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, 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: 1,647,220 SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON SEPTEMBER 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 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)
<TABLE>
(Unaudited) (Audited)
Sept. 30 Dec. 31
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 11,724 $ 11,729
Federal Funds Sold -- 2,200
-------- --------
Total Cash and Cash Equivalents 11,724 13,929
Interest-Bearing Deposits With Banks 436 285
Investment Securities 20,387 20,999
(Market Value: Sept. 30, 1997 - $20,606;
Dec. 31, 1996 - $21,124)
Securities Available-for-Sale at Fair Value 71,705 56,779
Mortgage Loans Held-for-Sale 627 721
Total Loans, Net of Unearned Discount 227,705 220,117
Less: Allowance for Possible Loan Losses (2,619) (2,532)
-------- --------
Net Loans 225,086 217,585
Premises and Equipment 7,372 7,030
Other Real Estate 433 595
Accrued Interest Income 2,462 2,020
Other Assets 3,703 2,409
-------- --------
TOTAL ASSETS $343,935 $322,352
======== ========
LIABILITIES
Deposits
Non-Interest Bearing Deposits $ 32,218 $ 31,450
Interest-Bearing Deposits 252,682 236,218
-------- --------
Total Deposits 284,900 267,668
Securities Sold Under Agreements to Repurchase 4,953 3,795
Long-Term Debt 18,406 18,512
Accrued Interest Payable 3,366 3,205
Other Liabilities 2,926 2,367
-------- --------
TOTAL LIABILITIES 314,551 295,547
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
Issued - 1,647,220 shares Sept. 30, 1997
and 1,560,634 shares at Dec. 31, 1996 8,236 7,803
Additional Paid in Capital 10,834 9,212
Retained Earnings 9,631 9,975
Less Treasury Stock at Cost: None at Sept 30, 1997
and 861 shares at Dec. 31, 1996 -- (20)
Employee Stock Ownership Plan Debt (406) (512)
Net Unrealized Gain on Securities Available-for-Sale 1,089 347
-------- --------
Total Shareholders' Equity 29,384 26,805
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $343,935 $322,352
======== ========
</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,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $5,228 $4,634 $14,899 $13,265
Investment Securities Income
Taxable 1,165 1,092 3,426 3,379
Tax-Exempt 215 171 595 434
Interest on Other Investments
Deposits With Banks 23 7 52 55
Federal Funds Sold -- -- 1 2
--------- --------- --------- ---------
Total Interest Income 6,631 5,904 18,973 17,135
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on Deposits 2,411 2,068 6,897 6,453
Interest on Repurchase Agreements 79 37 170 113
Interest on Short-Term Borrowing 16 251 110 407
Interest on Long-Term Debt 292 70 856 127
--------- --------- --------- ---------
Total Interest Expense 2,798 2,426 8,033 7,100
--------- --------- --------- ---------
NET INTEREST INCOME: 3,833 3,478 10,940 10,035
Provision for Possible Loan Losses 143 105 443 515
--------- --------- --------- ---------
Net Interest Income After Provision
For Possible Loan Losses 3,690 3,373 10,497 9,520
--------- --------- --------- ---------
OTHER INCOME:
Trust Income 191 177 570 525
Service Charges on Deposit Accounts 284 276 835 787
Investment Securities Gains, Net 6 36 240 308
Gain (Loss) on the Sale of
Mortgage Loans 66 (18) 115 (13)
Other Operating Income 219 131 621 431
--------- --------- --------- ---------
Total Other Income 766 602 2,381 2,038
--------- --------- --------- ---------
OTHER EXPENSES:
Salaries and Employee Benefits 1,451 1,385 4,405 4,186
Net Occupancy and Equipment Expense 549 582 1,655 1,658
Other Operating Expenses 1,265 1,028 3,528 2,907
--------- --------- --------- ---------
Total Other Expenses 3,265 2,995 9,588 8,751
--------- --------- --------- ---------
Income Before Income Taxes 1,191 980 3,290 2,807
Provision for Income Taxes 336 278 919 800
--------- --------- --------- ---------
NET INCOME $ 855 $ 702 $ 2,371 $ 2,007
========= ========= ========= =========
Net Income Per Share $ 0.52 $ 0.44 $ 1.46 $ 1.26
========= ========= ========= =========
Average Shares Outstanding 1,631,629 1,605,388 1,627,190 1,600,290
</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
Sept 30, 1997 Sept 30, 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,371 $ 2,007
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used In) Operating Activities:
Provision for Possible Loan Losses 443 515
Depreciation and Amortization 644 545
Amortization of Security Discounts (51) (105)
Amortization of Security Premiums 93 125
Amortization of Deferred Fees on Loans (190) 65
Investment Securities Gains, Net (240) (308)
(Gain) Loss on Sale of Mortgage Loans (115) 13
Mortgage Loans Originated for Sale (23,242) (10,128)
Mortgage Loan Sales 23,336 4,218
Changes in Assets and Liabilities:
Net Increase in Accrued Interest Income (442) (387)
Increase (Decrease) in Accrued Interest Payable 161 (435)
Net Increase in Other Assets (1,311) (765)
(Increase) Decrease in Other Liabilities 177 (147)
-------- --------
Net Cash Provided by (Used In) Operating Activities 1,634 (4,787)
-------- --------
INVESTING ACTIVITIES
Proceeds from Maturities of Securities
Available-for-Sale 7,389 11,024
Proceeds from Maturities of Securities
Held-to-Maturity 5,541 4,582
Proceeds from Sales of Securities
Available-for-Sale 12,198 19,795
Purchase of Securities Available-for-Sale (32,282) (27,010)
Purchase of Securities Held-to-Maturity (5,838) (5,914)
Net (Increase) Decrease in Interest Bearing
Deposits With Banks (151) 625
Net Increase in Loans (8,154) (19,586)
Purchase of Premises and Equipment, Net (969) (642)
Proceeds from Sale of Other Real Estate Owned 677 303
-------- --------
Net Cash Used In Investing Activities (21,589) (16,823)
-------- --------
FINANCING ACTIVITIES
Net Increase (Decrease) in Interest
and Non-Interest Bearing Demand Deposits
and Savings Accounts 6,482 4,034
Net Increase in Certificates of Deposits 10,750 2,273
Net Increase in Long-Term Debt -- 8,000
Increase in Short-Term Borrowings -- 8,548
Net Increase (Decrease) in Repurchase Agreements 1,158 (2,168)
Proceeds from Issuance of Stock 190 189
Proceeds from Sale of Treasury Stock 20 --
Cash Dividends (846) (750)
Cash in Lieu of Fractional Shares (4) (3)
-------- --------
Net Cash Provided by Financing Activities 17,750 20,123
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (2,205) (1,487)
Cash and Cash Equivalents, January 1 13,929 15,549
-------- --------
Cash and Cash Equivalents, End of Period $ 11,724 $ 14,062
======== ========
</TABLE>
See accompanying notes to interim 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 nine months ended September 30, 1997 are not
necessarily indicative of results to be expected for the full year or any other
interim period.
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, 1997 or results of
operations of the Company for the three and nine month periods then ended.
NOTE B - CASH DIVIDENDS
On August 22, 1997 the Company paid its 1997 third quarter dividend on its
common stock of $.18 per share to shareholders of record on August 8, 1997.
NOTE C - STOCK DIVIDEND
On June 19, 1997 the Company paid a 5% stock dividend to shareholders of record
of 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 PRONOUNCEMENTS
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.
<PAGE>
In June, 1997, the Financial Accounting Standards Board (FASB) has issued SFAS
No. 130, "Reporting Comprehensice Income", which is effective for years
beginning after December 15, 1997. This new standard requires entities
presenting a complete set of financial statements to include details of
comprehensive income. Comprehensive income consists of net income or loss for
the current period and income, expenses, gains, and losses that bypass the
income statement and are reported directly in a separate component of equity. As
of September 30, 1997, the Bank has not adopted this standard and as a result
does not believe it will have a material impact on the financial statements.
In June, 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which is effective for all periods beginning
after December 15, 1997. SFAS 131 requires that public business enterprises
report certain information about operating segments in complete sets of
financial statements of the enterprise and in condensed financial statements of
interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. As of
September 30, 1997, the Bank has not adopted this standard and as a result does
not believe it will have a material impact on the financial statements.
NOTE E - IMPAIRED LOANS
As provided by 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", 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:
<TABLE>
At September 30,
1997 1996
---------- ----------
<S> <C> <C>
Principal amount of impaired loans $ 292,000 $1,241,000
Accrued interest --- ---
Deferred loan costs 3,000 3,000
---------- ----------
295,000 1,244,000
Less valuation allowance 89,000 123,000
---------- ----------
$ 206,000 $1,121,000
========== ==========
</TABLE>
<PAGE>
In 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>
1997 1996
-------- --------
<S> <C> <C>
Valuation allowance at January 1, $128,000 $238,000
Provision for loan impairment 55,000 149,000
Direct charge-offs (94,000) (273,000)
Recoveries --- 9,000
-------- --------
Valuation allowance at September 30, $ 89,000 $123,000
======== ========
</TABLE>
Total cash collected on impaired loans during the nine month period ended
September 30, 1997 was $669,000, of which $643,000 was credited to the principal
balance outstanding on such loans and $26,000 was recognized as interest income.
Interest that would have been accrued on impaired loans during the first nine
months of 1997 was $50,000. Interest income on loans recognized for the first
nine months of 1997 was $14,899,000. The valuation allowance for impaired loans
of $89,000 at September 30, 1997 and $123,000 at September 30, 1996 is included
in the "Allowance for Possible Loan Losses" which amounts to $2,619,000 at
September 30, 1997. The provision for loan impairment for the nine month period
ended September 30, 1997 and 1996 is a part of "Provision for Possible Loan
Losses" included in 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 September 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
the Company's or 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 perform- ance of the Company and its wholly owned subsidiaries for the
three and nine month periods ended September 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
September 30, 1997, cash, due from banks, Federal Funds Sold and
interest-bearing deposits with banks totaled $12,160,000, and securities
maturing within one year totaled $4,180,000. 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 $4,953,000 at September 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 $397.000 at September 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 September 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 no short-term (overnight) borrowings at September 30, 1997 and
December 31, 1996. The Bank had long-term borrowings from the Federal Home Bank
at September 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 nine months ended September 30, 1997 consisted of cash
used in investing activities of $21,589,000 offset in part by cash provided by
operating activities of $1,634,000 and cash provided by financing activities of
$17,750,000, resulting in a decrease in cash and cash equivalents of $2,205,000.
Cash provided by operating activities was the result of mortgage loan sales
of $23,336,000, net operating income of $2,371,000, depreciation and
amortization of $644,000 and a provision for possible loan losses of $443,000,
partially reduced by mortgage loans originated for sale of $23,242,000, net
increase in other assets of $1,311,000, an increase in accrued interest income
of $442,000 and net investment security gains of $240,000. Cash was used in
investing activities for the purchase of securities available-for-sale and
<PAGE>
held-to-maturity of $32,282,000 and $5,838,000 respectively, net increases in
loans to customers of $8,154,000 and the purchase of premises and equipment of
$969,000, partially offset by the proceeds from the sale of available-for-sale
securities of $12,198,000, from the maturities of available-for-sale securities
of $7,389,000 and from the proceeds from maturities of held-to-maturity
securities of $5,541,000. Cash provided by financing activities consisted of
increases in certificates of deposit of $10,750,000, increases in interest and
non-interest bearing demand deposits and savings accounts of $6,482,000 and
increases in repurchase agreements of $1,158,000, offset in part by the payment
of cash dividends of $846,000. Also affecting financing activities was the
issuance of 8,454 new shares of common stock (7,586 shares pursuant to the
Dividend Reinvestment Plan and 868 pursuant to the exercising of Stock Options
by a Director of the Company) for proceeds of $190,000 and 861 treasury shares
of common stock totaling $20,000.
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, 1997 was $29,384,000
as compared to $26,805,000 at December 31, 1996, for an increase of $2,579,000
or 9.62%. This increase was attributable to net income for the first nine months
of 1997 of $2,371,000, proceeds of the sale of common stock pursuant to the
Dividend Reinvestment Plan and the Non-Employee Directors Stock Option Plan of
$190,000, proceeds of the sale of treasury stock in the Dividend Reinvestment
Plan of $20,000 and a reduction of $106,000 of debt related to the Company's
Employee Stock Ownership Plan less the payment of cash dividends of $846,000,
the payment of cash in lieu of fractional shares from the stock dividend of
$4,000 and an increase of $742,000 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 nine months of 1997, 8,454 shares of common stock were
purchased from authorized and unissued shares at an average price of $23.522 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.
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 September 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 September 30, 1997 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $30,515 15.59% $15,657 8.00% N/A
Bank $26,797 13.71% $15,372 8.00% $19,216 10.00%
Tier 1 Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $28,066 14.34% $ 7,829 4.00% N/A
Bank $23,752 12.15% $ 7,686 4.00% $11,529 6.00%
Tier 1 Capital
(To Average Assets,
Leverage)
Company, (Consolidated) $28,066 8.11% $13,843 4.00% N/A
Bank $23,752 6.93% $13,701 4.00% $17,126 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 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 a reduction in net
interest income 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, 1997 were $343,935,000, representing an
increase of 6.70% over total assets of $322,352,000 at December 31, 1996.
Deposits increased by $17,232,000 or 6.44% from $267,668,000 on December 31,
1996 to $284,900,000 on September 30, 1997. This increase was the result of
growth of $10,750,000 in certifiicates of deposit, $5,967,000 in interest
bearing checking checking deposits, $1,768,000 in non-interest checking
deposits, offset in part by a decline of $250,000 in savings and club accounts
and $3,000 in money market deposits. Loans outstanding at September 30, 1997
were $227,705,000 as compared to $220,117,000 at December 31, 1996. This is an
increase of $7,588,000 or 3.45%. The growth in loans was comprised primarily of
an increase of $7,085,000 or 12.12% in consumer loans and a $3,107,000 or 3.59%
increase in residential real estate loans, offset in part by $2,604,000 or 3.47%
decrease in commercial loans. During the first nine months of 1997, $23,336,000
of residential real estate loans were sold. The amount of these sold loans
originated in the first nine months of 1997 was $13,914,000 with the remaining
$9,422,000 being originated in prior years. The Bank continues to service all of
these loans. As of September 30, 1997 there were $627,000 of mortgage loans
identified as held-for-sale. The loan to deposit ratio was 79.9% at September
30, 1997 and 82.2% at December 31, 1996.
Premises and equipment increased by $342,000 to $7,372,000 at September 30,
1997 from $7,030,000 at December 31, 1996. This increase was primarily the
result of the purchase of leasehold improvements, furniture and equipment for
our new East Stroudsburg branch and renovations to the Main Office.
The Company had long-term debt totaling $18,406,000 at September 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 September 30, 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 as of September 30, 1997 are 5.96% fixed, 5.89% fixed and 5.86%
variable (changes quarterly based onthe 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 residential real estate loans.
<PAGE>
Results of Operations
The net income for the three month period ended September 30, 1997 was
$855,000, a $153,000 or 21.79% increase compared to net income of $702,000 for
the same period in 1996. The earnings improvement is primarily attributable to
increases in net interest income and other income. During the third quarter of
1997, net interest income increased $355,000 or 10.21% as compared to September
30, 1996. Also affecting earnings was a $138,000 increase in the provision for
possible loan losses, a $194,000 increase in total other income, exclusive of
net security gains of $96,000, an increase in total other expenses of $270,000
and an increase in Federal income taxes of $58,000.
The net income for the nine months ended September 30, 1997 was $2,371,000,
a $364,000 increase from net income of $2,007,000 for the same period in 1996.
This increase is primarily attributable to an increase in net interest income of
$905,000, a reduction in the provision for possible loan losses of $72,000, a
$411,000 increase in other income, exclusive of net security gains of $240,000,
partially offset by increases in other expenses and Federal income taxes of
$837,000 and $119,000, respectively.
Per share earnings for the three months ended September 30 were $.52 and
$.44 for 1997 and 1996, respectively. Average shares outstanding during this
three month period were 1,631,629 in 1997 and 1,605,388 in 1996. The earnings
per share were $1.46 for the first nine months of 1997 as compared to earnings
per share of $1.26 for the same period in 1996. Average shares outstanding were
1,627,190 for the first nine months of 1997 and 1,600,290 for the first nine
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 $3,833,000 for the three months ended September 30, 1997, as
compared to $3,478,000 for the three months ended September 30, 1996, an
increase of $355,000 or 10.21%. During the three month period ended September
30, 1997, interest income increased $727,000 or 12.31% and interest expense
increased by $372,000 or 15.33% and interest expense increased by $372,000 or
15.33% over the same time period of 1996. The increase in net interest expense
was due in part to growth in certificates of deposit.
For the nine month period ended September 30, 1997, net interest income
increased $905,000 or 9.02% to $10,940,000 over the same period in 1996 of
$10,035,000. In this nine month period, interest income increased by $1,838,000
or 10.73% and interest expense increased $933,000 or 13.14% as compared to 1996.
This increase in net 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 $320,860,000 at
September 30, 19976 as compared to $294,788,000 at September 30, 1996. This
represents an increase of $26,072,000 or 8.84%.
<PAGE>
Other Income and Other Expenses
Other income for the three months ended September 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 $566,000 for the same period in 1996. This was an increase of
$194,000 or 34.28%. In the three month period ended September 30, 1997 service
charges were $284,000, a $8,000 or 2.90% increase over the 1996 amount of
$276,000. The revenues from the Trust Department operations were $191,000 for
the three months ended September 30, 1997 as compared to $177,000 for the three
months ended September 30, 1996, an increase of $14,000 or 7.91%. There were
$66,000 in gains on the sale of mortgage loans for the three month period ending
September 30, 1997 and losses of $18,000 for the same period ended in 1996.
Other operating income for the three months ended September 30, 1997 was
$219,000 as compared to $131,000 for the same period in 1996, an increase of
$88,000 or 67.18%.
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 23.76% or $411,000 to $2,141,000 from
$1,730,000 for the nine months ended September 30, 1997 over the same time
period in 1996. Service charges amounted to $835,000 for the nine months ended
September 30, 1997 compared to $787,000 for the nine months ended September 30,
1996, an increase of $48,000 or 6.10%. The revenue from the Trust Department
operations was $570,000 for the nine months ended September 30, 1997,
representing a $45,000 or 8.57% increase for the nine months ended September 30,
1996. The gain on the sale of mortgage loans amounted to $115,000 for the first
nine months of 1997 as compared to a $13,000 loss for the same period in 1996.
Other operating income for the nine months ended September 30, 1997 was $621,000
as compared to $431,000 for the same period in 1996. This is an increase of
$190,000 or 44.08%.
Included in net gains on the sale of mortgages loans is $287,000 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 Extinguishments of Liabilitites. Additionally, related
amortization of $4,000 is included in Other Operating Expenses.
Total other expenses for the three month period ended September 30, 1997
increased by $270,000 or 9.02% to $3,265,000 over the total other expenses for
the same period in 1996 of $2,995,000. Included in this increase is a $66,000 or
4.77% increase in salary and benefit expenses which were $1,451,000 for the
three months ended September 30, 1997 as compared to $1,385,000 for the
comparable period 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 $599,000 for the three month period ended September 30,
1997 and $582,000 for the three month period ended September 30, 1996, a
decrease of $33,000 or 5.67%. Other operating expenses for the three month
period ended September 30, 1997 were $1,265,000, an increase of $238,000 or
23.05% over the $1,028,000 in other operating expenses for the same period in
1996. These increases are primarily attributable to additional advertising costs
associated with heightened marketing efforts and increased data processing
services.
Other expenses for the nine months ended September 30, 1997 increased by
$837,000 or 9.56%, to $9,588,000 from $8,751,000 for the same period in 1996.
Salaries and employee benefits were $4,405,000 for the nine months ended
September 30, 1997 as compared to $4,186,000 for the nine months ended September
30, 1996 representing an increase of $219,000 or 5.23%. These increases are
primarily due to the addition of the East Stroudsburg Wal-Mart branch. Occupancy
and equipment expenses were $1,665,000 for the nine months ended September 30,
1997 and $1,658,000 for the nine months ended September 30, 1996, a decrease of
$3,000 or 0.18%. Most of this increase is also due to the new branch. Other
operating expenses for the nine months ended September 30, 1997 were $3,528,000
in relation to $2,907,000 for the nine months ended September 30, 1996, an
increase of $621,000 or 21.36%. These increases are primarily attributable to
additional advertising costs associated with heightened marketing efforts and
increased data processing services.
<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 September
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 $71,705,000 in
available-for-sale securities at September 30, 1997 with a net unrealized gain
of $1,089,000. 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 September 30, 1997 $5,506,000 of
securities available-for-sale were sold for a net gain of $6,000. For the same
period in 1996, $9,500,000 of available-for-sale securities were sold for a net
gain of $36,000. For the first nine months of 1997, net securities gains
amounted to $240,000 on the sale of $12,198,000 of available-for-sale securities
as compared to securities gains of $300,000 on the sale of $19,795,000 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 $20,387,000 at September 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 to maturity. The Company, at
September 30, 1997 and December 31, 1996, did not hold any securities identified
as derivatives. At September 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 September
30, 997 was $143,000 compared to $105,000 for the same period in 1996. The
provision for loan losses for the first nine months of 1997 was $443,000 as
compared to $515,000 for the first nine months of 1996.
Net loan losses were $113,000 for the three month period ending September
30, 1997. Net loan losses for the same period in 1996 were $105,000. For the
first nine months of 1997, net loan losses were $356,000 as compared to $463,000
during the first nine months of 1996.
The allowance for possible loan losses at September 30, 1997 totaled
$2,619,000 an increase of $87,000 over the December 31, 1996 amount of
$2,532,000. The allowance for possible loan losses as a percentage of total
loans outstanding at September 30, 1997 was 1.15%. This compares to 1.15% at
December 31, 1996. As provided by SFAS No. 114, as amended by SFAS No. 118,
$89,000 of the allowance for possible loan losses is allocated to impaired loans
at September 30, 1996 (see Note E "Impaired Loans").
<PAGE>
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 periods indicated.
<TABLE>
Sept. 30, December 31,
1997 1996
<S> <C> <C>
Non-accrual loans on a cash basis $ 554,000 $1,440,000
Non-accrual loans as a percentag
of total loans .24% .65%
Accruing loans past due 90 days or more $1,240,000 $ 986,000
Accruing loans past due 90 days or more
as a percentage of total loans .54% .45%
Other Real Estate Owned from
Foreclosed Property $ 433,000 $ 595,000
</TABLE>
There are no significant loans classified for regulatory purposes that have
not been included in the above table of non-performing loans. The Company has no
significant loans that qualify as "Troubled Debt Restructuring" as defined by
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 15 "Accounting for Debtors and Creditors for Troubled Debt
Restructuring" at September 30, 1997.
<PAGE>
PART 11 - OTHER INFORMATION
ITEM 5. Other Information
In September, Tomas J. Bamberger was appointed Executive Vice President /
Senior Lender. Mr. Bamberger has extensive lending experience in the Lehigh
Valley. Prior to joining the Bank, he was employed as Executive Vice President /
Senior Loan Officer for Summit Bank and First Valley Bank prior to its
acquisition.
Also in September, Gerald E. Kemmerer retired as Senior Vice President of
Lending. Mr. Kemmerer will continue with the Bank as Senior Vice President of
Special Projeects.
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 13, 1997 BY: ______________________________
S. ERIC BEATTIE
PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE: November 13, 1997 BY:_______________________________
REID L. HEEREN
VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
Exhibit 11.1
First Colonial Group, Inc. and Subsidiaries
COMPUTATION OF NET INCOME PER COMMON SHARE
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
--------- --------- --------- ---------
Primary
Earnings $ 855 $ 702 $ 2,371 $ 2,007
--------- --------- --------- ---------
Shares *
Weighted average number of
common shares outstanding 1,623,839 1,604,103 1,619,400 1,599,005
Assuming exercise of option
reduced by the number of
shares which could have been
purchased with the proceeds
from exercise of such options 7,790 1,285 7,790 1,285
--------- --------- --------- ---------
Weighted average number of common
shares outstanding as adjusted 1,631,629 1,605,388 1,627,190 1,600,290
Primary earnings per common share $ 0.52 $ 0.43 $ 1.46 $ 1.26
========= ========= ========= =========
Assuming full dilution
Earnings $ 855 $ 702 $ 2,371 $ 2,007
--------- --------- --------- ---------
Shares *
Weighted average number of common
shares outstanding 1,623,829 1,604,103 1,619,400 1,599,005
Assuming exercise of option reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options 7,790 1,285 7,790 1,285
--------- --------- --------- ---------
Weighted average number of common
shares outstanding as adjusted 1,631,629 1,605,388 1,627,190 1,600,290
Earnings per common share assuming
full dilution $ 0.52 $ 0.43 $ 1.46 $ 1.26
========= ========= ========= =========
* Restated per 5% Stock Dividend paid on June 19, 1997.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000714719
<NAME> FIRST COLONIAL GROUP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,724
<INT-BEARING-DEPOSITS> 436
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,705
<INVESTMENTS-CARRYING> 20,387
<INVESTMENTS-MARKET> 20,606
<LOANS> 227,705
<ALLOWANCE> 2,619
<TOTAL-ASSETS> 343,935
<DEPOSITS> 284,900
<SHORT-TERM> 4,953
<LIABILITIES-OTHER> 6,292
<LONG-TERM> 18,406
0
0
<COMMON> 8,236
<OTHER-SE> 21,148
<TOTAL-LIABILITIES-AND-EQUITY> 343,935
<INTEREST-LOAN> 14,899
<INTEREST-INVEST> 4,021
<INTEREST-OTHER> 53
<INTEREST-TOTAL> 18,973
<INTEREST-DEPOSIT> 6,897
<INTEREST-EXPENSE> 8,033
<INTEREST-INCOME-NET> 10,940
<LOAN-LOSSES> 443
<SECURITIES-GAINS> 240
<EXPENSE-OTHER> 9,588
<INCOME-PRETAX> 3,290
<INCOME-PRE-EXTRAORDINARY> 2,371
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,371
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
<YIELD-ACTUAL> 4.77
<LOANS-NON> 554
<LOANS-PAST> 1,240
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,532
<CHARGE-OFFS> 421
<RECOVERIES> 65
<ALLOWANCE-CLOSE> 2,619
<ALLOWANCE-DOMESTIC> 2,183
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 436
</TABLE>
