FORM 10-Q
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, 2000
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
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FIRST COLONIAL GROUP, INC.
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(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
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(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: 1,956,677 SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON SEPTEMBER 30, 2000.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1 - Financial Statements
Consolidated Balance Sheet 2
Consolidated Statements of Incom 3
Consolidated Statement of Changes in Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
ITEM 3 - Quantitative and Qualitative Discussion About
Market Risk 25
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 26
ITEM 5 - Other Information 26
ITEM 6 - Exhibits and Reports on Form 8-K 26
SIGNATURES 27
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
Sept. 30 Dec. 31
2000 1999
-------- -------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 15,672 $ 14,272
Federal Funds Sold 2,000 2,000
-------- --------
Total Cash and Cash Equivalents 17,672 16,272
Interest-Bearing Deposits With Banks 2,591 5,589
Investment Securities Held-to-Maturity
(Fair Value: Sept. 30, 2000 $18,673
Dec. 31, 1999 - $19,123) 19,049 19,887
Securities Available-for-Sale 157,819 132,356
Mortgage Loans Held-for-Sale --- -
Total Loans, Net of Unearned Discount 222,595 202,258
LESS: Allowance for Possible Loan Losses (2,430) (2,437)
-------- -------
Net Loans 220,165 199,821
Premises and Equipment, Net 6,955 7,116
Accrued Interest Income 3,140 3,045
Other Assets 7,904 7,803
------- -------
TOTAL ASSETS $ 435,295 $ 391,889
--------- ---------
LIABILITIES
Deposits
Non-Interest Bearing Deposits 46,730 41,813
Interest-Bearing Deposits 305,895 282,667
--------- ---------
Total Deposits 352,625 324,480
Securities Sold Under Agreements to Repurchase 9,685 1,730
Long-Term Debt 34,000 30,000
Accrued Interest Payable 4,746 4,208
Other Liabilities 3,229 3,228
--------- ---------
TOTAL LIABILITIES 404,285 363,646
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 - 1,956,677 shares at Sept. 30, 2000
and 1,848,437 shares at Dec. 31, 1999 9,783 9,242
Additional Paid in Capital 16,910 15,674
Retained Earnings 8,398 8,968
Employee Stock Ownership Plan Debt (1,320) (1,320)
Accumulated Other Comprehensive Loss (2,761) (4,321)
--------- --------
Total Shareholders' Equity 31,010 28,243
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 435,295 $ 391,889
--------- ---------
</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 Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2000 1999 2000 1999
---------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 4,696 $ 4,738 $13,332 $13,566
Investment Securities Income
Taxable 2,363 1,808 6,988 4,796
Tax-Exempt 358 366 1,088 1,146
Interest on Deposits with Banks and
Federal Funds Sold 54 22 88 140
------- ------- ------- -------
Total Interest Income 7,471 6,934 21,496 19,648
------- ------- ------- -------
INTEREST EXPENSE:
Interest on Deposits 2,986 2,502 8,241 7,294
Interest on Short-Term Debt 134 107 448 229
Interest on Long-Term Debt 500 345 1,413 904
------- ------- ------- -------
Total Interest Expense 3,620 2,954 10,102 8,427
------- ------- ------- -------
NET INTEREST INCOME: 3,851 3,980 11,394 11,221
Provision for Possible Loan Losses 125 --- 250 250
------- ------- ------- -------
Net Interest Income After Provision
For Possible Loan Losses 3,726 3,980 11,144 10,971
------- ------- ------- -------
OTHER INCOME:
Trust Revenue 307 271 939 874
Service Charges on Deposit Accounts 519 432 1,461 1,229
Investment Securities Gains (Losses), Net 9 (4) 167 557
Gain on the Sale of Mortgage Loans 47 63 46 154
Other Operating Income 227 175 614 512
------- ------- ------- -------
Total Other Income 1,109 937 3,227 3,326
------- ------- ------- -------
OTHER EXPENSES:
Salaries and Employee Benefits 1,864 1,726 5,477 5,019
Net Occupancy and Equipment Expense 602 560 1,776 1,610
Other Operating Expenses 1,645 1,470 4,626 4,302
------- ------- ------- -------
Total Other Expenses 4,111 3,756 11,879 10,931
------- ------- ------- -------
Income Before Income Taxes 724 1,161 2,492 3,366
Provision for Income Taxes 121 276 474 771
------- ------- ------- -------
NET INCOME $ 603 $ 885 $ 2,018 $ 2,595
======= ======= ======= =======
Per Share Data
Basic Net Income $ 0.32 $ 0.47 $ 1.06 $ 1.38
======= ======= ======= =======
Diluted Net Income $ 0.32 $ 0.47 $ 1.06 $ 1.37
======= ======= ======= =======
Cash Dividends $ 0.19 $ 0.18 $ 0.56 $ 0.52
======= ======= ======= =======
</TABLE>
See accompanying notes to interim financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
(Dollars in
Thousands),
(Unaudited) Accumulated
Additional Other
Common Paid-In Retained ESOP Comprehensive
Stock Capital Earnings Debt Income Total
For the Nine
Months Ended
September 30,
2000
<S> <C> <C> <C> <C> <C> <C>
Balance at Dec.
31, 1999 $ 9,242 $15,674 $ 8,968 $(1,320) $ (4,321) $28,243
Comprehensive
Income
Net Income 2,018 2,018
Change in
Unrealized
Securities
Gains, Net 1,560 1,560
Total Compre-
hensive Income 3,578
Sale of Common
Stock under
Dividend
Reinvestment Plan
(15,155 shares) 76 158 234
Sale of Common
Stock under
Directors
Stock Option
Plan (332 shs) 1 1
Cash Dividends
Paid (1,044) (1,044)
Stock Dividend
of 5%
(92,752 shs) 464 1,078 (1,542) ---
Cash in Lieu
of Fractional
Shares (2) (2)
------- ------- ------- ------- -------- -------
Balance at
Sept. 30, 2000 $ 9,783 $16,910 $ 8,398 $(1,320) $ (2,761) $31,010
</TABLE>
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
Nine Months Ended
Sept 30, 2000 Sept 30, 1999
OPERATING ACTIVITIES (Unaudited)
<S> <C> <C>
Net Income $2,018 $2,595
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Possible Loan Losses 250 250
Depreciation and Amortization 832 763
Amortization of Security (Discounts) and Premiums (114) 25
Amortization of Deferred Fees on Loans 343 (92)
Mortgage Loans Originated for Sale (6,629) (36,799)
Mortgage Loan Sales 6,629 36,922
Gain on Sale of Mortgage Loans (46) (154)
Investment Securities Gains, Net (160) (557)
Changes in Assets and Liabilities:
Increase in Accrued Interest Income (95) (85)
Decrease in Accrued Interest Payable 538 189
Net Increase in Other Assets (1,340) (1,367)
Net Decrease (Increase) in Other Liabilities 2 (227)
------- -------
Net Cash Used In Operating Activities 2,228 1,463
------- -------
INVESTING ACTIVITIES
Proceeds from Maturities of Securities
Available-for-Sale 8,266 11,467
Proceeds from Maturities of Securities
Held-to-Maturity 577 3,622
Proceeds from Sales of Securities
Available-for-Sale 4,796 16,857
Purchase of Securities Available-for-Sale (35,627) (66,957)
Purchase of Securities Held-to-Maturity - (6,211)
Net Decrease (Increase) in Interest Bearing
Deposits With Banks 2,998 (3,176)
Net (Decrease) Increase in Loans (21,008) 11,029
Purchase of Premises and Equipment, Net (574) (840)
Proceeds from Sale of Other Real Estate Owned 455 186
------- -------
Net Cash Used In Investing Activities (40,117) (34,023)
------- -------
FINANCING ACTIVITIES
Net Increase in Interest and Non-Interest
Bearing Demand Deposits and Savings Accounts 8,594 4,803
Net Increase in Certificates of Deposits 19,551 18,110
Net Increase in Long-Term Debt 4,000 10,000
Net Increase in ESOP Debt - (1,000)
Net Increase in Repurchase Agreements 7,955 2,855
Proceeds from Issuance of Stock 235 240
Cash Dividends Paid (1,044) (981)
Cash in Lieu of Fractional Shares (2) (4)
------- -------
Net Cash Provided by Financing Activities 39,289 34,023
------- -------
Increase in Cash and Cash Equivalents 1,400 1,463
Cash and Cash Equivalents, January 1 16,272 14,259
------- -------
Cash and Cash Equivalents, Sept. 30, $17,672 $15,722
======= =======
</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 consolidated financial statements, footnotes and discussion
should be read in conjunction with the audited consolidated financial
statements, footnotes, and discussion contained in the Company's Annual Report
for the year ended December 31, 1999.
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, 2000 are not
necessarily indicative of results to be expected for the full year or any other
interim period.
NOTE B - 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 C - DIVIDENDS
On August 18, 2000, the Company paid its third quarter cash dividend on its
common stock of $.19 per share to shareholders of record on August 4, 2000.
On June 22, 2000, the Company paid a 5% stock dividend to shareholders of record
on June 2, 2000. Fractional shares were paid in cash based on the closing price
of $14.50 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 - EARNINGS PER SHARE
The Company calculates earnings per share as provided by the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share (SFAS
128)". Basic and diluted earnings per share were calculated as follows.
<PAGE>
For the Three Months Ended September 30,
<TABLE>
Average
Income Shares Per Share
(numerator) (denominator) Amount
2000
<S> <C> <C> <C>
Basic Earnings Per Share
Income Available to Common Shareholders $ 603 1,899,594 $ 0.32
Effect of Dilutive Securities
Stock Options 1,664
------ --------- -------
Diluted Earnings Per Share
Income Available to Common Shareholders
plus Assumed Exercise of Options $ 603 1,901,258 $ 0.32
------ --------- -------
1999
Basic Earnings Per Share
Income Available to Common Shareholders $ 855 1,873,644 $ 0.47
Effect of Dilutive Securities
Stock Options 4,313
------ --------- -------
Diluted Earnings Per Share
Income Available to Common Shareholders
plus Assumed Exercise of Options $ 885 1,877,957 $ 0.47
------ --------- -------
</TABLE>
<PAGE>
For the Nine Months Ended June 30,
<TABLE>
Average
Income Shares Per Share
(numerator) (denominator) Amount
2000
<S> <C> <C> <C>
Basic Earnings Per Share
Income Available to Common Shareholders $2,018 1,899,608 $ 1.06
Effect of Dilutive Securities
Stock Options 2,413
------ --------- -------
Diluted Earnings Per Share
Income Available to Common Shareholders
plus Assumed Exercise of Options $2,018 1,902,021 $ 1.06
------ --------- -------
1999
Basic Earnings Per Share
Income Available to Common Shareholders $2,595 1,874,109 $ 1.38
Effect of Dilutive Securities
Stock Options 4,216
------ --------- -------
Diluted Earnings Per Share
Income Available to Common Shareholders
plus Assumed Exercise of Options $2,595 1,878,325 $ 1.37
------ --------- -------
</TABLE>
<PAGE>
NOTE E - COMMITMENTS AND CONTINGENCIES
The Company has reserved $994,000 against asserted claims and claims which may
be asserted against the Bank in connection with certain pre-need funeral trusts.
Most of the claims arise from trusts in which the Company was allegedly directed
by funeral directors to invest in a private placement annuity issued by EA
International Trust. Nine funeral directors whose funds were invested in this
annuity have commenced suit against the Bank; if all funeral directors whose
funds were invested in this annuity were to pursue claims, the Bank's maximum
exposure would be approximately $4.4 million principal loss plus interest, costs
and attorney fees. The Bank has been advised that it has significant defenses to
these claims and intends to vigorously defend against such claims. The Bank has
discontinued its involvement in this annuity and is pursuing indemnification for
some or all of these possible losses from its insurance carrier and from EA
International Trust.
NOTE F - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities was issued. Subsequent to this statement, SFAS No. 137 and 138 were
issued, which amended the effective date of SFAS No. 133 to be all fiscal
quarters of all fiscal years beginning after June 15, 2000. Based on the
Company's minimal use of derivatives at the current time, management does not
anticipate the adoption of SFAS No. 133 will have a significant impact on
earnings or financial position of the Company. However, the impact from adopting
SFAS No. 133 will depend on the nature and purpose of the derivative instruments
in use by the Company at that time.
<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following financial review and analysis is of the financial condition and
earnings performance of the Company and its wholly owned subsidiaries for the
three and nine month period ended September 30, 2000.
The information contained in this Quarterly Report 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, the discussion in "Item 3
- Quantitative and Qualitative Discussion About Market Risk", statements as to
litigation and the amount of reserves, and other statements which are not
historical facts or 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, including without limitation, the
effect of economic conditions and related uncertainties, the effect of interest
rates on the Company and the Bank, Federal and state government regulation,
competition, and results of litigation. Certain of these risks, uncertainties
and other factors are discussed in this Quarterly Report or in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 a copy of which
may be obtained from the Company upon request and without charge (except for the
exhibits thereto).
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-K for the year ended December 31, 1999 a copy of which can be obtained
from Reid L. Heeren, Vice President, First Colonial Group, Inc., 76 S. Main
Street, Nazareth, PA 18064.
Results of Operations
Basic and diluted earnings per share for the three months ended September 30,
2000 were $0.32 as compared to $0.47 for the corresponding period in 1999.
Average basic shares outstanding during this three month period were 1,899,594
in 2000 and 1,873,644 in 1999. Basic earnings per share for the nine months
ended September 30, 2000 were $1.06 as compared to $1.38 for the corresponding
period in 1999. Average basic shares outstanding during this nine month period
were 1,899,608 in 2000 and 1,874,109 in 1999. Diluted earnings per share for the
nine month period ended September 30 were $1.06 and $1.37 in 2000 and 1999,
respectively. Per share earnings and average shares outstanding have been
restated to reflect the 5% stock dividend paid on June 22, 2000. (see Note D)
<PAGE>
The net income for the three months ended September 30, 2000 was $603,000, a
$282,000 or 31.9% decrease compared to net income of $885,000 for the same
period in 1999. The earnings decrease was attributable in part to an increase in
total other expenses of $355,000. Contributing to the higher expenses were
increases in salaries and benefits of $138,000 and a loss as the result of a
robbery at one of the Bank's branches (see discussion on "Other Income and Other
Expenses"). Also affecting earnings for the quarter was a decrease of $129,000
in net interest income (see discussion on "Net Interest Income"), an increase of
$125,000 in the provision for possible loan losses and a $16,000 decrease in the
gains on the sale of mortgage loans. These were offset in part by a $175,000
increase in other income exclusive of gains on the sale of mortgage loans and
gains on the sale of securities available-for-sale, a decrease of $155,000 in
Federal income taxes and an $13,000 increase in the gains on the sale of
securities available-for-sale.
Net income for the nine months ended September 30, 2000 was $2,018,000 compared
to $2,595,000 for the same period in 1999, a decrease of $577,000 or 22.2%. The
earnings decline was primarily attributable to increases in total other expenses
of $948,000. The higher expenses were due in part to the increases in salary and
benefit expenses of $458,000 and the one-time write-down of a commercial
property held in Other Real Estate Owned in the amount of $184,000 (see
discussion on "Other Income and Other Expenses"). The other factors affecting
the reduction in income were lower gains on the sale of available-for-sale
securities of $390,000, and a decrease of $108,000 in the gains on the sale of
mortgage loans. These were partially offset by a $173,000 increase in net
interest income, a $399,000 increase in other income exclusive of gains on the
sale of mortgage loans and gains on the sale of securities available-for-sale,
and a decrease of $297,000 in Federal income taxes.
Net Interest Income
Net interest income amounted to $3,851,000 for the three months ended September
30, 2000 as compared to $3,980,000 for the three months ended September 30,
1999, a decrease of $129,000 or 3.2%. This decrease was primarily the result of
increases in interest paid on deposits exceeding the increase on interest earned
on loans and investments. For the nine months ended September 30, 2000, net
interest income was $11,394,000 compared to $11,221,000 for the same period in
1999, an increase of $173,000 or 1.5%.
The fully taxable-equivalent net interest income was $11,997,000 for the first
nine months of 2000, compared to $11,842,000 for the same period in 1999, a 1.3%
or $155,000 increase. This increase in taxable-equivalent net interest income
was primarily due to a $52,000 increase related to volume and a $103,000
increase related to interest rates.
<PAGE>
The "Rate/Volume Analysis" table segregates, in detail, the major factors that
contributed to the changes in net interest income, for the nine months ended
September 30, 2000 as compared to the same period in 1999, into amounts
attributable to both rate and volume variances. In calculating the variances,
the changes were first segregated into (1) changes in volume (change in volume
times the old rate), (2) changes in rate (changes in rate times the old volume)
and (3) changes in rate/volume (changes in rate times the change in volume). The
changes in rate/volume have been allocated in their entirety to the change in
rates. Non accruing loans have been used in the daily average balances to
determine changes in interest income due to volume. Loan fees included in the
interest income calculation are not material.
The following table sets forth a "Rate/Volume Analysis" for the nine months
ended September 30, 2000. The interest income included in the table has been
adjusted to a fully taxable equivalent amount using the Federal statutory tax
rate of 34%.
RATE/VOLUME ANALYSIS
(Dollars in Thousands)
(Unaudited)
<TABLE>
Nine Months Ended
September 30, 2000
Over / (Under)
September 30, 1999
CHANGE DUE TO:
TOTAL RATE VOLUME
<S> <C> <C> <C>
(Fully Taxable Equivalent)
INTEREST INCOME
Interest-Bearing Balances With Banks $ (45) $ 13 $ (58)
Federal Funds Sold (7) 6 (13)
Investment Securities 2,104 529 1,575
Loans (222) 85 (307)
------- ------- -------
Total Interest Income 1,830 633 1,197
------- ------- -------
INTEREST EXPENSE
Demand Deposits, Savings & Clubs $ (43) $ (29) $ (14)
Time Deposits 990 327 663
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 68 64 4
Short-Term Debt 151 46 105
Long-Term Debt 509 122 387
------- ------- -------
Total Interest Expense $ 1,675 $ 530 $ 1,145
------- ------- -------
Net Increase in Interest Income $ 155 $ 103 $ 52
</TABLE>
<PAGE>
Total taxable-equivalent interest income for the nine months ended September 30,
2000 grew $1,830,000 compared to the same period in 1999, primarily the result
of the higher volumes in the investment security earning asset category. Income
from investment securities for the nine months ended September 30, 2000
increased $2,104,000 or 32.2% over the same period in 1999. This was comprised
of a $1,575,000 increase due to volume and a $529,000 increase due to rates as a
result of rising interest rates. Average year-to-date earning assets increased
to $376,789,000 at September 30, 2000 from $351,179,000 at September 30, 1999, a
7.3% increase.
Total interest expense grew $1,675,000 during the first nine months of 2000,
over the same period in 1999. This growth was principally the result of higher
volumes, primarily due to an increase in time deposits and long-term debt.
Interest expense attributed to time deposits increased $990,000 during the first
nine months of 2000, over the first nine months of 1999. This was comprised of a
$663,000 increase due to volume and a $327,000 increase due to rates. The
increase in time deposits was used to finance the earning asset growth.
The following table "Consolidated Comparative Statement Analysis" sets forth a
comparison of average daily balances, interest income and interest expense on a
fully taxable equivalent basis and interest rates calculated for each major
category of interest-earning assets and interest-bearing liabilities. For the
purposes of this analysis, the computations in the "Consolidated Comparative
Statement Analysis" were prepared using the Federal statutory rate of 34%; there
were no state or local taxes on income applicable to the Company.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED COMPARATIVE STATEMENT ANALYSIS
(Dollars in Thousands)
(Unaudited)
<TABLE>
Nine Months Ended, June 30, 2000 1999
Int Avg Int Avg
Avg Inc/ Yield/ Avg Inc/ Yield/
Bal Exp Rate Bal Exp Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS
Int-Bearing Deposits with Banks $ 1,650 $ 72 5.82% $ 3,250 $ 117 4.80%
Federal Funds Sold 299 16 7.13 659 23 4.65
Investment Securities
Taxable 136,112 6,988 6.85 101,426 4,796 6.30
Non-Taxable (1) 29,733 1,649 7.40 32,206 1,737 7.19
Loans (1) (2) 211,468 13,374 8.43 216,353 13,596 8.38
Reserve for Loan Losses (2,473) -- -- (2,715) -- --
--------- ----- -------- -----
Net Loans 208,995 13,374 8.53 213,638 13,596 8.49
--------- ----- -------- -----
Total Interest-Earning Assets 376,789 22,099 7.82 351,179 20,269 7.70
Non-Interest Earning Assets 31,810 -- -- 28,392 -- --
--------- ----- -------- -----
TOTAL ASSETS, INT INCOME $ 408,599 22,099 7.21 $379,571 20,269 7.12
--------- ----- -------- -----
LIABILITIES
INTEREST-BEARING LIABILITIES
Interest-Bearing Deposits
Demand Deposits $ 52,637 397 1.01 $ 52,092 412 1.05
Money Market Deposits 12,938 265 2.73 13,894 287 2.75
Savings & Club Deposits 62,927 1,042 2.21 63,519 1,048 2.20
CD's over $100,000 4,788 171 4.76 4,937 149 4.02
All Other Time Deposits 154,304 6,366 5.50 137,175 5,398 5.25
--------- ----- -------- -----
Total Int-Bearing Deposits 287,594 8,241 3.82 271,617 7,294 3.58
Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase 6,144 208 4.51 5,973 140 3.13
Short-Term Debt 5,025 240 6.37 2,301 89 5.16
Long-Term Debt 30,496 1,413 6.18 21,355 904 5.64
--------- ----- -------- -----
Total Int-Bearing Liabilities 329,259 10,102 4.09 301,246 8,427 3.73
NON-INTEREST-BEARING LIABILITIES
Non-Interest-Bearing Deposits 43,015 -- -- 41,132 -- --
Other Liabilities 7,614 -- -- 6,834 -- --
--------- ----- -------- -----
TOTAL LIABILITIES 379,888 10,102 3.55 349,212 8,427 3.22
SHAREHOLDERS' EQUITY 28,711 -- -- 30,359 -- --
--------- ----- -------- -----
TOTAL LIABILITIES AND EQUITY $ 408,599 10,102 3.30 $379,571 8,427 2.96
NET INTEREST INCOME $11,997 $11,842
----- -----
Net Interest Spread (3) 3.73 3.97
Effect of Interest-Free Sources
Used to Fund Earnings Assets 0.52 0.52
Net Interest Margin (4) 4.25% 4.50%
---- ----
</TABLE>
(1) The indicated interest income and average yields are presented on a taxable
equivalent basis. The tax equivalent adjustment included above are $603,000
and $621,000 for the six months ended September 30, 2000 and September 30,
1999, respectively. The effective tax rate used for the taxable equivalent
adjustments was 34%.
(2) Loan fees of $(201,000) and $253,000 for the six months ended September 30,
2000 and September 30, 1999, respectively, are included in interest income.
Average loan balances include non-accruing loans and average loans
held-for-sale of $1,269,000 and $3,007,000 for the nine months ended
September 30, 2000 and September 30, 1999, respectively.
(3) Net interest spread is the arithmetic difference between yield on
interest-earning assets and the rate paid on interest-bearing liabilitites.
(4) Net interest marginis computed by dividing net interest income by averaging
interest-earning assets.
<PAGE>
The net interest margin of 4.25% for the nine month period ended September 30,
2000, decreased from the 4.50% net interest margin for the first nine months of
1999. The yield on interest earning assets was 7.82% during the first nine
months of 2000 as compared to 7.70% in 1999. The average interest rate paid on
interest bearing deposits and other borrowings was 4.09% for the first nine
months of 2000 as compared to 3.73% in 1999.
Other Income and Other Expenses
Other income for the three months ended September 30, 2000, including service
charges, trust revenues, gains on the sale of mortgage loans and other
miscellaneous income, but exclusive of securities gains or losses, was
$1,100,000 as compared to $941,000 for the same period in 1999. This was an
increase of $159,000 or 16.9% This increase was the result of increases in
service charges, miscellaneous fees, and trust revenues, reduced in part by a
decline in gains from the sale of mortgage loans. In the three month period
ended September 30, 2000, service charges were $519,000, a $87,000 or 20.1%
increase over the 1999 amount of $432,000. The increase in service charges was
due to growth in checking accounts. The revenues from the Investment Management
and Trust Division operations increased as a result of growth in Trust accounts.
The Trust revenues were $307,000 for the three months ended September 30, 2000
as compared to $271,000 for the three months ended September 30, 1999, an
increase of $36,000 or 13.3%. Other miscellaneous income for the three months
ended September 30, 2000 was $227,000, an increase of $52,000 or 29.7% compared
to $175,000 for the same period in 1999. The higher miscellaneous income was
primarily the result of increases in mortgage servicing fees and other fees
related to loan activities. There were $47,000 in gains on the sale of mortgage
loans for the three month period ended September 30, 2000 as compared to $63,000
for the same period in 1999.
Other income for the nine months ended September 30, 2000, including service
charges, trust revenues, gains on the sale of mortgage loans and other
miscellaneous income, but exclusive of securities gains or losses, was
$3,060,000 as compared to $2,769,000 for the same period in 1999. This was an
increase of $291,000 or 10.5%. In the nine month period ended September 30,
2000, service charges were $1,461,000, a $232,000 or 18.9% increase over the
1999 amount of $1,229,000. The increase in service charge income was the result
of a higher number of checking account customers. The revenues from the
Investment Management and Trust Division operations were $939,000 for the nine
months ended September 30, 2000 as compared to $874,000 for the nine months
ended September 30, 1999, an increase of $65,000 or 7.4%. This increase was due
to growth in new Trust accounts and estate fees. Other miscellaneous income for
the nine months ended September 30, 2000 was $614,000 as compared to $512,000
for the same period in 1999, a increase of $102,000 or 19.9%. During the nine
months ended September 30, 2000, sales of mortgage loans resulted in a gain of
$46,000 as compared to $154,000 for the same period in 1999, a decrease of
$108,000 or 70.1%. The gain was the result of the sale of $6,629,000 and
<PAGE>
$36,922,000 of residential real estate loans in the first nine months of 2000
and 1999, respectively, a decline of 82%. The decline in the volume of mortgage
loan sales was due to rising interest rates.
Total other expenses for the three month period ended September 30, 2000
increased by $355,000 or 9.4% to $4,111,000 over total other expenses for the
same period in 1999 of $3,756,000. Included in this increase was a $138,000 or
8% increase in salary and benefit expenses which were $1,864,000 as compared to
$1,726,000 in 1999. These increases were primarily due to general salary
increases of approximately 4% and the additional staff necessitated by the
opening of four new branches located in Stroudsburg, Mount Pocono, Whitehall and
Trexlertown. Occupancy and equipment expenses were $602,000 for the three months
ended September 30, 2000 and $560,000 for the three months ended September 30,
1999, an increase of $42,000 or 7.5%. The increase in occupancy expenses were
related to the new branches. Other operating expenses for the three month period
ended September 30, 2000 were $1,645,000, an increase of $175,000 or 11.9% over
the $1,470,000 in other expenses for the same period in 1998. This increase was
primarily the result of expenses related to the purchase of the branches in
Whitehall and Trexlertown and a loss due to a robbery at one of the Bank's
branches. Management expects the Bank will be reimbursed for part of the robbery
loss by its insurance carrier.
Total other expenses for the nine months ended September 30, 2000 increased by
$948,000 or 8.7%, to $11,879,000 from $10,931,000 for the same period in 1999.
Salaries and employee benefits were $5,477,000 for the nine months ended
September 30, 2000 as compared to $5,019,000 for the nine months ended September
30, 1999 representing an increase of $458,000 or 9.1%. These increases are
primarily due to general salary increases of approximately 4% and additional
staff added for the new branches. Occupancy and equipment expenses were
$1,776,000 for the nine months ended September 30, 2000 and $1,610,000 for the
nine months ended September 30, 1999, an increase of $166,000 or 10.3%. This
increase is related to the new branches, rent increases and other equipment
expenses. Other operating expenses for the nine months ended September 30, 2000
were $4,626,000 in relation to $4,302,000 for the nine months ended September
30, 1999, an increase of $324,000 or 7.5%. Included in the increase of other
operating expenses was a $184,000 write-down of a commercial loan property held
in Other Real Estate Owned.
FINANCIAL CONDITION
Assets and Liabilities
Total assets at September 30, 2000 were $435,295,000, representing an increase
of $43,406,000 or 11.1% over total assets of $391,889,000 at December 31, 1999.
Deposits increased by $28,145,000 or 8.7% from $324,480,000 on December 31, 1999
to $352,625,000 on September 30, 2000. Contributing to this increase were
increases in certificates of deposit of $19,551,000, non-interest bearing
checking deposits of $4,917,000, interest bearing checking deposits of
$3,827,000, partially offset by a decline in savings and money market deposits
<PAGE>
of $150,000. Included in the increase in deposits are the deposits acquired
through the purchase of two bank branches from another bank totaling $9,141,000.
These branches are located in Whitehall and Trexlertown, Lehigh County,
Pennsylvania. The acquisition of these branches occurred in September 2000.
Loans outstanding at September 30, 2000 were $222,595,000 as compared to
$202,258,000 at December 31, 1999. This was an increase of $20,337,000 or 10.1%.
The increase in loans was primarily the result of an increase of $12,259,000 or
14% in consumer loans. This includes $4,404,000 of consumer loans acquired with
the purchase of the Whitehall and Trexlertown branches in September 2000. Also
contributing to the increase in loans during the first nine months of 2000 was a
$8,307,000 or 14.4% increase in residential real estate loans. These increases
were offset in part by a decrease in commercial loans of $229,000. During the
first nine months of 2000, $6,629,000 of residential real estate loans were
sold. The Bank continues to service all of these loans. There were no
residential real estate loans identified as held-for-sale at September 30, 2000.
The loan to deposit ratio was 63.1% at September 30, 2000 and 62.3% at December
31, 1999.
The Company had long-term debt totaling $34,000,000 at September 30, 2000 as
compared to $30,000,000 at December 31, 1999. Of the loans outstanding at
September 30, 2000, $5,000,000 matures in December 2001, $10,000,000 matures in
August 2004, $7,000,000 matures in October 2008 and $12,000,000 matures in
August 2010. The interest rates associated with these loans are 6.86% variable
(at LIBOR plus 3 basis points), 4.86% fixed to October 2003 at which time the
rate may be converted at the option of the lender to a variable rate of LIBOR
plus 15 basis points, 6.06% fixed to August 2001 at which time the rate may be
converted to 3 month LIBOR plus 15 basis points, if LIBOR is 7.5% or higher, and
6.23% fixed to August 2001 at which time the rate may be converted to 3 month
LIBOR plus 15 basis points if LIBOR is 8% or higher, respectively. The loans are
secured by the Bank's residential real estate loans and investment securities.
These funds were borrowed to improve liquidity and to fund loans. The
$12,000,000 loan maturing in August 2010 was originated in August 2000. The
proceeds from this new loan were used to pay off a previous loan in the amount
of $8,000,000 that matured in August 2000 and to provide funds for future loans.
The Company's Employee Stock Ownership Plan (ESOP) has two loans outstanding
totaling $1,320,000 at September 30 ,2000 and December 31, 1999. The first loan
with an outstanding principal balance of $370,000 is due in 2005. The second
loan with an outstanding balance of $950,000 is due in 2018. The interest is due
quarterly on these loans. Principal payments are made annually in October. The
interest rate on these loans is at the Bank's prime rate (9.5% at September 30,
2000 and 8.5% December 31, 1999).
At September 30, 2000 and December 31, 1999, the Bank had no short-term
borrowings from the Federal Home Loan Bank of Pittsburgh against a line of
credit of $25,000,000.
<PAGE>
Allowance and Provision for Possible Loan Losses
The provision is based on management's analysis of the adequacy of the allowance
for loan losses. In its evaluation, management considers past loan experience,
overall characteristics of the loan portfolio, current economic conditions and
other relevant factors. Management currently believes that the allowance is
adequate to absorb known and inherent losses in the loan portfolio. Ultimately,
however, the adequacy of the allowance is largely dependent upon economic
conditions which are beyond the scope of management's control.
For the first nine months of 2000 and 1999, the provision for loan losses was
$250,000. Net charge offs were $257,000 for the nine months ended September 30,
2000 compared with $445,000 for the nine months ended September 30, 1999. The
ratio of the allowance for loan losses to total loans at September 30, 2000 was
1.09% compared to 1.20% at December 31, 1999 and 1.24% at September 30, 1999.
This was primarily the result of an increase in total loans to $222,335,000 at
September 30, 2000 from $202,258,000 at December 31, 1999. The allowance for
possible loan losses at September 30, 2000 totaled $2,430,000, a decrease of
$7,000 or 0.3% over the December 31, 1999 amount of $2,437,000 and a decrease of
$66,000 or 2.6% over the September 30, 1999 balance of $2,496,000.
At September 30, 2000, $69,000 of the allowance for possible loans losses was
allocated to impaired loans.
Transactions in the allowance for loan lossses were as follows:
<TABLE>
2000 1999
---------- ----------
<S> <C> <C>
Balance, January 1, $2,437,000 $2,691,000
Provision charged to Operating Expenses 250,000 250,000
Loans Charged Off (388,000) (513,000)
Recoveries 131,000 68,000
---------- ----------
Balance, September 30, $2,430,000 $2,496,000
</TABLE>
The following table sets forth an allocation of the allowance for loan losses by
loan category:
At September 30, 2000
Commercial $ 798,000
Residential Real Estate 237,000
Consumer 781,000
Unallocated 614,000
-----------
Total $ 2,430,000
<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 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.
Total non-performing loans (non-accruing loans and loans past due over 90 days)
amounted to $2,251,000 at September 30, 2000 as compared to $2,802,000 at
December 31,1999 and $2,489,000 at September 30, 1999. The ratio of
non-performing loans to total loans was 1.01% and 1.24% at September 30, 2000
and 1999, respectively. The decrease in this ratio is primarily the result of a
decrease in total non-performing loans due to collection efforts.
Non-accruing loans at September 30, 2000 of $1,134,000 increased from the
September 30, 1999 level of $1,111,000. This $23,000 increase was primarily the
result of the addition of some commercial loans to non-accrual status. These
loans are secured by commercial real estate. At the present time, management is
of the opinion that these loans present a minimal amount of exposure to the
Bank.
Loans past due 90 days or more and still accruing interest are loans that are
generally well secured and expected to be restored to a current status in the
near future. As of September 30, 2000, loans past due 90 days or more and still
accruing interest were $1,117,000 compared to $1,378,000 at September 30, 1999.
The $261,000 decrease in loans past due 90 days from September 30, 1999 to
September 30, 2000 was the result of decreases in commercial, mortgage and
consumer loans past due 90 days or more.
<PAGE>
Non-Performing Loans
<TABLE>
Sept 30, Sept 30, December 31,
2000 1999 1999
<S> <C> <C> <C>
Non-accrual loans on a cash basis $1,134,000 $1,111,000 $1,311,000
Non-accrual loans as a percentage
of total loans 0.51% 0.55% 0.65%
Accruing loans past due 90 days
or more $1,117,000 $1,378,000 $1,491,000
Accruing loans past due 90 days
or more as a percentage of total
loans 0.50% 0.69% 0.74%
Allowance for loan losses to
nonperforming loans 107.95% 100.32% 86.97%
Nonperforming loans to total loans 1.01% 1.24% 1.39%
Allowance for loan losses to total loans 1.09% 1.24% 1.20%
</TABLE>
There are no significant loans classified for regulatory purposes that have not
been included in the above table of non-performing loans.
Other Real Estate Owned
Other Real Estate Owned at September 30, 2000 of $102,000 decreased from the
September 30, 1999 level of $678,000. This $576,000 decrease was primarily the
sale of some real estate properties and the result of a $184,000 writedown of a
commercial property.
Investment Securities
The Company had $157,819,000 in available-for-sale securities at September 30,
2000 with a net unrealized loss of $2,761,000. At December 31, 1999
available-for-sale securities amounted to $132,356,000 with a net unrealized
loss of $4,321,000.
During the nine month period ended September 30, 2000, $4,629,000 of securities
available-for-sale were sold for a net gain of $167,000 as compared to
$16,300,000 of securities available-for-sale were sold for a net gain of
$557,000 for the same time period in 1999.
Held-to-maturity securities totaling $19,049,000 at September 30, 2000 are
carried at cost. At December 31, 1999, the held-to-maturity securities totaled
$19,887,000. The Company has the intent and ability to hold the held-to-maturity
securities until maturity. The Company, at September 30, 2000, did not hold any
securities identified as derivatives.
<PAGE>
Capital Resources and Liquidity
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 September 30, 2000, 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 Setpember 30, 2000 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $35,783 15.71% $18,222 8.00% --- ---
Bank $31,427 13.87% $18,120 8.00% $22,651 10.00%
Tier 1 Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $33,353 14.64% $ 9,111 4.00% --- ---
Bank $28,997 12.80% $ 9,060 4.00% $13,590 6.00%
Tier 1 Capital
(To Average Assets,
Leverage)
Company, (Consolidated) $33,353 7.93% $16,820 4.00% --- ---
Bank $28,997 6.97% $16,648 4.00% $20,810 5.00%
</TABLE>
<TABLE>
To Be Well
Capitalized
Required Under Prompt
For Capital Corrective
Actual Adequacy Action
(Dollars in Thousands)
At December 31, 1999 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $34,329 16.67% $16,477 8.00% --- ---
Bank $30,831 15.00% $16,446 8.00% $20,557 10.00%
Tier 1 Capital
(To Risk-Weighted Assets)
Company, (Consolidated) $31,892 15.48% $ 8,239 4.00% --- ---
Bank $28,194 13.71% $ 8,223 4.00% $12,334 6.00%
Tier 1 Capital
(To Average Assets,
Leverage)
Company, (Consolidated) $31,892 8.11% $15,726 4.00% --- ---
Bank $28,194 7.20% $15,655 4.00% $19,568 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.
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 September 30, 2000, cash, due from banks, Federal funds sold and interest
bearing deposits with banks totaled $20,263,000, and securities maturing within
one year totaled $3,498,000. At December 31, 1999, cash, due from banks, Federal
funds sold and interest bearing deposits with banks, totaled $21,861,000, and
securities maturing within one year were $2,249,000. Securities sold under an
agreement to repurchase totaled $9,685,000 at September 30, 2000 and $1,730,000
at December 31, 1999. 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 $2,424,000 at September 30, 2000 and
$5,548,000 at December 31, 1999. 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. At September 30, 2000 and December 31, 1999 there were Federal funds
sold totaling $2,000,000.
The Federal Home Loan Bank of Pittsburgh provides the Bank with a line of credit
in the amount of $25,000,000 at September 30, 2000, subject to certain
collateral requirements. The Bank had no short-term (overnight) borrowings
against this line at September 30, 2000 or at December 31, 1999. The Bank had
long-term borrowings from the Federal Home Loan Bank at September 30, 2000
totaling $34,000,000.
Cash flows for the nine months ended September 30, 2000 consisted of cash
provided by operating activities of $2,228,000 and cash provided by financing
activities of $39,289,000, offset in part by cash used in investing activities
of $40,117,000 resulting in an increase in cash and cash equivalents of
$1,400,000.
Cash provided by operating activities was the result of mortgage loan sales of
$6,629,000, net operating income of $2,018,000, depreciation and amortization of
$832,000, an increase in accrued interest income of $538,000 and a provision for
possible loan losses of $250,000, partially reduced by mortgage loans originated
<PAGE>
for sale of $6,629,000, an increase in other assets of $1,340,000, and an
increase in accrued interest income of $95,000. Cash was used in investing
activities for the purchase of securities available-for-sale of $35,627,000, a
net increase in loans of $21,008,000, and the purchase of furniture and
equipment of $574,000, partially offset by proceeds from maturities of
securities available-for-sale and held-to-maturity of $8,266,000 and $577,000,
respectively, proceeds from sales of securities available-for-sale of $4,796,000
and a net decrease in interest bearing deposits with banks of $2,998,000. Cash
provided by financing activities consisted principally of increases in
certificates of deposit of $19,551,000, interest and non-interest bearing demand
deposits and savings accounts of $8,594,000, an increase in repurchase
agreements of $7,955,000, an increase in long-term debt with the Federal Home
Loan Bank of $4,000,000, and the proceeds from the sale of common stock of
$235,000, offset in part by the payment of cash dividends of $1,044,000 and cash
paid in lieu of fractional shares of $2,000.
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, 2000 was $31,010,000 as
compared to $28,243,000 at December 31, 1999, for an increase of $2,767,000.
On August 18, 2000 the Company paid its 2000 third quarter cash dividend on its
common stock of $0.19 per share to shareholders of record on August 4, 2000. On
June 22, 2000, the Company paid a 5% stock dividend to shareholders of record on
June 2, 2000. Fractional shares were paid in cash based on the closing price of
$14.50 per share on the record date.
The Company maintains a Dividend Reinvestment and Stock Purchase Plan. During
the first nine months of 2000, 15,624 shares of common stock were purchased from
authorized and unissued shares at an average price of $15.04 per share for
proceeds of approximately $234,000.
The Company has a Non-Employee Director Stock Option Plan that provides for the
awarding of stock options to the Company's non-employee directors. During the
first nine months of 2000 options to purchase 2,550 shares of the Company's
common stock at an average price of $16.43 per share were granted to certain
non-employee directors. A non-employee director exercised options for 1,340
shares of the Company's common stock at a price of $12.69 per share during the
first nine months of 2000.
The Company also has a Stock Option Plan, which provide for the granting of
options to acquire the Company's common stock for officers and key employees. No
options were issued or exercised under this plan during the first nine months of
2000.
<PAGE>
ITEM 3. Quantitative and Qualitative Discussion About Market Risk
As a financial institution, the Company's primary component of market risk is
interest rate volatility. Fluctuations in interest will ultimately impact both
the level of income and expense recorded on a large portion of the Company's
assets and liabilities, and the market value of all interest earning assets,
other than those which possess a short term to maturity. Because most of the
Company's interest-bearing assets and liabilities are located at the Bank, the
majority of the Company's interest rate risk is at the Bank level. As a result,
most interest rate risk management procedures are performed at the Bank level.
There have been no material changes in the Bank's assessment of its sensitivity
to market risk since its presentation in the 1999 annual report to shareholders
and its 1999 Form 10-K filed with the Securities and Exchange Commission.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company has reserved $994,000 against asserted claims and claims which may
be asserted against the Bank in connection with certain pre-need funeral trusts.
Most of the claim arises from trusts in which the Company was directed by
funeral directors to invest in a private placement annuity issued by EA
International Trust. Nine funeral directors whose funds were invested in this
annuity have commenced suit against the Bank; if all funeral directors whose
funds were invested in this annuity were to pursue claims, the Bank's maximum
exposure would be approximately $4.4 million principal loss plus interest, costs
and attorney fees. The Bank has been advised that it has significant defenses to
these claims and intends to vigorously defend against such claims. The Bank has
discontinued its involvement in this annuity and is pursuing indemnification for
some or all of these possible losses from its insurance carrier and from EA
International Trust.
ITEM 5. Other Information
In September, 2000, the Bank completed its acquisition of two supermarket
branches from Commonwealth Bank of Valley Forge, Pennsylvania. These branches
are located in Giant Supermarkets in Whitehall and Trexlertown, Lehigh County,
Pennsylvania.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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: November 13, 2000 BY: /S/ S. ERIC BEATTIE
---------------------------- --------------------
S. ERIC BEATTIE
PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE: November 13, 2000 BY: /S/ REID L. HEEREN
--------------------------- -------------------
REID L. HEEREN
VICE PRESIDENT
