FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------------------
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 0-11526
FIRST COLONIAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-2228154
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.
76 S. MAIN ST., NAZARETH, PA 18064
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 610-746-7300
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 OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE: 1,474,028 SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON MARCH 31, 1996.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1 - Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Income 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II - OTHER INFORMATION
ITEM 5 - Other Information 14
ITEM 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
<TABLE>
ASSETS March 31 Dec. 31
1996 1995
--------- ---------
<S> <C> <C>
Cash and Due From Banks $ 10,341 $ 11,949
Federal Funds Sold -- 3,600
--------- ---------
Total Cash and Cash Equivalents 10,341 15,549
Interest-Bearing Deposits With Banks 308 835
Investment Securities Held-to-Maturity
(Fair Value: Mar. 31, 1996 - $19,450;
Dec. 31, 1995 - $20,188) 19,431 20,054
Securities Available-for-Sale at Fair Value
Securities Available-for-Sale at Fair Value 63,024 59,049
Mortgage Loans Held-for-Sale 2,754 1,006
Loans, Net of Unearned Discount 193,487 193,130
LESS: Allowance for Possible Loan Losses (2,387) (2,443)
--------- ---------
Net Loans 191,100 190,687
Premises and Equipment 6,826 6,763
Accrued Interest Income 2,202 1,878
Other Real Estate Owned 331 364
Other Assets 2,742 2,329
--------- ---------
TOTAL ASSETS $ 299,059 $ 298,514
========= =========
LIABILITIES
Deposits
Non-Interest Bearing Deposits $ 27,941 $ 26,690
Interest-Bearing Deposits 230,155 227,412
--------- ---------
Total Deposits 258,096 254,102
Securities Sold Under Agreements to Repurchase 2,519 6,096
Short-Term Borrowing 7,575 7,000
Long-Term Debt 564 643
Accrued Interest Payable 3,110 3,425
Other Liabilities 2,372 2,481
--------- ---------
TOTAL LIABILITIES 274,236 273,747
--------- ---------
SHAREHOLDERS' EQUITY
Preferred Stock, Par Value $5.00 a share -- --
Authorized - 500,000 shares, none issued
Common Stock, Par Value $5.00 a share 7,370 7,355
Authorized - 10,000,000 shares
Issued - 1,474,028 shares at Mar. 31, 1996
and 1,471,000 shares at Dec. 31, 1995
Additional Paid in Capital 7,096 7,056
Retained Earnings 10,849 10,479
Employee Stock Ownership Plan Debt (564) (643)
Net Unrealized Gain on Securities Available-for-Sale 72 520
--------- ---------
Total Shareholders' Equity 24,823 24,767
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 299,059 $ 298,514
========= =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands)
(Unaudited)
<TABLE>
Three Months Ended
Mar. 31, Mar. 31,
1996 1995
--------- ---------
<S> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 4,313 $ 4,057
Interest on Investment Securities
Taxable 1,110 1,065
Tax-Exempt 123 97
Interest on Other Investments
Deposits With Banks 31 22
Federal Funds Sold 2 --
--------- ---------
Total Interest Income 5,579 5,241
--------- ---------
INTEREST EXPENSE:
Interest on Deposits 2,177 1,862
Interest on Repurchase Agreements 29 84
Interest on Short-Term Borrowing 108 26
Interest on Long-Term Debt 30 95
--------- ---------
Total Interest Expense 2,344 2,067
--------- ---------
NET INTEREST INCOME 3,235 3,174
Provision for Possible Loan Losses 105 1,770
--------- ---------
Net Interest Income After Provision
For Possible Loan Losses 3,130 1,404
--------- ---------
OTHER INCOME:
Trust Income 174 160
Service Charges on Deposit Accounts 244 243
Investment Securities Gains (Losses), Net 126 (25)
Gains on the Sale of Mortgage Loans 6 6
Other Operating Income 131 144
--------- ---------
Total Other Income 681 528
--------- ---------
OTHER EXPENSES:
Salaries and Employee Benefits 1,414 1,293
Net Occupancy and Equipment Expense 545 462
Other Operating Expenses 995 1,234
--------- ---------
Total Other Expenses 2,954 2,989
--------- ---------
Income (Loss) Before Income Taxes 857 (1,057)
Provision (Credit)for Income Taxes 242 (394)
--------- ---------
NET INCOME (LOSS) $ 615 $ (663)
========= =========
Net Income (Loss) Per Share $ 0.43 $ (.46)
========= =========
Average Shares Outstanding 1,444,617 1,424,170
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
Three Months Ended
March 31, March 31,
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ 615 $ (663)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Possible Loan Losses 105 1,770
Depreciation and Amortization 176 147
Amortization of Security Discounts (32) (39)
Amortization of Security Premiums 38 55
Amortization of Deferred Fees on Loans 19 15
Mortgage Loans Originated for Sale (3,080) (891)
Mortgage Loan Sales 1,332 875
Gain on Sale of Mortgage Loans (6) (6)
Investment Securities Gains, Net (126) 24
Changes in Assets and Liabilities:
Decrease in Accrued Interest Income (324) (73)
Decrease in Accrued Interest Payable (315) (5)
Net Increase in Other Assets (417) (642)
Net Increase in Other Liabilities 121 194
-------- --------
Net Cash (Used In) Provided by Operating Activities (1,894) 761
-------- --------
INVESTING ACTIVITIES
Proceeds from Maturities of
Securities Available-for-Sale 5,831 1,162
Proceeds from Maturities of
Securities Held-to-Maturity 1,621 390
Proceeds from Sales of
Securities Available-for-Sale 2,698 2,034
Purchase of Securities Available-for-Sale (13,063) (3,687)
Purchase of Securities Held-to-Maturity (998) --
Net Decrease (Increase) in Interest Bearing
Deposits With Banks 528 (15)
Net Increase in Loans (653) (4,455)
Purchase of Premises and Equipment, Net (235) (138)
Proceeds from Sale of Other Real Estate Owned 155 --
-------- --------
Net Cash Used In Investing Activities (4,116) (4,709)
-------- --------
FINANCING ACTIVITIES
Net Increase (Decrease) in Interest
and Non-Interest Bearing Demand
Deposits and Savings Accounts 2,473 (6,094)
Net Increase in Certificates of Deposits 1,521 4,782
Increases in Long-Term Debt -- 7,000
Repayments of Long-Term Debt -- (87)
Net (Decrease) Increase in Repurchase Agreements (3,577) 1,810
Net Increase (Decrease) in Short-Term Borrowings 575 (750)
Proceeds from Issuance of Stock 55 65
Cash Dividends (245) (242)
-------- --------
Net Cash Provided by Financing Activities 802 6,484
-------- --------
(Decrease) Increase in Cash and Cash Equivalents (5,208) 2,536
Cash and Cash Equivalents, January 1 15,549 10,669
-------- --------
Cash and Cash Equivalents, March 31, $ 10,341 $ 13,205
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - GENERAL
1. Interim Financial Statements
The accompanying financial statements, footnotes and discussion should be read
in conjunction with the audited financial statements, footnotes, and discussion
contained in the Company's Annual Report for the year ended December 31, 1995.
The financial information presented herein is unaudited; however, in the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the unaudited financial information have been made.
The results for the three months ended March 31, 1996 are not necessarily
indicative of results to be expected for the full year or any other interim
period.
2. Mortgage Servicing Rights
Effective January 1, 1996, the Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights". The adoption of this statement did not have a
material effect on the financial positions at March 31, 1996 or results of
operations of the Company for the three month period then ended.
NOTE B - CASH DIVIDENDS
On February 22, 1996 the Company paid its 1996 first quarter dividend on its
common stock of $.17 per share to shareholders of record on February 8, 1996.
NOTE C - IMPAIRED LOANS
On January 1, 1995 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting for Creditors for Impairment of a Loan",
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures". SFAS No. 114 requires that a creditor
measure impairment based on the present value of expected future cash flows
discounted at the loan's effective interest rate, except that as a practical
expedient, a creditor may measure impairment based on a loans' observable market
price, or the fair value of the collecteral if the loan is collateral dependent.
Regardless of the measurement method, a creditor must measure impairment based
on the fair value of the collateral when the creditor determines that
foreclosure is probable. SFAS No. 118 allows creditors to use existing methods
for recognizing interest income on impaired loans.
The Company has identified a loan as impaired when it is probable that interest
and principal will not be collected according to the contractual terms of the
loan agreement. The accrual of interest is discontinued on such loans and no
income is recognized until all recorded amounts of interest and principal are
recovered in full.
<PAGE>
Loan impairment is measured by estimating the expected future cash flows and
discounting them at the respective effective interest rate or by valuing the
underlying collateral. The recorded investment in these loans and the valuation
for credit loses related to loan impairment are as follows:
<TABLE>
March 31,
1996
----------
<S> <C>
Principal amount of impaired loans $1,919,000
Deferred loan costs 3,000
----------
1,922,000
Less valuation allowance 290,000
----------
$1,632,000
</TABLE>
On January 1, 1996 a valuation for credit losses related to impaired loans was
established. The activity in this allowance account for the quarter ending March
31, 1996 is as follows:
<TABLE>
<S> <C>
Valuation allowance at January 1, 1996 $ 238,000
Provision for loan impairment 105,000
Transfer from Unallocated Allowance
for Possible Loan Losses 50,000
Direct charge-offs 112,000
Recoveries 9,000
----------
Valuation allowance at March 31, 1996 $ 290,000
</TABLE>
Total cash collected on impaired loans during the quarter ended March 31, 1996
was $126,000, of which $114,000 was credited to the principal balance
outstanding on such loans and $12,000 was recognized as interest income.
Interest that would have been accrued on impaired loans during the quarter was
$64,000. Interest income recognized during the quarter was $5,579,000. The
valuation allowance for impaired loans of $290,000 at March 31, 1996 is included
in the "Allowance for Possible Loan Losses" which amounts to $2,387,000 at March
31, 1996. The provision for loan impairment of $105,000 for the three month
period ended March 31, 1996 is the "Provision for Possible Loan Losses" included
in the "Consolidated Statement of Income" for the same period.
NOTE D - SUBSIDIARIES
First Colonial Group, Inc. (the Company) is a Pennsylvania business corporation
which is registered as a bank holding company under the Bank Holding Company Act
of 1956. The Company has two wholly-owned subsidiaries, Nazareth National Bank
and Trust Company (the "Bank") founded in 1897 and First C. G. Company, Inc.
founded in 1986.
<PAGE>
NOTE E - INVESTMENT CONSIDERATIONS
In analyzing whether to make, or to continue, an investment in the Company,
investors should consider, among other factors, certain investment
considerations more particularly described in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995, a copy of which can be
obtained from Reid L. Heeren, Vice President, First Colonial Group, Inc., 76 S.
Main Street, Nazareth, PA 18064.
NOTE F - FORWARD LOOKING STATEMENTS
The information contained in this Quarterly Report on Form 10-QSB for the
quarterly period ended March 31, 1996 contains forward looking statements (as
such term is defined in the Securities Exchange Act of 1934 and the regulations
thereunder), including without limitation, statements as to the allowance and
provision for possible loan losses, future interest rates and their effect on
the Company's financial condition or results of operations, the classification
of the Company's investment portfolio and other statements as to management's
beliefs, expectations or opinions. Such forward looking statements are subject
to risks and uncertainties and may be affected by various factors which may
cause actual results to differ materially from those in the forward looking
statements. Certain of these risks, uncertainties and other factors are
discussed in this Quarterly Report on Form 10-QSB, or in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995, a copy of which may
be obtained from the Company upon request and without charge (except for the
exhibits thereto).
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following financial review and analysis is of the financial condition and
earnings performance of the Company and its wholly owned subsidiaries for the
three month period ended March 31, 1996.
Liquidity and Capital Resources Liquidity is a measure of the Company's
ability to raise funds to support asset growth, meet deposit withdrawal and
other borrowing needs, maintain reserve requirements and otherwise operate the
Company on an ongoing basis. The Company manages its assets and liabilities to
maintain liquidity and earnings stability. Among the sources of liquidity are
money market investments, securities available-for-sale, funds received from the
repayment of loans, short-term borrowings and borrowings from the Federal Home
Loan Bank. At March 31, 1996, cash, due from banks, Federal Funds Sold and
interest bearing deposits with banks totaled $10,649,000, and securities
maturing within one year totaled $5,570,000. At December 31, 1995, cash, due
from banks, Federal funds sold and interest bearing deposits with banks, totaled
$16,384,000, and securities maturing within one year were $4,955,000. Securities
sold under an agreement to repurchase totaled $2,519,000 at March 31, 1996 and
$6,096,000 at December 31, 1995. The Bank is a member of the Federal Home Loan
Bank of Pittsburgh. The Bank had interest bearing demand deposits at the Federal
Home Loan Bank of Pittsburgh in the amount of $11,000 at March 31, 1996 and
$538,000 at December 31, 1995. These deposits are included in due from banks on
the Company's financial statements. As a result of this relationship, the
Company places most of its short-term funds at the Federal Home Loan Bank of
Pittsburgh. There were no Federal funds sold at March 31, 1996. At December 31,
1995, Federal funds sold totaled $3,600,000.
The Federal Home Loan Bank of Pittsburgh provides the Bank with a line of
credit in the amount of $12,148,000, all of which was available at March 31,
1996, subject to certain collateral requirements. The Bank had short-term
(overnight) borrowings against this line of $575,000 at March 31, 1996. The Bank
had no short-term (overnight) borrowings at December 31, 1995. The Bank had
additional short-term borrowings from the Federal Home Loan Bank at March 31,
1996 totaling $7,000,000 of which $3,000,000 is due in August 1996 and
$4,000,000 is due in October 1996.
<PAGE>
Cash flows for the three months ended March 31, 1996 consisted of cash used
in operating activities of $1,894,000 and cash used in investing activities of
$4,116,000, offset in part by cash provided by financing activities $802,000
resulting in a decrease in cash and cash equivalents of $5,208,000.
Cash used in operating activities was the result of mortgage loans
originated for sale of $3,080,000, an increase in other assets of $417,000, and
decreases in accrued interest payable and accrued interest income of $315,000
and $324,000, respectively, partially reduced by net operating income of
$615,000, mortgage loan sales of $1,332,000, depreciation and amortization of
$176,000, increases in other liabilities of $121,000 and a provision for
possible loan losses of $105,000. Cash was used in investing activities for the
purchase of securities available-for-sale and held-to-maturity of $13,063,000
and $998,000, respectively, net increase in loans to customers of $653,000 and
the net purchase of premises and equipment of $235,000, partially offset by the
proceeds from maturities of available-for-sale securities of $5,831,000,
proceeds from the sales of available-for-sale securities of $2,698,000 and
proceeds from maturities of held-to-maturity securities of $1,621,000. Cash
provided by financing activities consisted principally of increases in interest
and non-interest bearing demand deposits and savings accounts of $2,473,000,
increases in certificates of deposits of $1,521,000 and increases in short-term
(overnight) borrowings of $575,000 offset in part by a decrease in repurchase
agreements of $3,577,000 and the payment of cash dividends of $245,000. Also
affecting financing activities was the issuance of 3,028 new shares of common
stock pursuant to the Dividend Reinvestment Plan for proceeds of $55,000.
The Company recognizes the importance of maintaining adequate capital
levels to support sound, profitable growth and to encourage depositor and
investor confidence. Shareholders' equity at March 31, 1996 was $24,823,000 as
compared to $24,767,000 at December 31, 1995, for an increase of $56,000 or
0.2%. This increase was attributable to a $370,000 increase in retained earnings
during the first three months of 1996 as a result of operating income of
$615,000 less the payment of a cash dividend of $245,000. Proceeds of the sale
of common stock to the Dividend Reinvestment Plan of $55,000, a reduction in the
unrealized gain of securities available-for-sale of $448,000 due to a decrease
in the fair value of these securities (see discussion on "Investment
Securities"), and a reduction of $79,000 of debt related to the Company's
Employee Stock Ownership Plan contributed to the change in shareholder equity.
The Company maintains a Dividend Reinvestment and Stock Purchase Plan.
During the first three months of 1996, 3,028 shares of common stock were
purchased from authorized and unissued shares at an average price of $18.29 per
share for proceeds of approximately $55,000.
Banking regulators require bank holding companies and banks to maintain
certain capital levels, through risk-based capital standards by which all bank
holding companies and banks are evaluated in terms of capital adequacy. These
guidelines relate a banking company's capital to the risk profile of its assets.
<PAGE>
The risk-based capital standards require all banks to have Tier 1 capital of at
least 4% and total capital, Tier 1 and Tier 2, of 8% of risk-adjusted assets.
Tier 1 capital includes common shareholders' equity, qualifying perpetual
preferred stock together with related surpluses and retained earnings. Tier 2
capital may be comprised of limited life preferred stock, qualifying debt
instruments, and the allowance for possible loan losses.
Banking regulators also require bank holding companies and banks to
maintain a certain Tier 1 leverage ratio. The leverage ratio requirement is
measured as the ratio of Tier 1 capital to adjusted average assets. The tables
below provide a comparison of the Company's and Bank's risk-based capital ratios
and leverage ratio to the minimum regulatory guidelines for the periods
indicated.
CAPITAL RATIOS OF THE COMPANY
<TABLE>
Company
March 31, December 31, Minimum
1996 1995 Regulatory Requirement
<S> <C> <C> <C>
Tier 1 Leverage Ratio 8.27% 8.20% 3.00% - 5.00%
Risk-Based Capital Ratios
Tier I Capital 14.73% 14.62% 4.00%
Total Capital 15.96% 15.86% 8.00%
</TABLE>
CAPITAL RATIOS OF THE BANK
<TABLE>
Bank
March 31, December 31, Minimum
1996 1995 Regulatory Requirement
<S> <C> <C> <C>
Tier 1 Leverage Ratio 7.01% 6.80% 3.00% - 5.00%
Risk-Based Capital Ratios
Tier I Capital 12.42% 12.41% 4.00%
Total Capital 13.67% 13.66% 8.00%
</TABLE>
The Company is not aware of any trends, events or uncertainties that will
have a material effect on the Company's liquidity, capital resources or
operations, except for higher interest rates which could cause deposit
disintermediation and an increase in interest expense and the possibility of
inflationary trends, the results of which cannot be determined at this time. The
Company is not under any agreement with the regulatory authorities nor is it
aware of any current recommendation by regulatory authorities which, if they
were implemented, would have a material effect on liquidity, capital resources,
or the operations of the Company.
<PAGE>
Assets and Liabilities
Total assets at March 31, 1996 were $299,059,000, representing an increase
of 0.2% over total assets of $298,514,000 at December 31, 1995. Deposits
increased by $3,994,000 or 1.6% from $254,102,000 on December 31, 1995 to
$258,096,000 on March 31, 1996. Contributing to this increase were increases in
non-interest bearing checking deposits of $1,251,000, savings and money market
deposits of $1,799,000 and in certificates of deposit of $1,522,000 partially
offset by a decrease in interest- bearing checking deposits of $578,000. Loans
outstanding at March 31, 1996 were $193,487,000 as compared to $193,130,000 at
December 31, 1995. This is an increase of $357,000 or 0.2%. The growth in loans
was primarily the result of an increase of $672,000 or 0.9% in residential real
estate loans and $219,000 or 0.4% in consumer loans partially offset by a
decline of $534,000 or 0.8% in commercial loans during the first three months of
1996. During the first quarter of 1996, $1,332,000 of residential real estate
loans were sold. The amount of these sold loans originated in the first three
months of 1996 was $326,000 with the remaining $1,006,000 being originated in
1995. The Bank continues to service all of these loans. There were $2,754,000 of
residential real estate loans identified as held-for-sale at March 31, 1996. The
loan to deposit ratio was 75.0% at March 31, 1996 and 76.0% at December 31,
1995.
Premises and equipment increased by $63,000 to $6,826,000 at March 31, 1996
from $6,763,000 at December 31, 1995. This increase was primarily the result of
the purchase of furniture and equipment.
The Company had long-term debt totaling $564,000 at March 31, 1996 as
compared to $643,000 at December 31, 1995.
At March 31, 1996 the Bank had total short-term borrowings from the Federal
Home Loan Bank of Pittsburgh of $7,575,000 as compared to $7,000,000 at December
31, 1995. Included in this amount was overnight borrowings against a line of
credit of $29,426,000 of $575,000 at March 31, 1996. There were no overnight
borrowings outstanding at December 31, 1995. In addition, the Bank had
outstanding borrowings of $7,000,000 from the Federal Home Loan Bank of
Pittsburgh at March 31, 1996 and December 31, 1995. Of this amount $4,000,000
matures in October 1996 and the remaining $3,000,000 matures in August 1996. The
interest rate on these loans is based on LIBOR plus 2 basis points (currently
5.50% and 5.32%, respectively) and changes quarterly. The loans are secured by
the Bank's investment and residential real estate loans and securities. These
funds were borrowed to improve liquidity and to fund loans.
Results of Operations
Net income for the three months ended March 31, 1996 was $615,000 compared
to a net loss of $663,000 for the same period in 1995. The earnings improvement
is primarily attributable to a reduction in the provision for possible loans
<PAGE>
losses of $1,665,000 to $105,000 for the first quarter of 1996 as compared to
$1,770,000 for the first quarter of 1995. The higher amount in 1995 was
attributable to an additional provision for possible loan losses as the result
of checking account overdrafts of a certain customer. The Company continues to
aggressively seek the return of these funds, although no assurance can be made
that any recovery will be obtained or the amount of any such recovery. During
the first quarter of 1996, net interest income increased $61,000 or 1.9% as
compared to March 31, 1995. Also affecting earnings was a $153,000 increase in
total other income exclusive of security gains of $150,000, a decrease in total
other expenses of $35,000 and Federal income taxes of $857,000 for the first
quarter of 1996 compared to a credit of $1,057,000 in the first quarter of 1995.
Per share earnings for the three months ended March 31, 1996 was $.43. The
loss per share for the first three months of 1995 was $.46. Average shares
outstanding during this three month period were 1,444,617 in 1996 and 1,424,170
in 1995.
Net Interest
Income Net interest income is the difference between the interest earned on
loans, other investments and other interest earning assets and the interest paid
on deposits and other interest bearing liabilities. The net interest income
amounted to $3,235,000 for the three months ended March 31, 1996, as compared to
$3,174,000 for the three months ended March 31, 1995, an increase of $61,000 or
1.9%. During the three month period ended March 31, 1996, interest income
increased $338,000 or 6.4% and interest expense increased by $277,000 or 13.4%
over the same period in 1995. The increase in interest expense was due in part
to growth in certificates of deposits.
This increase in net interest income during this three month period is due
in part to the increase in interest rates on loans being greater than the
increase in interest paid on deposits as a result of rising interest rates.
Interest earning assets, including loans were $279,004,000 at March 31, 1996 as
compared to $272,464,000 at March 31, 1995. This represents an increase of
$6,540,000 or 2.4%.
Other Income and Other Expenses
Other income for the three months ended March 31, 1996 including service
charges, trust fees, gains on the sale of mortgage loans and other miscellaneous
income, but exclusive of securities gains or losses, was $555,000 as compared to
$553,000 for the same period in 1995. This was an increase of $2,000 or 0.4%. In
the three month period ended March 31, 1996 service charges were $244,000, a
$1,000 or 0.4% increase over the 1995 amount of $243,000. The increase in
service charge income is the result of increases in deposit accounts. The
revenues from the Trust Department operations were $174,000 for the three months
ended March 31, 1996 as compared to $160,000 for the three months ended March
31, 1995, an increase of $14,000 or 8.7%. The gain on the sale of mortgage loans
amounted to $6,000 for each of the three month periods ending March 31, 1996 and
1995. Other operating income for the three months ended March 31, 1996 was
$131,000 as compared to $144,000 for the same period in 1995, a decline of
$13,000 or 9.0%.
<PAGE>
Other expenses for the three months ended March 31, 1996 decreased by
$35,000 or 1.2%, to $2,954,000 from $2,989,000 for the same period in 1995.
Salaries and employee benefits were $1,414,000 for the three months ended March
31, 1995 as compared to $1,293,000 for the three months ended March 31, 1995
representing an increase of $121,000 or 9.4%. These increases are primarily due
to the additional staff as a result of the opening of the new Northampton
Crossings branch in December 1995, and general salary increases of approximately
4%. Occupancy and equipment expenses were $545,000 for the three months ended
March 31, 1996 and $462,000 for the three months ended March 31, 1995, an
increase of $83,000 or 18.0%. Most of this increase was due to increases in rent
and maintenance expenses related to the new branch and expenses related to
winter storms during the first quarter of 1996. Other operating expenses for the
three months ended March 31, 1996 were $995,000 in relation to $1,234,000 for
the three months ended March 31, 1995, a decrease of $239,000 or 19.4%. The
lower 1995 expenses were the result of a reduction in Federal Deposit Insurance
premiums and lower legal fees.
Investment Securities
The Company classifies its debt and marketable securities into three
categories: trading, available-for-sale, and held-to-maturity as provided by the
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". The Company had no trading securities at March 31,
1996 and December 31, 1995.
Available-for-sale securities are carried at fair value with the net
unrealized gains or losses reported in equity. The Company had $63,024,000 in
available-for-sale securities at March 31, 1996 with a net unrealized gain of
$72,000. At December 31, 1995 available-for-sale securities amounted to
$59,049,000 with a net unrealized gain of $520,000.
During the three month period ended March 31, 1996 $2,698,000 of securities
available-for-sale were sold for a net gain of $126,000 as compared to
$2,034,000 of securities available-for-sale were sold for a net loss of $24,000
for the same time period in 1995.
Held-to-maturity totaling $19,431,000 at March 31, 1996 are carried at
cost. At December 31, 1995 the held-to-maturity securities totaled $20,054,000.
The Company has the intent and ability to hold the held-to-maturity securities
until maturity. The Company, at March 31, 1996 and December 31, 1995, did not
hold any securities identified as derivatives. At March 31, 1996 and December
31, 1995 the Company did hold $4,500,000 and $8,000,000, respectively in various
U. S. Agency Step-up or Multi Step-up securities ($2,000,000 in
available-for-sale and $2,500,000 in held-to-maturity at March 31, 1996).
Allowance and Provision for Possible Loan Losses
The provision for loan losses for the three month period ended March 31,
1996 was $105,000 compared to a provision of $1,770,000 for the same period in
1995. The decrease in the provision for loan losses was primarily the result of
<PAGE>
an additional provision for possible loan losses of $1,550,000 taken during the
first three months of 1995 as the result of checking account overdrafts of a
certain customer. Net loan losses were $161,000 and $99,000 for the three month
period ending March 31, 1996 and 1995, respectively. The allowance for possible
loan losses at March 31, 1996 totaled $2,387,000, a decrease of $56,000 over the
December 31, 1995 amount of $2,443,000. The allowance for possible loan losses
as a percentage of total loans outstanding as of March 31, 1996 was 1.23%. This
compares to 1.26% at December 31, 1995. As provided by SFAS No. 114, as amended
by SFAS No. 118, $290,000 of the Allowance for Possible Loan Losses is allocated
to impaired loans at March 31, 1996 (see Note C" Impaired Loans").
Non-Performing Loans
The following discussion relates to the Bank's non-performing loans which
consist of those on a non-accrual basis and accruing loans which are past due
ninety days or more.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection effort, that
the borrower's financial condition is such that the collection of interest is
doubtful. The Company views these loans as non-accrual, but considers the
principal to be substantially collectible because the loans are protected by
adequate collateral or other resources. Interest on these loans is recognized
only when received. The following table shows the balance of non-performing
loans for each of the periods indicated.
NON-PERFORMING LOANS
<TABLE>
March 31, December 31,
1996 1995
<S> <C> <C>
Non-accrual loans on a cash basis $2,061,000 $2,181,000
Non-accrual loans as a percentage
of total loans 1.07% 1.13%
Accruing loans past due 90 days
or more $ 862,000 $1,115,000
Accruing loans past due 90 days
or more as a percentage of
total loans .45% .58%
Other Real Estate Owned from
Foreclosed Property $ 331,000 $ 364,000
</TABLE>
There are no significant loans classified for regulatory purposes that have
not been included in the above table of non-performing loans. The Company has no
significant loans that qualify as "Troubled Debt Restructuring" as defined by
The Financial Accounting Standards Board's Statement of Financial Accounting No.
15 "Accounting for Debtors and Creditors for Troubled Debt Restructuring" at
March 31, 1996.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. Other Information
In February 1996, Director Graham McKelvy Walker resigned his position as a
director of the Company and the Bank in order to accept a position with another
financial institution.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement Re: Computation of Per Share Earnings
(b) Reports on Form 8K
No reports on Form 8K were filed for the quarter during
which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST COLONIAL GROUP, INC.
DATE: May 15, 1996 BY: /S/ S. ERIC BEATTIE
S. ERIC BEATTIE
PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE: May 15, 1996 BY: /S/ REID L. HEEREN
REID L. HEEREN
VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
Exhibit 11.1
First Colonial Group, Inc. and Subsidiaries
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
Three Months Ended
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Primary
Net Income (Loss) $ 615 $ (663)
========= =========
Shares
Weighted average number of common
shares outstanding 1,444,617 1,424,170
Primary earnings (loss) per common share $ 0.43 $(0.46)
========= =========
Assuming full dilution
Net Income (Loss) $ 615 $ (663)
========= =========
Shares
Weighted average number of common
shares outstanding 1,444,617 1,424,170
Assuming exercise of option reduced by
the number of shares which could have
been purchased with the proceeds from
exercise of such options 615 *
--------- ---------
Weighted average number of common shares
outstanding as adjusted 1,445,232 1,424,170
========= =========
Earnings per common share assuming
full dilution $ 0.43 (0.46)
========= =========
</TABLE>
* The stock options are not included since the option price on the stock
options outstanding was greater than the average market price and the period-end
market price.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000714719
<NAME> FIRST COLONIAL GROUP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,341
<INT-BEARING-DEPOSITS> 308
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,024
<INVESTMENTS-CARRYING> 19,431
<INVESTMENTS-MARKET> 19,450
<LOANS> 196,241
<ALLOWANCE> 2,387
<TOTAL-ASSETS> 299,059
<DEPOSITS> 258,096
<SHORT-TERM> 10,094
<LIABILITIES-OTHER> 5,482
<LONG-TERM> 564
0
0
<COMMON> 7,370
<OTHER-SE> 17,453
<TOTAL-LIABILITIES-AND-EQUITY> 299,059
<INTEREST-LOAN> 4,313
<INTEREST-INVEST> 1,233
<INTEREST-OTHER> 33
<INTEREST-TOTAL> 5,579
<INTEREST-DEPOSIT> 2,177
<INTEREST-EXPENSE> 2,344
<INTEREST-INCOME-NET> 3,235
<LOAN-LOSSES> 105
<SECURITIES-GAINS> 126
<EXPENSE-OTHER> 2,954
<INCOME-PRETAX> 857
<INCOME-PRE-EXTRAORDINARY> 615
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 615
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 4.72
<LOANS-NON> 2,061
<LOANS-PAST> 862
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,443
<CHARGE-OFFS> 178
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 2,387
<ALLOWANCE-DOMESTIC> 1,576
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 811
</TABLE>
