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 quarterly period ended September 30, 2000
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 Identification 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
(continued)
MID-AMERICA BANCORP
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.
October 31, 2000: 10,684,566 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 unaudited consolidated financial statements of
the Company are submitted herewith:
Consolidated balance sheets - September 30, 2000 and December 31, 1999
Consolidated statements of income three and nine months
ended September 30, 2000 and 1999
Consolidated statements of changes in shareholders' equity
nine months ended September 30, 2000 and 1999
Consolidated statements of comprehensive income three and
nine months ended September 30, 2000 and 1999
Consolidated statements of cash flows - nine months ended
September 30, 2000 and 1999
Notes to unaudited consolidated financial statements
CONSOLIDATED BALANCE SHEETS
In thousands, except share and per share amounts
Unaudited
<TABLE>
<CAPTION>
September 30 December 31
----------- -----------
2000 1999
ASSETS ----------- -----------
<S> <C> <C>
Cash and due from banks $32,200 $41,478
Securities available for sale, amortized cost
of $410,630 (2000) and $588,427 (1999) 411,524 586,523
Securities held to maturity, market value
of $3,733 (2000) and $4,001 (1999) 3,726 4,018
Loans, net of unearned income 1,065,318 1,063,949
Allowance for loan losses (9,947) (9,854)
----------- -----------
Loans, net 1,055,371 1,054,095
Premises and equipment 21,593 21,822
Other assets 35,645 36,770
----------- -----------
TOTAL ASSETS $1,560,059 $1,744,706
=========== ===========
LIABILITIES
Deposits:
Non-interest bearing $138,583 $156,720
Interest bearing 864,537 841,179
----------- -----------
Total deposits 1,003,120 997,899
Securities sold under agreements to repurchase 181,204 319,368
Federal funds purchased 50,000 42,390
Advances from the Federal Home Loan Bank 63,697 68,389
Gift certificates outstanding 53,342 123,354
Accrued expenses and other liabilities 15,757 14,758
----------- -----------
TOTAL LIABILITIES 1,367,120 1,566,158
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 - 15,000,000 shares; issued
and outstanding - 10,684,445 shares (2000);
10,642,873 shares (1999) 29,630 29,515
Additional paid-in capital 133,455 133,038
Retained earnings 29,359 17,233
Accumulated other comprehensive gain (loss) 495 (1,238)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 192,939 178,548
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,560,059 $1,744,706
=========== ===========
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 Nine months ended
September 30 September 30
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $24,834 $23,093 $73,136 $67,903
Interest and dividends on:
Taxable securities 6,155 5,071 19,426 12,501
Tax-exempt securities 799 718 2,299 2,140
Interest on federal funds sold 48 70 146 179
Interest on securities purchased under
agreements to resell 279 413 1,087 3,838
-------- -------- -------- --------
Total interest income 32,115 29,365 96,094 86,561
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits 10,393 8,407 29,062 24,752
Interest on federal funds purchased
and securities sold under
agreements to repurchase 3,954 3,326 12,805 10,599
Interest on Federal Home
Loan Bank advances 959 1,059 2,948 3,257
-------- -------- -------- --------
Total interest expense 15,306 12,792 44,815 38,608
-------- -------- -------- --------
Net interest income before
provision for loan losses 16,809 16,573 51,279 47,953
Provision for loan losses 1,045 590 2,135 2,341
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 15,764 15,983 49,144 45,612
-------- -------- -------- --------
NON-INTEREST INCOME:
Income from trust department 784 690 2,354 2,006
Service charges on deposit accounts 1,550 1,561 4,748 4,459
Gift certificate fees 601 620 1,780 1,336
Securities gains (losses) -- 6 (1) 21
Other 2,293 1,316 4,956 6,625
-------- -------- -------- --------
Total non-interest income 5,228 4,193 13,837 14,447
-------- -------- -------- --------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 7,166 7,203 21,173 21,240
Occupancy expense 829 798 2,463 2,417
Furniture and equipment expenses 1,160 1,162 3,429 3,455
Other 2,843 2,995 8,321 8,612
-------- -------- -------- --------
Total other operating expenses 11,998 12,158 35,386 35,724
-------- -------- -------- --------
Income before income taxes 8,994 8,018 27,595 24,335
Income tax expense 2,663 2,175 8,087 7,182
-------- -------- -------- --------
NET INCOME $6,331 $5,843 $19,508 $17,153
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,684 10,627 10,678 10,610
Diluted 10,817 10,761 10,810 10,756
NET INCOME PER COMMON SHARE
Basic $0.59 $0.55 $1.83 $1.62
Diluted 0.59 0.54 1.80 1.59
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>
Nine months
ended September 30
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Balance, January 1 $178,548 $167,436
Net income 19,508 17,153
Other comprehensive income
(loss), net of tax 1,733 (2,295)
Cash dividends - $.69 (2000)
and $.64 (1999) (7,382) (6,798)
Stock options exercised, including
related tax benefits 532 943
---------- ----------
Balance, September 30 $192,939 $176,439
========== ==========
See notes to unaudited consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In Thousands
Unaudited
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
---------------------- --------------------
2000 1999 2000 1999
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net Income $6,331 $5,843 $19,508 $17,153
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
available for sale:
Unrealized holding gains (losses)
arising during the period 1,739 (832) 1,818 (2,281)
Less reclassification adjustment for
(gains) losses included in net income -- (4) 1 (14)
---------- ---------- --------- ---------
1,739 (836) 1,819 (2,295)
Pension liability adjustment -- -- (86) --
---------- ---------- --------- ---------
Other comprehensive income (loss) 1,739 (836) 1,733 (2,295)
---------- ---------- --------- ---------
COMPREHENSIVE INCOME $8,070 $5,007 $21,241 $14,858
========== ========== ========= =========
See notes to unaudited consolidated financial statements.
</TABLE><PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
Unaudited
<TABLE>
<CAPTION> Nine months
ended September 30
--------------------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------
<S> <C> <C>
Net income $19,508 $17,153
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and accretion, net 226 3,293
Provision for loan losses 2,135 2,341
Federal Home Loan Bank stock dividend (989) (893)
Loss (gain) on sales of securities 1 (21)
Gains on sales of real estate (597) (1,371)
Deferred taxes 158 456
Increase in interest receivable (311) (1,931)
Increase in other assets (249) (3,842)
Increase (decrease) in accrued
expenses and other liabilities (179) 752
------------ ------------
Net cash provided by operating activities 19,703 15,937
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (1,385,082) (823,491)
Proceeds from maturities of
securities available for sale 1,549,899 802,541
Proceeds from sales of securities available for sale 16,065 14,949
Purchases of securities held to maturity (2,023) (501)
Proceeds from maturities of securities held to maturity 2,300 80,500
Increase in loans (3,411) (34,119)
Proceeds from sales of other real estate 2,023 3,570
Purchases of premises and equipment (2,573) (2,402)
Proceeds from sales of premises and equipment 754 39
------------ ------------
Net cash provided by investing activities 177,952 41,086
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 5,221 6,239
Net decrease in securities sold
under agreements to repurchase (138,164) (56,914)
Net increase in federal funds purchased 7,610 19,795
Advances from the Federal Home Loan Bank -- 15,000
Repayment of advances from the Federal Home Loan Bank (4,692) (19,274)
Decrease in gift certificates outstanding (70,012) (55,707)
Stock options exercised 486 836
Dividends paid (7,382) (6,798)
------------ ------------
Net cash used in financing activities (206,933) (96,823)
------------ ------------
Net decrease in cash and cash equivalents (9,278) (39,800)
Cash and cash equivalents at January 1 41,478 74,644
------------ ------------
Cash and cash equivalents at September 30 $32,200 $34,844
============ ============
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 have been prepared in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X and do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements. For more information,
refer to the Summary of Significant Accounting Policies footnote
which appears in the Company's 1999 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.
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 and
nine months ended September 30. Appropriate share and per share
information in the consolidated financial statements has been
adjusted for the 3% stock dividend declared in November 1999.
<TABLE>
<CAPTION>
In thousands, except per share amounts
Three months ended Nine months ended
September 30 September 30
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income, basic and diluted $6,331 $5,843 $19,508 $17,153
=========== =========== =========== ===========
Average shares outstanding 10,684 10,627 10,678 10,610
Effect of dilutive securities 133 134 132 146
Average shares outstanding including ----------- ----------- ----------- -----------
dilutive securities 10,817 10,761 10,810 10,756
=========== =========== =========== ===========
Net income per share, basic $0.59 $0.55 $1.83 $1.62
=========== =========== =========== ===========
Net income per share, diluted $0.59 $0.54 $1.80 $1.59
=========== =========== =========== ===========
</TABLE>
3.The amortized cost and market value of securities available for
sale are summarized as follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------------ ------------------------
In thousands Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and
U.S. government agencies $98,780 $99,025 $317,316 $317,106
Collateralized mortgage obligations 193,626 192,578 184,896 182,730
States and political subdivisions 61,254 62,951 52,448 52,918
Corporate obligations 35,325 35,325 13,110 13,112
Federal Reserve and Federal Home
Loan Bank Stock 21,645 21,645 20,657 20,657
----------- ----------- ----------- -----------
$410,630 $411,524 $588,427 $586,523
=========== =========== =========== ===========
</TABLE>
The amortized cost and market value of securities held to maturity are
summarized as follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------------ ------------------------
In thousands Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and
U.S. government agencies $3,726 $3,733 $4,018 $4,001
=========== =========== =========== ===========
</TABLE>
4.Activity in the allowance for loan losses for the nine months
ended September 30, 2000 and year ended December 31, 1999 follows:
<TABLE>
<CAPTION>
September 30,September 30,December 31,
In thousands 2000 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1 $9,854 $9,010 $9,010
Loans charged-off (2,261) (2,284) (3,030)
Recoveries 219 233 423
----------- ----------- -----------
Net loans charged-off ($2,042) ($2,051) ($2,607)
Provision for loan losses 2,135 2,341 3,451
----------- ----------- -----------
Balance, end of period $9,947 $9,300 $9,854
=========== =========== ===========
</TABLE>
5.Significant components of other non-interest income and other operating
expenses are set forth below:
<TABLE>
<CAPTION>
Three months ended Nine months ended
In thousands September 30 September 30
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other non-interest income:
Gains on sales of real estate $150 $371 $592 $1,371
Settlement proceeds on money order
processing contract termination -- -- -- 1,800
Gains on dispositions of lease resi 1,050 8 1,092 54
Money order processing fees -- 90 -- 390
Other 1,093 847 3,272 3,010
----------- ----------- ----------- -----------
$2,293 $1,316 $4,956 $6,625
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
In thousands September 30 September 30
------------------------ ------------------------
2000 2000 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other operating expenses:
Advertising and marketing $254 $307 $794 $956
Operating supplies 346 396 984 1,093
Legal and professional fees 422 684 1,125 1,563
Taxes, other than income taxes 422 412 1,259 1,157
Other 1,399 1,196 4,159 3,843
----------- ----------- ----------- -----------
$2,843 $2,995 $8,321 $8,612
=========== =========== =========== ===========
</TABLE>
6.Selected financial information by business segment for
September 2000 and 1999 follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
In thousands ------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest income
Banking $15,696 $15,785 $47,627 $45,433
Gift certificate subsidiary 1,005 600 3,242 1,935
Other 108 188 410 585
----------- ----------- ----------- -----------
Total $16,809 $16,573 $51,279 $47,953
=========== =========== =========== ===========
Non-interest income
Banking $4,826 $3,483 $12,270 $10,850
Gift certificate subsidiary 306 646 1,453 1,368
Other (a) 1,702 1,704 5,435 7,991
Eliminations (a) (1,606) (1,640) (5,321) (5,762)
----------- ----------- ----------- -----------
Total $5,228 $4,193 $13,837 $14,447
=========== =========== =========== ===========
Net income
Banking $5,775 $5,518 $17,271 $14,485
Gift certificate subsidiary 448 487 1,918 1,196
Other 108 (162) 319 1,472
----------- ----------- ----------- -----------
Total $6,331 $5,843 $19,508 $17,153
=========== =========== =========== ===========
Assets as of September 30
Banking $1,500,585 $1,463,441
Gift certificate subsidiary 63,567 46,859
Other 11,535 17,416
Eliminations (15,628) (13,495)
----------- -----------
Total $1,560,059 $1,514,221
=========== ===========
</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) Other non-interest income in 1999 includes settlement proceeds related
to the discontinuance of a processing agreement between the Company and the
purchaser 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 and nine months ended September 30, 2000, and
compares those periods with the same periods of the previous year.
In addition, the discussion describes the significant changes in
the financial condition of the Company at September 30, 2000 as
compared to December 31, 1999. 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 OPERATION
Net income for the three months ended September 30, 2000 was
$6.331 million or $0.59 per share on a diluted basis compared to
$5.843 million or $0.54 per share on a diluted basis for the
three months ended September 30, 1999. Net income for the nine
months ended September 30, 2000 was $19.508 million or $1.80 per
share on a diluted basis compared to $17.153 million or $1.59 per
share on a diluted basis for the nine months ended September 30, 1999.
On a diluted per share basis, net income for the three months
ended September 30, 2000, increased 9.3% compared to the three
months ended September 30, 1999. For the nine months ended
September 30, 2000, diluted net income per share increased 13.2%,
compared to the first nine months of 1999. Excluding non-recurring
revenue and gains in each period, discussed below, net income in
the third quarter of 2000 decreased 2.7% from the third quarter of
1999, and net income for the nine months ended September 30, 2000,
increased 20.6% compared to the first nine months of 1999.
Net income for the three and nine month periods ended
September 30, 2000, and 1999 includes non-recurring revenue and
gains. In 2000, the Company recognized gains on sales of other
real estate and three closed branch locations. Gains resulting
from these transactions totaled $150,000 for the third quarter and
$592,000 for the nine month period. Also, in the third quarter of
2000, there was a gain from the sale of leased equipment in excess
of residual value of $1,050,000 and a gain on the sale of the life
insurance subsidiarys insurance base of $153,000. In the second
quarter of 1999, the Company recognized as income the settlement
proceeds of $1.8 million related to the discontinuance of a
processing agreement between the Company and the purchaser of the
former money order subsidiary. Gains on sales of other real estate
in the third quarter and nine month period in 1999 were $371,000
and $1,371,000, respectively.
The table below reflects operating results excluding the
previously discussed non-recurring items.
<TABLE>
<CAPTION>
Dollars in thousands, Three Months Nine Months
except per share data Ended September 30 Ended September 30
---------------------------- ----------------------------
2000 1999 % Chg 2000 1999 % Chg
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income $6,331 $5,843 8.4% $19,508 $17,153 13.7%
Non-recurring revenue and
gains, net of taxes (880) (241) (1,167) (1,943)
-------- -------- -------- --------
Net income excluding
non-recurring revenue and
gains $5,451 $5,602 (2.7%) $18,341 $15,210 20.6%
======== ======== ======== ======== ======== ========
Diluted net income per share $0.59 $0.54 9.3% $1.80 $1.59 13.2%
Non-recurring revenue and
gains, net of taxes on a
diluted per share basis (0.08) (0.02) (0.11) (0.18)
-------- -------- -------- --------
Diluted net income per share
excluding non-recurring revenue
and gains $0.51 $0.52 (1.9%) $1.69 $1.41 19.9%
======== ======== ======== ======== ======== ========
</TABLE>
A more detailed discussion of the results of operations and
changes in financial condition follows:
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 and nine months ended September 30, 2000
and 1999.
<TABLE>
<CAPTION>
Dollars in thousands Three Months Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
2000 1999 2000 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Total interest income $32,115 $29,365 $96,094 $86,561
Tax equivalent adjustment 436 459 1,264 1,372
-------- -------- -------- --------
Tax equivalent interest income 32,551 29,824 97,358 87,933
Total interest expense 15,306 12,792 44,815 38,608
-------- -------- -------- --------
Tax equivalent net interest income $17,245 $17,032 $52,543 $49,325
======== ======== ======== ========
Average rate on earning assets 8.62% 8.07% 8.43% 7.91%
Average rate on interest bearing liabilities 5.17% 4.34% 4.93% 4.34%
Net interest spread, annualized 3.45% 3.73% 3.50% 3.57%
Net interest margin, annualized 4.56% 4.61% 4.55% 4.44%
Average earning assets $1,497,889 $1,464,752 $1,536,073 $1,486,587
Average interest bearing liabilities $1,176,883 $1,170,361 $1,215,312 $1,190,324
</TABLE>
Net interest income on a tax equivalent basis increased
$213,000, or 1.3%, for the quarter and $3,218,000, or 6.5%, for the
nine month period. For the comparative third quarters, the impact
of increased interest rates on new and repricing assets and
liabilities substantially offset the benefit of higher earning
asset volume. For the third quarter of 2000, compared to the same
period in 1999, the net interest margin declined 5 basis points to
4.56%. Compared to the second quarter of 2000, tax equivalent net
interest income declined $666,000 in the third quarter of 2000.
The decline in tax equivalent net interest income from the second
to the third quarter of 2000, related to a decline in average
earning assets of 2.4%, a decrease of $291,000 in loan fees, and
the impact of increased interest rates on new and repricing assets
and liabilities which caused a 14 basis point decline in the net
interest spread. For the nine month period ended September 30,
2000 compared to the same period in 1999, net interest income was
favorably impacted by both earning asset volume increases and the
impact of higher interest rates. For the nine month periods the
net interest margin increased 11 basis points to 4.55%. Management
expects the level of net interest income in the upcoming fourth
quarter to be stable compared to the third quarter of 2000. During
the quarter and nine month periods of 2000, average earning assets
increased 2.3% and 3.3% respectively, compared to 1999. Average
earning asset growth for the quarter and nine month periods
included loan growth of $35.0 million, or 3.4%, and $48.4 million,
or 4.8%, respectively. For both periods, loan growth is
predominantly related to commercial and commercial real estate
loans. The retail loan growth pattern of the prior two years has
slowed with the decline in indirect automobile lending volume.
Indirect loan balances have declined from $103 million at December
31, 1999 to $85 million at September 30, 2000. The average prime
rate for the first nine months of 2000 was 9.14%, and increase of
127 basis points compared to the same period in 1999.
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, management considers the allowance for
loan losses to be adequate at September 30, 2000.
The allowance for loan losses was $9,947,000 and 0.93% of
loans as of September 30, 2000, compared to $9,854,000 and 0.93%
of loans at December 31, 1999. The allowance for loan losses was
211% and 212% of non-performing loans at September 30, 2000 and
December 31, 1999, respectively. Non-performing loans were $4.7
million and 0.44% of loans outstanding at September 30, 2000,
compared to $4.7 million and 0.44% at December 31, 1999. Net
loans charged off were $1.033 million in the third quarter of
2000 and $2.042 million for the nine months ended September 30,
2000, compared to $568,000 in the third quarter of 1999 and
$2.051 million for the nine months ended September 30, 1999. The
third quarter provision for loan losses in 2000 was $1.045
million, compared to $590,000 in 1999. For the nine months ended
September 30, 2000, the provision for loan losses was $2.135
million, compared to $2.341 million for the same period in 1999.
Net loans charged off related to indirect automobile lending
activities were $361,000 for the third quarter of 2000 and $1.294
million for the nine month period ended September 30, 2000,
compared to $369,000 in the third quarter of 1999 and $959,000
for the nine month period ended September 30, 1999. The nine
months ended September 30, 1999 also includes a loan charge-off
of $730,000 related to a loss on the sale of a problem loan. See
Non-Performing Loans and Assets on page 17.
An analysis of the changes in the allowance for loan losses
and selected ratios follows:
Dollars in thousands Nine Months Ended
September 30
-----------------------
2000 1999
-------- --------
Balance at January 1 $9,854 $9,010
Loans charged off ($2,261) ($2,284)
Recoveries $219 $233
-------- --------
Net loans charged off ($2,042) ($2,051)
Provision for loan losses $2,135 $2,341
-------- --------
Balance at September 30 $9,947 $9,300
======== ========
Average loans, net of unearned income $1,057,590 $1,009,219
Provision for loan losses to average loans, annualized 0.20% 0.23%
Allowance for loan losses to average loans 0.94% 0.92%
Allowance for loan losses to period-end loans 0.93% 0.90%
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 and nine
months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
In thousands Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Non-Interest Income:
Income from trust department $784 $690 $2,354 $2,006
Service charges on deposit accounts 1,550 1,561 4,748 4,459
Gift certificate fees 601 620 1,780 1,336
Securities gains (losses) -- 6 (1) 21
Gains on sales of real estate 150 371 592 1,371
Settlement proceeds on money order
processing contract termination -- -- -- 1,800
Gains on lease residuals 1,050 8 1,092 54
Money order processing fees -- 90 -- 390
Other 1,093 847 3,272 3,010
-------- -------- -------- --------
Total non-interest income $5,228 $4,193 $13,837 $14,447
======== ======== ======== ========
Other Operating Expenses:
Salaries and employee benefits $7,166 $7,203 $21,173 $21,240
Occupancy expenses 829 798 2,463 2,417
Furniture and equipment expenses 1,160 1,162 3,429 3,455
Advertising and marketing 254 307 794 956
Operating supplies 346 396 984 1,093
Legal and professional fees 422 684 1,125 1,563
Taxes-Bank, property and other 422 412 1,259 1,157
Other 1,399 1,196 4,159 3,843
-------- -------- -------- --------
Total other operating expenses $11,998 $12,158 $35,386 $35,724
======== ======== ======== ========
</TABLE>
Excluding the non-recurring revenue and gains previously
discussed, non-interest income in the third quarter of 2000
increased $53,000, or 1.4%, over the third quarter of 1999 and
non-interest income for the nine months ended September 30, 2000,
increased $766,000, or 6.8%, over 1999. Trust Department income
increased $94,000, or 13.7%, for the quarter and $348,000, or
17.4%, for the nine month period as a result of the increased
level of assets under management since 1999. Deposit service
charges decreased $11,000, or 0.74% for the quarter and increased
$289,000, or 6.5%, for the nine month period. Increased service
charge rates and other changes in deposit account parameters
implemented in the third quarter of 1999, provided the basis for
the year-to-date increase. The decline in service charges on
deposits for the third quarter is attributed to a lower volume of
returned checks and related fees. Gift certificate income
decreased $19,000 in the third quarter and increased $444,000 for
the nine month period. The year-to-date increase in gift
certificate income is primarily a result of increased service
charges on dormant gift certificates. The increase in service
charges on gift certificates is attributed to the increased
volume of dormant items and an increase in the monthly fee
applicable to items issued after November 1999. Insurance
premiums and commissions on credit life and similar insurance,
included in the other category, decreased $17,000 for the quarter
and increased $160,000 for the nine month period, as insurance
volume increased with the increase in direct retail loan volume
during the first half of 2000. Processing fees for services
provided to the purchaser of the former money order subsidiary,
which were phased out in the third quarter of 1999, declined
$90,000 for the quarter and $390,000 for the nine month period.
OPERATING EXPENSES
Despite the increased level of business activity, other
operating expenses declined $160,000, or 1.3%, for the quarter and
$338,000, or 0.9%, for the nine month period. Salaries and benefits
in 2000 were relatively unchanged from prior year levels with a
year-to-date decrease of 0.31%. The impact of normal salary
increases was offset by lower staffing levels. Staffing levels
averaged 575 full-time equivalent employees in 2000, compared with
620 in 1999. There was no significant change in the level of
occupancy and equipment expenses in 2000, compared to 1999.
Equipment expenses are expected to increase in the fourth quarter
as several new initiatives, including internet banking and check
imaging, are to be implemented in October 2000. The aggregate
level of the other categories of operating expenses decreased
$152,000 for the quarter and $291,000 for the nine month periods.
Reductions in legal and professional fees and advertising and
marketing, were partially offset by individually insignificant
increases in various other expense categories.
INCOME TAXES
The Company had income tax expense of $2.663 million for the
third quarter of 2000 compared to $2.175 million for the same
period in 1999, which yielded effective tax rates of 29.6% for 2000
and 27.1% for 1999. The year-to-date tax expense and effective tax
rates were $8.087 million and 29.3% for 2000 and $7.182 million and
29.5% for 1999, respectively.
FINANCIAL CONDITION
Total assets decreased approximately $185 million from
December 31, 1999 to September 30, 2000, while average assets of
$1.575 billion for the third quarter of 2000 were relatively
unchanged from the last quarter of 1999. The decline in actual
assets since December 31, 1999 is not unusual considering the
seasonally high gift certificates outstanding and securities sold
under agreements to repurchase. During the three and nine month
periods ended September 30, 2000, average earning assets increased
approximately $33 million and $49 million respectively, compared to
the prior year periods. The increase in average earning assets in
2000 has been funded by increases in average deposits, primarily
certificates of deposit, and an increase in gift certificates
outstanding.
NON-PERFORMING LOANS AND ASSETS
A summary of non-performing loans and assets follows:
Dollars in thousands
September 30, December 31,
2000 1999
--------- ---------
Loans accounted for on a
non-accrual basis $1,313 $1,551
Restructured loans 773 811
Loans contractually past
due ninety days or more
as to interest or principal
payments 2,631 2,290
--------- ---------
Total non-performing loans 4,717 4,652
Other real estate held for sale 8,490 9,782
--------- ---------
Total non-performing assets $13,207 $14,434
========= =========
Non-performing loans
to total loans 0.44% 0.44%
Non-performing assets
to total assets 0.85% 0.83%
Allowance for loan losses
to non-performing loans 211% 212%
Loans classified as impaired at September 30, 2000 aggregated
$4.1 million and included $2.081 million of indirect automobile
loans past due 45 days or more and all non-accrual and restructured
loans. At December 31, 1999, impaired loans aggregated $5.0
million and included $2.6 million of indirect automobile loans past
due 45 days or more.
As of September 30, 2000 and December 31, 1999, the Company
had $11.2 million and $16.7 million, respectively, of loans which
were not included in the past due, non-accrual or restructured
categories, but for which known information about possible credit
problems caused management to have doubts as to the ability of the
borrowers to comply with the present loan repayment terms. Based
on managements evaluation, including current market conditions,
cash flow generated and appraisals, no significant losses are
anticipated in connection with these loans. These loans are subject
to continuing management attention and are considered in
determining the level of the allowance for loan losses.
Management continually monitors lending and underwriting
activity and adjusts lending policies to respond to changes in
market conditions and risks. Policy revisions related to indirect
automobile lending, combined with changes in market conditions,
resulted in reduced indirect origination activity throughout 2000.
Since December 31, 1999, indirect automobile loans have declined
from $103 million to $85 million.
The Company considers the level of nonperforming loans in its
evaluation of the adequacy of the allowance for loan losses. See
Allowance for Loan Losses and Provisions for Loan Losses on page 13.
Other real estate aggregated $8.5 million at September 30,
2000 and was principally comprised of properties acquired in
settlement of real estate development loans in 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 in 1996 to $1.5 million at
September 30, 2000. The Company has 13.5 acres of commercial
property remaining. The condominium project, which had 35 unsold
units at the time of acquisition, now involves 27 completed and
readily marketable units and 7.5 acres of adjacent developed land.
This riverfront development had a carrying value of $6.8 million
on September 30, 2000. Sales efforts, under a new listing
agreement entered into during the first quarter of 2000, have
yielded 3 closed sales and 4 pending sales contracts on the
remaining 27 units. No significant gain or loss is expected as
this property is further liquidated.
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.
Dividends of $2.5 million were paid by the Bank to the Company
during the nine months ended September 30, 2000.
CAPITAL RESOURCES
At September 30, 2000, shareholders' equity totaled $192.9
million, an increase of $14.4 million since December 31, 1999. Net
income of $19.5 million after cash dividends of $7.3 million
provided $12.2 million of the increase. Proceeds and tax benefits
from stock options exercised added $.5 million and other
comprehensive income added $1.7 million to shareholders equity in 2000.
The Company's capital ratios exceed minimum regulatory
requirements and are as follows:
Company Company
September 30, December 31, Minimum
2000 1999 Required
---------- ---------- --------
Leverage Ratio 12.3% 11.5% 4.00%
Tier I risk based capital ratio 15.6% 14.4% 4.00%
Total risk based capital ratio 16.4% 15.2% 8.00%
RECENTLY ISSUED ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
(Statement 133) was issued by the Financial Accounting Standards
Board in June 1998. During 1999, Statement of Financial Accounting
Standards No. 137, Accounting for Derivative Financial Instruments
and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133 was issued, and the effective date of Statement
133 was delayed one year. Statement 133 standardizes the
accounting for derivative instruments and will be effective for the
Company January 1, 2001. Statement 133 currently applies to the
Companys interest rate swap contracts. Under the standard,
entities are required to carry all derivative instruments on the
balance sheet at fair value. The accounting for changes in the
fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of
a hedging relationship and, if so on the reason for holding it. If
certain conditions are met, entities may elect to designate a
derivative instrument as a hedge of exposures to changes in fair
value, cash flows, or foreign currencies. If the hedged exposure
is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change
together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. If the hedged exposure is
a cash flow exposure, the effective portion of the gain or loss on
the derivative instrument is reported initially as a component of
other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness as well
as the ineffective portion of the gain or loss is reported in
earnings immediately.
The Company currently has two interest rate swap contracts,
which would be classified as cash flow hedges under Statement 133.
Management believes the current impact of adopting Statement 133
would not be material to the Companys consolidated financial
statements. Depending on asset/liability management issues, market
interest rates and other factors, the Companys current interest
rate swap positions may be increased or reduced prior to the
adoption of Statement 133.
Statement of Financial Accounting Standards No. 138,
Accounting for Derivative Instruments and Hedging Activities an
amendment of FASB Statement No. 133 (Statement 138) was issued in
June 2000. Statement 138 provides guidance with respect to certain
implementation issues regarding Statement 133.
In September, 2000, the Financial Accounting Standards Board
issued Statement No. 140, (Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities) that
replaces Statement No. 125. This statement provides consistent
standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The standards
are based on the consistent application of the financial components
approach, where upon after a transfer, an entity recognizes the
financial and servicing assets it controls and the liabilities it
has incurred and derecognizes financial liabilities when
extinguished.
This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
March 31, 2001. This statement is effective for recognition and
reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending
after December 15, 2000.
A transfer of financial assets in which the transferor
surrenders control is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred
assets is received in exchange. This statement requires that
liabilities and derivatives transferred be initially measured at
fair value, if practicable. Servicing assets and other retained
interests in the transferred assets are to be measured by
allocating the previous carrying amount between the assets and
retained interest sold, if any, based on their relative fair values
on the date of the transfer.
This statement required the servicing assets and liabilities
be subsequently measured by amortization in proportion to and over
the period of estimated net servicing income or loss and assessment
for asset impairment or increased obligation based on their fair
values.
This statement requires that a liability be derecognized if
the debtor pays the creditor and is relieved of its obligation for
the liability or the debtor is legally released from being the
primary obligor under the liability either judicially or by the
creditor.
As the Company currently has no servicing assets, Management
believes the effect of the adoption will not have a material impact
on the consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys September 30, 2000 analysis of the impact of
changes in interest rates on net interest income over the next 12
months indicates a reduced exposure to lower interest rates
compared to the position at June 30, 2000. In late July 2000, the
Company entered into a new interest rate swap position to partially
mitigate its interest rate risk position at that time. 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 September 30, 2000 levels, and remained constant
at those levels thereafter. Management continually evaluates this
data and could make adjustments to the assets and liability
structure interest rate swap levels, or pricing in the future to
minimize the actual impact of rate changes.
Movement in interest rates from
September 30, 2000 rates
Increase Decrease
+50bp +100bp -50bp -100bp
Net interest income
decrease (in 1000's) ($89) ($143) ($822) ($1,214)
Net income per
share decrease ($0.01) ($0.01) ($0.08) ($0.11)
FORWARD LOOKING STATEMENTS
The statements contained in this report 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. The use of words such as
believes, estimates, plans, expects, and similar
expressions is intended to identify forward-looking statements.
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: 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.
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 third
quarter of 2000.
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: November 10, 2000 By: /s/ Steven Small
Steven Small
Treasurer
Date: November 10, 2000 By: /s/ Rick Guillaume
R.K. Guillaume
Chief Executive Officer
INDEX TO EXHIBITS
27 Financial Data Schedule
