UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10602
MID-AMERICA BANCORP
(Exact name of registrant as specified in its charter)
KENTUCKY 61-1012933
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
500 West Broadway, Louisville, Kentucky 40202
(Address of principal executive offices) (Zip Code)
(502) 589-3351
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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 a 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under
a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
April 30, 1999: 10,314,531 shares of common stock, no par value
MIDAMERICA BANCORP
PART I. FINANCIAL INFORMATION
The consolidated financial statements of MidAmerica Bancorp and
subsidiaries (Company) submitted herewith are unaudited. However, in the
opinion of management, all adjustments (consisting only of adjustments
of a normal recurring nature) necessary for a fair presentation of the
results for the interim periods have been made.
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are
submitted herewith:
Consolidated balance sheets - March 31, 1999 and December 31,
1998
Consolidated statements of income - three months ended
March 31, 1999 and 1998
Consolidated statements of changes in shareholders' equity -
three months ended March 31, 1999 and 1998
Consolidated statements of comprehensive income - three months
ended March 31, 1999 and 1998
Consolidated statements of cash flows - three months ended March
31, 1999 and 1998
Notes to consolidated financial statements
Notes to consolidated financial statements
CONSOLIDATED BALANCE SHEETS
In thousands, except share and per share amounts
Unaudited
<TABLE>
<CAPTION>
March 31 December 31
----------- -----------
1999 1998
ASSETS ----------- -----------
<S> <C> <C>
Cash and due from banks $37,163 $39,644
Securities purchased under agreements to resell 170,000 35,000
Securities available for sale, amortized cost
of $321,498 (1999) and $382,580 (1998) 324,820 385,767
Securities held to maturity, market value
of $4,048 (1998) and $84,013 (1998) 4,045 83,998
Loans, net of unearned income 994,542 1,005,021
Allowance for loan losses (9,061) (9,010)
----------- -----------
Loans, net 985,481 996,011
Premises and equipment 21,717 21,854
Other assets 31,762 32,489
----------- -----------
TOTAL ASSETS $1,574,988 $1,594,763
=========== ===========
LIABILITIES
Deposits:
Non-interest bearing $129,254 $165,072
Interest bearing 795,527 788,852
----------- -----------
Total deposits 924,781 953,924
Securities sold under agreements to repurchase 324,846 276,454
Federal funds purchased 17,240 12,090
Advances from the Federal Home Loan Bank 73,809 74,862
Gift certificates outstanding 46,346 95,127
Accrued expenses and other liabilities 16,190 14,870
----------- -----------
TOTAL LIABILITIES 1,403,212 1,427,327
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
authorized - 750,000 shares; none issued -- --
Common stock, no par value, stated value $2.77 per
share; authorized - 12,000,000 shares; issued
and outstanding - 10,314,531 shares (1999)
and 10,246,157 shares (1998) 28,606 28,416
Additional paid-in capital 124,609 123,905
Retained earnings 16,402 13,043
Accumulated other comprehensive income 2,159 2,072
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 171,776 167,436
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,574,988 $1,594,763
=========== ===========
See notes to unaudited consolidated financial statements.
/TABLE
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share amounts
Unaudited
<TABLE>
<CAPTION>
Three months ended
March 31
------------------
1999 1998
-------- --------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $22,202 $20,792
Interest and dividends on:
Taxable securities 3,294 4,411
Tax-exempt securities 716 709
Interest on federal funds sold 39 144
Interest on securities purchased under
agreements to resell 1,990 1,960
-------- --------
Total interest income 28,241 28,016
-------- --------
INTEREST EXPENSE:
Interest on deposits 8,105 8,530
Interest on federal funds purchased
and securities sold under
agreements to repurchase 3,664 3,817
Interest on Federal Home
Loan Bank advances 1,118 946
-------- --------
Total interest expense 12,887 13,293
-------- --------
Net interest income before
provision for loan losses 15,354 14,723
Provision for loan losses 281 --
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 15,073 14,723
-------- --------
NON-INTEREST INCOME:
Income from trust department 665 540
Service charges on deposit accounts 1,404 1,268
Gift certificate fees 328 50
Securities gains 13 27
Other 2,335 2,451
-------- --------
Total non-interest income 4,745 4,336
-------- --------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 6,969 6,707
Occupancy expense 793 736
Furniture and equipment expenses 1,164 1,043
Other 2,907 3,279
-------- --------
Total other operating expenses 11,833 11,765
-------- --------
Income before income taxes 7,985 7,294
Income tax expense 2,367 2,169
-------- --------
NET INCOME $5,618 $5,125
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,270 10,186
Diluted 10,432 10,425
NET INCOME PER COMMON SHARE
Basic $0.55 $0.50
Diluted 0.54 0.49
See notes to unaudited consolidated financial statements.
/TABLE
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
In thousands, except per share amounts
Unaudited
<TABLE>
<CAPTION>
Three months
ended March 31
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Balance, January 1 $167,436 $155,709
Net income 5,618 5,125
Other comprehensive income
(loss), net of tax 87 (681)
Cash dividends declared - $.22 (1999)
and $.205 (1998) (2,259) (2,077)
Stock options exercised, including
related tax benefits 894 311
---------- ----------
Balance, March 31 $171,776 $158,387
========== ==========
See notes to unaudited consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In Thousands
Unaudited
<TABLE>
<CAPTION>
Three months
ended March 31
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net Income $5,618 $5,125
Other comprehensive income (loss), net of tax:
Unrealized gains (losses)
on securities available for sale:
Unrealized holding gains (losses)
arising during the period 96 (703)
Less reclassification adjustment for
gains included in net income (9) (18)
---------- ----------
87 (721)
Pension liability adjustment -- 40
---------- ----------
Other comprehensive income (loss) 87 (681)
---------- ----------
COMPREHENSIVE INCOME $5,705 $4,444
========== ==========
See notes to unaudited consolidated financial statements.
/TABLE
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
Unaudited
<TABLE>
<CAPTION> Three months
ended March 31
----------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: ---------- ----------
<S> <C> <C>
Net income $5,618 $5,125
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and accretion, net 1,466 1,070
Provision for loan losses 281 --
Federal Home Loan Bank stock dividend (286) (276)
Gains on sales of securities (13) (27)
Gains on sales of other real estate (841) (624)
Gain on sale of subsidiary -- (436)
Deferred taxes 372 (2,151)
Increase in interest receivable (998) (506)
Decrease in other assets 800 988
Increase in accrued expenses and other liabilities 1,002 2,679
---------- ----------
Net cash provided by operating activities 7,401 5,842
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (166,017) (24,060)
Proceeds from maturities of
securities available for sale 221,648 105,885
Proceeds from sales of securities available for sale 5,013 7,103
Purchases of securities held to maturity -- (997)
Proceeds from maturities of securities held to maturity 80,000 75,000
Net cash proceeds from sale of subsidiary -- 8,134
Decrease (increase) in customer loans 10,226 (13,208)
Proceeds from sales of other real estate 1,756 1,552
Payments for purchases of premises and equipment (635) (912)
Proceeds from sales of premises and equipment 29 24
---------- ----------
Net cash provided by investing activities 152,020 158,521
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (29,143) 437
Net decrease in securities sold
under agreements to repurchase 48,392 45,809
Net increase in federal funds purchased 5,150 625
Advances from the Federal Home Loan Bank 15,000 --
Repayment of advances from the Federal Home Loan Bank (16,053) (3,449)
Decrease in gift certificates outstanding (48,781) (37,605)
Stock options exercised 792 221
Dividends paid (2,259) (2,077)
---------- ----------
Net cash provided by (used in) financing activities (26,902) 3,961
---------- ----------
Net increase in cash and cash equivalents 132,519 168,324
Cash and cash equivalents at January 1 74,644 45,902
---------- ----------
Cash and cash equivalents at March 31 $207,163 $214,226
========== ==========
See notes to unaudited consolidated financial statements.
/TABLE
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.The accounting and reporting policies of MidAmerica Bancorp and
its subsidiaries (the Company) conform with generally accepted
accounting principles and general practices within the banking
industry. The accompanying unaudited consolidated financial statements
should be read in conjunction with the Summary of Significant Accounting
Policies footnote which appears in the Company's 1998 Annual Report and
Form 10-K filed with the Securities and Exchange Commission. The
consolidated financial statements reflect all adjustments (consisting
only of adjustments of a normal recurring nature) which are, in the
opinion of management, necessary for a fair presentation of financial
condition and results of operations for the interim periods. Certain
prior year amounts have been reclassified to conform with current
classifications.
2.The following table presents the numerators (net income) and
denominators (average shares outstanding) for the basic and
diluted net income per share computations for the three months
ended March 31:
<TABLE>
<CAPTION>
In thousands, except per share amounts
1999 1998
----------- -----------
<S> <C> <C>
Net income, basic and diluted $5,618 $5,125
=========== ===========
Average shares outstanding 10,270 10,186
Effect of dilutive securities 162 239
Average shares outstanding including ----------- -----------
dilutive securities 10,432 10,425
=========== ===========
Net income per share, basic $0.55 $0.50
=========== ===========
Net income per share, diluted $0.54 $0.49
=========== ===========
</TABLE>
Appropriate share and per share information in the consolidated
financial statements has been adjusted for the 3% stock
dividend of November 1998.
3.The amortized cost and market value of securities available for
sale are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------------ --------------------
In thousands Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
U.S. government agencies $110,914 $111,256 $159,821 $160,415
Collateralized mortgage obligations 139,899 139,254 148,524 146,970
States and political subdivisions 49,691 53,308 50,609 54,738
Corporate obligations 2,003 2,011 4,634 4,652
Equity securities 18,991 18,991 18,992 18,992
----------- ----------- --------- ---------
$321,498 $324,820 $382,580 $385,767
=========== =========== ========= =========
</TABLE>
The amortized cost and market value of securities held to maturity are
summarized as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------------ --------------------
In thousands Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
U.S. government agencies $4,045 $4,048 $83,998 $84,013
=========== =========== ========= =========
</TABLE>
4.Activity in the allowance for loan losses for the three months
ended March 31, 1999 and year ended December 31, 1998 follows:
<TABLE>
<CAPTION>
March 31, December 31,
In thousands 1999 1998
----------- ---------
<S> <C> <C>
Balance, January 1 $9,010 $9,209
Loans charged-off (275) (1,355)
Recoveries 45 184
----------- ---------
($230) ($1,171)
Provision for loan losses 281 972
----------- ---------
Balance, end of period $9,061 $9,010
=========== =========
</TABLE>
5.Significant components of other non-interest income and other operating
expenses are set forth below:
<TABLE>
<CAPTION>
In thousands
Three months
ended March 31
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Other non-interest income:
Gain on sale of money order subsidiary -- $436
Gains on sales of other real estate $841 624
Money order processing fees 180 415
Other 1,314 976
----------- -----------
$2,335 $2,451
=========== ===========
<CAPTION>
Three months
In thousands ended March 31
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Other operating expenses:
Advertising and marketing $331 $510
Operating supplies 358 429
Legal and professional fees 388 656
Taxes - Bank, property and other 358 379
Other 1,472 1,305
----------- -----------
$2,907 $3,279
=========== ===========
</TABLE>
6.Selected financial information by business segment for March 1999 and 1998
follows:
<TABLE>
<CAPTION>
In thousands
1999 1998
----------- -----------
<S> <C> <C>
Net interest income
Banking $14,403 $13,740
Other 952 984
Eliminations (1) (1)
----------- -----------
Total $15,354 $14,723
=========== ===========
Non interest income
Banking $4,198 $3,487
Other (a)(b) 2,589 2,198
Eliminations (a) (2,042) (1,349)
----------- -----------
Total $4,745 $4,336
=========== ===========
Net income
Banking $4,952 $4,700
Other 667 427
Eliminations (1) (2)
----------- -----------
Total $5,618 $5,125
=========== ===========
Assets
Banking $1,567,942 $1,479,669
Other 75,509 71,060
Eliminations (68,463) (66,162)
----------- -----------
Total $1,574,988 $1,484,567
=========== ===========
</TABLE>
(a) Data processing revenues, for services provided to the banking segment
and certain other operating areas by the data processing subsidiary, are
eliminated in the consolidated statement of income.
(b) The primary external source of other non-interest income is fees related
to the gift certificate operation. In 1998, other non-interest income also
includes a gain on the sale of the money order subsidiary.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This item discusses the results of operations for the Company
for the three months ended March 31, 1999, and compares this period
with the same period of the previous year. In addition, the
discussion describes the significant changes in the financial
condition of the Company at March 31, 1999 as compared to December
31, 1998. This discussion should be read in conjunction with the
unaudited consolidated financial statements and accompanying notes
presented in Part I, Item 1 of this report.
RESULTS OF OPERATIONS
Net income for the quarter ended March 31, 1999 was $5,618,000
or $0.54 per share on a diluted basis compared to $5,125,000 or
$0.49 per share on a diluted basis for the same period last year.
Net income for the quarter ended March 31, 1999, when compared to
the same period in 1998, increased 9.6% and diluted net income per
share increased 10.2%. Excluding real estate sales gains in each
quarter and the gain on the sale of the money order subsidiary in
the first quarter of 1998, net income in the first quarter of 1999
increased 13.8% over the first quarter of 1998.
Net interest income
Net interest income is the difference between interest earned
on earning assets and interest expensed on interest bearing
liabilities. The net interest spread is the difference between the
average rate of interest earned on earning assets and the average
rate of interest expensed on interest bearing liabilities. The net
yield on earning assets (interest margin) is net interest income
divided by average earning assets. The following table summarizes
the above for the three months ended March 31, 1999 and 1998.
Dollars in thousands Three Months Ended
March 31
------------------------
1999 1998
---------- -----------
Total interest income $28,241 $28,016
Tax equivalent adjustment 458 449
-------- --------
Tax equivalent interest income 28,699 28,465
Total interest expense 12,887 13,293
-------- --------
Tax equivalent net interest income $15,812 $15,172
======== ========
Average rate on earning assets 7.79% 8.35%
Average rate on interest bearing liabilities 4.37% 4.86%
Net interest spread, annualized 3.42% 3.49%
Net interest margin, annualized 4.29% 4.45%
Average earning assets $1,495,373 $1,387,228
Average interest bearing liabilities $1,195,416 $1,109,544
Tax equivalent net interest income increased $640 thousand or
approximately 4.2% for the three months ended March 31, 1999,
compared to the first quarter in 1998. The increased net interest
income is attributed to the favorable impact of increased earning
asset volume between periods, which was offset by the impact of
lower interest rates on new and repricing assets and liabilities,
and an increased level of CMO premium amortization in 1999,
compared to 1998. The increased amortization of CMO premiums in
1999 is a continuation of the trend which began in mid-1998 as a
result of the increased prepayment rates for CMOs. The current
amortization rate is based on the current best estimate of the
expected lives of the underlying securities. Average earning
assets increased $108 million or 7.8% in the first quarter of 1999
compared to the first quarter of 1998. The net interest spread and
net interest margin both declined during the first quarter of 1999
compared to the first quarter in 1998. The average rate on earning
assets decreased 56 basis points while the costs of interest
bearing liabilities decreased 49 basis points. The average prime
rate in the first quarter of 1999 was 7.75%, down 75 basis points
from the first quarter of 1998.
Allowance for Loan Losses and Provision for Loan Losses
The allowance for loan losses is maintained at a level
adequate to absorb estimated probable credit losses. Management
determines the adequacy of the allowance based upon reviews of
individual credits, evaluation of the risk characteristics of each
segment of the loan portfolio, including the impact of current
economic conditions on the borrowers' ability to repay, past
collection and loss experience and such other factors, which, in
management's judgment, deserve current recognition. Based on this
process, the allowance for loan losses was considered adequate at
March 31, 1999. Net loans charged-off in the first quarter of 1999
were $230,000 with loans charged-off of $275,000 and recoveries of
$45,000. Loan charge-offs related to the Companys expanded
indirect automobile lending activities aggregated $217,000 in the
first quarter of 1999. The provision for loan losses in the first
quarter of 1999 was $281,000 compared to no provision for loan
losses in the first quarter of 1998, when net loans charged-off
were $34,000. See "Non-Performing Loans and Assets".
An analysis of the changes in the allowance for loan losses
and selected ratios follows:
Dollars in thousands Three Months Ended
March 31
--------- ---------
1999 1998
------- -------
Balance at January 1 $9,010 $9,209
Loans charged off (275) (67)
Recoveries 45 33
------- -------
Net loans charged off (230) (34)
Provision for loan losses 281 --
------- -------
Balance March 31 $9,061 $9,175
======= =======
Average loans, net of unearned income $997,027 $892,091
Provision for loan losses to average loans 0.03% --
Allowance for loan losses to average loans 0.91% 1.03%
Allowance for loan losses to period-end loans 0.91% 1.01%
Non-interest Income and Other Operating Expenses
The following table sets forth the major components of non-
interest income and other operating expenses for the three months
ended March 31, 1999 and 1998:
In thousands Three months ended
March 31
------------------
1999 1998
------- -------
Non-Interest Income:
Income from trust department $665 $540
Service charges on deposit accounts 1,404 1,268
Gift certificate fees 328 50
Securities gains 13 27
Gain on sale of money order subsidiary -- 436
Gain on sales of other real estate 841 624
Money order processing fees 180 415
Other 1,314 976
------- -------
Total non-interest income $4,745 $4,336
======= =======
Other Operating Expenses:
Salaries and employee benefits $6,969 $6,707
Occupancy expenses 793 736
Furniture and equipment expenses 1,164 1,043
Advertising and marketing 331 510
Operating supplies 358 429
Legal and professional fees 388 656
Taxes-Bank, property and other 358 379
Other 1,472 1,305
------- -------
Total other operating expenses $11,833 $11,765
======= =======
Non-interest income in the first quarter of 1999 includes
$841,000 of gains on real estate sales, while non-interest income
in the first quarter of 1998 includes $624,000 of gains on real
estate sales, and a $436,000 gain on the sale of the money order
subsidiary. Excluding these gains, non-interest income in the first
quarter of 1999 increased $628,000 or 19.2% over the first quarter
of 1998. Income from the Trust Department increased $125,000 or
23%, as a result of the increased level of assets under management.
Deposit service charges increased $136,000 or 10.7% as the
customer base continued to expand. Service charges on dormant gift
certificates, recognized starting in the fourth quarter of 1998,
caused a $278,000 increase in gift certificate fees. The Company
recognizes service charges on unpaid gift certificates based on
estimates of service charge collections, allocated on the basis of
items issued. Processing fees for services provided to the
purchaser of the money order subsidiary declined $235,000 and will
continue to decline as such processing is expected to cease by the
end of the second quarter of 1999. Bank card and merchant fees
increased $194,000 or 39% as the retail card base expanded and the
merchant business continued to expand with the gift certificate
subsidiarys growing mall agent base.
Other operating expenses of $11.8 million increased just
$68,000 or 0.6%. Declines in legal costs of $292,000 and
advertising expenses of $108,000 minimized the impact of other
expense increases. Legal costs declined as discovery efforts in
one ongoing litigation matter slowed significantly. Advertising
levels in 1999 moved back to historical levels, while 1998 had the
additional costs of the new image campaign. Salaries and benefits
increased $261,000 or 3.9%, with the increase primarily attributed
to the impact of normal salary increases in April 1998. Staffing
levels remained fairly constant with an average FTE level of 621 in
the first quarter of 1999 compared with 613 in the first quarter of
1998. Equipment expenses increased $121,000 or 11.6% with the
increase related to depreciation and maintenance for equipment
additions. The new teller automation system, new signage and new
computer hardware were installed subsequent to the end of the first
quarter of 1998. Operating supplies declined $71,000, as 1998
included extra supply costs related to the image change.
Income Taxes
The Company had income tax expense of $2,367,000 for the first
quarter of 1999 compared to $2,169,000 for the same period in 1998,
which yielded effective tax rates of 29.6% for 1999 and 29.7% for
1998.
FINANCIAL CONDITION
Average assets were $1,574,785,000 for the first quarter of
1999, an increase of $105,784,000 or 7.2% compared to the last
quarter of 1998. Actual total assets decreased approximately $20
million from December 31, 1998 to March 31, 1999. Included in the
increase in average earning assets are increases in commercial
loans of $20 million and retail loans of $8 million, and increases
in securities and short-term liquid assets of $77 million. The
earning asset growth was funded by an $18 million increase in
checking and savings account balances, a $12 million increase in
gift certificates outstanding and a $78 million increase in
customer repurchase agreements and federal funds purchased.
Nonperforming Loans and Assets
A summary of non-performing loans and assets follows:
Dollars in thousands March 31, 1999 December 31, 1998
-------------- -----------------
Loans accounted for on a non-
accrual basis $2,025 $1,416
Restructured loans 867 --
Loans contractually past due
ninety days or more as to
interest or principal payments 1,620 3,050
------- -------
Total non-performing loans 4,512 4,466
Other real estate held for sale 10,499 11,358
------- -------
Total non-performing assets $15,011 $15,824
======= =======
Non-performing loans to total loans .45% .44%
Non-performing assets to total assets .95% .99%
Allowance for loan losses to non-
performing loans 201% 202%
Loans classified as impaired at March 31, 1999 aggregated $2.9
million and included all non-accrual and restructured loans. At
December 31, 1998, impaired loans aggregated $3.6 million. Loans
for which payments were current or less than 90 days past due,
where borrowers are currently experiencing financial difficulties,
were approximately $14 million at March 31, 1999 and $3.8 million
at December 31, 1998.
The Company considers the level of nonperforming loans in its
evaluation of the adequacy of the allowance for loan losses.
Other real estate aggregated $10.5 million at March 31, 1999
and was principally comprised of properties acquired in settlement
of a related group of problem real estate development loans in
April 1996, and a completed condominium project acquired in
settlement of loans in November 1997. The carrying value of real
estate development property has been substantially reduced through
sales from an original carrying value of $15.2 million to $1.9
million at March 31, 1999. In the first quarter of 1999, portions
of this property were sold and gains of $865,000 were recognized.
The Company has contracts for additional property sales that are
expected to further reduce carrying value by approximately
$560,000. The remaining portion of property is 15 acres of
commercial property with a carrying value of approximately $1.4
million. Sales efforts on the remaining commercial property are
expected to accelerate now that a fronting highway was widened to
four lanes. The condominium project involves 31 (44 originally)
completed and readily marketable units and 7.5 acres of adjacent
developed land. This riverfront development has a carrying value
of $7.2 million. Management will provide for the orderly
development and marketing of these properties in a manner designed
to maximize the value to the Company.
LIQUIDITY
Liquidity represents the Company's ability to generate cash or
otherwise obtain funds at a reasonable price to satisfy commitments
to borrowers as well as demands of depositors. The loan and
securities portfolios are managed to provide liquidity through
maturity or payments related to such assets.
The parent Company's liquidity depends primarily on the
dividends paid to it as the sole shareholder of Bank of Louisville.
CAPITAL RESOURCES
At March 31, 1999, shareholders' equity totaled $171,776,000,
an increase of $4.3 million since December 31, 1998. Net income of
$5.6 million after cash dividends of $2.3 million provided $3.3
million of the increase. Since December 31, 1998, the Companys
available for sale securities portfolio had unrealized gains, net
of taxes, that increased shareholders? equity $87,000. Proceeds
and tax benefits from stock options exercised added $894,000 to
shareholders equity in the first quarter of 1999.
The Company's capital ratios exceed minimum regulatory
requirements and are as follows:
Company Company
March December Minimum
31,1999 31, 1998 Required
-------- -------- --------
Leverage Ratio 10.8% 11.5% 4.00%
Tier I risk based capital ratio 14.8% 14.2% 4.00%
Total risk based capital ratio 15.6% 15.0% 8.00%
YEAR 2000
During 1999, the Company continued with its organization-wide
program of preparing its systems for Year 2000 compliance and
developing detailed plans to address the possible business
exposures related to the Year 2000 issue. A detailed description
of the Companys Year 2000 program is set forth in the Companys
1998 Annual Report and Form 10-K.
As of March 31, 1999, the Company had completed the Awareness,
Assessment, and Renovation phases of its Year 2000 program. As of
March 31, 1999, the Company was also conducting the procedures
associated with the Validation and Implementation phases. The
Company expects that mission critical applications in the
mainframe, distributed applications and PC applications categories
to be compliant (remediated, tested and implemented) by June 30,
1999. The table below indicates the extent to which mission
critical applications were compliant at March 31, 1999 and the
estimated status at June 30, 1999.
MISSION CRITICAL APPLICATION SUMMARY
Percent of Applications Year 2000 Compliant
Category 3-31-99 (Actual) 6-30-99 (Estimated)
Mainframe applications 97% 100%
Distributed applications 88% 100%
PC applications 93% 100%
The Company has continued its review of Year 2000 issues with
its major business relationships, significant loan and deposit
customers, counterparties, intermediaries and vendors with whom it
has important financial and operational relationships to determine
the extent to which they are vulnerable to Year 2000 issues. Based
on this review (and assuming the accuracy of the responses and
representations), as of March 31, 1999, the Company does not expect
any material adverse impact from third-party Year 2000 non-
compliance. In addition, the Company has communicated with its
customer base and plans additional communications as necessary.
The Company has incurred internal staff costs as well as
consulting, new hardware and software expenses, and other expenses
related to this program. A significant portion of these costs are
not incremental costs to the Company, but rather represent the
redeployment of existing information technology and business unit
resources. A summary of costs incurred on the project through
March 31, 1999 and estimated future costs is as follows:
In thousands Costs Incurred
Through Estimated
March 31, 1999 Future Costs Total
-------------- ------------ -----------
IT Personnel Resources $ 1,604 $ 1,405 $ 3,009
Business Unit Personnel Resources 286 231 517
External Contractors / Consultants 99 108 207
Replacement Software 388 60 448
Replacement / Upgrade Hardware 1,035 139 1,174
Other Costs 39 26 65
-------------- ----------- -----------
$ 3,451 $ 1,969 $ 5,420
============== =========== ===========
Project costs increased $463,000 during the first quarter of
1999. Portions of the above costs relate to capital items that are
depreciated over useful lives. Accordingly, project costs are not
representative of amounts being presently expensed. For the three
months ended March 31, 1999, $393,000 of the Year 2000 project
costs were expensed, including $103,000 of depreciation and
approximately $107,000 of costs for time spent by existing
personnel devoted to this program.
Although the Company does not presently anticipate a material
business interruption as a result of the Year 2000 issue, there are
many risks associated with the Year 2000 issue, including the
possibility of a failure of the Companys computer and non-
information technology systems. The Companys progress with
respect to internal systems shown on the previous page has
significantly mitigated these risks. The greatest risks at this
point are failures of third parties to remediate their own Year
2000 issues. The failure of third parties with which the Company
has financial or operational relationships such as securities
exchanges, clearing organizations, depositories, regulatory
agencies, banks, clients, counterparties, vendors and utilities, to
remediate their computer and non-information technology systems
issues in a timely manner could result in a material financial risk
to the Company. If the above mentioned risks are not remedied, the
Company may experience business interruption, financial loss,
regulatory actions, damage to its franchise and legal liability.
While it is too early to predict with any reasonable accuracy what
failures may occur, the Company believes that the continuance of
sufficient planning, communication, coordination and testing will
mitigate potential material disruption. The Company has business
continuity plans in place that cover its current operations, and
Year 2000 specific contingency planning is well underway with
completion scheduled by June 30, 1999.
The above disclosure is designated as a Year 2000 Readiness
Disclosure as that term is used in the Year 2000 Information and
Readiness Disclosure Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's March 31, 1999 analysis of the impact of changes
in interest rates on net interest income over the next 12 months
indicates an increasing exposure to higher interest rates since
December 31, 1998. The table below illustrates the simulation
analysis of the impact of a 50 or 100 basis point upward or
downward movement in interest rates. The impact of the rate
movement was simulated as if rates changed immediately from March
31, 1999 levels, and remained constant at those levels thereafter.
Movement in interest
rates from March 31, 1999, rates
------------------------------------
Increase Decrease
+50bp +100bp -50bp -100bp
------ ------ ------ ------
Net interest income increase
(decrease) (in 1000's) $(572) $(1,573) $413 $657
Net income per share increase
(decrease) $(0.04) $(0.10) $0.03 $0.04
Forward Looking Statements
The statements contained in this filing that are not purely
historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding the
Companys expectations, hopes, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in
this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update
any such forward-looking statement. It is important to note that
the Companys actual results could differ materially from those in
such forward-looking statement. Factors that could cause actual
results to differ materially from those projected include, among
others, the effects of Year 2000 software failures; its customer
concentration; cyclicality; fluctuation of interest rates; risk of
business interruption; adequacy of the allowance for loan losses;
valuation of other real estate; dependence on key personnel; and
government regulation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the first
quarter of 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Mid-America Bancorp
(Registrant)
Date: May 12,1999 By:/s/Steven Small
Steven Small
Treasurer
Date: May 12, 1999 By:/s/R.K. Guillaume
R.K. Guillaume
Chief Executive Officer
INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule
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