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, 1997
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
Incorporation or Organization) No.)
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 APRIL 30, 1997
- ------------------------------ ------------------------------
COMMON STOCK $5.00 PAR VALUE 11,376,417
- ------------------------------ ------------------------------
MAINSTREET BANKGROUP INCORPORATED
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1997 and
December 31, 1996
Consolidated Statements of Income -- Three Months
Ended March 31, 1997 and 1996
Consolidated Statements of Cash Flow -- Three Months
Ended March 31, 1997 and 1996
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 6(b). Reports on Form 8-K
<PAGE>
<TABLE>
MAINSTREET BANKGROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(IN 000'S EXCEPT SHARE DATA)
<CAPTION>
MARCH 31 DECEMBER 31
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 36,592 $ 37,972
Interest-Earning Deposits in Domestic Banks 505 518
Mortgage Loans Held for Sale 2,217 742
Securities Available for Sale (Approximate Cost
of $404,764 in March 31, 1997, and $333,770 in
December, 1996) 402,231 335,023
Securities Held to Maturity (Approximate Market
Values of $86,129 in March 31, 1997 and $92,709
in December, 1996)
Taxable 48,652 52,314
Nontaxable 36,467 38,205
-------- ----------
85,119 90,519
Loans, Net of Unearned Income 793,159 784,367
Less: Allowance for Loan Losses ( 10,712) ( 10,195)
-------- ----------
Loans, Net 782,447 774,172
Bank Premises and Equipment, Net 15,425 14,932
Other Real Estate Owned 822 905
Other Assets 36,457 34,054
--------- ----------
TOTAL ASSETS $1,361,815 $1,288,837
========== ===========
LIABILITIES
Deposits:
Demand Deposits (Noninterest-Bearing) $ 127,141 $ 120,989
Interest Checking Accounts 100,886 99,834
Savings Deposits 120,168 121,336
Money Market Investment Accounts 84,365 81,946
Time Deposits
Certificates of Deposit $100,000 and Over 101,923 90,189
Other 384,207 372,225
--------- ----------
TOTAL DEPOSITS 918,690 886,519
Short -Term Debt 320,319 213,799
FHLB Advances, Callable 2/97 --- 45,000
Long-Term Debt 1,016 26,029
Accrued Interest Payable 3,763 4,002
Other Liabilities 9,129 5,012
--------- ----------
TOTAL LIABILITIES 1,252,917 1,180,361
--------- ----------
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 11,373,417 Shares in March,1997
and 11,342,248 in December, 1996) 56,867 56,711
Capital in Excess of Par 6,109 5,799
Retained Earnings 48,449 46,115
Unearned Compensation ( 297) ( 338)
Unrealized Gains (Losses) on Securities Net ( 2,230) 189
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 108,898 108,476
--------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,361,815 $1,288,837
========== ==========
</TABLE>
</page>
<PAGE>
<TABLE>
MAINSTREET BANKGROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN 000'S EXCEPT PER SHARE DATA)
UNAUDITED
<CAPTION>
THREE MONTHS ENDED
--- ---------------
MARCH 31 MARCH 31
1997 1996
----- ----
<S> <C> <C>
INTEREST INCOME
Taxable $18,280 $16,270
Nontaxable 32 30
Interest on Mortgage Loans Held
for Sale 33 58
Interest and Dividends on
Securities Available for Sale 5,422 3,110
Interest and Dividends on
Securities Held to Maturity
Taxable 926 1,314
Nontaxable 497 566
Other Interest Income 13 248
------- -------
Total Interest Income 25,203 21,596
INTEREST EXPENSE
Deposits 8,555 8,303
Short-Term Borrowings 3,066 998
Long-Term Debt 927 436
------- -------
Total Interest Expense 12,548 9,737
------- -------
Net Interest Income 12,655 11,859
Provisions for Loan Losses 884 868
------- -------
Net Interest Income After
Provision for Loan Losses 11,771 10,991
NONINTEREST INCOME
Service Charges, Fees and Other 2,070 1,951
Trust Income 806 737
Securities Gains (Losses), Net 876 218
------- -------
3,752 2,906
NONINTEREST EXPENSE
Salaries 3,750 3,207
Employee Benefits 1,530 1,257
Net Occupancy Expense 461 425
Equipment 872 963
FDIC Assessment 24 2
Stationery and Supplies 232 236
Advertising 203 142
Other 2,776 2,114
------- -------
9,848 8,346
------- -------
Income Before Income Taxes 5,675 5,551
Income Tax Expense 1,749 1,644
------- -------
NET INCOME $ 3,926 $ 3,907
======= =======
Per Share
Primary:
NET INCOME $ .34 $ .34
======= =======
Dividends Per Share $ .14 $ .11
======= =======
Average Shares Outstanding 11,401 11,461
======= =======
Fully Diluted:
NET INCOME $ .34 $ .34
======= =======
Average Shares Outstanding 11,401 11,462
======= =======
</TABLE>
</page>
<PAGE>
<TABLE>
MAINSTREET BANKGROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN 000'S)
THREE MONTHS ENDED
------------------
<CAPTION>
MARCH MARCH
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,926 $ 3,907
Adjustments to Reconcile Net Income to
Net Cash Provided (Used)
by Operating Activities:
Provision for Loan Losses 884 868
Depreciation and Amortization 573 595
Amortization of Securities Premiums and
Discounts, Net 697 (42)
Provision for Deferred Income Taxes (390) 182
Gain on Sale of Securities, Net (876) (218)
Amortization of Intangibles 42 57
Mortgage Loan Originations Held for Sale (4,788) (4,249)
Mortgage Loans Sold 3,313 4,992
Changes in Other Assets and Other Liabilities:
Other Assets (547) (233)
Accrued Interest (239) 426
Other Liabilities 4,117 2,249
------- -------
Net Cash Provided by Operating Activities: 6,712 8,534
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Federal Funds Sold --- (16,875)
(Increase) Decrease in Interest-Earning Deposits 13 (443)
Purchases of Securities Available for ( 226,396) (48,126)
Purchases of Securities Held to Maturity --- (12,415)
Proceeds from Sale of Securities Available
for Sale 133,153 54,393
Proceeds from Calls and Maturities of Securities
Available for Sale 22,385 8,291
Proceeds from Calls and Maturities of
Securities Held to Maturity 5,506 14,660
Net Increase in Loans (9,159) (18,157)
Purchases of Bank Premises and Equipment (1,068) (381)
Proceeds From Sale of Bank Premises and Equipment 2 11
Net Decrease in Other Real Estate 83 492
Increase in Other Assets (205) ---
------- -------
Net Cash Used in Investing Activities (75,686) (18,550)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 32,171 12,645
Net Increase (Decrease) in Short-Term Debt 106,520 (71,446)
Net Increase (Decrease) in FHLB Advances,
Callable 2/97 (45,000) 45,000
Net Increase (Decrease) in Other Long-Term Debt (25,013) 25,000
Cash Dividends (1,591) (1,241)
Proceeds from Issuance of Common Stock 507 241
------- -------
Net Cash Provided by Financing Activities 67,594 10,199
------- -------
Net Increase (Decrease) in Cash and Due From Banks (1,380) 183
Cash and Due From Banks at Beginning of Year 37,972 31,497
------- -------
Cash and Due From Banks at End of Year $ 36,592 $ 31,680
======= =======
</TABLE>
</page>
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 1996 Form 10-K to the SEC.
2. 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, 1997:
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- -------- -------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 4,981 $ 35 $ (4) $ 5,012
Obligations of U.S.
Government Agencies 31,316 15 (808) 30,523
Mortgage-Backed Securities 219,470 1,174 (1,404) 219,240
Collateralized Mortgage
Obligations and REMICs 119,610 5 (1,979) 117,636
Corporate Bonds 11,789 244 (142) 11,891
Other Securities 9,103 130 --- 9,233
Obligations of States and
Political Subdivisions 8,495 223 (22) 8,696
-------- ------- -------- --------
Total Securities
Available for Sale $404,764 $ 1,826 $ (4,359) $402,231
======== ======= ======== ========
</TABLE>
Gross gains and losses of $977,000 and $107,000, respectively, were realized on
sales and calls of securities available for sale.
3. 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, 1997: <TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Obligations of U.S.
Government Agencies $ 19,196 $ 772 $ --- $ 19,968
Mortgage-Backed Securities 26,510 245 (455) 26,300
Obligations of State and
Political Subdivisions 39,413 661 (213) 39,861
-------- ------- --------- --------
Total Securities Held
to Maturity $ 85,119 $ 1,678 $ (668) $ 86,129
======== ======= ======== ========
</TABLE>
Gross gains and losses of $7,000 and $1,000, respectively, were realized on
calls of securities held to maturity.
4. Loan Portfolio
--------------
Major classifications of loans at March 31, 1997 and December 31, 1996 are
summarized below:
<TABLE>
(In 000's)
<CAPTION>
March 1997 December 1996
---------- -------------
<S> <C> <C>
Commercial $353,033 $349,834
Real Estate 209,069 206,453
Consumer 244,881 242,211
-------- --------
Total Loans 806,983 798,498
Less: Unearned Income and
Deferred Fees 13,824 14,131
-------- --------
Loans, Net of Unearned Income and
Deferred Fees 793,159 784,367
Less: Allowance for Loan Losses 10,712 10,195
-------- --------
Loans, Net $782,447 $774,172
======== ========
</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>
(In 000's)
<CAPTION>
March 31 March 31
1997 1996
==== ====
<S> <C> <C>
Balance at December 31, 1996 and 1995 $ 10,195 $ 9,036
Charge-offs:
Commercial, Financial and Agricultural 94 293
Real Estate - Mortgage 34 11
Installment 474 317
-------- --------
602 621
Recoveries:
Commercial, Financial and Agricultural 85 57
Real Estate - Mortgage --- ---
Installment 150 120
-------- --------
235 177
Net Charge-offs 367 444
Provision for Loan Losses 884 868
-------- --------
Balance at March 31, 1997 and 1996 $ 10,712 $ 9,460
======== ========
</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 .75% of loans, net of unearned income at March 31, 1997.
The following table presents aggregate loan amounts for nonaccrual and 90-day
due loans as of March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Nonaccrual Loans $ 3,929 $ 3,091
Loans Past Due 90 Days or More 2,017 2,199
-------- --------
Total Nonperforming Loans 5,946 5,290
-------- --------
Other Real Estate Owned 822 1,251
Other Repossessed Assets 53 181
-------- --------
Total Foreclosed/Repossessed Assets 875 1,432
-------- --------
Total Nonperforming Loans and
Foreclosed/Repossessed Assets $ 6,821 $ 6,722
======== ========
</TABLE>
The effect of nonaccrual loans on interest income for the three months ended
March 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Amount of Interest That Would
Have Been Recorded at Original Rate $ 106 $ 78
Interest That Was Reflected in Income --- 1
-------- --------
Net Impact on Interest Income $ 106 $ 77
========= ========
</TABLE>
At March 31, 1997, 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 $3.9 million. The portion of the allowance for loan losses
related to such loans was $1.1 million.
5. 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.
6. Earnings Per Share
------------------
The Company will adopt Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share," on December 31, 1997. SFAS No. 128 requires the
Company to change its method of computing, presenting and disclosing earnings
per share informtion. Upon adoption, all prior period data presented will be
restated to conform to the provisions of SFAS No. 128.
If the Company had adopted SFAS No. 128 for the period ended March 31, 1997, the
following computation would have been used to arrive at basic income per common
share and diluted income per common share that would have been presented on the
consolidated statements of income:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Basic income per common share:
Net Income $ 3,926 $ 3,907
========= =========
Weighted average shares:
Common shares outstanding 11,358 11,399
========= =========
Basic income per common share $ .35 $ .34
========= =========
Diluted income per common share:
Net Income $ 3,926 $ 3,907
========= =========
Weighted average shares:
Common shares outstanding 11,358 11,399
Dilutive effect of stock options 43 62
--------- ---------
Total Shares 11,401 11,461
========= =========
Diluted income per common share $ .34 $ .34
========= =========
</TABLE>
Item 2.Management's Discussion and Analysis of Financial Conditions
------------------------------------------------------------
and Results of Operations
-------------------------
OVERVIEW
- --------
MainStreet BankGroup Incorporated reported first quarter earnings in 1997 of
$3.9 million which was flat compared to first quarter earnings in 1996 of $3.9
million. The 1997 and 1996 incomes equated to $.34 per share on a primary and a
fully diluted basis. The 1997 return on assets and return on equity were 1.21%
and 14.22%, respectively. The 1996 return on assets and return on equity were
1.47% and 15.41%, respectively. The 1997 income was impacted by a check-kiting
scheme which surfaced at the end of the first quarter. The entire amount of the
loss was recorded at $635,000, which net of tax translates into a loss of
$413,000. The Corporation is pursuing recovery of this loss, but at this time
cannot approximate the recovery.
NET INTEREST INCOME
- -------------------
Net interest income was $12.7 million for the quarter ended March 1997 compared
to $11.9 million for the quarter ended March 1996, an increase of .8 million, or
6.7%. Total interest income increased $3.6 million over 1996 levels while total
interest expense increased $2.8 million over the same period. The net interest
margin for the first quarter of 1997 and 1996 was 4.23% and 4.82%, respectively.
The yield on earning assets for March 31, 1997 and 1996 was 8.33% and 8.73%,
respectively. The cost of funds was 4.10% and 3.91% for March 31, 1997 and
March 31, 1996, respectively. The largest item to impact the net interest
margin for period ending March 31, 1997 was the prepayment speeds of the
adjustable rate mortgage backed bonds. High levels of prepayments caused
additional expense to be recorded related to the amortization of these bond
premiums. This expense, which reduced net income, was offset by realizing
market gains on these securities. Interest on securities available for sale
increased over last year by $2.3 million due to increased volume attributable to
leveraging transactions. Average loan volume increased $108.5 million over 1996
levels which increased loan income. The interest expense increase was centered
in short-term and long-term borrowings which together increased $2.6 million in
the year to year comparison. These borrowings were part of the leveraging
transactions.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses was relatively flat for March 31, 1997 compared to
March 31, 1996. The expense for both periods was $.9 million. There were
additional provisions made in the first quarter of 1996 to catch up the
provision to increased loan volumes.
NONINTEREST INCOME
- ------------------
Total noninterest income, excluding securities gains, for the first quarter of
1997 was $2.9 million compared to $2.7 million in the first quarter of 1996, an
increase of 7.0%. The 1997 income included net losses on other real estate of
$18 thousand compared to gains in 1996 of $394 thousand. With other real estate
factored out of noninterest income and excluding securities gains, noninterest
income increased $.6 million, or 26.2%, partially attributable to income from
bank owned life insurance which was purchased in the latter part of 1996. This
income for the first quarter of 1997 was $.2 million. Service charges on
deposit accounts increased $.1 million at March 31, 1997 over the same period in
1996, an increase of 19.3%. The remainder of the increase was mainly due to
credit life insurance and transaction card income.
SECURITIES GAINS
- ----------------
Securities gains were $.9 million for the quarter ended March 31, 1997 compared
to $.2 million for the quarter ended March 31, 1996. As previously mentioned,
high levels of prepayments on adjustable rate mortgage backed securities
accelerated expense related to amortization of bond premiums. This expense was
offset by realizing market gains on these securities.
NONINTEREST EXPENSE
- -------------------
Total noninterest expense at March 31, 1997 was $9.8 million, an increase of
$1.5 million, or 18.0%, in comparison to the same period a year ago. Salaries
and employee benefits increased $.8 million at March 31, 1997 in comparison to
March 31, 1996. This increase in expense was due to several initiatives
undertaken by the Corporation. Two additional branches were opened in the
latter part of 1996. A new risk management function was added to the Holding
Company in late 1996. Also in the latter part of 1996, a telebanking center was
established and staffed which will allow customers access to their accounts
twenty-four hours a day. Other noninterest expense increased $.7 million,
primarily due to a loss from a check-kiting scheme that surfaced in the latter
part of the first quarter. The entire pretax loss of $.6 million was expensed.
FINANCIAL CONDITION
- -------------------
Total assets at March 31, 1997 were $1.4 billion, an increase of $73.0 million
from year end, December 31, 1996.
Securities available for sale were $402.2 million at March 31, 1997 compared to
$335.0 million at December 31, 1996, an increase of $67.2 million, or 20.06%.
This increase was due to the Corporation investing in additional adjustable rate
mortgages funded by repurchase agreements, Federal Home Loan Bank advances, and
increased deposits. Securities held to maturity at March 31, 1997 declined $5.4
million from December 31, 1996 due to calls and maturities.
Loans, net of unearned income, at March 31, 1997 were $793.2 million, an
increase of $8.8 million from December 31, 1996. A discussion on credit quality
can be found in the Asset Quality section of this analysis.
Total deposits at March 31, 1997 were $918.7 million compared to $886.5 million
at December 31, 1996, an increase of $32.2 million. All categories increased
somewhat but the most significant were demand deposits of $6.2 million;
certificates of deposit $100,000 and over at $11.7 million; and other time
deposits at $12.0 million.
Short-term debt at March 31, 1997 was $320.3 million compared to $213.8 million
at December 31, 1996, an increase of $106.5 million. This increase was
principally in repurchase agreements and FHLB advances due to a shift from long-
term debt and due to additional funding of available for sale securities. At
March 31, 1997 short-term debt consisted of $97.4 million in FHLB advances;
$158.5 million in repurchase agreements; $42.7 million in federal funds
purchased; $9.9 million in corporate cash management accounts; $10.0 million in
treasury tax and loan notes; and $1.8 million in other short-term borrowings.
Long-term debt at December 31, 1996 consisted of $45.0 million in callable FHLB
advances, $25.8 million of long-term FHLB advances, and $.2 million in a capital
lease. The FHLB advances were called in February 1997 and the original long-
term FHLB borrowing matured. At March 31, 1997, the long-term debt consisted of
$.8 million in FHLB advances and $.2 million in the capital lease.
ASSET QUALITY
- -------------
Nonperforming assets were $6.9 million at March 31, 1997 compared to $7.2
million at December 31, 1996. Nonperforming loans were $5.9 million and $6.1
million at March 31, 1997 and December 31, 1996, respectively. The ratio of
nonperforming loans to loans, net of unearned income, improved slightly to .75%
at March 31, 1997 compared to .78% at December 31, 1996. At March 31, 1997
nonaccrual loans comprised $3.9 million of the nonperforming loans compared to
$3.1 million at December 31, 1996. The ratio of the allowance for loan losses
to nonperforming loans at March 31, 1997 and December 31, 1996 were 180.15% and
166.15% respectively. The net charge-off ratio at March 31, 1997 improved to
.19% compared to .29% at December 31, 1996. The allowance for loan losses to
actual loans, net of unearned income, was 1.35% and 1.30% at March 31, 1997 and
December 31, 1996, respectively.
SHAREHOLDERS' EQUITY
- --------------------
Total shareholders' equity, excluding unrealized gains (losses) on securities,
at March 31, 1997 was $108.9 million, an increase of $2.8 million from year-end,
December 31, 1996. Dividends per share were $.14 per share for the quarter
ended March 31, 1997. At March 31, 1997, the leverage and total risk-based
capital ratios were 8.12% and 14.68%, respectively. These same ratios at
December 31, 1996 were 8.37% and 14.84%, respectively. The capital position
remains strong with ratios substantially above regulatory prescribed minimums.
LIQUIDITY
- ---------
The measurement of liquidity is performed by monitoring ratios that indicate the
level of liquid assets relative to liabilities, the dependence on potential
volatile funding sources, and the relationship of loans to deposits. While
relying on core deposit relationships as the basis of liquidity, increased loan
demand has resulted in the Corporation seeking alternative sources of liquidity
and utilizing existing sources through a higher level within established
guidelines. The loan-to-deposit ratio at March 31, 1997 and December 31, 1996
was 85.41% and 87.44%, respectively. The large liability dependency ratio was
30.93% and 28.90% at March 31, 1997 and December 31, 1996, respectively. The
liquidity ratio at March 31, 1997 and December 31, 1996 was 24.00% and 21.00%,
respectively.
CONTINGENCIES AND OTHER MATTERS
- -------------------------------
This discussion is found in Note 5 of The Notes to Consolidated Financial
Statements in this report.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
The information required by Part II, Item 1, of the Form 10-Q appears in Note 5
of The Notes to Consolidated Financial Statements in this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
On April 23, 1997, two matters were submitted to a vote of security holders at
the company's Annual Meeting of Stockholders held in Martinsville, Virginia.
The first matter was the election of directors. The following eleven
individuals were elected as directors of the Registrant.
Director For Withheld
-------- --- --------
W. Christopher Beeler, Jr. 7,621,550 202,331
Thomas B. Bishop 7,616,854 207,027
Michael R. Brenan 7,617,035 206,846
William L. Cooper, III 7,621,550 202,331
Billy P. Craft 7,486,566 337,315
Phillip W. Dean 7,613,082 210,799
I. Patricia Henry 7,560,480 263,401
Larry E. Hutchens 7,608,551 215,330
George J. Kostel 7,601,191 222,690
William O. McCabe, Jr., M.D. 7,621,272 202,609
Albert L. Prillaman 7,610,238 213,643
The second matter was the approval of the 1997 Stock Incentive Plan. The
MainStreet BankGroup 1997 Stock Incentive Plan, pursuant to which a maximum of
550,000 shares of MainStreet BankGroup Common Stock may be issued, was approved
with the following breakdown of votes.
For Against Abstain
--- ------- -------
6,769,900 713,963 340,018
ITEM 6(B). REPORTS ON FORM 8-K
- ---------- -------------------
None
<PAGE>
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.
(Registrant) MAINSTREET BANKGROUP INCORPORATED
Date May 13, 1997 /s/James E. Adams
----------------------- -----------------------------
James E. Adams
Chief Financial Officer
Executive Vice President
Treasurer
</page>
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