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 March 31, 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 MARCH 31, 1996
- ---------------------------- -----------------------------
COMMON STOCK $5.00 PAR VALUE 8,574,044
- ---------------------------- ------------------------------
MAINSTREET BANKGROUP INCORPORATED
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1996 and
December 31, 1995
Consolidated Statements of Income -- Three Months
Ended March 31, 1996 and 1995
Consolidated Statements of Cash Flow -- Three Months
Ended March 31, 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
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Reports on Form 8-K
<TABLE>
MAINSTREET BANKGROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(IN 000's)
<CAPTION>
<S> <C> <C>
MARCH 31 DECEMBER 31
ASSETS 1996 1995
----- -------
Cash and Due From Banks $ 26,592 $ 25,680
Interest-Earning Deposits in Domestic Banks 1,318 875
Federal Funds Sold 13,050 ---
Mortgage Loans Held for Sale 1,037 1,780
Securities Available for Sale (Approximate
Cost of $171,714 in March, 1996, and $183,904
in December, 1995) 170,587 184,169
Securities Held to Maturity (Approximate
Market Values of $97,818 in March, 1996 and
$102,484 in December, 1995)
Taxable 59,868 61,184
Nontaxable 35,482 36,808
-------- --------
95,350 97,992
Loans, Net of Unearned Income 583,121 565,784
Less: Allowance for Loan Losses ( 8,449) ( 8,076)
-------- --------
Loans, Net 574,672 557,708
Bank Premises and Equipment, Net 10,668 10,767
Other Real Estate Owned 1,091 1,583
Other Assets 15,462 15,247
-------- --------
TOTAL ASSETS $909,827 $895,801
======== ========
LIABILITIES
Deposits:
Demand Deposits (Noninterest-Bearing) $ 94,763 $ 95,664
Interest Checking Accounts 79,505 76,802
Savings Deposits 112,851 115,202
Money Market Investment Accounts 54,182 55,015
Time Deposits
Certificates of Deposit $100,000 and Over 70,389 68,434
Other 300,013 289,396
-------- --------
TOTAL DEPOSITS 711,703 700,513
Short -Term Debt 40,290 111,736
Long-Term Debt 70,928 929
Accrued Interest Payable 3,026 2,674
Other Liabilities 6,401 4,232
-------- --------
TOTAL LIABILITIES 832,348 820,084
-------- --------
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 8,574,044 Shares in March,
1996 and 8,535,072 in December, 1995) 42,870 42,675
Capital in Excess of Par 12,174 11,740
Retained Earnings 24,446 22,364
Unearned Compensation ( 446) ---
Unrealized Gains (Losses) on Securities Net ( 1,565) ( 1,062)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 77,479 75,717
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $909,827 $895,801
======== ========
</TABLE>
<TABLE>
MAINSTREET BANKGROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED (IN 000's EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
--------------------------
<S> <C> <C>
MARCH 31 MARCH 31
INTEREST INCOME 1996 1995
------ --------
Interest and Fees on Loans:
Taxable $13,706 $11,804
Nontaxable 30 46
Interest on Mortgage Loans Held for Sale 58 19
Interest and Dividends on Securities
Available for Sale 2,698 2,004
Interest and Dividends on Securities Held
to Maturity
Taxable 1,164 1,479
Nontaxable 503 556
Other Interest Income 91 14
------- -------
Total Interest Income 18,250 15,922
INTEREST EXPENSE
Deposits 6,836 6,510
Short-Term Borrowings 998 277
Long-Term Debt 436 ---
7% Convertible Subordinated Debenture --- 156
------- -------
Total Interest Expense 8,270 6,943
------- -------
Net Interest Income 9,980 8,979
Provisions for Loan Losses 822 328
------- -------
Net Interest Income After Provision
for Loan Losses 9,158 8,651
NONINTEREST INCOME
Service Charges, Fees and Other 1,835 1,205
Trust Department Income 725 495
Securities Gains (Losses), Net 218 7
------- -------
2,778 1,707
NONINTEREST EXPENSE
Salaries 2,911 2,942
Employee Benefits 1,181 1,093
Net Occupancy Expense 339 340
Equipment 859 745
FDIC Assessment 1 429
Stationery and Supplies 206 197
Advertising 139 115
Other 1,799 1,454
------- -------
7,435 7,315
------- -------
Income Before Income Taxes 4,501 3,043
Income Tax Expense 1,337 868
------- -------
NET INCOME $ 3,164 $ 2,175
======= =======
Per Share
Primary:
NET INCOME $ .37 $ .29
======= =======
Dividends Per Share $ .115 $ .09
======= =======
Average Shares Outstanding 8,590 7,564
======= =======
Fully Diluted:
NET INCOME $ .37 $ .27
======= =======
Average Shares Outstanding 8,590 8,542
======= =======
</TABLE>
<TABLE>
MAINSTREET BANKGROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000's)
<CAPTION>
<S> <C> <C>
MARCH 31 MARCH 31
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
----- ------
Net Income $ 3,164 $ 2,175
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Provision for Loan Losses 822 328
Depreciation and Amortization 536 441
Amortization of Securities Premiums and
Discounts, Net (36) 79
Provision for Deferred Income Taxes 182 ---
(Gain) Loss on Sale of Securities, Net (218) (7)
Amortization of Intangibles 57 67
Mortgage Loan Originations Held for Sale (4,249) (761)
Mortgage Loans Sold 4,992 904
Changes in Other Assets and Other Liabilities:
Other Assets (202) 2,668
Accrued Interest 352 320
Other Liabilities 2,169 1,468
------------- -------
Net Cash Provided by Operating Activities: 7,569 7,682
------------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Federal Funds Sold (13,050) ---
Increase in Interest-Earning Deposits (443) (801)
Purchases of Securities Available for Sale (47,963) (6,248)
Purchases of Securities Held to Maturity (10,517) ---
Proceeds from Sale of Securities Available for Sale 54,393 964
Proceeds from Sale of Securities Held to Maturity --- ---
Proceeds from Calls and Maturities of Securities
Available for Sale 5,945 1,458
Proceeds from Calls and Maturities of Securities
Held to Maturity 13,865 2,640
Net Increase in Loans (17,786) (9,628)
Purchases of Bank Premises and Equipment (437) (255)
Net Decrease in Other Real Estate 492 338
------------ -------
Net Cash Used in Investing Activities (15,501) (11,532)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 11,190 4,950
Net Decrease in Short-Term Debt (71,446) (1,191)
Net Increase in Long-Term Debt 69,999 ---
Cash Dividend (987) (639)
Proceeds from Issuance of Common Stock 88 121
------------ -------
Net Cash Provided by Financing Activities 8,844 3,241
------------ -------
Net Increase in Cash and Due From Banks 912 (609)
Cash and Due From Banks at Beginning of Year 25,680 24,680
------- -------
Cash and Due From Banks at End of Year 26,592 24,071
============ =======
</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 March 31, 1996:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross Approx.
Carrying Unrealized Unrealized Market
Value Gains Losses Value
------- ------- -------- ------
U. S. Treasury Securities $ 1,993 $ --- $ (1) $1,992
Obligations of U.S.
Government Agencies 30,808 59 (585) 30,282
Mortgage-Backed Securities 41,846 258 (351) 41,753
Collateralized Mortgage
Obligations and REMICs 76,761 101 (1,677) 75,185
Corporate Bonds 11,014 419 (83) 11,350
Other Securities 8,916 737 --- 9,653
Obligations of States and
Political Subdivisions 376 --- (4) 372
-------- ------- -------- --------
Total Securities
Available for Sale $171,714 $ 1,574 $ (2,701) $170,587
======== ======= ======== ========
</TABLE>
At March 31, 1996 net unrealized losses of $.8 million, net of tax, are
reflected in shareholders' equity.
Proceeds from sales and calls of securities available for sale during the
first quarter were $58.7 million. Gross gains and losses of $320,000 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 March 31, 1996:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross Approx.
Carrying Unrealized Unrealized Market
Value Gains Losses Value
------- ------- -------- ------
U. S. Treasury Securities $ 4,942 $ 81 $ --- $ 5,023
Obligations of U.S.
Government Agencies 20,592 1,292 --- 21,884
Mortgage-Backed Securities 31,363 225 --- 31,588
Obligations of State and
Political Subdivisions 38,453 1,047 (177) 39,323
-------- ------- -------- --------
Total Securities Held to Maturit $ 95,350 $ 2,645 $ (177) $ 97,818
======== ======= ======== ========
</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 March 31, 1996 net of the
related tax effect, was $.8 million.
Proceeds from calls of securities held to maturity year to date
were $12.1 million. Gross gains and losses of $41,000 and $13,000,
respectively, were realized on these on these transactions.
5. Loan Portfolio
Major classifications of loans at March 31, 1996 and December 31,
1995 are summarized below:
(In 000's)
March 1996 December 1995
Commercial $275,578 $264,924
Real Estate 139,406 135,830
Consumer 179,581 176,110
-------- --------
Total Loans 594,565 576,864
Less: Unearned Income and
Deferred Fees (11,444) (11,080)
-------- --------
Loans, Net of Unearned Income and
Deferred Fees 583,121 565,784
Less: Allowance for Loan Losses (8,449) (8,076)
-------- --------
Loans, Net $574,672 $557,708
======== ========
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:
March 31 March 31
1995 1996
---- ----
(In 000's)
Balance at December 31, 1995 and
December 31, 1994 $ 8,076 $ 8,191
Charge-offs:
Commercial, Financial and Agricultural 293 386
Real Estate - Mortgage 11 24
Installment 311 155
-------- --------
$ 615 $ 565
Recoveries:
Commercial, Financial and Agricultural 57 21
Real Estate - Mortgage --- 2
Installment 109 57
-------- --------
166 80
Net Charge-offs 499 485
Provision for Loan Losses 822 328
-------- --------
Balance at March 31, 1996 and
March 31, 1995 $ 8,449 $ 8,034
======== ========
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 .78% of loans, net of unearned income at March 31,1996.
The following table present aggregate loan amounts for nonaccrual and 90-day due
loans as of March 31, 1996 and 1995:
1996 1995
---- ----
(In 000's)
Non accrual Loans $ 2,988 $ 3,695
Loans Past Due 90 Days or More 1,532 1,089
-------- --------
Total Nonperforming Loans 4,520 4,784
-------- --------
Other Real Estate Owned 1,091 2,114
Other Repossessed Assets 181 113
-------- --------
Total Foreclosed/Repossessed Assets 1,272 2,227
Total Nonperforming Loans and Foreclosed/
Repossessed Assets $ 5,792 $7,011
======== ========
The effect of nonaccrual loans on interest income for the three months ended
March 31, 1996 and 1995 were as follows:
1996 1995
---- ----
(In 000's)
Gross Amount of Interest That Would Have
Been Recorded at Original Rate $ 76 $ 79
Interest That Was Reflected in Income --- 1
-------- --------
Net Impact on Interest Income $ 76 78
======== ========
At March 31, 1996, the recorded investment in loans which have been identified
by BankGroup as impaired loans in accordance with State of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment
of A Loan", totaled $3.1 million. The total allowance for loan losses related
to such loans was $.4 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, except as disclosed above, 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 first quarter 1996 earnings of
$3.2 million which was an increase of 45.5% over first quarter earnings in
1995 of $3.2 million. The first quarter 1996 and 1995 incomes equated to
$.37 and $.29 per primary share, respectively. The 1996 first quarter income
produced a return on assets and a return on equity of 1.42% and 16.18%,
respectively. The return on assets and return on equity for 1995 was 1.28%
and 17.24%, respectively.
NET INTEREST INCOME
- -------------------
Net interest income for the first quarter of 1996 was $10.0 million, an
increase of 11.15% over 1995. The increase in net interest income was
principally due to rising loan demand. Average loans, net of unearned income,
increased $ 70.9 million, or 14.14%, over the same period a year ago.
Average investment volume also increased $28.9, or 11.96% over 1995. The net
interest margin was 4.82% for 1996 compared to 5.05% 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.
PROVISION FOR LOAN LOSSES
- -------------------------
The additional provision for loan losses in the first quarter of 1996 was $.8
million compared to $.3 million for the same period in 1995. This increase
was mainly due to increased loan volumes over the past year.
NONINTEREST INCOME
- ------------------
Total noninterest income, excluding securities gains, for the first quarter
of 1996 increased $.9 million, or 50.59%, over the first quarter of 1995.
Trust income was $.7 million in 1996, an increase of 46.47% over the $.5
million in 1995. Service charges, fees, and other income was $1.8 million
in 1996 compared to $1.2 million in 1995, an increase of 52.28%. This was
mainly due to a gain on sale of other real estate in the first quarter of
1996 of $394 thousand compared to a loss in 1995 of $12 thousand.
SECURITIES GAINS
- ----------------
Securities gains were $218 thousand in the first quarter of 1996 compared to
$7 thousand in the first quarter of 1995.
NONINTEREST EXPENSE
- -------------------
Total noninterest expenses in the first quarter of 1996 were $7.4million,
stable with the first quarter of 1995 levels of $7.3 million. The significant
deviation was the decrease in FDIC expense from $429 thousand to the minimum
statutory requirement of $1 thousand. Offsetting this decline was an
increase in other noninterest expenses of $.3 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.
FINANCIAL CONDITION
- -------------------
Total assets at March 31, 1996 were $909.8 million, up $105.3 million, or
13.09%, from March 31, 1995. Period end assets increased $14.0 million,
or 1.57% from December 31, 1995.
After the first 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 end 1996 increased $44.4 million,
or 35.18% over March 31, 1995 dollars. Securities held to maturity declined
to $95.4 million, or 20.01% in comparison to March 31, 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 $74.2 million, or 14.59% over March 31, 1995
dollars.
Federal funds sold increased $13.1 million from December 31, 1995, securities
available for sale decreased $13.6 million and securities held to maturity
declined $2.6 million from year end 1995. Loans, net of unearned income
increased $17.3 million principally funded by an increase of $11.2 million
in deposits.
Other real estate owned was $1.1 million at March 31, 1996, representing a
decline of $1.0 million and $.5 million from March 31, 1995 and December 31,
1995, respectively.
In comparison to March 31, 1995 dollars, deposits increased $2.2 million, or
.31% at March 31, 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 March 31, 1996 increased $6.1 million,
or 6.90%, over period end assets at March 31, 1995.
At March 31, 1996, deposits were $711.7 million, an increase of $11.2 million,
or 1.60%, over December 31, 1995 deposits. The primary increase was in time
deposits at $10.6 million.
At March 31, 1996 other borrowings were $111.2 million which consisted of
$9.6 million in overnight corporate cash management accounts; $3.3 million in
TT&L notes; $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 to fund loan growth. At March 31, 1995, other borrowings consisted
of $11.1 million in corporate cash management accounts; $4.0 million in
federal funds purchased; $4.1 million in FHLB borrowings; and $2.9 million in
TT&L notes. Other borrowings at March 31, 1996 were stable with amounts at
December 31, 1995 except the make-up had shifted. 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. Borrowings at March 31, 1996 had
shifted to FHLB borrowings out of repurchase agreements. The long-term FHLB
borrowings were all for a period of three years.
ASSET QUALITY
- -------------
Nonperforming loans at the end of March 1996 totaled $4.5 million, compared
to $4.8 million for the same period in 1995, and $5.3 million at December 31,
1995. The nonperforming loans to total loans ratio improved to .78% compared
to .94% a year earlier and .93% at year-end 1995. Of the March 31, 1996
nonperforming loans, $3.0 million consisted of nonaccrual loans, compared to
$3.7 million at March 31, 1995 and $3.4 million at December 31, 1995. The
ratio of the allowance for loan loss reserves to nonperforming loans was
186.92%, 167.93%, and 153.65% at March 31, 1996, March 31, 1995, and December
31, 1995, respectively. The net charge-off ratio for the first quarter of
1996 was .31% of average loans, net of unearned income, compared to .39% for
the same period in 1995, and .27% at December 31, 1995.
SHAREHOLDERS' EQUITY
- --------------------
Total Shareholders' Equity at March 31, 1996 was $77.5 million compared to
$55.5 million at March 31, 1995, and $75.7 million at December 31, 1994. At
March 31, 1996, the leverage and total risk-based capital ratios were 8.62%
and 14.43%, respectively. This compares to the same ratios of 7.50% and
14.60% at March 31, 1995 and 8.51% and 14.78% 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 at March 31, 1996 was $1.6 million compared to a loss of $5.8
million at March 31, 1995 and a loss of $1.1 million at year end 1995.
LIQUIDITY
- ---------
While the actual loan-to-deposit ratio increased to 80.8% from 70.6% the
previous year, 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 March 31, 1996 increased
$6.1 million over the previous year, but declined slightly by $.9 million from
year end 1995. The shift from short-term debt to long-term debt has also
increased our liquidity position.
CONTINGENCIES AND OTHER MATTERS
- -------------------------------
This discussion can be found on page 9, Note 6, of this report.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
On April 23, 1996 one matter was submitted to a vote of security
holders at the company's Annual Meeting of Stockholders held in
Martinsville, Virginia. The following eleven individuals were
elected as directors of the Registrant.
Director For Withheld
-------------------------- --------- --------
W. Christopher Beeler, Jr. 5,964,152 476,900
Thomas B. Bishop 5,959,242 481,810
Michael R. Brenan 5,963,680 477,372
William L. Cooper, III 5,964,152 476,900
Billy P. Craft 5,871,412 569,640
I. Patricia Henry 5,964,152 476,900
Larry E. Hutchens 5,956,208 484,844
William O. McCabe, Jr., M.D. 5,959,266 481,786
Albert L. Prillman 5,960,446 480,606
Richard M. Simmons, Jr. 5,957,590 483,462
Thomas B. Stanley, Jr. 5,963,756 477,296
ITEM 5. OTHER INFORMATION
- ------- ------------------
This other information is filed by MainStreet BankGroup Incorporated
(`Registrant") to report Registrant's agreement in principle to acquire
Hanover Bank, Mechanicsville, Virginia, subject to regulatory approval and
approval by the shareholders of Hanover Bank. Under terms of the agreement
in principle, Registrant has 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. At March 31, 1996, Registrant had
8,574,044 shares of Common Stock outstanding.
As part of the agreement in principle, Hanover Bank granted Registrant an
option to acquire up to 19.9% of Hanover Bank Common Stock, exercisable in
certain events such as a third party acquisition offer.
Hanover Bank was organized under the laws of Virginia in 1987 and serves
Hanover and Henrico Counties with four existing branches and a fifth under
construction. At March 31, 1996, Hanover Bank reported total assets of $96.9
million.
Registrant is a multi-community bank holding company headquartered in
Martinsville, Virginia. It owns six community banks (29 offices) with total
first quarter assets of $910 million, and a pending affiliation with the
First National Bank of Clifton Forge ($ 74.2 million in assets as March 31,
1996) as disclosed in a Current Report on Form 8-K dated April 17, 1996.
Registrant currently serves the following markets: City of Martinsville
and Henry County; the Towns of Hillsville and Galax, and Carroll and Grayson
Countries; the Towns of Ferrum and Rocky Mount and Franklin County; the Town
of Forest, City of Lynchburg and Bedford, Campbell and Amherst Counties; the
Town of Stuart and Patrick County; the Towns of Saltville and Chilhowie and
Smyth County, Virginia and contiguous areas.
ITEM 6(b). REPORTS ON FORM 8-K
- --------- -------------------
Form 8-K dated February 20, 1996, regarding the Registrant's 2-for-1 stock
split in the form of a stock dividend.
Form 8-K dated April 17, 1996, regarding the Registrant's acquisition of
the First National Bank of Clifton Forge, Clifton Forge, Virginia.
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: May 13, 1996 James E.Adams
------------- --------------------------------
James E. Adams
Chief Financial Officer/Treasurer
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