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, 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 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: 1,562,673 SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON MARCH 31, 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 5 - Other Information 16
ITEM 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
ASSETS March 31 Dec. 31
1997 1996
-------- --------
<S> <C> <C>
Cash and Due From Banks $ 10,832 $ 11,729
Federal Funds Sold -- 2,200
-------- --------
Total Cash and Cash Equivalents 10,832 13,929
Interest-Bearing Deposits With Banks 142 285
Investment Securities Held-to-Maturity 21,585 20,999
(Fair Value: Mar. 31, 1997 - $21,541;
Dec. 31, 1996 - $21,124)
Securities Available-for-Sale at Fair Value 63,325 56,779
Mortgage Loans Held-for-Sale 1,435 721
Loans, Net of Unearned Discount 224,153 220,117
LESS: Allowance for Possible Loan Losses (2,537) (2,532)
-------- --------
Net Loans 221,616 217,585
Premises and Equipment 7,210 7,030
Accrued Interest Income 2,451 2,020
Other Real Estate Owned 670 595
Other Assets 2,876 2,409
-------- --------
TOTAL ASSETS $ 332,142 $ 322,352
======== ========
LIABILITIES
Deposits
Non-Interest Bearing Deposits $ 31,547 $ 31,450
Interest-Bearing Deposits 243,157 236,218
-------- --------
Total Deposits 274,704 267,668
Securities Sold Under Agreements to Repurchase 3,113 3,795
Short-Term Borrowing 3,330 --
Long-Term Debt 18,458 18,512
Accrued Interest Payable 3,071 3,205
Other Liabilities 2,473 2,367
-------- --------
TOTAL LIABILITIES 305,149 295,347
-------- --------
SHAREHOLDERS' EQUITY
Preferred Stock, Par Value $5.00 a share -- --
Authorized - 500,000 shares, none issued
Common Stock, Par Value $5.00 a share 7,813 7,803
Authorized - 10,000,000 shares
Issued -- 1,562,673 shares at Mar.1997
and 1,560,634 shares at Dec. 31, 1996
Additional Paid in Capital 9,247 9,212
Retained Earnings 10,403 9,975
Less Treasury Stock at Cost -- (20)
Employee Stock Ownership Plan Debt (458) (512)
Net Unrealized Gain (Loss) on Securities
Available-for-Sale (12) 347
-------- --------
Total Shareholders' Equity 26,993 26,805
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $332,142 $322,352
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
<TABLE>
Three Months Ended
Mar. 31, Mar. 31,
1997 1996
--------- ---------
<S> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 4,718 $ 4,313
Interest on Investment Securities
Taxable 1,104 1,110
Tax-Exempt 190 123
Interest on Other Investments
Deposits With Banks 17 31
Federal Funds Sold 1 2
--------- ---------
Total Interest Income 6,030 5,579
--------- ---------
INTEREST EXPENSE:
Interest on Deposits 2,213 2,177
Interest on Repurchase Agreements 34 29
Interest on Short-Term Borrowing 35 108
Interest on Long-Term Debt 275 30
--------- ---------
Total Interest Expense 2,557 2,344
--------- ---------
NET INTEREST INCOME 3,473 3,235
Provision for Possible Loan Losses 113 105
--------- ---------
Net Interest Income After Provision
For Possible Loan Losses 3,360 3,130
--------- ---------
OTHER INCOME:
Trust Income 187 174
Service Charges on Deposit Accounts 293 244
Investment Securities Gains, Net 140 126
Gain (Loss) on the Sale of Mortgage Loans (1) 6
Other Operating Income 142 131
--------- ---------
Total Other Income 761 681
--------- ---------
OTHER EXPENSES:
Salaries and Employee Benefits 1,481 1,414
Net Occupancy and Equipment Expense 532 545
Other Operating Expenses 1,141 995
--------- ---------
Total Other Expenses 3,154 2,954
--------- ---------
Income Before Income Taxes 967 857
Provision for Income Taxes 263 242
--------- ---------
NET INCOME $ 704 $ 615
========= =========
Net Income Per Share $ 0.46 $ 0.41
========= =========
Average Shares Outstanding 1,537,180 1,517,383
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
Three Months Ended
March 31, March 31,
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 704 $ 615
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Possible Loan Losses 113 105
Depreciation and Amortization 202 176
Amortization of Security Discounts (16) (32)
Amortization of Security Premiums 40 38
Amortization of Deferred Fees on Loans (7) 19
Mortgage Loans Originated for Sale (4,201) (3,080)
Mortgage Loan Sales 3,487 1,332
(Gain) Loss on Sale of Mortgage Loans 1 (6)
Investment Securities Gains, Net (140) (126)
Changes in Assets and Liabilities:
Increase in Accrued Interest Income (431) (324)
Decrease in Accrued Interest Payable (134) (315)
Net Increase in Other Assets (471) (417)
Net Increase in Other Liabilities 291 121
-------- --------
Net Cash (Used In) Operating Activities (563) (1,894)
-------- --------
INVESTING ACTIVITIES
Proceeds from Maturities of Securities
Available-for-Sale 1,281 5,831
Proceeds from Maturities of Securities
Held-to-Maturity 415 1,621
Proceeds from Sales of Securities Available-for-Sale 2,556 2,698
Purchase of Securities Available-for-Sale (10,808) (13,063)
Purchase of Securities Held-to-Maturity (1,004) (998)
Net Decrease in Interest Bearing Deposits With Banks 143 528
Net Increase in Loans (4,397) (653)
Purchase of Premises and Equipment, Net (378) (235)
Proceeds from Sale of Other Real Estate Owned 184 155
-------- --------
Net Cash (Used In) Investing Activities (12,008) (4,116)
-------- --------
FINANCING ACTIVITIES
Net Increase in Interest and Non-Interest
Bearing Demand Deposits and Savings Accounts 3,105 2,473
Net Increase in Certificates of Deposits 3,931 1,521
Proceeds from Sale of Treasury Stock 20 --
Net (Decrease) in Repurchase Agreements (682) (3,577)
Net Increase in Short-Term Borrowings 3,330 575
Proceeds from Issuance of Stock 45 55
Cash Dividends Paid (276) (245)
-------- --------
Net Cash Provided by Financing Activities 9,473 802
-------- --------
(Decrease) in Cash and Cash Equivalents (3,097) (5,208)
Cash and Cash Equivalents, January 1 13,929 15,549
-------- --------
Cash and Cash Equivalents, March 31, $ 10,832 $ 10,341
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
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 months ended March 31, 1997 are not necessarily
indicative of results to be expected for the full year or any other interim
period.
NOTE B - CASH DIVIDENDS
On February 21, 1997 the Company paid its 1997 first quarter dividend on its
common stock of $.18 per share to shareholders of record on February 7, 1997.
NOTE C - STOCK DIVIDEND
On June 19, 1996 the Company paid a 5% stock dividend to shareholders of record
on May 31, 1996. Fractional shares were paid in cash based on the closing price
of $18.50 per share on the record date. Net income 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 $0.46 and
$0.41 and diluted earnings per share of $0.46 and $0.41 for the quarters ended
March 31, 1997 and 1996.
<PAGE>
NOTE E - 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 the observable market
price of a loan, 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 on 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:
March 31,
1997
--------
Principal amount of impaired loans $721,000
Deferred loan costs 6,000
--------
727,000
Less valuation allowance 197,000
--------
$530,000
On January 1, 1995 a valuation for credit losses related to impaired loans was
established. The activity in this allowance account for the quarter ending March
31, 1997 is as follows:
Valuation allowance at January 1, 1997 $128,000
Provision for loan impairment 95,000
Direct charge-offs (26,000)
--------
Valuation allowance at March 31, 1997 $197,000
<PAGE>
Total cash collected on impaired loans during the quarter ended March 31, 1997
was $416,000, of which $401,000 was credited to the principal balance
outstanding on such loans and $15,000 was recognized as interest income.
Interest that would have been accrued on impaired loans during the quarter was
$20,000. Interest income recognized during the quarter was $6,030,000. The
valuation allowance for impaired loans of $197,000 at March 31, 1997 is included
in the "Allowance for Possible Loan Losses" which amounts to $2,537,000 at March
31, 1997. The provision for loan impairment of $95,000 for the three month
period ended March 31, 1997 is included in the "Provision for Possible Loan
Losses" as reflected on the "Consolidated Statement of Income" for the same
period.
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 March 31, 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 trends of
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 month period ended March 31, 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 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, 1997, cash, due from banks, Federal funds sold and interest bearing deposits
with banks totaled $10,974,000, and securities maturing within one year totaled
$3,015,000. 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 $3,113,000 at March 31, 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 $38,000 at March 31, 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 March 31, 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 $12,148,000 at March 31, 1997, subject to certain
collateral requirements. The Bank had short-term (overnight) borrowings against
this line of $3,330,000 at March 31, 1997. The Bank had no short-term
(overnight) borrowings at December 31, 1996. The Bank had additional borrowings
from the Federal Home Loan Bank at March 31, 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.
<PAGE>
Cash flows for the three months ended March 31, 1997 consisted of cash used
in operating activities of $563,000 and cash used in investing activities of
$12,007,000, offset in part by cash provided by financing activities $9,473,000
resulting in a decrease in cash and cash equivalents of $3,097,000.
Cash used in operating activities was the result of mortgage loans
originated for sale of $4,201,000, an increase in other assets of $471,000, an
increase in accrued interest income of $431,000 and a decrease in accrued
interest payable of $134,000, partially reduced by net operating income of
$704,000, mortgage loan sales of $3,487,000, increases in other liabilities of
$291,000, depreciation and amortization of $202,000 and a provision for possible
loan losses of $113,000. Cash was used in investing activities for the purchase
of securities available-for-sale and held-to-maturity of $10,808,000 and
$1,004,000, respectively, net increase in loans to customers of $4,397,000 and
the net purchase of premises and equipment of $378,000, partially offset by the
proceeds from the sale of available-for-sale securities of $2,556,000, proceeds
from the maturities of available-for-sale securities of $1,281,000 and proceeds
from maturities of held-to-maturity securities of $415,000. Cash provided by
financing activities consisted principally of increases in certificates of
deposit of $3,300,000, increases in short-term (overnight) borrowings of
$3,105,000 and increases in interest and non-interest bearing demand deposits
and savings accounts of $3,931,000 offset in part by a decrease in repurchase
agreements of $682,000 and the payment of cash dividends of $276,000. Also
affecting financing activities was the issuance of 2,039 new shares of common
stock and 861 treasury shares of common stock pursuant to the Dividend
Reinvestment Plan for proceeds of $45,000 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 March 31, 1997 was $26,993,000 as
compared to $26,805,000 at December 31, 1996, for an increase of $188,000 or
0.70%. This increase was attributable to a $428,000 increase in retained
earnings during the first three months of 1997 as a result of operating income
of $704,000 less the payment of a cash dividend of $276,000. Proceeds of the
sale of common stock in the Dividend Reinvestment Plan of $45,000, proceeds of
the sale of treasury stock in the Dividend Reinvestment Plan of $20,000 a
reduction in the unrealized gain of securities available-for-sale of $359,000
due to a decrease in the fair value of these securities (see discussion on
"Investment Securities"), and a reduction of $54,000 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 1997, 2,900 shares of common stock were
purchased from authorized and unissued shares at an average price of $22.629 per
share for proceeds of approximately $65,000.
<PAGE>
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.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of Tier
I capital of at least 4% and total capital, Tier I 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 March 31, 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 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>
<TABLE>
To Be Well
Capitalized
Required Under Prompt
For Capital Corrective
Actual Adequacy Action
(Dollars in Thousands)
At December 31, 1995 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $26,060 15.86% $13,142 8.00% N/A
Bank $22,308 13.66% $13,061 8.00% $16,327 10.00%
Tier 1 Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $24,014 14.62% $ 6,571 4.00% N/A
Bank $20,262 12.41% $ 6,531 4.00% $ 9,796 6.00%
Tier 1 Capital
(To Average Assets,
Leverage)
Company, (Consolidated) $24,014 8.20% $11,719 4.00% N/A
Bank $20,262 6.80% $11,915 4.00% $14,895 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 March 31, 1997 were $332,142,000, representing an increase
of 3.04% over total assets of $322,352,000 at December 31, 1996. Deposits
increased by $7,036,000 or 2.63% from $267,668,000 on December 31, 1996 to
$274,704,000 on March 31, 1997. Contributing to this increase were increases in
certificates of deposit of $3,931,000, savings and money market deposits of
$3,153,000, and non-interest bearing checking deposits of $97,000, partially
offset by a decrease in interest-bearing checking deposits of $145,000. Loans
outstanding at March 31, 1997 were $224,153,000 as compared to $220,117,000 at
December 31, 1996. This is an increase of $4,036,000 or 1.83%. The growth in
loans was primarily the result of an increase of $2,329,000 or 2.69% in
residential real estate loans, $1,591,000 or 2.72% in consumer loans and
$116,000 or 0.15% in commercial loans during the first three months of 1997.
During the first quarter of 1997, $3,487,000 of residential real estate loans
were sold. All of the loans sold were originated in 1996. The Bank continues to
service all of these loans. There were $1,435,000 of residential real estate
loans identified as held-for-sale at March 31, 1997. The loan to deposit ratio
was 81.6% at March 31, 1997 and 82.2% at December 31, 1996.
Premises and equipment increased by $180,000 to $7,210,000 at March 31,
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 $18,458,000 at March 31, 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 5.84% 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.
<PAGE>
At March 31, 1997 the Bank had total short-term borrowings from the Federal
Home Loan Bank of Pittsburgh of $3,330,000 against a line of credit of
$12,148,000. The Company had no short-term borrowings at December 31, 1996.
There were no overnight borrowings outstanding at December 31, 1996.
Results of Operations
Net income for the three months ended March 31, 1997 was $704,000 compared
to $615,000 for the same period in 1996. The earnings improvement is primarily
attributable to an increase in net interest income. During the first quarter of
1997, net interest income increased $238,000 or 7.4% as compared to March 31,
1996. Also affecting earnings was a $66,000 increase in total other income
exclusive of security gains of $140,000, an increase in total other expenses of
$200,000 and and increase in Federal income taxes of $21,000.
Per share earnings for the three months ended March 31, 1997 were $0.46
compared to $0.41 for the first three months of 1996. Average shares outstanding
during this three month period were 1,537,180 in 1997 and 1,517,383 in 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 $3,473,000 for the three months ended March 31, 1997, as compared to
$3,235,000 for the three months ended March 31, 1996, an increase of $238,000 or
7.4%. During the three month period ended March 31, 1997, interest income
increased $451,000 or 8.1% and interest expense increased by $213,000 or 9.1%
over the same period in 1996. 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 earned 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 $310,640,000 at March 31, 1997 as
compared to $279,004,000 at March 31, 1996. This represents an increase of
$31,636,000 or 11.3%. Interest bearing liabilities at March 31, 1997 were
$268,058,000 as compared to $240,813,000. This represents an increase of
$27,245,000 or 11.3%.
Other Income and Other Expenses
Otherincome for the three months ended March 31, 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 $621,000 as compared to
$555,000 for the same period in 1996 This was an increase of $66,000 or 11.9%.
In the three month period ended March 31, 1997 service charges were $293,000, a
$49,000 or 20.1% increase over the 1996 amount of $244,000. The increase in
service charge income is the result of increases in deposit accounts. The
revenues from the Trust Department operations were $187,000 for the three months
ended March 31, 1997 as compared to $174,000 for the three months ended March
31, 1996, an increase of $13,000 or 7.5%. During the three months ending March
31, 1997, sales of mortgage loans resulted in a loss of $1,000 as compared to a
gain of $16,000 for the same period in 1996. Other operating income for the
three months ended March 31, 1997 was $142,000 as compared to $131,000 for the
same period in 1996, an increase of $11,000 or 8.4%.
<PAGE>
Other expenses for the three months ended March 31, 1997 increased by
$200,000 or 6.8%, to $3,154,000 from $2,954,000 for the same period in 1996.
Salaries and employee benefits were $1,481,000 for the three months ended March
31, 1996 as compared to $1,414,000 for the three months ended March 31, 1996
representing an increase of $67,000 or 4.7%. 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 $532,000 for the three months ended
March 31, 1997 and $545,000 for the three months ended March 31, 1996, a
decrease of $13,000 or 2.4%. Most of this decrease 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, 1997 were $1,141,000 in relation to $995,000 for
the three months ended March 31, 1996, an increase of $146,000 or 14.7%.
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,
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 $63,325,000 in
available-for-sale securities at March 31, 1997 with a net unrealized loss of
$18,000. 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 March 31, 1997 $2,556,000 of securities
available-for-sale were sold for a net gain of $140,000 as compared to
$2,698,000 of securities available-for-sale were sold for a net gain of $126,000
for the same time period in 1996.
Held-to-maturity securities totaling $21,585,000 at March 31, 1997 are
carried at cost. 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 March 31, 1997 and December 31, 1996,
did not hold any securities identified as derivatives. At March 31, 1997 and
December 31, 1996 the Company did hold $2,000,000 and $1,000,000, par value
respectively in various U. S. Agency Step-up or Multi Step-up securities
($1,000,000 in available-for-sale and $1,000,000 in held-to-maturity at March
31, 1997).
<PAGE>
Allowance and Provision for Possible Loan Losses
The provision for loan losses for the three month period ended March 31,
1997 was $113,000 compared to a provision of $105,000 for the same period in
1997. Net loan losses were $107,000 and $161,000 for the three month period
ending March 31, 1997 and 1996, respectively. The allowance for possible loan
losses at March 31, 1997 totaled $2,537,000, an increase of $5,000 over the
December 31, 1996 amount of $2,532,000. The allowance for possible loan losses
as a percentage of total loans outstanding as of March 31, 1997 was 1.13%. This
compares to 1.15% at December 31, 1996. As provided by SFAS No. 114, as amended
by SFAS No. 118, $197,000 of the Allowance for Possible Loan Losses is allocated
to impaired loans at March 31, 1997 (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 the periods indicated.
NON-PERFORMING LOANS
<TABLE>
March 31, December 31,
<S> <C> <C>
Non-accrual loans on a cash basis $1,006,000 $1,440,000
Non-accrual loans as a percentage
of total loans .45% .65%
Accruing loans past due 90 days
or more $1,100,000 $ 986,000
Accruing loans past due 90 days
or more as a percentage of
total loans .49% .45%
Other Real Estate Owned from
Foreclosed Property $ 670,000 $ 595,000
</TABLE>
Thereare 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
Standards No. 15 "Accounting for Debtors and Creditors for Troubled Debt
Restructuring" at March 31, 1997.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. Other Information
None
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 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 9, 1996 BY: /S/ S. ERIC BEATTIE
S. ERIC BEATTIE
PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE: May 9, 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,
1997 1996
--------- ---------
<S> <C> <C>
Primary
Earnings $ 704 $ 615
--------- ---------
Shares *
Weighted average number of common
shares outstanding 1,537,180 1,517,383
Assuming exercise of option reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options 4,689 646
--------- ---------
Weighted average number of common shares
outstanding as adjusted 1,541,869 1,518,029
Primary earnings per common share $ 0.46 $ 0.41
========= =========
Assuming full dilution
Earnings $ 704 $ 615
Shares *
Weighted average number of common
shares outstanding 1,537,180 1,517,383
Assuming exercise of option reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options 4,689 646
--------- ---------
Weighted average number of common shares
outstanding as adjusted 1,537,180 1,518,029
Earnings per common share assuming full
dilution $ 0.46 $ 0.41
========= =========
</TABLE>
* Restated per 5% Stock Dividend paid on June 19, 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000714719
<NAME> FIRST COLONIAL GROUP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,832
<INT-BEARING-DEPOSITS> 142
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,325
<INVESTMENTS-CARRYING> 21,585
<INVESTMENTS-MARKET> 21,541
<LOANS> 224,153
<ALLOWANCE> 2,537
<TOTAL-ASSETS> 332,142
<DEPOSITS> 274,704
<SHORT-TERM> 6,443
<LIABILITIES-OTHER> 5,544
<LONG-TERM> 18,458
0
0
<COMMON> 7,813
<OTHER-SE> 19,180
<TOTAL-LIABILITIES-AND-EQUITY> 332,142
<INTEREST-LOAN> 4,718
<INTEREST-INVEST> 1,294
<INTEREST-OTHER> 18
<INTEREST-TOTAL> 6,030
<INTEREST-DEPOSIT> 2,213
<INTEREST-EXPENSE> 2,557
<INTEREST-INCOME-NET> 3,473
<LOAN-LOSSES> 113
<SECURITIES-GAINS> 140
<EXPENSE-OTHER> 3,154
<INCOME-PRETAX> 967
<INCOME-PRE-EXTRAORDINARY> 704
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 704
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 4.68
<LOANS-NON> 1,006
<LOANS-PAST> 1,100
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,532
<CHARGE-OFFS> 128
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 2,537
<ALLOWANCE-DOMESTIC> 2,004
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 533
</TABLE>
