<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 ...............................September 30, 1997
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
ML BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2752439
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 October 31, 1997, there were 14,547,600 shares issued and
11,865,564 shares outstanding of the Registrant's Common Stock.
<PAGE> 2
ML BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item
No.
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<S> <C>
PART I - CONSOLIDATED FINANCIAL INFORMATION
1 CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
September 30, (unaudited) and March 31, 1997................................ 1
Consolidated Statements of Operations for the Three and Six Months
Ended September 30, 1997 and 1996 (unaudited)............................... 2
Consolidated Statements of Cash Flows for the Three and Six Months
Ended September 30, 1997 and 1996 (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........................................................... 14
2 Changes in Securities ...................................................... 14
3 Defaults Upon Senior Securities ............................................ 14
4 Submission of Matters to a Vote of Security Holders ........................ 14
5 Other Information........................................................... 14
6 Exhibits and Reports on Form 8-K ........................................... 14
</TABLE>
<PAGE> 3
ML BANCORP, INC.
Consolidated Statements of Financial Condition
September 30 and March 31, 1997
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
===========================================================================================================================
(Unaudited)
SEPTEMBER 30, March 31,
ASSETS 1997 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash (including interest-bearing deposits of $6,275 and $7,082
at September 30 and March 31, 1997, respectively) $ 25,514 17,744
Assets available for sale:
Securities 745,813 597,825
Loans 207,010 104,708
Investments (market value $57,239 and $31,730
at September 30 and March 31, 1997, respectively) 57,649 32,071
Mortgage-related securities (market value $360,264 and $380,046
at September 30 and March 31, 1997, respectively) 358,630 385,293
Loans receivable, net of allowance for loan loss ($17,758 and $14,733
at September 30 and March 31, 1997, respectively) 815,075 730,535
Accrued income receivable 14,950 12,591
Other real estate owned, net 1,607 1,332
Premises and equipment, at cost less accumulated depreciation
($18,588 and $16,904 at September 30 and March 31, 1997, respectively) 17,564 16,988
Mortgage servicing rights 55,845 49,721
Goodwill and other intangible assets 10,742 2,751
Other assets 5,385 8,288
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,315,784 1,959,847
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
Customer accounts $ 1,000,336 873,357
Advances from Federal Home Loan Bank 533,583 437,418
Securities sold under agreements to repurchase 553,475 456,285
Advance payments by borrowers for taxes and insurance 593 3,670
Other liabilities 17,460 3,413
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,105,447 1,774,143
- ---------------------------------------------------------------------------------------------------------------------------
Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the Corporation 50,000 50,000
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;
14,547,600 shares issued 73 73
Additional paid-in capital 93,133 97,237
Common stock acquired by stock benefit plans (6,683) (7,336)
Treasury stock, at cost; 2,682,033 and 3,271,046 shares
at September 30 and March 31, 1997, respectively (28,196) (37,147)
Retained earnings 94,315 83,280
Unrealized gain (loss) on securities available for sale 7,695 (403)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 160,337 135,704
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities, minority interest in subsidiaries and stockholders' equity $ 2,315,784 1,959,847
===========================================================================================================================
</TABLE>
1
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ML BANCORP, INC.
Consolidated Statements of Operations
Three and six months ended September 30, 1997 and 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
==============================================================================================================================
(Unaudited) (Unaudited)
Three months Six months
ended September 30, ended September 30,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Interest income:
Loans $ 18,372 15,736 $ 35,594 31,952
Mortgage-related and investment securities 7,263 7,247 14,262 14,653
Assets available for sale 13,668 11,476 26,087 21,251
Interest-bearing deposits 188 147 338 276
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 39,491 34,606 76,281 68,132
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Customer accounts 8,776 8,063 16,958 16,345
FHLB advances 7,152 7,047 13,953 13,467
Other borrowings 7,215 6,231 13,579 11,985
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Total interest expense 23,143 21,341 44,490 41,797
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Net interest income 16,348 13,265 31,791 26,335
Provision for loan losses 970 1,010 2,020 2,010
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Net interest income after provision for loan losses 15,378 12,255 29,771 24,325
Non-interest income:
Retail fees and charges 681 434 1,357 847
Mortgage banking operations 3,232 3,525 6,430 6,697
Net gain (loss) on:
Sales of securities available for sale 201 14 355 14
Other real estate activities (56) 17 9 326
Rental income 183 137 354 308
Other 148 59 212 158
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Total non-interest income 4,389 4,186 8,717 8,350
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest expenses:
Compensation and employee benefits $ 6,776 5,599 $ 12,555 11,073
Advertising 471 690 842 1,225
Data processing 474 439 947 854
Federal insurance premiums 130 5,249 262 5,711
Amortization of goodwill and other intangible assets 324 1,177 598 2,796
Net occupancy costs 1,543 1,406 3,136 2,828
Professional fees 378 191 985 390
Minority interest in expense of subsidiaries 1,321 - 2,568 -
Other 1,604 1,228 3,160 2,661
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Total non-interest expenses 13,021 15,979 25,053 27,538
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Income before income taxes 6,746 462 13,435 5,137
Income taxes 2,678 (3,638) 5,613 (2,208)
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,068 4,100 $ 7,822 7,345
==============================================================================================================================
Primary earnings per share $ 0.35 0.35 $ 0.69 0.62
==============================================================================================================================
Fully diluted earnings per share $ 0.35 0.35 $ 0.68 0.62
==============================================================================================================================
Weighted average number of shares-primary 11,475,231 11,798,856 11,355,840 11,833,625
==============================================================================================================================
Weighted average number of shares-fully diluted 11,623,163 11,874,359 11,570,085 11,932,612
==============================================================================================================================
</TABLE>
2
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ML BANCORP, INC.
Consolidated Statements of Cash Flows
Six months ended September 30, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
=========================================================================================================================
(Unaudited)
Six months
ended September 30,
-----------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 7,822 7,345
- -------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Amortization of:
Goodwill and other intangible assets $ 598 2,796
Deferred loan origination fees (1,268) (1,343)
Premiums and discounts 36,208 1,514
Common stock acquired by stock benefit plans 1,538 1,335
Mortgage servicing rights 4,235 3,995
Provision for loan losses 2,020 2,010
Net (gain) loss on sale of assets available for sale:
Securities (355) (14)
Loans (3,416) (4,488)
Net (gain) loss on other real estate activities (9) (326)
Depreciation and amortization 1,529 1,278
Increase/decrease in net of effects from purchase of Penncore:
Loans available for sale (98,886) 21,283
Accrued income receivable (2,359) (53)
Deferred federal income taxes 5,782 (562)
Other assets 2,903 (5,275)
Other liabilities 3,025 2,868
- -------------------------------------------------------------------------------------------------------------------------
Total adjustments (48,455) 25,018
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (40,633) 32,363
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in loans receivable (84,810) (42,222)
Proceeds from sales of:
FHLB stock 5,911 6,513
Securities available for sale 5,655 38,043
Proceeds from maturities or repayments of:
Mortgage-related securities 27,509 32,377
Securities available for sale 52,996 62,383
Investments 5,000 6,000
Purchases of:
Mortgage related securities - (19,485)
Securities available for sale (191,612) (187,291)
Investments (74,877) (18,794)
Mortgage servicing rights (10,359) (25,684)
Net decrease (increase) in other real estate owned (69) 159
Proceeds from other real estate activities 284 1,401
Excess of liabilities assumed over assets acquired (8,589) (3,750)
Purchases of premises and equipment (2,105) (1,959)
Payment for purchase of Penncore, net of cash acquired (906) -
- -------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (275,972) (152,309)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
3
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ML BANCORP, INC.
Consolidated Statements of Cash Flows, Continued
(in thousands)
<TABLE>
<CAPTION>
============================================================================================================================
(Unaudited)
Six months
ended September 30,
-----------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Net increase in customer accounts $ 126,979 (23,520)
Dividends paid (2,231) (2,113)
Proceeds from securities sold under agreements to repurchase 211,357 186,798
Payments of securities sold under agreements to repurchase (114,167) (56,483)
Proceeds from FHLB advances 123,915 76,258
Payments of FHLB advances (27,750) (57,000)
Net decrease in advance payments by borrowers for taxes and insurance (3,077) (2,336)
Treasury stock issued for purchase 9,224
Purchase of treasury stock - (7,666)
Stock options exercised 125 -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 324,375 113,938
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 7,770 (6,008)
Cash and cash equivalents:
Beginning of period 17,744 23,323
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 25,514 17,315
============================================================================================================================
Supplemental disclosure:
Cash payments for interest $ 40,269 41,570
Cash payments for income taxes 8,600 500
Transfer of loans receivable into other real estate owned 481 103
Net unrealized gain (loss) on securities available for sale 13,338 (1,889)
Tax effect on unrealized gain (loss) on securities available for sale 8,098 (718)
============================================================================================================================
</TABLE>
4
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ML BANCORP, INC.
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 ML Bancorp, Inc. ("Company") Annual Report for the period ended
March 31, 1997. The results for the six months ended September 30, 1997
are not necessarily indicative of the results that may be expected for
the fiscal year ended March 31, 1998.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
(EPS). This statement, which supercedes APB Opinion No. 15, simplifies
the standards for computing EPS and makes them comparable to
international standards. SFAS No. 128 replaces the current "primary"
and "fully diluted" earnings per share with "basic" and "diluted"
earnings per share. Basic EPS is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock, or resulted in the
issuance of common stock that then shared in the earnings of the
company. Diluted EPS is computed similarly to fully diluted EPS
pursuant to APB Opinion No. 15. This statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. This
statement requires restatement of all prior period EPS data presented.
If this statement would have been in effect for these financial
statements, the reported EPS would have been as follows:
<TABLE>
<CAPTION>
For three months ended June 30, For six months ended September 30,
------------------------------------ -----------------------------------
1997 1996 1997 1996
------------------ --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Earnings per share:
Basic $0.36 $0.28 $0.74 $0.64
Diluted 0.33 0.27 0.68 0.62
</TABLE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general purpose financial statements. SFAS No. 130 requires that all
5
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ML BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
(2) CONTINUED
items that are required to be recognized as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. The statement does not
require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive
income for the period in that financial statement. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. The
Company will include this new reporting information in its fiscal 1999
consolidated financial statements as required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders.
Is also establishes standards for related disclosures about products
and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for periods beginning after December
15, 1997. The Company will include this new reporting information in
its fiscal 1999 consolidated financial statements as required.
(3) LOANS RECEIVABLE
Loans receivable at September 30 and March 31, 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, March 31,
1997 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate loans:
One- to four-family $ 304,741 310,456
Construction and land:
Residential 107,289 90,618
Commercial 28,639 38,913
Commercial real estate 191,561 130,017
Multi-family 14,646 12,411
- ----------------------------------------------------------------------------------------------------------------------
Total real estate loans 646,876 582,415
- ----------------------------------------------------------------------------------------------------------------------
Other loans:
Consumer:
Home equity and equity lines of credit 147,018 131,699
Other 11,388 10,990
Commercial 102,203 84,034
- ----------------------------------------------------------------------------------------------------------------------
Total other loans 260,609 226,723
- ----------------------------------------------------------------------------------------------------------------------
907,485 809,138
Loans in process (construction loans) (71,059) (59,916)
Deferred loan fees (3,593) (3,954)
Allowance for loan losses (17,758) (14,733)
- ----------------------------------------------------------------------------------------------------------------------
$ 815,075 730,535
======================================================================================================================
</TABLE>
6
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ML BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
(3) CONTINUED
Activity in the allowance for loan losses for the three months ended
September 30, 1997 and 1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------------ ---------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 15,514 14,053 $ 14,733 13,124
Provision for loan losses 970 1,010 2,020 2,010
Charge-offs (146) (91) (423) (199)
Recoveries 4 0 12 0
Acquisitions 1,416 9 1,416 46
- ----------------------------------------------------------------------- ---------------------------------
Balance, end of period $ 17,758 14,981 $ 17,758 14,981
======================================================================= =================================
</TABLE>
(4) CUSTOMER ACCOUNTS
The major types of customer accounts by amounts and the percentages of
such types to total customer accounts are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 March 31, 1997
---------------------------- -------------------------------
% OF % of
AMOUNT TOTAL Amount total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing accounts $ 122,724 12.27 % $ 118,836 13.61 %
Money market and NOW accounts 180,060 18.00 156,325 17.90
Passbook and statement savings accounts 156,495 15.64 88,574 10.14
- ----------------------------------------------------------------------------------------------------------------------------
459,279 45.91 363,735 41.65
Certificates of deposit 489,971 48.98 469,073 53.71
Repurchase agreements with customers 51,086 5.11 40,549 4.64
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,000,336 100.00 % $ 873,357 100.00 %
============================================================================================================================
</TABLE>
7
<PAGE> 10
MANAGEMENT'S DISSCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
For the quarter ended September 30, 1997 net income amounted to $4.1 million
or $0.35 per fully diluted share, which were equal to net income and earnings
per share for the comparable period of fiscal 1996. Net income for the six month
period ended September 30, 1997, was $7.8 million or $0.68 per fully diluted
share, compared to $7.3 million or $0.62 per fully diluted share for the same
six month period of 1996. The acquisition of Penncore Financial Services
Corporation, which was closed on September 8, 1997, and was accounted for as a
purchase accounting transaction, had no significant impact on net income or
earnings per share during the current quarter.
FINANCIAL CONDITION
CASH AND INVESTMENTS. Cash and Investments increased by $33.3 million or 66.9%
from $49.8 million at March 31, 1997 to $83.2 million at September 30, 1997. The
increase was primarily attributable to investment purchases of $70.5 million
partially offset by sales occurring during the recent six month period.
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 $121.3 million or 12.3% at
September 30, 1997 to $1,104.4 million from $983.1 million at March 31, 1997.
This increase is mainly associated with $188.0 million in mortgage-related
security purchases partially offset by $76.6 million in repayments and
maturities.
LOANS AVAILABLE-FOR-SALE AND LOANS RECEIVABLE, NET. Total loans receivable
(loans receivable, net and loans available-for-sale) amounted to $1,022.1
million at September 30, 1997 representing an increase of $186.8 million or
22.4% above the March 31, 1997 level. This was due primarily to an increase of
$102.3 million or 97.7% in loans available-for-sale and an increase of $84.5
million or 11.6% in loans receivable, net. The increase in loans
available-for-sale was primarily related to increased residential mortgage
warehouse loans while the increase in loans receivable, net was caused by the
addition of $64.3 million related to the Penncore Financial Services acquisition
(mainly commercial loans and residential mortgages), core consumer loan growth
of $11.8 million and core commercial loan growth of $15.0 million.
NONPERFORMING ASSETS. Total nonperforming assets for the Company declined by
$1.0 million from $10.7 million or 0.55% of total assets at March 31,1997 to
$9.7 million or 0.42% of total assets at September 30, 1997. The Company's
nonperforming loans at September 30,1997 amounted to $8.1 million resulting in a
decline of $1.3 million or 13.5% from March 31,1997. Other real estate owned
increased to $1.6 million at
8
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September 30, 1997 representing an increase of $275 thousand or 20.7% from the
March 31, 1997 level of $1.3 million.
At September 30, 1997, the Company's allowance for loan losses amounted to $17.8
million (which included $500,000 of specific reserves for one commercial loan)
or 218.5 % of nonperforming loans and 1.71% of gross loans receivable. At March
31, 1997, the Company's allowance for loan losses was $14.7 million (which
included $500,000 for the commercial loan previously noted and $300,000 for two
residential mortgage project loans) or 156.9% of nonperforming loans and 1.73%
of gross loans receivable.
MORTGAGE SERVICING RIGHTS. Mortgage servicing rights, both purchased and
originated ("MSRs") increased $6.1 million or 12.3% from $49.7 million at March
31,1997 to $55.8 million at September 30, 1997. The increase was due primarily
to the purchase of $8.4 million of MSRs, primarily the People's Heritage
portfolio, and the origination of $1.9 of MSRs during the six month period.
Partially offsetting these increases was $4.2 of amortization of MSRs during the
six month period.
CUSTOMER ACCOUNTS. Customer accounts totaled $1,000.3 million at September 30,
1997 amounting to an increase of $127.0 million or 14.5 % from the level
recorded at March 31, 1997 of $873.4 million. The change was almost entirely
associated with increases in interest-bearing accounts and repurchase agreements
with customers. $95.0 million of the customer account increase was associated
with the Penncore acquisition.
BORROWINGS. Total borrowings increased by $193.4 million to $1,087.1 million at
September 30, 1997 as compared to $893.7 at March 31, 1997. 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 brokerage
institution repurchase agreements. At September 30, 1997, the Company had
repurchase agreements amounting to $553.5 million with a weighted average
maturity of approximately 17 months and a weighted average interest rate of
5.71%. FHLB advances totaled $533.6 million at September 30, 1997, with a
weighted average maturity of approximately 28 months and a weighted average
interest rate of 5.94%.
EQUITY. Total equity amounted to $160.3 million or 6.92% of total assets at
September 30, 1997, as compared to $135.7 million or 6.92% at March 31,1997.
Total equity increased by $24.6 million during the six months ended September
30, 1997 primarily as a result of net income of $7.8 million, an $8.1 million
net of tax increase in unrealized gains related to mortgage-related, debt and
equity securities classified as assets available
9
<PAGE> 12
for sale and $9.9 million of additional equity associated with the Penncore
acquisition. This was partially offset by dividends paid out to shareholders
during this period of $2.2 million.
RESULTS OF OPERATIONS
NET INCOME. Net income for the quarter ended September 30, 1997, amounted to
$4.1 million or $0.35 per fully diluted share, essentially the same as the
results for the comparable period in the previous year which included a net
$0.06 per share enhancement related to a recapture of a tax bad debt reserve
that was partially offset by a one-time charge associated with a Savings
Association Insurance Fund (SAIF) speecial assessment. After adjusting for the
net favorable impact of these one-time nonrecurring items, core earnings
increased by $668 thousand or 19.6% while earnings per share rose $0.06 or 20.7
% above the second quarter of fiscal 1997. The improvement in the current
quarters core earnings was primarily due to an increase in net interest income
associated with an increase in interest earning assets and a lower cost of funds
attributable to an improved deposit mix and lower rates on borrowed funds. This
favorable change was partially offset by a higher level of core operating
expenses above the prior comparable period due to the continuation of the
business center expansion program and the Trust Preferred minority interest
expense which were partially offset by lower federal deposit insurance premiums,
exclusive of the special SAIF assessment and lower goodwill costs from previous
acquisitions. For the six month period ended September 30, 1997, net income
totaled $7.8 million or $.68 per share, an increase of $477 thousand or 6.5%
over the prior comparable period.
NET INTEREST INCOME. Net interest income before the provisison for loan losses
amounted to $16.3 million for the quarter ended September 30, 1997, resulting in
an increase of $3.1 million or 23.2 % above the $13.3 recorded in the prior
comparable period. For the six months ended September 30, 1997, net interest
income befor the provision for loan losses was $31.8 million, which represented
an increase of $5.5 million or 20.7 % above the $26.3 million recorded in the
prior comparable period in 1996.
Total interest income for the quarter ended September 30, 1997, of $39.5 million
was $4.9 million or 14.1% above the prior comparable period of $34.6 million.
For the six months ended September 30, 1997, interest income of $76.3 million
was $8.1 million or 12.0% above the $68.1 recorded in the comparable period in
1996. These increases were primarily attributable to the growth in average
interest-earning assets of $162.4 million or 8.6% and $230.2 million or 12.4%
for the three and six months ended September 30, 1997, compared to the
comparable periods ended September 30, 1996, respectively.
Total interest expense for the quarter ended September 30, 1997, amounted to
$23.1 million representing an increase of $1.8 million or 8.4% above the prior
comparable period in 1996 of $21.3 million. For the six months ended September
30, 1997, interest expense of $44.5 million increased $2.7 million or 6.4% above
the comparable six month
10
<PAGE> 13
period of 1996 of $41.8 million. The increases in interest expense were
attribitable to higher average interest-bearing liabilities at September 30,
1997, relative to the comparable periods in 1996, which more than offset the
reduction in the Company's cost of funds for the three and six month periods.
The increase in average interest-bearing liabilities was $188.8 million or 10.8%
and $163.6 million or 9.6 % for the three and six months ended September 30,
1997, respectively, over the comparable periods in 1996. The average interest
rate paid for interest-bearing liabilities declined by 11 and 14 basis points
over the respective three and six month periods.
PROVISION FOR LOAN LOSSES. The Company establishes provisions for loan losses,
which are charged to earnings, 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 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 collectibility
of the Company's loan portfolio. For the quarter ended September 30, 1997, the
provision for loan losses amounted to $970 thousand.
Consistent with its long-term goals, the Company intends to continue to increase
its originations and/or participations of 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 usually
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 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
provision for loan losses in the future as a result of adverse changes in
nonperforming loans or for other reasons, which could affect the Company's
results of operations. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's provision
for loan losses and the carrying value of its other nonperforming assets based
on their judgements about information available to them at the time of their
review.
NONINTEREST INCOME. Total noninterest income amounted to $4.4 million and $8.7
million for the three and six month periods ended September 30, 1997, resulting
in increases of $203 thousand or 4.8% and $367 thousand or 4.4% over the prior
comparable periods of 1996, respectively. Retail fees and charges were one of
the primary reasons for the increases for both periods due to the larger retail
customer base and the higher level of investment product sales. Gains on the
sale of securities accounted for the remaining increase and amounted to $201
thousand and $355 thousand during the
11
<PAGE> 14
current quarter and the six months ended September 30, 1997, as compared to only
$14 thousand for the previous comparable periods of 1996. Income from Mortgage
Banking operations of $3.2 million and $6.4 million represented modest declines
of $293 thousand and $267 thousand from the comparable prior year periods due to
a decline in mortgage originations.
NONINTEREST EXPENSES. Noninterest expenses amounted to $13.0 million and $25.1
million for the three and six months ended September 30, 1997, as compared to
$16.0 million and $27.5 million for the prior comparable periods in 1996. If the
prior year one-time special SAIF assessment of $4.8 million was excluded,
noninterest expenses would have increased by $1.8 million or 16.5% and $2.3
million or 10.2% above the same periods in 1996. Compensation and employee
benefits expense increased by $1.2 million or 21.0% and $1.5 million or 13.4 %
for the three and six month comparable periods of the prior year due to the
continued business center expansion, the addition of Private Banking Division,
general merit increases for employees and the Penncore acquisition expenses in
the month of September. The Trust Preferred securities expense amounted to $1.3
million and $2.6 million for the current quarter and the six month period
resulting from the issuance of the ML Capital Trust securities during the last
quarter of fiscal 1997. Net occupancy expenses and other operating costs
increased due primarily to the business center expansion as well as new product
initiatives. Offsetting the above expense increases were reductions in federal
insurance premiums of $349 thousand or 72.9% and $649 thousand or 71.2% from the
three and six month prior comparable periods of 1996 due to a reduction of the
SAIF rates from $0.23 per $100 of deposits to $0.06 per $100 of deposits.
Amortization of goodwill amounted to $324 thousand and $598 thousand for the
quarter and six month period representing declines of $853 thousand or 72.5% and
$2.2 million or 78.6 % from the comparable periods of 1996 due to the reduction
of goodwill for the Suburban Federal and Philadelphia Mortgage acquisitions and
the completion of goodwill amortization for Hart Mortgage, the Colonial IRA
Deposits and the Aldwyn Center buildings.
INCOME TAXES. Income tax expense totaled $2.7 million or an effective tax rate
of 39.7% for the three months ended September 30, 1997 compared to a credit of
$3.6 million for the prior comparable period. The tax benefit in 1996 was
primarily associated with the recapture of a tax bad debt reserve of $3.8
million. For the six months ended September 30, 1997, income tax expense
amounted to $5.6 million or an effective tax rate of 41.8% compared to a credit
of $2.2 million for the prior comparable period of 1996 due to the previously
mentioned tax bad debt reserve recapture. Differences between the effective and
statutory rates for the periods ended September 30, 1997 and 1996 are due to
items that are either nontaxable or nondeductible, such as tax-exempt interest
income and amortization of goodwill.
12
<PAGE> 15
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 September 30, 1997, the
Bank exceeded all regulatory capital requirements.
The following table sets forth the Bank's compliance with each of the regulatory
capital requirements at September 30, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital
----------------------------------------------
<S> <C> <C> <C>
Total Regulatory Capital $124,785 $124,785 $138,774
Minimum Required Regulatory Capital 34,315 68,763 89,267
--------------------------------------------
Excess Regulatory Capital $ 90,470 $ 56,022 $ 49,507
--------------------------------------------
Regulatory Capital as a
Percentage of Assets (1) 5.45% 5.45% 12.44%
Minimum Capital Required as a
Percentage of Assets 1.50 3.00 8.00
-------------------------------------------------------------------------
Excess Regulatory Capital as a
Percentage of Assets 3.95% 2.45% 4.44%
------------------------------------------
</TABLE>
(1) Tangible and Core Capital are computed as a percentage of adjusted total
assets of $2.3 billion. Risk-based capital is computed as a percentage of total
risk-weighted assets of $1.1 billion.
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 September 30, 1997 was 5.1% and 3.5%, respectively.
13
<PAGE> 16
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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Not Applicable
(b) A report on Form 8-K was filed on September 22, 1997 to
announce that the acquisition of Penncore Financial Services
Corporation of Bucks County, Pennsylvania was effective at the
close of business September 8, 1997. As a result of the
acquisition, ML Bankcorp, Inc. will add approximately $130.0
million in assets and $90.0 million in deposits. Commonwealth
State Bank, a wholly owned subsidiary of Penncore, will be
merged into Main Line Bank, a wholly-owned subsidiary of ML
Bancorp, Inc. Penncore shareholders received $36.56 in cash or
a combination of cash and common shares of ML Bancorp, Inc.
stock for each of their shares.
A report on Form 8-K was filed on September 23, 1997 to
announce that ML Bancorp, Inc. executed a Definitive Agreement
on September 18, 1997 to be acquired by Sovereign Bancorp, Inc.
of Wyomissing, Pennsylvania. The terms of the agreement call
for Sovereign to exchange 1.67 shares of Sovereign common stock
for each outstanding share of ML Bancorp common stock for a
total consideration of approximately $345 million in Sovereign
stock. The transaction is expected to close in the first
quarter of 1998 and will be accounted for as a pooling of
interests.
14
<PAGE> 17
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.
ML BANCORP, INC.
Date: November 20, 1997
/s/ BRIAN M. HARTLINE
- --------------------------
Brian M. Hartline
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 19,239
<INT-BEARING-DEPOSITS> 6,275
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 745,813
<INVESTMENTS-CARRYING> 416,279
<INVESTMENTS-MARKET> 413,963
<LOANS> 1,039,843
<ALLOWANCE> 17,758
<TOTAL-ASSETS> 2,315,784
<DEPOSITS> 1,000,336
<SHORT-TERM> 606,034
<LIABILITIES-OTHER> 18,053
<LONG-TERM> 481,024
0
0
<COMMON> 0
<OTHER-SE> 160,337
<TOTAL-LIABILITIES-AND-EQUITY> 2,315,784
<INTEREST-LOAN> 35,594
<INTEREST-INVEST> 40,349
<INTEREST-OTHER> 338
<INTEREST-TOTAL> 76,281
<INTEREST-DEPOSIT> 16,958
<INTEREST-EXPENSE> 44,490
<INTEREST-INCOME-NET> 31,791
<LOAN-LOSSES> 2,020
<SECURITIES-GAINS> 355
<EXPENSE-OTHER> 25,053
<INCOME-PRETAX> 13,435
<INCOME-PRE-EXTRAORDINARY> 13,435
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,822
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 3.22
<LOANS-NON> 9,734
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,232
<ALLOWANCE-OPEN> 14,733
<CHARGE-OFFS> 423
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 17,758
<ALLOWANCE-DOMESTIC> 17,758
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
