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 June 30, 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 June 30, 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--
June 30, 1997 and December 31, 1996
Consolidated Statements of Income-- 4
Six months ended June 30, 1997 and 1996
Three months ended June 30, 1997 and 1996
Consolidated Statements of Stockholders Equity-- 5
Six months ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows-- 6
Six months ended June 30, 1997 and 1996
Notes to Consolidated Financial Statements 7 - 10
Supplemental Financial Data (Tables I - III) 11 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 16
Part II. Other Information: 17 - 20
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 on Form 8-K
2
Item 1. FINANCIAL INFORMATION
MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
June 30, December 31,
ASSETS: 1997 1996
------------------- --------------
Cash and due from bank $ 6,579 $ 6,015
Securities Available for Sale 28,374 27,297
(Amortized Cost $28,492 in 1997
and $27,542 in 1996)
Federal Funds Sold 8,431 5,364
Loans, Net of Unearned Income of 96,733 90,978
$520 in 1997, $483 in 1996 and
Allowance for Loan Losses of $1,294
in 1997 and $1,112 in 1996
Premises and equipment 5,530 4,923
Other assets 2,324 1,857
------------ ------------
TOTAL ASSETS $ 147,971 $ 136,434
========== ==========
LIABILITIES:
Deposits
Demand $ 17,186 $ 15,133
Interest-bearing Demand 26,568 25,968
Savings 13,651 14,969
Large Denomination Certificates
of Deposit 12,595 9,417
Other Time 61,606 54,998
------------- -------------
TOTAL DEPOSITS 131,606 120,485
Short-term Debt 337 352
Long-term Debt 37 43
Other Liabilities 712 1,122
--------------- ----------------
TOTAL LIABILITIES 132,692 122,002
------------ --------------
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 3,934 3,170
Net Unrealized Gain (Loss) on
Available for Sale Securities (78) (161)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 15,279 14,432
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 147,971 $ 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 6 Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
INTEREST INCOME:
Loans and Fees $ 2548 $ 2112 $ 4960 $ 4093
Federal Funds Sold 63 70 100 112
Securities Held for Sale 511 386 1021 779
--------- -------- ------- -------
Total Interest Income 3122 2568 6081 4984
INTEREST EXPENSE:
Demand Deposits 194 164 384 302
Savings Deposits 109 88 215 167
Large Denomination Certificates
of Deposit 157 120 291 242
Other Time Deposits 835 679 1605 1334
Short-term Debt 2 1 5 4
Long-term Debt 1 1 1 1
--------- -------- ------- -------
Total Interest Expense 1298 1053 2501 2050
--------- -------- ------- -------
Net Interest Income 1824 1515 3580 2934
ADDITION TO ALLOWANCE FOR LOAN
AND LEASE LOSSES 117 81 210 158
--------- -------- ------- -------
Net Interest Income After
Addition to Allowance for Loan
and Lease Losses 1707 1434 3370 2776
--------- -------- ------- -------
OTHER INCOME:
Service Chgs on Deposit Accts 144 108 291 215
Other Service Charges & Fees 55 30 100 66
Securities Gains (Losses) -0- (2) (2) 3
--------- -------- ------- -------
Total Other Income 199 136 393 284
--------- -------- ------- -------
OTHER EXPENSES:
Salaries & Employee Benefits 700 528 1365 1044
Occupancy Expenses 55 33 95 66
Furniture & Equipment Expenses 202 134 368 259
Other Operating Expenses 462 311 851 597
--------- -------- ------- -------
Total Other Expenses 1419 1006 2679 1966
--------- -------- ------- -------
Income Before Income Taxes 487 564 1084 1094
Applicable Income Taxes 138 193 319 378
--------- -------- ------- -------
Net Income $ 349 $ 371 $ 765 $ 716
========= ======== ======= =======
NET INCOME PER SHARE .36 .38 .78 .73
========= ======== ======= =========
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)
Six Months Ended
June 30,
-----------------------------
1997 1996
---- ----
Balance at Beginning of Year $ 14,431 $ 13,335
Net Income 765 716
Exercise of warrants -- --
Sale of stock -- --
Net change in unrealized gain (loss) on securities
available for sale 83 (346)
--------- ----------
Balance at End of Period $ 15,279 $ 13,705
========= ==========
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)
Six Months Ended
June 30,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 765 $ 716
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 201 146
Provision for loan losses 210 158
Amortization of premium on investment securities 16 16
(Gain) on sale of investment securities (2) (3)
Changes in operating assets and liabilities:
(Increase) in other assets (467) (433)
Increase (decrease) in accrued income taxes (152) 40
Increase (decrease) in other liabilities (22) 53
-------- --------
Net Cash Provided By Operating Activities $ 549 $ 693
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in loans ($ 5,964) ($10,826)
Proceeds from sales of investment securities 1,593 9,855
(Increase) decrease in federal funds sold (3,067) 1,809
Purchase of investment securities (2,603) (9,852)
Purchase of property and equipment (808) (266)
-------- --------
Net Cash (Used In) Investing Activities ($10,849) ($ 9,280)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 11,121 $ 10,877
Dividends paid (236) (113)
Increase (decrease) in short-term debt (15) 161
Curtailment of other borrowed funds (6) (6)
-------- --------
Net Cash Provided by Financing Activities $ 10,864 $ 10,919
-------- --------
Net Increase in Cash and Due From Banks $ 564 $ 2,332
CASH AND DUE FROM BANKS - BEGINNING OF PERIOD 6,015 4,553
-------- --------
CASH AND DUE FROM BANKS - END OF PERIOD $ 6,579 $ 6,885
======== ========
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 June
30, 1997 and December 31, 1996, and the results of operations and cash
flows for the six months ended June 30, 1997 and 1996.
The results of operations for the six months ended June 30, 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:
June 30, 1997
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands of Dollars)
US Treasury Securities 634 -- 8 626
US Government Agencies and Corporations 17,124 53 99 17,078
Obligations of States and Political Subdivisions 7,303 55 112 7,246
Mortgage-backed Securities 3,031 4 11 3,024
Federal Reserve Bank Stock 343 -- -- 343
Other Equity Securities 57 -- -- 57
---------- -------- -------- ---------
$ 28,492 $ 112 $ 230 $ 28,374
========== ======== ======== =========
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
========== ======== ======= ==========
Six Months Ended
June 30,
--------
1997 1996
---- ----
(In Thousands of Dollars)
Gross proceeds from sales of securities 1,593 9,852
========== ==========
Gross Gains on Sale of Securities 2 22
Gross Losses on Sale of Securities -- (19)
---------- ----------
Net Securities Gains (Losses) 2 3
========== ==========
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:
June 30, December 31,
1997 1996
---- ----
(In Thousands of Dollars)
Commercial Mortgage 21,223 19,622
Residential Mortgage 27,686 25,056
Home Equity 9,526 9,318
Construction 6,188 6,915
Commercial 10,668 10,292
Installment 22,767 20,848
All Other 489 522
---------- -----------
98,547 92,573
Less Unearned Income 520 483
---------- -----------
98,027 92,090
Less Allowance for Loan and Lease Losses 1,294 1,112
---------- -----------
$ 96,733 $ 90,978
========== ===========
The following schedule summarizes the changes in the allowance for loan and
lease losses:
Six Months Six Months
Ending Ending
June 30, June 30, December 31,
1997 1996 1996
---- ---- ----
(In Thousands of Dollars)
Balance, Beginning 1,112 865 865
Provision Charged Against Income 210 158 380
Recoveries 29 14 28
Loans Charged Off (57) (58) (161)
---------- -------- ----------
Balance, Ending $ 1,294 $ 979 $ 1,112
========== ======== ==========
Nonperforming assets consist of the following:
June 30, December 31,
1997 1996
---- ----
(In Thousands of Dollars)
Nonaccrual Loans $ 556 $ 190
Restructured Loans -- ---
-------- --------
Nonperforming Loans 556 190
Foreclosed Properties --- ---
-------- --------
Nonperforming Assets $ 556 $ 190
======== ========
Total loans past due 90 days or more and still accruing were $164 on June 30,
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:
June 30, December 31,
1997 1996
---- ----
(In Thousands of Dollars)
Treasury, Tax and Loan Note Option $ 337 $ 352
------- --------
Total Short-term Debt $ 337 $ 352
======= ========
5. Earnings Per Share
Earnings per share are computed on the weighted average common shares
outstanding of 977,455 and 976,034 for the three months ended June 30, 1997 and
1996, respectively, and 977,382 and 974,566 for the six months ended June 30,
1997 and 1996, respectively.
6. Capital Requirements
A comparison of the Company's capital as of June 30, 1997 with the
minimum requirements is presented below:
Minimum
Actual Requirements
Tier I Risk-based Capital 14.84 % 4.00 %
Total Risk-based Capital 16.09 % 8.00 %
Leverage Ratio 10.94 % 4.00 %
7. Off-Balance-Sheet Items, Commitments and Contingent Liabilities:
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
lines of credit, commercial letters of credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amounts recognized in the statements of financial
condition.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit,
lines of credit, commercial letters of credit and standby letters of credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, if deemed necessary by the Company upon extension of credit, varies
and is based on management's credit evaluation of the counterparty.
9
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Standby
letter of credit generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Company's policy for obtaining collateral, and the
nature of such collateral, is essentially the same as that involved in making
commitments to extend credit.
At June 30, 1997, the Company had outstanding letters of credit
totaling $2,163,000 and does not anticipate losses as a result of these
transactions. The Company also had, at June 30, 1997, undisbursed funds under
various lines of credit and loan commitments totaling $21,847,000.
10
TABLE I
Consolidated Selected Financial Data
(Amounts in thousands, except per share data)
1997
----------------------------------------------------------
Second First
Quarter Quarter
------- -------
Interest Income $ 3,122 $ 2,959
Interest Expense 1,298 1,203
Net Interest Income 1,824 1,756
Provision for Loan Losses 117 93
Net Income 349 415
Per Share Data:
Net Income .36 .42
Cash Dividends Paid -- .25
Total Average Stockholders' Equity 14,841 $ 14,797
Total Average Assets 140,413 $134,056
Ratios:
Average Stockholders' Equity
to Total Average Assets 10.57% 11.04%
Return on Average Equity 9.41% 11.22%
Return on Average Assets .99% 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%
11
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 June
30, 1997 and 1996. Nonaccruing loans are included in the total loans.
1997 1996
----------------------------------- ----------------------------------
Average Interest Yield/ Average Interest Yield/
Balance And Fees Rate Balance And Fees Rate
------- -------- ---- ------- -------- ----
(In Thousands of Dollars) (In Thousands of Dollars)
Assets
Interest-earning Assets:
Loans and Leases $ 95,503 $ 4,960 10.39% $ 76,355 $ 4,093 10.72%
US Treasuries 619 22 7.11% -- -- --
US Govt. Agencies & Corp. 20,133 749 7.44% 16,255 557 6.85%
Other Securities 7,761 250 6.44% 6,547 222 6.78%
Federal Funds Sold 3,702 100 5.40% 3,907 112 5.73%
------------ ---------- -------- ----------- ---------- --------
Total Interest-
earning Assets $127,718 $ 6,081 9.52% $103,064 $ 4,984 9.67%
Noninterest-earning Assets:
Cash & Noninterest-
bearing Deposits $ 4,032 $ 3,581
Gross Unrealized Gain (Loss)
- Available for Sale Securities (313) 4,949
Other Assets 7,504
Less Allowance for
Loan and Lease Losses (1,194) (929)
Less Deferred Loan Fees (495) (425)
------------ ------------
Total Assets $137,252 $ 110,240
======== =========
Liabilities and Stockholders' Equity
Interest-bearing Liabilities:
Demand Deposits $ 21,976 $ 384 3.49% $ 16,834 $ 302 3.59%
Savings Deposits 15,264 215 2.82% 12,372 167 2.70%
Other Time Deposits 68,686 1,896 5.52% 54,189 1,576 5.82%
Short-term Borrowings 246 5 4.07% 203 4 3.94%
Long-term Debt 40 1 5.00% 52 1 3.85%
-------------- ----------- ------ ------------ ----------- ------
Total Interest-bearing
Liabilities $ 106,212 $ 2,501 4.71% $ 83,650 $ 2,050 4.90%
Noninterest-bearing Liabilities:
Demand Deposits $ 15,349 $ 12,243
Other Liabilities 872 679
Stockholders' Equity 14,819 13,668
---------- -----------
Total Liabilities and
Stockholders' Equity $137,252 $ 110,240
======== =========
Net Interest Differential 4.81% 4.77%
Net Interest Earnings $ 3,580 $ 2,934
======== ========
Net Yield on Interest-earning
Assets 5.61% 5.69%
12
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)
Six Months Ended
June 30,
1997 and 1996
(In Thousands of Dollars)
INTEREST INCOME:
Amount Percent
Loans and Fees $ 867 21.18%
Federal Funds Sold (12) (10.71%)
Securities Held for Sale 242 31.07%
------- ---------
Total Interest Income $ 1,097 22.01%
======= =========
INTEREST EXPENSE:
Demand Deposits $ 82 27.15%
Savings Deposits 48 28.74%
Large Denomination Certificates of Deposit 49 20.25%
Other Time Deposits 271 20.31%
Short-term Debt 1 25.00%
Long-term Debt -0- -0-
------- ---------
Total Interest Expense $ 451 22.00%
------- ---------
Net Interest Income $ 646 22.02%
------- ---------
ADDITION TO ALLOWANCE FOR LOAN
AND LEASE LOSSES $ 52 32.91%
------- ---------
Net Interest Income After Addition to Allowance
for Loan and Lease Losses $ 594 21.40%
------- ---------
OTHER INCOME:
Service Charges on Deposit Accounts $ 76 35.35%
Other Service Charges and Fees 34 51.52%
Securities Gains (Losses) (1) (33.33%)
------- ---------
Total Other Income $ 109 38.38%
------- ---------
OTHER EXPENSES:
Salaries and Employee Benefits $ 321 30.75%
Occupancy 29 43.94%
Furniture and Equipment 109 42.08%
Other Operating Expenses 254 42.55%
------- ---------
Total Other Expenses $ 713 36.27%
------- ---------
Income Before Income Taxes $ (10) (00.91%)
Applicable Income Taxes (59) (15.61%)
------- ---------
Net Income $ 49 6.84%
======= =========
13
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 period 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 Operations
After experiencing typically flat asset growth during the first quarter of 1997,
Peninsula Trust Bank (the Bank) enjoyed strong balance sheet expansion during
the second quarter of 1997, with total assets increasing $9.6 million, or 6.9%
over March 31, 1997 and $11.6 million, or 8.5% over December 31, 1996. Growth
was funded almost entirely from new deposits, which reflected $9.0 million and
$11.1 million increases for the three months and six months ending June 30,
1997, respectively. The majority of the increase was in consumer time deposits,
which experienced an increase of $6.6 million over December 31, 1996.
Loan demand resumed strong growth during the second quarter, evidenced by net
loans increasing $2.8 million (3.0%) and $5.7 million (6.3%), respectively, over
March 31, 1997 and December 31, 1996.
Asset quality continues to be strong. Total loans past due 30 days or more
equaled $1.8 million (1.87% of total outstandings). Included in the 30 day total
are $164,000 which are 90 days or more past due and still accruing interest.
Non-accrual loans totaled $556,000 at June 30, 1997, which represented 0.56% of
total outstanding loans and 42.9% of the loan loss reserve. Included in the
non-accrual loan total are two loans totalling $314,000, secured by real estate,
one of which is engaged in bankruptcy proceedings. The provision for loan losses
was $117,000 in the second quarter of 1997 and $210,000 in the first half of
1997. Gross charge-offs for the quarter were $41,000, while total recoveries
were $22,000. These amounts compare favorably to second quarter 1996, with
charge-offs of $47,000 and recoveries of $8,000.
The Bank maintained its practice during the second quarter of selling Federal
funds, having sold continuously on a daily basis in amounts averaging $4.7
million, 3.37% of average total assets. These figures compare to $2.7 million
and 1.99%, respectively, for the first quarter 1997. The quarter-end balance of
$8.4 million represented a $4.0 million increase from the first quarter 1997.
The level of the investment account remained virtually unchanged during the
second quarter of 1997, ending the period at $28.4 million or 19.2% of total
assets. The portfolio is comprised of 2% US Treasuries, 71% US Government
Agencies, 26% State, County and Municipal governments, and 1% other equity
securities and Federal Reserve Bank Stock.
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
14
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.
Deposits represent 99.2% of total liabilities of the Bank, including
non-interest bearing checking accounts which represent 13.1% of total deposits.
Earnings
Net income for the second quarter of 1997 declined to $349,000, compared to
$415,000 for the first quarter of 1997 and $371,000 for the second quarter of
1996. The decline in earnings resulted from an increase in non-interest expense,
which was partially offset by increases in net interest income and non-interest
income.
Net interest income for the second quarter of 1997 totaled $1,824,000 (a 20.4%
increase over a similar period in 1996). The net interest margin experienced
modest contraction as renewing deposits among consumer CDs reflected an upward
trend in renewal rates. This trend occurred during a period when the average
yield on the loan portfolio declined by 33 basic points. As a result, the 21.6%
increase in interest income for the second quarter 1997 compared to second
quarter 1996 was offset by a 23.3% increase in interest expense for the same
period.
Non-interest expense for the second quarter totaled $1.4 million, compared to
$1.3 million for the first quarter of 1997 and $1.0 million for the second
quarter of 1996. The increase in non-interest expense resulted from costs
incurred in connection with opening the Company's fifth banking office and new
operations center in Glenns, during the first quarter of 1997, the full impact
of which was not realized until the second quarter. In addition, the Bank
completed minor renovations and improvements at the Main Office. Capitalization
of these improvements and increases in furniture, fixtures and equipment
relating to the new branch, operations center and renovations at the Main Office
resulted in increased depreciation expense of approximately $12,000 per month.
The Bank's rapid growth during the past three years necessitated improved
facilities for the operations support functions, such as Accounting, Bookkeeping
and Data Processing. In May, the loan loss provision was increased by $12,000
per month due to increased loan volume, resulting in a $24,000 increase in the
second quarter of 1997.
Capital and Liquidity
Equity capital at June 30, 1997 totaled $15.3 million, representing 10.33% of
total assets. The Company completed a $3.2 million stock offering in July, 1997.
This level of capital will position the Company for growth well into the future
and could support asset growth to more than $200 million.
Short term liquidity is provided by access to the Federal funds market through
correspondent bank relationships . The Bank maintains lines of credit to
purchase Fed funds totalling $5.4 million. Fed funds sold equaled 19.3% of total
demand deposits at June 30, 1997. This compares to 8.1% at June 30, 1996. This
is considered an adequate level of liquidity to meet anticipated withdrawals and
expected loan demand.
15
Future Plans
Construction of the permanent facility for the Newport News office began during
the first half of 1997. The branch will be located at the corner of Thimble
Shoals Boulevard and J. Clyde Morris Boulevard near the entrance to the Oyster
Point Industrial Park. The Company acquired the land for its permanent Newport
News branch site in 1996 at a cost of approximately $620,000. Construction costs
for the branch building are expected to be approximately $850,000, and combined
with site work should result in total capitalized improvements approximating
$1,000,000. The current operations for the Newport News branch are conducted in
rented office space, with a lease that expires in October, 1998.
The Company plans to establish a branch office in Hampton, Virginia to
complement its Newport News office and is currently evaluating available sites.
Although plans are incomplete and subject to change, it is the Company's desire
to open a branch office in Hampton, Virginia in the second half of 1998.
The Company expects to enter into an agreement, subject to state and federal
regulatory approval, to acquire a 50% membership interest in Johnson Mortgage
Company, L.L.C., which will be the successor to Johnson Mortgage Company
("Johnson Mortgage"), for a total of $500,000. Half the purchase price will be
paid in cash and the other half will be paid in shares of the Company's common
stock with a market value of $250,000 at the time of closing. Johnson Mortgage
originates and sells long-term, fixed-rate mortgage loans, a product the Company
has not previously offered.
16
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
On April 22, 1997, the Annual Meeting of Shareholders was held to
vote on the following matters to elect 14 directors for a term of one year each
and to ratify the appointment by the Board of Directors of the firm of Smith &
Eggleston, P.C. as the Company's independent auditors for the year ending
December 31, 1997. The results of the votes on these matters are as follows:
(1) Election of Directors
For Against Withheld
--- ------- --------
Charles F. Bristow 782,806 0 1,425
John R. Curtis 782,806 0 1,425
Charles F. Dawson 782,806 0 1,425
William J. Farinholt 782,806 0 1,425
William D. Fary 782,806 0 1,425
Robert D. Foster 782,256 550 1,425
Harry M. Healy 782,806 0 1,425
Jeanne P. Hockaday 782,806 0 1,425
Joseph A. Lombard, Jr. 782,806 0 1,425
George A. Marston, Jr. 782,806 0 1,425
Hersey M. Mason, Jr. 782,806 0 1,425
Henry C. Rowe 782,806 0 1,425
Kenneth E. Smith 782,806 0 1,425
Thomas Z. Wilke 782,806 0 1,425
(2) Ratification of Accountants
For Against Withheld Abstentions Broker Non-votes
--- ------- -------- ----------- ----------------
780,481 1,700 -- 2,050 2,300
Item 5. Other Information - None
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
11 Statement re: computation of per share earnings
27 Financial Data Schedule (filed electronically only)
b) Form 8-K - None
17
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: August 14, 1997 BY /s/ W. J. Farinholt
-----------------------------------------------
W. J. Farinholt, President & CEO
Date: August 14, 1997 BY /s/ Kenneth E. Smith
-----------------------------------------------
Kenneth E. Smith, Exec. Vice President
& Chief Financial Officer
Date: August 14, 1997 BY /s/ Kathleen C. Healy
-----------------------------------------------
Kathleen C. Healy, Vice President &
Chief Accounting Officer
18