FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter Ended March 31, 1995
Commission file number 0-16706
Allegiance Banc Corporation
(Exact name of registrant as specified in its charter)
Delaware 52-1494123
(State or other jurisdiction of
(IRS employer identification
incorporation or organization)
number)
4719 Hampden Lane, Bethesda, MD 20814
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 656-5300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock:
Class
Outstanding at March 31, 1995
Common Stock, $1.00 par value
1,695,863 shares
ALLEGIANCE BANC CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income
Three months ended March 31, 1995 and 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows
Three months ended March 31, 1995 and 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 7
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 14
ALLEGIANCE BANC CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31 December 31
1995 1994
ASSETS
Cash and due from banks $ 5,339,047 $ 5,338,702
Federal funds sold 3,800,000 3,000,000
Investment securities:
Available for sale-at fair value 9,547,880 9,444,781
Held to maturity-at amortized cost
fair value of $17,355,179 at 3/31/95
and $16,739,186 12/31/94. 18,560,221 18,564,708
Loans 67,683,376 66,300,378
Less: Allowance for loan losses (943,160) (1,030,895)
Loans, net 66,740,216 65,269,483
Premises and equipment, net 1,575,348 1,530,210
Other real estate owned, net 988,793 1,306,556
Accrued interest receivable and other assets 1,715,122 1,871,754
TOTAL ASSETS $108,266,627 $106,326,194
LIABILITIES
Deposits:
Noninterest bearing $ 16,961,659$ 18,855,398
Interest bearing 77,500,234 74,252,542
Total deposits 94,461,893 93,107,940
Short-term borrowing 1,651,229 1,393,573
Long-term borrowing 1,000,000 1,000,000
Other liabilities 347,393 246,416
Total liabilities 97,460,515 95,747,929
SHAREHOLDERS' EQUITY
Common Stock-$1.00 par value 1,695,863 1,695,750
3-31-95 12-31-94
Authorized 10,000,000 10,000,000
Issued 1,695,863 1,695,750
Surplus 10,640,450 10,640,450
Accumulated deficit (1,333,543) (1,417,881)
Net unrealized holding losses on securities available for sale
(196,658) (340,054)
Total shareholders' equity 10,806,112 10,578,265
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $108,266,627 $106,326,194
ALLEGIANCE BANC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months
ended March 31
1995 1994
Interest Income
Interest and fees on loans $ 1,650,444 $ 1,234,499
Interest and dividends on investments 437,686 640,441
Interest on federal funds sold 29,114 30,541
Total interest income 2,117,244 1,905,481
Interest Expense
Interest on deposits 803,893 661,046
Interest on short-term borrowing 18,801 156
Interest on long-term borrowing 17,274 0
Total interest expense 839,968 661,202
Net Interest Income 1,277,276 1,244,279
(Benefit) Provision for loan losses (100,000) 60,000
Net Interest Income After (Benefit) Provision for
Loan Losses 1,377,276 1,184,279
Other Operating Income
Service charges on deposit accounts 120,399 137,728
Gains on sales of securities 0 54,956
Other income 23,883 21,223
Total other operating income 144,282 213,907
Other Operating Expense
Salaries and employee benefits 641,323 538,313
Net occupancy and equipment expense 240,661 211,823
Other real estate owned expense 115,080 4,045
Other expense 396,253 324,703
Total other operating expense 1,393,317 1,078,884
Income Before Income Taxes 128,241 319,302
Applicable income tax expense 43,902 -0-
Net Income $ 84,339 $ 319,302
Per share information:
Net Income $ 0.05 $ 0.19*
Dividends -0- -0-
*Adjusted for June 1994 stock split
ALLEGIANCE BANC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 84,339 $ 319,302
Noncash items included in net income:
(Benefit) Provision for loan losses (100,000) 60,000
Depreciation and amortization 62,037 54,300
Gains on sales of securities -0- (54,956)
Decrease (Increase) in accrued interest
receivable and other assets 156,632 (427,844)
Increase (Decrease) in other liabilities 100,977 (1,589)
Other-net 222,698 (166,965)
Net cash provided (used) by operating activities 526,683 (217,752)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities -0- (2,018,594)
Proceeds from sales of investment securities -0- 3,563,437
Proceeds from maturities and principal payments of
investment securities 152,226 1,227,974
Net increase in loans (1,382,998) (955,466)
Bank premises and equipment purchased (107,175) (17,700)
Net cash (used) provided by investing activities(1,337,947) 1,799,651
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 1,353,953 (1,825,794)
Net increase in short-term borrowing 257,656 60,854
Net cash provided (used) by financing activities 1,611,609 (1,764,940)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 800,345 (183,041)
CASH AND CASH EQUIVALENTS AT JANUARY 1, 1995/1994 8,338,702 6,910,118
CASH AND CASH EQUIVALENTS AT March 31, 1995/1994 $9,139,047 $6,727,077
ALLEGIANCE BANC CORPORATION
NOTES TO FINANCIAL STATEMENTS
Notes
1. In the opinion of management, the accompanying unaudited consolidated
financial statements for March 31, 1995, and December 31, 1994 contain
all adjustments (consisting of normal recurring adjustments) in conformity
with generally accepted accounting
principles necessary to present fairly the financial position as of
March 31, 1995, and December 31, 1994, the results of operation for the
three month periods ended
March 31, 1995, and 1994, and cash flows for the three month periods
ended March 31, 1995 and 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The accompanying consolidated financial statements present the
financial condition of the Company, Allegiance Banc Corporation, and its
wholly owned subsidiary, Allegiance Bank, N.A., as of March 31, 1995 and
December 31, 1994 , and the results of operations for the first quarters of
1995 and 1994.
FINANCIAL CONDITION
During the first three months of 1995, assets increased by $1.9
million, or 1.8%. Cash balances and federal funds sold increased by $800
thousand, and loans increased by $1.4 million to $67.7 million. The
investment portfolio also increased by $100 thousand and other real estate
owned decreased by $300 thousand. Total deposits at March 31 were also
higher by $1.4 million.
Cash balances increased during the first three months of 1995
primarily from the sale of other real estate owned and from a $300 thousand
increase in customer repurchase agreements. Cash, federal funds and
short term investment securities represent liquidity available for
the Bank's use.
As of March 31, 1995, outstanding loan balances were $67.7 million
compared to $66.3 million at December 31, 1994, which was an increase
of 2.1%. At the end of March the Bank had approximately $10 million of
loan commitments outstanding.
The investment portfolio remained fairly stable in the first quarter.
The held-to-maturity portfolio was unchanged, while the available-for-sale
securities increased by $100 thousand. This reflects an increase in
market value offset by principal paydowns on mortgage-backed securities.
There were no securities sales or purchases during the quarter.
The Available-for-Sale portfolio unrealized loss decreased in the first
quarter by $143,000 after-tax, as interest rates fell substantially
across the entire yield curve. The net unrealized holding
loss was $196 thousand at March 31, 1995. The net unrealized
holding losses represent a reduction in the market value of the secur-
ities and is not a reflection of credit risk. Securities investments
continue to be in U.S. Treasury and U.S. Government Agency obligations
which do not represent a credit risk.
Premises and equipment increased by $45,000 in the first quarter
primarily from telecommunications equipment and Wide Area Network (WAN)
related computer and license purchases.
Deposits increased by $1.4 million in the first quarter as declines
of $4.5 million in demand, NOW and money market accounts were offset
by an increase of $5.9 million in CD balances. Management anticipates
that the demand and money market balances will return in the second
quarter, and that CD activity will remain strong. The bank is also sched-
uled to open a new branch in Silver Spring, Maryland in June which will
create additional deposit growth. The Bank is introducing telephone bank-
ing, a new sweep product and computer banking in the second quarter. All
of these new products are anticipated to create further deposit growth
and provide our corporate customers with more sophisticated tools
to manage their business. The ability to provide these products is a
result of the Bank's conversion to a new computer system with enhanced
capabilities in the fall of 1994.
Short-term borrowing increased by $300 thousand during the period
as a result of our customers increasing their repurchase agreement
investments from $400 thousand to $700 thousand. In addition to
$700 thousand of customer repurchase agreements, the bank also has
a three month secured advance from the Federal Home Loan Bank of
Atlanta for $1.0 million. This amount is unchanged from 12/31/94.
Long-term borrowing also remained unchanged at $1.0 million.
This is a four year borrowing that matures in August, 1998.
The funds were borrowed in 1994 to fund a specific loan. This borrowing
is also a secured advance from the Federal Home Loan Bank of Atlanta.
Shareholders' Equity increased by $228 thousand in the three month
period as a result of $84 thousand in net earnings and an $143 thousand
increase
in the market value of the available-for-sale securities portfolio.
RESULTS OF OPERATIONS
The Company recorded net income of $84 thousand, or $.05 per share
for the three months ended March 31, 1995. This compares with net income
for the same period in 1994 of $319 thousand. In 1994 there were securities
gains of $55 thousand. There was also no tax expense recorded in 1994 since
the Company had the benefit of a tax-loss carryforward. The net income
for the first three months of 1995 reflects a tax expense of $44 thousand,
and there were no securities gains during the period.
There was also approximately $60 thousand of non-recurring expenses in the
first three months of 1995 compared to 1994. The loan provision for the
first quarter of 1994 was $60 thousand, compared to a $100 thousand credit
in 1995 which was offset by a $100 thousand reserve established for other
real estate owned.
NET INTEREST INCOME
Net interest income for the first three months of 1995 was $1.277
million compared to $1.244 million the same period last year. Interest income
for 1994
includes $67 thousand of interest collected in 1994 on a loan which had been in
non-accrual status in 1993 and which became current in principal and interest
payment. This
represents an improvement of $33 thousand, or 2.7%. Interest income increased by
$212
thousand, while interest expense increased by $179 thousand. The net spread
between
interest bearing assets and interest bearing liabilities increased from 3.90%
(note: The
$67 thousand of prior years' interest recovered and posted to income was not
included in
the 1994 spread and yield numbers) in the first three months of 1994 to 4.40%
in the
same period in 1995. The net yield increased in the same period from
4.62% to 5.22%, while the average earning assets were virtually unchanged.
The yield on interest earning assets improved from 7.37% to 8.73%, and
the yield on deposits and borrowing increased from 3.47% to 4.33%.
The yield on the largest earning asset category--loans, increased by 140
basis points, mostly due to the 250 basis point rise in the prime rate
from March, 1994 to March, 1995. The yield on investments changed only
slightly, rising from 6.02% to 6.06%, and the rates on CDs and Money Market
accounts increased by 86 basis points and 62 basis points respectively.
PROVISION FOR LOAN LOSSES
The Bank maintains an allowance for loan losses to absorb losses which
could occur in the loan portfolio. The provision for loan losses is a
charge to earnings to maintain the allowance at an adequate level. On
a quarterly basis, management conducts a thorough review of the loan
portfolio, evaluating factors such as historical loss experience,
historical delinquency, portfolio trends in composition, collateral and
industry concentrations, peer bank loss and delinquency experience, credit
commitments, economic trends, effectiveness of loan policies and procedures,
and an individual analysis of loans classified as Substandard and
Doubtful to determine probability of loss based on collateral,
restructuring and alternative repayment sources. Between reviews, events
may occur which dictate immediate adjustments to the allowance, and these
are addressed as required.
During the first three months of 1995, management recorded a negative
provision to the Allowance for Loan Loss Reserve of $100 thousand. This
was a transfer of reserves from the Allowance for Loan Losses to establish a
reserve
against other real estate owned assets of the Bank. Bank accounting rules
recommend the
establishment of a reserve against other real estate owned assets. This
transfer from the
allowance for loan loss reserve is possible because internal and external
analysis
indicates that the Bank has excess reserves against its loan portfolio. The
Bank also had
$21 thousand of recoveries added
to the Loan Loss Reserve in the first quarter and $9 thousand of
charge-offs reducing the Reserve.
Other real estate owned declined from a 12/31/94 balance of
$1.3 million to $1.0 million at 3/31/95 as a result of the sale of one
of the four properties. At the time of the sale, $15 thousand was charged
against the other real estate reserve reducing it to $85 thousand at
the end of March.
At 3/31/95, the Allowance for Loan Losses was $943 thousand, or 1.4%
of loans, compared to $1.068 million at 3/31/94, representing 2.0% of loans
outstanding. The Allowance at year-end 1994 was $1.031 million, or 1.6%.
At March 31, 1995 the Bank had only $167 thousand of loans past-due
for 30-89 days. This is a significant drop from the $894 thousand of similar
category loans at March, 1994, and a drop from $257 thousand reported at
the end of 1994. There were no loans past-due 90 days at 12/31/94, 3/31/94,
or 3/31/95.
Non-accrual loans totalled $922 thousand at March 31, 1995. This was
a drop from $1.0 million at the end of 1994. It is also a reduction from
the $1.1 million of non-accrual loans reported at 3/31/94. Loans secured
by real estate account for $720 thousand of the total non-accrual loans at
March 31, 1995. Commercial loans of $265 thousand and installment debt
of $7 thousand make-up the remainder. Additionally, $235 thousand of the
commercial loan total is guaranteed by the Small Business Administration.
NON-INTEREST INCOME
Non-interest income for the first three months of was $144 thousand,
a decrease of $70 thousand. There were no securities gains in the first
three months of 1995 compared to $55 thousand in 1994. Service charges
on deposit accounts were $120 thousand in 1995, down 12.6% from 1994.
This was a result of customers managing their accounts better and
from an increase in the earnings credit given to corporate customers as
a result of the rate on the three month t-bill, on which the earnings is
based, almost doubling from 3.5% to 6.0%.
NON-INTEREST EXPENSE
Non-interest expense for the first three months of 1995 increased $314
thousand over the same period last year. Other real estate owned expense
increased by $111 thousand of which $100 thousand represents the charge
to establish the reserve for other real estate owned. Occupancy and equipment
expense increased by $29 thousand as a result of opening a new branch in
Gaithersburg and moving our Wheaton branch to a larger site. It was also
impacted by increased costs associated with new communication and computer
equipment purchased in the Bank's conversion to a new computer system in
late 1994. Salaries and benefits increased by $103 thousand as the Bank
added lending officers, branch staff, and one senior retail officer.
There were also approximately $30 thousand of non-recurring expenses
due to severance payments occurring in the first quarter of 1995.
Other expenses increased by $71 thousand over 1994 resulting from
increased costs for data processing, advertising, and courier expenses.
Additionally there were some non-recurring expenses for consulting and
ATM expenses relating to the 1994 computer system conversion.
INCOME TAXES
In the first three months of 1994 the Company benefited from a net
federal operating loss carryforward and did not record any tax expense.
In late 1994, the Company was required by Financial Accounting Standard
109 to record a tax benefit to recognize the future effects of the
Company's deferred tax assets including the tax loss carryforward. This
tax benefit is required if the Company's current and expected earnings will
allow the Company to realize its deferred tax benefits in the future.
FAS 109 requires that all of this future benefit be recognized immediately.
The result of this tax accounting adjustment is that the Company
will record income tax expense at full current corporate federal and
state tax rates going forward. This resulted in tax expense of $44 thous-
and in the first quarter of 1995 based on pre-tax income of $128 thousand.
CAPITAL REQUIREMENTS
Risk based capital requirements require banks and bank holding
companies to maintain minimum ratios of capital to risk-weighted assets
and off-balance sheet credit arrangements. Total capital is classified into
two tiers, referred to as Tier 1 and Tier 2. The Bank's Tier 1 capital is
composed of common stockholders' equity, while Tier 2 capital is composed
of the qualifying portion of the allowance for loan and lease losses. For
bank holding companies with consolidated assets of less than $150 million,
the risk-based capital guidelines generally are applied on a bank-only
basis.
The regulatory minimums for the Bank's Tier 1 risk-based capital
ratio and total risk-based capital ratios are 4.0% and 8.0% respectively.
At March 31, 1995, the Bank was well in excess of regulatory minimums
with the Tier 1 ratio at 14.2% and the total risk-based capital ratio
at 15.5%. At March 31, 1994 the ratios were 15.8% and 17.1%.
The Bank's capital leverage ratio, another regulatory measure, is
Tier 1 capital divided by average total assets. The regulatory minimum for
certain institutions is 3.0%, with most institutions required to maintain a
ratio of at least 4.0% to 5.0%, depending upon risk profiles and other
factors. At March 31, 1995, the Bank's capital leverage ratio was 9.8%
compared to 9.0% at March 31, 1994.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is a measure of the Bank's ability to generate and maintain
sufficient cash flows to fund operations and to meet financial obligations
to depositors and borrowers promptly and in a cost-effective manner. The
Bank's liquidity is provided by amortizing and maturing loans, maturities
and paydowns of investment securities, securities and loans that can serve
as collateral for borrowing, federal funds sold and readily marketable
investment securities. Deposit growth and earnings also contribute to the
Bank's liquidity. In the event necessary, the Parent Company may sell
securities from its available for sale portfolio to fund its own
liquidity needs.
The Bank's liquidity sources and needs are measured on a monthly basis
and forecast six months. The analysis includes a review of current and
future loan demand, and anticipated deposit growth or contraction. At
March 31, 1995 the Bank's liquidity sources were 1.5 times anticipated
liquidity needs, which is in excess of the established management
guidelines of 1.3 times anticipated liquidity needs.
Because of the significant impact interest rate fluctuations may have
on the Bank's performance, management continually monitors the interest
rate sensitivity of its assets and liabilities. The common measurement
term is "gap", which refers to the relationship of earning assets to
interest-bearing liabilities within the time period in which they will
mature or reprice. A positive gap, wherein earning assets exceed interest-
bearing liabilities, positions the Bank to respond to rising interest
rates. A negative gap, wherein interest-bearing liabilities exceed earning
assets, positions the Bank to respond to declining interest rates.
Management strives to forecast far enough into the future so they
can fine-tune the earning assets and liabilities to respond to changes
in rates. As a guide, management tries to maintain a gap not greater than
15%, either positive or negative, for the various periods measured.
At March 31, 1995 the Bank had a cumulative negative gap out to one year
of 8.6% of earning assets.
The following table presents the Bank's gap measurements as of
March 31, 1995.
OVER
3 MONTHS 6 MONTHS 12 MONTHS 1-5 YRS. 5 YEARS
RATE SENSITIVE ASSETS
Investment Securities 4,084 3,410 2,549 14,065 3,772
Loans 40,491 895 1,649 16,905 7,642
Federal Funds Sold 4,732
------- ------- ------- ------- -------
TOTAL 49,307 4,305 4,198 30,970 11,414
RATE SENSITIVE LIABILITIES
NOW Accounts 8,103
Money Market Accounts 35,923
Certificate of Deposits 4,952 4,787 11,010 12,881 194
Other Borrowing 1,651 1,000
------- ------- ------- ------- -------
50,629 4,787 11,010 13,881 194
---------------------------------------------
Cumulative Gap (1,322) (1,804) (8,616) 8,473 19,693
=============================================
Ratio of cumulative gap to
earning assets -1.32% -1.80% -8.60% 8.46% 19.65%
PART II
OTHER INFORMATION
Items 1 through 6(b)
Management notes that no occurrences have taken place during the reporting
period
which require disclosure under any of the captioned headings.
ALLEGIANCE BANC CORPORATION
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
thereun to duly
authorized.
Allegiance Banc Corporation
(Registrant)
DATE: May 15, 1995 BY:
Stephen C. Jones , Controller
