-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JPqUdlPsLX9gE9lPGP+0EiOEpBEaDXE6p9ApCmh6/4V5vBluF0ePeMu1yLQUpi4b 0SqSH/ppO8ANRY7oI45TzQ== 0000950159-01-500082.txt : 20010515 0000950159-01-500082.hdr.sgml : 20010515 ACCESSION NUMBER: 0000950159-01-500082 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COLONIAL GROUP INC CENTRAL INDEX KEY: 0000714719 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 232228154 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11526 FILM NUMBER: 1631948 BUSINESS ADDRESS: STREET 1: 76 S MAIN ST CITY: NAZARETH STATE: PA ZIP: 18064 BUSINESS PHONE: 2157467300 MAIL ADDRESS: STREET 1: 76 SOUTH MAIN STREET CITY: NAZARETH STATE: PA ZIP: 18064 10-Q 1 nnb10q.txt NNB 10Q 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 March 31, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File No. 0-11526 ----------------------------------------------------- FIRST COLONIAL GROUP, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) PENNSYLVANIA 23-2228154 - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 76 S. MAIN ST., NAZARETH, PA 18064 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 610-746-7300 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO _____ INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE: 1,967,920 SHARES OF COMMON STOCK, $5 PAR VALUE, OUTSTANDING ON MARCH 31, 2001 FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION PAGE NO. ITEM 1 - Financial Statements Consolidated Balance Sheet 2 Consoliated Statement of Income 3 Consolidated Statement of Changes in Shareholders' Equity 4 Consolidated Statement of Cash Flows 5 Notes to Consolidated Financial Statements 6 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 ITEM 3 - Quantitative and Qualitative Discussion About Market Risk 22 PART II - OTHER INFORMATION ITEM 1 - Legal Proceedings 23 ITEM 5 - Other Information 23 ITEM 6 - Exhibits and Reports on Form 8-K 23 SIGNATURES 24 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
March 31 Dec. 31 2001 2000 ---------------- --------------- ASSETS Cash and Due From Banks $ 14,385 $ 17,738 Federal Funds Sold - - ---------------- --------------- Total Cash and Cash Equivalents 14,385 17,738 Interest-Bearing Deposits With Banks 40 95 Investment Securities Held-to-Maturity (Fair Value: March 31, 2001 $22,861 Dec. 31, 2000 - $19,906) 22,666 19,972 Securities Available-for-Sale at Fair Value 159,590 164,029 Mortgage Loans Held-for-Sale 1,305 - Total Loans 231,188 226,944 LESS: Allowance for Possible Loan Losses (2,322) (2,411) ---------------- --------------- Net Loans 228,866 224,533 Premises and Equipment, Net 6,662 6,832 Accrued Interest Income 3,236 3,826 Other Real Estate Owned 268 325 Other Assets 8,219 5,701 ---------------- --------------- TOTAL ASSETS $ 445,237 $443,051 ---------------- --------------- LIABILITIES Deposits Non-Interest Bearing Deposits $ 49,025 $ 48,748 Interest-Bearing Deposits 298,791 304,442 ---------------- --------------- Total Deposits 347,816 353,190 Securities Sold Under Agreements to Repurchase 14,999 7,215 Short-Term Debt 4,300 5,695 Long-Term Debt 34,000 34,000 Accrued Interest Payable 4,493 5,002 Other Liabilities 5,001 4,428 ---------------- --------------- TOTAL LIABILITIES 410,609 409,530 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 - 1,967,920 shares at March 31, 2001 and 1,962,699 shares at Dec. 31, 2000 9,840 9,814 Additional Paid in Capital 17,006 16,957 Retained Earnings 8,534 8,090 Employee Stock Ownership Plan Debt (1,377) (1,377) Accumulated Other Comprehensive Income 625 37 ---------------- --------------- Total Shareholders' Equity 34,628 33,521 ---------------- --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 445,237 $443,051 ---------------- ---------------
See accompanying notes to interim consolidated financial statements. 2 CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands) (Unaudited)
Three Months Ended Mar. 31 Mar. 31 2001 2000 -------------------- ------------------ INTEREST INCOME: Interest and Fees on Loans $ 4,735 $ 4,182 Investment Securities Income Taxable 2,472 2,279 Tax-Exempt 405 363 Interest on Deposits with Banks and Federal Funds Sold 23 32 -------------------- ------------------ Total Interest Income 7,635 6,856 -------------------- ------------------ INTEREST EXPENSE: Interest on Deposits 3,044 2,580 Interest on Short-Term Borrowing 149 116 Interest on Long-Term Debt 514 454 -------------------- ------------------ Total Interest Expense 3,707 3,150 -------------------- ------------------ NET INTEREST INCOME: 3,928 3,706 Provision for Possible Loan Losses 100 - -------------------- ------------------ Net Interest Income After Provision For Possible Loan Losses 3,828 3,706 -------------------- ------------------ OTHER INCOME: Trust Revenue 341 329 Service Charges on Deposit Accounts 516 451 Investment Securities Gains, Net 137 46 Gains on the Sale of Mortgage Loans - 1 Other Operating Income 179 208 -------------------- ------------------ Total Other Income 1,173 1,035 -------------------- ------------------ OTHER EXPENSES: Salaries and Employee Benefits 1,821 1,802 Net Occupancy and Equipment Expense 628 572 Other Operating Expenses 1,569 1,343 -------------------- ------------------ Total Other Expenses 4,018 3,717 -------------------- ------------------ Income Before Income Taxes 983 1,024 Provision for Income Taxes 178 228 -------------------- ------------------ NET INCOME 805 $ 796 ==================== ================== Per Share Data Basic Net Income $ 0.42 $ 0.42 ==================== ------------------ Diluted Net Income $ 0.42 $ 0.42 ==================== ------------------ Cash Dividends $ 0.19 $ 0.18 ==================== ==================
See accompanying notes to interim consolidated financial statements. 3 FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands), (Unaudited) Additional Accumulated For the Three Months Ended Common Paid-In Retained ESOP Other Comprehensive March 31, 2001 Stock Capital Earnings Debt Income Total - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 $ 9,814 $16,957 $8,090 $ (1,377) $ 37 $33,521 Comprehensive Income Net Income 805 805 Change in Unrealized Securities Gains, Net 588 588 ------------ Total Comprehensive Income 1,393 Sale of Common Stock under Dividend Reinvestment Plan (5,221 shares) 26 49 75 Cash Dividends Paid (361) (361) ------------- ------------ ------------ ------------ ------------ ------------ Balance at March 31, 2001 $ 9,840 $17,006 $8,534 $ (1,377) $ 625 $34,628 - ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements. 4
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Three Months Ended OPERATING ACTIVITIES March 31, 2001 March 31, 2000 --------------------- --------------------- Net Income $ 805 $ 796 Adjustments to Reconcile Net Income to Net Cash (Used In) Provided by Operating Activities: Provision for Possible Loan Losses 100 - Depreciation and Amortization 287 261 Amortization of Security Discounts (158) (95) Amortization of Security Premiums 62 61 Amortization of Deferred Fees on Loans 152 117 Gain on Sale of Other Real Estate Owned (39) (7) Mortgage Loans Originated for Sale (1,305) (71) Mortgage Loan Sales - 71 Gain on Sale of Mortgage Loans - (1) Investment Securities Gains, Net (137) (46) Changes in Assets and Liabilities: Decrease in Accrued Interest Income 590 194 Decrease in Accrued Interest Payable (509) (445) Increase in Other Assets (2,449) (174) Increase in Other Liabilities 160 39 --------------------- --------------------- Net Cash (Used In) Provided By Operating Activities: (2,441) 700 --------------------- --------------------- INVESTING ACTIVITIES Proceeds from Maturities of Securities Available-for-Sale 22,682 3,249 Proceeds from Maturities of Securities Held-to-Maturity 302 314 Proceeds from Sales of Securities Available-for-Sale 587 47 Purchase of Securities Available-for-Sale (18,263) (17,582) Purchase of Securities Held-to-Maturity (2,440) - Net Decrease in Interest Bearing Deposits With Banks 55 5,525 Net Increase in Loans (4,853) (2,675) Purchase of Premises and Equipment, Net (75) (350) Proceeds from Sale of Other Real Estate Owned 364 22 --------------------- --------------------- Net Cash Used In Investing Activities (1,641) (11,450) --------------------- --------------------- FINANCING ACTIVITIES Net Increase (Decrease) in Interest and Non-Interest Bearing Demand Deposits and Savings Accounts 1,856 (265) Net Decrease in Certificates of Deposit (7,230) (4,569) Net (Decrease) Increase in Short-Term Debt (1,395) 7,730 Net Increase in Repurchase Agreements 7,784 5,815 Proceeds from Issuance of Stock 75 76 Cash Dividends Paid (361) (341) --------------------- --------------------- Net Cash Provided by Financing Activities 729 8,446 --------------------- --------------------- Decrease in Cash and Cash Equivalents (3,353) (2,304) Cash and Cash Equivalents, January 1, 17,738 16,272 --------------------- --------------------- Cash and Cash Equivalents, March 31, $ 14,385 $ 13,968 --------------------- ---------------------
See accompanying notes to interim consolidated financial statements. 5 FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - GENERAL The accompanying financial statements, footnotes and discussion should be read in conjunction with the audited financial statements, footnotes, and discussion contained in the Company's Annual Report for the year ended December 31, 2000. The financial information presented herein is unaudited; however, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the unaudited financial information have been made. The results for the three months ended March 31, 2001 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 - CASH DIVIDENDS On February 16, 2001 the Company paid its 2001 first quarter dividend on its common stock of $.19 per share to shareholders of record on February 2, 2001. On June 22, 2000 the Company paid a 5% stock dividend to shareholders of record on June 2, 2000. 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 earning 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: 6
For the Three Months Ended March 31, Average Income Shares Per Share (numerator) (denominator) Amount --------------------------------------------------------------------- 2001 - ------------------------------------------------------ Net Income $ 805 Basic Earnings Per Share Income Available to Common Shareholders $ 805 1,902,736 $ 0.42 Effect of Dilutive Securities Stock Options 1,917 --------------------------------------------------------------------- Diluted Earnings Per Share Income Available to Common Shareholders plus Assumed Exercise of Options $ 805 1,904,653 $ 0.42 --------------------------------------------------------------------- 2000 - ------------------------------------------------------ Net Income $ 796 Basic Earnings Per Share Income Available to Common Shareholders $ 796 1,884,580 $ 0.42 Effect of Dilutive Securities Stock Options 3,192 --------------------------------------------------------------------- Diluted Earnings Per Share Income Available to Common Shareholders plus Assumed Exercise of Options $ 796 1,887,772 $ 0.42 ---------------------------------------------------------------------
NOTE E - COMMITMENTS AND CONTINGENCIES The Company has reserved $2.48 million against asserted claims and claims which have been or may be asserted against the Bank in connection with certain pre-need funeral trust funds. 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. The Bank has settled the asserted claims for the amount reserved. 7 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 month period ended March 31, 2001. 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 future loan and deposit volumes, 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, statements as to trends, and other statements which are not historical facts or as to the Company's, the Bank's or management's intentions, plans, 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. These and other 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, 2000 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, 2000 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 March 31, 2001 were $0.42 as compared to $0.42 for the corresponding period in 2000. Average basic shares outstanding during this three month period were 1,902,736 in 2001 and 1,884,580 in 2000. Per share earnings and average shares outstanding have been restated to reflect the 5% stock dividend paid on June 22, 2000. (see Note C) 8 The net income for the three months ended March 31, 2001 was $805,000 compared to $796,000 for the same period in 2000. This was an increase of $9,000 or 1.1%. The earnings increase was attributable in part to an increase in net interest income of $222,000 or 6.0% (see discussion on Net Interest Income), a $46,000 increase in other income exclusive of gains on the sale of available-for-sale securities and the gains on the sale of mortgage loans held-for-sale. Also contributing to higher earnings was a $91,000 increase in the gains on the sale of available-for-sale securities and a $50,000 decrease in Federal income taxes. These were offset in part by a $301,000 or 8.1% increase in total other expenses, an increase of $100,000 in the provision for loan losses and a $1,000 decrease in the gains on the sale of mortgage loans. Net Interest Income Net interest income amounted to $3,928,000 for the three months ended March 31, 2001 compared to $3,706,000 for the three months ended March 31, 2000, an increase of $222,000 or 6.0%. This increase was primarily the result of increases in interest earned on loans and investments exceeding the increase paid on deposits and debt. The total interest income earned on loans and investments amounted to $7,635,000 for the first quarter of 2001, an increase of $779,000 or 11.4% over the same period in 2000. The total interest expense paid on deposits and debt was $3,707,000 and $3,150,000 for the three month period ended March 31, 2001 and 2000, respectively. This was an increase in first quarter of 2001 over 2000 of $557,000 or 17.7%. The fully taxable-equivalent net interest income was $4,152,000 for the first three months of 2001, compared to $3,839,000 for the same period in 2000, an 8.2% or $313,000 increase. This increase in taxable-equivalent net interest income was primarily due to a $468,000 increase related to volume partially reduced by a $155,000 decrease due to interest rates. 9 The "Rate/Volume Analysis" table segregates, in detail, the major factors that contributed to the changes in net interest income, for the three months ended March 31, 2001 as compared to the same period in 2000, 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 three months ended March 31, 2001. 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)
Three Months Ended March 31, 2001 Over / (Under) March 31, 2000 CHANGE DUE TO: TOTAL RATE VOLUME ---------------------------------------------- (Fully Taxable Equivalent) INTEREST INCOME Interest-Bearing Balances With Banks $ (4) $ 1 $ (5) Federal Funds Sold (6) (1) (5) Investment Securities 322 29 293 Loans 558 25 533 ------------- --------- -------- Total Interest Income $ 870 $ 54 $ 816 ------------- --------- -------- INTEREST EXPENSE Demand Deposits, Savings & Clubs $ 24 $ 2 $ 22 Time Deposits 440 212 228 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 60 (2) 62 Short-Term Debt (27) (2) (25) Long-Term Debt 60 (1) 61 ------------- --------- -------- Total Interest Expense 557 209 348 ------------- --------- -------- Net Increase in Interest Income $ 313 $ (155) $ 468
10 Total taxable-equivalent interest income for the three months ended March 31, 2001 grew by $870,000 compared to the same period in 2000, primarily the result of the higher volumes in loans and investment securities. Interest income from loans on a fully-taxable equivalent basis was $558,000 or 13.3% higher during the three months ended March 31, 2001 as compared to the same period in 2000. This increase was comprised of a $533,000 increase due to volume and a $25,000 increase due to rates. Income from investment securities for the three months ended March 31, 2001 increased $322,000 or 11.6% over the same period in 2000. This was comprised of a $293,000 increase due to volume and a $29,000 increase due to rates. Average year-to-date earning assets increased to $409,640,000 at March 31, 2001 from $366,927,000 at March 31, 2000, a $42,713,000 or 11.6% increase. Total interest expense grew $557,000 during the first three months of 2001, over the same period in 2000. This growth was principally the result of higher volumes, primarily due to an increase in time deposits, repurchase agreements, and long-term debt. Interest expense attributed to time deposits increased $440,000 during the first three months of 2001, over the first three months of 2000. This was comprised of a $228,000 increase due to volume and a $212,000 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. 11
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED COMPARATIVE STATEMENT ANALYSIS (Dollars in Thousands) (Unaudited) Three Months Ended, March 31, 2001 2000 --------------------------------------------- ---------------------------------------------- Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate --------------------------------------------- ---------------------------------------------- ASSETS: INTEREST-EARNING ASSETS Interest-Bearing Deposits with Banks $ 1,428 $ 30 5.60% $ 1,763 $ 24 5.45% Federal Funds Sold 244 3 4.92 549 9 6.56 Investment Securities Taxable 146,480 2,472 6.75 133,893 2,279 6.81 Non-Taxable (1) 34,277 615 7.18 29,525 486 6.58 Loans (1) (2) 229,667 4,749 8.27 203,698 4,191 8.23 Reserve for Loan Losses 2,456 - - (2,501) - - ------------ ---------- ---------- --------------- ------------ --------- Net Loans 227,211 4,749 8.36 201,191 4,191 8.33 ------------ ---------- --------------- ------------ Total Interest-Earning Assets 409,640 7,859 7.67 366,927 6,989 7.62 Non-Interest Earning Assets 30,892 - - 30,879 - - ------------ ---------- ---------- --------------- ------------ --------- TOTAL ASSETS, INTEREST INCOME $ 440,532 7,859 7.14 $ 397,806 6,989 7.03 ------------ ---------- --------------- ------------ LIABILITIES INTEREST-BEARING LIABILITIES Interest-Bearing Deposits Demand Deposits $ 54,303 135 0.99 $ 52,170 127 0.97 Money Market Deposits 14,277 101 2.83 12,957 91 2.81 Savings & Club Deposits 63,611 348 2.19 62,165 342 2.20 CD's over $100,000 6,566 99 6.03 4,733 50 4.23 All Other Time Deposits 165,168 2,361 5.72 149,558 1,970 5.27 ------------ ---------- --------------- ------------ Total Interest-Bearing Deposits 303,925 3,044 4.01 281,583 2,580 3.66 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 10,568 101 3.82 4,211 41 3.89 Short-Term Debt 3,353 48 5.73 4,992 75 6.01 Long-Term Debt 34,000 514 6.05 30,000 454 6.05 ------------ ---------- --------------- ------------ Total Interst-Bearing Liabilities 351,846 3,707 4.21 320,786 3,150 3.93 NON-INTEREST-BEARING LIABILITIES Non-Interest-Bearing Deposits 44,836 - - 41,451 - - Other Liabilities 9,810 - - 7,722 - - ------------ ---------- ---------- --------------- ------------ --------- TOTAL LIABILITIES 406,492 3,707 3.65 369,959 3,150 3.41 SHAREHOLDERS' EQUITY 34,040 - - 27,847 - - ------------ ---------- ---------- --------------- ------------ --------- TOTAL LIABILITIES AND EQUITY $ 440,532 3,707 3.37 $ 397,806 3,150 3.17 ------------ ---------- --------------- ------------ NET INTEREST INCOME $4,152 $3,839 ---------- ------------ Net Interest Spread (3) 3.46 3.69 Effect of Interest-Free Sources Used to Fund Earnings 0.59 0.50 Net Interest Margin (4) 4.05% 4.19% ---------- --------- (1) The indicated interest income and average yields are presented on a taxable equivalent basis. The tax equivalent adjustments included above are $223,000 and $132,000 for the three months ended March 31, 2001 and March 31, 2000, respectively. The effective tax rate used for the taxable equivalent adjustment was 34%. (2) Loan fees of $(112,000) and $(79,000) for the three months ended March 31, 2001 and March 31, 2000, respectively, are included in interest income. Average loan balances include non-accruing loans and average loans held-for-sale of $827,000 and $1,278,000 for the three months ended March 31, 2001 and March 31, 2000, respectively. (3) Net interest spread is the arithmetic difference between yield on interest-earning assets and the rate paid on interest-bearing liabilities. (4) Net interest margin is computed by dividing net interest income by averaging interest-earning assets.
12 The net interest margin of 4.05% for the three month period ended March 31, 2001, decreased from the 4.19% net interest margin for the first three months of 2000. The yield on interest earning assets was 7.67% during the first three months of 2001 as compared to 7.62% in 2000. The average interest rate paid on interest bearing deposits and other borrowings was 4.21% for the first three months of 2001 as compared to 3.93% in 2000. Other Income and Other Expenses Other income for the three months ended March 31, 2001, including service charges, trust revenues, gains on the sale of mortgage loans and other miscellaneous income, but exclusive of securities gains or losses, was $1,036,000 as compared to $989,000 for the same period in 2000. This was an increase of $47,000 or 4.8%. This increase was the result of increases in service charges, and trust revenues, reduced in part by a decline in miscellaneous fees and gains from the sale of mortgage loans. In the three month period ended March 31, 2001, service charges were $516,000, a $65,000 or 14.4% increase over the 2000 amount of $451,000. The increase in service charges was due to growth in checking accounts. The Trust revenues were $341,000 for the three months ended March 31, 2001 as compared to $329,000 for the three months ended March 31, 2000, an increase of $12,000 or 3.6%. The revenues from the Investment Management and Trust Division operations increased as a result of growth in Trust accounts. Other miscellaneous income for the three months ended March 31, 2001 was $179,000, a decrease of $29,000 or 13.9% compared to $208,000 for the same period in 2000. The reduction in miscellaneous income was primarily the result of a decrease in rental income on properties held in other real estate owned due to the sale of those assets. There were no gains on the sale of mortgage loans for the three month period ended March 31, 2001 as compared to $1,000 for the same period in 2000. Total other expenses for the three month period ended March 31, 2001 increased by $301,000 or 8.1% to $4,018,000 over total other expenses for the same period in 2000 of $3,717,000. Included in this increase was a $19,000 or 1.1% increase in salary and benefit expenses which were $1,821,000 as compared to $1,802,000 in 2000. These increases were primarily due to general salary increases of approximately 4% and the additional staff necessitated by the opening of three new branches located in Mount Pocono, Whitehall and Trexlertown and reduced in part by some staff reductions in various operations departments. Occupancy and equipment expenses were $628,000 for the three months ended March 31, 2001 and $572,000 for the three months ended March 31, 2000, an increase of $56,000 or 9.8%. The increase in occupancy expenses were related to the new branches. Other operating expenses for the three month period ended March 31, 2001 were $1,569,000, an increase of $226,000 or 16.8% over the $1,343,000 in other expenses for the same period in 2000. This increase was primarily the result of legal expenses related to the settlement of litigation. 13 FINANCIAL CONDITION Assets and Liabilities Total assets at March 31, 2001 were $445,237,000, representing an increase of $2,186,000 or 0.5% over total assets of $443,051,000 at December 31, 2000. Deposits decreased by $5,374,000 or 1.5% from $353,190,000 on December 31, 2000 to $347,816,000 on March 31, 2001. Contributing to this decrease in total deposits were decreases in certificates of deposit of $7,230,000 and interest bearing checking deposits of $473,000, partially offset by an increase in savings and money market deposits of $2,051,000 and an increase in non-interest checking deposits of $277,000. Loans outstanding at March 31, 2001 were $231,188,000 as compared to $226,944,000 at December 31, 2000. This was an increase of $4,244,000 or 1.9%. The increase in loans was primarily the result of an increase of $3,052,000 or 4.4% in residential real estate loans and an increase of $1,696,000 or 3.0% in commercial loans. These increases were offset in part by a decrease in consumer loans of $504,000. There were $1,305,000 of residential real estate loans identified as held-for-sale at March 31, 2001. There were no residential real estate loans held-for sale at December 31, 2000. During the first three months of 2001, the Company did not sell any residential real estate loans. The loan to deposit ratio was 66.5% and 64.3% at March 31, 2001 and December 31, 2000. The Company had long-term debt totaling $34,000,000 at March 31, 2001 and December 31, 2000. Of the loans outstanding at March 31, 2001, $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 4.98% 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 Company's Employee Stock Ownership Plan (ESOP) has four loans outstanding totaling $1,377,000 at March 31, 2001 and December 31, 2000. The first loan with an outstanding principal balance of $305,000 is due in 2005. The second loan with an outstanding balance of $900,000 is due in 2018. The third loan with an outstanding balance of $100,000 is due in 2005. The fourth loan with an outstanding balance of $71,875 is due in 2005. 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 (8.0% at March 31, 2001 and 9.5% at December 31, 2000). The Bank had short-term borrowings from the Federal Home Loan Bank of Pittsburgh against a line of credit of $25,000,000 in the amount of $4,300,000 at March 31, 2001 and $5,695,000 at December 31, 2000. 14 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 three months of 2001, the provision for loan losses was $100,000. Net charge offs were $213,000 for the three months ended March 31, 2001 compared with $119,000 for the three months ended March 31, 2000. The ratio of the allowance for loan losses to total loans at March 31, 2001 was 1.00% compared to 1.06% at December 31, 2000 and 1.16% at March 31, 2000. This was primarily the result of an increase in total loans to $231,188,000 at March 31, 2001 from $226,944,000 at December 31, 2000. The allowance for possible loan losses at March 31, 2001 totaled $2,322,000, a decrease of $89,000 or 3.7% over the December 31, 2000 amount of $2,411,000 and a decrease of $49,000 or 2.1% over the March 31, 2000 balance of $2,371,000. At March 31, 2001, $82,000 of the allowance for possible loans losses was allocated to impaired loans. Transactions in the allowance for loan losses were as follows:
2001 2000 -------------------- --------------------- Balance, January 1, $ 2,411,000 $ 2,437,000 Provision charged to Operating Expenses 100,000 - Loans Charged Off (213,000) (119,000) Recoveries 24,000 53,000 -------------------- --------------------- Balance, March 31, $ 2,322,000 $ 2,371,000
The following table sets forth an allocation of the allowance for loan losses by loan category: At March 31, 2001 - --------------------------------------------------------- Commercial $ 671,000 Residential Real Estate 334,000 Consumer 882,000 Unallocated 435,000 -------------------- Total $ 2,322,000 15 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 $2,319,000 at March 31, 2001 as compared to $2,517,000 at December 31, 2000 and $3,259,000 at March 31, 2000. The ratio of non-performing loans to total loans was 1.00% and 1.59% at March 31, 2001 and 2000, 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 March 31, 2001 of $749,000 decreased from the December 31, 2000 amount of $1,048,000 and the March 31, 2000 level of $1,272,000. The amount of decrease from December 31, 2000 to March 31, 2001 was $299,000. This decrease was primarily the result of collection efforts. 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 March 31, 2001, loans past due 90 days or more and still accruing interest were $1,570,000 compared to $1,469,000 at December 31, 2000 and $1,987,000 at March 31, 2000. The $101,000 increase in loans past due 90 days from December 31, 2000 to March 31, 2001 was the result of increases in commercial, mortgage and consumer loans past due 90 days or more. 16 Non-Performing Loans
March 31, December 31, March 31, 2001 2000 2000 - -------------------------------------------------------------------------------------------------------- Non-accrual loans on a cash basis $ 749,000 $ 1,048,000 $ 1,272,000 Non-accrual loans as a percentage of total loans 0.32% 0.46% 0.62% Accruing loans past due 90 days or more $ 1,570,000 $ 1,469,000 $ 1,987,000 Accruing loans past due 90 days or more as a percentage of total loans 0.68% 0.65% 0.97% Allowance for loan losses to nonperforming loans 100.13% 95.79% 72.75% Nonperforming loans to total loans 1.00% 1.11% 1.59% Allowance for loan losses to total loans 1.00% 1.06% 1.16% - --------------------------------------------------------------------------------------------------------
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 March 31, 2001 of $268,000 decreased from the December 31, 2000 level of $325,000. This $57,000 decrease was primarily the sale of some residential and commercial real estate properties. Investment Securities The Company had $159,590,000 in available-for-sale securities at March 31, 2001 with a net unrealized gain of $625,000. At December 31, 2000 available-for-sale securities amounted to $164,029,000 with a net unrealized gain of $37,000. During the three month period ended March 31, 2001, $587,000 of securities available-for-sale were sold for a net gain of $137,000 as compared to $47,000 of securities available-for-sale were sold for a net gain of $46,000 for the same time period in 2000. Held-to-maturity securities totaling $22,666,000 at March 31, 2001 are carried at cost. At December 31, 2000, the held-to-maturity securities totaled $19,972,000. The Company has the intent and ability to hold the held-to-maturity securities until maturity. The Company, at March 31, 2001, did not hold any securities identified as derivatives. 17 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 March 31, 2001, the Company and the Bank met all capital adequacy requirements to which they were subject. 18 CAPITAL RATIOS
- ------------------------------------------------------------------------------------------------------------------------------- Required Te Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions --------------------------- ------------------------ --------------------------- (Dollars in Thousands) At March 31, 2001 Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------------------------- Total Capital (To Risk-Weighted Assets) Company, (Consolidated) $ 37,025 16.02% $18,487 8.00% - Bank $ 31,423 13.72% $18,319 8.00% $22,899 10.00% Tier 1 Capital (To Risk-Weighted Assets) Company, (Consolidated) $ 34,703 15.02% $9,243 4.00% - Bank $ 29,101 12.71% $9,160 4.00% $13,739 6.00% Tier 1 Capital (To Average Assets, Leverage) Company, (Consolidated) $ 34,703 7.88% $17,616 4.00% - Bank $ 29,101 6.66% $17,481 4.00% $21,852 5.00% - ------------------------------------------------------------------------------------------------------------------------------- Required Te Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions --------------------------- ------------------------ --------------------------- (Dollars in Thousands) At December 31, 2000 Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------------------------- Total Capital (To Risk-Weighted Assets) Company, (Consolidated) $ 35,733 15.16% $18,862 8.00% - Bank $ 31,161 13.03% $19,127 8.00% $23,909 10.00% Tier 1 Capital (To Risk-Weighted Assets) Company, (Consolidated) $ 33,313 14.13% $9,431 4.00% - Bank $ 28,750 12.02% $9,564 4.00% $14,345 6.00% Tier 1 Capital (To Average Assets, Leverage) Company, (Consolidated) $ 33,313 8.00% $16,654 4.00% - Bank $ 28,750 6.95% $16,557 4.00% $20,697 5.00% - -------------------------------------------------------------------------------------------------------------------------------
19 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 March 31, 2001, cash, due from banks, Federal funds sold and interest bearing deposits with banks totaled $14,425,000, and securities maturing within one year totaled $3,221,000. At December 31, 2000, cash, due from banks, Federal funds sold and interest bearing deposits with banks, totaled $17,833,000, and securities maturing within one year were $2,346,000. Securities sold under an agreement to repurchase totaled $14,999,000 at March 31, 2001 and $7,215,000 at December 31, 2000. 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 $16,000 at March 31, 2001 and $94,000 at December 31, 2000. These deposits are included in due from banks on the Company's financial statements. As a result of this relationship, the Company places most of its short-term funds at the Federal Home Loan Bank of Pittsburgh. There were no Federal funds sold at March 31, 2001 and December 31, 2000. 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 short-term (overnight) borrowings against this line of $4,300,000 at March 31, 2001 and $5,695,000 at December 31, 2000. The Bank had long-term borrowings from the Federal Home Loan Bank at March 31, 2001 and December 31, 2000 totaling $34,000,000. Cash flows for the three months ended March 31, 2001 consisted of cash used by operating activities of $2,441,000 and cash used in investing activities of $1,641,000, offset in part by cash provided by financing activities of $729,000 resulting in a decrease in cash and cash equivalents of $3,353,00. Cash used by operating activities was the result of an increase in other assets of $2,449,000, which includes an increase of $660,000 in pre-paid expenses and a $1,600,000 increase in various accounts receivable, mortgage loans originated for sale of $1,305,000, a decrease in accrued interest payable of $509,000 and amortization of 20 security discounts of $158,000, partially offset by net operating income of $805,000, an decrease in accrued interest income of $590,000, depreciation and amortization of $287,000, amortization of deferred fees on loans and security premiums of $152,000 and $62,000, respectively, an increase in other liabilities of $160,000 and a provision for possible loan losses of $100,000. Cash was used in investing activities for the purchase of securities available-for-sale and held-to-maturity of $18,263,000 and $2,440,000, respectively, and a net increase in loans of $4,853,000, partially offset by proceeds from maturities of securities available-for-sale and held-to-maturity of $22,682,000 and $302,000, respectively, proceeds from sales of securities available-for-sale of $587,000 and proceeds from the sale of other real estate owned of $364,000. Cash provided by financing activities consisted principally of an increase in repurchase agreements of $7,784,000 and an increase in interest and non-interest bearing demand deposits and savings accounts of $1,856,000, partially offset by a decrease in certificates of deposit of $7,230,000, a decrease in short term debt of $1,395,000 and the payment of cash dividends of $361,000. 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 March 31, 2001 was $34,628,000 as compared to $33,521,000 at December 31, 2000, for an increase of $1,107,000. On February 16, 2001 the Company paid its 2001 first quarter cash dividend on its common stock of $0.19 per share to shareholders of record on February 2, 2001. The Company maintains a Dividend Reinvestment and Stock Purchase Plan. During the first three months of 2001, 5,221 shares of common stock were purchased from authorized and unissued shares at an average price of $14.31 per share for proceeds of approximately $75,000. 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. No options were issued or exercised under this Plan during the first three months of 2001. 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. During the first three months of 2001, options to purchase 39,500 shares of the Company's common stock at an average price of $17.41 per share were granted to certain officers. No options were exercised under this Plan during the first three months of 2001. 21 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 2000 annual report to shareholders and its 2000 Form 10-K filed with the Securities and Exchange Commission. 22 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings The Company has reserved $2.48 million against asserted claims and claims which have been or may be asserted against the Bank in connection with certain pre-need funeral trust funds. 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. The Bank has settled the asserted claims for the amount reserved. From time-to-time, the Company and the Bank are parties to routine litigation incidental to their business. Neither the Company, the Bank nor any of their properties is subject to any other material legal proceedings, nor are any such proceedings known to be contemplated by any governmental authorities. ITEM 5. Other Information None ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8K No reports on Form 8K were filed for the quarter during which this report is filed. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST COLONIAL GROUP, INC. DATE: May 11, 2001 BY: /S/ S. ERIC BEATTIE --------------------- -------------------- S. ERIC BEATTIE PRESIDENT (PRINCIPAL EXECUTIVE OFFICER) DATE: May 11, 2001 BY: /S/ REID L. HEEREN -------------------- ------------------- REID L. HEEREN VICE PRESIDENT (PRINCIPAL FINANCIAL OFFICER) 24 -----END PRIVACY-ENHANCED MESSAGE-----