<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 MARCH 31, 1997
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------------- -----------------------
Commission file number 1-12405
---------------------------------------------------------
MAGNA GROUP, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 37-0996453
- ------------------------------------ ------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
One Magna Place
1401 South Brentwood Boulevard
St. Louis, Missouri 63144-1401
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(314) 963-2500
- -------------------------------------------------------------------------------
(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
----- -----
Title of class of Number of shares
common stock outstanding as of May 8, 1997
- ----------------------------- ---------------------------------
Common stock, $2.00 par value 32,883,496
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 20
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURE PAGE 22
EXHIBIT INDEX 23
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
<TABLE>
MAGNA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
MARCH 31 DECEMBER 31
1997 1996
---------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 210,406 $ 180,412
Federal funds sold 47,992 34,068
Securities:
Held-to-maturity 151,183 154,729
Available-for-sale 1,696,698 1,501,178
Loans, net of unearned income 4,357,739 3,415,309
Reserve for loan losses (55,656) (45,382)
---------- ----------
Net Loans 4,302,083 3,369,927
Premises and equipment 106,771 81,815
Goodwill and other intangibles 127,094 29,310
Other assets 130,698 107,270
---------- ----------
TOTAL ASSETS $6,772,925 $5,458,709
========== ==========
LIABILITIES
Deposits:
Noninterest bearing $ 663,313 $ 575,504
Interest bearing 4,535,249 3,622,272
---------- ----------
Total Deposits 5,198,562 4,197,776
Federal funds purchased 180,260 25,500
Repurchase agreements 558,904 508,948
Other short-term borrowings 80,268 99,487
Long-term debt 82,824 77,577
Other liabilities 77,589 65,460
---------- ----------
TOTAL LIABILITIES 6,178,407 4,974,748
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Preferred stock:
Class B, voting, $20 par value -
1,996 shares issued and outstanding 40 40
Common stock, $2 par value - 33,445,046
and 28,954,500 shares issued,
respectively 66,890 57,909
Capital surplus 327,451 230,258
Retained earnings 218,106 215,744
Treasury stock - 333,500 and 745,000
shares at cost, respectively (10,983) (17,605)
Net unrealized losses
on securities (6,986) (2,385)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 594,518 483,961
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,772,925 $5,458,709
========== ==========
See accompanying notes.
</TABLE>
3
<PAGE> 4
<TABLE>
MAGNA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1997 1996
---- ----
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 79,187 $69,267
Securities:
Taxable 24,528 21,073
Tax-exempt 2,192 1,721
-------- -------
26,720 22,794
Other interest income 1,155 707
-------- -------
TOTAL INTEREST INCOME 107,062 92,768
Interest Expense:
Deposits 43,584 37,853
Federal funds purchased 710 689
Repurchase agreements 6,755 4,564
Other short-term borrowings 1,265 840
Long-term debt 1,518 1,697
-------- -------
TOTAL INTEREST EXPENSE 53,832 45,643
-------- -------
NET INTEREST INCOME 53,230 47,125
Provision for Loan Losses 15,152 2,483
-------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 38,078 44,642
Noninterest Income:
Service charges on deposits 5,830 5,546
Trust 2,975 2,364
Securities gains, net 130 673
Other 5,019 3,639
-------- -------
13,954 12,222
Noninterest Expense:
Employee compensation and
other benefits 19,825 17,620
Net occupancy 4,741 4,473
Equipment 2,473 2,250
FDIC insurance premiums 154 32
Intangible amortization 1,340 618
Other 9,884 9,881
-------- -------
38,417 34,874
-------- -------
INCOME BEFORE INCOME TAXES 13,615 21,990
Income Tax Expense 4,177 7,647
-------- -------
NET INCOME $ 9,438 $14,343
======== =======
Average Shares Outstanding:
Primary 30,290 28,371
Fully diluted 30,969 29,193
Per Share Data:
Net income:
Primary $ .31 $ .51
===== =====
Fully diluted $ .31 $ .50
===== =====
Dividends declared $ .25 $ .22
===== =====
See accompanying notes.
</TABLE>
4
<PAGE> 5
<TABLE>
MAGNA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1997 1996
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 22,902 $ 21,697
INVESTING ACTIVITIES
Proceeds from maturities of held-to-maturity
securities 5,174 1,664
Purchases of held-to-maturity securities (1,397) (3,220)
Proceeds from maturities of available-
for-sale securities 216,421 93,773
Proceeds from sales of available-for-
sale securities 28,916 32,856
Purchases of available-for-sale securities (285,964) (330,291)
Net increase in loans (39,767) (28,185)
Proceeds from sales of foreclosed property 853 1,820
Net purchases of premises and equipment (1,587) (2,768)
Purchase of financial organization,
net of cash received (18,988) (2,382)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (96,339) (236,733)
FINANCING ACTIVITIES
Net increase in deposits 55,091 26,917
Cash dividends (7,077) (6,177)
Net increase in federal funds purchased 107,285 49,790
Net increase in repurchase agreements 49,956 35,941
Net increase (decrease) in other short-
term borrowings (78,399) 8,551
Proceeds from long-term debt - 25,000
Payments of long-term debt (82) (2)
Purchase of treasury stock (10,983) -
Other 1,564 1,573
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 117,355 141,593
--------- ---------
INCREASE(DECREASE)IN CASH AND CASH EQUIVALENTS 43,918 (73,443)
Cash and cash equivalents at beginning of period 214,480 222,213
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 258,398 $ 148,770
========= =========
See accompanying notes.
</TABLE>
5
<PAGE> 6
MAGNA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
Magna Group, Inc. and its affiliates ("Magna") have been prepared in
accordance with generally accepted accounting principles for the banking
industry and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Reference is hereby made to the notes to consolidated financial
statements contained in Magna's Annual Report on Form 10-K for the year ended
December 31, 1996. In the opinion of management, all adjustments considered
necessary for a fair presentation of the unaudited interim condensed
consolidated financial statements have been included therein and are of a
normal recurring nature. The results of operations for the interim periods
presented herein are not necessarily indicative of the results to be expected
for the full year.
NOTE B--ACQUISITIONS
On March 1, 1997, Magna acquired Homeland Bankshares Corporation
("Homeland") for approximately 5,038,000 shares of common stock and
approximately $92 million in cash. The acquisition contributed approximately
$1.3 billion to total assets and approximately $214 million to stockholders'
equity at the date of acquisition. The acquisition was accounted for under
the purchase method. The following unaudited pro forma information has been
prepared assuming that the Homeland acquisition had taken place at the
beginning of the respective periods, after including the impact of certain
adjustments relevant to the transaction, such as the amortization of goodwill
and the amortization of certain assets acquired based on their respective
fair values.
<TABLE>
PRO FORMA RESULTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1997 1996
---- ----
<S> <C> <C>
Net Interest Income $60,580 $58,063
Net Income 8,311 15,897
Net Income Per Share:
Primary .25 .48
Fully diluted .25 .48
</TABLE>
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been consummated on January 1,
1996. In addition, the pro forma results are not intended to be a projection
of future results and do not reflect any
6
<PAGE> 7
synergies anticipated from the combined operations of Magna and Homeland.
NOTE C--CHANGE IN ACCOUNTING METHODS
On January 1, 1997, Magna adopted Financial Accounting Standards No. 125
(FAS No. 125), "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." FAS No. 125 requires an entity to
recognize financial and servicing assets it controls and the liabilities it
has incurred and to derecognize financial assets when control has been
surrendered in accordance with the criteria provided in the standard. Magna
will apply the new rules prospectively, other than those deferred by
Financial Accounting Standards No. 127 (FAS No. 127), "Deferral of the
Effective Date of Certain Provisions of FAS Statement No. 125." The adoption
of the standards had no material impact on Magna's financial position or
results of operations.
NOTE D--RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation. Such reclassifications had no effect on
net income.
NOTE E--CAPITAL
In January 1995, Magna announced a common stock repurchase program
authorizing the repurchase of up to 5% of its outstanding shares of common
stock, or 1.4 million shares. Prior to August 30, 1996, Magna repurchased
745,000 shares. These shares were subsequently reissued in connection with
the Homeland acquisition. During the period from August 30, 1996 through
March 1, 1997, the acquisition date of Homeland, Magna did not repurchase any of
its outstanding shares of common stock. Subsequent to the acquisition date of
Homeland and prior to March 31, 1997, Magna repurchased 333,500 shares.
Subsequent to March 31, 1997, Magna repurchased an additional 296,500 shares
thereby completing the repurchase program, as authorized in January, 1995.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
OVERVIEW
Net income for the first quarter of 1997 was $9.4 million, or 31 cents
per common share on a primary basis, compared with $14.3 million, or 51
cents, for the first quarter of 1996. On a fully diluted basis, net income
per common share was 31 cents for the first quarter of 1997 compared to 50
cents for the first quarter of 1996.
The decrease in net income, for the quarters compared, is the result of
Magna's decision to add an additional $12.5 million to its first quarter 1997
provision for loan losses to cover potential exposure associated with one
sizeable credit. Excluding this additional provision, net income for the
quarter would have been $17.7 million, or 58 cents per common share on a
primary basis, an increase of 23.3% compared with the first quarter of 1996.
Operating results of the acquisition consummated on March 1, 1997, are
included since the acquisition date and are significant to Magna's financial
condition and results of operations for the first quarter of 1997.
Table 1 summarizes Magna's statement of income and the change in each
category for the periods presented.
<TABLE>
TABLE 1 -- Comparative Statements of Income
(In thousands)
<CAPTION>
Three Months Ended
March 31 Change
----------------------- -----------------------
1997 1996 Amount Percent
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Total interest income
(fully tax-equivalent). . . . . . $108,649 $93,992 $14,657 15.6%
Total interest expense . . . . . . 53,832 45,643 8,189 17.9
-------- ------- -------
Net interest income. . . . . 54,817 48,349 6,468 13.4
Provision for loan losses. . . . . 15,152 2,483 12,669 510.2
Noninterest income:
Service charges on deposits. 5,830 5,546 284 5.1
Trust. . . . . . . . . . . . 2,975 2,364 611 25.8
Other. . . . . . . . . . . . 5,019 3,639 1,380 37.9
-------- ------- -------
13,824 11,549 2,275 19.7
Securities gains, net. . . . 130 673 (543) (80.7)
-------- ------- -------
Total. . . . . . . . . 13,954 12,222 1,732 14.2
-------- ------- -------
Noninterest expense:
Employee compensation and
other benefits. . . . . . . 19,825 17,620 2,205 12.5
Net occupancy. . . . . . . . 4,741 4,473 268 6.0
Equipment. . . . . . . . . . 2,473 2,250 223 9.9
FDIC insurance premiums. . . 154 32 122 381.3
Intangible amortization. . . 1,340 618 722 116.8
Other. . . . . . . . . . . . 9,884 9,881 3 0.0
-------- ------- -------
Total. . . . . . . . . 38,417 34,874 3,543 10.2
-------- ------- -------
Income before income taxes . . . . 15,202 23,214 (8,012) (34.5)
Less: tax-equivalent adjustment. . 1,587 1,224 363 29.7
Income tax expense . . . . . . . . 4,177 7,647 (3,470) (45.4)
-------- ------- -------
Net income . . . . . . . . . . . . $ 9,438 $14,343 $(4,905) (34.2)
======== ======= =======
</TABLE>
8
<PAGE> 9
The following paragraphs discuss more fully significant changes and
trends as they relate to Magna's results of operations during the three month
period ended March 31, 1997 and its financial condition, asset quality,
capital resources and liquidity as of March 31, 1997. This discussion should
be read in conjunction with Magna's unaudited condensed consolidated
financial statements and notes thereto. The results of operations for the
interim periods presented herein are not necessarily indicative of the
results to be expected for the full year.
The following discussion contains certain forward looking statements
with respect to the financial condition, results of operations and business
of Magna. These forward looking statements involve certain risks and
uncertainties. For example, by accepting deposits at fixed rates at
different times and for different terms and lending funds at fixed rates for
fixed periods, a bank accepts the risk that the cost of funds may rise and
the use of the funds may be at a fixed rate. Similarly, the cost of funds
may fall, but a bank may have committed by virtue of the term of a deposit to
pay what becomes an above market rate. Investments may decline in value in a
rising interest rate environment. Loans, and the reserve for loan losses,
have the risk that the borrower will not repay all funds in a timely manner
as well as the risk of total loss. Collateral may or may not have the value
attributed to it. The loan loss reserve, while believed adequate, may prove
inadequate if one or more large borrowers, or numerous mid-range borrowers,
or a combination of both, experience financial difficulty for individual or
national or international reasons. Because the business of banking is highly
regulated, decisions of governmental authorities, such as the rate of deposit
insurance, can have a major effect on operating results. All of these
uncertainties, as well as others, are present in a banking operation and
stockholders are cautioned that management's view of the future on which it
prices its products, evaluates collateral, sets loan reserves and estimates
costs of operation and regulation may prove to be other than as anticipated.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Tax-equivalent net interest income increased 13.4% for the first quarter
of 1997 compared with 1996. The increase in tax-equivalent net interest
income was principally attributable to increased volumes of interest earning
assets and interest bearing liabilities derived from the Homeland
acquisition. The remainder of the increase in tax-equivalent net interest
income resulted from an increase in the volume of earning assets offset by a
reduced net interest margin.
The net interest margin for the first quarter of 1997 was 3.96% compared
with 4.09% for the first quarter of 1996 and 3.91% for the fourth quarter of
1996. The increase in the first quarter of 1997 compared with the fourth
quarter of 1996 was primarily attributable to the consummated acquisition as
the acquired entity's net interest margin was greater than that of Magna.
The decline in the first quarter of 1997 compared with the first quarter of
1996 occurred as
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<PAGE> 10
the yield on earning assets declined while the cost of funds increased. The
decline in the yield on earning assets was attributable to the competitive rate
environment associated with the loan portfolio and an increase in nonaccrual
loans which are included in earning assets, that collectively, resulted in an
overall decline in rates earned. See "ASSET QUALITY." The increased cost of
funds was primarily associated with higher rates paid on various categories of
borrowings. Higher rates paid on other short-term borrowings derived from the
Homeland acquisition contributed to this increase.
PROVISION FOR LOAN LOSSES
Factors which influence management's determination of the provision for
loan losses include, among other things, evaluation of the anticipated impact
on the loan portfolio of current and projected economic conditions,
historical loss trends, a review of individual loans and changes in the
character and size of the portfolio. The increase in the provision for loan
losses in the first quarter of 1997 compared to the first quarter of 1996,
was primarily due to the additional provision described under "Overview."
Activity in the reserve for loan losses and nonperforming loan data are
presented and discussed under "ASSET QUALITY."
NONINTEREST INCOME
Total noninterest income was $14.0 million for the first quarter of 1997
compared with $12.2 million for the first quarter of 1996.
Excluding net securities gains recognized during the quarters compared,
noninterest income increased $2.3 million for the first quarter of 1997
compared to the first quarter of 1996. Service charges on deposit accounts
increased $.3 million for the first quarter of 1997 compared to the first
quarter of 1996. Virtually all of this increase was derived from the
consummated acquisition. The increase in income from trust services for the
quarters compared was primarily due to an increase in the market value of
trust assets on which certain fees are based and from the consummated
acquisition. The increase in other noninterest income for the quarters
compared resulted primarily from various sources of fee income of the
acquired entity coupled with higher levels of fee income from brokerage and
insurance activities.
For the first quarter of 1997, noninterest income as a percentage of
average assets, on an annualized basis, was .95% compared with .97% for the
first quarter of 1996.
NONINTEREST EXPENSE
Total noninterest expense was $38.4 million for the first quarter of
1997 compared with $34.9 million for the first quarter of 1996. For the
first quarter of 1997, noninterest expense as a percentage of average assets,
on an annualized basis, was 2.63% compared with 2.78% for the first quarter
of 1996.
The increase in employee compensation and other benefits for the first
quarter of 1997 compared with 1996 was attributable to the
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<PAGE> 11
consummated acquisition coupled with normal merit increases. The increases in
net occupancy and equipment expenses during the first quarter of 1997 were due
to direct expenses of the acquired entity. Federal Deposit Insurance
Corporation ("FDIC") premiums include assessments levied in connection with
the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund
(SAIF). Federal legislation enacted on September 30, 1996, reduced ongoing
SAIF deposit insurance assessment rates from $.230 to $.064 per $100 of
insured deposits and increased ongoing BIF deposit insurance assessment rates
from zero to $.013 per $100 of insured deposits beginning January 1, 1997.
This change in the insurance assessment rate structure was the primary factor
contributing to the increase in FDIC insurance premiums for the quarters
compared. Substantially all of Magna's deposits are insured by the BIF. The
increase in intangible amortization for the first quarter of 1997 compared to
the first quarter of 1996 was primarily associated with amortization of
goodwill attributable to the acquired entity. Other noninterest expenses,
collectively, remained stable for the quarters compared.
The effective income tax rate was 30.7% and 34.8% for the first quarter
of 1997 and 1996, respectively. The decrease in effective tax rate for the
quarters compared resulted primarily from generally lower levels of earnings
coupled with increased levels of tax-exempt interest as a percentage of total
interest income.
FINANCIAL CONDITION
GENERAL
Certain components of Magna's consolidated balance sheet at March 31,
1997, compared with December 31, 1996 and March 31, 1996 are presented in
summary form in Table 2. The increase in total assets at March 31, 1997
compared with December 31, 1996 reflects, primarily, the acquisition
consummated in the first quarter of 1997.
<TABLE>
TABLE 2 -- Selected Comparative Balance Sheet Items
(In thousands)
<CAPTION>
March 31 December 31 March 31
1997 1996 1996
---------- ----------- ----------
<S> <C> <C> <C>
Total assets . . . . . . . . $6,772,925 $5,458,709 $5,252,627
Loans, net of
unearned income . . . . . . 4,357,739 3,415,309 3,275,514
Investments . . . . . . . . . 1,847,881 1,655,907 1,648,612
Deposits . . . . . . . . . . 5,198,562 4,197,776 4,051,076
Federal funds purchased . . . 180,260 25,500 91,580
Repurchase agreements:
Cash management . . . . . . 435,525 428,701 317,221
Other . . . . . . . . . . . 123,379 80,247 88,396
Other short-term borrowings . 80,268 99,487 82,974
Long-term debt. . . . . . . . 82,824 77,577 94,380
</TABLE>
11
<PAGE> 12
LOANS
Loans, net of unearned income, increased 27.6%, or $942.4 million, from
year-end 1996 to March 31, 1997. The majority of this increase was derived
from the consummated acquisition. Excluding the acquired loans, the loan
portfolio remained stable at March 31, 1997 compared to year-end 1996.
Table 3 presents the composition of the loan portfolio by type of
borrower and major loan category and the percentage of each to the total
portfolio for the periods presented.
<TABLE>
TABLE 3 -- Loan Portfolio Composition
(In thousands)
<CAPTION>
March 31 December 31 March 31
1997 1996 1996
------------------------ ------------------------- -------------------------
Commercial borrowers: Amount Percent Amount Percent Amount Percent
- --------------------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural. . . . . $ 818,302 18.8% $ 648,881 19.0% $ 605,371 18.5%
Commercial real estate . . 1,427,505 32.7 1,156,402 33.9 1,026,401 31.3
Real estate
construction. . . . . . . 194,447 4.5 150,157 4.4 167,654 5.1
---------- ----- ---------- ----- ---------- -----
Total commercial . . 2,440,254 56.0 1,955,440 57.3 1,799,426 54.9
---------- ----- ---------- ----- ---------- -----
Consumer borrowers:
- -------------------
1-4 family residential
real estate . . . . . . . 1,285,359 29.5 942,053 27.6 940,849 28.7
Other consumer loans,
net of unearned income. . 632,126 14.5 517,816 15.1 535,239 16.4
---------- ----- ---------- ----- ---------- -----
Total consumer . . . 1,917,485 44.0 1,459,869 42.7 1,476,088 45.1
---------- ----- ---------- ----- ---------- -----
Total loans, net of
unearned income. . . $4,357,739 100.0% $3,415,309 100.0% $3,275,514 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
INVESTMENTS
Total investments increased $192.0 million, or 11.6%, at March 31, 1997
compared with year-end 1996. Magna's investment portfolio serves three
principal functions. First, it is a vehicle for managing balance sheet rate
sensitivity. Second, it is a means for investment of excess funds. Third,
the available-for-sale portion of the portfolio provides a resource from
which liquidity needs may be satisfied. The increase in investment
securities from year-end 1996 is primarily attributable to the consummated
acquisition coupled with growth in tax-exempt securities.
Table 4 presents the composition of investments for the periods
presented.
<TABLE>
TABLE 4 -- Investment Securities Portfolio Composition
(In thousands)
<CAPTION>
March 31 December 31 March 31
1997 1996 1996
---------- ----------- ----------
<S> <C> <C> <C>
Held-to-maturity securities . . $ 151,183 $ 154,729 $ 137,025
Available-for-sale securities . 1,696,698 1,501,178 1,511,587
---------- ---------- ----------
Total investments. . . . . . $1,847,881 $1,655,907 $1,648,612
========== ========== ==========
</TABLE>
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<PAGE> 13
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles increased $97.8 million at March 31, 1997
from year-end 1996. Virtually all of this increase is attributable to
goodwill associated with the first quarter 1997 acquisition. This goodwill
will be amortized over a period of 15 years.
DEPOSITS
Total deposits increased $1.0 billion to $5.2 billion at March 31, 1997
from year-end 1996. The majority of this increase was attributable to the
acquisition consummated during the first quarter of 1997. Excluding the
effects of the acquisition, interest bearing deposits increased modestly from
year-end 1996. This modest increase was offset by a decrease in noninterest
bearing deposits due to seasonal factors which increase demand deposits at
the end of a calendar year.
Table 5 sets forth the composition of deposits and the changes in each
category for the periods presented.
<TABLE>
TABLE 5 -- Deposit Liability Composition
(In thousands)
<CAPTION>
March 31 December 31 March 31
1997 1996 1996
-------------------------- ------------------------- ------------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing. . . . $ 663,313 12.8% $ 575,504 13.7% $ 517,613 12.8%
Interest bearing demand
deposits . . . . . . 630,435 12.1 542,268 12.9 525,825 13.0
Savings and market
rate deposits. . . . 1,031,416 19.8 811,077 19.3 858,567 21.2
Time deposits less than
$100,000 . . . . . . 2,227,489 42.9 1,780,188 42.4 1,746,781 43.1
Time deposits $100,000
or more. . . . . . . 645,909 12.4 488,739 11.7 402,290 9.9
---------- ----- ---------- ----- ---------- -----
Total deposits . . $5,198,562 100.0% $4,197,776 100.0% $4,051,076 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Federal funds purchased and repurchase agreements serve as an
alternative source of funds to deposit funding sources. Federal funds
purchased increased $154.8 million from year-end 1996. Included in this
increase are federal funds purchased attributable to the acquired entity.
The majority of the remainder was needed to fund a dividend, received by Magna
from its largest banking subsidiary, which was used to fund the cash
portion of the acquisition. Federal funds purchased are short-term sources
of funds utilized by Magna's banking subsidiaries and are primarily obtained
from its network of correspondent banks. As such, levels of federal funds
purchased can fluctuate significantly. Repurchase agreements increased $50.0
million from year-end 1996. Approximately $6.8 million of this increase was
in the form of cash management repurchase agreements. Such accounts involve
the daily transfer of excess funds from a noninterest bearing deposit account
into the interest bearing cash management repurchase agreement account. The
cash management repurchase agreement accounts are viewed by management
13
<PAGE> 14
as a stable source of funds from commercial depositors. Repurchase agreements,
other than cash management repurchase agreements, increased $43.1 million
from year-end 1996. In February 1997, a $35.0 million repurchase agreement
was called for redemption by the holder. This issue was partially replaced
with a $20.0 million repurchase agreement which matured on May 12, 1997 and was
subsequently replaced with another repurchase agreement bearing an interest rate
of 5.65%, which is scheduled to mature on June 11, 1997. In addition, a $50.0
million repurchase agreement was executed to replace a Federal Home Loan Bank
advance, which was called for redemption on March 6, 1997. This repurchase
agreement bears an interest rate of 5.26% and matures on March 7, 2002. The
remaining increase relates to other term repurchase agreements which
generally represent an alternative to short-term certificates offered to
Magna's commercial and public fund customer base.
OTHER SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Other short-term borrowings reflected a decrease of $19.2 million at
March 31, 1997 compared with year-end 1996. Other short-term borrowings
attributable to the acquired entity included four Federal Home Loan Bank
advances totaling $50.2 million and an additional $4.1 million borrowing in
the form of a treasury tax and loan note option account. Two of the Federal
Home Loan Bank advances totaling $40.0 million mature on June 5, 1997. A
$10.0 million advance matures on September 12, 1997. The weighted average
interest rate associated with these advances is 5.77%. The increase in other
short-term borrowings resulting from the acquired entity was more than offset
by a reduction in other short-term borrowings previously recorded on the
books of Magna. This reduction totaling $73.5 million was comprised of two
Federal Home Loan Bank advances totaling $23.5 million which matured in
February 1997, and an additional advance which was called for redemption in
March 1997. As with federal funds purchased and repurchase agreements, other
short-term borrowings serve as an alternative source of funds to deposit
funding sources. The increase in long-term debt from year-end 1996 of $5.2
million was primarily attributable to the acquired entity and was comprised
of several Federal Home Loan Bank advances having various interest rates and
maturity dates.
ASSET QUALITY
Magna's asset quality management program includes the establishment of
investment and credit policies, the continued evaluation of the quality and
trends of material assets and the prompt implementation of appropriate
actions in view of the results of such evaluation. The objective of Magna's
asset quality management program, particularly with regard to loans, is to
manage credit exposure, a significant risk faced by all financial
institutions, and to support the growth of a profitable and high quality loan
portfolio. Management continues to monitor
14
<PAGE> 15
the asset quality of the loan portfolio, promptly following up on problem
credits and implementing workout strategies to manage the level of
nonperforming assets.
Nonperforming assets increased to $48.2 million at March 31, 1997, from
$30.2 million at year-end 1996. Nonperforming assets of the acquired entity
totaled $5.8 million at March 31, 1997. With the exception of the
commercial, financial and agricultural category, all categories of
nonperforming loans remained stable at March 31, 1997 when compared to year-
end 1996. Nonperforming loans associated with the commercial, financial and
agricultural category increased $15.6 million at March 31, 1997 compared to
year-end 1996. Approximately $14.9 million of this increase was attributable
to the one credit which was placed on nonaccrual status as of March 31, 1997.
In addition to the portion of this credit being placed on nonaccrual status,
approximately $14.4 million was charged to the reserve for loan losses. This
particular credit is secured with marketable securities and real estate.
Management is taking action to maximize potential recovery. As a result of
this charge-off, total net charge-offs for the first quarter increased to
$18.0 million compared to $2.1 million for the first quarter of 1996. Net
charge-offs associated with all other loan categories remained relatively
stable for the quarters compared. The ratio of the reserve for loan losses
to total loans was 1.28% and 1.34% at March 31, 1997 and 1996, respectively.
The level of foreclosed property at March 31, 1997 compared to year-end 1996
remained stable. Magna does not anticipate any significant losses on the
disposition of other real estate owned at March 31, 1997.
Management believes that the consolidated reserve for loan losses is
adequate to provide for possible losses inherent in the loan portfolio.
However, no assurance can be given that subsequent changes in economic
conditions, risk elements and other factors will not require significant
changes in the level of the loan loss reserve.
15
<PAGE> 16
Table 6 sets forth a summary of Magna's loan portfolio mix and
nonperforming assets.
<TABLE>
TABLE 6 -- Loan Portfolio Mix and Nonperforming Assets
(In thousands)
<CAPTION>
March 31, 1997 December 31, 1996
-------------------------- --------------------------
Loans and Non- Loans and Non-
Foreclosed performing Foreclosed performing
Property Assets Property Assets
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial borrowers:
---------------------
Commercial, financial and
agricultural. . . . . . . . . . $ 818,302 $22,315 $ 648,881 $ 6,684
Commercial real estate . . . . . 1,427,505 6,899 1,156,402 7,229
Real estate construction . . . . 194,447 1,564 150,157 730
---------- ------- ---------- -------
Total commercial . . . . . . . 2,440,254 30,778 1,955,440 14,643
Consumer borrowers:
-------------------
1-4 family residential
real estate . . . . . . . . . . 1,285,359 10,743 942,053 9,971
Other consumer loans, net
of unearned income. . . . . . . 632,126 3,321 517,816 2,694
---------- ------- ---------- -------
Total consumer . . . . . . . . 1,917,485 14,064 1,459,869 12,665
---------- ------- ---------- -------
Total loans, net of
unearned income . . . . . . . . 4,357,739 44,842 3,415,309 27,308
Foreclosed property. . . . . . . . 3,377 3,377 2,906 2,906
---------- ------- ---------- -------
Total. . . . . . . . . . . . . . $4,361,116 $48,219 $3,418,215 $30,214
========== ======= ========== =======
Nonaccrual loans . . . . . . . . . $34,010 $17,133
Loans past due 90 days or more . . 10,584 10,175
Restructured loans . . . . . . . . 248 -
------- -------
Total nonperforming loans. . . . 44,842 27,308
Foreclosed property. . . . . . . . 3,377 2,906
------- -------
Total nonperforming assets . . . $48,219 $30,214
======= =======
Nonperforming loans to
total loans. . . . . . . . . . . 1.03% .80%
Nonperforming assets to total
loans and foreclosed property. . 1.11 .88
Nonperforming assets to
total assets . . . . . . . . . . .71 .70
</TABLE>
16
<PAGE> 17
Table 7 presents information pertaining to the activity in and an analysis
of Magna's reserve for loan losses for the periods presented.
<TABLE>
TABLE 7 -- Reserve For Loan Losses
(In thousands)
<CAPTION>
Three Months Ended
March 31
-------------------
1997 1996
-------- --------
<S> <C> <C>
Balance at beginning of period . . . . . . $ 45,382 $42,623
Reserves of acquired institution . . . . . 13,146 890
Loans charged off:
Commercial borrowers:
Commercial, financial and agricultural . (17,149) (1,373)
Commercial real estate . . . . . . . . . (440) (531)
Real estate construction . . . . . . . . (24) (62)
-------- -------
Total commercial . . . . . . . . . . . (17,613) (1,966)
Consumer borrowers:
1-4 family residential real estate . . . (140) (279)
Other consumer loans . . . . . . . . . . (1,560) (1,177)
-------- -------
Total consumer. . . . . . . . . . . . . (1,700) (1,456)
-------- -------
Total charge-offs . . . . . . . . . . (19,313) (3,422)
-------- -------
Recoveries of loans previously charged off:
Commercial borrowers:
Commercial, financial and agricultural . 545 771
Commercial real estate . . . . . . . . . 109 99
Real estate construction . . . . . . . . 183 14
-------- -------
Total commercial . . . . . . . . . . . 837 884
Consumer borrowers:
1-4 family residential real estate . . . 86 126
Other consumer loans . . . . . . . . . . 366 321
-------- -------
Total consumer . . . . . . . . . . . . 452 447
-------- -------
Total recoveries . . . . . . . . . . . 1,289 1,331
-------- -------
Net loans charged off . . . . . . . . . . . (18,024) (2,091)
-------- -------
Provision for loan losses charged
to operations . . . . . . . . . . . . . . 15,152 2,483
-------- -------
Balance at end of period . . . . . . . . . $ 55,656 $43,905
======== =======
Net loan charge-offs (annualized) to
average loans . . . . . . . . . . . . . . 1.95% .26%
Reserve for loan losses to total loans . . 1.28 1.34
Reserve for loan losses to
nonperforming loans . . . . . . . . . . . 124.12 134.91
</TABLE>
17
<PAGE> 18
CAPITAL RESOURCES AND LIQUIDITY
CAPITAL
Financial institutions are subject to various regulatory capital
guidelines administered by the federal banking agencies. The guidelines are
commonly known as "Risk-Based Guidelines" as they define the capital level
requirements of a financial institution based upon the level of credit risk
associated with holding various categories of assets. The Risk-Based
Guidelines require minimum ratios of Tier 1 and Total capital to risk-
weighted assets of 4% and 8%, respectively. At March 31, 1997, Magna's Tier
1 and Total capital ratios were 10.79% and 12.00%, respectively. In
addition, the federal banking agencies have also established a guideline
which requires financial institutions to maintain, for capital adequacy
purposes, a minimum ratio of Tier 1 capital to average assets ("leverage
ratio"). Magna's leverage ratio at March 31, 1997 was 8.17%.
DIVIDENDS AND RESOURCE COMMITMENTS
The primary source of funds to Magna, on a parent company only basis,
consists of dividends and management fees paid by its banking subsidiaries'
whose ability to pay dividends and management fees is subject to limitations
under various laws and regulations, and to prudent and sound banking
principles. Because of such limitations, during the fourth quarter of 1996,
Magna's largest banking subsidiary requested and received approval from the
Office of the Comptroller of the Currency (the "OCC") to pay to Magna a
special dividend sufficient for Magna to fund the cash portion of the
acquisition consummated on March 1, 1997. The subject banking subsidiary
also requested and received approval from the OCC to pay dividends in 1997 of
up to 50% of its then-current period earnings, subject to the banking
subsidiary maintaining its status as a "well capitalized" financial
institution. No similar regulatory restriction exists with respect to
Magna's remaining banking subsidiaries.
Magna believes that the earnings of its banking subsidiaries will be
sufficient to provide capital to fund asset growth and to permit the
distribution of cash dividends to Magna sufficient to meet Magna's operating
and debt service requirements as well as anticipated dividends for the
foreseeable future.
18
<PAGE> 19
CREDIT FACILITY
Magna has entered into a three year unsecured revolving credit facility
(the "Credit Facility") with a syndicate of unaffiliated banks, which
provides for borrowings by Magna of up to $100 million. Under the terms of
the Credit Facility, Magna may elect to convert the principal balance of any
outstanding revolving loans into term loans for a term ending no later than
December 30, 2002. The Credit Facility contains specific covenants which,
among other things, limit dividend payments, restrict the sale of assets by
Magna under certain circumstances, provide for possible acceleration of the
repayment terms upon the merger of Magna or its subsidiaries with and into
unaffiliated entities and require the maintenance by Magna of certain
financial ratios. At March 31, 1997, there were no amounts outstanding under
the Credit Facility.
19
<PAGE> 20
PART II - OTHER INFORMATION
- ---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
(a) The annual meeting of the stockholders of Magna was held on May 7,
1997.
(b) The following individuals were elected as Class III directors of
Magna to serve a three-year term or until their successors shall have been
duly elected and qualified: Wayne T. Ewing, John G. Helmkemp, Jr., Franklin
A. Jacobs, S. Lee Kling and George T. Wilkins, Jr.
The following sets forth the name of each director of Magna whose term of
office continued beyond the meeting:
Class I Directors Class II Directors
----------------- ------------------
James A. Auffenberg, Jr. G. Thomas Andes
C. E. Heiligenstein Donald P. Gallop
Carl G. Hogan, Sr. Randall E. Ganim
Ralph F. Korte Erl A. Schmiesing
Frank R. Trulaske Douglas K. Shull
(c)(i) The election of five individuals as Class III directors of Magna
was voted upon at the annual meeting. The number of votes cast for or
withheld, and the number of broker non-votes, with respect to each of the
nominees were as follows:
<TABLE>
<CAPTION>
Votes Cast Votes Broker
Nominee For Withheld Non-votes
------- ---------- -------- ---------
<S> <C> <C> <C>
Wayne T. Ewing 26,859,895 716,082 4,899,154
John G. Helmkemp, Jr. 26,859,531 716,447 4,899,154
Franklin A. Jacobs 26,842,604 733,374 4,899,154
S. Lee Kling 26,306,627 1,269,351 4,899,154
George T. Wilkins, Jr. 26,728,635 847,343 4,899,154
</TABLE>
(ii) A proposal to amend Article 4 of Magna's Certificate of
Incorporation to increase the number of shares of authorized Common Stock
from 40,000,000 to 80,000,000 shares was also voted upon at the annual
meeting. The number of votes cast for, against or abstaining, and the number
of broker non-votes, with respect to adoption of such amendment were as
follows:
<TABLE>
<CAPTION
Votes Cast Votes Votes Broker
For Against Abstaining Non-votes
---------- --------- ---------- ---------
<S> <C> <C> <C>
24,834,324 1,915,845 1,025,809 4,899,154
</TABLE>
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits: See Exhibit Index on page 23 hereof.
(b) Reports on Form 8-K:
(1) On March 4, 1997, Magna filed a Current Report on Form 8-K dated
March 1, 1997, and reported the completion of the acquisition of Homeland on
March 1, 1997 and the addition of Messrs. Erl A. Schmiesing and Douglas K.
Shull as members of the Board of Directors under "Item 5 - Other Events."
(2) On May 1, 1997, Magna filed a Current Report on Form 8-K/A dated May
1, 1997 that amended the Current Report on Form 8-K dated March 1, 1997 to
report the acquisition of Homeland under Item 2. In addition, Magna filed
the following financial statements with such report:
(i) Consolidated Balance Sheets of Homeland as
of December 31, 1996 and 1995;
(ii) Consolidated Statements of Income of Homeland
for the years ended December 31, 1996, 1995 and
1994;
(iii) Consolidated Statements of Cash Flows of Homeland
for the years ended December 31, 1996, 1995 and
1994;
(iv) Consolidated Statements of Changes in Stock-
holders' Equity of Homeland for the years ended
December 31, 1996, 1995 and 1994;
(v) Unaudited Pro Forma Combined Consolidated Balance
Sheet of Magna as of December 31, 1996; and
(vi) Unaudited Pro Forma Combined Consolidated
Statement of Income of Magna for the Twelve
Months ended December 31, 1996.
21
<PAGE> 22
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.
MAGNA GROUP, INC.
-------------------------------
(Registrant)
DATE: May 9, 1997 By:/s/ G. Thomas Andes
- ------------------------------- -------------------------------
G. Thomas Andes
Chairman of the Board and
Chief Executive Officer
DATE: May 9, 1997 By:/s/ Ronald A. Buerges
- ------------------------------- -------------------------------
Ronald A. Buerges
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
22
<PAGE> 23
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------
<C> <S>
11.1 Computation of Net Income Per Common
Share.
27.1 Financial Data Schedule.
</TABLE>
23
<PAGE> 1
<TABLE>
MAGNA GROUP, INC. EXHIBIT 11.1
COMPUTATION OF NET INCOME PER COMMON SHARE ------------
<CAPTION>
THREE MONTHS ENDED MARCH 31
1997 1996
---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Primary:
- --------
Average common shares outstanding 29,984 28,251
Net effect of stock options 306 120
------ -------
Total 30,290 28,371
====== =======
Net income $9,438 $14,343
Less preferred stock dividends:
Class B voting preferred (1) (1)
------ -------
Primary net income $9,437 $14,342
====== =======
Per common share:
Net income $0.31 $0.51
====== =======
Fully Diluted:<FA>
- ------------------
Average common shares outstanding 29,984 28,251
Net effect of stock options 306 123
Assumed conversion of:
7% convertible subordinated capital notes 679 819
8 3/4% convertible subordinated debentures -- --
------ -------
Average common shares and common share equivalents 30,969 29,193
====== =======
Primary net income $9,437 $14,342
Elimination of interest net of related tax effects on:
7% convertible subordinated capital notes 136 173
8 3/4% convertible subordinated debentures -- --
------ -------
Fully diluted net income $9,573 $14,515
====== =======
Per common share:
Net income $0.31 $0.50
====== =======
<FN>
- --------
<FA>For the three months ended March 31, 1997 and 1996, inclusion of common stock
equivalents for the 8 3/4% convertible subordinated debentures in the
computation of fully diluted net income per share results in antidilution,
and therefore, these are excluded from the computation.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE MAGNA GROUP, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 210,406
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 47,992
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,696,698
<INVESTMENTS-CARRYING> 151,183
<INVESTMENTS-MARKET> 151,995
<LOANS> 4,357,739
<ALLOWANCE> 55,656
<TOTAL-ASSETS> 6,772,925
<DEPOSITS> 5,198,562
<SHORT-TERM> 819,432
<LIABILITIES-OTHER> 77,589
<LONG-TERM> 82,824
0
40
<COMMON> 66,890
<OTHER-SE> 527,588
<TOTAL-LIABILITIES-AND-EQUITY> 6,772,925
<INTEREST-LOAN> 79,187
<INTEREST-INVEST> 26,720
<INTEREST-OTHER> 1,155
<INTEREST-TOTAL> 107,062
<INTEREST-DEPOSIT> 43,584
<INTEREST-EXPENSE> 53,832
<INTEREST-INCOME-NET> 53,230
<LOAN-LOSSES> 15,152
<SECURITIES-GAINS> 130
<EXPENSE-OTHER> 38,417
<INCOME-PRETAX> 13,615
<INCOME-PRE-EXTRAORDINARY> 13,615
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,438
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<YIELD-ACTUAL> 3.96
<LOANS-NON> 34,010
<LOANS-PAST> 10,584
<LOANS-TROUBLED> 248
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 45,382
<CHARGE-OFFS> 19,313
<RECOVERIES> 1,289
<ALLOWANCE-CLOSE> 55,656
<ALLOWANCE-DOMESTIC> 55,656
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Information not currently available; is reported on an
annual basis only.
</TABLE>
