FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter Ended September 30, 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)
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:
Common Stock, $1.00 par value 1,695,863 shares
Class Outstanding at September 30, 1995<PAGE>
ALLEGIANCE BANC CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
(Unaudited) . . . . . . . . . . . . . . . . . .. . 3
Consolidated Statements of Income
Three and nine months ended September 30, 1995,
and 1994 (Unaudited) . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . 5
Note to Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations . . . . . . . . 7
PART II. OTHER INFORMATION. . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
ALLEGIANCE BANC CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands)
September 30, December 31,
1995 1994
ASSETS
Cash and due from banks $ 6,390 $ 5,339
Federal funds sold 3,505 3,000
Investment securities:
Available for sale-at fair value 7,063 9,445
Held to maturity-at amortized cost
fair value of $16,442 at 9/30/95
and $16,739 at 12/31/94 17,054 18,565
Loans 85,591 66,300
Less: Allowance for loan losses (1,045) (1,031)
Loans, net 84,546 65,269
Premises and equipment, net 1,640 1,530
Other real estate owned, net 791 1,307
Accrued interest receivable
and other assets 1,408 1,871
TOTAL ASSETS $122,397 $106,326
LIABILITIES
Deposits:
Noninterest bearing $ 19,886 $ 18,855
Interest bearing 84,107 74,253
Total deposits 103,993 93,108
Short-term borrowing 5,550 1,394
Long-term borrowing 1,000 1,000
Other liabilities 462 246
Total liabilities 111,005 95,748
SHAREHOLDERS' EQUITY
Common Stock-$1.00 par value 1,696 1,696
9-30-95 12-31-94
Authorized 10,000,000 10,000,000
Issued 1,695,863 1,695,863
Surplus 10,640 10,640
Accumulated deficit (818) (1,418)
Net unrealized holding losses on
Securities available for sale (126) (340)
Total shareholders' equity 11,392 10,578
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $122,397 $106,326 <PAGE>
ALLEGIANCE BANC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands, except per share data)
Three Months Nine Months
ended September 30, ended September 30,
1995 1994 1995 1994
Interest Income
Interest and fees on loans $ 2,109 $ 1,290 $ 5,678 $ 3,715
Interest and dividends on
investments 356 563 1,186 1,807
Interest on federal funds sold 15 93 78 175
Total interest income 2,480 1,946 6,942 5,697
Interest Expense
Interest on deposits 984 689 2,701 1,998
Interest on short-term
borrowing 57 10 122 11
Interest on long-term
borrowing 18 12 54 12
Total interest expense 1,059 711 2,877 2,021
Net Interest Income 1,421 1,235 4,065 3,676
(Benefit) Provision
for loan losses 0 0 (100) 70
Net Interest Income After(Benefit)
Provision for Loan Losses 1,421 1,235 4,165 3,606
Other Operating Income
Service charges on
deposit accounts 137 152 383 452
Gains on sales of securities 50 18 101 86
Other income 47 26 127 72
Total other operating income 234 196 611 610
Other Operating Expense
Salaries and employee benefits 633 573 1,887 1,683
Net occupancy and equipment
expense 275 218 800 641
Other real estate owned expense 14 12 143 20
Other expense 298 290 1,029 964
Total other operating expense 1,220 1,093 3,859 3,308
Income Before Income Taxes 435 338 917 908
Applicable income tax expense 152 0 318 0
Net Income $ 283 $ 338 $ 599 $ 908
Per share information:
Net Income $ 0.17 $ 0.20 $ 0.35 $ 0.54
Dividends -0- -0- -0- -0-
ALLEGIANCE BANC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(In thousands)
Nine months ended September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 599 $ 908
Noncash items included in net income:
(Benefit) Provision for loan losses (100) 70
Depreciation and amortization 200 161
Gains on sales of securities (101) (86)
Decrease (increase) in accrued interest
receivable and other assets 463 (459)
Increase (decrease) in other liabilities 216 (33)
Other-net (223) (130)
Net cash provided by operating activities 1,054 431
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (2,182) (4,435)
Proceeds from sales of investment
securities 4,724 9,728
Proceeds from maturities and principal
payments of investment securities 2,066 3,627
Net (increase) decrease in loans (19,291) (9,884)
Bank premises and equipment purchased (310) (165)
Proceeds from sale of Other Real
Estate Owned 454 0
Net cash (used) provided by
investing activities (14,539) (1,129)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 10,885 2,227
Net increase in short-term borrowing 4,156 1,468
Net increase in long-term borrowing 0 1,000
Sale of common stock 0 8
Net cash provided by financing activities 15,041 4,703
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,556 4,005
CASH AND CASH EQUIV. , BEG. OF PERIOD 8,339 6,910
CASH AND CASH EQUIV. , END OF PERIOD $ 9,895 $ 10,915
ALLEGIANCE BANC CORPORATION
NOTE TO FINANCIAL STATEMENTS
Note
1. In the opinion of management, the accompanying unaudited consolidated
financial statements for September 30, 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 September 30, 1995, and December 31, 1994, the
results of operation for the nine months and three months ended September
30, 1995, and 1994, and cash flows for the nine months ended September 30,
1995 and 1994.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The accompanying consolidated financial statements present the
financial condition of Allegiance Banc Corporation (the Company) and its
wholly owned subsidiary, Allegiance Bank, N.A. (The Bank), as of September 30,
1995 and December 31, 1994, and the results of operations for the third
quarters of 1995 and 1994, and the nine month periods ended September 30, 1995
and 1994.
FINANCIAL CONDITION
During the first nine months of 1995, total assets increased by 15.1
percent, from $106.3 million to $122.4 million. Loans increased during the
period by $19.3 million, or 29.1 percent and now stand at $85.6
million. The loan growth was funded by deposit increases of $10.9
million, as well as short-term borrowing increases of $4.2 million.
In addition, the investment portfolio decreased by $3.9 million as
a result of securities sales, calls, and maturities.
Cash balances and federal funds sold increased by $1.6 million
in the period as some of the funds from increased deposits were yet
to be deployed. Federal funds sold and investment securities
available-for-sale represent liquidity available for the Bank's use.
As of September 30, 1995, outstanding loan balances were
$85.6 million compared to $66.3 million at December 31, 1994,
which was an increase of 29.1 percent. At September, 1995, the
Bank had approximately $4 million of loan commitments which
were expected to funded in the near future.
The investment portfolio decreased by $3.9 million during the
first nine months of 1995. This change was reflected in the
available-for-sale portfolio which declined from $9.4 million to
$7.1 million. The held-to-maturity portfolio decreased by $1.5
million during the period, however the market value of the
securities in that portfolio increased by $1.2 million compared to
December 31, 1994, as a result of the drop in market yields for
similar securities. The unrealized loss in the held-to-maturity
portfolio now stands at $612 thousand down from $1.83 million at
December 31, 1994. The net unrealized holding losses represent a
reduction in the market value of the securities. Investment
securities 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 $110 thousand in the first
nine months of 1995, primarily from telecommunications
equipment, Wide Area Network (WAN) and related computer and
software purchases, as well as from the capitalization of leasehold
improvements for the Bank's new Silver Spring branch which
opened in June 1995.
Deposits increased by $10.9 million, or 11.7 percent, in the
first nine months of 1995, and now stand at $104.0 million, up
from $93.1 million at year-end 1994. A decline in money market
deposits was more than offset by an $11.8 million increase in CD
balances. Demand and NOW accounts increased by $1.1 million
and $2.1 million, respectively, during the period. The Bank
successfully introduced telephone banking, a new sweep product,
and computer banking in 1995. These new products and the
opening of the Bank's seventh branch in Silver Spring, Maryland,
are contributing to further deposit growth and providing corporate
customers with more sophisticated tools to manage their
businesses. The ability to provide these products is a result of the
Bank's conversion to a new computer system in the fall of 1994.
Short-term borrowing increased by $4.2 million during the
period as loan demand was greater than deposit growth. The
additional borrowing came from the Bank drawing on its new
repurchase line with the Federal Home Loan Mortgage Corporation
(FHLMC). The Bank also has a short-term borrowing with the
Federal Home Loan Bank of Atlanta for $1.0 million, which was
unchanged from December 31, 1994.
Long-term borrowing also remained unchanged at $1.0 million.
The funds were borrowed in 1994 to fund a specific loan. This
borrowing is a secured advance from the Federal Home Loan Bank
of Atlanta, matures in August 1998, and carries a rate of 7.125
percent.
Shareholders' Equity increased in the first nine months by $814
thousand, as a result of $599 thousand in net earnings and a $215
thousand increase in the market value of investment securities
available-for-sale.
RESULTS OF OPERATIONS
The Company recorded net income of $599 thousand, or $.35
per share for the nine months ended September 30, 1995, and
$283 thousand, or $.17 per share, for the three months ended
September 30, 1995. These results compare to net income of $908
thousand, or $.54 per share for the nine months ended September
30, 1994, and $338 thousand, or $.20 per share for the three
months ended September 30, 1994. In 1994, however, no tax
expense was recorded because the Company had the benefit of a
tax-loss carryforward. The net income for the first nine months of 1995
reflects a tax expense of $318 thousand, $152 thousand of
which was recorded in the third quarter. Pre-tax income in the third
quarter of 1995 rose 30 percent above the third quarter of 1994. However,
due to a weak first quarter, held down by non-recurring expenses, pre-tax
income for the nine months ended September 30 increased by only 1 percent
from $908 thousand in 1994 to $917 thousand in 1995.
Securities gains were $101 thousand in first nine months of 1995, and $86
thousand in the same period in 1994. In the third quarter of 1995 securities
gains were $50 thousand compared to $18 thousand in the third quarter
of 1994.
There was no provision for loan losses recorded in the third
quarters of 1995 and 1994. In the first quarter of 1995, however,
the Company recorded a $100 thousand credit to the provision
for loan losses which was offset by a $100 thousand reserve
expense for other real estate owned. There was no effect on net
income from these transactions.
NET INTEREST INCOME
Net interest income for the third quarter of 1995 was $1.42
million, an increase of 15 percent over the $1.24 million earned in
the third quarter of 1994. Net interest income for the full nine
months was $4.07 million in 1995, up 11 percent from $3.67
million in 1994. Interest income for the first nine months of 1995
included $25 thousand of interest collected that had been charged-off in
prior years, as compared to $81 thousand in 1994.
The Bank's net interest rate spread during the first nine months
of 1995 was 4.28 percent compared to 4.12 percent in 1994. The
net interest margin, or net interest income as a percent of average
earning assets, increased to 5.15 percent in the first nine months of
1995, compared to 4.78 percent in 1994. The improved
performance in 1995 was a result of a larger proportion of the
Bank's earning assets in loans which have higher yields than
investment securities or federal funds sold. The percentage of
earning assets in loans increased to 73 percent in 1995 from 55
percent in 1994. The Bank also benefited from a large number of
floating rate loans tied to the prime rate which rose 250 basis
points from early 1994 to 1995, before falling slightly in July
1995. Overall, during the first nine months of 1995 the yield on
earning assets increased to 8.85 percent in 1995 from 7.56 percent
in 1994, an increase of 129 basis points, while the rate paid on
interest bearing liabilities increased by only 113 basis points to
4.57 percent in 1995 from 3.44 percent in 1994. The increase in
the rates paid on interest-bearing liabilities was reflected in a 114
basis point rise in CD rates and a 69 basis point rise in the rates
paid on money market deposit accounts in 1995 compared to 1994.
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
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 quarter of 1995, management reduced the
Allowance for Loan Losses by $100 thousand. At the same time,
there was a corresponding transaction to establish a reserve against
the Bank's Other Real Estate Owned. When appropriate, Bank
accounting rules recommend the establishment of a specific
reserve for possible losses on Other Real Estate Owned. The
transfer from the allowance for loan losses was possible because
internal and external analysis indicated that the Bank had sufficient
reserves for the loan portfolio. The Bank had $115 thousand of net
recoveries added to the Allowance for Loan Losses during the first
nine months of 1995.
Other Real Estate Owned declined from $1.30 million at
December 31, 1994, to $791 thousand at September 30, 1995, as a
result of the sale of two of the four properties. At the time of the
sales, $39 thousand was charged against the Other Real Estate
Owned reserve reducing it to $61 thousand at September 30, 1995.
At September 30, 1995, the Allowance for Loan Losses was
$1,045 thousand, or 1.2 percent of loans, compared to $1.114
million at September 30, 1994, representing 1.8percent of loans.
The Allowance at year-end 1994 was $1.031 million, or 1.6
percent of loans.
Credit quality continues to improve at the Bank, as reflected in
a decline in past-due credits. At September 30, 1995 the Bank had
$54 thousand of loans past due for 30-89 days. This was a decline
from the $769 thousand of similar category loans at September 30,
1994, and from the $257 thousand reported at the end of 1994.
There were no loans past-due 90 days or more at September 30,
1995 or 1994, and none at December 31, 1994. Non-accrual loans
totaled $846 thousand at September 30, 1995. This was a decline
from $1.0 million at the end of 1994. It is also a reduction from
the $1.8 million of non-accrual loans reported at September 30,
1994. Loans secured by real estate account for $817 thousand of
the total non-accrual loans at September 30, 1995. The remaining
loan is a commercial loan of $29 thousand. On September 30, 1994
the non-accrual loans were $1.3 million in real estate loans and
$473 thousand of commercial loans.
NON-INTEREST INCOME
Non-interest income for the first nine months of 1995 was $611
thousand, unchanged from the $610 thousand in 1994. For the
three month period, non-interest income was up by $38 thousand
to $234 thousand from $196 thousand in 1994. Securities gains in
the third quarter were $50 thousand compared to $18 thousand in
the third quarter of 1994, and for the nine months securities gains
were $101 thousand in 1995 and $86 thousand in 1994. Service
charges on deposit accounts were down compared to 1994 in both
the three month and nine month periods. This was a result of an
increase in the earnings credit on available balances given to
corporate customers. The earnings credit is used to offset bank
deposit charges. The rate is based on the three month treasury bill
rate which increased substantially between early 1994 and 1995.
NON-INTEREST EXPENSE
Non-interest expense for the first nine months of 1995 was
$3.86 million, up 17 percent, compared to $331 million in the first
nine months of 1994. $100 thousand of this increase was related to
the OREO reserve transfer. Salaries and benefits increased $204
thousand as the bank added lending officers, branch staff, and one
senior retail officer, and opened a new branch in June 1995. There
was approximately $30 thousand of non-recurring expenses due to
severance payments occurring in the first quarter of 1995.
Occupancy and Equipment rose 25 percent from $641 thousand
for the first nine months in 1994 to $800 in 1995. For the three
month period occupancy and equipment expense increased from
$218 thousand in 1994 to $275 thousand in 1995. These increases
were due to opening a new branch in Gaithersburg, moving the
Wheaton branch to a larger site, opening a new branch in Silver
Spring, and communication and computer equipment purchased in
the Bank's conversion to a new computer system in late 1994.
Other expenses increased by $65 thousand during the first nine
months of 1995 reflecting non-recurring expenses incurred in the
first quarter of 1995 relating to consulting and ATM expenses
incurred as a result of the computer conversion. Otherwise,
increases in advertising, courier expense, and data processing
were offset by decreases in loan collection expenses and an FDIC
insurance rate reduction and refund.
INCOME TAXES
In the first nine months of 1995 the Company recorded a tax
expense of $318 thousand compared to zero in 1994. In 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 (FAS) 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.
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 includes the allowance for loan losses. For
bank holding companies with 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 percent and
8.0 percent, respectively. At September 30, 1995, the Bank was
well in excess of regulatory minimums with the Tier 1 ratio at
12.09 percent and the total risk-based capital ratio at 13.34 percent.
At September 30, 1994, the corresponding ratios were 15.0
percent and 16.4 percent. The decrease reflects the loan growth
that the Bank has experienced during the last year.
The Bank's leverage ratio, another regulatory capital measure,
is Tier 1 capital divided by average total assets. The regulatory
minimum for certain institutions is 3.0 percent, with most
institutions required to maintain a ratio of at least 4.0 percent to 5.0
percent, depending upon risk profiles and other factors. At
September 30, 1995 and 1994, the Bank's leverage ratio was 9.6
percent, reflecting the Bank's capital accumulating at the same
rate as asset growth.
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 Company may
also 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 September 30, 1995, the Bank's liquidity
sources were 1.6 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 percent, either positive or negative, for the
various periods measured. At September 30, 1995, the Bank had a
cumulative negative gap out to one year of 5.38 percent of earning
assets.
The following table presents the Bank's gap measurements as of September
30, 1995.
0-3 3-6 6-12
MONTHS MONTHS MONTHS 1-5 YRS. 5 YEARS
RATE SENSITIVE
ASSETS
Investment Securities 6,345 2,318 751 10,259 3,982
Loans 53,335 317 4,713 20,177 6,940
Federal Funds Sold 3,564
------- ------ ------- ------- -------
TOTAL 63,244 2,635 5,482 30,436 10,922
RATE SENSITIVE
LIABILITIES
NOW Accounts 11,103
Money Market 33,484
CDS 5,108 11,259 10,916 12,081 211
Other Borrowing 5,550 1,000
------- ------- ------ ------- -------
TOTAL 55,245 11,259 10,916 13,081 211
-------------------------------------------------------------------------
Cumulative Gap 7,999 (625) (6,059) 11,296 22,007
=============================================
Ratio of cumulative gap
to earning assets 7.10% -0.55% -5.38% 10.02% 19.52%
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.
<PAGE>
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 thereunto duly authorized.
Allegiance Banc Corporation
(Registrant)
DATE: November 13, 1995 BY: s/ CHARLES V. JOYCE III
Charles V. Joyce III, Controller
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000807522
<NAME> ALLEGIANCE BANC CORPORATION
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<S> <C>
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<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
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<INT-BEARING-DEPOSITS> 0
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