<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended ..................................June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .................... to ....................
COMMISSION FILE NUMBER: 0-24358
MLF BANCORP, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Pennsylvania 23-2752439
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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Two Aldwyn Center
Villanova, Pennsylvania 19085
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code:)
(610) 526-6460
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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
------------- -------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of August 1, 1996, there were 7,273,800 shares issued and 5,934,605
shares outstanding of the Registrant's Common Stock.
<PAGE> 2
MLF BANCORP, INC.
TABLE OF CONTENTS
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Item
No.
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PART I - CONSOLIDATED FINANCIAL INFORMATION
1 CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
June 30 (unaudited) and March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the Three Months
Ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . 5
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2 Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
MLF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30 and March 31, 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
====================================================================================================
(Unaudited)
JUNE 30, March 31,
ASSETS 1996 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash (including interest-bearing deposits of $13,344 and $11,283
at June 30 and March 31, 1996, respectively) $ 37,897 23,323
Assets available for sale:
Mortgage-related, debt and equity securities 523,600 469,321
Loans 94,360 95,033
Investments (market value $33,134 and $24,946
at June 30 and March 31, 1996, respectively) 33,141 24,942
Mortgage-related securities (market value $380,140 and $401,231
at June 30 and March 31, 1996, respectively) 385,760 404,150
Loans receivable, net of allowance for loan loss ($14,053 and $13,124
at June 30 and March 31, 1996, respectively) 719,309 691,791
Accrued income receivable 12,513 12,085
Other real estate owned, net 1,696 2,043
Premises and equipment, at cost less accumulated depreciation
($14,949 and $13,774 at June 30 and March 31, 1996, respectively) 14,513 14,343
Mortgage servicing rights 42,552 21,865
Goodwill and other intangible assets 5,632 3,499
Other assets 5,045 3,417
- ----------------------------------------------------------------------------------------------------
Total assets $ 1,876,018 1,765,812
====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------
Deposits $ 842,459 830,997
Advances from Federal Home Loan Bank 461,814 376,013
Securities sold under agreements to repurchase 415,481 402,212
Advance payments by borrowers for taxes and insurance 5,014 3,533
Accrued interest payable 4,713 5,371
Other liabilities 5,298 7,349
- ----------------------------------------------------------------------------------------------------
Total liabilities 1,734,779 1,625,475
Commitments and contingencies
Stockholders' Equity:
Preferred stock, no par value, authorized 5,000,000 shares;
no shares issued and outstanding - -
Common stock, $.01 par value, authorized 30,000,000 shares;
7,273,800 shares issued 73 73
Additional paid-in capital 96,381 95,977
Common stock acquired by stock benefit plans (8,503) (8,888)
Treasury stock, at cost; 1,026,900 shares
at June 30 and March 31, 1996, respectively (20,531) (20,531)
Unrealized (loss) gain on mortgage-related and equity
securities available for sale (1,824) 120
Retained earnings 75,643 73,586
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Total stockholders' equity 141,239 140,337
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Total liabilities and stockholders' equity $ 1,876,018 1,765,812
====================================================================================================
</TABLE>
1
<PAGE> 4
MLF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three months ended June 30, 1996 and 1995
(in thousands, except share and per share data)
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<CAPTION>
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(Unaudited)
Three months
ended June 30,
------------------------
1996 1995
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<S> <C> <C>
Interest income:
Loans $ 16,216 11,851
Mortgage-related securities 6,804 8,224
Investments 602 854
Assets available for sale 9,775 7,950
Interest-bearing deposits 129 105
- ----------------------------------------------------------------------------------------------------
Total interest income 33,526 28,984
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Interest expense:
Deposits 8,282 7,269
FHLB advances 6,420 5,109
Other borrowings 5,754 6,078
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Total interest expense 20,456 18,456
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Net interest income 13,070 10,528
Provision for loan losses 1,000 1,000
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Net interest income after provision for loan losses 12,070 9,528
Other income:
Retail fees and charges 413 349
Mortgage banking operations 3,172 727
Net gain (loss) on:
Sales of mortgage related and equity securities
available for sale (3)
Other real estate activities 309 (142)
Rental income 171 152
Other 99 81
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Total other income 4,164 1,164
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Operating expenses:
General and administrative:
Compensation and employee benefits $ 5,474 3,071
Advertising 535 462
Data processing 415 326
Federal insurance premiums 462 456
Amortization of goodwill and other intangible assets 1,619 160
Net occupancy costs 1,422 872
Professional fees 199 207
Other 1,433 869
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Total operating expenses 11,559 6,423
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Income before income taxes 4,675 4,269
Income taxes 1,430 1,548
- ----------------------------------------------------------------------------------------------------
Net income $ 3,245 2,721
====================================================================================================
Earnings per common and common equivalent share $ 0.54 0.42
====================================================================================================
Earnings per common share-assuming full dilution $ 0.54 0.42
====================================================================================================
Weighted average number of shares-primary 6,019,302 6,484,505
====================================================================================================
Weighted average number of shares-fully diluted 6,024,353 6,523,144
====================================================================================================
</TABLE>
2
<PAGE> 5
MLF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended June 30, 1996 and 1995
(in thousands)
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<CAPTION>
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(Unaudited)
Three months
ended June 30,
------------------------
1996 1995
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Net cash flows from operating activities:
Net income $ 3,245 2,721
- --------------------------------------------------------------------------------------------------------
Adjustments to reconcile net
income to net cash provided (used) by operating activities:
Amortization of:
Goodwill and other intangible assets $ 1,619 160
Deferred loan origination fees (792) (483)
Premiums and discounts on mortgage-related
securities, investments and assets available for sale 801 64
Common stock acquired by stock benefit plans 789 423
Mortgage servicing rights 2,000 703
Provision for loan losses 1,000 1,000
Net loss (gain) on sale of assets available for sale:
Mortgage-related, debt and equity securities 3
Loans (2,212) (139)
Net (gain) loss on other real estate activities (309) 142
Depreciation and amortization of premises and equipment 602 434
Increase/decrease in:
Loans available for sale 2,885 (36,165)
Accrued income receivable (428) 62
Deferred federal income taxes (562) (2,038)
Other assets (1,628) (2,198)
Accrued interest payable (658) (464)
Other liabilities (297) (2,852)
- --------------------------------------------------------------------------------------------------------
Total adjustments 2,810 (41,348)
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Net cash provided (used) by operating activities 6,055 (38,627)
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in loans receivable (27,748) (23,134)
Proceeds from sales of:
FHLB Stock 687 231
Mortgage-related, debt and equity securities available for sale 31,051
Proceeds from maturities or repayments of:
Mortgage-related securities 17,905 11,643
Mortgage-related, debt and equity securities available for sale 38,868 14,524
Investments 6,000 -
Purchases of:
Investments (14,885) (6,515)
Mortgage-related, debt and equity securities available for sale (96,600) (39,701)
Mortgage servicing rights (22,687) -
Net decrease (increase) in other real estate owned 552 (172)
Proceeds from other real estate activities 126 98
Excess of liabilities assumed over assets acquired (3,752) -
Purchases of premises and equipment (772) (269)
- --------------------------------------------------------------------------------------------------------
Net cash used by investing activities (102,306) (12,244)
- --------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
3
<PAGE> 6
MLF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(in thousands)
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<CAPTION>
========================================================================================================
(Unaudited)
Three months
ended June 30,
-----------------------------
1996 1995
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<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 11,462 23,633
Proceeds from deposits purchased - 28,937
Dividends paid (1,188) (645)
Proceeds from securities sold under agreements to repurchase 39,517 111,000
Payments of securities sold under agreements to repurchase (26,248) (160,414)
Proceeds from FHLB advances 110,801 126,820
Payments of FHLB advances (25,000) (80,434)
Net increase in advance payments by borrowers for taxes and insurance 1,481 1,494
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 110,825 50,391
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Net increase (decrease) in cash and cash equivalents 14,574 (480)
Cash and cash equivalents:
Beginning of period 23,323 20,007
- --------------------------------------------------------------------------------------------------------
End of period $ 37,897 19,527
========================================================================================================
Supplemental disclosure:
Cash payments for interest $ 21,114 18,920
Cash payments for income taxes 250 5,898
Transfer of loans receivable into other real estate owned 22 42
Deposits acquired in excess of cash received - 1,081
Net unrealized (loss) gain on mortgage-related, debt and equity securities
available for sale (3,136) 5,880
Tax effect on mortgage-related, debt and equity securities available for (1,192) 2,371
========================================================================================================
</TABLE>
4
<PAGE> 7
MLF BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
================================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements were prepared
in accordance with instructions to Form 10-Q, and therefore, do
not include information or footnotes necessary for a complete
presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting
principles. However, all normal, recurring adjustments which,
in the opinion of management, are necessary for a fair
presentation of the financial statements, have been included.
These financial statements should be read in conjunction with
the audited financial statements and the notes thereto included
in the Company's Annual Report for the period ended March 31,
1996. The results for the three months ended June 30, 1996 are
not necessarily indicative of the results that may be expected
for the fiscal year ended March 31, 1997.
On April 1, 1996, the Company completed its acquisition of
Philadelphia Mortgage Corporation ("PMC"), a privately-held
mortgage banking company. The acquisition was accounted for
using the purchase method of accounting.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123, "Accounting for Stock-based
Compensation" ("SFAS 123"). This statement encourages the
adoption of fair value accounting for stock-based compensation
to employees. Further, in the event that fair value accounting
is not adopted, SFAS 123 requires proforma disclosure of net
income and earnings per share as if fair value accounting had
been adopted. The Company does not anticipate adopting the fair
value accounting provisions of SFAS 123, and will instead
provide the required proforma disclosures, as permitted.
In June 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"). This statement provides
accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that
focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured
borrowings. Under the financial-components approach, after a
transfer of financial assets, an entity recognizes all financial
and servicing assets it controls and liabilities it has incurred
and derecognizes financial assets it no longer controls and
liabilities that have been extinguished. The approach focuses
on the assets and liabilities that exist after the transfer. If
a transfer does not meet the criteria for a sale, the transfer
is accounted for as a secured borrowing with pledge of
collateral. The Company has not yet determined the effect, if
any, that SFAS 125 will have on its financial statements and
will adopt SFAS 125 prospectively, effective January 1, 1997,
the required date of adoption.
5
<PAGE> 8
MLF BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
================================================================================
(3) LOANS RECEIVABLE
Loans receivable at June 30 and March 31, 1996 consisted of the
following (in thousands):
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<CAPTION>
June 30, March 31,
1996 1996
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<S> <C> <C>
Real estate loans:
One- to four-family $ 345,099 344,713
Construction and land:
Residential 94,723 91,217
Commercial 32,401 34,101
Commercial real estate 121,122 109,135
Multi-family 11,396 11,348
- ----------------------------------------------------------------------
Total real estate loans 604,741 590,514
- ----------------------------------------------------------------------
Other loans:
Consumer:
Home equity and equity lines of credit 104,450 92,139
Unsecured lines of credit 3,054 3,091
Automobile 5,493 5,926
Other 11,692 9,098
Commercial 67,473 69,647
- ----------------------------------------------------------------------
Total other loans 192,162 179,901
- ----------------------------------------------------------------------
796,903 770,415
Loans in process (construction loans) (59,570) (61,389)
Deferred loan fees (3,971) (4,111)
Allowance for loan losses (14,053) (13,124)
- ----------------------------------------------------------------------
$ 719,309 691,791
======================================================================
</TABLE>
Activity in the allowance for loan losses for the three months
ended June 30, 1996 and 1995 consisted of the following (in
thousands):
<TABLE>
<CAPTION> Three months ended
---------------------
June 30,
1996 1995
<S> <C> <C>
- -----------------------------------------------------------
Balance, beginning of period $ 13,124 9,111
Provision for loan losses 1,000 1,000
Charge-offs (108) (41)
Recoveries 37 137
- -----------------------------------------------------------
Balance, end of period $ 14,053 10,207
===========================================================
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6
<PAGE> 9
MLF BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
================================================================================
(4) DEPOSITS
The major types of savings deposits by amounts and the
percentages of such types to total savings deposits are as
follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1996 March 31, 1996
------------------------ ------------------
% OF % of
AMOUNT TOTAL Amount total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing deposits $ 117,264 13.92% $ 81,767 9.84%
Money market and NOW accounts 154,608 18.35 155,115 18.67
Passbook and statement savings
accounts 89,110 10.58 88,011 10.59
- --------------------------------------------------------------------------------
360,982 42.85 324,893 39.10
Certificates of deposit 481,477 57.15 506,104 60.90
- --------------------------------------------------------------------------------
$ 842,459 100.00% $ 830,997 100.00%
================================================================================
</TABLE>
(5) EARNINGS PER SHARE
Primary and fully-diluted earnings per share ("EPS") were $0.54
and $0.42 for the three months ended June 30, 1996 and 1995,
respectively. Unless anti-dilutive, stock options are
considered common stock equivalents and are included in the
computation of the weighted average number of shares outstanding
using the treasury stock method. The options granted under the
Company's 1994 Stock Option Plan were dilutive during the
quarters ended June 30, 1996 and 1995.
(6) SUBSEQUENT EVENT
On July 25, 1996, the Board of Directors of the Company declared
a two-for-one stock split to be effective on September 6, 1996
to shareholders of record at the close of business on August 9,
1996. As a result of the split, the number of shares
outstanding will increase from 5,934,605 to 11,869,210.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's net income for the quarter ended June 30, 1996 was $3.2 million
or $0.54 per share, compared to net income of $2.7 million or $0.42 per share
for the same quarter in 1995.
On April 1, 1996, the Company completed its acquisition of Philadelphia
Mortgage Corporation, ("PMC"), a privately-held mortgage banking company. The
acquisition was accounted for using the purchase method of accounting.
Included in the acquired assets were $19.4 million in mortgage servicing
rights. Additionally, the Company increased its loans serviced for others
portfolio by $1.34 billion, or 53.0% as a result of the acquisition.
FINANCIAL CONDITION
CASH AND INVESTMENTS. Cash and investments increased by $22.8 million or 47.2%
from $48.3 million at March 31, 1996 to $71.0 million at June 30, 1996. The
increase was partially attributable to investment purchases of $14.9 million,
less securities repayments and maturities of $6.7 million during the quarter.
MORTGAGE-RELATED SECURITIES AND MORTGAGE-RELATED, DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE. Mortgage-related securities and mortgage-related, debt and
equity securities available for sale increased by $35.9 million or 4.1% at June
30, 1996 to $909.4 million from $873.5 million at March 31, 1996. The increase
is primarily due to $96.6 million in purchases of adjustable rate
mortgage-backed securities available for sale, which was partially offset by
repayments and securities maturities of $56.8 million.
LOANS AVAILABLE-FOR-SALE AND LOANS RECEIVABLE, NET. Aggregate loans receivable
(loans receivable, net and loans available for sale) totaled $813.7 million at
June 30, 1996, an increase of $26.8 million or 3.4% from $786.8 million at
March 31, 1996, due primarily to a $27.5 million or 4.0% increase in loans
receivable, net, which was partially offset by a $673,000 decrease in loans
available for sale. Contributing to the loans receivable increase was a $12.0
million or 11.0% increase in commercial real estate loans, and a $14.4 million
or 13.1% increase in consumer loans (primarily home equity loans and equity
lines of credit).
NON-PERFORMING ASSETS. The Company's total non-performing assets decreased by
$1.0 million or 10.0% from $10.4 million or 0.59% of total assets at March 31,
1996 to $9.4 million or 0.50% of total assets at June 30, 1996. At June 30,
1996, the Company's non-accrual loans were $7.7 million, a decrease of $695,000
or 8.3% from March 31, 1996.
Other real estate owned decreased $347,000 or 17.0% to $1.7 million at June 30,
1996 from $2.0 million at March 31, 1996.
At June 30, 1996, the Company's allowance for loan losses amounted to $14.1
million (which includes $804,000 of specific allowances on two commercial
construction project loans and one residential project construction loan) or
182.3% of non-performing loans and 1.70% of gross loans receivable. At March
31, 1996, the Company's allowance for loan losses was
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<PAGE> 11
$13.1 million (which included an $754,000 specific allowance on the above
referenced commercial and residential project construction loan) or 156.2% of
non-performing loans and 1.64% of gross loans receivable.
MORTGAGE SERVICING RIGHTS. Mortgage servicing rights, both purchased and
originated ("MSRs") increased $20.7 million or 94.6% from $21.9 million at
March 31, 1996 to $42.6 million at June 30, 1996. The increase was primarily
due to the acquisition of $19.4 million of MSRs from the PMC acquisition, as
well as the purchase of $2.5 million of MSRs and $742,000 of originated MSRs
during the quarter. Offsetting those increases was $2.0 million of
amortization of MSRs during the quarter.
DEPOSITS. Deposits increased $11.5 million or 1.4% from $831.0 million at
March 31, 1996 to $842.5 million at June 30, 1996. The increase was primarily
attributable to a $35.5 million or 43.4% increase in non-interest bearing
deposits, which was partially offset by a $24.6 million or 4.9% decrease in
certificates of deposit.
BORROWINGS. Total borrowings increased $99.1 million or 12.7% to $877.3
million at June 30, 1996 compared to $778.2 million at March 31, 1996. The
Company's borrowings are primarily comprised of advances from the Federal Home
Loan Bank ("FHLB") and repurchase agreements. Repurchase agreements are
commitments the Company enters into to sell securities under terms which
require it to repurchase the same securities by a specified date. Such
agreements represent a competitive cost funding source for the Company;
however, the Company is subject to the risk that the lender may default at
maturity and not return the collateral. The repurchase agreements are primarily
comprised of various Federal Home Loan Mortgage Corporation ("FHLMC") and
large, established investment brokerage institution repurchase agreements. At
June 30, 1996, the Company had repurchase agreements totaling $415.5 million
with a weighted average maturity of approximately 13 months and a weighted
average interest rate of 5.60%.
FHLB advances totaled $461.8 million with a weighted average maturity of
approximately 14 months and a weighted average interest rate of 6.01% at June
30, 1996.
EQUITY. At June 30, 1996, total equity was $141.2 million or 7.51% of total
assets, compared to $140.3 million or 7.9% of total assets at March 31, 1996.
Total equity increased $902,000 or 0.6% during the three months ended June 30,
1996 primarily due to net income of $3.2 million and amortization related to
the stock benefit plans of $789,000. Offsetting these increases were a $1.9
million net of tax decrease in the unrealized loss related to mortgage-related,
debt and equity securities classified as assets available for sale and a $1.2
million dividend payment during the quarter.
RESULTS OF OPERATIONS
NET INCOME. The Company's net income was $3.2 million or $0.54 per share for
the quarter ended June 30, 1996, an increase of $524,000 or 19.3% over the $2.7
million recorded in the comparable prior period. Core earnings continued to
improve as net interest income after provision for loan losses increased by
$2.5 million or 26.7% and income from mortgage banking operations more than
tripled to $3.2 million from the comparable 1995 period. These increases
9
<PAGE> 12
were partially offset by an increase in operating expenses of $5.1 million or
80.0% over the three month period ended June 30, 1995.
NET INTEREST INCOME. Net interest income before provision for loan losses
amounted to $13.1 million for the three month period ended June 30, 1996, a
$2.6 million or 24.1% increase from the $10.5 million recorded in the
comparable prior period.
Total interest income increased by $4.5 million or 15.7% to $33.5 million for
the three month period ended June 30, 1996 from $29.0 million during the
comparable prior period. The increase was primarily the result of an increase
in average interest-earning assets of $210.7 million or 13.8% for the quarter
ended June 30, 1996 compared to the comparable 1995 period. Additionally, the
yield earned on average interest-earning assets increased by 13 basis points
during the same period.
Interest expense totaled $20.5 million for the quarter ended June 30, 1996,
compared to $18.5 million for the same quarter in 1995. The $2.0 million or
10.8% increase in the interest expense was attributable to a $263.9 million or
18.8% increase in the average interest-bearing liabilities, despite a 35 basis
point decrease in the average interest rate paid for the three months ended
June 30, 1996 over the comparable 1995 period.
PROVISION FOR LOAN LOSSES. The Company establishes a provision for loan
losses, which is charged to operations, in order to maintain the allowance for
loan losses at a level which is deemed to be appropriate based upon an
assessment of prior loss experience, the volume and type of lending presently
being conducted by the Company, industry standards, past due loans, economic
conditions in the Company's market area generally and other factors related to
the collectability of the Company's loan portfolio. For the quarter ended June
30, 1996, the provision for loan losses amounted to $1.0 million.
Consistent with its long-term goals, the Company intends to continue to
increase its originations and/or participations of commercial (commercial real
estate and commercial business) loans. Commercial loans, while typically
having a higher yield, entail different risks when compared to residential
lending because such loans typically involve larger loan balances to single
borrowers and because the payment experience on such loans is dependent on the
successful operation of the project or the borrower's business. The Company
attempts to mitigate its risk exposure by limiting such lending to proven
developers/owners, only considering properties with existing operating
performance which can be analyzed, requiring conservative debt coverage ratios
and continually monitoring the operation and physical condition of the
collateral.
Although management utilizes its best judgment in providing for possible
losses, there can be no assurance that the Company will not have to increase
its provisions for loan losses in the future as a result of future increases in
non-performing loans or for other reasons which could adversely affect the
Company's results of operations. In addition, various regulatory agencies as
an integral part of their examination process, periodically review the
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance for loan losses based on their judgments of
information which is available to them at the time of their examination.
10
<PAGE> 13
OTHER INCOME. Total other income amounted to $4.2 million for the quarter
ended June 30, 1996, an increase of $3.0 million over the comparable 1995
period. The increases during the quarter were primarily attributable to a $2.4
million increase in mortgage banking income, and to a lesser extent, a $451,000
increase in income from other real estate activities.
OPERATING EXPENSES. Operating expenses totaled $11.6 million and $6.4 million
for the quarters ended June 30, 1996 and 1995, respectively. The $5.1 million
or 80.0% increase in operating costs were incurred primarily as a result of the
Suburban Federal Savings Bank, Hart Mortgage and PMC acquisitions.
Compensation and employee benefits expense increased from the comparable 1995
period due to the addition of approximately 160 acquisition-related full time
equivalent personnel, additional employee benefit plan expenses, and general
salary increases. Amortization of goodwill attributable to the acquisitions was
more than $1.1 million. Other operating expenses increased primarily due to
the acquisitions, costs associated with new products and an image campaign.
INCOME TAXES. Income tax expense totaled $1.4 million for the three months
ended June 30, 1996 compared to $1.5 million for the comparable prior period
with effective tax rates calculated at 30.6% and 36.3%, respectively.
Differences between the effective and statutory rates for the periods ended
June 30, 1996 and 1995 are due to items that are either non-taxable or
non-deductible, such as tax-exempt interest income and amortization of
goodwill.
CAPITAL RESOURCES. The Office of Thrift Supervision ("OTS") regulators require
that the Company's subsidiary, Main Line Bank ("Bank") meet minimum regulatory
tangible, core and risk-based capital requirements. At June 30, 1996, the Bank
exceeded all regulatory capital requirements.
The following table sets forth the Bank's compliance with each of the
regulatory capital requirements at June 30, 1996
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital
--------------------------------------------------
<S> <C> <C> <C>
Total Regulatory Capital $128,095 $128,095 $139,583
Minimum Required Regulatory Capital 28,132 57,644 73,319
-----------------------------------------------
Excess Regulatory Capital $ 99,963 $ 70,451 $ 66,264
===============================================
Regulatory Capital as a
Percentage of Assets (1) 6.83% 6.83% 15.23%
Minimum Capital Required as a
Percentage of Assets 1.50 3.00 8.00
-------------------------------------------
Excess Regulatory Capital as a
Percentage of Assets 5.33% 3.83% 7.23%
=============================================
</TABLE>
(1) Tangible and core capital are computed as a percentage of adjusted total
assets of $1.9 billion. Risk-based capital is computed as a percentage
of total risk-weighted assets of $916 million.
11
<PAGE> 14
LIQUIDITY. The Company is required by the OTS to maintain average daily
balances of liquid assets and short-term liquid assets (as defined) in amounts
equal to 5% and 1%, respectively, of net withdrawable deposits and borrowings
payable in one year or less to assure its ability to meet demand for
withdrawals and repayment of short-term borrowings. The liquidity requirements
may vary from time to time at the direction of the OTS depending upon economic
conditions and deposit flows. The Company's liquidity ratio and short-term
liquid asset ratio as of June 30, 1996 was 5.6% and 3.1% respectively.
PROPOSED DEPOSIT INSURANCE PREMIUMS. Deposits of the Bank are currently
insured by the Savings Association Insurance Fund ("SAIF"). The Federal
Deposit Insurance Corporation ("FDIC") has established a new assessment rate
schedule with a premium range between 0 to 31 basis points for Bank Insurance
Fund ("BIF") insured institutions while retaining the existing assessment rate
of 23 to 31 basis points applicable to SAIF member institutions. In announcing
this premium reduction for BIF-insured institutions retroactive to May 1995,
the FDIC noted that the premium differential may have adverse competitive
consequences for SAIF members, such as the Bank, including lesser earnings as
compared to BIF-insured institutions and possible impaired ability to raise
funds in the capital markets.
Several alternatives to mitigate the effect of the BIF/SAIF premium disparity
have been suggested by the Administration, by members of Congress and by
industry groups. One such proposal included in the Balanced Budget Act of 1995
is that all SAIF-insured institutions pay a one-time charge of approximately
$0.85 for every $100 of assessable deposits as of March 31, 1996. If such
option were to be effected, the Bank would recognize a one-time charge of
approximately $4.4 million or approximately $0.72 per share, after taxes.
Such a special assessment for SAIF-insured institutions will facilitate the
recapitalization of the SAIF and permit a reduction in future SAIF premiums
which then will be comparable to the recently announced assessment rates for
BIF-insured institutions. However, there can be no assurance that any of these
alternatives to mitigate the pending effect of the BIF/SAIF premium disparity
will be enacted as proposed. The Balanced Budget Act of 1995 was vetoed by the
President for reasons unrelated to the recapitalization of the SAIF.
SUBSEQUENT EVENT. On July 25, 1996, the Board of Directors of the Company
declared a two-for-one stock split to be effective on September 6, 1996 to
shareholders of record at the close of business on August 9, 1996. As a result
of the split, the number of shares outstanding will increase from 5,934,605 to
11,869,210.
12
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Registrant or
any of its subsidiaries is a part or to which any of their
property is subject.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Registrant's Shareholders was held on
July 26, 1996. The items of business acted upon at the Annual
Meeting were (i) the election of one director for a four-year
term, (ii) the amendment of the Company's Articles of
Incorporation to change the corporate title to ML Bancorp, Inc.
and (iii) the approval of KPMG Peat Marwick, L.L.P. as the
Company's independent auditors. The number of votes cast for,
against or withheld, as well as the number of abstentions and
non-votes as to the nominee for office and/or each matter voted
upon was as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
(i) Election of Director For Withheld
--------------------- ---- --------
John R. Eppinger 5,048,609 63,384
(ii) Amendment of the Company's For Against Abstain Not Voted
--- ------- ------- ---------
Articles of Incorporation to
change the corporate title to
ML Bancorp, Inc. 5,051,055 40,062 20,876 1,134,907
(iii) Approval of KPMG Peat Marwick
L.L.P. as the Company's
independent auditors 5,026,321 64,091 21,581 1,134,907
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No Form 8-K Reports were filed during the quarter.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned, thereunto duly authorized.
MLF BANCORP, INC.
Date: August 6, 1996
/s/ Brian M. Hartline
- ----------------------
Brian M. Hartline
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 24,553
<INT-BEARING-DEPOSITS> 13,344
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 523,600
<INVESTMENTS-CARRYING> 418,901
<INVESTMENTS-MARKET> 413,274
<LOANS> 799,616
<ALLOWANCE> 14,053
<TOTAL-ASSETS> 1,876,018
<DEPOSITS> 842,459
<SHORT-TERM> 379,635
<LIABILITIES-OTHER> 15,025
<LONG-TERM> 497,660
0
0
<COMMON> 73
<OTHER-SE> 141,166
<TOTAL-LIABILITIES-AND-EQUITY> 1,876,018
<INTEREST-LOAN> 17,495
<INTEREST-INVEST> 15,902
<INTEREST-OTHER> 129
<INTEREST-TOTAL> 33,526
<INTEREST-DEPOSIT> 8,282
<INTEREST-EXPENSE> 20,456
<INTEREST-INCOME-NET> 13,070
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,559
<INCOME-PRETAX> 4,675
<INCOME-PRE-EXTRAORDINARY> 3,245
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,245
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 3.01
<LOANS-NON> 7,707
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,839
<ALLOWANCE-OPEN> 13,124
<CHARGE-OFFS> 108
<RECOVERIES> 37
<ALLOWANCE-CLOSE> 14,053
<ALLOWANCE-DOMESTIC> 14,053
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
