SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 [Fee Required]
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 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 number)
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
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $1.00 per share
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 by check mark if disclosure of delinquent filers pursuant to
Items 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of January 31, 1996 there were 1,708,463 shares of registrant's voting
common stock outstanding. Based on a closing price of $11.00 per share, the
aggregate market value of common stock held by non-affiliates on that date was
approximately $15,037,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for its Annual Meeting
of Stockholders to be held on May 22, 1996, are incorporated by reference in
response to certain items contained in Part III of this Report.
Part I
Item 1. Business
Allegiance Banc Corporation, Inc. (the "Company") was incorporated in
Delaware on October 27, 1986 under the name "Montgomery Bancorp, Inc.," for
the purpose of becoming a bank holding company. On March 16, 1987, the Company
received approval from the Federal Reserve Board (the "FRB") to become a one
bank holding company by acquiring control of Montgomery National Bank
("Montgomery"). On March 7, 1990, the Company received approval from the
Federal Reserve Board to acquire control of Prince George's National Bank
("Prince George's"). On February 11 and 12, 1992, the Boards of Directors of
Montgomery National Bank and Prince George's National Bank each approved in
principle the merger of the two subsidiaries into a single bank. On
February 26, 1992, the Board of Directors of the Company ratified the proposed
merger agreement. On December 10, 1992 final approval for the merger was
received from bank regulators and the merger was effected on that date, with
the new name of Allegiance Bank, N.A.("the Bank").
With the prior approval of the Federal Reserve Board, a bank holding
company may engage in non-banking activities closely related to the business of
banking, such as the making and servicing of consumer finance loans made by
other companies, credit card issuance, mortgage financing, and commercial
financing. Further, the Federal Reserve Board presently takes the position
that among various other activities, giving investment or financial advice,
leasing of personal or real property, and providing data processing and bank
courier services are activities so closely related to the business of banking
as to be permissible to bank holding companies. In addition, the Federal
Reserve Board permits bank holding companies to form subsidiaries which may
invest, subject to certain limitations, in firms that engage in venture
capital activities. Although the Company does not presently engage in any of
the aforementioned activities, the Company may seek approvals to do so, if
favorable opportunities are presented in the future.
The Company was initially capitalized with $8,000,000 from an offering
of 800,000 shares of common stock that was fully subscribed on April 1, 1987.
On June 15, 1987, the Company purchased 600,000 shares, par value $5.00, of the
common stock of Montgomery. The remaining $2,000,000 of the proceeds of the
initial offering was retained in the Company until December 24, 1990 when the
Company purchased an additional 75,000 shares of the common stock of
Montgomery for $750,000. On September 5, 1991 and December 31, 1991, the
Company invested $350,000 and $300,000 in Montgomery National Bank,
respectively.
These transactions were effected as transfers to Montgomery's surplus
account. On January 3, 1989, 200,000 new shares of common stock were issued as
a 5 for 4 stock split effected in the form of a stock dividend bringing the
total shares outstanding to 1,000,000. On September 13, 1989, the Company
offered an additional 600,000 shares at $10.00 per share. The purpose of
this offering was to raise at least $4,000,000 in capital to be used to form a
new bank, Prince George's, which would be wholly owned by the Company. The
offering was concluded on December 8, 1989, after the Company received and
elected to accept subscriptions for 410,000 shares of stock representing
$4,100,000. Of this amount, $4,000,000 was used to capitalize Prince George's
and $100,000 to offset offering expenses and other corporate purposes. The
Company had 1,410,000 shares outstanding.
On June 15, 1994, the Company issued a 20 percent dividend as a result of
a stock split. This resulted in 1,695,863 shares outstanding after the split.
The number of shares authorized was also increased from 2,500,000 to 10,000,000
at the time of the stock split.
Business of the Bank
Montgomery was granted permission by the Office of the Comptroller of the
Currency (the "OCC") to commence business on June 15, 1987. It operated out of
its main office location, 4719 Hampden Lane, Bethesda, Maryland. On
November 18, 1987, Montgomery's first branch commenced business at
838-C Rockville Pike, Rockville, Maryland. On February 27, 1989, a second
branch commenced business at 2541 Ennalls Avenue, Wheaton, Maryland.
Prince George's was granted permission by the OCC to commence business on
March15, 1990. It operated out of its main office location, 8401 Corporate
Drive, Landover,Maryland. On June 15, 1991, its first branch commenced
business at 10533 Baltimore Boulevard, Beltsville, Maryland.
Montgomery National and Prince George's were given approval by the OCC to
merge on December 10, 1992. The name of the resulting bank is Allegiance Bank,
N.A. (the Bank). Allegiance Bank, N.A. maintains its headquarters and main
office at 4719 Hampden Lane, Bethesda, Maryland. It maintains six other
branch offices in Beltsville, Gaithersburg, Landover, Rockville, Silver
Spring and Wheaton, Maryland. At December 31, 1995, the Bank had 59
full-time employees, capital accounts of $10,951,178, deposits of $107,917,551
and total assets of $130,470,783.
A. Market Areas
The Banks were formed to service the needs of the small to medium sized
businesses and professionals in Montgomery and Prince George's Counties,
Maryland while providing quality service to consumers within the primary
service areas of each Bank. Since the merger of Montgomery and Prince George's,
Allegiance Bank, N.A. continues to provide the same services in the same
areas.
The Bank has designated two primary service areas, one of which is in
central and eastern Montgomery County, bordered on the North by the Frederick
County and Howard County lines. It is bordered on the South by the District of
Columbia and the Potomac River. It is bordered on the East by the Prince
George's County and Howard County lines. It is bordered on the West by Slidell
Road, Barnesville Road, Ground Road and Seneca Creek State Park. Included
within this service area are the communities of Bethesda, Chevy Chase,
Darnestown, Germantown, Rockville, Wheaton, Kensington, Garrett Park,
Gaithersburg, Cabin John, Silver Spring, Takoma Park and Potomac.
The other primary service area is in northern Prince George's County and
is bordered on the North by the Howard County and Montgomery County lines, on
the South by Route 4 (Pennsylvania Avenue), on the East by the Anne Arundel
County line, and on the West by the Montgomery County and the District of
Columbia lines. Included within this service area are the communities of
Landover, Lanham, Greenbelt, College Park, Beltsville, Capitol Heights,
Laurel, Bowie, Hyattsville, Riverdale and Upper Marlboro. All of these
communities are considered potential branching opportunities.
The Bank, while attracting some loan and deposit business from outside its
service areas, continues to concentrate marketing and business development
efforts within its primary areas. Growth has come from the areas in lower
Montgomery County accessible to Bethesda,
Rockville, Silver Spring and Wheaton. In Prince George's County, growth has
come from the Landover/Lanham area, which includes the Washington Business Park,
and the Ardwick-Ardmore industrial park area near the Landover branch, and
from the Beltsville and Laurel areas, near the Beltsville branch.
As resources and growth patterns permit, the Bank will seek to extend its
services to other areas of the two counties. The Directors believe that this
pattern of growth will best satisfy the Company objectives of servicing its
target market, community businesses and professionals.
B. Description of Services
The Bank offers full commercial banking services to its business and
professional clients as well as consumer banking services to individuals living
and/or working in its primary service areas.
The loan portfolio consists primarily of business loans with variable
rates and/or short maturities, where the cash flow of the borrower is the
principal source of debt service with a secondary emphasis on collateral. Real
estate loans have been granted for commercial and residential purposes,
structured using variable rates, short (three to five year) maturities and/or
fifteen year maturities. Consumer loans have been made on the traditional
installment basis for a variety of purposes.
In general, the following credit services are offered:
1) Commercial loans for business purposes including working capital,
equipment purchases, real estate, lines of credit, and government contract
financing. Asset based lending, accounts receivable and inventory are available
on a selective basis.
2) Real estate loans for business and investment purposes. Residential
first mortgages for extended terms are an exception.
3) Traditional general purpose consumer installment loans including
automobile and personal loans. In addition, the Bank offers personal lines of
credit and equity lines of credit.
By loan type, the portfolio is weighted toward the real estate
(63.7 percent) and commercial (27.9 percent) sectors, with loans to individuals
accounting for the remaining 8.4percent of outstanding loan balances at
December 31, 1995. The trend is decidedly expansive for real estate and
commercial credits, with loans secured by various types of real estate having
grown by 50.0 percent while commercial loans increased by 42.1 percent in 1995.
Industry concentrations of business related credits include: income
producing real estate (51.5 percent), retailers (5.7 percent), professional
and consultant services (3.1 percent), health care (2.6 percent), subcontractors
(3.4 percent) and publishers and printers (2.1 percent).
Collateral mix follows the portfolio concentration mix, with orientation
toward real estate secured credits that constitute 60.6 percent of the total
loan portfolio (48.9 percent as priority liens, with the remaining 11.7 percent
as subordinate liens).
The potential risks associated with the Bank's loan portfolio are generally
associated with economic influences within the geographic market served. The
greater Washington D.C. market, was impacted greatly by the recent recession.
Recovery has been sluggish, due to the slow return of real estate values.
Improvements in the regional economy are occurring, with retail properties being
absorbed reasonably well, as are office properties in most areas. However,
certain areas continue to reflect serious problems, such as the office market in
Northern Virginia as well as the resale market for homes in the range of
$300 thousand and above.
The Bank's underwriting standards are conservative, with typically high
coverage of debt service and low loan-to-value ratios. Bank policy requires a
loan-to-value ratio of 75 percent for commercial real estate used to secure
loans considerably more conservative than that required by regulators or as seen
at competitive banks. The Bank is equally as conservative in it's loan-to-value
requirements for other types of loans.
Deposit services include business and personal checking accounts, NOW
accounts, and a tiered savings/Money Market Account. Certificates of deposit
are offered using a tiered rate structure and various maturities. The
acceptance of brokered deposits is not a part of the Bank's current strategy.
An individual retirement account (IRA) program is also offered.
Other services for business accounts include cash management services such
as sweep accounts, repurchase agreements, account reconciliation, credit card
depository, execubank services, and Automated Clearing House origination. An
after-hours depository and ATM service is available.
C. Competition
In both Montgomery and Prince George's Counties, and in the Washington,
D.C. metropolitan area generally, competition is exceptionally keen from large
banking institutions headquartered locally as well as in other regions of the
country. In addition, the Bank competes with local community banks, strong
savings and loan associations, credit unions, mortgage companies, and others
providing financial services. Among the advantages that many of these
institutions have over the Bank is their ability to finance extensive
advertising campaigns and to directly offer certain services, such as
international banking, trust services and sales of mutual funds, which are
not offered directly by the Bank. Further, the greater capitalization of the
larger institutions allows for substantially higher lending limits than those
of the Bank.
D. Supervision and Regulation
The Company. The Company is a bank holding company within the meaning of
the Bank Holding Company Act of 1956, as amended (the "Holding Company Act") and
is registered as such with, and subject to supervision by, the Federal Reserve
Board (FRB). The FRB may make examinations of the Company and has the authority
to regulate certain bank holding company debt.
The Holding Company Act requires a bank holding company to obtain the prior
approval of the FRB before acquiring ownership or control of more than 5 percent
of the voting shares of, or substantially all of the assets of, a holding
company or a bank. Under the Holding Company Act, it is impermissible for a
bank holding company to acquire ownership or control of any of the voting shares
of an out-of-state bank, unless applicable state laws also specifically
authorize such an acquisition. The Holding Company Act also prohibits a bank
holding company, with certain exceptions, from engaging in or acquiring direct
or indirect control of more than 5 percent of the voting shares of any company
engaged in non-banking activities. A principal exception to this latter
prohibition, however, is that a bank holding company may be permitted by the
FRB, following notice and determinations by the FRB and state banking
authorities that the proposed activity is in the public interest, to engage in
non-banking activities that are closely related to banking or to managing or
controlling banks. The Company does not presently engage, nor does it have any
immediate plans to engage, in any non-banking activities which bank holding
companies are permitted to perform. The Company may seek approvals to do so,
however, if favorable opportunities are presented in the future.
Every bank holding company is required to file with the FRB an annual
report and such additional information as the FRB may require pursuant to the
Holding Company Act. The FRB may also make examinations of a bank holding
company and any or all of its subsidiaries.
The Holding Company Act prohibits a bank holding company and its
subsidiaries from engaging in certain tying arrangements in connection with any
extension or provision of credit, sale or lease of property or furnishing of
services. In addition, under federal law, a bank holding company is deemed to
be an "affiliate" of its subsidiary banks, and, as such, the bank subsidiaries
are subject to statutory limitations in extending credit to or making
investments in their parent holding company, and in accepting the parent holding
company's securities or other obligations as collateral for any advances made by
such banking subsidiaries to it or any other entity or person.
The FRB has approved capital guidelines which require bank holding
companies to maintain a total capital to risk-weighted assets ratio of at least
8 percent and are substantially similar to the requirements adopted by the
Comptroller of the Currency for national banks. See Item 7, Management's
Discussion and Analysis.
The Company is subject to the reporting requirements of Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
obligate the Company to file periodic reports including Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The
Company also is subject to the proxy rules promulgated by the Securities and
Exchange Commission under Section 14(a) of the Exchange Act and to various other
regulations thereunder.
As a Delaware corporation, the Company is subject to Delaware corporate law
with respect to various matters, including the payment of dividends and
shareholder rights issues.
The Bank. The Bank is subject to regulation, supervision and regular
examination by the Comptroller of the Currency and to regulations of the FDIC.
The Bank is a member of the Federal Reserve System, and, as such, is subject to
certain provisions of the Federal Reserve Act and regulations issued by the
Board of Governors. The Bank is also subject to applicable provisions of
Maryland law, insofar as they do not conflict with or are not preempted by
federal law. The regulations of these various agencies govern most aspects of
the Bank's' business, including setting required reserves against deposits,
loans, investments, mergers and acquisitions, borrowing, dividends and location
and number of branch offices.
The deposits of the Bank are insured by the FDIC to at least $100,000 per
depositor. The Bank pays a semiannual statutory assessment and is subject to
the rules and regulations of the FDIC in exchange for federal deposit insurance
protection.
Supervision, regulation and examination of the Bank by bank regulatory
authorities are intended primarily for the protection of depositors rather than
for holders of the Company's stock.
On January 22, 1992, Montgomery, now Allegiance Bank, N.A., entered into
an Agreement (the "Agreement") with the Comptroller of the Currency pursuant to
which the Bank was obligated to take certain actions to remedy various matters
raised by the Comptroller in a report of examination of Montgomery dated
May 31, 1991.
On April 27, 1993 the Bank signed a Memorandum of Understanding with the
Comptroller of the Currency and the Agreement was terminated. The Memorandum
requires the Bank to operate in compliance with certain articles of the
Memorandum and is a lesser administrative action than the Agreement.
On April 10, 1994 the Bank received formal notice from the Office of the
Comptroller of the Currency (OCC) that the Memorandum of Understanding had been
lifted.
The FDIC Improvement Act of 1991 grants significant new authority to
federal bank agencies over insured banks and their holding companies. Banks or
bank holding companies which are undercapitalized and either have not timely
approved a capital plan or have failed to implement the plan become subject to
extraordinary powers pursuant to which the agencies may close the bank, restrict
its growth, force its sale, restrict interest rates paid on deposits, and
dismiss directors or senior executive officers. Each agency is directed to
prescribe standards relating to internal controls and systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, and such other operational and managerial
standards as the agency determines to be appropriate. The agencies also are
required to adopt standards relating to asset quality, earnings, valuation and
compensation. Banks or bank holding companies which do not meet such standards
may be subject to restrictions and consequences comparable to those which apply
to undercapitalized banks and bank holding companies. Authority to appoint a
conservator or receiver for a national bank is substantially broadened to
include grounds such as substantial dissipation of assets or earnings due to
violations of law or regulation or due to any unsafe or unsound practices, an
unsafe or unsound condition, and certain violations of law or regulation likely
to weaken the institution's condition. The legislation also required bank
holding companies to guarantee compliance with a required capital plan for the
bank subsidiary; the liability under such guarantee shall not exceed the lesser
of (I) 5 percent of the bank's total assets or (ii) the amount necessary to
bring the bank into compliance with capital standards.
The National Bank Act and regulations adopted by the Comptroller thereunder
prohibit national banks from paying any dividend on common stock out of capital.
Dividends can be paid only to the extent of net profits then on hand, less
losses and bad debts.
Other Regulatory Matters. The Community Reinvestment Act of 1977 (the
"CRA") requires financial institutions to demonstrate that their credit services
are helping to meet the needs of the communities in which they are chartered to
do business. Regulations adopted pursuant to the CRA by the OCC, the FRB and
the FDIC require banks to designate, geographically, an assessment area that
they serve. As part of their examination of banks, the bank regulatory
agencies are required to assess each bank's record or performance in helping
to meet the credit needs of its entire community, including low and moderate
income neighborhoods, consistent with safe and sound operation of the bank. The
bank regulatory agencies also consider a bank's CRA record or performance in
ruling on applications for the establishment of branches or other deposit
facilities, applications for the relocation of banking offices and applications
for the approval of mergers, acquisitions of assets, consolidations or
assumptions of liabilities. CRA requires each bank regulatory agency to prepare
a written evaluation of an institution's record of meeting the credit needs of
its entire community, including low and moderate income neighborhoods, and
further requires that portions of these written evaluations be made public.
Maryland has a community reinvestment act which requires national banks
located in Maryland to submit an annual report to the Commissioner of Banking
specifying steps taken to meet community needs.
Recent Changes in Maryland Banking Laws. Maryland is one of the increasing
number of states which permits interstate acquisitions of banks and bank holding
companies on a reciprocal basis if the acquirer is based in certain states or
the District of Columbia.
Effects of Government Regulation. The business and operations of the
Company and the Bank are substantially affected by the policies of various
governmental agencies of the United States, particularly the FRB. From the
Bank's point of view, the most important function of the FRB is the regulation
of the money supply in light of general economic conditions within the United
States. The instruments of monetary policy employed by the FRB for these
purposes influence in various ways overall levels of investments, loans, other
extensions of credit and deposits, and the interest rates paid on liabilities
and received on interest-earning assets.
Banking as a business is dependent upon interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
other sources of funds and the interest received by a bank on loans to customers
and its securities portfolio comprises the major portion of the Bank's income.
The earnings and gross income of the Bank are thus subject to the influence of
general economic conditions both domestically and abroad, and also to monetary
and fiscal policies of the United States and, in particular, the FRB. The
nature and timing of any future changes in such policies and the impact of any
such changes on the Bank are not predictable.
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DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS
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Table 1a CONSOLIDATED AVERAGE BALANCE SHEET
(Yield-Margin Analysis, dollars in thousands)
1995 1994 1993
Balance Interest Rates Balance Interest Rates Balance Interest Rates
ASSETS
Loans:
Commercial $ 23,047 $2,343 10.17% $ 22,338 $1,931 8.63% $20,471 $1,703 8.32%
Real estate 45,618 4,448 9.75 27,637 2,611 9.45 21,415 2,031 9.48
Consumer 5,275 498 9.43 2,426 248 10.22 2,255 226 10.01
Revolving credit 5,450 529 9.71 3,339 305 9.12 3,818 332 8.69
Total loans 79,390 7,818 9.85 55,740 5,095 9.14 47,959 4,292 8.95
Investment securities:
United States Treasury 7,049 410 5.82 12,209 752 6.16 17,243 1,079 6.26
Federal agencies 18,151 1,060 5.84 23,940 1,520 6.35 23,833 1,548 6.50
Other 614 41 6.71 510 29 5.69 384 25 6.51
Total investment securities 25,814 1,511 5.85 36,659 2,301 6.27 41,460 2,652 6.40
Federal funds sold 2,285 134 5.87 6,501 239 3.68 4,185 127 3.02
Total earning assets 107,489 9,463 8.80 98,900 7,635 7.72 93,604 7,071 7.55
Other non earning assets 8,375 5,774 6,253
Total Assets $115,864 $104,674 $99,857
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Interest checking $ 8,924 221 2.47 $ 8,727 196 2.25 $ 8,351 154 1.85
Money-market accounts 35,222 1,222 3.47 41,490 1,228 2.96 39,143 1,186 3.03
Certificates of deposit 37,297 2,244 6.02 27,048 1,331 4.92 28,530 1,424 4.99
Total interest-bearing accounts 81,443 3,687 4.53 77,265 2,755 3.57 76,024 2,764 3.64
Federal funds purchased and securities
sold under agreements to repurchase
and other borrowings 4,894 290 5.93 1,093 51 4.67 102 4 3.64
Total interest bearing 86,337 3,977 4.60 78,358 2,806 3.58 76,126 2,768 3.64
Non interest-bearing deposit
and liabilities 18,426 16,260 14,663
Total Liabilities 104,763 94,618 90,789
Stockholders' Equity 11,101 10,056 9,068
Total Liabilities and
Stockholders' Equity $115,864 $104,674 $99,857
Interest Spread 4.20% 4.14% 3.91%
Net Interest Income/Margin $5,486 5.10% $4,829 4.88% $4,303 4.60%
</TABLE>
E. Statistical Information
The following tables present statistical information relating to the Company
and Allegiance Bank, N.A. on a consolidated basis.
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Table 1b RATE/VOLUME ANALYSIS
A rate/volume analysis is included for 1995 compared to 1994 and 1994 compared to 1993.
1995 Compared to 1994 1994 Compared to 1993
Variance: Due to Change Variance: Due to Change
Increase or in Average Increase or in Average
(Decrease) Volume Rate (Decrease) Volume Rate
INTEREST EARNED ON:
Loans:
Commercial $ 412 $ 63 $ 349 $228 $ 155 $ 73
Real estate 1,837 1,750 87 580 590 (10)
Consumer 250 270 (20) 22 17 5
Revolving credit 224 204 20 (27) (42) 15
Total interest on loans 2,723 2,287 436 803 696 107
Investment securities:
United States Treasury (342) (302) (40) (327) (315) (12)
Federal agencies (460) (345) (115) (28) 7 (35)
Other 12 6 6 4 8 (4)
Total interest on investments (790) (641) (149) (351) (307) (44)
Federal funds sold (105) (203) 98 112 70 (42)
Total interest on
earning assets 1,828 1,443 385 564 400 (164)
INTEREST PAID ON:
Interest bearing deposits:
Interest checking 24 4 20 42 7 35
Money-market accounts (5) 37 (42) 42 71 (29)
Certificates of deposit 913 575 338 (93) (74) (19)
Total interest on deposits 932 616 316 (9) 45 (54)
Federal funds purchased and
securities sold under
agreements to repurchase
and other borrowings 239 222 17 47 39 8
Total interest
on liabilities 1,171 838 333 38 81 (43)
Net interest income/margin $ 657 $ 605 $ 52 $526 $319 $ 207
Loan interest includes loan fees.
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INVESTMENT PORTFOLIO
Table 2a INVESTMENT SECURITIES
The estimated fair value of securities available for sale as of December 31,
1995, 1994, and 1993 was:
(Dollars in thousands) 1995 1994 1993
U.S. Treasury Securities and obligations
of U.S. government agencies $ 5,119 $ 2,536 $15,052
Mortgage-backed securities 5,858 6,364 12,022
CMOs - - 35
Total debt securities 10,977 8,900 27,109
Equity securities 650 545 231
Total $11,627 $ 9,445 $27,340
The amortized cost of securities held to maturity as of December 31,
1995, 1994, and 1993 was:
(Dollars in thousands) 1995 1994 1993
U.S. Treasury securities and obligations
of U.S. government agencies $12,054 $18,565 $17,319
Mortgage-backed securities - - -
Total debt securities 12,054 18,565 17,319
Equity securities - - -
Total $12,054 $18,565 $17,319
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Table 2b MATURITY DISTRIBUTION
After One After Five
Within Yr. Thru Yrs.Thru After No Fixed
December 31, 1995
(Dollars in thousands) One Year Five Yrs. Ten Yrs. Ten Yrs. Maturity Total
Securities available for sale
U.S. Treasury securities and
obligations of
U.S. Government agencies $ - $4,799 $ 601 $ - $ - $ 5,400
Mortgage-backed securities - - 85 5,492 - 5,577
Equity securities - - - - 650 650
Total Securities Available for Sale - 4,799 686 5,492 650 11,627
Securities held to maturity
U.S. Treasury securities and
obligations of
U.S. Government agencies 2,001 5,997 3,541 - - 11,539
Municipal securities - - 514 - - 514
Securities Held to Maturity 2,001 5,997 4,055 - - 12,053
otal Investment Securities $2,001 $10,796 $4,741 $5,492 $ 650 $23,680
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Table 2c WEIGHTED AVERAGE YIELD
After One After Five
Within Yr. Thru Yrs.. Thru After No Fixed
December 31, 1995 One Year Five Yrs. Ten Yrs. Ten Yrs. Maturity Total
Securities available for sale
U.S. Treasury securities and
obligations of U.S. Government
agencies - % 5.19% 6.31% - % -% 5.31%
Mortgage-backed securities - - 6.65 6.50 - 6.50
Equity securities - - - - 6.13 6.13
Total Yields on Securities
Available for Sale - 5.19 6.35 6.50 6.13 5.94
Securities held to maturity
U.S. Treasury securities and
obligations of U.S. Government
agencies 5.56 4.11 5.13 - - 4.67
Municipal securities - - 4.64 - - 4.64
Total Yields on Securities
Held to Maturity 5.56% 4.11% 4.81% - - 4.57%
The tax equivalent yield on the tax exempt municipal securities was
approximately 6.64 percent at December 31, 1995.
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LOAN PORTFOLIO
Table 3a TYPE OF LOANS
December 31, 1995 (Dollars in thousands) 1995 1994 1993
Commercial $26,193 $21,938 $20,745
Real Estate 59,289 35,444 27,830
Consumer 7,831 8,918 4,067
Total Loans $93,313 $66,300 $52,642
Table 3b MATURITY AND RATE SENSITIVITY
<TABLE>
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Over One
One Year Year Thru Over
December 31, 1995 (in thousands) Or Less Five Yrs. Five Yrs. Total
The total amounts of loans maturing
and/or repricing were: $61,294 $22,976 $9,043 $93,313
The total amount of fixed rate loans maturing after one year was $31,930.
</TABLE>
Table 3c NON PERFORMING LOANS
December 31st (Dollars in thousands) 1995 1994 1993
Non accrual loans $ 326 $1,043 $1,387
Loans contractually past due
as to interest or principal - - -
Other restructured debt - - -
Foreclosed Real Estate (net) 792 1,307 471
Total $1,118 $2,350 $1,858
Non performing loans consist of (a) loans which are not accruing interest
due to questions regarding eventual collectibility, (b) loans which are ninety
(90) days or more past due, (c) loans whose terms have been restructured to
accommodate deterioration in the financial condition of the borrower, and
(d) foreclosed real estate.
The Bank generally places loans on a non accrual basis after ninety (90)
days of delinquency except where a loan is fully secured or when expectations
are for an immediate improvement in the financial condition of the borrower.
Management generally recommends for charge-off, accounts which are ninety (90)
days delinquent except where a loan is fully secured and in the process of
collection or when expectations are for an immediate improvement in the
financial condition of the borrower.
Non-accrual loans, totaling $326,516 at December 31, 1995, consisted of
five (5) borrowers. Of this total, $62,009 were commercial loans and $264,507
were real estate mortgages secured by commercial and residential properties.
Specific reserves set aside for these loans total $40,000.
If the loans carried as non-accrual at year end had been current in
accordance with their original terms, the Bank would have collected additional
interest of $33,000 for the year.
There were no loans contractually past due more than 90 days as to interest
or principal.
Foreclosed real estate totaling $791,596 represents two properties, one
commercial property and one tract of vacant land, which management believes can
be sold for the amount recorded by the Bank.
SUMMARY OF CREDIT LOSS EXPERIENCE
Table 4 ALLOWANCE FOR CREDIT LOSSES
December 31
(in thousands)
1995 1994 1993
Balance at beginning of period $1,031 $1,175 $1,474
Charge-offs:
Commercial 10 273 234
Real Estate - 51 215
Consumer 13 10 37
Total loans charged-off 23 334 486
Recoveries:
Commercial 116 114 57
Real Estate - - 29
Consumer 17 6 10
Total recoveries 133 120 97
Net charge-offs (recoveries) (110) 214 389
Provision charged (credited)
to operations (100) 70 90
Balance at end of period $1,041 $1,031 $1,175
Ratio of net charge-offs during
the period to average loans N/A % 0.38% 0.81%
ALLOWANCE FOR CREDIT LOSSES
POLICY STATEMENT
It is Management's policy to maintain an allowance for credit losses
sufficient to absorb losses inherent in the loan portfolio. On a quarterly
basis, the Loan Committee reviews the adequacy of the allowance for credit
losses based on historical loss experience, historical delinquency, trends
in composition of the loan portfolio, collateral and industry concentrations,
credit commitments, economic trends, effectiveness of internal loan policies
and procedures, and individual analyses of adversely classified loans to
determine the probability of loss based on collateral, restructuring and
alternative repayment sources. The results of this analysis are quantified as
a reserve factor for each credit quality category and specifically identified
sub-sections of the loan portfolio through a comprehensive migration analysis
to determine general allocations of the allowance for credit losses. As a
result of this review, management believes that the valuation allowance for
credit losses was adequate at December 31, 1995.
DEPOSITS
Table 5a AVERAGE DEPOSITS
<TABLE>
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1995 1994 1993
Average Average Average Average Average Average
Years ended December 31st
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
Noninterest-bearing
demand deposits $17,883 - $17,000 - $13,954 -
Interest-bearing demand deposits 8,924 2.47% 8,727 2.25% 8,351 1.85%
Money Market Accounts 35,222 3.48% 41,490 2.96% 39,143 3.03%
Certificates of Deposit 37,297 6.02% 27,048 4.92% 28,530 4.99%
Total Average Deposits $99,326 $94,265 $89,978
</TABLE>
Table 5b CERTIFICATE OF DEPOSIT MATURITY DISTRIBUTION
<TABLE>
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3 mos. Over
As of December 31, 1995 or less 3-6 mos. 6-12 mos.12 months Total
CDs of $100,000 or more $6,514 $1,857 $2,984 $2,550 $13,905
</TABLE>
Table 6a RETURN ON EQUITY AND ASSETS
1995 1994 1993
Return on Average Assets 0.71% 1.13% 1.12%
Return on Average Equity 7.46% 12.21% 12.30%
Dividend pay-out ratio 0% 0% 0%
Average Equity to Average
Assets Ratio 9.47% 9.25% 9.08%
SHORT-TERM BORROWINGS
Repurchase agreements may be entered into with customers that maintain other
relations with the Bank. At year-end there were outstanding repurchase
agreements of $5,884,000.
The Bank may, from time to time, purchase federal funds. This source of
funding is used to offset temporary liquidity shortages. The Bank also
borrows on a secured basis from the Federal Home Loan Bank (FHLB) of Atlanta
and from the Federal Home Loan Mortgage Corporation (FHLMC), as needed, for
Balance Sheet management.
LONG-TERM BORROWINGS
Long-term borrowing consists of a secured advance from the FHLB of Atlanta.
This borrowing is fixed at 7.12 percent and matures on August 1, 1998.
Item 2. Properties
The main offices of both the Company and the Bank are located in Montgomery
County, Maryland. The Bank leases the space occupied at this location, as well
as the space for four additional branches located in Montgomery County,
Maryland, and two branches located in Prince George's County, Maryland. The
Bank's internal operations, accounting and audit departments are housed at one
of the branch locations in Prince George's County. For additional information
regarding operating leases see Note 6, Premises and Equipment, in the Notes to
Consolidated Financial Statements.
These locations have been adequate and suitable for the Company's operation.
Item 3. Legal Proceedings
There were no legal proceedings pending or threatened against the Company
or the Bank at year end that was not ordinary litigation incidental to business,
or that were material.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the security holders during the
fourth quarter of 1995.
Part II
Item 5. Market for the Registrant's Common Stock and Related Matters
Since May 1994, the Company's common stock has traded on the NASDAQ Exchange
under the symbol ALLG.
Information for trades known to the Company is shown by calendar quarter, for
the years indicated in the following table:
1995 High Low
First Quarter $8.00 $6.50
Second Quarter 7.50 6.50
Third Quarter 7.88 6.50
Fourth Quarter 11.00 6.88
1994 High Low
First Quarter $8.50 $6.50
Second Quarter 9.00 6.13
Third Quarter 8.50 6.50
Fourth Quarter 9.00 7.50
At January 31, 1996, there were approximately 700 shareholders of the
registrant's common stock.
No cash dividends on the Company's common stock have yet been declared.
The current policy of the Board of Directors is to retain earnings, in order to
provide funds for the growth and development of the Company's business. Any
future payment of dividends will depend upon the company's growth, financial
condition, capital needs, regulatory requirements and such other factors as the
Board of Directors may deem appropriate.
The ability of the Company to pay dividends is dependent upon the ability of
the subsidiary bank to pay cash dividends to the Company. See "Item 1. Business
- - Supervision and Regulation" for a description of regulatory restrictions on
the Banks' ability to pay dividends to the Company.
Item 6. Selected Financial Data
<TABLE>
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ALLEGIANCE BANC CORPORATION AND SUBSIDIARY
(In thousands, except per share information)
Years ended December 31
1995 1994 1993 1992
Earnings summary:
Interest income $9,488 $7,763 $7,071 $7,283
Interest expense 3,977 2,806 2,768 3,384
Net interest income 5,511 4,957 4,303 3,899
Provision for possible credit losses (100) 70 90 375
Net interest income after provision
for possible credit losses: 5,611 4,887 4,213 3,524
Gains (losses) on sales of securities 152 (453) 259 163
Other operating income 717 695 781 749
Other operating expenses 5,214 4,615 4,138 4,058
Income before income taxes: 1,266 514 1,115 378
Income before extraordinary item 1,266 1,206 1,115 232
Net Income $ 828 $1,206 $1,115 $ 378
Per share
Income before extraordinary item* $ 0.49 $ 0.71 $ 0.66 $ 0.14
Net Income* 0.49 0.71 0.66 0.23
Book value at year-end* 6.86 6.24 6.06 5.07
* Adjusted for 1994 stock split.
</TABLE>
STATEMENT OF CONDITION
<TABLE>
<S> <C> <C> <C> <C>
December 31st (Dollars in thousands) 1995 1994 1993 1992
Total investments $ 23,680 $ 28,009 $ 44,660 $ 40,172
Total loans 93,313 66,300 52,642 49,972
Total assets 131,100 106,326 104,474 103,724
Total deposits 107,859 93,108 94,922 94,699
Total stockholders' equity 11,630 10,578 10,262 8,581
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The consolidated financial statements contained herein present the financial
condition of the Company and its wholly-owned subsidiary, Allegiance Bank, N. A.
(the Bank), at December 31, 1995 and 1994, and the results of operations for
the years 1995, 1994 and 1993.
Financial Condition
At the end of 1995, the Company's assets had increased from the year-end 1994
level by $24.8 million, or 23.3 percent, to $131.1 million. The Company managed
a substantial growth in loans, with a 40.7 percent increase of $27.0 million to
$93.3 million. The loan growth was funded by increased deposits of $14.8
million, by a $4.3 million reduction in the investment portfolio, and by short-
term borrowing of $8.6 million. Included in the net loan increase were $8.1
million in local, seasoned loans purchased from a regional bank. The largest
increase in the loan portfolio was in real estate loans which grew by $17.5
million, while commercial loans increased by $4.7 million and consumer loans
grew by $2.9 million. Loans secured by various types of real estate represented
63.5 percent of the total loan portfolio, compared to 53.5 percent at year-end
1994. Total loans represented 79.8 percent of earning assets at year-end,
compared to 68.1 percent at year-end 1994.
As of December 31, 1995, variable rate loans totaled $52.9 million, which was
56.7 percent of total loans, while fixed rate loans were $40.4 million and 43.3
percent of the portfolio. This compares to $39.1 million of loans with variable
rates, or 59.0 percent of the portfolio at the end of 1994 and $27.2 million,
or 41.0 percent in fixed rate loans. No significant amount of the loan
portfolio is at below market rates.
In 1995, the Bank continued to focus on niche lending segments of the market,
small and medium sized businesses and the professional community. Added
features to the business development program included an increased effort at
cross-selling and deposit generation, and achieving a balance in the Bank's
commercial and residential loan portfolios.
The Bank's underwriting standards continue to be conservative, and management
anticipates no significant changes in this policy. However, flexibility in the
underwriting process is reflected in the structuring of credit facilities.
The Bank's primary geographic market includes Montgomery and northern Prince
George's counties in the Maryland suburbs of Washington, DC. As much as
possible, the Bank concentrates on those areas which are proximate to the branch
locations. The Bank has opened two new Montgomery County branches; in Silver
Spring during 1995 and Gaithersburg in 1994. As the Bank has expanded, the
geographic factors have widened the market considerably.
Community reinvestment is a continuing and important segment of the Bank's
efforts. During 1995, the majority of the loans originated by the Bank were in
Montgomery and Prince George's Counties. The Bank participates in government-
sponsored lending programs, such as those offered by the Small Business
Administration, and other special lending programs including the Montgomery
County Bankser's Small Business Loan Fund and the Prince George's County
Revitalization Loan Fund.
During 1995, the Company's investment portfolio declined by $4.3 million to
$23.7 million, as the proceeds from sales and maturities of investments were
used to fund loan growth, as noted above. As bond prices rose during 1995 in
response to a decline in prevailing interest rates, the Company had the benefit
of a significant increase in the value of the investment portfolio. In addition
to the realization of securities gains of $152 thousand on investments which
were sold, the unrealized losses on the investments held to maturity and the
investments available for sale improved by approximately $1.8 million during
1995. In December 1995, the Bank transferred $5.0 million of investments from
held to maturity to the available for sale portfolio; this transfer was made to
achieve a better balance in the investment portfolio and to increase liquidity
following significant reductions in investments during the past two years. At
year-end 1995, investments available for sale stood at $11.6 million while
investments held to maturity were $12.1 million or 50.9 percent of the
portfolio.
The investment portfolio underwent some dramatic changes in 1994. The available
for sale portfolio declined by $17.9 million, from $27.3 million at the end of
1993 to $9.4 million at year-end 1994. The held to maturity portfolio grew by
$1.2 million, resulting in a net reduction in the total securities portfolio of
$16.7 million. Securities were sold from the available for sale portfolio,
periodically during 1994, primarily to fund loan growth. The net unrealized
holding gains on securities available for sale changed from an unrealized gain
of $566 thousand at year-end 1993 to a net unrealized loss of $368 thousand at
year-end 1994. The net unrealized holding losses represent a reduction in the
estimated fair value of the securities due to a rising interest rate
environment, and are not a reflection of credit risk. During 1994, the Bank
transferred a security with a par value of $1.0 million and an estimated fair
value of $810 thousand, from the available for sale portfolio to the held to
maturity portfolio. The $190 thousand unrealized holding loss on that security
will be amortized over its remaining life. The Bank established a banking
relationship with the Federal Home Loan Bank of Atlanta during 1994, and
purchased $300 thousand of FHLB stock, which is reflected in the investment
portfolio as equity securities.
During the fourth quarter of 1994, the Company recorded previously unrecognized
deferred income tax assets totaling $892 thousand by eliminating the valuation
allowance established during 1993 upon the adoption of Statement of Financial
Accounting Standards No. 109 (SFAS No. 109) "Accounting for Income Taxes."
The elimination of the valuation allowance was deemed appropriate in light of
the Company's continuing profitable operations and the projected level of
future years' taxable income. In accordance with SFAS No. 109, deferred tax
assets are recognized only if their realization is "more likely than not."
Also in 1994, the Bank offset the effect of the elimination of the deferred tax
asset valuation reserve by selling certain investments in the available for sale
portfolio whose market value had been negatively affected by the rising interest
rate environment experienced during 1994. The Bank sold $7.8 million in
securities resulting in $518 thousand in realized losses. The proceeds from
these sales were reinvested in securities with a weighted average yield of 7.72
percent, in order to improve the overall yield of the portfolio, as well as,
future years' earnings. The securities sold had a weighted average yield of
6.46 percent.
During 1995, the Bank opened a new branch in Silver Spring, Maryland, and
completed the conversion to a new data processing system. During 1994, the
Bank opened a new branch in Gaithersburg, Maryland, relocated an existing
branch in Wheaton, Maryland, expanded the third floor of the Bethesda location,
installed a Wide Area Network and purchased new equipment in conjunction with
the data processing conversion. As a result of these activities, the Bank
invested $388 thousand and $743 thousand in premises and equipment in 1995
and 1994, respectively.
In 1995, total deposits increased by $14.8 million or 15.8 percent to stand at
$107.9 million at year-end. Non-nterest bearing deposits increased by $3.0
million to $21.8 million, while interest bearing deposits increased by $11.8
million to $86.0 million. The largest increase in interest bearing deposits
came from certificates of deposit which gained $11.7 million to stand at $40.4
million at the end of 1995. To attract these balances in 1995 and to retain
them in 1996, the Bank offered competitive interest rates and a range of new
investment products and services that were designed to appeal to the local
market. Deposit growth was also helped by additional new branches and data
processing systems during 1994 and 1995.
In 1994, non-interest bearing deposits increased $3.9 million, from $15.0 to
$18.9 million, while interest bearing balances declined by $5.7 million,
resulting in a net decrease in deposits of $1.8 million, from $94.9 to
$93.1 million. The banking industry as a whole had been experiencing declines
in deposits as investors moved balances into U.S. Treasury securities and mutual
funds, seeking higher returns on their investments. The increases in the prime
lending rate in late 1994 allowed the Bank to counter that outflow by offering
higher rates on deposits without sacrificing interest rate spreads and margins.
At the end of 1995, short-term borrowings in the form of customer repurchase
agreements were approximately $5.8 million compared to $0.4 million at the end
of the previous year. These repurchase agreements fluctuate during the year,
based on customers' liquidity needs, and provided a significant new source of
funds for the Bank in 1995.
Short-term borrowing from the Federal Home Loan Mortgage Corporation and the
Federal Home Loan Bank of Atlanta have been used to cover temporary liquidity
needs. The balances from these sources stood at $4.2 million and $1.0 million
at the end of 1995 and 1994, respectively. The Bank also borrowed $1.0
million, for a term of four years, from the FHLB during 1994 to match fund a
specific loan.
Capital Resources and Adequacy
During 1995, stockholders' equity increased by $1.1 million as a result of net
income of $828 thousand and the positive change in the net unrealized loss on
available for sale securities. In 1994, the increased equity of $316 thousand
was the net result of net income of $1.2 million and the $906 thousand change
in the net unrealized losses on the Company's available for sale investment
securities portfolio. Book value per share stood at $6.86 and $6.24 at the end
of 1995 and 1994, respectively.
Risk-based capital regulations 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 credit 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 bank regulatory minimums for the Tier 1 risk-based capital and total
risk-based capital ratios are 4.0 percent and 8.0 percent, respectively. At
December 31, 1995, the Bank's Tier 1 risk-based capital ratio was 11.39
percent and the total risk-based capital ratio was 12.64 percent. At
December 31, 1994, the ratios were 14.39 percent and 15.64 percent,
respectively. The decline in the ratios is due to the change in the mix of
the earning assets from the securities portfolio, which carries a lower risk
weighting, to the loan portfolio which carries a higher risk weighting. The
Bank remains well in excess of regulatory minimums with ample room to
continue to increase the loan portfolio.
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 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 December 31, 1995, the Bank's leverage ratio was 9.60
percent, compared to 9.77 percent at the end of 1994.
Results of Operations
The Company's net income for 1995 was $828 thousand compared to $1.2 million in
1994, a decrease of 31.3 percent. Net income for 1994 increased by 8.2 percent
over that of 1993, which was $1.1 million. Pre-tax earnings were $1.3 million
in 1995 compared to $514 thousand in 1994 and $1.1 million in 1993. While 1995
earnings felt the full effect of a normal income tax provision, net income for
1994 enjoyed an income tax benefit of $693 thousand, and no tax provision was
recorded in 1993.
Generally, two key measures of profitability include the return on average
assets and the return on average equity. For the three year period from 1993 to
1995, however, the manner in which income tax accounting principles have been
reflected in the Company's results of operations has had an unusual impact on
these ratios. Although there was a significant increase in pre-tax earnings in
1995, there was a decline in return on average assets ratio and the return on
average equity ratio. For 1995, the return on average assets was 0.71 percent
compared to 1.13 percent for 1994 and 1.12 percent for 1993. The return on
average equity for 1995 was 7.46 percent versus 12.21 percent for 1994 and 12.30
percent for 1993. Net income per share was $0.49 in 1995 compared to $0.71 in
1994 and $0.66 in 1993.
Net Interest Income
Net interest income represents the amount by which interest income on earning
assets exceeds the cost of interest bearing sources of funds. Earning assets
include loans, investments and interest earning balances at other banks, while
certain deposits and borrowings represent the interest-bearing liabilities.
Several factors influence net interest income, including market rates of
interest and the volume, mix and rate sensitivity of earning assets and interest
bearing liabilities.
Net interest income for 1995 was $5.5 million, compared to $5.0 million in 1994
and $4.3 million in 1993. The $554 thousand, or 11.2 percent, increase in
1995 net interest income was generated by an increase in interest income of $1.7
million which was partially offset by a $1.2 million increase in interest
expense. This followed 1994 when there was a $654 thousand, or 15.2 percent,
growth in net interest income resulting from an increase in total interest
income of $693 thousand while interest expense remained flat.
During 1995, there was a shift in the mix of earning assets as the investment
securities were reduced to fund loan growth, and there was a decrease in the
average amount of federal funds sold. While interest and fees on loans
increased by $2.6 million to $7.8 million, interest and dividends on investment
securities decreased by $791 thousand to $1.5 million and interest on federal
funds sold decreased by $105 thousand to $134 thousand. The increased level of
deposits resulted in an increase in interest expense of $931 thousand to $3.7
million, while interest expense for short term borrowing and customer
repurchase agreements increased by $199 thousand to $219 thousand.
In 1994, the change in the mix of earning assets was reflected primarily in an
increase in interest and fees on loans of $931 thousand, which was due to the
increase in loans outstanding, as well as, increases in the prime lending rate.
Interest on federal funds sold increased by $112 thousand, due to an increase
in the volume of federal funds sold. Interest income on the investment
portfolio declined by $350 thousand due to the utilization of the investment
portfolio to fund loan growth.
During 1995, the Bank's net interest spread and margin, continued to improve.
The net interest spread is the difference between the yield on interest-earning
assets and rates paid on interest-bearing liabilities. In 1995, the net
interest spread increased to 4.20 percent from 4.09 percent in 1994 and 3.91
percent in 1993. The net interest margin is a measurement of how effectively
the Bank utilizes its interest earning assets in relation to the interest cost
of funding them. It is computed by dividing net interest income by average
interest-earning assets. The net interest margin increased to 5.09 percent
in 1995 from 4.82 percent in 1994, and 4.57 percent in 1993.
Valuation Allowance and Provision for Credit Losses
The Bank maintains a valuation allowance for credit losses which represents the
amount considered by management to be adequate to cover losses which could occur
in the loan portfolio. The provision for credit losses is a charge to earnings
to maintain the allowance at an adequate level. On a quarterly basis,
management conducts a comprehensive review of the loan portfolio, evaluating
factors such as economic conditions, loan mix and volume, delinquency trends,
identification of weak credits, historical credit loss experience and the value
of collateral, to ensure that an adequate valuation allowance is maintained.
Between reviews, events may occur which would require an immediate adjustment to
the allowance, and these situations are addressed as required.
During 1995, the $1.0 million valuation allowance was increased by $11 thousand
as a result of $111 thousand in net recoveries of amounts previously charged
against the allowance, and offset in part by a $100 thousand negative provision
for credit losses. During 1994, the allowance had been reduced by net charge-
offs of $214 thousand and increased by $70 thousand due to a provision for
credit losses through a charge to earnings. Net charge-offs for 1993 were $389
thousand, while the charge to earnings for the credit loss provision was $90
thousand. The $1.0 million balance of the valuation allowance for credit
losses represents management's judgment of the current loan portfolio, with
improved asset quality and substantial net loan growth. The increases in loans
during 1995 and 1994 are represented by gains in the real estate segment of the
portfolio. Historical loss experience for real estate loans, as reviewed
through migration analysis for eight quarters, has been negligible, thereby
minimizing requirements for additions to the allowance. The Bank retained an
independent consulting firm which conducted an annual review of the allowance
for credit losses after evaluating the overall quality of the loan portfolio.
Bank management believes that the Bank's allowance was adequate, at the end of
1995, when the $1.0 million valuation allowance was 1.12 percent of loans and
318 percent of non-performing loans, while at year-end 1994, the $1.0 million
allowance was 1.6 percent of loans outstanding and 99 percent of non-performing
loans.
Non-accrual loans at year-end 1995 were at $0.3 million, or 0.4 percent of total
loans, compared to $1.0 million, or 1.6 percent of total loans at the end of
1994. This represents a continued improvement since 1993 when the level of non-
accrual loans was at $1.4 million, or 2.6 percent of total loans outstanding.
At year-end 1995, $265 thousand of the $327 thousand balance of non-accrual
loans were fully secured real estate mortgages, with the remaining $62 thousand
consisting of commercial loans. Of the 1994 total, $777 thousand were real
estate mortgages secured by commercial and residential properties, with the
remaining $265 thousand representing commercial loans, of which $235 thousand
were fully guaranteed by the U.S. Small Business Administration. The 1993
non-accruals were comprised of $800 thousand in real estate mortgages secured by
commercial and residential properties, and $600 thousand in commercial loans, of
which $300 thousand were real estate secured.
There were no loans past due for 90 days or more at the end of 1995, 1994 or
1993.
Non-Interest Income
Non-interest income in 1995 was $869 thousand compared to $242 thousand in 1994.
Excluding securities gains of $152 thousand in 1995 and securities losses of
$453 thousand in 1994 (as discussed in the Financial Condition section, above),
non-interest income increased by a flat $22 thousand. There was a decline of
$58 thousand in service charges on deposit accounts as a result of the increase
in the earnings credit for commercial accounts which more than offset the effect
of increased levels of deposit accounts. Other income increased by $87
thousand. Other income represents fees collected for wire transfers, issuance
of official checks, processing of special collections and safe deposit box
rentals.
During 1994, total non-interest income declined to $242 thousand, compared
to 1993, due primarily to net losses on sales of securities of $453 thousand,
and to some extent to a decline in deposit account service fees income and
miscellaneous other income. The decline in fee income occurred due to the
reduction in deposit accounts and to customers' management of their account
balances to avoid service charges, mainly overdraft fees. The 1993 non-
interest income figure of $1.0 million included net gains on sales of securities
of $259 thousand and non-recurring income of $42 thousand. Management projects
that service fee income will increase during 1996, consistent with anticipated
account growth, as discussed in the Financial Condition section relative to
branch and deposit growth.
Non-Interest Expense
In 1995, total non-interest expense was $5.2 million, an increase of $0.6
million or 13.0 percent over 1994 when such expenses were $4.6 million.
Salaries and benefits increased by $247 thousand to $2.6 million as a result of
additional personnel for the branch system, including the addition of new branch
offices in Gaithersburg and Silver Spring, Maryland, and merit increases, with
some reductions in operations as a result of conversion to a new data processing
system. Increases in occupancy and equipment expenses of $229 thousand or 26
percent in 1995 were the result of the new branches and additional space in the
headquarters building, as well as the data processing systems conversion, during
1994 and 1995. A $100 thousand provision was recorded in 1995 for possible
losses on foreclosed real estate. The Federal Deposit Insurance Corporation
reduced the deposit insurance assessment for banks during 1995 resulting in a
$114 thousand or 51 percent reduction in such expenses compared to 1994. In
1996, The FDIC insurance assessments are expected to be reduced to $2 thousand.
Also during 1995, data processing expenses increased by $51 thousand or 51
percent; again due to the conversion to the new data processing systems which
have modernized and expanded the Company's ability to serve the banking needs of
our customers.
Total non-interest expense was $4.6 million for 1994, which was an 11.5 percent
increase over the 1993 total of $4.1 million. Higher salaries and employee
benefits, up $342 thousand or 17.3 percent, represented the largest increase in
non-interest expense and were mainly due to increased staffing in the lending
area and the branch system, to merit increases and to a lesser extent,
performance bonuses. Related expenses, such as medical and payroll tax expense,
increased accordingly. The rise in salaries and benefits was $117 thousand, or
6.3 percent, in 1993 and was due primarily to merit increases and to a lesser
extent, increased costs of medical benefits.
The other non-interest expense categories, with the exception of advertising
expense which increased by $92 thousand due to a planned increase in the
advertising budget, increased minimally during 1994. In 1993, the FDIC
insurance premiums increase was $43 thousand, or 22.1 percent, due to an
increase in deposits as of the assessment dates, as well as, an increase in the
insurance rates. The remainder of the non-interest expense categories increased
minimally in 1993.
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 pay downs of
investment securities, federal funds sold, readily marketable available for sale
investment securities and securities that can serve as collateral for borrowing.
In the event necessary, the Parent Company would sell securities from its
portfolio to fund its own liquidity needs.
The Bank's liquidity sources and needs are measured on a monthly basis. The
analysis includes a review of current lending commitments and projections of
future loan demand and anticipated deposit growth or contraction. At December
31, 1995, the Bank's liquidity sources were 1.8 times anticipated liquidity
needs, well in excess of the established management guidelines of 1.5 times
anticipated liquidity needs. At the end of 1994, liquidity sources were 2.1
times projected 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 to respond to changes in rates. As a guide, management tries
to maintain a gap not greater than 15.0 percent of earning assets, either
positive or negative, for the various periods of measurement. At December 31,
1995, the Bank had a cumulative negative gap out to one year of 6.5 percent of
earning assets. During 1995, the Bank narrowed its liability sensitive
position by increasing variable rate assets and shortening the maturities and
repricing periods of a portion of the investment portfolio.
The following table presents the Bank's gap measurements as of
December 31, 1995:
(In Thousands)
Assets and Liabilities Maturing or Repricing Within
0-3 Over 3 - 12 1 - 5 Over 5
Months Months Years Years
Rate Sensitive Assets (RSA)
Investment securities $ 8,103 $ 3,501 $ 7,453 $ 4,134
Loans 55,445 5,849 22,888 9,043
Federal funds sold 5,590 - - -
Total RSA 69,138 9,350 30,341 13,177
Rate Sensitive Liabilities (RSL)
Interest bearing
demand deposits 10,787 - - -
Money market accounts 34,906 - - -
Certificates of deposit 13,636 17,632 9,144 121
Other 10,005 - 1,000 -
Total RSL 69,334 17,632 10,144 121
Cumulative gap $( 196) $(8,478) $11,719 $24,775
Ratio of cumulative gap to
earning assets (0.15)% (6.50)% 8.98% 18.99%
Taxes
In 1995, the Company recorded income tax expense, based upon statutory rates,
of $438 thousand, an effective tax rate of 34.6 percent, which served to
reduce the deferred tax asset previously recorded in 1994.
During 1994, the Company recorded a $693 thousand income tax benefit resulting
from the recognition of a deferred tax asset which previously had been
eliminated through a valuation reserve. The valuation reserve was deemed
unnecessary as of December 31, 1994, because realization of the deferred tax
asset was considered probable. The net deferred tax assets at December 31,
1995, are expected to be realized through future taxable income. In 1993, the
Company used a portion of the net operating loss carryforward to eliminate
applicable income taxes in the amount of $433 thousand. For 1995, and
subsequent years, the Company expects to record income tax expense at the
statutory rates which will significantly impact the comparability of net income
with previous periods.
The Company files a consolidated federal tax return, and is taxed at the
prevailing statutory rate on net income. The current federal statutory rate is
34.0 percent. Franchise tax returns are filed by the Bank with the State of
Maryland. At December 31, 1995, the Company had a federal net operating loss
carryforward of approximately $150 thousand which expires in 2007 and can be
used to offset future tax liability.
Market Price of Common Stock and Dividends
The Company's common stock is traded on the NASDAQ Exchange and is listed under
the symbol ALLG. The approximate number of shareholders of record as of January
31, 1996, was 700. Information for high and low sales prices, as known by the
Company, is shown by calendar quarter for the years indicated in the following
table:
1995 High Low
First Quarter $8.00 $6.50
Second Quarter 7.50 6.50
Third Quarter 7.88 6.50
Fourth Quarter 11.00 6.88
1994
First Quarter $8.50 $6.50
Second Quarter 9.00 6.13
Third Quarter 8.50 6.50
Fourth Quarter 9.00 7.00
No cash dividends on the Company's common stock have been declared. In June
1994, the Company issued 282,200 shares of common stock as the result of a 6
for 5 stock split, effected in the form of a 20 percent common stock dividend.
The policy of the Board of Directors has been to retain earnings in order to
provide funds for the growth and development of the Company's business. Any
future payment of cash dividends will depend upon the Company's earnings,
growth, financial condition, capital needs, regulatory requirements and
such other factors as the Board of Directors may deem appropriate.
Item 8. Financial Statements and Supplementary Data
The information called for by Item 8, Financial Statements and
Supplementary Data, is hereby incorporated by reference from the information and
financial statements set forth under the caption "Financial Statements"
(Item 14, section 1) incorporated as part of this filing.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no changes in or disagreements with accountants on
accounting and financial disclosure.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information called for by Item 10, Directors and Executive Officers
of the Registrant, is hereby incorporated herein by reference from the
information set forth under the captions "Directors and Executive Officers," and
"Meetings and Committees of the Board," on the Proxy Statement.
Item 11. Executive Compensation
The information called for by Item 11, Executive Compensation, is hereby
incorporated herein by reference from the information set forth under the
caption "Executive Officers' Compensation and Certain Transactions," in the
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by Item 12, Security Ownership of Certain
Beneficial Owners and Management, is hereby incorporated herein by reference
from the information set forth under the caption "Directors and Executive
Officers," in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
During fiscal year 1995 there were no transactions with related parties
which exceeded $60,000 or exceeded 5 percent of gross revenues of the provider
of services.
Directors and officers of the Company and the Bank, and persons,
corporations and organizations with whom or which they are associated, have had,
and expect to have in the future, banking transactions with the Bank in the
ordinary course of the bank's business. In the opinion of the management of the
Company and the Bank, all loans to directors and officers and their associates
have been made on substantially the same terms including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and have not involved more than the normal risk of collectibility
or presented other unfavorable features. The aggregate balance of loans
outstanding to directors and officers and their associates was $3,575,218 (30.1
percent of the Company's stockholders' equity) at December 31, 1995.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following is a list of certain documents filed as a part of this Report:
1. Financial Statements.
Report of Independent Auditors
Balance Sheets
Statements of Income
Statements of Changes in Shareholders' Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
None
3. Exhibits.
Exhibit Number
3.1 Certificate of Incorporation of Registrant, as amended(1)
3.2 By-Laws of Registrant(1)
10.1 Lease Agreement, dated September 11, 1986, between Hampden
Lane Limited Partnership and Montgomery National Bank(1)
10.3 Form of Warrant Agreement June , 1994
10.4 Lease, dated October 1, 1991 between Montgomery National
Bank and DOC Limited Partnership(5)
10.5 Commercial Lease Agreement, dated November 26, 1984, by and
between Triangle Park Associates-1 and Southern Permanent
Building Association(2)
10.6 Sublease Agreement, dated November 28, 1988, by and between
Triangle Park Asociates, Republic Federal Savings Bank, and
Montgomery National Bank(2)
10.7 Lease, dated August 4, 1989, between Montgomery Bancorp,
Inc. and Landmark Associates of Maryland(4)
10.8 Lease, dated March 6, 1990, between Montgomery Bancorp, Inc.
and Leonard W. Kraisel(3)
10.9 Lease, dated June 10, 1994, between Allegiance Bank and
Wheaton Commercial Center Associates(7)
10.10 Lease, dated June 24, 1994, between Allegiance Bank and
G & G Airpark Associates(7)
10.11 Lease, dated June 30, 1994, between Allegiance Bank and
COMAC, Inc.(7)
10.12 Sub Lease, dated October 27, 1994, between Allegiance Bank
and David H. Baris(7)
13 Annual Report to Shareholders for the year ended
December 31, 1995
22 Subsidiary of Registrant(6)
23 Consent of Stegman & Company, Independent accountants
27 Financial Data Schedule
(1) Filed as an exhibit of the same number to the Company's Registration
Statement on Form S-1 under the Securities Act of 1933, Registration
No. 33-10682, and incorporated herein by reference.
(2) Incorporated by reference from the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988.
(3) Incorporated by reference from the registrant's Annual Report in Form 10-K
for the fiscal year ended December 31, 1990.
(4) Incorporated by reference from the Company's Registration Statement on
Form S-1 under the Securities Act of 1933, Registration No. 33-30282, and
incorporated herein by reference.
(5) Incorporated by reference from the registrant's Annual Report in Form 10-K
for the fiscal year ended December 31, 1991.
(6) Incorporated by reference from the registrant's Annual Report in Form 10-K
for the fiscal year ended December 31, 1992.
(7) Incorporated by reference from the registrant's Annual Report in Form 10-K
for the fiscal year ended December 31, 1994.
No Current Reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this report.
Table of Contents
This table of contents includes the report of independent auditors, the
consolidated financial statements and notes, the signature page, and the consent
of independent auditors contained in this annual report on Form 10-K as of
December 31, 1995, and the periods then ended.
Page Numbers
Report of Independent Auditors 31
Consolidated Financial Statements:
Balance Sheets 32
Statements of Income 33
Statements of Changes in Shareholders' Equity 34
Statements of Cash Flows 35
Notes to Consolidated Financial Statements 37
Signatures 53
Consent of Independent Auditors 54
Report of Independent Auditors
The Shareholders and Board of Directors
Allegiance Banc Corporation
Bethesda, Maryland
We have audited the accompanying consolidated balance sheets of Allegiance
Banc Corporation and Subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Allegiance Banc Corporation and Subsidiary as of December 31, 1995 and 1994,
and the consolidated results of their operations and cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/b/ Stegman & Company
Stegman & Company
Towson, Maryland
January 26, 1996
ALLEGIANCE BANC CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
ASSETS
Cash and due from banks $ 6,133,309 $ 5,338,702
Federal funds sold 4,905,000 3,000,000
Investment securities:
Available for sale-at fair value 11,626,818 9,444,781
Held to maturity-at amortized cost-fair
value of $11,695,642 (1995) and $16,739,186 (1994) 12,053,560 18,564,708
Loans 93,313,086 66,300,378
Less: allowance for credit losses (1,041,433) (1,030,895)
Loans - net 92,271,653 65,269,483
Premises and equipment - net 1,626,089 1,530,210
Foreclosed real estate 791,596 1,306,556
Deferred income tax benefits 360,386 930,644
Accrued interest receivable and other assets 1,331,213 941,110
TOTAL ASSETS $131,099,624 $106,326,194
LIABILITIES
Deposits:
Non-interest bearing $21,837,223 $ 18,855,398
Interest bearing 86,021,463 74,252,542
Total deposits 107,858,686 93,107,940
Short-term borrowings 10,005,971 1,393,573
Long-term borrowing 1,000,000 1,000,000
Accrued expenses and other liabilities 604,666 246,416
Total liabilities 119,469,323 95,747,929
SHAREHOLDERS' EQUITY
Common stock - $1 par value;
10,000,000 shares authorized and
1,695,863 shares issued and outstanding 1,695,863 1,695,863
Surplus 10,640,337 10,640,337
Accumulated deficit (590,139) (1,417,881)
Net unrealized holding losses on securities (115,760) (340,054)
Total shareholders' equity 11,630,301 10,578,265
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $131,099,624 $106,326,194
See accompanying notes.
ALLEGIANCE BANC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1995 1994 1993
INTEREST INCOME
Interest and fees on loans $ 7,843,457 $ 5,222,903 $ 4,292,030
Interest and dividends on
investment securities 1,510,842 2,301,519 2,652,012
Interest on federal funds sold 134,072 238,916 126,564
Total interest income 9,488,371 7,763,338 7,070,606
INTEREST EXPENSE
Interest on deposits 3,687,256 2,756,160 2,764,439
Interest on short-term borrowings 219,458 20,548 3,698
Interest on long-term borrowing 70,724 29,679 0
Total Interest expense 3,977,438 2,806,387 2,768,137
NET INTEREST INCOME 5,510,933 4,956,951 4,302,469
PROVISION FOR CREDIT LOSSES (100,000) 70,000 90,000
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 5,610,933 4,886,951 4,212,469
OTHER OPERATING INCOME
Service charges on deposit accounts 543,954 601,548 622,547
Gain (loss) on sales of securities 152,449 (453,193) 259,355
Gain on sale of fixed assets 0 7,090 0
Other income 172,709 86,157 158,400
Total other operating income 869,112 241,602 1,040,302
OTHER OPERATING EXPENSES
Salaries and employee benefits 2,565,444 2,318,790 1,976,933
Net occupancy and equipment expense 1,110,257 881,549 842,972
Foreclosed real estate expense 156,381 23,523 59,951
Director and committee fees 104,363 114,696 106,469
FDIC insurance 109,303 223,296 236,203
Data processing expense 151,591 100,689 96,407
Advertising 120,650 148,651 56,677
Other insurance 88,331 96,884 91,510
Other expense 807,963 706,742 670,521
Total other operating expenses 5,214,283 4,614,820 4,137,643
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) 1,265,762 513,733 1,115,128
INCOME TAX EXPENSE (BENEFIT)
net of tax benefit of operating
loss carry forward of $199,824 for
1994 and $432,821 for 1993 438,020 (692,613) 0
NET INCOME $ 827,742 $ 1,206,346 $ 1,115,128
NET INCOME, PER SHARE $ .49 $ .71 $ .66
See accompanying notes.
ALLEGIANCE BANC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<S>
<C> <C> <C> <C>
Net unrealized
holding gains (losses)
Common Accumulated on securities
Stock Surplus Deficit Available for Sale
Balances at January 1, 1993 $1,410,000 $10,628,000 $(3,456,887) $ 0
Net income 0 0 1,115,128 0
Cumulative effect of the initial
application of Statement of Financial
Accounting Standards No. 115 0 0 0 565,943
Balances at December 31, 1993 1,410,000 10,628,000 (2,341,759) 565,943
6 for 5 stock split 0 0 (282,200) 0
Fractional shares retired 0 0 (268) 0
Stock options exercised 3,663 12,337 0 0
Net income 0 0 1,206,346 0
Net change in unrealized holding gains
on available for sale securities,
net of taxes of $213,959 0 0 0 (905,997)
Balances at December 31, 1994 1,695,863 10,640,337 (1,417,881) (340,054)
Net income 0 0 827,742 0
Net change in unrealized holding gains
on available for sale securities,
net of taxes of $86,579 0 0 0 0
Balances at December 31, 1995 $ 1,695,863 10,640,337 $(590,139) $(115,760)
See accompanying notes.
</TABLE>
ALLEGIANCE BANC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Years ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 827,742 $ 1,206,346 $1,115,128
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision (reduction) for credit losses (100,000) 70,000 90,000
Depreciation and amortization 283,537 226,896 220,037
Loss on disposal of equipment 8,795 0 3,477
Net gains on sales of securities (152,449) 0 (259,355)
Net loss on sales of investment securities
available for sale 0 453,193 0
Deferred income taxes 570,258 (692,613) 0
Net gain on sale of premises and equipment 0 (7,090) (24,603)
(Increase) decrease in accrued interest
receivable and other assets (390,103) 11,250 66,922
Increase (decrease) in accrued expenses
and other liabilities 358,250 (40,201) (9,363)
Other - net (184,228) (452,182) (389,042)
Net cash provided by
operating activities 1,221,802 775,599 813,201
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale
investment securities (3,241,031) (8,845,752) 0
Proceeds from sales of available for sale
investment securities 6,109,946 23,145,307 0
Proceeds from maturities and principal payments
of available for sale investment securities 706,733 2,796,006 0
Purchases of held to maturity
investment securities (513,600) (3,018,594)(31,936,986)
Proceeds from sales of held to maturity
investment securities 0 0 23,788,228
Proceeds from maturities and principal
payments of held to maturity
investment securities 2,000,000 1,000,000 4,486,162
Net increase in loans (18,940,708) (9,547,423) (2,670,655)
Purchase of loans (8,072,000) (4,732,357) 0
Bank premises and equipment acquired (388,211) (743,349) (83,302)
Proceeds from sale of foreclosed real estate 453,532 0 0
Proceeds from sales of premises and equipment 0 7,090 3,500
Net cash provided (used)
by investing activities (21,885,339) 60,928 (6,413,063)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 14,750,746 (1,813,945) 222,973
Net increase (decrease) in
short-term borrowings 8,612,398 1,390,270 (144,489)
Proceeds from long-term borrowing 0 1,000,000 0
Proceeds from sale of common stock 0 15,732 0
Net cash provided by financing activities 23,363,144 592,057 78,484
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,699,607 (1,428,584) (5,521,378)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 8,338,702 6,910,118 12,431,496
CASH AND CASH EQUIVALENTS AT
END OF YEAR $11,038,309 $ 8,338,702 $6,910,118
Supplemental Cash Flow Information:
1995 1994 1993
Interest paid $ 3,801,722 $ 2,786,814 $2,778,041
Income taxes paid $ 0 $ 0 $ 0
Assets acquired in foreclosure $ 0 $ 835,609 $ 220,947
Reclassification of available for sale
securities to held to maturity
(at estimated fair value) ($5,001,000) $ 810,000 $ 0
See accompanying notes.
ALLEGIANCE BANC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Policies
The accounting and reporting policies of Allegiance Banc Corporation (the
Company) and its subsidiary, Allegiance Bank, N.A. (The Bank), are in
conformity with generally accepted accounting principles and conform to general
practices within the banking industry. Certain reclassifications have been made
to conform the prior years' financial statements to the 1995 presentation. The
following is a summary of significant policies:
Principles of Consolidation
The consolidated financial statements include the accounts of Allegiance
Banc Corporation and its subsidiary bank, Allegiance Bank, N.A., with all
significant intercompany transactions eliminated. The investment in subsidiary
is recorded on the books of the holding company on the basis of its equity in
the net assets of the subsidiary.
Nature of Operations
The Company, through its subsidiary, provides a variety of banking services
to businesses, professionals and individuals through seven branches located in
Montgomery and Prince George's Counties in Maryland. Through its branch network,
the Bank offers a variety of depository services and lending products such as
commercial and commercial real estate loans, home equity loans and personal
loans.
Use of Estimates
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and revenues and expenses
for the period. Material estimates that are particularly susceptible to
significant change in the near-term relate to the determination of the allowance
for credit losses and the evaluation of real estate acquired in connection with
foreclosures or in satisfaction of loans. Actual results could differ from
those estimates.
Securities Available For Sale
Securities available for sale are stated at fair value, based on quoted
market prices. They represent those securities which management may sell as
part of its asset/liability strategy, or which may be sold in response to
changing interest rates, changes in prepayment risk or other similar factors.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity. The cost of securities sold is determined
by the specific identification method.
Securities Held To Maturity
Securities held to maturity are stated at cost, adjusted for amortization
of premiums and accretion of discount which are recognized in interest income
using the interest method over the period to maturity. The Company has the
positive intent and ability to hold these securities until maturity.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the
foreseeable future, or until maturity or payoff, are reported at their
outstanding unpaid principal balances reduced by any chargeoffs or specific
valuation accounts and net of any deferred fees or costs on originated loans,
or unamortized premiums or discounts on purchased loans.
Interest on Loans
Interest income on loans is accrued at the contractual rate on the
principal amount outstanding. When scheduled principal or interest payments are
past due 90 days or more on any loan not fully secured by marketable collateral,
which may include real estate, the accrual of interest income is discontinued
and recognized only as collected. When loans are placed on nonaccrual status,
previously accrued interest is charged against interest income. The loan is
restored to an accruing status when all amounts past due have been paid and the
borrower has demonstrated the ability to continue such payments.
Loan origination and commitment fees and certain direct loan origination
costs are being deferred, and the net amount is amortized over the contractual
life of the loan as an adjustment of the loan's yield.
Allowance for Credit Losses
The allowance for credit losses is increased by charges to income and
decreased by chargeoffs (net of recoveries). Management's periodic evaluation of
the adequacy of the allowance is based on the Bank's past credit loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Foreclosed Real Estate
Real estate acquired through foreclosure of loans is carried at cost or
fair value minus estimated costs of disposal, whichever is lower. Fair value is
based on independent appraisals and other relevant factors. At the time of
acquisition, any excess of the loan balance over fair value is charged to the
allowance for credit losses. Gains and losses on sales of other real estate are
included in non-interest income.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization computed predominantly by straight-line methods over the estimated
useful lives of the properties. Expenditures for maintenance and repairs are
charged to operations; expenditures for betterment are charged to the property
accounts.
Income Taxes
Income taxes are based on income and expense amounts in the statement of
income. Under the liability method, deferred taxes are determined based on the
differences between the tax and financial bases of assets and liabilities and
are measured at the enacted tax rates expected to be in effect at the time these
differences reverse. Deferred tax assets are recognized for future deductible
temporary differences and tax loss carryforwards if their realization is "more
likely than not."
Net Income Per Common Share
Primary net income is computed by dividing net income by the weighted
average number of common shares outstanding during the year, giving retroactive
effect to stock splits. Although stock options granted and warrants outstanding
are considered common stock equivalents for the purpose of computing the net
income per share, they have been excluded since they have no dilutive effect.
Cash Flows
The Company has defined cash and cash equivalents as those amounts included
in the balance sheet captions "Cash and due from banks" and "Federal
funds sold."
2. ADOPTION OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) Nos. 114 and 118, "Accounting by Creditors for
Impairment of a Loan," and "Accounting by Creditors for Impairment of a Loan -
Income Recognition Disclosures," respectively. These standards apply to loans
that are considered impaired, where it is probable that the creditor will not
collect all principle and interest payments according to the loan's contractual
terms. Under SFAS No. 114, impaired loans must be measured utilizing methods
that consider the present value of the expected future cash flows discounted at
the loan's effective interest rate, observable market price of the loan or fair
value of the collateral. If the measure of an impaired loan is less than the
recorded investment, a valuation allowance must be established through a
corresponding charge to provision for credit losses. The adoption of SFAS Nos.
114 and 118 did not have a material impact on the Company.
Effective December 31, 1995, the Company adopted SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments," which requires all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the balance sheets, for which it
is practicable to estimate fair value. The adoption of SFAS No. 107 did not
have a material impact on the Company.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
In accordance with Federal Reserve Board Regulation D, the Bank
maintains reserve balances with the Federal Reserve Bank based on the overall
levels of transaction account balances. The average amount of those reserve
balances, net of vault cash, for the years ended December 31, 1995 and 1994
was $525,000 and $750,000, respectively.
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available
for sale are as follows:
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S. government
agencies $ 5,113,967 $10,142 $ 4,694 $ 5,119,415
Mortgage-backed securities 5,884,113 16,164 42,474 5,857,803
Total debt securities 10,998,080 26,306 47,168 10,977,218
Equity securities 649,600 0 0 649,600
Total available for sale $11,647,680 $26,306 $47,168 $11,626,818
1994
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S. government
agencies $2,609,439 $ 0 $ 73,953 $ 2,535,486
Mortgage-backed securities 6,658,395 0 294,300 6,364,095
Total debt securities 9,267,834 0 368,253 8,899,581
Equity securities 545,200 0 0 545,200
Total available for sale $9,813,034 $ 0 $368,253 $ 9,444,781
The amortized cost and estimated fair values of investment securities held
to maturity are as follows:
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S. government
agencies $ 6,718,405 $ 9,420 $ 78,433 $ 6,649,392
Mortgage-backed securities 4,821,590 14,810 302,650 4,533,750
Municipal bond 513,565 0 1,065 512,500
Total held to maturity $12,053,560 $24,230 $382,148 $11,695,642
1994
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S. government
agencies $18,564,708 $ 0 $1,825,522 16,739,186
The amortized cost and estimated fair value of debt securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Available For Sale Held To Maturity
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $ 99,980 $ 100,492 $ 2,000,778 $ 2,000,215
Due after one year
through five years 4,017,367 4,017,580 2,000,170 1,988,616
Due after five years
through ten years 996,620 1,001,343 3,231,022 3,173,061
Total 5,113,967 5,119,415 7,231,970 7,161,892
Mortgage-backed securities 5,884,113 5,857,803 4,821,590 4,533,750
Total debt securities $10,998,080 $10,977,218 $12,053,560 $11,695,642
Proceeds from sales of investments in mortgage backed securities were
$3,725,177 in 1995, $10,619,963 in 1994 and $2,165,423 in 1993. Gross gains
of $101,345 were realized on the 1995 sales, gross gains of $28,452 and gross
losses of $483,224 were realized on the 1994 sales, and gross gains of $107,709
were realized on the 1993 sales. Proceeds from sales of investments in all
other securities were $2,384,769 in 1995, $12,525,344 in 1994, and $21,622,805
in 1993. Gross gains of $51,104 were realized on the 1995 sales, and gross
gains of $120,593 and gross losses of $119,014 were realized on the 1994 sales.
Gross gains of $204,784 and gross losses of $53,138 were realized on the 1993
sales.
At December 31, 1995, available for sale securities with book and estimated
fair values of $8,120,697 and $8,111,799, respectively; and held to maturity
securities with book and estimated fair values of $7,963,045 and $7,634,370,
respectively, were pledged as collateral for certain short-term borrowing as
required or permitted by law.
In November 1995, the Financial Accounting Standards Board issued a Special
Report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." The Report announced a one-time
window of opportunity for the reassessment and reclassification of securities
categorized as held to maturity. On December 18, 1995, the Company transferred
some securities previously classified as held to maturity to the available for
sale classification. The amortized cost of those securities transferred was
$5,015,000 and the estimated fair value was $5,01,000 on that date, resulting
in an increase of $14,000 in the net unrealized holding losses on available for
sale securities. This transfer increased the available for sale portfolio
providing additional flexibility for liquidity and interest rate risk
management.
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
At December 31, 1995 and 1994, loans were as follows:
1995 1994
Real estate construction $ 1,718,842 $ 819,550
Real estate mortgage 57,506,977 34,624,588
Commercial and financial 26,192,814 21,937,700
Loans to individuals 7,831,453 8,918,540
Total loans $93,313,086 $66,300,378
The composition of fixed and variable rate loans as of December 31, 1995
and 1994 was as follows:
1995 1994
Variable rate $52,884,195 $39,123,661
Fixed rate 40,428,891 27,176,717
$93,313,086 $66,300,378
Changes in the allowance for credit losses for 1995, 1994 and 1993
were as follows:
1995 1994 1993
Balance at January 1 $1,030,895 $1,174,964 $1,474,006
Provision charged to
operating expenses (100,000) 70,000 90,000
Recoveries 133,760 120,147 97,432
Loans charged off (23,222) (334,216) (486,474)
Balance at December 31 $1,041,433 $1,030,895 $1,174,964
Nonaccrual loans totaled $326,516, $1,043,260 and $1,386,529 at December
31, 1995, 1994 and 1993, respectively. If interest on these loans had been
accrued, such income would have approximated $33,000, 76,000, and $158,000
for 1995, 1994 and 1993, respectively.
In accordance with SFAS Nos. 114 and 118, "Accounting by Creditors for
Impairment of a Loan" and "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," the Company has identified certain loans
as impaired at year end 1995. The recorded investment of impaired loans totaled
$326,516 at December 31, 1995. The average recorded investment in impaired
loans during the year ended December 31, 1995 was approximately $887,000. For
the year ended December 31, 1995, the Company recognized interest income on
impaired loans of $54,000, representing interest received under the cash basis
method of income recognition. The total allowance for credit losses related to
these loans was $29,000 at period end.
6. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31, 1995 and 1994:
1995 1994
Leasehold improvements $1,717,894 $1,149,060
Equipment 1,326,759 1,795,046
3,044,653 2,944,106
Accumulated depreciation
and amortization (1,418,564) (1,413,896)
Premises and equipment - net $1,626,089 $1,530,210
The Bank rents certain bank premises under lease agreements, the initial
terms of which range from 5 to 15 years. In addition to minimum rentals, the
leases have escalation clauses based upon price indices and include provisions
for additional payments to cover taxes, insurance and maintenance. Total
rental expense for 1995, 1994 and 1993 was $612,278, $512,595 and $487,485,
respectively.
At December 31, 1995, the aggregate minimum net rental commitments under
noncancelable operating leases on bank premises are as follows:
Minimum
Rentals
1996 $ 594,719
1997 596,303
1998 611,608
1999 602,748
2000 517,954
Thereafter 690,854
Total $3,614,186
A portion of the Bank's main facility is occupied by a sub-tenant under a
lease which commenced in November 1994 and expires September 1999. Annual rent
under the lease is $42,120. Additionally, the sub-tenant shares in the operating
expenses of the facility.
7. DEPOSITS
Included in interest bearing deposits are certificates of deposit in
denominations of $100,000 or more which totaled $13,905,058 and $12,115,424 at
December 31, 1995 and 1994, respectively.
Interest on deposits for the years ended December 31, 1995, 1994 and 1993
consisted of the following:
1995 1994 1993
Certificates of deposit ($100,000 or more) $ 797,849 $ 573,261 $ 590,185
Other time deposits 1,446,159 758,017 834,064
Other interest bearing accounts 1,445,135 1,424,882 1,340,190
Total interest on deposits $3,689,143 $2,756,160 $2,764,439
8. SHORT-TERM BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase and
other short-term borrowings represent funds acquired for short-term liquidity
needs. Federal funds purchased mature on the business day after execution.
Selected balances and rates are as follows:
Federal funds purchased, securities sold under agreements to repurchase and
other short-term borrowings:
1995 1994
Maximum month-end balance $10,005,971 $1,736,915
Average daily balance 8,133,969 676,975
Amount outstanding at December 31 10,005,971 1,393,573
Average rate during the year 5.64% 3.04%
Average rate at December 31 5.59% 4.37%
9. LONG-TERM BORROWING
Long-term borrowing consists of an advance from the Federal Home Loan Bank
of Atlanta which matures August 1, 1998. The interest rate on the long-term
borrowing is fixed at 7.12 percent. Collateral for this borrowing consists of
U.S. government agency securities with book values and estimated fair values of
$2,000,000 and $1,785,000, respectively, as of December 31, 1995.
10. INCOME TAXES
Applicable income taxes for the years ended December 31, 1995, 1994 and
1993 were as follows:
1995 1994 1993
Current
Federal $ 0 $ 0 $ 0
State 0 0 0
Total current 0 0 0
Deferred
Federal 353,380 (567,075) 0
State 84,640 (125,538) 0
Total deferred 438,020 (692,613) 0
Total income tax expense $438,020 $(692,613) $ 0
Components of deferred income taxes for the years ended December 31 1995,
1994 and 1993 were as follows:
1995 1994 1993
Provision for credit losses $ 46,217 $(115,618) $140,202
Loan fees and costs 36,168 (100,704) (36,024)
Depreciation 4,399 (54,220) (8,631)
Loan income 23,583 (29,216) (5,952)
Net operating loss carryforward 335,709 (368,310) (89,595)
Other (8,056) (24,545) 0
$438,020 $(692,613) $145,328
The net deferred tax assets at December 31, 1995, are expected to be
realized through expected future taxable income. The Company has a federal net
operating loss carryforward of approximately $150,100 which expires in 2007 and
may be used to offset future tax liability.
The valuation allowance for deferred tax assets decreased by $675,209 in
1994 due to the Company's ability to realize more tax benefits as a result of
higher taxable income than previously anticipated for 1994 and future years.
The increased level of projected future taxable income reflects the Company's
improved earnings capacity. A reconciliation between actual tax expense and
taxes computed at the statutory rate for the years ended December 31, 1995,
1994 and 1993 is as follows:
1995 1994 1993
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount income Amount income Amount income
Tax computed at
statutory rate $430,359 34.0% $174,669 34.0% $379,144 34.0%
State income taxes net
of federal income
tax benefit 53,037 4.3% 23,905 4.7% 53,677 4.4%
Utilization of net
operating loss
carryforward 0 0% 0 0% (432,821) (38.4%)
Tax exempt interest (67,362) (5.3%) (3,694) (.7%) 0 0%
Non-deductible expenses 12,610 .9% 4,944 .9% 0 0%
Recognition of
deferred tax asset 0 0% (892,437)(173.7%) 0 0%
Other, net 8,376 .7% 0 0% 0 0%
Actual tax expense
(benefit) $438,020 34.6% $(692,613)(134.8%) $ 0 0%
The tax effects of each type of significant item that gave rise to deferred
income taxes as of December 31 were as follows:
1995 1994
Deferred tax assets:
Provision for credit losses $ 69,401 $115,618
Loan fees and costs 64,536 100,704
Loan income 5,633 29,216
Depreciation 49,821 54,220
Unrealized holding losses on investment
securities available for sale 72,836 213,959
Net operating loss carryforward 56,673 392,382
Other 41,486 24,545
Total deferred tax assets $360,386 $930,644
11. PROFIT SHARING PLAN
The subsidiary bank has a 401(k) profit sharing plan covering all employees
who meet certain service requirements. Contributions made to the plan for the
years ended December 31, 1995, 1994 and 1993 were $39,382, $26,787 and,
$37,045, respectively.
12. STOCK OPTIONS AND WARRANTS
In 1994, the Company renewed a five-year stock option plan providing for the
periodic granting of options to certain employees to purchase shares of the
Company's stock. Under the terms of the plan, 78,000 unissued shares have been
allocated for this purpose. Options are exercisable at a price at least equal
to the fair market value at the date of the grant and expire not later than five
years from the date of the grant. As of December 31, 1995, options granted under
the plan are as follows:
Price
Number Per Year
of Shares Share Expires
6,900 6.67 1996
4,080 3.33 1997
17,100 5.00 1998
21,480 6.67 1999
23,500 6.50 2000
73,060
At December 31, 1995, the Company had outstanding warrants to purchase
137,000 shares of the Company's common stock at an average price of $5.38 per
share, adjusted for splits, expiring in 1999 and 2000.
13. RELATED PARTY TRANSACTIONS
In the ordinary course of business, loans are made to officers and directors
of the Company and its subsidiary. These loans are made on substantially the
same terms and conditions as those prevailing at the time for comparable
transactions with outsiders and are not considered to involve more than the
normal risk of collectibility.
For the years ended December 31, 1995, 1994 and 1993 an analysis of such
aggregate loans is as follows:
1995 1994 1993
Balance at January 1 $3,329,604 $2,990,545 $3,209,821
New loans 3,781,542 2,895,727 1,567,758
Repayments (3,535,928) (2,556,668) (1,787,034)
Balance at December 31 $3,575,218 $3,329,604 $2,990,545
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, to meet the financial needs of its
customers, the Bank is a party to financial instruments with off-balance sheet
risk. These financial instruments include commitments to extend credit, standby
letters of credit and purchase commitments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to these financial instruments is represented by the contractual amount of
the instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
The Bank generally requires collateral or other security to support the
financial instruments with credit risk. The amount of collateral or other
security is determined based on management's credit evaluation of the
counterparty.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
Contract Amount
1995 1994
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $19,855,858 $13,654,007
Standby letters of credit 1,218,710 568,438
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are significantly
affected by the assumptions used,including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. SFAS No. 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company. The following
methods and assumptions were used by the Company in estimating the fair value
for its financial instruments as defined by SFAS No. 107:
o Cash and due from banks: The carrying amount approximates fair value.
o Federal funds sold: The carrying value approximates fair value.
o Investment securities available for sale and held to maturity: Fair
values are based on published market prices or dealer quotes.
o Loans: For loans with short-term or variable characteristics, such as
home equity or personal lines of credit and variable-rate commercial and
real estate loans, the carrying value approximates fair value. This
amount excludes any value related to account relationship. The fair
value of other types of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made
to borrowers with similar characteristics.
o Interest receivable and interest payable: The carrying amount
approximates fair value.
o Noninterest-bearing deposits: The fair value of these instruments, by
the SFAS No. 107 definition, is the amount payable at the reporting
date.
o Interst-bearing deposits: The fair value of demand deposits, savings
accounts and money market deposits with no defined maturity, by SFAS
No. 107 definition, is the amount payable on demand at the reporting
date. The fair value of certificates of deposit is estimated by
discounting the future cash flows using rates at which similar deposits
would be made.
At December 31, 1995, the Company had outstanding letters of credit and
commitments to extend credit of $1,218,710 and $19,855,858, respectively. The
fair value of these off-balance-sheet financial instruments, based on fees that
would be charged to enter similar arrangements, is immaterial.
The estimated fair values of the Company's financial instruments required to
be disclosed under SFAS No. 107 are as follows:
Assets: Carrying Amount Fair Value
Cash and due from banks $ 6,133,309 $ 6,133,309
Federal funds sold 4,905,000 4,905,000
Investment securities available for sale 11,626,818 11,626,818
Investment securities held to maturity 12,053,560 11,695,642
Loans (net) 92,271,653 91,308,000
Interest receivable 847,884 847,884
Liabilities:
Noninterest-bearing deposits 21,837,223 21,837,223
Interest-bearing deposits 86,021,463 86,296,000
Interest payable 380,636 380,636
16. RESTRICTIONS ON DIVIDENDS
The Bank is subject to certain requirements imposed by federal banking
statutes and regulations. These requirements, among other things, establish
minimum levels for capital and restrict the amounts of dividends that can be
distributed. Currently no dividends may be paid by the Bank without approval
by the Office of the Comptroller of the Currency.
17. CONSOLIDATED QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED)
1995 1994
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
(Dollars in Thousands, except per share data)
INTEREST INCOME $2,546 $2,480$2,345 $2,117 $2,066$1,946$1,846 $1,905
INTEREST EXPENSE 1,100 1,049 978 840 785 711 649 661
NET INTEREST INCOME 1,446 1,421 1,367 1,277 1,281 1,235 1,197 1,244
PROVISION FOR CREDIT LOSSES 0 0 0 (100) 0 0 10 60
NET INTEREST INCOME AFTER
PROV FOR CREDIT LOSSES 1,446 1,421 1,367 1,377 1,281 1,235 1,187 1,184
OTHER INCOME 358 234 233 144 (368) 196 199 214
OTHER EXPENSES 1,355 1,220 1,246 1,393 1,307 1,093 1,136 1,079
INCOME (LOSS) BEFORE
INCOME TAXES 349 435 354 128 (693) 338 250 319
INCOME TAX EXP (BENEFIT) 120 152 122 44 0 0 0 0
NET INCOME $ 229 $ 283 $ 232 $ 84 $ 299 $ 338 $ 250 $ 319
PER SHARE DATA
AVERAGE COMMON
SHARES OUTSTANDING 1,696 1,696 1,696 1,696 1,693 1,693 1,693 1,410
NET INCOME $.13 $.17 $.14 $.05 $.17 $.20 $.15 $.19
DIVIDENDS 0 0 0 0 0 0 0 0
MARKET PRICE
HIGH 11.00 7.88 7.50 8.00 9.00 8.50 9.00 8.50
LOW 6.88 6.50 6.50 6.50 7.75 6.50 6.13 6.50
18. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Allegiance Banc Corporation (parent company
only) is as follows:
CONDENSED BALANCE SHEETS
December 31,
1995 1994
ASSETS
Cash $ 58,865 $ 100,247
Investment securities available for sale 461,820 453,042
Loans 88,200 95,125
Investment in subsidiary 10,951,178 9,867,774
Deferred income tax benefits 68,553 55,155
Other assets 10,270 12,479
TOTAL ASSETS $11,638,886 $10,583,822
LIABILITIES
Other liabilities $ 8,585 $ 5,557
SHAREHOLDERS' EQUITY
Common stock 1,695,863 1,695,863
Surplus 10,640,337 10,640,337
Accumulated deficit (590,139) (1,417,881)
Net unrealized holding gains
on securities available for sale (115,760) (340,054)
Total shareholders' equity 11,630,301 10,578,265
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,638,886 $10,583,822
CONDENSED STATEMENTS OF INCOME
Years ended December 31,
Income: 1995 1994 1993
Taxable interest income $ 39,529 $ 46,217 $ 44,927
Other operating income 0 51 0
Total income 39,529 46,268 44,927
Interest and other expenses 124,698 137,959 86,816
Loss before equity in
income of subsidiary (85,169) (91,691) (41,889)
Equity in income of subsidiary 883,953 1,266,862 1,157,017
Net income before income tax benefit 798,784 1,175,171 1,115,128
Income tax benefit (28,958) (31,175) 0
Net income $ 827,742 $ 1,206,346 $ 1,115,128
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 827,742 $ 1,206,346 $1,115,128
Equity in income of subsidiaries (883,953) (1,266,862) (1,157,017)
Decrease in other assets 4,876 10,053 2,385
Increase (decrease) in other liabilities 3,028 (916) 3,815
Net cash used by operating activities (48,307) (51,379) (35,689)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principal
payments of available for sale
investment securities 0 120,265 205,277
Purchases of available for sale
investment securities 0 (99,953) (300,000)
(Increase) decrease in loans 6,925 (95,125) 200,000
Net cash provided (used) by
investing activities (74,813) (74,813) 105,277
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 0 15,732 0
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (41,382) (110,460) 69,588
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 100,247 210,707 141,119
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 58,865 $ 100,247 $ 210,707
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALLEGIANCE BANC CORPORATION
By: /s/b/ Leonard L. Abel
Leonard L. Abel
Chairman of the Board
Date: March 27 , 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/b/ Leonard L. Abel Director and
(Leonard L. Abel) Chairman of the Board March 27, 1996
Director March ,1996
(Dudley C. Dworken)
Director March ,1996
(William A. Koier)
/s/b/ Ronald D. Paul Director and March 27, 1996
(Ronald D. Paul) President
(Principal Executive Officer)
Director March ,1996
(Thomas L. Phillips)
/s/b/ Charles V. Joyce III Vice President and March 27, 1996
(Charles V. Joyce III) Chief Financial Officer
(Principal Financial Officer)
Exhibit 23
Consent of Independent Auditors
We hereby consent to the incorporation by reference in this Form 10-K of
Allegiance Banc Corporation for the year ended December 31, 1995 of our report
dated January 26, 1996, relating to the consolidated financial statements of
Allegiance Banc Corporation and Subsidiary.
/s/b/ Stegman & Company
Stegman & Company
Towson, Maryland
March 26, 1996
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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