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 June 30, 1997
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: 1,643,864 SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON JUNE 30, 1997
<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 4 - Submission of Matters to a Vote of Security Holders 17
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>
June 30 Dec. 31
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 13,984 $ 11,729
Federal Funds Sold -- 2,200
--------- ---------
Total Cash and Cash Equivalents 13,984 13,929
Interest-Bearing Deposits With Banks 93 285
Investment Securities 18,265 20,999
(Market Value: June 30, 1997 - $18,380;
Dec. 31, 1996 - $21,124)
Securities Available-for-Sale at Fair Value 66,494 56,779
Mortgage Loans Held-for-Sale 379 721
Total Loans, Net of Unearned Discount 233,151 220,117
LESS: Allowance for Possible Loan Losse (2,589) (2,532)
--------- ---------
Net Loans 230,562 217,585
Premises and Equipment 7,609 7,030
Accrued Interest Income 2,204 2,020
Other Real Estate Owned 513 595
Other Assets 3,259 2,409
--------- ---------
TOTAL ASSETS $ 343,362 $ 322,352
========= =========
LIABILITIES
Deposits
Non-Interest Bearing Deposits $ 33,127 $ 31,450
Interest-Bearing Deposits 250,127 236,218
--------- ---------
Total Deposits 283,254 267,668
Securities Sold Under Agreements to Repurchase 6,866 3,795
Short-Term Borrowing 1,085 --
Long-Term Debt 18,432 18,512
Accrued Interest Payable 3,262 3,205
Other Liabilities 2,324 2,367
--------- ---------
TOTAL LIABILITIES 315,223 295,547
--------- ---------
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 8,219 7,803
Issued - 1,643,864 shares at June 30, 1997
and 1,560,634 shares at Dec. 31, 1996
Additional Paid in Capital 10,776 9,212
Retained Earnings 9,069 9,975
Less Treasury Stock at Cost: 0 shares in 1997
and 861 in 1996 -- (20)
Employee Stock Ownership Plan Debt (432) (512)
Net Unrealized Gain (Loss) on Securities
Available-for-Sale 507 347
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 28,139 26,805
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 343,362 $ 322,352
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 4,953 $ 4,318 $ 9,671 $ 8,631
Investment Securities Income
Taxable 1,157 1,177 2,261 2,287
Tax-Exempt 190 140 380 263
Interest on Other Investments
Deposits With Banks 12 17 29 48
Federal Funds Sold -- -- 1 2
--------- --------- --------- ---------
Total Interest Income 6,312 5,652 12,342 11,231
INTEREST EXPENSE:
Interest on Deposits 2,273 2,208 4,486 4,385
Interest on Repurchase Agreements 57 47 91 76
Interest on Short-Term Borrowing 59 48 94 156
Interest on Long-Term Debt 289 27 564 57
--------- --------- --------- ---------
Total Interest Expense 2,678 2,330 5,235 4,674
--------- --------- --------- ---------
NET INTEREST INCOME: 3,634 3,322 7,107 6,557
Provision (credit) for Possible
Loan Losses 187 305 300 410
--------- --------- --------- ---------
Net Interest Income After Provision
For Possible Loan Losses 3,447 3,017 6,807 6,147
--------- --------- --------- ---------
OTHER INCOME:
Trust Income 192 174 379 348
Service Charges on Deposit Accounts 258 267 551 511
Investment Securities Gains
(Losses), Net 94 146 234 272
Gains (Losses) on the Sale of
Mortgage Loans 50 (1) 49 5
Other Operating Income 260 169 402 300
--------- --------- --------- ---------
Total Other Income 854 755 1,615 1,436
--------- --------- --------- ---------
OTHER EXPENSES:
Salaries and Employee Benefits 1,473 1,387 2,954 2,801
Net Occupancy and Equipment Expense 574 531 1,106 1,076
Other Operating Expenses 1,122 884 2,263 1,879
--------- --------- --------- ---------
Total Other Expenses 3,169 2,802 6,323 5,756
--------- --------- --------- ---------
Income Before Income Taxes 1,132 970 2,099 1,827
Provision for Income Taxes (Credit) 320 280 583 522
--------- --------- --------- ---------
NET INCOME $ 812 $ 690 $1,516 $1,305
========= ========= ========= =========
Net Income Per Share $0.50 $ 0.43 $ 0.94 $ 0.82
========= ========= ========= =========
Average Shares Outstanding 1,624,852 1,600,325 1,622,732 1,597,809
</TABLE>
See accompanying notes to interim financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
Six Months Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,516 $ 1,305
Adjustments to Reconcile
Net Income to Net Cash
Provided by (Used In) Activities:
Provision for Possible Loan Losses 300 410
Depreciation and Amortization 417 360
Amortization of Security Discounts (32) (78)
Amortization of Security Premiums 66 84
Amortization of Deferred Fees on Loans (17) 49
Investment Securities Gains, Net (234) (272)
Gain on Sale of Mortgage Loans (49) (5)
Mortgage Loans Originated for Sale (7,587) (8,241)
Mortgage Loan Sales 7,929 2,040
Changes in Assets and Liabilities:
Net Increase in Accrued Interest Income (184) (207)
Increase (Decrease) in Accrued
Interest Payable 57 (431)
Net Increase in Other Assets (859) (824)
Net Decrease in Other Liabilities (126) (118)
-------- --------
Net Cash Provided by (Used In)
Operating Activities 1,197 (5,928)
-------- --------
INVESTING ACTIVITIES
Proceeds from Maturities of Securities
Available-for-Sale 3,436 8,334
Proceeds from Maturities of Securities
Held-to-Maturity 3,623 4,417
Proceeds from Sales of Securities
Available-for-Sale 6,692 10,295
Purchase of Securities Available-for-Sale (17,521) (21,930)
Purchase of Securities Held-to-Maturity (2,768) (4,164)
Net Decrease in Interest Bearing
Deposits With Banks 192 623
Net Increase in Loans (13,675) (8,775)
Purchase of Premises and Equipment, Net (987) (466)
Proceeds from Sale of Other Real Estate Owned 546 289
-------- --------
Net Cash Used In Investing Activities (20,462) (11,377)
-------- --------
FINANCING ACTIVITIES
Net Increase in Interest and Non-Interest
Bearing Demand Deposits and Savings Accounts 4,826 5,940
Net Increase in Certificates of Deposits 10,760 2,286
Proceeds from sale of Treasury Stock 20 --
Net Increase in Short-Term Borrowing 1,085 6,905
Net Increase (Decrease) in Repurchase Agreements 3,071 (1,236)
Proceeds from Issuance of Stock 116 123
Cash Dividends (554) (491)
Cash in Lieu of Fractional Shares (4) (3)
-------- --------
Net Cash Provided by Financing Activities 19,320 13,524
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 55 (3,781)
Cash and Cash Equivalents, January 1 13,929 15,549
-------- --------
Cash and Cash Equivalents, June 30 $ 13,984 $ 11,768
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - GENERAL
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, 1996.
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 six months ended June 30, 1997 are not necessarily
indicative of results to be expected for the full year or any other interim
period.
NOTE B - CASH DIVIDENDS
On May 23, 1997 the Company paid its 1997 second quarter dividend on its common
stock of $.17 per share to shareholders of record on May 8, 1997.
NOTE C - STOCK DIVIDEND
On June 19, 1997 the Company paid a 5% stock dividend to shareholders of record
on May 30, 1997. Fractional shares were paid in cash based on the closing price
of $23.875 per share on the record date. Earnings per share and average shares
outstanding have been restated to reflect the 5% stock dividend.
NOTE D - NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed. Basic
earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock or resulted in the issuance of
common stock that then shared the earnings of the entity. The pro forma effect
of adopting the new standard would be basic earnings per share of $0.50 and
$0.43 and diluted earnings per share of $0.50 and $0.43 for the three months
ended June 30, 1997 and 1996.
<PAGE>
NOTE E - IMPAIRED LOANS
As provided by Statement of Financial Accounting Standards (SFAS) No. 114,
"Acounting 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", the Company measures 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, impairment may be measured based on a
loans' observable market price, or the fair value of the collecteral if the loan
is collateral dependent. The Company measures impairment based on the fair value
of the collateral when it determines that foreclosure is probable.
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.
The recorded investment in these loans and the valuation for credit loses
related to loan impairment are as follows:
At June 30,
1997 1996
--------- -----------
Principal amount of impaired loans $ 377,000 $ 1,690,000
Accrued interest --- ---
Deferred loan costs 7,000 4,000
--------- -----------
384,000 1,694,000
Less valuation allowance 105,000 285,000
--------- -----------
$ 279,000 $ 1,409,000
========= ===========
On January 1, 1995 a valuation for credit losses related to impaired loans was
established. The activity in this allowance account for the six months ending
June 30, is as follows:
1997 1996
---------- ----------
Valuation allowance at January 1, $ 128,000 $ 238,000
Provision for loan impairment 17,000 175,000
Transfer from Unallocated Allowance for
Possible Loan Losses --- 50,000
Direct charge-offs (40,000) (187,000)
Recoveries --- 9,000
---------- ----------
Valuation allowance at June 30, $ 105,000 $ 285,000
========== ==========
Total cash collected on impaired loans during the six month period ended June
30, 1997 was $591,000, of which $569,000 was credited to the principal balance
outstanding on such loans and $22,000 was recognized as interest income.
Interest that would have been accrued on impaired loans during the first six
months of 1997 was $38,000. Interest income on loans recognized for the first
half of 1997 was $4,953,000. The valuation allowance for impaired loans of
$105,000 at June 30, 1997 and $285,000 at June 30, 1996 is included in the
"Allowance for Possible Loan Losses" which amounts to $2,589,000 at June 30,
1997. The provision for loan impairment for the six month period ended June 30,
1997 and 1996 is a part of "Provision for Possible Loan Losses" included in the
"Consolidated Statement of Income" for the same period.
<PAGE>
NOTE F - 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 G - 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, 1996, 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 H - FORWARD LOOKING STATEMENTS
The information contained in this Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1997 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, 1996, a copy of which may
be obtained from the Company upon request and without charge (except for the
exhibits thereto) as described in Note G above.
<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 six month periods ended June 30, 1997.
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 June 30, 1997, cash, due from banks, Federal Funds Sold and
interest-bearing deposits with banks totaled $14,077,000, and securities
maturing within one year totaled $1,807,000. At December 31, 1996, cash, due
from banks, Federal Funds Sold and interest bearing deposits with banks totaled
$14,214,000, and securities maturing within one year were $2,892,000. Securities
sold under an agreement to repurchase totaled $6,866,000 at June 30, 1997 and
$3,795,000 at December 31, 1996. 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 $87,000 at June 30, 1997 and
$82,000 at December 31, 1996. 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 June 30, 1997. At December 31,
1996, Federal Funds Sold totaled $2,200,000.
The Federal Home Loan Bank of Pittsburgh provides the Bank with a line of
credit in the amount of $12,895,000, subject to certain collateral requirements.
The Bank had short-term (overnight) borrowings against this line of $1,085,000
at June 30, 1997. The Bank had no short-term (overnight) borrowings at December
31, 1996. The Bank had additional borrowings from the Federal Home Bank at June
30, 1997 totaling $18,000,000 of which $5,000,000 is due in November 1998,
$8,000,000 is due in August 2000 and $5,000,000 is due in December 2001.
Cash flows for the six months ended June 30, 1997 consisted of cash
provided by operating activities of $1,197,000 and cash provided by financing
activities of $19,320,000, offset by cash used in investing activities of
$20,462,000 resulting in an increase in cash and cash equivalents of $55,000.
<PAGE>
Cash provided by operating activities was the result of mortgage loan sales
of $7,929,000, net operating income of $1,516,000, depreciation and amortization
of $417,000 and a provision for possible loan losses of $300,000, partially
reduced by mortgage loans originated for sale of $7,587,000, net increase in
other assets of $859,000, net investment security gains of $234,000, an increase
in accrued interest income of $184,000 and a decrease in other liabilities of
$126,000. Cash was used in investing activities for the purchase of securities
available-for-sale and held-to-maturity of $17,521,000 and $2,768,000,
respectively, net increases in loans to customers of $13,675,000 and the
purchase of premises and equipment of $987,000, partially offset by the proceeds
from the sale of available-for-sale securities of $6,692,000, from the
maturities of held-to-maturity securities of $3,623,000, from proceeds from
maturities of available-for-sale securities of $3,436,000, and proceeds from the
sale of other real estate owned of $546,000. Cash provided by financing
activities consisted of increases in certificates of deposit of $10,760,000,
increases in interest and non-interest bearing demand deposits and savings
accounts of $4,826,000, increases in repurchase agreements of $3,071,000 and
increases in short-term borrowings of $1,085,000, offset in part by the payment
of cash dividends of $554,000. Also affecting financing activities was the
issuance of 5,116 new shares of common stock and 861 treasury shares of common
stock pursuant to the Dividend Reinvestment Plan for proceeds of $116,000 and
$20,000, respectively.
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 June 30, 1997 was $28,139,000 as
compared to $26,805,000 at December 31, 1996, for an increase of $1,334,000 or
4.98%. This increase was attributable to net income for the first six months of
1997 of $1,516,000, proceeds of the sale of common stock pursuant to the
Dividend Reinvestment Plan of $116,000, proceeds of the sale of treasury stock
in the Dividend Reinvestment Plan of $20,000 and a reduction of $80,000 of debt
related to the Company's Employee Stock Ownership Plan less the payment of cash
dividends of $554,000, the payment of cash in lieu of fractional shares from the
stock dividend of $4,000 and an increase of $160,000 in the value of the
securities available-for-sale (see discussion on "Investment Securities").
On June 19, 1997 the Company paid a 5% stock dividend to shareholders of
record on May 30, 1997. Fractional shares were paid in cash based on the closing
price of $23.875 per share on the record date.
The Company maintains a Dividend Reinvestment and Stock Purchase Plan.
During the first six months of 1997, 5,116 shares of common stock were purchased
from authorized and unissued shares at an average price of $22.685 per share.
The Company and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of Tier
1 capital of at least 4% and total capital, Tier 1 and Tier 2, of 8% of
risk-adjusted assets and of Tier 1 capital of at least 4% of average assets
(leverage ratio). Tier 1 capital includes common shareholders' equity and
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.
Management believes, that as of June 30, 1997, the Company and the Bank met all
capital adequacy requirements to which they were subject.
<PAGE>
CAPITAL RATIOS
<TABLE>
To Be Well
Capitalized
Required Under Prompt
For Capital Corrective
Actual Adequacy Action
(Dollars in Thousands)
At June 30, 1997 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $29,905 15.03% $15,916 8.00% N/A
Bank $26,513 13.36% $15,595 8.00% $19,494 10.00%
Tier 1 Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $27,417 13.78% $ 7,958 4.00% N/A
Bank $23,231 11.70% $ 7,798 4.00% $11,696 6.00%
Tier 1 Capital
(To Average Assets,
Leverage)
Company, (Consolidated) $27,417 8.17% $13,243 4.00% N/A
Bank $23,231 6.98% $13,120 4.00% $16,400 5.00%
</TABLE>
<TABLE>
To Be Well
Capitalized
Required Under Prompt
For Capital Corrective
Actual Purposes Provisions
(Dollars in Thousands)
At December 31, 1996 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $28,596 15.20% $15,046 8.00% N/A
Bank $25,591 13.59% $15,065 8.00% $18,831 10.00%
Tier 1 Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $26,243 13.95% $ 7,522 4.00 N/A
Bank $22,435 11.91% $ 7,532 4.00% $11,299 6.00%
Tier 1 Capital
(To Average Assets,
Leverage)
Company, (Consolidated) $26,243 8.35% $12,578 4.00% N/A
Bank $22,435 7.20% $12,456 4.00% $15,570 5.00%
</TABLE>
<PAGE>
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 adverse effect on liquidity, capital
resources, or the operations of the Company.
Assets and Liabilities Total assets at June 30, 1997 were $343,362,000,
representing an increase of 6.52% over total assets of $322,352,000 at December
31, 1996. Deposits increased by $15,586,000 or 5.8% from $267,668,000 on
December 31, 1996 to $283,254,000 on June 30, 1997. This increase was a result
of growth of $10,759,000 in certificates of deposit, $2,476,000 in savings and
club accounts, $1,699,000 in non-interest checking deposits, $1,118,000 in
interest-bearing checking accounts, offset in part by a decline of $466,000 in
money market deposits. Loans outstanding at June 30, 1997 were $233,151,000, as
compared to $220,117,000 at December 31, 1996. This is an increase of
$13,034,000 or 5.92%. The growth in loans was comprised primarily of an increase
of $8,797,000 or 10.16% in residential real estate loans and a $4,542,000 or
7.77% increase in consumer loans, offset in part by a $285,000 or 0.38% decrease
in commercial loans. During the first half of 1997, $7,929,000 of residential
real estate loans were sold. The amount of these sold loans originated in the
first half of 1997 was $2,890,000 with the remaining $5,039,000 being originated
in 1996. The bank continues to service all of these loans. As of June 30, 1997
there were $379,000 of mortgage loans identified as held-for-sale. The loan to
deposit ratio was 82.3% at June 30, 1997 and 82.2% at December 31, 1996.
Premises and equipment increased by $579,000 to $7,609,000 at June 30, 1997
from $7,030,000 at December 31, 1996. This increase was primarily the result of
the purchase of furniture and equipment.
The Company had long-term debt totaling $18,432,000 at June 30, 1997 as
compared to $18,512,000 at December 31, 1996. Included in this total, the Bank
had outstanding borrowings of $18,000,000 from the Federal Home Loan Bank of
Pittsburgh at March 31, 1997 and December 31, 1996. Of this amount, $5,000,000
matures in November 1998, $8,000,000 matures in August 2000 and the remaining
$5,000,000 matures in December 2001. The interest rates associated with these
loans are 5.96% fixed, 5.89% fixed and 5.86% variable (changes quarterly based
on the three month LIBOR plus 8 basis points), respectively. 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.
At June 30, 1997 the Bank had total short-term borrowings from the Federal
Home Loan Bank of Pittsburgh of $1,085,000 against a line of credit of
$12,895,000. The Company had no short-term borrowings at December 31, 1996.
<PAGE>
Results of Operations The net income for the three month ended June 30,
1997 was $812,000, a $122,000 or 17.68% increase compared to net income of
$690,000 for the same period in 1996. The earnings improvement is primarily
attributable to an increase in net interest income. During the second quarter of
1997, net interest income increased $312,000 or 9.4% as compared to June 30,
1996. Also affecting earnings was a $118,000 decrease in the provision for
possible loan losses, a $151,000 increase in total other income, exclusive of
net security gains of $94,000, an increase in total other expenses of $367,000
and an increase in Federal income taxes of $40,000.
The net income for the six months ended June 30, 1997 was $1,516,000, a
$211,000 increase from net income of $1,305,000 for the same period in 1996.
This increase is primarily attributable to an increase in net interest income of
$550,000, a reduction in the provision for possible loan losses of $110,000, a
$217,000 increase in other income, exclusive of net security gains of $234,000,
partially offset by increases in other expenses and Federal income taxes of
$567,000 and $61,000, respectively.
Per share earnings for the three months ended June 30 were $.50 and $.43
for 1997 and 1996, respectively. Average shares outstanding during this three
month period were 1,624,852 in 1997 and 1,600,325 in 1996. The net income per
share was $.94 for the first six months of 1997 as compared to earnings per
share of $.82 for the same time period in 1996. Average shares outstanding were
1,622,732 for the first six months of 1997 and 1,597,809 for the first six
months of 1996. Per share earnings and average shares outstanding have been
restated to reflect the 5% stock dividend paid on June 19, 1997.
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 $3,634,000 for the three months ended June 30,
1997, as compared to $3,322,000 for the three months ended June 30, 1996, an
increase of $312,000 or 9.4%. During the three month period ended June 30, 1997,
interest income increased $660,000 or 11.7% and interest expense increased by
$348,000 or 14.9% over the same time period of 1996. The increase in interest
expense was due in part to growth in certificates of deposit.
For the six month period ended June 30, 1997, net interest income increased
$550,000 or 8.4% to $7,107,000 over the same period in 1996 of $6,557,000. In
this six month period, interest income increased by $1,111,000 or 9.9% and
interest expense increased $561,000 or 12.0% as compared to 1996. This increase
in net interest income during the six month time 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 six month period was primarily
due to an increase in certificates of deposit balances and higher interest
rates. Interest earnings assets, including loans were $318,382,000 at June 30,
1997 as compared to $289,519,000 at June 30, 1996. This represents an increase
of $28,863,000 or 10.0%.
<PAGE>
Other Income and Other Expenses Other income for the three months ended
June 30, 1997 including service charges, trust fees, gains on the sale of
mortgage loans and other miscellaneous income, but exclusive of securities gains
or losses, was $760,000 as compared to $609,000 for the same period in 1996.
This was an increase of $151,000 or 24.8% In the three month period ended June
30, 1997 service charges were $258,000 a $9,000 or 3.4% decrease over the 1996
amount of $267,000. The revenues from the Trust Department operations were
$192,000 for the three months ended June 30, 1997 as compared to $174,000 for
the three months ended June 30, 1996, an increase of $18,000 or 10.3%. There
were $50,000 in gains on the sale of mortgage loans for the three month period
ending June 30, 1997 and losses of $1,000 for the same period in 1996. Other
miscellaneous income for the three months ended June 30, 1997 was $260,000 as
compared to $169,000 for the same period in 1996, an increase of $91,000 or
53.8%.
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 18.6% or $217,000 to $1,381,000 from
$1,164,000 for the six months ended June 30, 1997 over the same time period in
1996. Service charges amounted to $551,000 for the six months ended June 30,
1997 compared to $511,000 for the six months ended June 30, 1996, an increase of
$40,000 or 7.8%. The revenue from the Trust Department operations was $379,000
for the six months ended June 30, 1997, representing a $31,000 or 8.9% increase
over the $348,000 for the six months ended June 30, 1996. The gain on the sale
of mortgage loans amounted to $49,000 for the first six months of 1997 as
compared to $5,000 for the same period in 1996, an increase of $44,000 or
880.0%. Other income for the six months ended June 30, 1997 was $402,000 as
compared to $300,000 for the same period in 1996. This is an increase of
$102,000 or 34.0%.
Included in gains on the sale of mortgage loans is $98,000 as a result of
the capitalization of mortgage servicing rights (an intangible asset) in
accordance with Financial Accounting Standards Board's Statement of Financial
Accounting Standards (FASB) No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. Additionally related
amortization of $1,000 is included in Other Operating Expenses.
Total other expenses for the three month period ended June 30, 1997
increased by $367,000 or 13.1% to $3,169,000 over the total other expenses for
the same time period in 1996 of $2,802,000. Included in this increase is a
$86,000 or 6.2% increase in salary and benefit expenses which were $1,473,000 as
compared to $1,387,000 in 1996. These increases are primarily due to the
additional staff as a result of the opening of the new East Stroudsburg Wal-Mart
branch in January 1997, and general salary increases of approximately 4%.
Occupancy and equipment expenses were $574,000 for the three month period ended
June 30, 1997 and $531,000 for the three month period ended June 30, 1996 an
increase of $43,000 or 8.1%. Most of this increase was due to increases in rent
and maintenance expenses related to the new branch. Other operating expenses for
the three month period ended June 30, 1997 were $1,122,000 an increase of
$238,000 or 26.9% over the $884,000 in other expenses for the same period in
1996.
Other expenses for the six months ended June 30, 1997 increased by
$567,000or 9.9%, to $6,323,000 from $5,756,000 for the same period in 1996.
Salaries and employee benefits were $2,954,000 for the six months ended June 30,
1997 as compared to $2,801,000 for the six months ended June 30, 1996
representing an increase of $153,000 or 5.5%. These increases are primarily due
to the addition of the East Stroudsburg Wal-Mart branch. Occupancy and equipment
expenses were $1,106,000 for the six months ended June 30, 1997 and $1,076,000
for the six months ended June 30, 1996, an increase of $30,000 or 2.8%. Most of
this increase is also due to the new branch. Other operating expenses for the
six months ended June 30, 1997 were 2,263,000 in relation to $1,879,000 for the
six months ended June 30, 1996, an increase of $384,000 or 20.4%.
<PAGE>
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 June 30, 1997 and December 31, 1996.
Available-for-sale securities are carried at fair value with the net
unrealized gains or losses reported in equity. The Company had $66,494,000 in
available-for-sale securities at June 30, 1997 with a net unrealized gain of
$507,000. At December 31, 1996 available-for-sale securities amounted to
$56,779,000 with a net unrealized gain of $347,000.
During the three month period ended June 30, 1997, $4,136,000 of securities
available-for-sale were sold for a net gain of $94,000. For the same period in
1996, $2,698,000 of available-for-sale securities were sold for a net gain of
$146,000. For the six months of 1997, net securities gains amounted to $234,000
on the sale of $6,692,000 of available-for-sale securities as compared to
securities gains of $272,000 on the sale of $10,295,000 of available-for-sale
securities for the same period in 1996.
Held-to-maturity securities are carried at cost. The held-to-maturity
securities totaled $18,265,000 at June 30, 1997. At December 31, 1996 the
held-to-maturity securities totaled $20,999,000. The Company has the intent and
ability to hold the held-to-maturity securities until maturity. The Company, at
June 30, 1997 and December 31, 1996, did not hold any securities identified as
derivatives. At June 30, 1997 and December 31, 1996 the Company did hold
$1,000,000 and $1,000,000 par value, 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 June 30,
1997 was $187,000 compared to $305,000 for the same period in 1996. The
provision for loan losses for the first six months of 1997 was $300,000 as
compared to $410,000 for the first six months of 1996.
Net loan losses were $107,000 for the three month period ending June 30,
1996. Net loan losses for the same period in 1996 were $198,000. For the first
six months of 1997, net loan losses were $243,000 as compared to $359,000 during
the first six months of 1996.
<PAGE>
The allowance for possible loan losses at June 30, 1997 totaled $2,589,000
an increase of $57,000 over the December 31, 1996 amount of $2,532,000. The
allowance for possible loan losses as a percentage of total loans outstanding at
June 30, 1997 was 1.11%. This compares to 1.15% at December 31, 1996. As
provided by SFAS No. 114, as amended by SFAS No. 118, $105,000 of the allowance
for possible loan losses is allocated to impaired loans at June 30, 1996 (see
Note E "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 periods indicated.
Non-Performing Loans
June 30, December 31,
1997 1996
Non-accrual loans on a cash basis $ 668,000 $1,440,000
Non-accrual loans as a percentage
of total loans .29% .65%
Accruing loans past due 90 days or more $1,161,000 $ 986,000
Accruing loans past due 90 days or more
as a percentage of total loans .50% .45%
Other Real Estate Owned from
Foreclosed Property $ 513,000 $ 595,000
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
June 30, 1997. .
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
On May 1, 1997 the Company held its annual meeting of shareholders. At the
annual meeting, the shareholders elected Daniel B. Mulholland, Charles J.
Peischl and John J. Schlamp as Class 1 Directors of the Company to serve for a
term of four years and until their successors are duly elected and qualified.
The following is a tabulation of the vote for these directors.
Votes
Withheld
For Authority
Daniel B. Mulholland 768,288 2,308
Charles J. Peischl 769,168 1,486
John J. Schlamp 769,168 1,486
The other directors whose terms of office as a director continued after the
meeting are S. Eric Beattie, Robert Bergren, Paul A. Lentz, Gordon B. Mowrer,
Robert C. Nagel, Richard Stevens III and Maria Zumas Thulin.
There were no other matters brought before the meeting.
ITEM 5. Other Information
In May, the Board of Directors accepted with regret the decision by Paul
Lentz to retire as a member of the Company's Board of Directors. Paul has been
an outstanding member of the Board Team since 1971. During his tenure on the
Board, Paul has served as an active member of the Audit Committee, Directors'
Loan & Discount Committee, Investment Committee, Strategic Planning Committee,
ESOP Investment Committee and the Trust Committee.
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: August 14, 1997 BY: /S/ S. ERIC BEATTIE
S. ERIC BEATTIE
PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE: August 14, 1997 BY: /S/ REID L. HEEREN
REID L. HEEREN
VICE PRESIDENT
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Exhibit 11.1
First Colonial Group, Inc. and Subsidiaries
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary
Earnings $ 812 $ 690 $1,516 $1,305
--------- --------- --------- ---------
Shares *
Weighted average number of common
shares outstanding 1,619,264 1,598,944 1,617,144 1,596,428
Assuming exercise of option reduced
by the number of shares which could
have been purchased with the
proceeds from exercise
of such options 5,588 1,381 5,588 1,381
--------- --------- --------- ---------
Weighted average number of common shares
outstanding as adjusted 1,624,852 1,600,325 1,622,732 1,597,809
Primary earnings per common share $0.50 $0.43 $0.94 $0.82
========= ========= ========= ========
Assuming full dilution
Earnings $ 812 $ 690 $1,516 $1,305
--------- --------- --------- ---------
Shares *
Weighted average number of common
shares outstanding 1,619,264 1,598,944 1,617,144 1,596,428
Assuming exercise of option reduced
by the number of shares which could
have been purchased with the
proceeds from exercise
of such options 5,588 1,381 5,588 1,381
--------- --------- --------- ---------
Weighted average number of common shares
outstanding as adjusted 1,624,852 1,600,325 1,622,732 1,597,809
Earnings per common share assumin
full dilution $0.50 $0.43 $0.94 $0.82
========= ========= ========= ========
</TABLE>
* Restated per 5% Stock Dividend paid on June 19, 1997.
** 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>
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<CIK> 0000714719
<NAME> FIRST COLONIAL GROUP
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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<ALLOWANCE> 2,589
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0
0
<COMMON> 8,219
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