FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter Ended March 31, 1996
Commission file number 0-16706
Allegiance Banc Corporation
(Exact name of registrant as specified in its charter)
Delaware 52-1494123
(State or other jurisdiction of (IRS employer identification)
Incorporation or organization)
4719 Hampden Lane, Bethesda, MD 20814
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 656-5300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock:
Common Stock, $1.00 par value 1,727,563 shares
Class Outstanding at March 31, 1996
ALLEGIANCE BANC CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Income
Three months ended March 31, 1996, and 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . .5
Note to Financial Statements . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations . . . . . . . . . . 7
PART II. OTHER INFORMATION. . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 15
ALLEGIANCE BANC CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands)
March 31, December 31,
1996 1995
ASSETS
Cash and due from banks $ 7,052 $ 5,448
Federal funds sold and
interest earning balances 9,867 5,590
Investment securities:
Available for sale-at
fair value 11,411 11,627
Held to maturity-at
amortized cost (fair value
was $11,594 at 3/31/96 and
$11,696 at 12/31/95) 12,053 12,054
Loans (including loans held
for sale at March 31, 1996
in the amount of $2,680) 94,913 93,313
Less: Allowance for credit
losses (1,007) (1,041)
Loans, net 93,906 92,272
Premises and equipment, net 1,574 1,626
Foreclosed real estate, net 792 792
Accrued interest receivable
and other assets 1,435 1,690
TOTAL ASSETS $138,090 $131,099
LIABILITIES
Deposits:
Noninterest bearing $ 20,776 $ 21,837
Interest bearing 91,942 86,022
Total deposits 112,718 107,859
Short-term borrowing 11,854 10,005
Long-term borrowing 1,000 1,000
Other liabilities 507 605
Total liabilities 126,079 119,469
SHAREHOLDERS' EQUITY
Common Stock-$1.00 par value 1,728 1,696
3-31-96 12-31-95
Authorized 10,000,000 10,000,000
Issued 1,727,563 1,695,863
Surplus 10,793 10,640
Accumulated deficit (311) (590)
Net unrealized holding
losses on Securities
available for sale (199) (116)
Total shareholders' equity 12,011 11,630
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $138,090 $131,099
ALLEGIANCE BANC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands, except per share data)
Three Months
ended March 31,
1996 1995
Interest Income
Interest and fees on loans $ 2,226 $ 1,650
Interest and dividends on investments 309 438
Interest on federal funds sold 32 29
Total interest income 2,567 2,117
Interest Expense
Interest on deposits 946 804
Interest on short-term borrowing 114 19
Interest on long-term borrowing 18 17
Total interest expense 1,078 840
Net Interest Income 1,489 1,277
(Benefit) Provision for credit losses 0 (100)
Net Interest Income After (Benefit)
Provision for Credit Losses 1,489 1,377
Other Operating Income
Service charges on deposit accounts 194 120
Other income 40 24
Total other operating income 234 144
Other Operating Expense
Salaries and employee benefits 613 641
Net occupancy and equipment expense 302 241
Foreclosed real estate expense 9 115
Other expense 371 396
Total other operating expense 1,295 1,393
Income Before Income Taxes 428 128
Applicable income tax expense 148 44
Net Income $ 280 $ 84
Per share information:
Net Income $ 0.16 $ 0.05
Dividends $ -0- $ -0-
ALLEGIANCE BANC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(In thousands)
Three months ended March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 280 $ 84
Noncash items included in net income:
Benefit) Provision for credit losses 0 (100)
Depreciation and amortization 75 62
Decrease (increase) in accrued interest
receivable and other assets 257 156
Increase (decrease) in other liabilities (98) 101
Other-net 27 223
Net cash provided by operating activities 541 526
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (73) 0
Proceeds from maturities and principal payments
of investment securities 143 152
Net (increase) decrease in loans (1,600) (1,383)
Bank premises and equipment purchased (23) (107)
Net cash (used) provided by
investing activities (1,553) (1,338)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 4,859 1,354
Net increase in short-term borrowing 1,849 258
Sale of common stock 185 0
Net cash provided by financing activities 6,893 1,612
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,881 800
CASH AND CASH EQUIV. , BEG. OF PERIOD 11,038 8,339
CASH AND CASH EQUIV. , END OF PERIOD $ 16,919 $ 9,139
ALLEGIANCE BANC CORPORATION
NOTE TO FINANCIAL STATEMENTS
Note
1. In the opinion of management, the accompanying unaudited consolidated
financial statements for March 31, 1996, and December 31, 1995, contain
all adjustments (consisting of normal recurring adjustments) in conformity
with generally accepted accounting principles necessary to present fairly the
financial position as of March 31, 1996, and December 31, 1995, and the
results of operations and cash flows for the three months ended March 31,
1996 and 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The accompanying consolidated financial statements present the
financial condition of Allegiance Banc Corporation (the Company) and its
wholly owned subsidiary, Allegiance Bank, N.A. (the Bank), as of March 31,
1996, and December 31, 1995, and the results of operations and cash flows
for the first quarters of 1996 and 1995.
FINANCIAL CONDITION
During the first three months of 1996, total assets increased by
5.3 percent, from $131.1 million to $138.1 million. Short term
investments in federal funds sold and interest earning balances increased
by $4.3 million to $9.9 million at March 31, 1996, while loans increased
during the period by $1.6 million, or 1.7 percent and now stand at
$94.9 million. The growth in total assets was funded by deposit increases
of $4.9 million, as well as short-term borrowing increases of $1.8 million.
Cash balances and federal funds sold increased by $5.9 million in the
period as some of the funds from increased deposits were yet to be deployed.
Federal funds sold and investment securities available-for-sale represent
liquidity available for the Bank's use.
As of March 31, 1996, outstanding loan balances were $94.9 million
compared to $93.3 million at December 31, 1995, which was an increase
of 1.7 percent. At March 31, 1996, the Bank had approximately
$2.7 million of loan commitments which were expected to funded in
the near future. Also at March 31, 1996, the Bank had approximately
$2.7 million of loans held for sale.
The investment portfolio decreased by a nominal $0.2 million
during the first three months of 1996. This net decrease was the
result of principal repayments in mortgage backed securities, a
reduction in the market value of available for sale securities, and
the purchase of additional shares of stock in the Federal Home
Loan Bank of Atlanta and the Federal Reserve Bank of Richmond.
The change in the market value recorded for available for sale
securities amounted to approximately $138 thousand in the quarter
ended March 31, 1996. The unrealized loss in the held-to-maturity
portfolio now stands at $463 thousand compared to $356 thousand
at December 31, 1995. The net unrealized holding losses represent
a reduction in the market value of investment securities.
Investment securities continue to be primarily in U.S. Treasury and
U.S. Government Agency obligations which do not represent a credit
risk. As of March 31, 1996, held to maturity investment securities
included $1.1 million in bank qualified, tax-exempt municipal bonds.
Premises and equipment had a net decrease of $52 thousand in
the first three months of 1996, reflecting depreciation and
amortization of $75 thousand and equipment purchases of $23
thousand.
Deposits increased by $4.9 million, or 4.5 percent, in the first
three months of 1996, and now stand at $112.7 million, up from
$107.9 million at year-end 1995. A $1.0 million decline in demand
deposits was more than offset by an $5.2 million increase in certificates
of deposit balances. Money market and NOW accounts increased by
a combined $0.8 million during the period. The Bank successfully introduced
telephone banking, a new sweep product, and computer banking in 1995.
These new products and the opening of the Bank's seventh branch in Silver
Spring, Maryland, are contributing to further deposit growth and providing
business and association customers with more sophisticated tools to manage
their businesses. The ability to provide these products is a result of the
Bank's conversion to a new computer system which was completed in early 1995.
Long-term borrowing remained unchanged at $1.0 million. These
funds were borrowed in 1994 to fund a specific loan. This borrowing is a
secured advance from the Federal Home Loan Bank of Atlanta, matures in
August 1998, and carries a rate of 7.12 percent.
Shareholders' Equity increased in the first quarter of 1996 by $382
thousand, as a result of $280 thousand in net earnings, an $83 thousand
decrease in the market value of investment securities available-for-sale,
and $185 thousand from the issue of common stock to employees exercising
stock options.
RESULTS OF OPERATIONS
The Company recorded net income of $280 thousand, or $.17 per share for
the three months ended March 31. These results compare to net income of
$84 thousand, or $.05 per share for the three months ended March 31, 1995.
In 1995, pre-tax earnings were held down by non-recurring expenses associated
with a conversion to a new computer system. There were no securities gains
recorded in the first quarter of 1996 or 1995.
There was no provision for credit losses recorded in the first quarter
of 1996 or 1995. In the first quarter of 1995, however, the Company recorded
a $100 thousand credit to the provision for credit losses, and a established
a $100 thousand valuation allowance for foreclosed real estate.
NET INTEREST INCOME
Net interest income for the first quarter of 1996 was $1.489 million, an
increase of 16.6 percent over the $1.377 million earned in the first quarter
of 1995. Interest income for the first three months of 1996 included
$11 thousand of interest collected that had been charged-off in prior years.
The Bank's net interest rate spread during the first three months of 1996
was 4.24 percent compared to 4.40 percent in 1995. The net interest margin,
or net interest income as a percent of average earning assets, was 5.13 percent
in the first three months of 1996, compared to 5.22 percent in 1995. The
decrease in the net interest margin in 1996 was due primarily to the higher
cost of funds in 1996 for short term borrowing and certificates of deposit
issued at higher rates during 1995. The cost of funds has been dropping,
and will continue to drop, as certificates of deposit are renewed or replaced
at lower rates, and short term borrowings are being reduced. The percentage
of average earning assets in loans in the first quarter increased to 77
percent in 1996 from 68 percent in 1995 providing a positive impact on the net
interest margin. Overall, during the first quarter of 1996, the yield on
earning assets increased to 8.76 percent from 8.73 percent in 1995, while
the rate paid on interest bearing liabilities increased by 22 basis points
to 4.52 percent in 1996 from 4.33 percent in 1995. The increase in the rates
paid on interest-bearing liabilities was reflected in a 15 basis point rise
in CD rates, while rates paid on money market deposit accounts and NOW
accounts declined in 1996 compared to 1995.
PROVISION FOR CREDIT LOSSES
The Bank maintains an allowance for credit losses to absorb 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 review of the loan portfolio, evaluating factors
such as historical loss experience, historical delinquency, portfolio trends
in composition, collateral and industry concentrations, peer bank loss and
delinquency experience, credit commitments, economic trends, effectiveness
of loan policies and procedures, and an individual analysis of loans
classified as Substandard and Doubtful to determine probability of loss based
on collateral, restructuring and alternative repayment sources. Between
reviews, events may occur which dictate immediate adjustments to the
allowance, and these are addressed as required. No provision for possible
credit losses was recorded in the first quarter of 1996 or 1995.
However, during the first quarter of 1995, management reduced the
Allowance for Credit Losses by $100 thousand. At the same time, there was
a corresponding transaction to establish a reserve for the Bank's Foreclosed
Real Estate. When appropriate, Bank accounting rules recommend the
establishment of a specific reserve for possible losses on Foreclosed Real
Estate. The transfer from the allowance for credit losses was possible
because internal and external analysis indicated that the Bank had sufficient
reserves for the loan portfolio. The Bank had $12 thousand of net recoveries
added to the Allowance for Credit Losses during the first three months of 1995,
while there were net chargeoffs of $34 thousand in the first quarter of 1996.
Foreclosed Real Estate was unchanged at $792 thousand at March 31, 1996
and December 31, 1995.
At March 31, 996, the Allowance for Credit Losses was $1.007 million,
or 1.06 percent of loans, compared to $1.114 million at December 31, 1995.
Credit quality continues to improve at the Bank, as reflected in a
decline in past-due credits. There were no loans past-due 90 days or more
at March 31, 1996. or at December 31, 1995. Non-accrual loans totaled $267
thousand at March 31, 1996. This was a decline from $327 thousand at the
end of 1995. Loans secured by real estate account for $234 thousand of the
total non-accrual loans at March 31, 1996. The remaining loan is a commercial
loan of $33 thousand.
NON-INTEREST INCOME
Non-interest income for the first three months of 1996 was $234 thousand,
compared to $144 thousand in the first quarter of 1995. There were no
securities gains in the first quarter of 1996 or 1995. Service charges on
deposit accounts increased by $74 thousand or 62 percent to $194 thousand in
the first quarter of 1996 compared to $120 thousand in the corresponding
period of 1995.
NON-INTEREST EXPENSE
Non-interest expense for the first three months of 1996 was $1.295
million, down 7 percent, compared to $1.393 million in the first three months
of 1995. $100 thousand of this decrease was related to the foreclosed real
estate reserve recorded in 1995. Although the Bank has added lending
officers and branch staff, and opened a new branch in June 1995, salaries
and employee benefits expenses during the first quarter of 1996 were $28
thousand less than the corresponding period of 1995. In the first quarter
of 1995, there were approximately $30 thousand of non-recurring expenses
due to severance payments when staff reductions were made to coincide with
the completion of the conversion to a new computer system.
Occupancy and equipment expenses rose 25 percent from $241 thousand
for the first three months in 1995 to $302 in 1996. These increases were
due to opening a new branch office in Silver Spring, and communication and
computer equipment purchased for the Bank's conversion to a new computer
system.
Other expenses decreased by a net $24 thousand during the first three
months of 1996 reflecting non-recurring expenses incurred in the first quarter
of 1995 relating to consulting and ATM expenses incurred as a result of the
computer conversion. Otherwise, increases in consulting services,
advertising, and data processing expenses were largely offset by decreases
in insurance expense and the FDIC insurance rate reduction.
INCOME TAXES
In the first three months of 1996 the Company recorded tax expense
of $148 thousand compared to $44 thousand in 1995. The effective tax rate
was approximately 34.6 percent in 1996 and 34.4 percent in 1995, compared
to a statutory rate of 38.62 percent in each period. Certain loans and
investment securities are exempt, in whole or in part, from federal and
state income taxes, thereby reducing the Company's effective tax rate. The
Company plans to acquire additional tax advantaged assets during 1996 to
further manage and reduce the effective tax rate.
CAPITAL REQUIREMENTS
Risk based capital requirements require banks and bank holding
companies to maintain minimum ratios of capital to risk-weighted assets
and off-balance sheet credit arrangements. Total capital is classified into
two tiers, referred to as Tier 1 and Tier 2. The Bank's Tier 1 capital is
composed of common stockholders' equity, while Tier 2 capital includes
the allowance for credit losses. For bank holding companies with assets
of less than $150 million, the risk-based capital guidelines generally are
applied on a bank-only basis.
The regulatory minimums for the Bank's Tier 1 risk-based capital ratio
and total risk-based capital ratios are 4.0 percent and 8.0 percent,
respectively. At March 31, 1996, the Bank was well in excess of regulatory
minimums with the Tier 1 ratio at 11.32 percent and the total risk-based
capital ratio at 12.57 percent. At December 31, 1995, the corresponding
apital ratios were 11.39 percent and 12.64 percent. The decrease reflects
the loan growth that the Bank has experienced during the quarter.
The Bank's leverage ratio, another regulatory capital measure, is Tier 1
capital divided by average total assets. The regulatory minimum for certain
institutions is 3.0 percent, with most institutions required to maintain a
ratio of at least 4.0 percent to 5.0 percent, depending upon risk profiles
and other factors. At March 31, 1996, the Bank's leverage ratio was 8.88
percent.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is a measure of the Bank's ability to generate and maintain
sufficient cash flows to fund operations and to meet financial obligations
to depositors and borrowers promptly and in a cost-effective manner. The
Bank's liquidity is provided by amortizing and maturing loans, maturities
and paydowns of investment securities, securities and loans that can serve
as collateral for borrowing, federal funds sold and readily marketable
investment securities. Deposit growth and earnings also contribute to the
Bank's liquidity. In the event necessary, the Company may also sell
securities from its available for sale portfolio to fund its own liquidity
needs.
The Bank's liquidity sources and needs are measured on a monthly basis and
forecast six months. The analysis includes a review of current and future loan
demand, and anticipated deposit growth or contraction. At March 31, 1996, the
Bank's liquidity sources were 1.8 times anticipated liquidity needs, which
is in excess of the established management guidelines of 1.5 times anticipated
liquidity needs.
Because of the significant impact interest rate fluctuations may have on
the Bank's performance, management continually monitors the interest rate
sensitivity of its assets and liabilities. The common measurement term is
"gap," which refers to the relationship of earning assets to interest-bearing
liabilities within the time period in which they will mature or reprice.
A positive gap, wherein earning assets exceed interest-bearing liabilities,
positions the Bank to respond to rising interest rates. A negative gap,
wherein interest-bearing liabilities exceed earning assets, positions the
Bank to respond to declining interest rates.
Management strives to forecast far enough into the future so they can
fine-tune the earning assets and liabilities to respond to changes in rates.
As a guide, management tries to maintain a gap not greater than 15 percent,
either positive or negative, for the various periods measured. At March 31,
1996, the Bank had a cumulative negative gap out to one year of 8.93 percent
of earning assets.
The following table presents the Bank's gap measurements as of
March 31, 1995, (in thousands of dollars).
0-3 3-6 6-12
MONTHS MONTHS MONTHS 1-5 YRS 5 YRS
RATE SENSITIVE
ASSETS
Investment Securities 6,877 829 5,266 5,416 4,042
Loans 55,038 3,415 2,078 25,428 8,868
Federal Funds Sold 9,867
--------- ------- ------- ------- -------
TOTAL 71,782 4,244 7,344 30,844 12,910
RATE SENSITIVE
LIABILITIES
NOW Accounts 11,622
Money Market 34,973
CDS 11,525 4,396 21,350 8,301 141
Other Borrowing 10,854 1,000
-------- ------- ------- -------- -------
TOTAL 68,974 4,396 21,350 9,301 141
-------------------------------------------------------------------------
Cumulative Gap 2,808 2,656 (11,350) 10,193 22,962
=========================================================================
Ratio of cumulative gap
to earning assets 2.21% 2.09% -8.93% 8.02% 18.06%
PART II
OTHER INFORMATION
Items 1 through 6(b)
Management notes that no occurrences have taken place during
the reporting period which require disclosure under any of the
captioned headings.
Subsequent to March 31, 1996, on April 22, 1996, the Company
announced that the Boards of Directors of F&M National Corporation,
Winchester, Virginia, and Allegiance Banc Corporation had agreed to
a definitive agreement for the affiliation of the Company with F&M
National Corporation. A current report on FORM 8-K was filed with
the Securities Exchange Commission on April 30, 1996.
ALLEGIANCE BANC CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Allegiance Banc Corporation
(Registrant)
DATE: May 14, 1996 BY: s/b CHARLES V. JOYCE III
Charles V. Joyce III
Vice President and
Chief Financial Officer
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