SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-21285
MID-ATLANTIC COMMUNITY BANKGROUP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
VIRGINIA 54-1809409
- ------------------------------------- ---------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
7171 George Washington Mem. Hwy.
Gloucester, Virginia 23061
-----------------------------------------
(Address of Principal Executive Offices)
(804) 693-0628
-------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
-------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ___.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 1997.
Common stock, $5 par value--944,333
INDEX
MID-ATLANTIC COMMUNITY BANKGROUP, INC. Page No.
Part I. Financial Information
Item 1. Financial Statements 3
Consolidated Balance Sheets--
March 31, 1997 and December 31, 1996
Consolidated Statements of Income-- 4
Three months ended March 31, 1997 and 1996
Consolidated Statements of Stockholders Equity-- 5
Three months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows-- 6
Three months ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements 7 - 9
Supplemental Financial Data (Tables I - III) 10 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 15
Part II. Other Information: 16 - 18
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports of Form 8-K
Item 1. FINANCIAL INFORMATION
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
March 31, December 31,
ASSETS: 1997 1996
---------------- ------------
Cash and due from bank $ 4,488 $ 6,015
Securities Available for Sale 27,771 27,297
(Amortized Cost $28,294 in 1997
and $27,542 in 1996)
Federal Funds Sold 4,423 5,364
Loans, Net of Unearned Income of 93,886 90,978
$493 in 1997, $483 in 1996 and
Allowance for Loan Losses of $1,196
in 1997 and $1,112 in 1996
Premises and equipment 5,622 4,923
Other assets 2,208 1,857
--------- ---------
TOTAL ASSETS $ 138,398 $ 136,434
========= =========
LIABILITIES:
Deposits
Demand $ 17,062 $ 15,133
Interest-bearing Demand 21,377 25,968
Savings 15,509 14,969
Large Denomination Certificates
of Deposit 11,099 9,417
Other Time 57,535 54,998
--------- ---------
TOTAL DEPOSITS 122,582 120,485
Short-term Debt 329 352
Long-term Debt 40 43
Other Liabilities 783 1,122
--------- ---------
TOTAL LIABILITIES 123,734 122,002
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, par value $5 per share,
10,000,000 shares authorized, 944,333
Shares Issued in 1997 and 1996 4,722 4,722
Surplus 6,701 6,701
Undivided Profits 3,585 3,170
Net Unrealized Gain (Loss) on
Available for Sale Securities (344) (161)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 14,664 14,432
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 138,398 $ 136,434
========= =========
Notes to financial statements are an integral part of these statements.
3
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
3 Months Ended
March 31
1997 1996
---- ----
INTEREST INCOME:
Loans and Fees $ 2413 $ 1982
Federal Funds Sold 36 41
Securities Held for Sale 510 393
------- -------
Total Interest Income 2959 2416
INTEREST EXPENSE:
Demand Deposits 191 138
Savings Deposits 105 79
Large Denomination Certificates
of Deposit 134 122
Other Time Deposits 770 655
Short-term Debt 2 2
Long-term Debt 1 1
------- -------
Total Interest Expense 1203 997
------- -------
Net Interest Income 1756 1419
ADDITION TO ALLOWANCE FOR LOAN
AND LEASE LOSSES 93 77
------- -------
Net Interest Income After
Addition to Allowance for Loan
and Lease Losses 1663 1342
OTHER INCOME:
Service Chgs on Deposit Accts 147 106
Other Service Charges & Fees 45 36
Securities Gains (Losses) 1 6
------- -------
Total Other Income 193 148
OTHER EXPENSES:
Salaries & Employee Benefits 665 516
Occupancy Expenses 40 33
Furniture & Equipment Expenses 166 125
Other Operating Expenses 390 286
------- -------
Total Other Expenses 1261 960
------- -------
Income Before Income Taxes 595 530
Applicable Income Taxes 180 185
------- -------
Net Income $ 415 $ 345
======= =======
NET INCOME PER SHARE .42 .35
======= =======
Notes to financial statements are an integral part of these statements.
4
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
Three Months Ended
March 31,
1997 1996
---- ----
Balance at Beginning of Year $ 14,431 $ 13,335
Net Income 415 345
Exercise of warrants -- --
Sale of stock -- --
Net change in unrealized gain (loss) on securities
available for sale (182) (149)
--------- ---------
Balance at End of Period $ 14,664 $ 13,531
========= =========
Notes to financial statements are an integral part of these statements.
5
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Three Months Ended
March 31,
1997 1996
----- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 415 $ 345
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 88 73
Provision for loan losses 93 77
Gain (loss) on sale of investment securities (1) (6)
Changes in operating assets and liabilities:
(Increase) in other assets (268) (236)
Increase (decrease) in other liabilities (362) 278
----------- -----------
Net Cash Provided By (Used In) Operating Activities ($ 35) $ 531
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in loans ($ 3,001) ($ 5,281)
Purchase of investment securities (2,343) (4,525)
Proceeds from sales of investment securities 1,593 8,376
(Increase) decrease in federal funds sold - net 941 1,102
Purchase of premises and equipment (776) (52)
----------- -----------
Net Cash (Used In) Investing Activities ($ 3,586) ($ 380)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits - net $ 2,097 $ (775)
Curtailment of other borrowed funds (3) (3)
----------- -----------
Net Cash Provided By Financing Activities $ 2,094 $ (778)
----------- -----------
Net Increase (Decrease) In Cash and Due From Banks (1,527) (627)
CASH AND DUE FROM BANKS - BEGINNING OF PERIOD 6,015 4,580
----------- -----------
CASH AND DUE FROM BANKS - END OF PERIOD $ 4,488 $ 3,953
=========== ===========
Notes to financial statements are an integral part of these statements.
6
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The consolidated statements include the accounts of Mid-Atlantic Community
BankGroup, Inc. and its affiliate, Peninsula Trust Bank. All significant
intercompany balances and transactions have been eliminated. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial positions as of March
31, 1997 and December 31, 1996, and the results of operations and cash
flows for the three months ended March 31, 1997 and 1996.
The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full
year.
2. Investment Securities
Amortized cost and carrying amount (estimated fair value) of securities
available for sale are summarized as follows:
March 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands of Dollars)
US Treasury Securities 634 -- 13 621
US Government Agencies and Corporations 16,878 3 389 16,492
Obligations of States and Political Subdivisions 7,308 29 99 7,238
Mortgage-backed Securities 3,125 -- 53 3,072
Federal Reserve Bank Stock 343 -- -- 343
---------- -------- -------- ---------
$ 28,288 $ 32 $ 554 $ 27,766
========== ======== ======== =========
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands of Dollars)
US Treasury Securities 534 -- 4 530
US Government Agencies and Corporations 15,650 35 211 15,474
Obligations of States & Political Subdivisions 7,468 40 87 7,421
Mortgage-backed Securities 3,196 2 21 3,177
Federal Reserve Bank Stock 343 -- -- 343
Marketable Equity Securities 351 2 -- 353
---------- ------ ------ ---------
$ 27,542 $ 79 $ 323 $ 27,298
========== ====== ====== =========
Three Months Ended
March 31,
1997 1996
---- ----
(In Thousands of Dollars)
Gross proceeds from sales of securities 1,593 8,376
======== ===========
Gross Gains on Sale of Securities 1 20
Gross Losses on Sale of Securities -- (10)
-------- -----------
Net Securities Losses 1 10
========= ===========
7
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Loans
The following is a summary of loans outstanding at the end of the periods
indicated:
March 31, December 31,
1997 1996
---- ----
(In Thousands of Dollars)
Commercial Mortgage 20,267 19,622
Residential Mortgage 26,008 25,056
Home Equity 10,057 9,318
Construction 6,453 6,915
Commercial 10,535 10,292
Installment 21,797 20,848
All Other 458 522
---------- -----------
95,575 92,573
Less Unearned Income 493 483
---------- -----------
95,082 92,090
Less Allowance for Loan and Lease Losses 1,196 1,112
---------- -----------
$ 93,886 $ 90,978
========== ===========
The following schedule summarizes the changes in the allowance for loan and
lease losses:
Three Months Three Months
Ending Ending
March 31, March 31, December 31,
1997 1996 1996
---------- --------- ---------
(In Thousands of Dollars)
Balance, Beginning 1,112 865 865
Provision Charged Against Income 93 77 380
Recoveries 7 8 28
Loans Charged Off (16) (13) (161)
------- -------- ---------
Balance, Ending $ 1,196 $ 937 $ 1,112
========== ======== =========
Nonperforming assets consist of the following:
March 31, December 31,
1997 1996
---- ----
(In Thousands of Dollars)
Nonaccrual Loans $ 498 $ 190
Restructured Loans -- ---
-------- -------
Nonperforming Loans 498 190
Foreclosed Properties 31 ---
-------- -------
Nonperforming Assets $ 529 $ 190
======== =======
Total loans past due 90 days or more and still accruing were $56 on March 31,
1997 and $88 on December 31, 1996.
8
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Short-term Debt
Short-term debt consists of the following:
March 31, December 31,
1997 1996
---- ----
(In Thousands of Dollars)
Treasury, Tax and Loan Note Option $ 329 $ 352
------- -------
Total Short-term Debt $ 329 $ 352
======= =======
5. Earnings Per Share
Earnings per share are computed on the weighted average common shares
outstanding of 977,311 and 973,064 for the three months ended March 31, 1997 and
1996, respectively.
6. Capital Requirements
A comparison of the Company's capital as of March 31, 1997 with the
minimum requirements is presented below:
Minimum
Actual Requirements
------ ------------
Tier I Risk-based Capital 15.10 % 4.00 %
Total Risk-based Capital 16.30 % 8.00 %
Leverage Ratio 11.21 % 4.00 %
9
TABLE I
Consolidated Selected Financial Data
(Amounts in thousands, except per share data)
1997
----------------------------------------------------------
First
Quarter
Interest Income $ 2,959
Interest Expense 1,203
Net Interest Income 1,756
Provision for Loan Losses 93
Net Income 415
Per Share Data:
Net Income .42
Cash Dividends Paid .25
Total Average Stockholders' Equity $ 14,821
Total Average Assets $ 134,141
Ratios:
Average Stockholders' Equity to
to Total Average Assets 11.05%
Return on Average Equity 11.20%
Return on Average Assets 1.24%
1996
----------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest Income $ 2,891 $ 2,778 $ 2,568 $ 2,416
Interest Expense 1,186 1,123 1,053 997
Net Interest Income 1,705 1,655 1,515 1,419
Provision for Loan Losses 141 81 81 77
Net Income 413 404 371 346
Per Share Data:
Net Income 0.43 0.41 0.38 0.35
Cash Dividends Paid -- -- -- 0.12
Total Average Stockholders' Equity $ 14,644 $ 14,242 $ 13,846 $ 13,491
Total Average Assets $128,458 $122,642 $114,384 $105,910
Ratios:
Average Stockholders' Equity
to Total Average Assets 11.40% 11.61% 12.10% 12.74%
Return on Average Equity 11.28% 11.35% 10.72% 10.26%
Return on Average Assets 1.29% 1.32% 1.30% 1.31%
10
DISTRIBUTION OF ASSETS, LIABILITIES, STOCKHOLDERS' EQUITY, TABLE II
INTEREST RATES AND INTEREST DIFFERENTIAL
The following schedule presents the condensed consolidated average rates earned
and paid by Mid-Atlantic Community BankGroup, Inc. and its affiliate on a fully
taxable equivalent basis assuming a 34% tax rate for the three months ended
March 31, 1997 and 1996. Nonaccruing loans are included in the total loans.
1997 1996
----------------------------------- ----------------------------------
Average Interest Yield/ Average Interest Yield/
Balance And Fees(1) Rate Balance And Fees Rate
------- ----------- ---- ------- -------- ----
(In Thousands of Dollars) (In Thousands of Dollars)
Assets
Interest-earning Assets:
Loans and Leases $ 93,472 $ 9,651 10.33% $ 73,416 $ 7,928 10.80%
U.S. Treasuries 604 44 7.28%
US Govt. Agencies & Corp. 20,129 1,504 7.47% 16,488 1,132 6.87%
Other Securities 7,642 494 6.46% 6,454 440 6.82%
Federal Funds Sold 2,662 144 5.41% 2,780 164 5.90%
-------- ------- -------- ------- ------- --------
Total Interest-
earning Assets $124,509 $ 11,837 9.51% $ 99,138 $ 9,664 9.75%
Noninterest-earning Assets:
Cash & Noninterest-
bearing Deposits $ 3,869 $ 3,264
Other Assets 7,387 4,829
Less Allowance for
Loan and Lease Losses (1,142) (894)
Less Deferred Loan Fees (482) (427)
-------- ---------
Total Assets $134,141 $ 105,910
======== =========
Liabilities and Stockholders' Equity
Interest-bearing Liabilities:
Demand Deposits $ 21,923 $ 764 3.48% $ 17,776 $ 552 3.11%
Savings Deposits 14,994 420 2.80% 9,491 316 3.33%
Other Time Deposits 66,168 3,614 5.46% 52,920 3,108 5.87%
Short-term Borrowings 250 10 4.00% 202 8 3.96%
Long-term Debt 42 2 4.76% 54 4 7.41%
-------- -------- ------ -------- -------- ------
Total Interest-bearing
Liabilities $ 103,377 $ 4,810 4.65% $ 80,443 $ 3,988 4.96%
Noninterest-bearing Liabilities:
Demand Deposits $ 15,000 $ 11,296
Other Liabilities 943 680
Stockholders' Equity 14,821 13,491
-------- ---------
Total Liabilities and
Stockholders' Equity $134,141 $ 105,910
======== =========
Net Interest Differential 4.86% 4.79%
Net Interest Earnings $ 7,027 $ 5,676
======== ========
Net Yield on Interest-earning
Assets 5.64% 5.73%
(1) Interest and fees annualized.
11
TABLE III
A summary of the increases and decreases of the items included in the
Consolidated Statements of Income are shown below:
Net Increases (Decreases)
Three Months Ended
March 31,
1997 and 1996
(In Thousands of Dollars)
INTEREST INCOME: Amount Percent
------ -------
Loans and Fees $ 431 21.75%
Federal Funds Sold (5) (12.20%)
Securities Held for Sale 117 29.77%
---------- --------
Total Interest Income $ 543 22.48%
========= ========
INTEREST EXPENSE:
Demand Deposits $ 53 38.41%
Savings Deposits 26 32.91%
Large Denomination Certificates of Deposit 12 9.84%
Other Time Deposits 115 17.56%
Short-term Debt 0 0.00%
Long-term Debt 0 0.00%
---------- --------
Total Interest Expense $ 206 20.66%
---------- --------
Net Interest Income $ 337 23.75%
---------- --------
ADDITION TO ALLOWANCE FOR LOAN
AND LEASE LOSSES $ 16 20.78%
---------- --------
Net Interest Income After Addition to Allowance
for Loan and Lease Losses $ 321 23.92%
---------- --------
OTHER INCOME:
Service Charges on Deposit Accounts $ 41 38.68%
Other Service Charges and Fees 9 25.00%
Securities Gains (Losses) (5) (83.33%)
---------- --------
Total Other Income $ 45 30.41%
---------- --------
OTHER EXPENSES:
Salaries and Employee Benefits $ 149 28.88%
Occupancy 7 21.21%
Furniture and Equipment 41 32.80%
Other Operating 104 36.36%
---------- --------
Total Other Expense $ 301 31.35%
---------- --------
Income Before Income Taxes $ 65 12.26%
Applicable Income Taxes (5) (2.70%)
---------- --------
Net Income $ 70 20.29%
========== ========
12
Item 2. Management's Discussion and Analysis
The following presents management's discussion and analysis of the consolidated
financial condition and results of operations of Mid-Atlantic Community
BankGroup, Inc. (the "Company") as of the dates and for the periods indicated.
This discussion should be read in conjunction with the Selected Financial Data,
the Company's Consolidated Financial Statements and the Notes thereto, and other
financial data appearing elsewhere in this report.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Peninsula Trust Bank (the "Bank"). The Company's
existence originated during the third quarter of 1996; however, the Bank
represents more than 99% of the Company's activities. Therefore, comparative
discussions of consolidated versus non-consolidated financials should still be
considered appropriate.
PENINSULA TRUST BANK
Results of Operation
Peninsula Trust Bank (the Bank) experienced a typically flat first quarter of
1997 relative to asset growth, with total assets increasing $2.0 million or
1.44% from year-end 1996. The Bank continues to experience a year-end trend
where certain attorney escrow balances at year-end are substantially above their
average balances due to an abnormally high number of real estate closings during
the last several weeks of the year. These balances quickly shrink after
year-end. Deposit liabilities experienced a shift from demand deposits to
savings and consumer CDs of less than $100,000. Total deposits also experienced
a slight increase of $2.1 million or 1.74%.
Loan growth experienced a modest increase during the first quarter, increasing
$2.9 million (3.20%). The Bank has been successful in attracting some high
quality loans of a larger than average size ($.75 million to $1.6 million).
Historically, a $.5 million loan was considered a large loan. This has caused
management to alter its liquidity and funding philosophy and become more
aggressive in deposit development. Competition among all banks for deposit funds
continues to intensify due to the proliferation of mutual funds.
Loan quality remains strong. Total loans past due 30 days or more equaled
$1,693,000 (1.78% of total outstandings). Included in the 30 day total are
$56,000 which are 90 days or more past due and still accruing. Twenty-six (26)
loans totaling $498,000 are carried in a nonaccrual status, which represented
0.52% of total outstanding loans and 41.6% of the loan loss reserve. Gross
charge-offs for the quarter were $16,000; total recoveries were $7,000. These
amounts compare to first quarter 1996, with charge-offs of $13,000 and
recoveries of $8,000.
The Bank maintained its practice during the first quarter of selling Federal
funds, having sold continuously on a daily basis in amounts averaging $2.7
million, 1.98% of average total assets. These figures compare to $4.9 million
and 3.8%, respectively, for the fourth quarter 1996. The quarter-end balance of
$4.4 million represented a $.9 million decrease from the previous year-end. The
decline in both average and period end levels is not a major liquidity concern
due to the cyclical deposit decline discussed above. Additionally, the increase
in loans combined with a small increase in investment account contributed to the
declining Federal funds level.
The investment account increased $474,000 in the first quarter. New purchases
totaled $2.7 million, while maturities, sales and calls totaled $1.9 million and
prepayments on mortgage-backed securities approximated $66,000. The gross
unrealized loss on available for sale securities increased during the quarter by
$278,000. Management closely monitors the gain or loss position in the
portfolio. The gradual rise in interest rates has adversely affected bond prices
resulting in declines in market values. However, the yield of the portfolio in
total interest earnings continues to rank the bank in the upper quartile of its
peer group as noted in the FFIEC Uniform Bank Performance Report. Management's
future investment decisions may move more toward
13
bonds with less market values volatility, provided this can be done without
harmful compromise of interest earnings.
The total portfolio remained constant at 20.0% of total assets at December 31,
1996 and March 31, 1997. The portfolio was comprised of 74% U.S. Treasuries and
U.S. Government Agencies, 25% State, County and Municipal governments, and 1%
other bank-qualified Private label CMOs and Federal Reserve Bank stock. The
portfolio target level will approximate 20% of total assets throughout 1997.
The Financial Accounting Standards Board (FASB) Statement 115 stipulated the way
in which banks must classify and account for their securities portfolio,
beginning with the first quarter of 1994. Securities are classified as
Investment Securities when management has both the intent and the ability at the
time of purchase to hold the securities until maturity. Investment Securities
are carried at cost adjusted for amortization of premiums and accretion of
discounts. Securities which are held for an indefinite period of time are
classified as Securities Available for Sale and are marked to market at each
financial reporting date, or at each month-end. Securities Available for Sale
include securities that may be sold in response to changes in interest rates,
changes in the security's prepayment risk, increases in loan demand, general
liquidity needs and other similar factors.
The Bank elected, as of year-end 1995, to classify the entire portfolio as
"available for sale". It is expected that this may cause the "net unrealized
gains/losses" to fluctuate in a more volatile manner. Long term, fixed rate
bonds will demonstrate more price instability during their lives. These price
fluctuations would not be as apparent if the bonds were designated as "held to
maturity" and thus, not reported in the net unrealized gains and losses.
Therefore, the negative $278,000 swing during the first quarter is not cause for
alarm at this time.
Deposits represent 99.1% of total liabilities of the Bank, including
non-interest bearing checking accounts which represent 13.9% of total deposits.
There continues to be no brokered deposits.
Earnings
The Company recorded a net after tax profit of $415,000 during the first quarter
1997, a $70,000, or 20.3% increase over March 31, 1996.
Net interest income of $1,756,000 for the three months ended March 31, 1997
represented a $337,000 increase (23.7%) over the same period in 1996. However,
as a percentage of average earning assets, the 1997 figure of 5.64% reflected a
modest decrease of 1.57% from the 5.73% for the first quarter of 1996. Public
opinion anticipated the Federal Reserve's increase in interest rates well in
advance of the actual increase. As a result, the Bank began to see upward
pressure from competition on deposit product interest rates. Therefore, cost of
funds demonstrated an increase throughout the quarter, while the effective
increase in loan rates was not realized until March 26, 1997 when the "prime"
rate increased 25 basis points.
Total non-interest income for the first quarter of 1997 was $193,000 compared
with $148,000 for the corresponding period in 1996 (a 30.4% increase).
Non-interest expense of $1,261,000 increased $960,000 (31.3%) over first quarter
1996. $149,000 of the increase was in personnel expense, most of which is
associated with the hiring of additional employees to support the Bank's growth,
both in number of offices and customer accounts. The Bank opened its fifth
branch office in January 1997. The building which houses this branch also
includes a new Operations Center. Total capitalized costs of this combined
branch and Operations Center exceeded $1.5 million. The impact of such an
expansion in plant and equipment was reflected in an increase in total monthly
depreciation expense of approximately $10,000. Although the improved office
conditions had been necessary for some time, it will take the Company several
months throughout 1997 to effectively absorb these increased overhead costs.
14
Loan Loss Reserve
The March 31, 1997 "Allowance for Loan Losses" represented 1.25% of total loans,
compared to 1.23% at March 31, 1996. The current expense accrual was increased
from $27,000 to $39,000 per month in March 1997. The increase was prompted as
growth in total loans had outpaced the growth of the reserve in recent months,
causing a gradual decline in the ratio. The Company plans to maintain the
reserve in a range from 1.25% to 1.30% of total loans. This level is expected to
be adequate for growth in the second quarter 1997. Both the "Allowance" and the
accrual will be reviewed for possible adjustment in June 1997.
Capital and Liquidity
Equity capital at quarter-end totaled $14.7 million, representing 10.60% of
total assets. This level of capital would be adequate to support growth in
operations to an asset level approximating $150 million without additional
external injections. However, the current quarters for the Newport News office
are under a lease that expires in October of 1998. Plans are being developed to
construct a new permanent facility on a nearby site which was acquired in 1996
at a cost in excess of $600,000. Total cost of construction and site work may
approach $1 million. Thus, the need for additional capital to assist the
building program may be warranted before such an asset level described above is
reached.
Short term liquidity is provided by access to the Federal funds market through
correspondent bank relationships which include commitments of $5.4 million. Fed
funds sold equaled 11.5% of total demand deposits. This compares to 13.3% at
March 31, 1996. This is considered an adequate level of liquidity to meet
anticipated withdrawals and expected loan demand.
Future Plans
The Company is considering further expansion of its branch network in the
Peninsula region of Tidewater, Virginia. Exploration of the City of Hampton
market is currently underway. It is anticipated that a site for a sixth banking
office will be located before the end of 1997 with an anticipated opening in
1998. The Company is also in the process of negotiating a possible joint venture
arrangement with a mortgage company to expand its product offerings in the
mortgage loan area. It is expected that this process will be consummated before
the end of the third quarter of 1997.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
11 Statement re: computation of per share earnings
19 Report to Shareholders
b) Form 8-K - None
16
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.
MID-ATLANTIC COMMUNITY BANKGROUP, INC.
Date: May 14, 1997 BY /s/ W. J. Farinholt
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W. J. Farinholt, President & CEO
Date: May 14, 1997 BY /s/ Kenneth E. Smith
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Kenneth E. Smith, Exec. Vice President
& Chief Financial Officer
Date: May 14, 1997 BY /s/ Kathleen C. Healy
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Kathleen C. Healy, Vice President &
Chief Accounting Officer
17