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 September 30, 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 SO. 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: __________ SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON SEPTEMBER 30, 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 17
ITEM 6 - Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
<TABLE>
Sept. 30 Dec. 31
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 14,062 $ 11,949
Federal Funds Sold -- 3,600
--------- ---------
Total Cash and Cash Equivalents 14,062 15,549
Interest-Bearing Deposits With Banks 210 835
Investment Securities 21,154 20,054
(Market Value: Sept. 30, 1996 - $21,125;
Dec. 31, 1995 - $20,188)
Securities Available-for-Sale at Fair Value 54,771 59,049
Mortgage Loans Held-for-Sale 1,450 1,006
Total Loans, Net of Unearned Discount 217,203 193,130
Less: Allowance for Possible Loan Losses (2,494) (2,443)
--------- ---------
Net Loans 214,709 190,687
Premises and Equipment 6,873 6,763
Other Real Estate 498 364
Accrued Interest Income 2,265 1,878
Other Assets 3,081 2,329
--------- ---------
TOTAL ASSETS $ 319,073 $ 298,514
========= ========
LIABILITIES
Deposits
Non-Interest Bearing Deposits $ 31,582 $ 26,690
Interest-Bearing Deposits 228,827 227,412
--------- ---------
Total Deposits 260,409 254,102
Securities Sold Under Agreements to Repurchase 3,928 6,096
Short-Term Borrowings 15,548 7,000
Long-Term Debt 8,538 643
Accrued Interest Payable 2,989 3,425
Other Liabilities 1,999 2,481
--------- ---------
TOTAL LIABILITIES 293,411 273,747
--------- ---------
SHAREHOLDERS' EQUITY
Preferred Stock, Par Value $5.00 a share
Authorized - 500,000 shares, none Issued -- --
Common Stock, Par Value $5.00 a share
Authorized - 10,000,000 shares
Issued - 1,555,167 shares at Sept. 30, 1996
and 1,471,000 shares at Dec. 31, 1995 7,776 7,355
Additional Paid in Capital 7,193 7,056
Retained Earnings 11,364 10,479
Employee Stock Ownership Plan Debt (538) (643)
Net Unrealized Gain (Loss) on Securities
Available-for-Sale (133) 520
--------- ---------
Total Shareholders' Equity 25,662 24,767
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 319,073 $ 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, except for Per Share Data)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Interest and Fees on Loans $ 4,634 $ 4,316 $ 13,265 $ 12,577
Investment Securities Income
Taxable 1,092 1,174 3,379 3,324
Tax-Exempt 171 95 434 290
Interest on Other Investments
Deposits With Banks 7 34 55 101
Federal Funds Sold -- 1 2 2
--------- --------- --------- ---------
5,904 5,620 17,135 16,294
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on Deposits 2,068 2,182 6,453 6,114
Interest on Repurchase Agreements 37 93 113 284
Interest on Short-Term Borrowing 251 114 407 317
Interest on Long-Term Debt 70 31 127 95
--------- --------- --------- ---------
Total Interest Expense 2,426 2,420 7,100 6,810
--------- --------- --------- ---------
NET INTEREST INCOME: 3,478 3,200 10,035 9,484
Provision for Possible Loan Losses 105 100 515 1,698
--------- --------- --------- ---------
Net Interest Income After Provision
For Possible Loan Losses 3,373 3,100 9,520 7,786
--------- --------- --------- ---------
OTHER INCOME:
Trust Income 177 161 525 481
Service Charges on Deposit Accounts 276 260 787 776
Investment Securities Gains, Net 36 29 308 15
Gain (Loss) on the Sale of
Mortgage Loans (18) (4) (13) 9
Other Operating Income 131 161 431 414
--------- --------- --------- ---------
Total Other Income 602 607 2,038 1,695
--------- --------- --------- ---------
OTHER EXPENSES:
Salaries and Employee Benefits 1,385 1,273 4,186 3,867
Net Occupancy and Equipment Expense 582 476 1,658 1,391
Other Operating Expenses 1,028 1,009 2,907 3,215
--------- --------- --------- ---------
Total Other Expenses 2,995 2,758 8,751 8,473
--------- --------- --------- ---------
Income Before Income Taxes 980 949 2,807 1,008
Provision for Income Taxes 278 290 800 241
--------- --------- --------- ---------
NET INCOME $ 702 $ 659 $2,007 $ 767
========= ========= ========= =========
Net Income Per Share $ 0.46 $ 0.44 $ 1.32 $ 0.51
========= ========= ========= =========
Average Shares Outstanding 1,527,717 1,508,401 1,522,862 1,502,870
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
Nine Months Ended
OPERATING ACTIVITIES Sept 30, 1996 Sept 30, 1995
<S> <C> <C>
Net Income $ 2,007 $ 767
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used In) Operating Activities:
Provision for Possible Loan Losses 515 1,698
Depreciation and Amortization 545 463
Amortization of Security Discounts (105) (115)
Amortization of Security Premiums 125 145
Amortization of Deferred Fees on Loans 65 49
Investment Securities Gains, Net (308) (15)
(Gain) Loss on Sale of Mortgage Loans 13 (9)
Mortgage Loans Originated for Sale (10,128) (4,105)
Mortgage Loan Sales 4,218 3,442
Changes in Assets and Liabilities:
Net Increase in Accrued Interest Income (387) (277)
Increase (Decrease) in Accrued Interest Payable (435) 367
Net Increase in Other Assets (765) (519)
(Increase) Decrease in Other Liabilities (147) 669
-------- --------
Net Cash Provided by (Used In) Operating Activities (4,787) 2,560
-------- --------
INVESTING ACTIVITIES
Proceeds from Maturities of Securities
Available-for-Sale 11,024 6,175
Proceeds from Maturities of Securities
Held-to-Maturity 4,582 2,036
Proceeds from Sales of Securities
Available-for-Sale 19,795 6,156
Purchase of Securities Available-for-Sale (27,010) (12,272)
Purchase of Securities Held-to-Maturity (5,914) (2,836)
Net (Increase) Decrease in Interest Bearing
Deposits With Banks 625 (46)
Net Increase in Loans (19,586) (9,055)
Purchase of Premises and Equipment, Net (642) (903)
Proceeds from Sale of Other Real Estate Owned 303 89
-------- --------
Net Cash Used In Investing Activities (16,823) (10,656)
-------- --------
FINANCING ACTIVITIES
Net Increase (Decrease) in Interest and
Non-Interest Bearing Demand Deposits and
Savings Accounts 4,034 (14,550)
Net Increase (Decrease) in Certificates of Deposits 2,273 14,399
Net Increase (Decrease) in Long-Term Debt 8,000 (219)
Increase in Short-Term Borrowings 8,548 9,675
Net Decrease in Repurchase Agreements (2,168) (258)
Proceeds from Issuance of Stock 189 190
Cash Dividends (750) (728)
Cash in Lieu of Fractional Shares (3) --
-------- --------
Net Cash Provided by Financing Activities 20,123 8,509
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (1,487) 413
Cash and Cash Equivalents, January 1 15,549 10,669
-------- --------
Cash and Cash Equivalents, End of Period $ 14,062 $ 11,082
======== ========
</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 and nine months ended September 30, 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 September 30, 1996 or results of
operations of the Company for the three and nine month periods then ended.
NOTE B - CASH DIVIDENDS
On August 22, 1996 the Company paid its 1996 third quarter dividend on its
common stock of $.17 per share to shareholders of record on August 8, 1996.
NOTE C - STOCK DIVIDEND
On June 19, 1996 the Company paid a 5% stock dividend to shareholders of record
of May 31, 1996. Fractional shares were paid in cash based on the closing price
of $18.50 per share on the record date. Earnings per share and average shares
outstanding have been restated to reflect the 5% stock dividend.
NOTE D - IMPAIRED LOANS
On January 1, 1995 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by 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
<PAGE>
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 collateral 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 in such loans and no
income is recognized until all recorded amounts of interest and principal are
recovered in full.
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>
At September 30,
1996 1995
---------- ----------
<S> <C> <C>
Principal amount of impaired loans $1,241,000 $1,638,000
Accrued interest --- ---
Deferred loan costs 3,000 4,000
---------- ----------
1,244,000 1,642,000
Less valuation allowance 123,000 205,000
---------- ----------
$1,121,000 $1,437,000
========== ==========
</TABLE>
On January 1, 1995 a valuation for credit losses related to impaired loans was
established. The activity in this allowance account for the nine months ending
September 30, is as follows:
<TABLE>
1996 1995
---------- ----------
<S> <C> <C>
Valuation allowance at January 1, $ 238,000 $ 160,000
Provision for loan impairment 149,000 89,000
Direct charge-offs (273,000) (44,000)
Recoveries 9,000 ---
---------- ----------
Valuation allowance at September 30, $ 123,000 $ 205,000
</TABLE>
Total cash collected on impaired loans during the nine month period ended
September 30, 1996 was $1,018,000, of which $983,000 was credited to the
principal balance outstanding on such loans and $35,000 was recognized as
interest income. Interest that would have been accrued on impaired loans during
the first nine months of 1996 was $171,000. Interest income on loans recognized
for the first nine months of 1996 was $13,265,000. The valuation allowance for
impaired loans of $123,000 at September 30, 1996 and $205,000 at September 30,
1995 is included in the "Allowance for Possible Loan Losses" which amounts to
<PAGE>
$2,494,000 at September 30, 1996. The provision for loan impairment for the nine
month period ended September 30, 1996 and 1995 is a part of "Provision for
Possible Loan Losses" included in the "Consolidated Statement of Income" for the
same period.
NOTE E - 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.
NOTE F - 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 G - FORWARD LOOKING STATEMENTS
The information contained in this Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 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 and nine month periods ended September 30, 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 asset 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
September 30, 1996, cash, due from banks, Federal Funds Sold and
interest-bearing deposits with banks totaled $14,272,000, and securities
maturing within one year totaled $2,492,000. 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 $3,928,000 at September 30, 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 $12,000 at September 30,
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 September 30, 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 September 30,
1996, subject to certain collateral requirements. The Bank had short-term
(overnight) borrowings against this line of $1,548,000 at September 30, 1996.
The Bank had no short-term (overnight) borrowings at December 31, 1995. The Bank
had additional short-term borrowings from the Federal Home Bank at September 30,
1996 totaling $14,000,000 of which $10,000,000 and $4,000,000 are due on October
15, 1996 and October 30, 1996, respectively.
Cash flows for the nine months ended September 30, 1996 consisted of cash
used in operating activities of $4,787,000 and cash used in investing activities
of $16,823,000, offset in part by cash provided by financing activities of
$20,123,000 resulting in a decrease in cash and cash equivalents of $1,487,000.
<PAGE>
Cash used in operating activities was the result of mortgage loans
originated for sale of $10,128,000, an increase in other assets of $765,000, a
decrease in accrued interest payable of $435,000, an increase in accrued
interest income of $387,000 and a decrease in other liabilities of $147,000,
partially reduced by net operating income of $2,007,000, mortgage loan sales of
$4,218,000, a provision for possible loan losses of $515,000 and depreciation
and amortization of $545,000. Cash was used in investing activities for the
purchase of securities available-for-sale and held-to-maturity of $27,010,000
and $5,914,000 respectively, net increases in loans to customers of $19,586,000
and the net purchase of premises and equipment of $642,000, partially offset by
the proceeds from the sales of available-for-sale securities of $19,795,000,
from the maturities of available-for-sale securities of $11,024,000 and proceeds
from maturities of held-to-maturity securities of $4,582,000. Cash provided by
financing activities consisted principally of increases in short-term borrowings
of $8,548,000, increases in long-term borrowings $8,000,000, increases in
interest and non-interest bearing demand deposits and savings accounts of
$4,034,000 and increases in certificates of deposit of $2,273,000, offset in
part by a decrease in repurchase agreements of $2,168,000 and the payment of
cash dividends of $750,000 . Also affecting financing activities was the
issuance of 10,193 new shares of common stock pursuant to the Dividend
Reinvestment Plan and 262 shares purchased through the exercising of stock
options by a former Director for total proceeds of $189,000.
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 September 30, 1996 was $25,662,000
as compared to $24,767,000 at December 31, 1995, for an increase of $895,000 or
3.61%. This increase was attributable to net income for the first nine months of
1996 of $2,007,000, proceeds of the sale of common stock pursuant to the
Dividend Reinvestment Plan and the Non-Employee Directors Stock Option Plan of
$189,000 and a reduction of $105,000 of debt related to the Company's Employee
Stock Ownership Plan less the payment of cash dividends of $750,000, the payment
of cash in lieu of fractional shares from the stock dividend of $3,000 and the
reduction of $653,000 in the value of the securities available-for-sale (see
discussion on "Investment Securities").
On July 1, 1996 a $1,600,000 subordinated note, dated June 30, 1989 and
issued from the Company to the Bank, matured and was repaid to the Company. On
July 1, 1996 the Company issued a $1,000,000 subordinated note to the Bank,
floating at prime plus 50 basis points, maturing July 1, 2001. Additionally, on
that date, the Company contributed $600,000 to the Bank's Capital structure in
the form of "Paid-in-Surplus".
The Company maintains a Dividend Reinvestment and Stock Purchase Plan.
During the first nine months of 1996, 10,193 shares of common stock were
purchased from authorized and unissued shares at an average price of $18.10 per
share.
<PAGE>
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.
The risk-based capital standards now 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
Sept. 30, December 31, Minimum
1996 1995 Regulatory Requirement
<S> <C> <C> <C>
Tier 1 Leverage Ratio 8.02% 8.20% 3.00% - 5.00%
Risk-Based Capital Ratios
Tier I Capital 13.97% 14.62% 4.00%
Total Capital 15.23% 15.86% 8.00%
</TABLE>
CAPITAL RATIOS OF THE BANK
<TABLE>
Bank
Sept. 30, December 31, Minimum
1996 1995 Regulatory Requirement
<S> <C> <C> <C>
Tier 1 Leverage Ratio 6.92% 6.80% 3.00% - 5.00%
Risk-Based Capital Ratios
Tier I Capital 11.93% 12.41% 4.00%
Total Capital 13.62% 13.66% 8.00%
</TABLE>
<PAGE>
The Company is not aware of any known trends, events or uncertainties that
will have a material effect on the Company's liquidity, capital resources or
operations, except for lower interest rates which could cause deposit
disintermediation and uncertain economic 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
adverse effect on liquidity, capital resources, or the operations of the
Company.
Assets and Liabilities
Total assets at September 30, 1996 were $319,073,000, representing an
increase of 6.9% over total assets of $298,514,000 at December 31, 1995.
Deposits increased by $6,307,000 or 2.5% from $254,102,000 on December 31, 1995
to $260,409,000 on September 30, 1996. This increase was the result of growth of
$4,864,000 in non-interest checking deposits, $2,273,000 in certificates of
deposit and $304,000 in interest-bearing checking accounts, partially offset by
a $1,004,000 decrease in savings and club accounts and a $130,000 decrease in
money market deposits. The increase in deposits was partially the result of the
introduction on August 1, 1996 of two new transaction type deposit accounts
entitled "Quality Checking" (non-interest bearing) and "Quality Checking Gold"
(interest bearing). Loans outstanding at September 30, 1996 were $217,203,000 as
compared to $193,130,000 at December 31, 1995. This is an increase of
$24,073,000 or 12.5%. The growth in loans was comprised primarily of an increase
of $17,352,000 or 23.5% in residential real estate loans, a $4,653,000 or 8.9%
increase in consumer loans, and a $2,068,000 or 3.1% increase in commercial
loans. During the first nine months of 1996, $4,218,000 of residential real
estate loans were sold. The amount of these sold loans originated in the first
nine months of 1996 was $2,685,000 with the remaining $1,533,000 being
originated in 1995. The Bank continues to service all of these loans. As of
September 30, 1996 there were $1,450,000 of mortgage loans identified as
held-for-sale. The loan to deposit ratio was 83.4% at September 30, 1996 and
76.0% at December 31, 1995.
On September 23, 1996 the Bank committed to the sale of approximately
$9,400,000 of residential real estate loans to the Federal National Mortgage
Association with settlement scheduled for October 16, 1996. The Bank will retain
the servicing of these loans.
Premises and equipment increased by $110,000 to $6,873,000 at September 30,
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 $8,538,000 at September 30, 1996 as
compared to $643,000 at December 31, 1995. The borrowed funds were used to
improve liquidity and to fund loans. On August 28, 1996 the Bank borrowed
$8,000,000, maturing August 28, 2000, from the Federal Home Loan Bank of
Pittsburgh. The interest rate, fixed at 5.89% until August 28, 1998, then
putable at the Bank's option, thereafter floats on a quarterly basis at LIBOR
plus 6 basis points. The loan is secured by the Bank's investment securities and
residential real estate loans.
<PAGE>
At September 30, 1996 the Bank had total short-term borrowings from the
Federal Home Loan Bank of Pittsburgh of $15,548,000 as compared to $7,000,000 at
December 31, 1995. Included in this amount was overnight borrowings against a
line of credit of $12,148,000 of $1,548,000 at September 31, 1996. There were no
overnight borrowings outstanding at December 31, 1995. In addition, the Bank had
outstanding borrowings of $14,000,000 from the Federal Home Loan Bank of
Pittsburgh at September 30, 1996 as compared to $7,000,000 at December 31, 1995.
Of this amount $10,000,000 matures on October 15, 1996 and $4,000,000 matures on
October 30, 1996. The interest rate on these loans are 5.35% (fixed rate) and
5.625% (LIBOR plus 2 basis points, changes quarterly). The loans are secured by
the Bank's investment securities and residential real estate loans. These funds
were borrowed to improve liquidity and to fund loans.
Results of Operations
The net income for the three months period ended September 30, 1996 was
$702,000, a $43,000 or 6.5% increase compared to net income of $659,000 for the
same period in 1995. This increase was primarily attributable to an increase in
net interest income in 1996 of $278,000. Also affecting earnings for the three
months ended September 30, 1996 as compared to the same period in 1995 was an
increase in the provision for possible loans losses of $5,000, a decrease in
total other income of $5,000, an increase in total other expenses of $237,000
and a reduction in Federal income taxes of $12,000.
The net income for the nine months ended September 30, 1996 was $2,007,000,
a $1,240,000 increase from net income of $767,000 for the same period in 1995.
This increase is primarily attributable to a reduction of $1,183,000 in the
provision for possible loan losses to $515,000 in 1996 from $1,698,000 in 1995.
The 1995 provision for possible loans losses was increased as a result of the
unexpected loss the Company experienced in the first quarter of 1995 due to
overdrawn checking accounts of a certain customer. Also contributing to the
increase in net income were increases in net interest income of $551,000 and
total other income of $343,000. This was partially offset by an increase in
total other expenses of $278,000 and an increase in Federal income taxes of
$559,000.
Per share earnings for the three months ended September 30 were $.46 and
$.44 for 1996 and 1995, respectively. Average shares outstanding during this
three month period were 1,527,717 in 1996 and 1,508,401 in 1995. The net income
per share was $1.32 for the first nine months of 1996 as compared to earnings
per share of $.51 for the same period in 1995. Average shares outstanding were
1,522,862 for the first nine months of 1996 and 1,502,870 for the first nine
months of 1995. Per share earnings and average shares outstanding have been
restated to reflect the 5% stock dividend paid on June 19, 1996.
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 $3,478,000 for the three months ended September 30, 1996, as
<PAGE>
compared to $3,200,000 for the three months ended September 30, 1995, an
increase of $278,000 or 8.7%. During the three month period ended September 30,
1996, interest income increased $284,000 or 5.1% and interest expense increased
by $6,000 or 0.3% over the same time period of 1995. The increase in net
interest income was the result of the increases in interest earned on interest
earning assets being greater than the increase in the cost of funds.
For the nine month period ended September 30, 1996, net interest income
increased $551,000 or 5.8% to $10,035,000 over the same period in 1995 of
$9,484,000. In this nine month period, interest income increased by $841,000 or
5.2% and interest expense increased $290,000 or 4.3% as compared to 1995. This
increase in interest income during the nine month period is due to an increase
on interest rates earned on loans and investments as a result of higher interest
rates. The increase in interest expense for the nine month period was primarily
due to an increase in certificate of deposit balances and higher interest rates.
Interest earning assets, including loans were $294,788,000 at September 30, 1996
as compared to $276,616,000 at September 30, 1995. This represents an increase
of $18,172,000 or 6.6%.
Other Income and Other Expenses
Other income for the three months ended September 30, 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 $566,000
as compared to $578,000 for the same period in 1995. This was a decrease of
$12,000 or 2.1%. In the three month period ended September 30, 1996 service
charges were $276,000, a $16,000 or 6.0% increase over the 1995 amount of
$260,000. The revenues from the Trust Department operations were $177,000 for
the three months ended September 30, 1996 as compared to $161,000 for the three
months ended September 30, 1995, an increase of $16,000 or 9.9%. There were
$18,000 in losses on the sale of mortgage loans for the three month period
ending September 30, 1996 compared to losses of $4,000 for the same period ended
in 1995. Other miscellaneous income for the three months ended September 30,
1996 was $131,000 as compared to $161,000 for the same period in 1995, a
decrease of $30,000 or 18.6%.
Total other income, including service charges, trust fees, gains on the
sale of mortgage loans and other miscellaneous income, but exclusive of
securities gains or losses, increased by 3.0% or $50,000 to $1,730,000 from
$1,680,000 for the nine months ended September 30, 1996 over the same time
period in 1995. Service charges amounted to $787,000 for the nine months ended
September 30, 1996 compared to $776,000 for the nine months ended September 30,
1995, an increase of $11,000 or 1.4%. The revenue from the Trust Department
operations was $525,000 for the nine months ended September 30, 1996,
representing a $44,000 or 9.2% decrease from the $481,000 for the nine months
ended September 30, 1995. The loss on the sale of mortgage loans amounted to
$13,000 for the first nine months of 1996 as compared to a $9,000 gain for the
same period in 1995. Other income for the nine months ended September 30, 1996
was $431,000 as compared to $414,000 for the same period in 1995. This is an
increase of $17,000 or 4.1%.
<PAGE>
Total other expenses for the three month period ended September 30, 1996
increased by $237,000 or 8.6% to $2,995,000 over the total other expenses for
the same period in 1995 of $2,758,000. Included in this increase is a $112,000
or 8.8% increase in salary and benefit expenses which were $1,385,000 as
compared to $1,273,000 in 1995. 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 $582,000 for the three month period ended
September 30, 1996 and $476,000 for the three month period ended September 30,
1995, an increase of $106,000 or 22.3%. 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 month period ended September 30, 1996 were
$1,028,000, an increase of $19,000 or 1.9% over the $1,009,000 in other expenses
for the same period in 1995.
Other expenses for the nine months ended September 30, 1996 increased by
$278,000 or 3.3%, to $8,751,000 from $8,473,000 for the same period in 1995.
Salaries and employee benefits were $4,186,000 for the nine months ended
September 30, 1996 as compared to $3,867,000 for the nine months ended September
30, 1995 representing an increase of $319,000 or 8.3%. These increases are
primarily due to the addition of the Northampton Crossings branch. Occupancy and
equipment expenses were $1,658,000 for the nine months ended September 30, 1996
and $1,391,000 for the nine months ended September 30, 1995, an increase of
$267,000 or 19.2%. Most of this increase is also due to the new branches. Other
operating expenses for the nine months ended September 30, 1996 were $2,907,000
in relation to $3,215,000 for the nine months ended September 30, 1995, a
decrease of $308,000 or 9.6%. The lower 1996 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 September
30, 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 $54,771,000 in
available-for-sale securities at September 30, 1996 with a net unrealized loss
of $133,000. At December 31, 1995 available-for-sale securities amounted to
$59,049,000 with a net unrealized gain of $520,000. The reduction in the fair
value of the available-for-sale securities was primarily due to rising interest
rates during the first half of 1996.
During the three month period ended September 30, 1996 $9,500,000 of
securities available-for-sale were sold for a net gain of $36,000. For the same
period in 1995, $80,000 of available-for-sale securities were sold for a net
gain of $29,000. For the first nine months of 1996, net securities gains
<PAGE>
amounted to $308,000 on the sale of $19,795,000 of available-for-sale
securities as compared to $15,000 on the sale of $6,156,000 of
available-for-sale securities for the same period in 1995.
Held-to-maturity securities are carried at cost. The held-to-maturity
securities totaled $21,154,000 at September 30, 1996. 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 to maturity. The Company, at
September 30, 1996 and December 31, 1995, did not hold any securities identified
as derivatives. At September 30, 1996 and December 31, 1995 the Company did hold
$1,000,000 ( in held-to-maturity) and $8,000,000, respectively, in various U. S.
Agency Step-up or Multi Step-up securities.
Allowance and Provision for Possible Loan Losses
The provision for loan losses for the three month period ended September
30, 1996 was $105,000 compared to $100,000 for the same period in 1995. The
provision for loan losses for the first nine months of 1996 was $515,000 as
compared to $1,698,000 for the first nine months of 1995. Included in the 1995
nine month provision is $1,550,000 for overdrawn checking accounts of a certain
customer less recoveries of $272,000.
Net loan losses were $105,000 for the three month period ending September
30, 1996 compared to net loan recoveries of $19,000 for the same period in 1995.
For the first nine months of 1996, net loan losses were $463,000 as compared to
$1,463,000 during the first nine months of 1995, including $1,278,000 related to
the overdrawn checking accounts.
The allowance for possible loan losses at September 30, 1996 totaled
$2,494,000 an increase of $51,000 over the December 31, 1995 amount of
$2,443,000. The allowance for possible loan losses as a percentage of total
loans outstanding at September 30, 1996 was 1.15%. This compares to 1.26% at
December 31, 1995. As provided by SFAS No. 114, as amended by SFAS No. 118,
$123,000 of the allowance for possible loan losses is allocated to impaired
loans at September 30, 1996 (see Note D "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 efforts, 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 dates indicated.
<PAGE>
<TABLE>
Sept. 30, December 31,
1996 1995
<S> <C> <C>
Non-accrual loans on a cash basis $1,465,000 $2,181,000
Non-accrual loans as a percentage
of total loans .67% 1.13%
Accruing loans past due 90 days or more $1,190,000 $1,115,000
Accruing loans past due 90 days or more
as a percentage of total loans .55% .58%
Other Real Estate Owned from
Foreclosed Property $ 498,000 $ 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. At September 30,
1996 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 Standards No. 15 "Accounting for Debtors and
Creditors for Troubled Debt Restructuring".
<PAGE>
PART 11 - OTHER INFORMATION
ITEM 5. Other Information
In August of 1996 Charles J. Peischl, Esquire was appointed to the Board of
Directors of the Company as a Class 1 director to serve until the 1997 annual
meeting. Mr. Peischl is a member of the firm of Peters, Moritz, Peischl, Zulick
& Landes. In addition, Mr. Peischl is the Chairman of the Board of Trustees of
Moravian College, a member of the Board of Directors of C. F. Martin & Co., Inc.
and the Chancellor of the Northern Province of the Moravian Church in America.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K 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: November 15, 1996 BY: /S/ S. ERIC BEATTIE
S. ERIC BEATTIE
PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE: November 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 Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary
Earnings $ 702 $ 659 $2,007 $ 767
--------- --------- --------- ---------
Shares *
Weighted average number of
common shares outstanding 1,527,717 1,508,401 1,522,862 1,502,870
Assuming exercise of option
reduced by the number of
shares which could have been
purchased with the proceeds
from exercise of such options 1,224 ** 1,224 **
--------- --------- --------- ---------
Weighted average number of
common shares outstanding as
adjusted 1,528,941 1,508,401 1,524,086 1,502,870
Primary earnings per common share $ 0.46 $ 0.44 $ 1.32 $ 0.51
========= ========= ========= =========
Assuming full dilution
Earnings $ 702 $ 659 $2,007 $ 767
--------- --------- --------- ---------
Shares *
Weighted average number of
common shares outstanding 1,527,717 1,508,401 1,522,862 1,502,870
Assuming exercise of option
reduced by the number of
shares which could have been
purchased with the proceeds
from exercise of such options 1,224 ** 1,224 **
--------- --------- --------- ---------
Weighted average number of
common shares outstanding as
adjusted 1,528,941 1,508,401 1,524,086 1,502,870
Earnings per common share
assuming full dilution $ 0.46 $ 0.44 $ 1.32 $ 0.51
========= ========= ========= =========
</TABLE>
* Restated per 5% Stock Dividend paid on June 19, 1996.
** 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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,062
<INT-BEARING-DEPOSITS> 210
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,771
<INVESTMENTS-CARRYING> 21,154
<INVESTMENTS-MARKET> 21,125
<LOANS> 218,653
<ALLOWANCE> 2,494
<TOTAL-ASSETS> 319,073
<DEPOSITS> 260,409
<SHORT-TERM> 19,476
<LIABILITIES-OTHER> 4,988
<LONG-TERM> 8,538
0
0
<COMMON> 7,776
<OTHER-SE> 17,886
<TOTAL-LIABILITIES-AND-EQUITY> 319,073
<INTEREST-LOAN> 13,265
<INTEREST-INVEST> 3,813
<INTEREST-OTHER> 57
<INTEREST-TOTAL> 17,135
<INTEREST-DEPOSIT> 6,453
<INTEREST-EXPENSE> 7,100
<INTEREST-INCOME-NET> 10,035
<LOAN-LOSSES> 515
<SECURITIES-GAINS> 308
<EXPENSE-OTHER> 8,751
<INCOME-PRETAX> 2,807
<INCOME-PRE-EXTRAORDINARY> 2,007
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,007
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 4.69
<LOANS-NON> 1,465
<LOANS-PAST> 1,190
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,443
<CHARGE-OFFS> 529
<RECOVERIES> 65
<ALLOWANCE-CLOSE> 2,494
<ALLOWANCE-DOMESTIC> 1,626
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 868
</TABLE>
