<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(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, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
or
For the transition period from to
----------------------- ---------------------
Commission file number 0-4707
Beverly Bancorporation, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-4090152
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
16345 South Harlem Avenue 60477
Tinley Park, Illinois (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (708) 614-5073
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
____ ___
As of April 20, 1998, 5,777,412 shares of the registrants common stock were
outstanding.
1
<PAGE>
BEVERLY BANCORPORATION, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Condensed Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income for the three-month periods
ended March 31, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders' Equity for the year
ended December 31, 1997 and the quarter ended March 31, 1998 6
Consolidated Statements of Cash Flows for the three-month periods
ended March 31, 1998 and 1997 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 19
Item 2 Changes in Securities and Use of Proceeds 19
Item 3 Defaults Upon Prior Securities 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 19
Item 6 Exhibits and reports on Form 8-K 19
</TABLE>
2
<PAGE>
Signatures 20
PART I. FINANCIAL INFORMATION - ITEM 1. FINANCIAL STATEMENTS
BEVERLY BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Cash and due from banks $27,077 $24,684
Federal funds sold 21,600 7,750
-------- --------
Cash and cash equivalents 48,677 32,434
Investment securities:
Available-for-sale, at fair value 193,651 166,243
Held-to-maturity, at amortized cost (fair value
$19,807 and $22,095, respectively) 19,577 21,946
Loans 424,213 427,740
Less allowance for possible loan losses 4,340 4,174
-------- --------
Net loans 419,873 423,566
Premises and equipment, net 17,687 17,344
Accrued interest receivable 5,131 4,417
Other real estate 81 82
Intangible assets, net 671 741
Other assets 2,864 2,461
-------- --------
TOTAL ASSETS $708,212 $669,234
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $510,265 $500,040
Non-interest bearing 93,449 90,012
-------- --------
Total deposits 603,714 590,052
Secured borrowings, funds purchased,
and other borrowings 28,522 3,334
Accrued expenses and other liabilities 6,475 7,429
-------- --------
TOTAL LIABILITIES 638,711 600,815
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; authorized
1,000,000 shares; no shares issued and outstanding - -
Common stock, par value $.01 per share; authorized
8,000,000 shares; issued and outstanding 5,502,445 and
5,494,570 55 55
Additional paid-in capital 33,212 33,107
Retained earnings 38,301 37,112
Accumulated other comprehensive income 581 793
Notes receivable - officer stockholders (2,648) (2,648)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 69,501 68,419
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $708,212 $669,234
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
BEVERLY BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 8,855 $ 7,816
Interest on investment securities:
Taxable 2,367 2,584
Tax-exempt 397 473
Federal funds sold 356 142
-------- --------
Total Interest Income 11,975 10,928
-------- --------
Interest Expense:
Deposits 5,215 4,762
Secured borrowings, funds purchased,
and other borrowings 218 59
-------- --------
Total Interest Expense 5,433 4,821
-------- --------
Net Interest Income 6,542 6,194
Provision for loan losses 180 0
-------- --------
Net interest income after provision
for loan losses 6,362 6,194
Other Income:
Income from fiduciary activities 613 530
Service charges on deposit accounts 1,043 959
Net gains on sales of investment
securities 46 372
Mortgage origination and servicing
fees 129 105
Other 373 379
-------- --------
Total Other Income 2,204 2,345
4
<PAGE>
Operating Expenses:
Salaries and employee benefits 2,785 3,185
Occupancy 734 667
Equipment 490 383
Marketing and promotion 236 233
Computer systems and services 273 296
Supplies 163 90
Telephone 205 123
Postage 130 135
Outside services 116 238
Other 955 993
------ ------
Total Operating Expenses 6,087 6,343
------ ------
Income Before Income Taxes 2,479 2,196
Income Tax Expense 770 642
------ ------
NET INCOME $1,709 $1,554
------ ------
------ ------
Basic earnings per share $0.30 $0.27
------ ------
------ ------
Diluted earnings per share $0.28 $0.26
------ ------
------ ------
Weighted-average common shares
assuming conversion of dilutive securities 6,026,056 5,939,937
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
BEVERLY BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND QUARTER ENDED MARCH 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Accumulated Note
Additional Other Receivable Total
Preferred Common Paid-in Retained Comprehensive - Officer Stockholder's
Stock Stock Capital Earnings Income Stockholders Equity
--------- ------ ---------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ - $ 52 $ 27,292 $ 36,607 $ (207) $ (1,798) $ 61,946
Net income - - - 7,001 - - 7,001
Change in net unrealized gains on
available-for-sale securities - - - - 1,000 - 1,000
---------
Comprehensive income 8,001
Common stock cash dividend declared
($.27 per share) - - - (1,484) - - (1,484)
5% common stock dividend (260,374 shares) - 2 5,010 (5,012) - - -
Issuance of 59,014 shares of common stock - 1 634 - - - 635
Tax benefit from stock options exercise - - 171 - - - 171
Notes issued - - - - - (850) (850)
----- ----- --------- --------- ------- --------- ----------
BALANCE AT DECEMBER 31, 1997 - 55 33,107 37,112 793 (2,648) 68,419
Net income - - - 1,709 - - 1,709
Change in net unrealized losses on
available-for-sale securities - - - - (212) - (212)
----------
Comprehensive income 1,497
Common stock cash dividend declared
($.09 per share) - - - (520) - - (520)
Issuance of 7,875 shares of common stock - - 105 - - - 105
----- ----- --------- --------- ------- --------- ----------
BALANCE AT MARCH 31, 1998 $ - $ 55 $ 3,212 $ 38,301 $ 581 $ (2,648) $ 69,501
----- ----- --------- --------- ------- --------- ----------
----- ----- --------- --------- ------- --------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
BEVERLY BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,709 $ 1,554
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 180 -
Provision for depreciation and amortization 467 394
Investment security accretion and amortization - net 136 282
Deferred tax expense 145 51
Amortization of intangible and other assets 70 70
Net gains on sales and calls of investment securities (46) (372)
(Increase) in accrued interest receivable (714) (229)
(Increase) decrease in loans held for sale (1,573) 1,537
(Increase) in other assets (269) (391)
Increase (decrease) in accrued expense and other
liabilities (1,124) (769)
-------- --------
Net Cash (Used In) Provided by Operating Activities (1,019) 2,127
-------- --------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Investment securities available-for-sale:
Proceeds from maturities and calls of securities 19,242 6,970
Proceeds from sales of securities 10,180 17,269
Purchase of securities (56,837) (23,745)
Investment securities held-to-maturity:
Proceeds from maturities and call of securities 1,940 870
Net decrease (increase) in loans 5,086 (9,892)
Purchase of premises and equipment (810) (603)
Proceeds from sale of other real estate 1 119
-------- --------
Net Cash Used In Investment Activities (21,198) (9,012)
-------- --------
</TABLE>
7
<PAGE>
BEVERLY BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest bearing demand,
savings and NOW deposit accounts 18,576 (3,699)
Net increase (decrease) in time deposits (4,914) 13,687
Net increase in secured borrowings, funds purchased
and other borrowings 25,188 758
Cash dividends paid (495) (329)
Proceeds from issuance of common stock 105 433
------- -------
Net Cash Provided by Financing Activities 38,460 10,850
------- -------
Increase in Cash and Cash Equivalents 16,243 3,965
Cash and Cash Equivalents at Beginning of Year 32,434 30,598
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $48,677 $34,563
------- -------
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest $4,922 $4,821
Income taxes - 200
Non-Cash Investing and Financing Activities:
Unrealized (loss) on available-for-sale securities (346) (1,367)
Net change in loans transferred to other real estate - 30
Accrued dividends payable 520 328
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE>
BEVERLY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring items)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1998 are not necessarily
indicative of the results that maybe expected for the year ended December 31,
1998. The year end condensed balance sheet data was derived from audited
financial statements. These financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K as of December 31, 1997.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
At December 31, 1997, the company adopted SFAS No. 128, " Earnings per
share." SFAS No. 128 requires dual presentation of basic and diluted
earnings per share ("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. Options issued with a
weighted average exercise price exceeding the weighted average market value
of the shares are excluded from dilutive securities. All option shares were
included as potential dilutive securities in 1998 and 1997. All weighted
average common shares and dilutive securities have been increased to reflect
annual 5% stock dividends paid in 1998 and years prior, and the merger and
conversion of shares in conjunction with the Company's stock offering. All
prior period EPS data has been restated to give effect to the adoption of
this statement.
The calculation of EPS is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Income available to common stockholders
(in thousands)...................................... $ 1,709 $ 1,554
Weighted-average common shares outstanding............ 5,776,099 5,721,902
Effect of dilutive securities - stock options......... 249,957 218,035
--------- ---------
Weighted- average common shares assuming
9
<PAGE>
--------- ---------
conversion of dilutive securities................. 6,026,056 5,939,937
--------- ---------
--------- ---------
</TABLE>
In January 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS No.
130). This statement establishes standards for the reporting and display of
comprehensive income and its components in the full set of financial
statements. This statement affects the display of comprehensive income in the
financial statements and does not address recognition or measurement of
comprehensive income and its components. Total comprehensive income for the
quarter ended March 31, 1998 and 1997 was $1,497,000 and $712,000,
respectively.
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131) establishes
standards for the way that public business enterprises report selected
information about operating segments in annual financial reports to
shareholders. The standard also establishes standards for related
disclosures about products, services, geographic areas and major customers.
The Company is currently evaluating its operations to determine the
applicability of the disclosure requirements to its annual financial
statements. Adoption of SFAS No. 131 is required for the fiscal year
beginning January 1, 1998.
The Company has evaluated other recent pronouncements of various
accounting standards setting bodies. The Company believes that the adoption
of any of these other pronouncements will not have a material impact on the
Company's consolidated financial statements.
NOTE 3. NOTES RECEIVABLE OFFICER/STOCKHOLDERS
Notes receivable-officer stockholders, which amounted to $2,648,000 at
March 31, 1998 have been repaid to the Company effective April 16, 1998.
NOTE 4. ADVANCES FROM FEDERAL HOME LOAN BANK OF CHICAGO
In February, 1998, the Company borrowed $25,000,000 at a rate of 5.15%
with a five-year scheduled maturity. The Federal Home Loan Bank of Chicago
has a one-time right to call the borrowing at the one year anniversary. The
borrowing is secured with a blanket pledge of the Bank's assets.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis is a review of significant factors
affecting the results of operations and the financial condition of the
Company for the three month period ended March 31, 1998. This discussion
should be read in conjunction with the accompanying unaudited condensed
consolidated financial statements and the notes thereto included in this
report.
OVERVIEW
10
<PAGE>
Beverly Bancorporation, Inc. (the "Company") provides a full range of
banking services, including personal and corporate trust services. The
strategy of the company is to continue to increase its core banking business
and to further develop its mortgage, trust, securities sales and insurance
activities in order to provide an array of household financial services
encompassing banking and other investment products.
The Company was incorporated in Delaware on June 13, 1996, as a
wholly-owned subsidiary of Beverly Bancorporation, Inc., an Illinois
Corporation ("Beverly Illinois"). Beverly Illinois was organized in 1969 and
owned all of the outstanding capital stock of the subsidiary banks and
Beverly Trust Company. Pursuant to a reincorporation, on August 16, 1996,
Beverly Illinois was merged with and into the Company and the Company is the
surviving corporation.
Subsequent to the incorporation, the Company sold 1,150,000 shares of
common stock at $15.00 per share in a public offering in the third quarter of
1996. In connection with the offering, the Company's common stock is listed
on the NASDAQ National Market under the symbol BEVB. In September 1996, the
Company completed the merger of its four subsidiary banks into one bank
subsidiary and renamed the bank "Beverly National Bank".
On March 15, 1998, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with St. Paul Bancorp, Inc. ("St. Paul") pursuant to
which St. Paul will acquire the Company in a tax-free stock-for-stock
exchange (the "Merger"). Under the Agreement, each share of the Company's
common stock outstanding at the time of the Merger will be converted into
1.063 shares of St. Paul common stock. The Merger is subject to approval by
the Company's shareholders, and St. Paul's authorized shares and the issuance
of the stock being offered as consideration in connection with the Merger.
The Merger is subject to regulatory approvals and customary closing
conditions.
In connection with the Agreement, St. Paul and the Company entered into
an Option Agreement (the "Option Agreement") pursuant to which the Company
granted St. Paul an option, exercisable under certain circumstances, to
purchase an aggregate of 1,100,488 newly issued shares of common stock of the
Company at an exercise price of $22.92 per share.
The net income of the Company was $1.7 million for the three months
ended March 31, 1998, compared with net income of $1.6 million for the three
months ended March 31, 1997. Diluted earnings per share for the first
quarter of 1998 was $0.28 compared with $0.26 for the first quarter of 1997.
The increase in earnings per share is attributed mainly to an increase in net
interest income, a reduction of operating expenses and growth in certain
categories of non interest income, which was partially offset by a provision
for loan loss and lower gains on the sale of securities. The following table
sets forth certain selected additional financial data of the company.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
(dollars in thousands, except per share amounts)
<S> <C> <C>
Balance sheet data
Average assets $686,839 $632,719
Average total loans 425,306 373,746
Average deposits 596,177 561,798
Average equity 69,026 62,692
Per share data
Basic earnings per share (1) $ 0.30 $ 0.27
Diluted earnings per share (1) 0.28 0.26
Book value, end of period (1) 12.03 10.93
Book value, end of period 12.63 11.47
Selected financial ratios
Return on average assets 1.01% 1.00%
Return on average equity 10.04% 10.05%
Net interest margin (TE) 4.19% 4.36%
11
<PAGE>
Net charge-offs
to average total loans 0.00% 0.01%
</TABLE>
(1) Adjusted for 5% stock dividend paid in the second quarter of 1998 and all
prior periods.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income equals the difference between interest income earned on
assets and the interest paid on liabilities. A comparison of the Company's net
interest income, on taxable-equivalent basis (T/E), follows:
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
------------------------------------- -------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------ -------- ------- --------------------------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Funds sold $ 26,314 $ 356 5.49% $ 11,092 $ 142 5.19%
Investment securities 191,744 2,969 6.19% 205,581 3,301 6.42%
Loans 425,306 8,885 8.39% 373,746 7,851 8.43%
--------- ------ --------- -------
Total earning assets 643,364 12,210 7.61% 590,419 11,294 7.67%
--------- ------ --------- -------
Interest bearing deposits 505,507 5,215 4.18% 475,547 4,762 4.08%
Other interest bearing
liabilities 15,924 218 5.55% 3,687 59 6.49%
--------- ------ --------- -------
Total interest bearing
liabilities $521,431 5,433 4.23% $479,234 4,821 4.08%
--------- ------ --------- -------
--------- ---------
Net interest income (T/E) to
total earning assets $6,777 4.19% $6,473 4.36%
------ ----- ------- -----
------ ----- ------- -----
</TABLE>
For the three months ended March 31, 1998, the Company's net interest
income increased $304,000 (4.7%) to $6.8 million on a taxable equivalent
basis from $6.5 million in the first quarter of 1997. Interest on earning
assets increased $916,000 (8.1%) to $12.2 million in the first quarter of
1998 from $11.3 million in the same period in 1997 due primarily to growth in
loans outstanding (which provide higher yields than alternative investments).
The Company's interest expense increased $612,000 (12.7%) to $5.4 million in
the first quarter of 1998 from $4.8 million
12
<PAGE>
from the same period in 1997 due to growth in deposits and the addition of
$25 million in advances from the Federal Home Loan Bank of Chicago.
LOAN LOSS PROVISION
The Company provided $180,000 to the allowance for loan losses in the
first quarter of 1998. No provision to the allowance for loan losses was
made during the same period in 1997. The loan loss provision has remained
relatively low due to the Company's strong asset quality, and a relatively
high concentration in generally low-risk residential real estate loans.
OTHER INCOME
Other income decreased $141,000 to $2.2 million in the first quarter of
1998, compared to $2.3 million in the first quarter of 1997, due primarily to
lower gains on the sale of available-for-sale investment securities.
Fiduciary income increased $83,000 (16%) due primarily to fees associated
with growth in trust assets under management. Service charges on deposit
accounts increased $84,000 (9%) due primarily to the increase in overdraft
charges. Mortgage origination and servicing fees increased $24,000 (23%) due
primarily to origination fees and capitalized servicing rights associated
with an increase in loans sold to the secondary market.
OPERATING EXPENSES
Operating expenses decreased $256,000 (4%) to $6.1 million for the three
months ended March 31, 1998, compared to $6.3 million in the three months
ended March 31, 1997. Salaries and Benefits decreased $400,000 (13%) due to
lower temporary help expense, a decrease in severance costs and higher
deferred salaries from the origination of loans. Occupancy expense increased
$67,000 (10%) due primarily to costs related to maintaining two additional
branches, which opened later in 1997, and increased depreciation associated
with the remodeling of several of the Company's existing branches. Equipment
expense increased $107,000 (28%) due primarily to costs associated with
additional branches and costs associated with the rental and maintenance of
new ATM machines. Supplies expense increased $73,000 (81%) due to higher
deferred costs in 1997. Telephone expense increased $82,000 (67%) due to the
implementation of a new phone system and service, and higher usage due to a
new automated customer service system. Outside services decreased $122,000
(51%) due to lower costs related to consulting services received.
13
<PAGE>
FINANCIAL CONDITION
LOANS
The following table summarizes the Company's loan portfolio at March 31,
1998 and December 31, 1997.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------------------
(in thousands)
<S> <C> <C>
Commercial and industrial $ 56,643 $ 55,309
Residential real estate 151,120 155,542
Home equity lines of credit 41,326 39,713
Commercial real estate 129,734 130,414
Other consumer 45,390 47,762
--------- ---------
Total loans 424,213 427,740
Allowance for loan loss (4,340) (4,174)
--------- ---------
Net loans $419,873 $423,566
--------- ---------
--------- ---------
</TABLE>
The Company's loan portfolio has decreased $3.6 million or 1% since
December 31, 1997. Residential real estate loans and Consumer loans have
decreased $4.0 million and $1.8 million, respectively, in 1998 due to payoffs
and refinancing activity. Home equity loans and Commercial and industrial loans
have increased $1.8 million and $1.4 million, respectively, in 1998, due to
focused sales efforts by the Company.
NON-PERFORMING LOANS
The following table sets forth information on the Company's non-performing
loans and other real estate as of March 31, 1998 and December 31,1997:.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------------
(in thousands)
<S> <C> <C>
Non-accrual loans $ 2,998 $ 2,147
Other loans 90 days past due 327 300
Other real estate 82 82
-------- --------
Total non-performing assets $ 3,408 $ 2,529
-------- --------
-------- --------
Nonaccrual and other loans 90 days past
due to total loans .78% .57%
Non-performing assets to total loans plus
other real estate .81% .59%
Non-performing assets to total
assets .48% .38%
</TABLE>
The Company's nonaccrual loans increased to $3.0 million at March 31,
1998 from $2.1 million at December 31, 1997. The increase in nonaccrual
loans is attributed to 2 commercial loans and 1 home equity loan, which
management believes to be adequately collateralized.
14
<PAGE>
DEPOSITS
Total deposits were $603.7 million as of March 31, 1998 compared to
$590.0 million as of December 31, 1997, an increase of $13.7 million or 2.3%.
The growth in deposits resulted primarily from increases of $3.4 million in
Demand deposit accounts, $9.1 million in NOW accounts and $6.4 million in
Money Market accounts. Time certificates of deposit and Savings accounts
decreased $4.9 million and $.3 million, respectively. The decrease in
outstanding time deposits resulted primarily from the Company's strategy to
lower interest rates for certain time deposits upon renewal.
STOCKHOLDERS' EQUITY
On April 14, 1998, the Company paid a 5% stock dividend to shareholders
of record on April 1,1998. The dividend resulted in 274,967 shares being
issued. The additional shares have not been reflected in the balance sheet of
the Company as of March 31, 1998, but earnings per share have been restated
to reflect the 5% dividend.
On April 15, 1998, the Company paid a $.09 per share dividend to
shareholders of record on April 1, 1998. The dividend, which amounted to
approximately $520,000, was declared and recorded as payable as of March 31,
1998.
Notes receivable-officer stockholders, which amounted to $2,648,000 at
March 31, 1998 have been repaid to the Company effective April 16, 1998.
LIQUIDITY
The Company manages its liquidity position with the objective of
maintaining sufficient funds to respond to the needs of depositors and
borrowers and to take advantage of earnings enhancement opportunities. In
addition to the normal inflow of funds from core-deposit growth, together with
repayments and maturities of loans and investments, the Company utilizes
other short-term funding sources such as secured borrowings, overnight funds
purchased from correspondent banks and the acceptance of short-term deposits
from public entities. In the first quarter of 1997, the Bank received
approval for membership in the Federal Home Loan Bank of Chicago, which
provides an additional source of liquidity.
The Company monitors and manages its liquidity position on several
bases, which vary depending upon the time period. As the time period is
expanded, other data is factored in, including estimated loan funding
requirements, estimated loan payoffs, investment portfolio maturities or
calls, and anticipated depository buildups or runoffs.
The Company classifies the majority of its investment securities as
available-for-sale, thereby maintaining significant liquidity. The Company's
liquidity position is further enhanced by structuring the majority of its
loan portfolio interest payments as monthly, and also by the significant
representation of retail credit and residential mortgage loans in the
Company's loan portfolio, resulting in a steady stream of pre-payments. In
managing its investment portfolio, the Company provides for staggered
maturities so that cash flows are provided as such investments mature.
15
<PAGE>
The Company's cash flows are composed of three classifications: cash
flows from operating activities, cash flows from investing activities, and
cash flows from financing activities. For the quarter ended March 31, 1998,
$1.0 million of net cash was used in operating activities. The decrease in
accrued expenses and other liabilities and an increase in loans held for sale
exceeded net income for the quarter. For the quarter ended March 31, 1997,
$2.1 million of net cash was provided from operating activities. Net income
and a reduction of loans held for sale were partially offset by reductions in
accrued expenses and other liabilities. A significant component in the
fluctuation of net cash provided by or used in operating activities is the
timing of the transfer of loans held for sale to permanent investors. Net
cash used in investing activities, consisting primarily of loan and
investment funding, was $21.2 million and $9.0 million for the quarters ended
March 31, 1998 and 1997, respectively. Net cash provided by financing
activities, which consisted principally of deposit growth and an increase in
secured borrowings, was $38.5 million and $10.9 million for the quarters
ended March 31, 1998 and 1997, respectively. During the quarter ended March
31, 1998, the Company borrowed $25.0 million from the Federal Home Bank of
Chicago for investment purposes.
ASSET/LIABILITY MANAGEMENT
The primary purpose of asset/liability management is to coordinate the
levels of interest-sensitive assets and liabilities to minimize net interest
income fluctuations in times of fluctuating market interest rates.
Interest-sensitive assets and liabilities are those that are subject to
repricing in the near term, including both variable-rate instruments and
those fixed-rate instruments which are approaching maturity or are subject to
prepayment. Fluctuations in net interest income arise when interest rates on
interest-earning assets (e.g. loans and investment securities) change in a
different time period from that of interest rates on interest-bearing
liabilities (e.g. deposits and other borrowings). Fluctuations in net
interest income also arise from changes in the mix and volumes of
interest-earning assets and interest-bearing liabilities.
The Company's strategy with respect to asset/liability management is to
maximize net interest income while limiting risk associated with the market
volatility of interest rates.
This strategy is implemented by the Company's Asset/Liability Committee
("ALCO"). The Company's ALCO is comprised of the Chairman of the Board, Chief
Executive Officer, Chief Financial Officer, and the Executive Vice President
of Retail and Commercial Sales. The Chairman of the Board also serves as
Chairman of the ALCO.
In addition to developing the Asset Liability management policy for
adoption by the Board of Directors, ALCO is responsible for formulating
strategies and taking actions necessary for the achievement of the policy
purpose, and for monitoring the performance of the Company's management of
interest-rate and liquidity risk on a quarterly basis.
An Asset/Liability analysis model is utilized by ALCO to measure and
identify potential interest rate risk. The Asset/Liability analysis model
uses cash flows and repricing information from each individual loan and
certificate of deposit, plus repricing assumptions on products without
specific repricing dates (e.g. savings and interest-bearing demand deposits)
to calculate the duration of the Company's assets and liabilities.
ALCO also reviews current and forecasted interest-rate scenarios
quarterly. Forecasted rate scenarios may result in parallel and non-parallel
shifts from current interest-rate yield curves, depending upon expected
changes to economic conditions.
16
<PAGE>
The Asset/Liability model also forecasts the potential effect on the
Company's earnings and net interest income for the next 12 month period and
the theoretical value of Company's equity as of a specific date given an
assumed change in interest rates. Consistent with supervisory guidance, the
use of a 200 basis point immediate increase or decrease to current market
interest rates is assumed for modeling purposes.
The following table sets forth the interest rate sensitivity of the
Company's assets and liabilities as of March 31, 1998, and sets forth the
repricing dates of the Company's interest-earning assets and interest-bearing
liabilities as of that date, as well as the Company's interest rate
sensitivity gap percentages for the periods presented. The table is based
upon assumptions as to when assets and liabilities will reprice in a changing
interest rate environment, and since such assumptions can be no more than
estimates, certain assets and liabilities indicated as maturing or otherwise
repricing within a stated period may, in fact, mature or reprice at different
times and at different volumes than those estimated. Also, the renewal or
repricing of certain assets and liabilities can be discretionary and subject
to competitive and other pressures. Therefore, the following table does not
and cannot necessarily indicate the actual future impact of general interest
rate movements on the Company's net interest income.
<TABLE>
<CAPTION>
0-3 Months 4-12 Months 1-5 Years Over 5 Years Total
---------- ----------- --------- ------------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Funds sold $ 21,600 $ - $ - $ - $ 21,600
Investment securities 22,034 41,227 75,266 74,701 213,228
Total loans 97,298 49,324 266,344 8,249 421,215
---------- --------- --------- --------- ----------
Total earning assets $ 140,932 $ 90,551 $ 341,610 $ 82,950 $ 656,043
---------- --------- --------- --------- ----------
Interest Bearing Liabilities:
Interest bearing demand deposits $ - $ 18,907 $ 95,208 $ 19,075 $ 133,190
Savings deposits - - 77,520 19,380 96,900
Time deposits 89,171 147,933 42,650 421 280,175
---------- --------- --------- --------- ----------
Total interest bearing deposits 89,171 166,840 215,378 38,876 510,265
Other borrowings:
Secured borrowings, funds purchased,
and other borrowings 3,152 25,400 - - 28,552
---------- --------- --------- --------- ----------
Total interest bearing liabilities $ 92,323 $ 192,240 $ 215,378 $ 38,876 $ 538,817
---------- --------- --------- --------- ----------
Interest sensitivity gap $ 48,609 $ (101,689) $ 126,232 $ 44,074 $ 117,226
---------- --------- --------- --------- ----------
Cumulative gap $ 48,609 $ (53,080) $ 73,152 $ 117,226 $ 117,226
---------- --------- --------- --------- ----------
Interest sensitivity gap to total assets 6.9% (14.4)% 17.8% 6.3% 16.6%
Cumulative sensitivity gap to total assets 6.9% (7.5)% 10.3% 16.6% 16.6%
</TABLE>
Mortgage backed securities, including adjustable rate mortgage pools and
collateralized mortgage obligations, are included in the above table based on
their estimated weighted average lives obtained from outside analytical
sources. Loans are included in the above table based on contractual maturity
or contractual repricing dates. Interest bearing demand and savings deposits
are included in the above table based on the proposed policy statement issued
by bank regulators on August 4, 1995. The table uses the maximum maturity
distribution allowed, which is consistent with the Company's actual
historical experience.
The results of the Asset Liability sensitivity analysis indicate that
the Company is moderately liability sensitive, and thus exposed to
interest-rate risk. The assumed rate shock of an immediate 200 basis point
increase in rates would likely reduce the Company's net interest income and
net income for the next 12 months by approximately $.7 million and $.4
million, respectively.
17
<PAGE>
YEAR 2000 COMPLIANCE
A critical issue has emerged in the banking industry and for the economy
overall regarding how existing application software programs, operating systems
and hardware can accommodate the date value for the year 2000. Many existing
software products in the marketplace were designed only to accommodate a two
digit date position which represents the year (e.g., 97 is stored on the system
and represents the year 1997). As a result, the year 2000 would be stored as
00, and may be recognized as the year 1900 on many systems. Therefore, 1999 is
the maximum date value which these systems would be able to accurately process.
Management is currently in the process of evaluating all significant
application software and hardware being utilized in order to ensure that the
Company is prepared for the year 2000. The Company's third party service
providers, for substantially all of its banking operations and fiduciary
activities, have indicated that they are currently or will be year 2000
compliant. The Company's regulatory agencies require testing of these
systems for compliance in 1998. Management is also in the process of
evaluating the potential negative impact of this issue with customers,
primarily those which have a significant credit relationship with the
Company. Management does not anticipate that the Company will incur material
operating or credit related expenses, or be required to invest heavily in
computer system improvements to be year 2000 compliant. Nevertheless, the
failure to successfully address year 2000 issues could result in
interruptions in the Company's business and have a material adverse effect on
the Company's results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
This quarterly report contains forward looking statements. Forward
looking statements made by or on behalf of the Company are subject to risks
and uncertainties, including but not limited to the following: changes in
interest rates and other economic conditions could have an adverse impact on
the Company; there is no assurance as to the sufficiency of the Company's
allowance for loan losses; current and future government regulation could
have an adverse impact on the Company; and the financial services business is
extremely competitive with a number of competitors being substantially larger
than the Company. Accordingly, actual results may differ materially from
those set forth in the forward looking statements. Attention is also
directed to other risk factors set forth in the company's filings with the
Securities and Exchange Commission.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion in Liquidity and Asset/Liability Management sections of Item 2.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON PRIOR 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 OF FORM 8-K
(a) Exhibits
Exhibit 11. Statement Regarding Computation of Per Share Earnings
See note 2 to the Condensed Financial Statements.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
A Form 8-K was filed on March 23, 1998 reporting the proposed
merger of Beverly Bancorporation, Inc. with and into St. Paul
Bancorp, Inc.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEVERLY BANCORPORATION, INC.
(Registrant)
Date: May 15, 1998 /s/ John D. Van Winkle
---------------------------------
John D. Van Winkle
President, Chief Executive Officer
and Director
Date: May 15, 1998 /s/ Jeffrey M. Voss
---------------------------------
Jeffrey M. Voss
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEVERLY BANCORPORATION, INC.
(Registrant)
Date: May 15, 1998
---------------------------------------
John D. Van Winkle
President, Chief Executive Officer
and Director
Date: May 15, 1998
---------------------------------------
Jeffrey M. Voss
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 24,143
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 173,722
<INVESTMENTS-CARRYING> 29,955
<INVESTMENTS-MARKET> 29,713
<LOANS> 380,904
<ALLOWANCE> 3,977
<TOTAL-ASSETS> 641,017
<DEPOSITS> 570,314
<SHORT-TERM> 3,300
<LIABILITIES-OTHER> 4,641
<LONG-TERM> 0
0
0
<COMMON> 52
<OTHER-SE> 62,710
<TOTAL-LIABILITIES-AND-EQUITY> 641,017
<INTEREST-LOAN> 7,816
<INTEREST-INVEST> 3,057
<INTEREST-OTHER> 142
<INTEREST-TOTAL> 11,015
<INTEREST-DEPOSIT> 4,762
<INTEREST-EXPENSE> 4,821
<INTEREST-INCOME-NET> 6,194
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 372
<EXPENSE-OTHER> 6,343
<INCOME-PRETAX> 2,196
<INCOME-PRE-EXTRAORDINARY> 2,196
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,196
<EPS-PRIMARY> .27
<EPS-DILUTED> .26
<YIELD-ACTUAL> 7.67
<LOANS-NON> 2,147
<LOANS-PAST> 300
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,020
<CHARGE-OFFS> 53
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 3,977
<ALLOWANCE-DOMESTIC> 2,415
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,562
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 27,077
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 21,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 193,651
<INVESTMENTS-CARRYING> 19,577
<INVESTMENTS-MARKET> 19,807
<LOANS> 424,213
<ALLOWANCE> 4,340
<TOTAL-ASSETS> 708,212
<DEPOSITS> 603,714
<SHORT-TERM> 28,522
<LIABILITIES-OTHER> 6,475
<LONG-TERM> 0
0
0
<COMMON> 55
<OTHER-SE> 69,446
<TOTAL-LIABILITIES-AND-EQUITY> 708,212
<INTEREST-LOAN> 8,855
<INTEREST-INVEST> 2,764
<INTEREST-OTHER> 356
<INTEREST-TOTAL> 11,975
<INTEREST-DEPOSIT> 5,215
<INTEREST-EXPENSE> 5,433
<INTEREST-INCOME-NET> 6,542
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 49
<EXPENSE-OTHER> 6,087
<INCOME-PRETAX> 2,479
<INCOME-PRE-EXTRAORDINARY> 1,709
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,709
<EPS-PRIMARY> .30
<EPS-DILUTED> .28
<YIELD-ACTUAL> 7.61
<LOANS-NON> 2,998
<LOANS-PAST> 327
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,174
<CHARGE-OFFS> 43
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 4,340
<ALLOWANCE-DOMESTIC> 3,475
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 865
</TABLE>
