLE>
