<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23975
NIAGARA BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 16-1545669
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
6950 SOUTH TRANSIT ROAD, P.O. BOX 514, LOCKPORT, NY 14095-0514
(Address of principal executive offices) (Zip Code)
(716)625-7500
(Registrant's telephone number, including area code)
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 stock, as of the latest practicable date. The Registrant had 29,756,250
shares of Common Stock, $.01 par value, outstanding as of November 12, 1998.
<PAGE>
NIAGARA BANCORP, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Number Page Number
- ----------- -----------
<S> <C>
PART I - FINANCIAL INFORMATION
1. Financial Statements
Condensed Consolidated Statements of Condition as of
September 30, 1998 (unaudited) and December 31, 1997............. 3
Condensed Consolidated Statements of Income for the
three months and nine months ended September 30, 1998 and 1997
(unaudited)...................................................... 4
Condensed Consolidated Statements of Comprehensive Income for
the three months and nine months ended September 30, 1998 and
1997 (unaudited)................................................. 5
Condensed Consolidated Statements of Changes in Stockholders'
Equity for the nine months ended September 30, 1998 and 1997
(unaudited)...................................................... 6
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 (unaudited)........ 7
Notes to Condensed Consolidated Financial Statements (unaudited).. 8
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 10
3. Quantitative and Qualitative Disclosure about Market Risk......... 21
PART II - OTHER INFORMATION
1. Legal Proceedings................................................. 23
2. Changes in Securities and Use of Proceeds......................... 23
3. Defaults upon Senior Securities................................... 23
4. Submission of Matters to a Vote of Security Holders............... 23
5. Other Information................................................. 23
6. Exhibits and Reports on Form 8-K.................................. 23
Signatures............................................................. 23
Exhibit Index.......................................................... 24
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Condition
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------------------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks................................... $ 21,391 13,913
Federal funds sold........................................ 35,500 7,700
Securities purchased under resale agreements.............. 25,000 15,000
------------------------------
Total cash and cash equivalents.................... 81,891 36,613
Securities available for sale................................. 572,925 449,281
Securities held to maturity................................... - 17,000
Loans, net.................................................... 705,656 635,396
Premises and equipment, net................................... 24,940 22,308
Accrued interest receivable and other assets.................. 45,472 18,428
------------------------------
$ 1,430,884 1,179,026
==============================
Liabilities and Stockholders' Equity
Liabilities:
Deposits.................................................. $ 1,020,122 995,621
Short-term borrowings..................................... 10,532 13,835
Long-term borrowings...................................... 106,198 19,882
Other liabilities......................................... 33,250 19,217
------------------------------
1,170,102 1,048,555
------------------------------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued............................... - -
Common stock, $.01 par value, 45,000,000 shares
authorized, 29,756,250 shares issued and outstanding.. 298 -
Additional paid-in capital................................ 136,153 -
Retained earnings, substantially restricted............... 133,365 127,941
Accumulated other comprehensive income.................... 4,930 2,530
Common stock purchased by ESOP............................ (13,964) -
------------------------------
260,782 130,471
------------------------------
$ 1,430,884 1,179,026
==============================
</TABLE>
3
<PAGE>
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------
1998 1997 1998 1997
------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans............................................... $ 14,042 13,008 40,772 38,361
Investment and mortgage related securities.......... 8,659 7,445 23,769 21,825
Federal funds sold and securities purchased
under resale agreements......................... 758 367 2,832 803
Other............................................... 168 124 460 321
-----------------------------------------
Total interest income...................... 23,627 20,944 67,833 61,310
Interest expense:
Deposits............................................ 11,069 11,177 33,150 32,145
Borrowings.......................................... 1,147 405 2,290 1,190
-----------------------------------------
Total interest expense..................... 12,216 11,582 35,440 33,335
-----------------------------------------
Net interest income.................................... 11,411 9,362 32,393 27,975
Provision for credit losses............................ 486 605 1,089 975
-----------------------------------------
Net interest income after provision
for credit losses...................... 10,925 8,757 31,304 27,000
-----------------------------------------
Noninterest income:
Banking service charges and fees.................... 909 801 2,632 2,223
Loan fees........................................... 441 295 1,279 814
Net gain on sales of securities available for sale.. - 674 100 875
Other............................................... 1,000 137 2,378 1,044
-----------------------------------------
Total noninterest income................... 2,350 1,907 6,389 4,956
-----------------------------------------
Noninterest expense:
Salaries and employee benefits...................... 4,115 3,356 11,770 9,735
Occupancy and equipment............................. 864 610 2,477 1,782
Technology and communications....................... 807 917 2,294 2,301
Marketing and advertising........................... 549 282 1,357 1,017
Charitable contributions............................ 25 87 6,828 157
Other............................................... 1,272 1,427 3,396 3,424
-----------------------------------------
Total noninterest expense.................. 7,632 6,679 28,122 18,416
-----------------------------------------
Income before income taxes................. 5,643 3,985 9,571 13,540
Income tax expense..................................... 1,918 1,334 3,254 4,905
-----------------------------------------
Net income................................. $ 3,725 2,651 6,317 8,635
=========================================
Earnings per common share
Basic..................................... 0.13 - - -
Diluted................................... 0.13 - - -
Weighted average common shares outstanding
Basic..................................... 28,687 - - -
Diluted................................... 28,687 - - -
</TABLE>
4
<PAGE>
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------
1998 1997 1998 1997
------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Net income............................................. $ 3,725 2,651 6,317 8,635
Other comprehensive income, net of taxes:
Unrealized gains on securities arising during
period....................................... 1,738 2,423 2,459 2,937
Less: Reclassification adjustment for gains
on securities included in net income......... - 397 59 516
-------------------------------------------
Total other comprehensive income...... 1,738 2,026 2,400 2,421
-------------------------------------------
Total comprehensive income..... $ 5,463 4,677 8,717 11,056
===========================================
</TABLE>
5
<PAGE>
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other
Common paid-in Retained ESOP comprehensive
stock capital earnings shares income (loss) Total
---------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997.......................... $ - - 116,690 - (1,026) 115,664
Net income....................................... - - 8,635 - - 8,635
Unrealized gain on securities available
for sale, net of reclassification adjustment.. - - - - 2,421 2,421
--------------------------------------------------------------------
Balance at September 30, 1997....................... $ - - 125,325 - 1,395 126,720
====================================================================
Balance at January 1, 1998.......................... $ - - 127,941 - 2,530 130,471
Net income....................................... - - 6,317 - - 6,317
Unrealized gain on securities available
for sale, net of reclassification adjustment.. - - - - 2,400 2,400
Net proceeds of stock offering and
issuance of common stock
(29,351,204 shares)........................... 298 132,092 - - - 132,390
Charitable contribution of common stock to
the Lockport Savings Bank Foundation
(405,046 shares).............................. - 4,051 - - - 4,051
Common stock acquired by ESOP
(1,080,124 shares)............................ - - - (14,298) - (14,298)
ESOP shares committed to be released
(25,227 shares)............................... - 10 - 334 - 344
Common stock dividend of $.03 per share.......... - - (893) - - (893)
--------------------------------------------------------------------
Balance at September 30, 1998....................... $ 298 136,153 133,365 (13,964) 4,930 260,782
====================================================================
</TABLE>
6
<PAGE>
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1998 1997
--------------------------------
(unaudited)
<S> <C> <C>
Net cash provided by operating activities............. $ 23,905 11,739
Cash flows from investing activities:
Proceeds from sales of securities:
Available for sale............................. 204 66,839
Proceeds from maturities of securities:
Available for sale............................. 21,212 11,175
Held to maturity............................... 17,000 177,600
Principal payments on securities:
Available for sale............................. 104,199 29,729
Purchases of securities:
Available for sale............................. (245,323) (151,617)
Held to maturity............................... - (177,100)
Net increase in loans.............................. (70,776) (22,815)
Purchase of bank-owned life insurance.............. (25,000) -
Other.............................................. (5,749) (13,258)
--------------------------------
Net cash used by investing activities.. (204,233) (79,447)
--------------------------------
Cash flows from financing activities:
Net increase in deposits........................... 24,501 71,761
Net proceeds from issuance of common stock......... 132,390 -
Purchase of common stock by ESOP................... (14,298) -
Repayments of short-term borrowings, net........... (8,251) (8,268)
Proceeds from long-term borrowings................. 91,553 5,000
Repayments of long-term borrowings................. (289) -
--------------------------------
Net cash provided by financing
activities.......................... 225,606 68,493
--------------------------------
Net increase in cash and cash
equivalents......................... 45,278 785
Cash and cash equivalents at beginning of period...... 36,613 16,219
--------------------------------
Cash and cash equivalents at end of period............ $ 81,891 17,004
================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes................................ $ 686 3,850
Interest expense............................ 35,132 33,107
================================
Supplemental disclosure of noncash investing and
financing activities:
Charitable contribution of Niagara Bancorp, Inc.
common stock to the Lockport Savings Bank
Foundation....................................... $ 4,051 -
================================
</TABLE>
7
<PAGE>
Niagara Bancorp, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and the instructions for Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. In the opinion
of management, all adjustments necessary for a fair presentation have been
included. Results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. Certain reclassification adjustments were made to the 1997
financial statements to conform them to the 1998 presentation.
(2) Reorganization and Stock Offering
Niagara Bancorp, Inc. (the "Company") is a Delaware corporation organized in
December 1997 by Lockport Savings Bank (the "Bank") in connection with the
conversion of the Bank from a New York chartered mutual savings bank to a New
York chartered stock savings bank and the reorganization to a two-tiered mutual
holding company. The Company was formed for the purpose of acquiring all of the
capital stock of the Bank upon completion of the reorganization. As part of the
reorganization, the Company offered for sale approximately 45.4% of the shares
of its common stock to eligible depositors of the Bank (the "offering") and
issued approximately 53.3% of the Company's shares of common stock to Niagara
Bancorp, MHC (the "MHC"), a state-chartered mutual holding company incorporated
in New York. Concurrent with the close of the offering, the remaining 1.3% of
the Company's shares of common stock were issued to the Lockport Savings Bank
Foundation (the "Foundation") (see note 5). The reorganization and offering
were completed on April 17, 1998. Prior to that date, the Company had no assets
and no liabilities. The Financial Statements and the Management's Discussion
and Analysis of Financial Condition and Results of Operations presented for
periods prior to the reorganization are for the Bank as the predecessor entity
to the Company.
Completion of the offering resulted in the issuance of 29,756,250 shares of
common stock, 15,849,650 shares (53.3%) of which were issued to the MHC,
12,951,960 shares (43.5%) of which were sold to eligible depositors of the Bank,
549,594 shares (1.9%) of which were issued to the Bank's employee stock
ownership plan (the "ESOP") (see note 3), and 405,046 shares (1.3%) of which
were issued to the Foundation, at $10.00 per share. Costs related to the
offering, primarily marketing fees paid to investment banking firms,
professional fees, registration fees, and printing and mailing costs, were $2.5
million and have been deducted to arrive at net offering proceeds of $132.4
million. The Company contributed 50% of the net offering proceeds, or $66.2
million, to the Bank for general corporate use. Net offering proceeds retained
by the Company were used to fund a $14.3 million loan to the ESOP and to acquire
$51.9 million in short-term investments.
(3) Employee Stock Ownership Plan
In connection with the conversion, the Bank established the ESOP for all
employees meeting age and service requirements eligible to participate in the
Plan. The ESOP was authorized to purchase up to 8%, or 1,080,124 shares of the
common stock sold in the offering. Since only 549,594 shares were available to
the plan through the offering, the ESOP subsequently purchased the remaining
530,530 shares in the open market. The purchase of the shares was funded by a
loan from the Company payable in equal quarterly installments over a period of
30 years bearing an interest rate that is adjustable with the prime rate. The
loan can be prepaid without penalty. Loan payments are funded by cash
contributions from the Bank and dividends received on Company stock held by the
ESOP. Shares purchased by the ESOP are maintained in a suspense account and
held for allocation among the participants. As quarterly loan payments are made,
shares are committed to be released and subsequently allocated to employee
accounts at each calendar year end. Compensation expense is recognized in an
amount equal to the average market price of the committed to be released shares
during the period. Compensation expense of $344,000 was provided for the nine
months ended September 30, 1998 in recognition of the 25,227 shares committed to
be released as of that date.
8
<PAGE>
(4) Long-Term Borrowings
During the third quarter of 1998, the Bank implemented a strategy to leverage
its higher level of capital and to lock-in low funding rates utilizing long-term
Federal Home Loan Bank advances. Long-term borrowings increased to $106.2
million at September 30, 1998 from $19.9 million at December 31, 1997. The rate
paid on these new borrowings range from 5.04% to 5.54% with maturities extending
primarily through the years 2003 to 2008.
(5) Charitable Foundation
As part of the reorganization and conversion, the Company established the
Foundation which is dedicated exclusively to supporting charitable causes and
community development activities in Western New York. The Foundation was funded
during the second quarter with $4.1 million (405,046 shares) of common stock
contributed by the Company and $2.7 million in cash contributed by the Bank. A
one-time charge of $6.8 million is reflected in the 1998 results of operations
for this contribution. The contribution is fully tax deductible, subject to an
annual limitation based upon the Company's taxable income.
(6) Earnings Per Share
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share", effective with the completion of the reorganization
and stock offering on April 17, 1998. This statement establishes standards for
computing and presenting earnings per share ("EPS") for entities with publicly
held common stock or potential common stock. This statement replaced primary EPS
with basic EPS and fully diluted EPS with diluted EPS. Basic EPS is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company. EPS is not
presented for periods ended prior to April 30, 1998 since the Company completed
its offering on April 17, 1998.
(7) Dividend Declaration
On September 15, 1998, the Board of Directors of the Company approved and
declared a regular quarterly cash dividend of three cents ($0.03) per common
share. The dividend was paid on October 13, 1998 to shareholders of record as
of September 29, 1998.
(8) Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivatives embedded in other contracts, and for hedging
activities. This statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative
may be specifically designated as (a) a fair value hedge, (b) a cashflow hedge,
or (c) a foreign currency hedge. The accounting for changes in the fair value
of a derivative would depend on the intended use of the derivative and the
resulting designation. This standard also requires an entity to establish a
method, consistent with its approach to managing risk, that it will use to
assess the effectiveness of the hedging derivative and the measurement approach
for determining the ineffective aspect of the hedge. This statement is
effective for all fiscal quarters and fiscal years beginning after June 15, 1999
with earlier application encouraged. Since the Company does not currently
utilize derivative instruments, the adoption of this standard, at this time,
does not have an impact on the Company's financial condition or results of
operations.
(9) Recent Developments
During the third quarter of 1998, the Company announced an agreement to acquire
Warren-Hoffman &Associates, Inc., one of the largest full service insurance
agencies in Western New York and two of its subsidiaries. The companies provide
insurance products including personal and business insurance, surety bonds, risk
management, life, disability and long-term care coverage. The transaction, which
is expected to close in January of 1999, also includes an affiliated company
that provides third party administration of employee benefit plans. The acquired
companies will operate as wholly owned subsidiaries of the Bank.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
This Quarterly Report on Form 10-Q may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
Comparison of Financial Condition at September 30, 1998 and December 31, 1997
Total assets at September 30, 1998 were $1.431 billion as compared to $1.179
billion at December 31, 1997, an increase of $251.9 million, or 21.4%. This
asset growth was primarily attributable to increases in the Bank's securities
and loan portfolios which was due to the completion of the stock offering and
funds obtained through long-term borrowings. Also contributing to the overall
increase in assets was the purchase of bank-owned life insurance policies for
$25.0 million which is reflected in other assets.
Total securities increased 22.9% to $572.9 million at September 30, 1998 from
$466.3 million at December 31, 1997. This increase consisted of a $123.6
million increase in securities available for sale and was primarily the result
of investing funds in one-to-three year weighted average life asset-backed
securities and two-to-four year weighted average life collateralized mortgage
obligations which were deemed to offer reduced interest rate risk in this
continued low interest rate environment.
Net loans totaled $705.7 million at September 30, 1998, compared to $635.4
million at December 31, 1997, an increase of 11.1%. Growth was experienced in
all loan portfolios as a result of the Bank's continued efforts to increase
market share, as well as the refinancing activity which has resulted from the
declining interest rate environment.
Loan Portfolio Composition. Set forth below is selected information concerning
the composition of the Bank's loan portfolio in dollar amounts and in
percentages (before deductions for deferred fees and costs, unearned discounts
and allowances for credit losses) as of the dates indicated.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------- ---------------------
Amount Percent Amount Percent
------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
One-to-four family.............. $ 440,182 62.07% $ 392,846 61.47%
Home equity..................... 14,394 2.03 13,587 2.13
Multi-family.................... 73,677 10.39 74,049 11.59
Commercial real estate.......... 87,467 12.33 77,217 12.08
Construction.................... 12,334 1.74 10,791 1.69
------------------- ------------------
Total real estate loans...... 628,054 88.56 568,490 88.96
------------------- ------------------
Other Loans:
Consumer Loans:
Mobile home.................. 23,896 3.37 22,747 3.56
Vehicle...................... 8,575 1.21 7,306 1.14
Personal..................... 15,686 2.21 15,157 2.37
Home improvement............. 8,294 1.17 7,609 1.19
Guaranteed student........... 12,551 1.77 10,975 1.72
Other consumer............... 6,116 0.86 1,874 0.29
------------------- ------------------
Total consumer loans...... 75,118 10.59 65,668 10.27
Commercial business loans....... 6,043 0.85 4,893 0.77
------------------- ------------------
Total loans............... 709,215 100.00% 639,051 100.00%
=================== ==================
Net deferred costs........... 4,079 3,380
Unearned discounts........... (79) (114)
Allowance for credit losses.. (7,559) (6,921)
--------- ---------
Loans, net................ $ 705,656 $ 635,396
========= =========
</TABLE>
10
<PAGE>
Deposits increased $24.5 million, or 2.5% during the first nine months of 1998,
totaling $1.020 billion at September 30, 1998 compared to $995.6 million at
December 31, 1997. Lower rates offered on certificate of deposit accounts
resulted in a decrease of $33.0 million in these accounts while a competitive
rate offered on money market deposit accounts (MMDAs) resulted in a $58.9
million increase in these accounts during the first nine months of 1998.
During the first nine months of 1998, total borrowings increased $83.0 million,
to $116.7 million at September 30, 1998 compared to $33.7 million at December
31, 1997. This increase is attributable to an $86.7 million increase in
outstanding FHLB advances reflecting a strategy of leveraging the Bank's
increased capital to fund asset growth with borrowings as long as acceptable
spreads can be obtained.
Stockholders' equity increased $130.3 million, or 99.9% to $260.8 million at
September 30, 1998 from $130.5 million at December 31, 1997. This increase was
primarily due to the receipt of $132.4 million of net conversion proceeds from
the initial public offering and the issuance and contribution of $4.1 million of
the Company's common stock to the Foundation.
11
<PAGE>
Average Balance Sheets. The following tables present, for the periods
indicated, the total dollar amount of interest income from average interest-
earning assets and the resultant yields, as well as the interest expense on
average interest-bearing liabilities, expressed both in dollars and rates. No
tax equivalent adjustments were made. All average balances are average daily
balances. Non-accruing loans have been excluded from the yield calculations in
these tables.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Expensed Rate Balance Expensed Rate
------------- ------------------- -----------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and securities
purchased under resale agreements.............. $ 52,611 $ 758 5.72% $ 25,970 $ 367 5.61%
Investment securities (1)......................... 212,107 3,168 5.97 190,421 2,733 5.74
Mortgage related securities (1)................... 332,790 5,491 6.60 281,041 4,712 6.71
Loans (2)......................................... 692,508 14,042 8.11 618,289 13,008 8.42
Other interest-earning assets (3)................. 12,266 168 5.48 6,610 124 7.50
------------- ---------- ------------- ----------
Total interest-earning assets............... 1,302,282 $ 23,627 7.26% 1,122,331 $ 20,944 7.46%
------------- ---------- ------- ------------- ---------- ------
Allowance for credit losses.......................... (7,490) (6,257)
Other noninterest-earning assets (4) (5)............. 89,554 50,650
------------- -------------
Total assets................................ $ 1,384,346 $ 1,166,724
============= =============
Interest-bearing liabilities:
Savings accounts.................................. $ 296,049 $ 2,394 3.21% $ 305,915 $ 2,583 3.35
Interest-bearing checking accounts................ 214,357 1,855 3.43 131,712 958 2.89
Certificates of deposit........................... 466,410 6,761 5.75 517,168 7,582 5.82
Mortgagors' payments held in escrow............... 13,577 59 1.72 12,066 54 1.78
Other borrowed funds.............................. 80,818 1,147 5.63 27,185 405 5.91
------------- ---------- ------------- ----------
Total interest-bearing liabilities.......... 1,071,211 $ 12,216 4.52% 994,046 $ 11,582 4.62%
------------- ---------- ----- ------------- ---------- -----
Noninterest-bearing demand deposits.................. 27,651 27,113
Other noninterest-bearing liabilities................ 26,715 19,929
------------- -------------
Total liabilities........................... 1,125,577 1,041,088
Stockholders' equity (4)............................. 258,769 125,636
------------- -------------
Total liabilities and stockholders' equity.. $ 1,384,346 $ 1,166,724
============= =============
Net interest income.................................. $ 11,411 $ 9,362
========== ==========
Net interest rate spread............................. 2.74% 2.84%
==== ====
Net earning assets $ 231,071 $ 128,285
============= =============
Net interest income as a percentage of
average interest-earning assets................... 3.50% 3.34%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities........... 121.57% 112.91%
====== ======
- --------------------
</TABLE>
(1) Amounts shown are at amortized cost.
(2) Net of deferred loans fees and expenses, loan discounts, loans-in-process
and non-accruing loans.
(3) Includes Federal Home Loan Bank stock and interest-bearing demand accounts.
(4) Includes unrealized gains/losses on securities available for sale.
(5) Includes $25 million of bank-owned life insurance. For the three months
ended September 30, 1998, $337,000 of earnings on bank-owned life
insurance are included in other noninterest income.
12
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Expensed Rate Balance Expensed Rate
------------- ------------------- ------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and securities
purchased under resale agreements.............. $ 66,989 $ 2,832 5.65% $ 19,330 $ 803 5.55%
Investment securities (1)......................... 197,710 8,736 5.89 176,665 7,517 5.67
Mortgage related securities (1)................... 300,962 15,033 6.66 285,145 14,308 6.69
Loans (2)......................................... 664,818 40,772 8.18 609,196 38,361 8.40
Other interest-earning assets (3)................. 10,426 460 5.88 6,608 321 6.48
------------- ---------- ------------- ----------
Total interest-earning assets............... 1,240,905 $ 67,833 7.29% 1,096,944 $ 61,310 7.45%
------------- ---------- ----- ------------- ---------- -----
Allowance for credit losses.......................... (7,292) (6,502)
Other noninterest-earning assets (4) (5)............. 73,110 44,349
------------- -------------
Total assets................................ $ 1,306,723 $ 1,134,791
============= =============
Interest-bearing liabilities:
Savings accounts.................................. $ 306,133 $ 7,370 3.22% $ 304,383 $ 7,626 3.35%
Interest-bearing checking accounts................ 193,480 4,771 3.30 119,001 2,436 2.74
Certificates of deposit........................... 481,731 20,882 5.80 507,962 21,964 5.78
Mortgagors' payments held in escrow............... 10,135 127 1.68 9,704 119 1.64
Other borrowed funds.............................. 53,297 2,290 5.74 27,946 1,190 5.69
------------- ---------- ------------- ----------
Total interest-bearing liabilities.......... 1,044,776 $ 35,440 4.54% 968,996 $ 33,335 4.60%
------------- ---------- ----- ------------- ---------- -----
Noninterest-bearing demand deposits.................. 27,529 26,074
Other noninterest-bearing liabilities................ 24,668 18,958
------------- -------------
Total liabilities........................... 1,096,973 1,014,028
Stockholders' equity (4)............................ 209,750 120,763
------------- -------------
Total liabilities and stockholders' equity $ 1,306,723 $ 1,134,791
============= =============
Net interest income.................................. $ 32,393 $ 27,975
========== ==========
Net interest rate spread............................. 2.75% 2.85%
==== ====
Net earning assets................................... $ 196,129 $ 127,948
============= =============
Net interest income as a percentage of
average interest-earning assets................... 3.48% 3.40%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities........... 118.77% 113.20%
====== ======
- --------------------
</TABLE>
(1) Amounts shown are at amortized cost.
(2) Net of deferred loans fees and expenses, loan discounts, loans-in-process
and non-accruing loans.
(3) Includes Federal Home Loan Bank stock and interest-bearing demand accounts.
(4) Includes unrealized gains/losses on securities available for sale.
(5) Includes $25 million of bank-owned life insurance purchased in June 1998.
As of September 30, 1998, $432,000 of earnings on bank-owned life insurance
are included in other noninterest income.
13
<PAGE>
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997
General
Net income for the third quarter of 1998 increased 40.5% to $3.7 million
compared to $2.7 million for the third quarter of 1997. This increase resulted
primarily from increased earnings in both the securities and loan portfolios as
a result of the investment of proceeds received from the stock offering and
funds obtained through wholesale borrowings.
Interest Income
Total interest income increased $2.7 million, or 12.8%, to $23.6 million for the
third quarter of 1998 compared to $20.9 million for the same period in 1997.
The increase was primarily due to an increase in income from securities and
short-term investments, as well as an increase in income from loans of $1.6
million and $1.0 million, respectively.
Interest income from securities and short-term investments increased 20.5% from
$7.8 million for the three months ended September 30, 1997 to $9.4 million for
the three months ended September 30, 1998. The average balance of the
underlying assets increased $100.1 million, or 20.1%, during the comparable
quarters as a large portion of the offering proceeds were placed in one-to-three
year weighted average life asset-backed securities, two-to-four year weighted
average life collateralized mortgage obligations and short-term investments.
These investing decisions were influenced by the flat interest yield curve with
short-term rates providing similar returns to intermediate and longer term
instruments which have more interest rate risk.
Interest income on loans increased $1.0 million, or 7.9%, when comparing the
third quarter of 1998 to the same period in 1997. This rate of increase was less
than the 12.0% rate of growth in average loans outstanding due to a decline in
the average yield of the loan portfolio from 8.42% in the 1997 quarter to 8.11%
in the corresponding 1998 quarter. This reduction in the loan yield is a
reflection of the falling interest rate environment over the past year. If the
current interest rate environment continues, management expects the overall
yield on the loan portfolio in the upcoming quarters to decline from the 8.11%
average yield earned for the three months ended September 30, 1998.
Interest Expense
Interest expense totaled $12.2 million for the three months ended September 30,
1998, a 5.5% increase, compared to $11.6 million for the same period in 1997,
which was primarily attributable to an increase in interest expense on other
borrowed funds.
Interest expense related to other borrowings increased primarily as a result of
a $53.6 million increase in the average balance of such funds to $80.8 million
at September 30, 1998 from $27.2 million at September 30, 1997. During the
quarter, the Bank increased its use of long-term borrowings from the FHLB as
part of its management of interest rate risk in order to leverage the increased
capital position and secure a lower cost alternative source of long-term
funding. The average rate paid on FHLB advances outstanding during the three
months ended September 30, 1997 and 1998 declined from 5.91% to 5.63%,
respectively.
Interest expense on deposits was $11.1 million for the third quarter of 1998
compared to $11.2 million for the same period in 1997. This decline is
reflective of the lower interest rate environment as the weighted average yield
on such deposits decreased from 4.62% to 4.47% for the three months ended
September 30, 1997 and 1998, respectively.
Net Interest Income
Net interest income increased $2.0 million, or 21.9%, to $11.4 million for the
three months ending September 30, 1998, compared to $9.4 million for the same
period in 1997. This increase was attributable to the overall growth in
interest-earning assets due to the deployment of capital received from the stock
offering, the investment of other borrowed funds and the decreased funding costs
of deposits and borrowings.
The interest rate spread (the difference between the weighted average yield on
interest earning-assets and the weighted average cost of interest-bearing
liabilities) declined from 2.84% for the three months ended September 30, 1997
to 2.74% for the three months ended September 30, 1998. The decline was
attributable in part to lower yields on existing loans and on new loan
originations caused by the falling interest rate environment. Also contributing
to the decline was a greater percentage of earning assets in securities and
short-term investments earning lower yields than in higher yielding loans. Much
of the net offering proceeds were placed in one-to-three year weighted average
life asset-backed securities, two-to-four year weighted average life
collateralized mortgage obligations and short-term investments.
14
<PAGE>
The net interest margin (net interest income as a percentage of average
interest-earning assets) increased to 3.50% for the three months ended September
30, 1998 from 3.34% for the same quarter in 1997. The increase in the net
interest margin is primarily a function of the increase in stockholders' equity
originating from the stock offering. This additional equity was used to support
an increase in the level of earning assets with no corresponding increase in
interest-bearing liabilities.
Provision for Credit Losses
The provision for credit losses was $486,000 for the three months ended
September 30, 1998 compared to the $605,000 for the same period in 1997. The
adequacy of the Bank's allowance for credit losses is reviewed quarterly with
consideration given to potential risk inherent within the loan portfolio, the
status of particular loans, historical loan loss experience, as well as current
and anticipated economic and market conditions. The quality of the loan
portfolio remained high during the third quarter of 1998 with net charge-offs
totaling .04% of average loans outstanding compared to .07% for the third
quarter of 1997.
Allowance For Credit Losses. The following table sets forth the analysis of the
allowance for credit losses for the periods indicated.
<TABLE>
<CAPTION>
Three months ended September 30,
---------------------------------
1998 1997
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period...................................... $ 7,350 $ 6,166
Net charge-offs:
Charge-offs...................................................... (298) (473)
Recoveries....................................................... 21 55
------------- ------------
Total net charge-offs............................................... (277) (418)
Provision for credit losses......................................... 486 605
------------- ------------
Balance at end of period............................................ $ 7,559 $ 6,353
============= ============
Ratio of net charge-offs during the period to
average loans outstanding during the period...................... 0.04% 0.07%
====== ======
Allowance for credit losses to total loans at end of period......... 1.06% 1.01%
====== ======
Allowance for credit losses to non-accruing loans at end of period.. 201.10% 330.03%
====== ======
</TABLE>
15
<PAGE>
Non-Accruing Loans and Non-Performing Assets. The following table sets forth
information regarding non-accruing loans and non-performing assets.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(Dollars in thousands)
<S> <C> <C>
Non-accruing loans:
One-to-four-family............................... $ 1,263 $ 1,126
Home equity...................................... 19 -
Commercial real estate and multi-family.......... 2,324 1,364
Consumer and other............................... 58 235
Commercial business.............................. 95 322
----------- -------
Total non-accruing loans.................... 3,759 3,047
Non-performing assets............................... $ 21 $ 223
----------- -------
Total non-accruing loans and non-performing assets.. $ 3,780 $ 3,270
=========== =======
Total non-accruing loans and non-performing assets
as a percentage of total assets.................. 0.26% 0.28%
===== =====
Total non-accruing loans to total loans............. 0.53% 0.47%
===== =====
</TABLE>
Noninterest Income
Noninterest income is composed of fee income and service charges for bank
services, profits from the sale of loans and securities, and other noninterest
income. Noninterest income increased to $2.3 million for the three months ended
September 30, 1998 from $1.9 million for the same period in 1997.
Noninterest income for the third quarter of 1998, excluding security gains and
certain nonrecurring items, increased $745,000 or 46.4%, when compared to the
third quarter of 1997. This increase resulted primarily from earnings on bank-
owned life insurance of $337,000 and $118,000 in additional commissions received
from the sale of third-party annuity and mutual fund products. Also
contributing to the increase in noninterest income was a rise in loan
origination fees and prepayment penalties collected due to refinancing activity
and increased loan growth experienced during the quarter.
Net gains on the sale of securities available for sale of $674,000 for the three
months ended September 30, 1997 reflect the realization of gains on marketable
equity securities as a result of the strong performance in the stock market. By
comparison, there were no sales of securities during the three months ending
September 30, 1998. Other income for the third quarter of 1997 includes
$372,000 of nonrecurring losses on other real estate and investments in real
estate projects. No such losses were incurred during the third quarter of 1998.
Noninterest Expense
Noninterest expense totaled $7.6 million for the third quarter of 1998,
reflecting a $953,000, or 14.3% increase over the third quarter of 1997 which
totaled $6.7 million.
Salaries and employee benefits increased $759,000 for the three months ended
September 30, 1998 compared to the same period in 1997. This increase is
primarily attributable to increased expenses associated with normal merit and
promotional salary increases, as well as salary and benefit expenses related to
the increase in the Bank's full-time equivalent employees from 353 at September
30, 1997 to 390 at September 30, 1998. The increase in personnel resulted
primarily from the hiring of staff for three new branches that opened in the
second and third quarters of 1998, as well as overall Bank growth. Also
contributing to this increase is $170,000 in compensation expense associated
with the ESOP which was established in the second quarter of 1998.
16
<PAGE>
Occupancy and equipment expenses increased $254,000 during the third quarter of
1998 compared to the same period in 1997. This increase resulted primarily from
depreciation and the cost of the new administrative center, as well as the
opening of the three new branches during the second and third quarters of 1998.
The increase in marketing and advertising costs to $549,000 for the third
quarter of 1998 compared to $282,000 for the same period in 1997 resulted
primarily from promotional events related to the new branch openings as well as
an increase in advertising of the Bank's checking accounts.
The decrease in all other noninterest expenses reflects the costs recognized in
the third quarter of 1997 for professional fees associated with the
implementation of various tax planning strategies, additional charitable
contributions, and expenses associated with the anticipated settlement of a real
estate tax escrow lawsuit. Partially offsetting these decreases were increases
in legal and accounting fees as well as transfer agent and investor relations
costs relating to the Company's activities as a publicly traded entity.
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
1997
General
Net income for the nine months ended September 30, 1998 increased 19.3% to $10.3
million, excluding the effect of the Company's one-time contribution to the
Foundation, compared to $8.6 million for the nine months ended September 30,
1997. Net income was significantly impacted by the contribution to the
Foundation that was established during the second quarter of 1998 with a
contribution of $4.1 million of the Company's common stock and $2.7 million of
cash. This contribution resulted in a $4.0 million charge to earnings, net of
tax, which resulted in net income of $6.3 million for the nine month period
ended September 30, 1998, as compared to $8.6 million for the corresponding
period in 1997.
Interest Income
Total interest income increased $6.5 million, or 10.6%, to $67.8 million for the
nine months ended September 30, 1998 compared to $61.3 million for the same
period in 1997. The increase was primarily due to an increase in income from
securities and short-term investments, as well as an increase in income from
loans of $4.0 million and $2.4 million, respectively.
The increased income from loans was primarily attributable to an increase of
$55.6 million in the average balance of loans to $664.8 million for the nine
months ended September 30, 1998 from $609.2 million for the nine months ended
September 30, 1997, and was partially offset by a 22 basis point decrease in the
average yield on loans from 8.40% to 8.18%. The average balance of the loan
portfolio increased primarily in the one-to-four family and the multi-family and
commercial real estate portfolios with increases of $40.8 million and $10.6
million, respectively, reflecting continued efforts to increase market share, as
well as increased refinancing activity due to the declining interest rate
environment.
Income on federal funds sold and securities purchased under resale agreements
increased primarily due to a $47.7 million, or 246.6% increase in the average
balance of federal funds sold and repurchase agreements from $19.3 million for
the nine months ended September 30, 1997 to $67.0 million for the same period in
1998. This increased liquidity resulted from stock subscriptions received
during the Company's initial public offering, as well as investing decisions
being influenced by the flat interest rate yield curve with short- term rates
providing similar returns to intermediate and longer term instruments which have
more interest rate risk. Also contributing to the increase was a decision
during the fourth quarter of 1997 to initiate repurchase agreements because of
the opportunity to earn better returns on the short-term liquidity position.
These repurchase agreements represent $18.5 million of the $47.7 million
increase in the average balance of federal funds sold and securities purchased
under resale agreements.
The increased income from securities was attributable to an increase in the
average balance of investment and mortgage related securities which grew $36.9
million from $461.8 million to $498.7 million for the nine months ended
September 30, 1997 and 1998, respectively. Also contributing to the increase in
securities income was a 22 basis point increase in the yield on investment
securities from 5.67% to 5.89% offset by a 3 basis point decrease in the yield
on mortgage related securities from 6.69% to 6.66%. The primary factors
impacting these trends were increasing prepayments on mortgage related
investments due to the lower interest rate environment and the redeployment of
funds into short-term, higher yielding asset-backed investment securities.
17
<PAGE>
Interest Expense
Interest expense totaled $35.4 million for the nine months ended September 30,
1998 compared to $33.3 million for the same period in 1997, increasing $2.1
million, or 6.3%. The increase resulted from an increase in interest expense on
interest-bearing checking accounts and other borrowings which was partially
offset by a decrease in interest expense on certificates of deposit.
The increase in interest expense on interest-bearing checking accounts was due
to an increase of $74.5 million in the average balance on these accounts from
$119.0 million for the nine months ended September 30, 1997 to $193.5 million
for the same period in 1998. This increase was primarily attributable to the
growth of the Bank's money market deposit account product that was first
introduced during the second quarter of 1997. The average balance on this
account grew $75.0 million when comparing the nine months ended September 30,
1998 to the same period in 1997. Also contributing to the increase in interest
expense was a 56 basis point increase in the average rate paid on interest-
bearing checking accounts from 2.74% to 3.30% which mainly resulted from the
rate being paid on the money market deposit account comparing favorably to the
rate paid on money market mutual funds.
Interest expense related to other borrowings increased as a result of a $25.4
million increase in the average balance of other borrowings to $53.3 million for
the nine months ended September 30, 1998 from $27.9 million for the same period
in 1997. Also contributing to the increase in interest expense on borrowings was
a 5 basis point increase in the average borrowing cost to 5.74% from 5.69%.
The increase in the average balance of other borrowings was attributable to
obtaining longer term FHLB advances as part of a leveraging strategy to fund
asset growth.
The decrease in interest expense for certificates of deposit was primarily due
to a decrease of $26.2 million in the average balance of CD's from $508.0
million to $481.7 million due to the migration of these funds into alternative
products, including the Bank's money market deposit account and mutual funds.
Net Interest Income
Net interest income increased $4.4 million, or 15.8% to $32.4 million for the
nine months ended September 30, 1998, compared to $28.0 million for the same
period in 1997. This increase was attributable to the overall growth in
interest-earning assets due to the deployment of capital received from the stock
offering and increased borrowings, along with the decreasing costs of deposits.
Net interest income was also impacted by the flattening of the interest rate
yield curve, resulting in lower rates on longer term instruments while rates on
short-term instruments remained at fairly consistent levels throughout the
period.
The increase in interest income was due to an increase of $144.0 million, or
13.1%, in the average balance of interest-earning assets from $1.097 billion for
the nine months ended September 30, 1997 to $1.241 billion for the same period
in 1998. The growth in interest-earning assets resulted from the utilization of
offering proceeds, deposit growth and the Bank leveraging its strong capital
position utilizing borrowings to increase both the security and loan portfolios.
Offsetting this increase in average interest-earning assets was a 16 basis point
decrease in the average yield on interest-earning assets from 7.45% for the nine
months ended September 30, 1997 to 7.29% for the same period in 1998, reflective
of mortgage prepayments and refinancings and the lower, more flat yield curve
and its impact on the loan portfolio. The increase in interest expense was
attributable to a $75.8 million increase in the nine month average of interest-
bearing liabilities from $969.0 million as of September 30, 1997 to $1.045
billion for the same nine month period in 1998. The flattening of the yield
curve and the short-term nature of the Bank's deposit liabilities resulted in
the average rate paid on interest-bearing liabilities declining from 4.60% to
4.54%.
These changes in net interest income reflect the impact of the increase in
investable funds obtained from the stock offering as well as other borrowings,
resulting in an increase in the net interest margin (net interest income as a
percentage of average interest-earning assets) which increased to 3.48% for the
nine months ended September 30, 1998 from 3.40% for the same period in 1997. The
interest rate spread (the difference between the weighted average yield on
interest earning-assets and weighted average cost of interest-bearing
liabilities) declined to 2.75% for the nine months ended September 30, 1998
compared to 2.85% for the comparable period in 1997, primarily as a result of
the 22 basis point decrease in loan yields.
Noninterest Income
Noninterest income is composed of fee income and service charges for bank
services, profits from the sale of loans and securities, and other noninterest
income. Noninterest income increased $1.4 million, or 28.9% for the nine months
ended September 30, 1998 to $6.4 million compared to $5.0 million for the same
period in 1997.
18
<PAGE>
Contributing to the increase in noninterest income was a $465,000, or 57.1%
increase in loan origination and servicing fees which totaled $1.3 million for
the nine months ended September 1998 compared to $814,000 for the same period in
1997. Increased loan origination and refinancing activity contributed to
$251,000 of the increase in fees as loan originations for the first nine months
of 1998 totaled $218.3 million compared to $122.0 million originated during the
same period in 1997. The refinancing activity also resulted in an additional
$84,000 collected in penalties for the early payoff of commercial and multi-
family real estate loans.
Bank service charges and fees increased $409,000, or 18.4%. In particular,
overdraft fees and other service charges on checking accounts increased $195,000
during the first nine months of 1998 compared to the first nine months of 1997
as a result of the continued promotion of the Bank's checking account products.
In addition, growth in acceptance and usage of the Bank's debit card resulted in
$161,000 of additional transaction fees for the nine months ended September 30,
1998 compared to the same period in 1997.
Net gains on the sale of securities available for sale decreased to $100,000 for
the nine months ended September 30, 1998 compared to $875,000 for the same
period in 1997. The 1997 gains resulted from the realization of market value
increases on marketable equity securities during 1997 as a result of the strong
performance in the stock market.
All other noninterest income increased $1.3 million, or 127.8%, when comparing
the nine months ended September 30, 1998 to the nine months ended September 30,
1997. This increase resulted primarily from $432,000 in earnings on bank-owned
life insurance policies, $169,000 in profits on sold loans, as well as
increased commissions of $143,000 on the sale of third party annuities and
mutual funds. Additionally, $387,000 for reserves and losses on other real
estate and investments in real estate projects were charged against other
noninterest income during the first nine months of 1997.
Noninterest Expense
Noninterest expense totaled $28.1 million for the first nine months of 1998,
reflecting a $9.7 million, or 52.7% increase over the $18.4 million for the same
period in 1997. This significant increase resulted primarily from the one-time
$6.8 million contribution expense associated with funding the Foundation.
Excluding the effect of this contribution, noninterest expense increased $3.0
million, or 16.1%. This increase in noninterest expense was primarily
attributable to an increase of $2.0 million in salaries and employee benefits,
$695,000 of additional occupancy and equipment costs, a $340,000 increase in
marketing and advertising costs as well as a $114,000 increase in network
interchange costs.
Salaries and employee benefits totaled $11.8 million for the nine months ended
September 30, 1998 compared to $9.7 million for the same period in 1997.
Contributing to this increase was $344,000 in compensation expense associated
with the ESOP, increased expenses associated with normal merit and promotional
salary increases, as well as salary and benefit expenses related to an increase
in the number of full-time equivalent employees. This increase in personnel
resulted from the hiring of staff for three new branches that opened in 1998, as
well as overall growth in the Bank.
Occupancy and equipment expenses increased to $2.5 million during the nine
months ended September 30, 1998 compared to $1.8 million for the nine months
ended September 30, 1997. This increase resulted primarily from the
depreciation and building expenses associated with the construction of a new
administrative center occupied in September of 1997, as well as the opening of
three new branches during 1998 and two new branches during 1997.
The increase in marketing and advertising costs to $1.4 million for the first
nine months of 1998 compared to $1.0 million for the same period in 1997
resulted primarily from an increase in advertising of the Bank's checking and
money market demand accounts.
Network interchange expenses increased to $996,000 for the nine months ended
September 30, 1998 compared to $882,000 for the same period in 1997 primarily as
a result of costs associated with the increased activity with the Bank's debit
card.
Income Taxes
Income tax expense totaled $3.3 million for the first nine months of 1998
compared to $4.9 million for the same period in 1997. This decrease reflects
the impact of the contribution to the Foundation during 1998, as well as the
implementation of various tax planning strategies during the third quarter of
1997, which lowered the effective tax rate from 36.2% at September 30, 1997 to
34.0% at September 30, 1998.
19
<PAGE>
Liquidity
The Company's primary sources of funds are deposits, proceeds from the principal
and interest payments on loans, mortgage related and debt and equity securities,
as well as borrowings and proceeds from the sale of fixed rate mortgage loans to
the secondary market. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit outflows, mortgage
prepayments, mortgage loan sales, and borrowings are greatly influenced by
market interest rates, economic conditions and competition.
During the second quarter of 1998, $132.4 million of net proceeds from the
initial stock offering increased the funds available for investment.
Accelerated principal repayments on mortgage related and other available-for-
sale securities provided an additional source of liquidity, totaling $104.2
million for the nine months ended September 30, 1998 compared to $29.7 million
for the nine months ended September 30, 1997. Other borrowings, reflecting the
relatively low borrowing costs, increased $83.0 million during the first nine
months of 1998. A net increase in total deposits of $24.5 million was also
experienced during the nine months ended September 30, 1998 compared to $71.8
million for the same period in 1997.
The primary investing activities of the Company are the origination of both
residential one-to-four family and commercial real estate loans and the purchase
of mortgage related and debt and equity securities. During the first nine
months of 1998 and 1997, loan originations totaled $218.3 million and $122.0
million, respectively. Purchases of mortgage related securities totaled $149.9
million for the nine months ended September 30, 1998 compared to $67.3 million
for the nine months ended September 30, 1997. Purchases of other available for
sale securities, primarily short-term asset-backed securities, during the first
nine months of 1998 totaled $95.5 million compared to $85.3 million for the same
period in 1997.
At September 30, 1998, outstanding loan commitments totaled $85.0 million.
These commitments do not necessarily represent future cash requirements since
certain of these instruments may expire without being funded and others may not
be fully drawn upon. It is anticipated that there will be sufficient funds
available to meet the current loan commitments and other obligations.
Cash, interest-bearing demand accounts at correspondent banks, federal funds
sold and securities purchased under resale agreements are the Bank's most liquid
assets. The levels of these assets are monitored daily and are dependent on
operating, financing, lending and investing activities during any given period.
Excess short-term liquidity is usually invested in overnight federal funds sold.
In the event that funds beyond those generated internally are required,
additional sources of funds are available through the use of reverse repurchase
agreements and FHLB advances. As of September 30, 1998, the total of cash,
interest-bearing demand accounts, federal funds sold and securities purchased
under resale agreements was $81.9 million, or 5.7% of total assets.
Capital
At September 30, 1998, the Bank and the Company exceeded all regulatory capital
requirements. The current requirements and the actual levels for the Company
are detailed in the following table.
<TABLE>
<CAPTION>
As of September 30, 1998
---------------------------------------------------------
Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Action Provisions
---------------- ------------------ ----------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- ------------------ ----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk-weighted assets)... $ 263,467 33.73% $ 62,496 8.00% $ 78,120 10.00%
Tier 1 Capital (to risk-weighted assets).. 255,908 32.76 31,248 4.00 46,872 6.00
Leverage Capital (to average assets)...... 255,908 18.53 41,430 3.00 69,050 5.00
</TABLE>
20
<PAGE>
Year 2000 "Y2K" Compliance
Changing from the year 1999 to 2000 has the potential to cause problems in data
processing and other date-sensitive systems, a problem commonly referred to as
the Year 2000 or Y2K dilemma. The year 2000 date change can affect any system
that uses computer software programs or computer chips, including automated
equipment and machinery. For example, many software programs or computer chips
store calendar dates as two-digit numbers rather than four-digit numbers. This
coding presents a potential problem when the year begins with "20", instead of
"19". Computer systems may interpret the year as 1900 instead of 2000, thus
creating possible system failure or miscalculation of financial data.
The Company utilizes computers for the daily conduct of its business and for
information systems processing. Due to the reliance on such systems, the
Company is following a comprehensive process modeled from that suggested by
federal bank regulatory agencies. A description of each of the steps and the
status of the Company's efforts to date are detailed as follows: Assessment,
Validation, Testing and Implementation.
The Assessment Phase has two primary components. The first component defines
the scope of the year 2000 problem within the Company, as well as establishes a
formal committee responsible for monitoring Y2K progress on a regular basis.
The second component assesses the size and complexity of the problem by
performing an inventory of both internally developed and externally purchased
computer applications. Both components of the Assessment Phase have been
substantially completed.
The Validation Phase, 90% complete, compiles the results of vendor confirmations
and internal research regarding Y2K readiness. It is during this stage that
hardware and software updates, code enhancements, system replacements, vendor
certifications, and other associated changes are made.
The Testing Phase, 80% complete, certifies that systems are Year 2000 compliant
and have end-user acceptance. The Testing Phase is scheduled to be completed by
March 31, 1999. During this phase, the Company has been addressing both
Information Technology (IT) and non-IT systems. With respect to IT systems,
testing of applications has begun and is scheduled to be substantially completed
during the first quarter of 1999. To ensure compliance of non-IT systems where
testing is not possible, the Company has obtained a certification from the
vendor attesting to Y2K compliance. The Company does not anticipate incurring
any material expenses as a result of unpreparedness of its non-IT systems.
The Implementation Phase includes the repair or replacement of systems and
computer equipment, as well as the development of contingency plans. The repair
and replacement stage is substantially complete. The Company is currently
developing a business resumption contingency plan to help ensure continued
operations in the event of Year 2000 system failures. This contingency plan
will be consistent with the Company's disaster recovery plan with modifications
for Year 2000 risks. The business resumption contingency plan is scheduled to
be completed during the second quarter of 1999.
As of September 30, 1998, the Company has incurred approximately $85,000 in
expenses directly related to the Year 2000 issue. In total, the Company
estimates incurring approximately $200,000 by December 31, 1999 related to Year
2000 readiness which is in excess of software and hardware maintenance costs, as
well as personnel costs associated with testing Year 2000 compliance. These
amounts include the cost of additional hardware and software, some of which
would have been purchased in the normal course of the Company's business. Due to
the uniqueness of the Year 2000 issue, it is difficult to quantify the potential
loss in revenue in the event of non-compliance. Based upon efforts to ensure
systems will function properly, the Company presently believes that the Year
2000 issue will not result in a material loss in revenue. The Company believes
that its most likely worst case Year 2000 scenario is an increase in credit
losses due to Year 2000 problems of the Company's borrowers, as well as the
potential disruption in financial markets causing liquidity concerns. The
Company has attempted to mitigate this risk by identifying both material
borrowers and fund providers as well as assessing their respective compliance
towards Year 2000 readiness.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Net Income and Net Portfolio Value Analysis
Interest rate sensitivity is monitored partially through the use of a net income
model and a net portfolio value model which generates estimates of the changes
in net income and net portfolio value ("NPV") over a range of interest rate
scenarios. NPV is the present value of expected cash flows from assets and
liabilities.
21
<PAGE>
The model below assumes estimated loan prepayment rates, reinvestment rates and
deposit decay rates. For adjustable and fixed-rate loans on residential
properties, prepayment rates were assumed to range from 7.50% to 24.00%
annually. Mortgage related securities were assumed to prepay at rates between
22.08% and 32.58% annually. Savings account cashflows were assumed to decay at
6.82%, 6.82%, 13.63%, 15.12%, 11.98%, 20.15%, and 25.48%; NOW checking account
cashflows were assumed to decay at 21.94%, 21.94%, 43.87%, 2.55%, 2.02%, 3.39%,
and 4.29%; and money market savings account cashflows were assumed to decay at
77.52%, 2.04%, 4.09%, 16.35%, 0%, 0%, and 0% for the periods of three months or
less, three to six months, six to twelve months, one to three years, three to
five years, five to ten years and more than ten years, respectively. While we
believe such assumptions to be reasonable, there can be no assurance that
assumed prepayment rates and decay rates will approximate actual future loan
prepayment and deposit withdrawal activity.
The following sets forth the Company's net income and NPV as of September 30,
1998.
<TABLE>
<CAPTION>
Net Income Net Portfolio Value
Change in ------------------------------------------------------------------
Interest Rates
In Basic Points $ Amount $ Change % Change $ Amount $ Change % Change
------------------------------------------------------------------
(Rate Shock) (Dollars in thousands)
----------------
<S> <C> <C> <C> <C> <C> <C>
400............. 12,808 (1,975) (13.4)% 252,865 (38,062) (13.1)%
300............. 13,265 (1,518) (10.3)% 262,906 (28,021) (9.6)%
200............. 13,716 (1,067) (7.2)% 274,790 (16,137) (5.5)%
100............. 14,273 (510) (3.4)% 284,171 (6,756) (2.3)%
Static........... 14,783 - - 290,927 - -
(100)............ 15,171 388 2.6% 295,182 4,255 1.5%
(200)............ 15,474 691 4.7% 297,048 6,121 2.1%
(300)............ 16,436 1,653 11.2% 313,316 22,389 7.7%
(400)............ 17,558 2,775 18.8% 322,535 31,608 10.9%
</TABLE>
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in net income and NPV requires making
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the net income and NPV table presented assumes that the composition of interest
sensitive assets and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the net income and NPV table provides an
indication of interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Company's net interest income
and will differ from actual results.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or its
subsidiaries are a party other than ordinary routine litigation incidental
to their respective businesses.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit No.
-----------
99.1 Summary of Quarterly Financial Data
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Niagara Bancorp, Inc. filed a Current Report on Form 8-K dated
September 15, 1998 disclosing under Item 5 that Lockport Savings
Bank had reached an agreement to acquire Warren-Hoffman &
Associates insurance agency. Such Current Report, as an Item 7
exhibit also included copies of the Lockport Savings Bank press
release dated September 2, 1998.
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.
NIAGARA BANCORP, INC.
Date: November 12, 1998 By: /s/ William E. Swan
------------------------------
William E. Swan
President and Chief Executive
Officer
Date: November 12, 1998 By: /s/ Paul J. Kolkmeyer
------------------------------
Paul J. Kolkmeyer
Executive Vice President and Chief
Financial Officer
23
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- -------
99.1 Summary of Quarterly Financial Data. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
24
<PAGE>
Exhibit 99.1
Summary of Quarterly Financial Data (1)
<TABLE>
<CAPTION>
Third Quarter
1998 1997 1998 vs 1997
----------------------------------------- --------------------------- -------------
Third Second First Fourth Third %
Quarter Quarter Quarter Quarter Quarter Change
----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED QUARTERLY AVERAGE
BALANCES
Amounts in thousands
Total assets............... $ 1,384,346 $ 1,328,491 $ 1,205,365 $ 1,170,145 $ 1,166,724 $ 18.7%
Total earning assets....... 1,302,282 1,267,959 1,150,798 1,120,696 1,122,331 16.0
Securities, at amortized
cost...................... 544,897 486,610 463,613 464,629 471,462 15.6
Loans (2).................. 696,343 664,351 643,520 633,432 620,491 12.2
Interest-bearing deposits.. 990,393 997,312 984,133 964,270 966,861 2.4
Short-term borrowings...... 24,732 18,469 16,162 16,732 18,815 31.4
Long-term borrowings....... 56,086 22,809 21,156 10,500 8,370 570.1
Total interest-bearing
liabilities............... 1,071,211 1,038,590 1,021,451 991,502 994,046 7.8
Noninterest-bearing
deposits.................. 27,651 30,545 26,999 27,100 27,113 2.0
Total deposits............. 1,018,044 1,027,857 1,011,132 991,370 993,974 2.4
Stockholders' equity....... 258,769 235,840 133,262 129,250 125,636 106.0
Common shares outstanding (3)
Basic................. 28,687 28,792 - - - -
Diluted............... 28,687 28,792 - - - -
ASSET QUALITY DATA
Non-performing loans....... $ 3,759 $ 3,885 $ 2,965 $ 3,047 $ 1,925 95.3%
Other non-performing assets 21 21 299 223 268 (92.2)
----------- ----------- ----------- ------------ -----------
Total non-performing assets 3,780 3,906 3,264 3,270 2,193 72.4
Allowance for credit losses 7,559 7,350 7,088 6,921 6,353 19.0
Net loan charge-offs....... 277 84 90 (50) 418 (33.7)%
Total non-performing assets
as percentage of total
assets.................... 0.26% 0.29% 0.25% 0.28% 0.19% -
Total non-performing loans
to total loans............ 0.53 0.57 0.46 0.47 0.31 -
Net charge-offs to average
loans..................... 0.04 0.01 0.01 (0.01) 0.07 -
Allowance for credit
losses to total loans..... 1.06 1.07 1.10 1.08 1.01 -
Allowance for credit losses
to non-performing loans... 201.10 189.19 239.06 227.14 330.03 -
Average for Nine Months Average Period-end
-------------------------- 1997 vs 1998 As of September 30, 1998 vs 1997
1998 1997 % Change 1998 1997 %
----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
Total assets............... $ 1,306,723 $ 1,134,791 15.2% 1,430,884 $ 1,176,451 21.6%
Total earning assets....... 1,240,905 1,096,944 13.1 1,348,889 1,129,099 19.5
Securities, at amortized
cost...................... 498,672 461,810 8.0 564,569 500,108 12.9
Loans (2).................. 668,265 612,373 9.1 713,215 628,840 13.4
Interest-bearing deposits.. 991,479 941,050 5.4 991,363 973,281 1.9
Short-term borrowings...... 19,819 21,705 (8.7) 10,532 18,740 (43.8)
Long-term borrowings....... 33,478 6,241 436.3 106,198 10,000 962.0
Total interest-bearing
liabilities............... 1,044,776 968,996 7.8 1,108,093 1,002,021 10.6
Noninterest-bearing
deposits.................. 27,529 26,074 5.6 28,759 27,325 5.2
Total deposits............. 1,019,008 967,124 4.3 1,020,122 1,000,606 2.0
Stockholders' equity....... 209,750 120,763 73.7 260,782 126,720 105.8
Fair value adjustment
included in
stockholders' equity..... 3,250 (1,169) 378.0% 4,930 1,395 253.4%
Common shares outstanding(3)
Basic................. 28,734 - - 28,701 - -
Diluted............... 28,734 - - 28,701 - -
Equity to assets........... 16.05% 10.64% - 18.23% 10.77% -
Risk-weighted capital
ratios:
Tier 1 capital........ - - - 32.76 20.69 -
Total capital......... - - - 33.73 21.74 -
Leverage capital...... - - - 18.53 10.75 -
</TABLE>
<PAGE>
Exhibit 99.1, Cont'd.
Summary of Quarterly Financial Data (1)
<TABLE>
<CAPTION>
1998 1997 Nine Months Ended September 10,
------------------------------------ ---------------------- --------------------------------
Third Second First Fourth Third %
Quarter Quarter Quarter Quarter Quarter 1998 1997 Change
--------- --------- ---------- --------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Amounts in thousands
Interest income............ $ 23,627 $ 22,942 $ 21,264 $ 21,053 $ 20,944 $ 67,833 $ 61,310 10.6%
Interest expense........... 12,216 11,695 11,529 11,643 11,582 35,440 33,335 6.3
--------- --------- ---------- --------- --------- -------- --------
Net interest income........ 11,411 11,247 9,735 9,410 9,362 32,393 27,975 15.8
Provision for credit losses 486 346 257 518 605 1,089 975 11.7
--------- --------- ---------- --------- --------- -------- --------
Net interest income after
provision................. 10,925 10,901 9,478 8,892 8,757 31,304 27,000 15.9
Net securities gains....... - 100 - 35 674 100 875 -
Other noninterest income... 2,350 2,168 1,771 1,805 1,233 6,289 4,081 54.1
--------- --------- ---------- --------- --------- -------- --------
Total noninterest income... 2,350 2,268 1,771 1,840 1,907 6,389 4,956 28.9
--------- --------- ---------- --------- --------- -------- --------
Salaries and employee
benefits.................. 4,115 3,872 3,783 3,384 3,356 11,770 9,735 20.9
Other noninterest expense.. 3,517 9,865 2,970 3,378 3,323 16,352 8,681 88.4
--------- --------- ---------- --------- --------- -------- --------
Total noninterest expense.. 7,632 13,737 6,753 6,762 6,679 28,122 18,416 52.7
--------- --------- ---------- --------- --------- -------- --------
Income before income taxes. 5,643 (568) 4,496 3,970 3,985 9,571 13,540 (29.3)
Income taxes............... 1,918 (214) 1,550 1,354 1,334 3,254 4,905 (33.7)
--------- --------- ---------- --------- --------- -------- --------
Net income................. $ 3,725 $ (354) $ 2,946 $ 2,616 $ 2,651 $ 6,317 $ 8,635 (26.8)
--------- --------- ---------- --------- --------- -------- --------
Net income (4)............. $ 3,725 $ 3,630 $ 2,946 $ 2,616 $ 2,651 $ 10,301 $ 8,635 19.3%
--------- --------- ---------- --------- --------- -------- --------
PER SHARE DATA
Net income
Basic (3)............. 0.13 (0.01) 0.22
Basic (3)(4).......... 0.13 0.13 - - - 0.36 - -
Diluted (3)........... 0.13 (0.01) 0.22
Diluted (3)(4)........ 0.13 0.13 - - - 0.36 - -
Cash dividends............. 0.03 - - - - 0.03 - -
Book Value................. 8.76 8.60 - - - 8.76 - -
Market price (NASDAQ:
NBCP):
High.................. 14.75 17.06 - - - 17.06 - -
Low................... 8.75 14.38 - - - 8.75 - -
Close................. 9.81 14.75 - - - 9.81 - -
PERFORMANCE RATIOS (ANNUALIZED)
Return on average assets... 1.08% (0.11)% 0.98% 0.89% 0.91% 0.64% 1.01% -
Return on average assets
(4)....................... - 1.09 - - - 1.05 - -
Return on average equity... 5.76 (0.60) 8.84 8.10 8.44 4.02 9.53
Return on average equity
(4)....................... - 6.16 - - - 6.55 - -
Net interest margin........ 3.30 3.39 3.23 3.22 3.21 3.31 3.29 -
As a percentage of average
assets:
Noninterest income.... 0.68 0.68 0.59 0.63 0.65 0.65 0.58 -
Noninterest expense... 2.21 4.14 2.24 2.31 2.29 2.87 2.16 -
--------- --------- --------- --------- --------- -------- --------
Net overhead.......... 1.53 3.46 1.65 1.68 1.64 2.22 1.58 -
Noninterest income.... - 0.68 - - - 0.65 - -
Noninterest expense
(4).................. - 2.10 - - - 2.18 - -
--------- --------- ---------- --------- --------- -------- --------
Net overhead (4)...... - 1.42 - - - 1.53 - -
Efficiency ratio........... 55.46 102.40 58.69 60.29 63.04 72.70 57.45 -
Efficiency ratio (4)....... - 52.08 - - - 55.25 - -
- --------------------
</TABLE>
(1) The reorganization of Lockport Savings Bank from a mutual savings bank to a
stock form of organization was effective April 17, 1998. All amounts prior
to this date are reflective of the consolidated financial results of
Lockport Savings Bank and subsidiaries.
(2) Net of deferred loan fees and expenses, loan discounts and loans-in-
process.
(3) Includes proforma earnings per share of $.10 per share for the period
January 1, 1998 through April 17, 1998. Such calculations of proforma per
share data does not include the effect of estimated earnings on the
proceeds raised from the stock offering.
(4) Excludes the contribution of $3,984,000, net of applicable income taxes,
made by Niagara Bancorp during the second quarter of 1998 to the Lockport
Savings Bank Foundation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,657
<INT-BEARING-DEPOSITS> 986,442
<FED-FUNDS-SOLD> 60,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 572,925
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 713,215
<ALLOWANCE> 7,559
<TOTAL-ASSETS> 1,430,884
<DEPOSITS> 1,020,122
<SHORT-TERM> 10,532
<LIABILITIES-OTHER> 38,115
<LONG-TERM> 106,198
0
0
<COMMON> 298
<OTHER-SE> 260,484
<TOTAL-LIABILITIES-AND-EQUITY> 1,430,827
<INTEREST-LOAN> 40,772
<INTEREST-INVEST> 23,770
<INTEREST-OTHER> 3,292
<INTEREST-TOTAL> 67,833
<INTEREST-DEPOSIT> 33,151
<INTEREST-EXPENSE> 35,440
<INTEREST-INCOME-NET> 32,393
<LOAN-LOSSES> 1,089
<SECURITIES-GAINS> 100
<EXPENSE-OTHER> 28,122
<INCOME-PRETAX> 9,571
<INCOME-PRE-EXTRAORDINARY> 9,571
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,317
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 7.29
<LOANS-NON> 3,759
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,605
<ALLOWANCE-OPEN> 6,921
<CHARGE-OFFS> 611
<RECOVERIES> 160
<ALLOWANCE-CLOSE> 7,559
<ALLOWANCE-DOMESTIC> 2,077
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,482
</TABLE>
