UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
______________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period 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 0-24744
Life Bancorp, Inc.
______________________________________________________
(Exact name of registrant as specified in its charter)
Virginia 54-1711207
_______________________________ _______________________________
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
109 East Main Street
Norfolk, Virginia 23510
_______________________________ _______________________________
(Address of principal (Zip Code)
executive office)
(757) 858-1000
______________________________________________________________________
(Registrant's telephone number, including area code)
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, as of the latest practicable date:
Common Stock (par value $.01 per share) 9,847,581
_______________________________________ _____________________________
(Title of Class) (Number of Shares Outstanding
as of November 7, 1997)
<PAGE>
<TABLE>
<CAPTION>
LIFE BANCORP, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
Page
<S> <C>
PART I - FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Unaudited Consolidated Balance Sheets 1
Unaudited Consolidated Statements of Operations - Three Months 2
Unaudited Consolidated Statements of Operations - Year to Date 3
Unaudited Consolidated Statement of Changes in Stockholders' Equity 4
Unaudited Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
General 7
Financial Condition 7
Assets 7
Liabilities and Stockholders' Equity 8
Asset Quality 8
Results of Operations 14
Comparison of Results of Operations for the Three Months Ended
September 30, 1997 and 1996 14
Comparison of Results of Operations for the Nine Months Ended
September 30, 1997 and 1996 16
Impact of New Accounting Standards 18
Liquidity and Capital Resources 18
PART II - OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
LIFE BANCORP, INC.
Unaudited Consolidated Balance Sheets
(In thousands, except stock data)
September 30, 1997 December 31, 1996
Assets ------------------ -----------------
<S> <C> <C>
Cash and cash equivalents................................................... $ 17,072 $ 11,283
Investment securities, available-for-sale................................... 113,623 30,742
Mortgage-backed securities:
Held-to-maturity (Market value of $120,872 and
$141,269, respectively)................................................. 119,841 140,974
Available-for-sale........................................................ 538,872 565,086
Loans receivable, net....................................................... 645,192 622,405
Accrued interest and dividends receivable................................... 11,119 10,824
Real estate owned, net...................................................... 1,226 1,202
Federal Home Loan Bank stock, at cost....................................... 15,044 13,086
Premises and equipment, net................................................. 17,315 17,468
Excess of cost over net assets acquired..................................... 4,399 4,792
Other assets................................................................ 2,654 1,900
----------- ----------
Total assets........................................................ $1,486,357 $1,419,762
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits.................................................................. $ 740,839 $ 732,322
Notes payable and other borrowings:
Advances from Federal Home Loan Bank of Atlanta......................... 299,385 261,711
Securities sold under agreements to repurchase.......................... 269,500 259,000
Secured note due to Thrift Financing Corporation........................ 4,176 5,227
Advances from borrowers for taxes and insurance........................... 3,105 1,795
Other liabilities......................................................... 10,072 8,769
--------- ---------
Total liabilities................................................... 1,327,077 1,268,824
--------- ---------
Stockholders' Equity:
Preferred stock of $0.01 par value, authorized 5,000,000
shares, none issued or outstanding...................................... - -
Common stock of $0.01 par value, authorized 30,000,000 shares,
issued and outstanding 9,847,581 and 9,846,840 shares, respectively..... 98 98
Additional paid-in capital................................................ 92,430 92,122
Retained earnings, substantially restricted............................... 70,711 63,871
Unearned common stock held by ESOP and RRP trusts......................... (7,645) (7,121)
Unrealized gain on securities (net of taxes).............................. 3,686 1,968
---------- ----------
Total stockholders' equity.......................................... 159,280 150,938
---------- ----------
Total liabilities and stockholders' equity.......................... $1,486,357 $1,419,762
========== ==========
<FN>
See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
LIFE BANCORP, INC.
Unaudited Consolidated Statements of Operations - Three Months
(In thousands, except per share data)
For the Three Months
Ended September 30,
--------------------
1997 1996
------ ------
<S> <C> <C>
Interest income:
Interest on loans.................................................. $13,966 $12,523
Interest on investment securities.................................. 961 687
Interest on mortgage-backed securities............................. 12,056 11,619
------- -------
Total interest income........................................ 26,983 24,829
------- -------
Interest expense:
Interest on deposits............................................... 9,629 9,254
Interest on notes payable and other borrowings..................... 8,174 7,100
------ ------
Total interest expense....................................... 17,803 16,354
------ ------
Net interest income.......................................... 9,180 8,475
Provision for loan losses............................................ (157) (295)
------ ------
Net interest income after provision for loan losses.......... 9,337 8,770
------ ------
Noninterest income:
Deposit account fees and related income............................ 132 162
Servicing fees..................................................... 127 141
Net gain on sales of mortgage loans held for sale.................. 26 2
Net gain on sales of real estate owned............................. 5 213
Net gain on sales of assets........................................ 1 -
Net gain on sale of mortgage backed securities..................... 260 14
Other.............................................................. 515 408
------ -----
Total noninterest income..................................... 1,066 940
------ -----
Noninterest expense:
Compensation and employee benefits................................. 2,816 2,856
Occupancy and office operations.................................... 923 791
FDIC Premium....................................................... 117 4,776
Advertising and promotion.......................................... 145 53
Provision for losses on real estate owned.......................... 11 34
Amortization of excess of cost over net assets
of companies acquired............................................ 121 599
Other.............................................................. 407 365
------ ------
Total noninterest expense.................................... 4,540 9,474
------ ------
Income before income taxes........................................... 5,863 236
Income tax provision................................................. 2,433 70
------ ------
Net income........................................................... $3,430 $ 166
====== ======
Net income per common and common equivalent share:
Primary...................................................... $0.35 $0.02
===== =====
Fully diluted................................................ $0.35 $0.02
===== =====
Dividends paid per common share...................................... $0.12 $0.11
===== =====
<FN>
See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
LIFE BANCORP, INC.
Unaudited Consolidated Statements of Operations - Year to Date
(In thousands, except per share data)
For the Nine Months
Ended September 30,
--------------------
1997 1996
------- -------
<S> <C> <C>
Interest income:
Interest on loans.................................................. $41,047 $35,736
Interest on investment securities.................................. 2,272 2,155
Interest on mortgage-backed securities............................. 35,632 31,409
------- -------
Total interest income........................................ 78,951 69,300
-------- -------
Interest expense:
Interest on deposits............................................... 28,303 26,335
Interest on notes payable and other borrowings..................... 23,070 17,738
------- -------
Total interest expense....................................... 51,373 44,073
------- -------
Net interest income.......................................... 27,578 25,227
Provision for loan losses............................................ (122) (299)
------- -------
Net interest income after provision for loan losses.......... 27,700 25,526
------- -------
Noninterest income:
Deposit account fees and related income............................ 393 464
Servicing fees..................................................... 391 437
Net gain on sales of mortgage loans held for sale.................. 69 8
Net gain (loss) on sales of real estate owned...................... (38) 290
Net gain on sales of assets........................................ 34 12
Net gain on sale of mortgage backed securities..................... 1,246 14
Other.............................................................. 1,522 1,257
------- -------
Total noninterest income..................................... 3,617 2,482
------- -------
Noninterest expense:
Compensation and employee benefits................................. 8,645 8,337
Occupancy and office operations.................................... 2,641 2,306
FDIC Premium....................................................... 263 5,549
Advertising and promotion.......................................... 487 418
Provision for losses on real estate owned.......................... 94 34
Amortization of excess of cost over net assets
of companies acquired............................................. 433 857
Other.............................................................. 1,344 1,428
------- -------
Total noninterest expense.................................... 13,907 18,929
------- -------
Income before income taxes........................................... 17,410 9,079
Income tax provision................................................. 7,323 3,635
------- -------
Net income........................................................... $10,087 $ 5,444
======= =======
Net income per common and common equivalent share:
Primary...................................................... $1.06 $0.56
===== =====
Fully diluted................................................ $1.04 $0.55
===== =====
Dividends paid per common share...................................... $0.35 $0.33
===== =====
<FN>
See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LIFE BANCORP, INC.
Unaudited Consolidated Statement of Changes in Stockholders' Equity
(In thousands)
Unearned
Common Unrealized
Stock Gain
Held on Securities
Additional by ESOP Available
Common Paid-in Retained and RRP for Sale
Stock Capital Earnings Trusts (Net of Tax) Total Equity
------- --------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............ $ 98 $92,122 $63,871 $(7,121) $ 1,968 $150,938
Net income.............................. - - 10,087 - - 10,087
Cash dividends paid..................... - - (3,247) - - (3,247)
Common Stock released by
ESOP trust............................. - 1,124 - 910 - 2,034
Common Stock purchased for
RRP trust.............................. - (827) - (1,434) - (2,261)
Common Stock
options Exercised...................... - 11 - - - 11
Unrealized gain on
securities, net of tax................. - - - - 1,718 1,718
------ ------- ------- ------- ---------- --------
Balance at September, 30, 1997.......... $ 98 $92,430 $70,711 $(7,645) $ 3,686 $159,280
====== ======= ======= ======= ========== ========
<FN>
See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LIFE BANCORP, INC.
Unaudited Consolidated Statements of Cash Flows
(In thousands)
For the Nine Months
Ended September 30,
--------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net Income................................................................................ $ 10,087 $ 5,444
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for losses on loans and real estate owned................................ (28) (265)
Depreciation and amortization...................................................... 465 465
Net amortization of premiums and discounts on investments and mortgage backed
securities........................................................................ (15) (23)
Amortization of excess of cost over net assets acquired............................ 433 857
Net(gain)loss on sales of real estate owned........................................ 38 (290)
Net gain on sales of mortgage loans................................................ (69) (8)
Net gain on sales of assets (34) (12)
Net gain on sales of mortgage backed securities (1,341) -
Loans originated for resale.............................................................. (5,941) (637)
Proceeds from loans sold to others....................................................... 6,010 645
Noncash ESOP Expenses.................................................................... 1,930 827
Changes in assets and liabilities:
(Increase) decrease in assets:
Accrued interest receivable........................................................ (257) (1,774)
Deferred loan fees................................................................. 532 (676)
Deferred income taxes.............................................................. - (492)
Other assets....................................................................... 425 (192)
Increase (decrease) in liabilities:
Deferred income taxes.............................................................. 1,014 -
Accrued expenses and other liabilities............................................. 289 7,988
------- ------
Net cash provided by (used in) operating activities.......................... 13,538 11,857
------- ------
Cash flows from investing activities:
Proceeds from sales and maturities of investments and mortgage-backed securities.... 103,618 8,007
Purchase of investment securities................................................... (82,947) (19,425)
Principal collected on loans........................................................ 98,772 54,476
Loans originated for investment..................................................... (121,213) (115,714)
Proceeds from sale of premises and equipment........................................ 42 5
Purchases of premises and equipment................................................. (325) (1,023)
Purchase of Seaboard Bancorp, Inc., net of cash acquired............................ - (8,235)
Purchases of mortgage-backed securities............................................. (186,688) (271,290)
Principal collected on mortgage-backed securities................................... 130,290 111,325
Proceeds from sale of real estate owned............................................. 902 620
Principal collected on ESOP loan.................................................... 855 943
(Purchases) redemption of FHLB stock................................................ (1,958) 351
------- -------
Net cash provided by (used in) investing activities......................... (58,652) (239,960)
------- -------
Cash flows from financing activities:
Net increase in checking deposits, savings deposits, and
certificates of deposit........................................................... 8,518 49,977
Net increase in advances from borrowers for taxes and insurance..................... 1,310 1,273
Dividends paid on common stock...................................................... (3,446) (3,421)
Repurchase of common stock.......................................................... - (15,162)
Purchase of common stock held for RRP............................................... (2,586) (2,996)
Proceeds from notes payable and other borrowings.................................... 1,164,783 893,662
Repayment of notes payable and other borrowings..................................... (1,117,676) (693,438)
---------- --------
Net cash provided by (used in) financing activities......................... 50,903 229,895
---------- --------
Net increase (decrease) in cash and cash equivalents......................................... 5,789 1,792
Cash and cash equivalents at beginning of period............................................. 11,283 8,845
---------- --------
Cash and cash equivalents at end of period................................................... $ 17,072 $ 10,637
========== ========
<FN>
See Notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>
5
<PAGE>
LIFE BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions to Form 10-Q, and, therefore, do not include all of
the disclosures 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. The results of operations for the
three and nine months ended September 30, 1997, are not necessarily indicative
of the results that may be expected for the entire year or for any interim
period.
Principles of Consolidation
The consolidated financial statements include the accounts of Life Bancorp, Inc.
(the "Company") and its wholly-owned subsidiary, Life Savings Bank, FSB (the
"Bank"). All significant intercompany transactions have been eliminated in
consolidation. Additionally, certain reclassifications may have been made in
order to conform with the current presentation. The accompanying consolidated
financial statements have been prepared on the accrual basis.
2. Net Income Per Share
For the purpose of calculating net income per common and common equivalent share
for each of the quarterly periods presented, the Company used the respective
numbers of weighted-average outstanding shares shown below (in thousands):
For the Three Months Ended
---------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
For primary net income per share........... 9,683 9,288
For fully diluted net income per share..... 9,707 9,359
For the Nine Months Ended
--------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
For primary net income per share........... 9,561 9,749
For fully diluted net income per share..... 9,691 9,855
The dilutive securities included in the calculations above consist entirely of
common equivalent shares in the form of common shares contingently issuable
under the Company's Stock Option Plan and Recognition and Retention Plan.
6
<PAGE>
3. Subsequent Events
On October 14, 1997, the Board of Directors approved a quarterly dividend
of $0.12 per share. The dividend will be payable on November 28, 1997, to Life
Bancorp's stockholders of record at the close of business on November 14, 1997.
On October 29, 1997, the Company and BB&T Corporation (BB&T) announced that
they had executed a definitive Agreement and Plan of Reorganization
("Agreement") pursuant to which the Company will be acquired by BB&T. The
transaction will be accounted for as a pooling of interests. Under the
Agreement, BB&T will acquire all of the issued and outstanding common stock of
the Company in exchange for .58 shares of BB&T's common stock, if BB&T stock is
trading at $57 or higher. The exchange ratio may be increased, in increments, to
a maximum of .60 shares if BB&T's common stock price is between $57 and $55, and
below $55 will be fixed at .60 shares. Pricing will be based on the average of
BB&T's closing prices for a specific period prior to closing the transaction.
Under terms of the agreement, the Company granted BB&T an option to
purchase common shares of the Company up to 19.9% of the shares currently
outstanding. The option agreement is only exercisable under certain
circumstances.
Consummation of the transaction is subject to, among other conditions,
approval by regulatory authorities as well as the Company's shareholders.
Based on BB&T's closing price of $54.88 on October 28, 1997, the
transaction is valued at $32.93 per share or a total consideration to be paid to
the Company's shareholders of $359.2 million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's principal business is conducted through the Bank from its
headquarters located in Norfolk, Virginia and 20 full-service retail banking
offices located in the cities of Norfolk, Chesapeake, Portsmouth, Suffolk, and
Virginia Beach, Virginia. The Bank's deposits are insured by the Savings
Association Insurance Fund ("SAIF") to the maximum extent permitted by law. The
Bank is subject to examination and comprehensive regulation by the Office of
Thrift Supervision ("OTS"), which is the Bank's chartering authority and primary
regulator. The Bank is also subject to regulation by the Federal Deposit
Insurance Corporation ("FDIC"), as the administrator of the SAIF, and to certain
reserve requirements established by the Federal Reserve Board ("FRB"). The Bank
is a member of the Federal Home Loan Bank ("FHLB") of Atlanta.
Financial Condition
Assets
Total assets of the Company remained relatively unchanged during the nine
months, totaling $1.4 billion at December 31, 1996 and $ 1.5 billion at
September 30, 1997.
The general interest rate environment existing during the third quarter
caused the Bank, as part of its continuing asset/liability management, to
evaluate its investment strategies. As a result, for the short-term, the Bank
more heavily weighted its investment in fixed rate, callable government agency
investment securities and reduced its investment in adjustable rate,
mortgage-backed securities. Additionally, the
7
<PAGE>
generally flat interest rate curve existing during the third quarter caused
certain of the Bank's adjustable-rate, mortgage-backed securities to experience
a relatively high prepay rate which was anticipated to continue, and potentially
increase, over the succeeding several months. The positive valuation of these
securities presented the Bank with an opportunity it to sell $29.3 million of
mortgage-backed securities at a premium, instead of being prepaid at par, while
recognizing a profit on the sale of such securities of approximately $260,000.
The proceeds of the sale were reinvested in fixed rate, callable government
agency securities. As a result of this transaction and the decision to more
heavily invest in fixed rate, government agency securities, investment
securities, available-for-sale increased $82.9 million from $30.7 million at
December 31, 1996, to $113.6 million at September 30, 1997.
Mortgage-backed securities decreased $47.3 million, or 6.7%, from $706.1
million at December 31, 1996, to $658.7 million at September 30, 1997,
reflecting for the most part, the aforementioned switch in emphasis, during the
third quarter, from mortgage-backed securities to fixed rate, government agency
securities.
Loans receivable increased by $22.8 million, or 3.7%, from $622.4 million
at December 31, 1996, to $645.2 million at September 30, 1997. The Bank had no
mortgage loans held-for-sale at either December 31, 1996 or September 30, 1997.
The increases in assets were mostly funded by increases in deposits,
advances from the Federal Home Loan Bank of Atlanta and repurchase agreements.
Liabilities and Stockholders' Equity
Deposits increased from $732.3 million at December 31, 1996 to $740.8
million at September 30, 1997. Advances from the Federal Home Loan Bank of
Atlanta increased by $37.7 million, or 14.4%, from $261.7 million at December
31, 1996 to $299.4 million at September 30, 1997. Securities sold under
agreements to repurchase increased by $10.5 million, or 4.1%, from $259.0
million at December 31, 1996 to $269.5 million at September 30, 1997.
Stockholders' equity increased from $150.9 million at December 31, 1996 to
$159.3 million at September 30, 1997. This increase was primarily due to the
results of the Company's net income of $10.1 million for the nine months coupled
with a $1.7 million increase in unrealized gains, net of taxes, as a result of
the Statement of Financial Accounting Standards ("SFAS") No. 115 required market
valuation of the Company's securities portfolio; which was partially offset by
quarterly cash dividends totaling $3.2 million, or $0.11 per share, paid on
February 28, 1997, to stockholders of record on February 14, 1997; $0.12 per
share, paid on May 31, 1997, to shareholders of record on May 16, 1997; and
$0.12 per share, paid on August 29, 1997, to shareholders of record on August
15, 1997.
Asset Quality
General. When a borrower fails to make a required payment on a loan, the
Bank attempts to cure the deficiency by contacting the borrower and seeking
payment. Contacts are generally made 15 days after a payment is due. In most
cases, deficiencies are cured promptly. If a delinquency continues, late charges
are assessed and additional efforts are made to collect the loan. While the Bank
prefers to work with borrowers to resolve such problems, when the account
becomes 90 days delinquent, the Bank generally pursues foreclosure or other
proceedings, as necessary, to minimize any potential loss.
8
<PAGE>
Impaired Loans. The Company has adopted SFAS No. 114, as amended by SFAS
118. SFAS No. 114, as amended, provides that a loan is impaired when, based on
current information and events, it is probable that the creditor will be unable
to collect all principal and interest amounts due according to the contractual
terms of the loan agreement. SFAS No. 114, as amended, requires that impaired
loans be measured based on the present value of the expected future cash flows,
discounted at the loan's effective interest rate. The effective interest rate of
a loan is defined as the contractual interest rate adjusted for any net deferred
loan fees or costs, premiums or discounts existing at the inception or
acquisition of the loan. If the loan is collateral dependent, as a practical
expedient, impairment can be based on a loan's observable market price or the
fair value of the collateral. The value of the loan is adjusted through a
valuation allowance created through a charge against income. Residential
mortgages, consumer installment obligations and credit cards may be excluded.
Loans that were treated as in-substance foreclosures under previous accounting
pronouncements are considered to be impaired loans and under SFAS No. 114 will
remain in the loan portfolio.
A loan may be placed on non-accrual status and not classified as an
impaired loan when, in the opinion of management, based on current information
and events, it is probable that the Bank will eventually collect all principal
and interest amounts due according to the contractual terms of the loan
agreement. Interest income for impaired loans is generally recognized on an
accrual basis unless it is deemed inappropriate to do so. In those cases in
which the receipt of interest payments is deemed more uncertain, the cash basis
of income recognition is utilized. Loans are placed on a non-accrual status
when, in the judgment of management, the probability of timely collection of
interest is deemed to be insufficient to warrant further accrual. As a matter of
policy, the Bank does not accrue interest on loans past due 90 days or more
except when the estimated value of the collateral and collection efforts are
deemed sufficient to ensure full recovery. When a loan is placed on a
non-accrual status, previously accrued but unpaid interest is deducted from
interest income.
9
<PAGE>
The following table sets forth information relating to the Bank's recorded
investment in impaired loans at or during the periods indicated. Specific
reserves have not been netted against loan balances.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
-----------------------------------
September 30, June 30, March 31, December 31,
1997 1997 1997 1996
------------- -------- --------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Impaired loans for which there is a related
allowance for credit losses $7,113 $8,141 $8,996 $9,022
Impaired loans for which there is no related
allowance for credit losses - - - -
------ ------ ------ ------
Total impaired loans $7,113 $8,141 $8,996 $9,022
====== ====== ====== ======
Allowance for credit losses on impaired loans $3,034 $3,745 $3,907 $3,500
====== ====== ====== ======
Average impaired loans during the period $7,458 $8,507 $9,006 $9,659
====== ====== ====== ======
Interest income recognized on impaired loans
during the time within the period that the loans
were impaired $ 121 $ 114 $ 87 $ 506
====== ====== ====== ======
Interest income recognized on impaired loans
using a cash-basis method of accounting during
the time within the period that the loans were impaired $ 121 $ 114 $ 87 $ 506
====== ====== ====== ======
</TABLE>
Troubled Debt Restructurings. Under Generally Accepted Accounting
Principles, the Bank is required to account for certain loan modifications or
restructurings as "troubled debt restructurings." In general, the modification
or restructuring of a debt constitutes a troubled debt restructuring if the
Bank, for economic or legal reasons related to the borrower's financial
difficulties, grants a concession to the borrower that the Bank would not
otherwise consider under current market conditions. Debt restructurings or loan
modifications for a borrower do not necessarily always constitute troubled debt
restructurings however, and troubled debt restructurings do not necessarily
result in non-accrual loans. The Bank had $1.5 million of troubled debt
restructurings, net of specific reserves, at September 30, 1997. Included in the
Bank's troubled debt restructurings at September 30, 1997, is an office
warehouse complex with a carrying value of $1.0 million net of specific
reserves. At September 30, 1997, this loan was classified substandard and was
current. The remaining $500,000 of troubled debt restructuring at September 30,
1997, consisted of loans secured by multi-family and commercial properties
located in Virginia Beach and Norfolk.
10
<PAGE>
Non-Performing Assets. The following table sets forth information relating
to the Bank's non-performing assets and troubled debt restructurings at the
dates indicated.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Dollars in Thousands)
<S> <C> <C>
Non-performing assets:
Non-accruing loans:
Mortgage loans:
Single-family:
Conventional.............................. $1,866 $ 1,498
FHA/VA.................................... 799 698
Multi-family................................ - -
Commercial.................................. 366 46
Consumer loans................................ 318 308
------ ------
Total non-accruing loans........................ 3,349 2,550
Real estate owned, net (1)...................... 1,226 1,202
------ ------
Total non-performing assets....................... 4,575 3,752
Troubled debt restructurings, net (2)............. 1,532 2,464
------ ------
Total non-performing assets and troubled
debt restructurings............................... $6,107 $6,216
====== ======
Non-accruing loans to total loans held for
investment........................................ 0.52% 0.41%
==== ====
Total non-performing assets to total assets....... 0.31% 0.26%
==== ====
Total non-performing assets and troubled
debt restructurings to total assets............... 0.41% 0.44%
==== ====
</TABLE>
____________________________
(1) Amounts are net of the allowance for real estate owned which amounted to
$28,000 at September 30, 1997 and $30,000 December 31, 1996.
(2) Amounts are net of specific valuation allowance which totaled $3.0 million
at September 30, 1997 and $3.7 million December 31, 1996.
The Bank's real estate owned at September 30, 1997 consisted of 19
properties. During the first nine months of 1997, the Bank sold ten single
family residences, one residential lot and two multi-family residences
previously acquired in foreclosure for a combined sale price of $940,301. After
satisfying deductions for valuation allowances, repairs, holding costs, real
estate brokerage commissions and settlement expenses, the Bank realized a loss
on the sale of approximately $38,000.
Potential Problem Loans. In addition to the loans included in the preceding
impaired loans and non-performing assets and troubled debt restructurings
tables, at September 30, 1997, the Bank had loans totaling $4.5 million which,
even though they were not impaired or categorized as non-performing assets or
troubled debt restructurings, were designated as substandard or special mention.
11
<PAGE>
At September 30, 1997, there were seven performing loans to four borrowers,
totaling $2.2 million, which the Bank had designated as substandard. These
performing loans are broken down as follows: two loans, totaling $1.5 million,
are secured by commercial properties located in Norfolk, Virginia; three loans,
totaling $546,000, are secured by commercial properties in Virginia Beach,
Virginia; and two loans, totaling $200,000, are secured by various multi-family
properties and developed lots in Norfolk, Virginia. At this time, the Bank does
not anticipate losses on any of these loans. Previsously included in this
category was one loan, designated as substandard, which was a performing
construction loan secured by a retirement facility under construction in
Virginia Beach. In August 1996, the partially constructed building was
substantially destroyed by fire and, at the time of the fire, construction loan
disbursements totaled $3.3 million. At September 30, 1997, the loan was paid in
full.
Additionally, at September 30, 1997, there were four performing loans to
one borrower, totaling $2.3 million, which the Bank had designated as special
mention. These loans are secured by a multi-family dwelling unit and duplexes in
Virginia Beach, Virginia.
Allowance for Loan Losses. The Bank's policy is to establish reserves for
estimated losses on loans when it determines that losses may be incurred on such
loans. The allowance for losses on loans is maintained at a level believed
adequate by management to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio; past loss experience; current economic conditions; volume, growth and
composition of the portfolio; and other relevant factors. The allowance is
increased by provisions for loan losses, which are charged against income.
12
<PAGE>
The following table sets forth the activity in the Bank's allowance for
loan losses during the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period $9,746 $9,505 $9,656 $4,438
Addition to allowance from acquisition
of Seaboard Savings - - - 5,192
Provision for loan losses (157) (295) (122) (299)
Charge-offs:
Mortgage loans:
Single-family (28) (33) (115) (150)
Multi-family (139) (38) (299) (38)
Construction - - - -
Commercial (478) (40) (478) (40)
Residential lots - - - -
Consumer loans (382) (57) (737) (249)
------- ----- ------- -----
Total charge-offs (1,027) (168) (1,629) (477)
Other charge offs - - - -
Recoveries:
Mortgage loans:
Single-family 12 62 42 64
Multi-family - 10 - 10
Construction - - - -
Commercial 16 1,468 32 1,623
Consumer loans 49 12 98 43
------ ------- ------ -------
Total recoveries 77 1,552 172 1,740
Other recoveries - - 562 -
------ ------- ------ -------
Allowance at end of period $8,639 $10,594 $8,639 $10,594
====== ======= ====== =======
Allowance for loan losses to total non-
accruing loans at end of period 257.96% 644.80% 257.96% 644.80%
====== ====== ====== ======
Allowance for loan losses to total
impaired loans at end of period 121.45% 127.59% 121.45% 127.59%
====== ====== ====== ======
Allowance for loan losses to total loans
held for investment at end of period 1.34% 1.79% 1.34% 1.79%
====== ====== ====== ======
</TABLE>
Based on facts and circumstances currently available, the Bank presently
believes that the allowance for loan losses was adequate at September 30, 1997.
However, there can be no assurances that additions to such allowance will not be
necessary in future periods, in which case the Company's results of operations
would be adversely affected.
13
<PAGE>
Results of Operations
Comparison of Results of Operations for the Three Months Ended September
30, 1997 and 1996
General. The Company reported net income of approximately $3.4 million and
$166,000 for the three months ended September 30, 1997 and 1996, respectively.
Before a one-time statutorily mandated SAIF assessment and a related charge
during the third quarter of 1996, the Company's net income was approximately
$3.1 million for the three-month period ended September 30, 1996. The $300,000
increase in net income for the three months ended September 30, 1997, compared
to the pre-SAIF net income during the corresponding period in 1996, was due
primarily to a $705,000, or 8.3%, increase in net interest income; a $126,000,
or 13.4% increase in noninterest income and a decrease in noninterest expenses
of $104,000. These were partially offset by an increase in provision for income
taxes.
Net Interest Income. Net interest income increased by $705,000, or 8.3%, in
the three months ended September 30, 1997, to $9.2 million, compared to $8.5
million during the same period in 1996. The reason for such increase was a $2.2
million improvement in interest income, mainly due to an increase in average
interest-earning assets of $97.1 million, or 7.3%, to $1.4 billion for the three
months ended September 30, 1997. The additional interest-earning assets
primarily resulted from increases in investment and mortgage-backed securities
and internal growth in the Bank's loan portfolio. Interest on loans increased
$1.4 million, or 11.5%, as a result of a $66.2 million, or 11.2%, increase in
the average balance of the loan portfolio together with a 3 basis point (100
basis points being equal to 1%) increase in the average yield earned thereon.
Interest income on mortgage-backed securities increased $437,000 as a result of
a $17.6 million, or 2.5%, increase in the average balance of the mortgage-
backed securities portfolio together with an 8 basis point increase in the
average yield earned thereon. The improvement in interest income was partially
offset by a $1.4 million increase in interest expense mainly as a result of an
increase of $113.5 million in average interest-bearing liabilities. Interest on
deposits increased $375,000, or 4.1%, as a result of an increase in the average
balance of deposits of $26.8 million, or 3.7%, together with an increase in the
cost of deposits from 5.18% to 5.19%. Interest expense on borrowings increased
by $1.1 million, or 15.1%, as a result of an increase in the average balance of
$86.7 million, or 18.1%, partially offset by a decrease in the average rate paid
on borrowings from 5.92% to 5.77%. The Bank's average interest rate spread and
net interest margin amounted to 2.15% and 2.58%, respectively, during the three
months ended September 30, 1997, compared to 2.02% and 2.56% for the comparable
period in 1996.
Provision for Loan Losses. The negative provision for loan losses amounted
to $157,000 for the three months ended September 30, 1997, compared to a
negative provision of $295,000 during the three months ended September 30, 1996.
For additional discussion of the Bank's loan loss policy, see "Financial
Condition - Asset Quality - Allowance for Loan Losses."
14
<PAGE>
Yields Earned and Rates Paid. The following table sets forth, for the
periods indicated, information regarding (i) the total dollar amount of interest
income of the Company from interest-earning assets and the resultant average
yields; (ii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average rate; (iii) net interest income; (iv)
interest-rate spread; and (v) net interest margin. Average balances are
determined on an average daily balance basis.
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------------------
1997 1996
---------------------------- -------------------------------
Yield/Cost Average Average
at September 30, Average Yield/ Average Yield/
1997 Balance Interest Cost (1) Balance Interest Cost (1)
--------------- ------- -------- -------- ------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans........... 8.13% $ 576,000 $11,924 8.28% $ 520,280 $ 10,871 8.36%
Consumer loans........... 10.59% 82,168 2,042 9.94% 71,714 1,652 9.21%
---------- ------- ---------- --------
Total loans................ 8.43% 658,168 13,966 8.49% 591,994 12,523 8.46%
Mortgage-backed securities. 7.12% 706,925 12,056 6.82% 689,370 11,619 6.74%
Investment securities...... 7.04% 49,479 872 7.05% 36,406 623 6.85%
Other earning assets....... 6.30% 7,188 89 4.95% 6,886 64 3.72%
---------- ------- ---------- --------
Total interest-earning assets 7.72% 1,421,760 26,983 7.59% 1,324,656 24,829 7.50%
------- --------
Noninterest-earning assets. 59,496 38,757
---------- ----------
Total assets........... $1,481,256 $1,363,413
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits.......... 3.53% $ 111,165 967 3.48% $ 63,680 531 3.34%
Passbook savings......... 3.31% 52,434 433 3.30% 53,452 430 3.22%
Certificates............. 5.65% 577,943 8,229 5.70% 597,620 8,293 5.55%
---------- ------- ---------- --------
Total deposits............. 5.17% 741,542 9,629 5.19% 714,752 9,254 5.18%
Borrowings................. 5.72% 566,623 8,174 5.77% 479,909 7,100 5.92%
---------- ------- ---------- --------
Total interest-bearing
liabilities............ 5.41% 1,308,165 17,803 5.44% 1,194,661 16,354 5.48%
------- --------
Noninterest-bearing liabilities 15,641 21,440
---------- ----------
Total liabilities...... 1,323,806 1,216,101
Stockholders' equity....... 157,450 147,312
---------- ----------
Total liabilities and
stockholders' equity... $1,481,256 $1,363,413
========== ==========
Net interest-earning assets $ 113,595 $ 129,995
========== ==========
Net interest income and
interest-rate spread..... 2.31% $9,180 2.15% $ 8,475 2.02%
====== ========
Net interest margin........ 2.58% 2.56%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.09x 1.11x
<FN>
_______________________________
(1) Annualized
</FN>
</TABLE>
Noninterest Income. Noninterest income for the quarter ended September 30,
1997, was $1.1 million compared to $940,000 in the comparable three months of
1996. This increase resulted mostly from approximately $260,000 profit on the
previously discussed sale of mortgage-backed securities.
Noninterest Expense. Noninterest expenses decreased by $4.9 million during
the three months ended September 30, 1997, to $4.5 million, compared to $9.5
million during the nine months ended September 30, 1996. Consistent with the
SAIF recapitalization legislation, during the third quarter of 1996, the Bank
was assessed $4.4 million by the FDIC as its pro rata share to recapitalize the
SAIF. As a result of the special assessment, relative to deposits obtained in
the Seaboard Savings Bank, FSB
15
<PAGE>
acquisition, the acquired goodwill relating to Seaboard was adjusted through a
charge to noninterest expense of $451,000. Before the one time assessment and
related charge, noninterest expenses were relatively unchanged at $4.5 million
for the three months ended September 30, 1997 compared to $4.6 million for the
three months ended September 30,1996.
Income Tax Provision. The provision for income taxes increased by $2.4
million due to both an increase in the provision rate and the level of pre-tax
income. The income tax provision rate increased from 29.7% of income before
taxes, for the third quarter of 1996, to 41.5%, for the third quarter of 1997,
due to additional taxable income in higher income tax brackets and the effects
of non-tax deductible expenses for 1997.
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996
General. The Company reported net income of approximately $10.1 million and
$5.4 million for the nine months ended September 30, 1997 and 1996,
respectively. The Company's reported net income for the nine months ended
September 30, 1996, before a one-time statutorily mandated SAIF assessment and a
related charge, was approximately $8.4 million. The $1.7 million increase in net
income for the nine months ended September 30, 1997, compared to the pre-SAIF
assessment net income during the corresponding period in 1996, was due primarily
to a $2.4 million increase in net interest income and a $1.1 million, or 45.7%,
increase in noninterest income which was partially offset by an increase in the
provision for income taxes.
Net Interest Income. Net interest income increased by $2.4 million, or
9.3%, in the nine months ended September 30, 1997, to $27.6 million, compared to
$25.2 million during the comparable period in 1996. The reason for such increase
was a $9.7 million improvement in interest income, mainly due to an increase in
average interest-earning assets of $180.5 million, or 14.9%, to $1.4 billion for
the nine months ended September 30, 1997. The additional interest-earning assets
primarily resulted from increases in mortgage-backed securities and internal
growth in the Bank's loan portfolio. Interest on loans increased $5.3 million,
or 14.9%, as a result of a $90.6 million, or 16.2%, increase in the average
balance of the loan portfolio partially offset by a 10 basis point decrease in
the average yield earned thereon. Interest income on mortgage-backed securities
increased $4.2 million as a result of a $89.0 million, or 14.6%, increase in the
average balance of the mortgage-backed securities portfolio partially offset by
a 7 basis point decrease in the average yield earned thereon. The improvement in
interest income was partially offset by a $7.3 million increase in interest
expense mainly as a result of an increase of $202.5 million in average
interest-bearing liabilities. Interest on deposits increased $2.0 million, or
7.5%, as a result of an increase in the average balance of deposits of $56.5
million, or 8.3%, partially offset by a decrease in the cost of deposits from
5.15% to 5.11%. Interest expense on borrowings increased by $5.3 million, or
30.1%, as a result of an increase in the average balance of $146.0 million, or
37.0%, partially offset by a decrease in the average rate paid on borrowings
from 5.99% to 5.69%. The Bank's average interest rate spread and net interest
margin amounted to 2.20% and 2.64%, respectively, during the nine months ended
September 30, 1997, compared to 2.16% and 2.79% for the comparable period in
1996.
Provision for Loan Losses. The negative provision for loan losses amounted
to $122,000 for the nine months ended September 30, 1997, compared to a negative
provision of $299,000 during the nine months ended September 30, 1996. For
additional discussion of the Bank's loan loss policy, see "Financial Condition -
Asset Quality - Allowance for Loan Losses."
16
<PAGE>
Yields Earned and Rates Paid. The following table sets forth, for the
periods indicated, information regarding (i) the total dollar amount of interest
income of the Company from interest-earning assets and the resultant average
yields; (ii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average rate; (iii) net interest income; (iv)
interest-rate spread; and (v) net interest margin. Average balances are
determined on an average daily balance basis.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------------
1997 1996
----------------------------- -------------------------------
Yield/Cost Average Average
at September 30, Average Yield/ Average Yield/
1997 Balance Interest Cost (1) Balance Interest Cost (1)
--------------- ------- -------- -------- ------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans........... 8.13% $ 568,629 $35,209 8.26% $ 491,892 $ 31,101 8.43%
Consumer loans........... 10.59% 80,857 5,838 9.63% 66,964 4,635 9.23%
---------- ------- ---------- --------
Total loans................ 8.43% 649,486 41,047 8.43% 558,856 35,736 8.53%
Mortgage-backed securities. 7.12% 697,786 35,632 6.81% 608,757 31,409 6.88%
Investment securities...... 7.04% 36,654 1,951 7.10% 36,800 1,887 6.84%
Other earning assets....... 6.30% 8,582 321 4.99% 7,597 268 4.70%
---------- ------- ---------- --------
Total interest-earning assets 7.72% 1,392,508 78,951 7.56% 1,212,010 69,300 7.62%
------- --------
Noninterest-earning assets. 56,937 40,361
---------- ----------
Total assets........... $1,449,445 $1,252,371
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits.......... 3.53% $ 106,919 2,669 3.33% $ 49,255 1,188 3.22%
Passbook savings......... 3.31% 52,565 1,281 3.25% 54,886 1,350 3.28%
Certificates............. 5.65% 578,339 24,353 5.61% 577,198 23,797 5.50%
---------- ------- ---------- --------
Total assets............... 5.17% 737,823 28,303 5.11% 681,339 26,335 5.15%
Borrowings................. 5.72% 540,918 23,070 5.69% 394,950 17,738 5.99%
---------- ------- ---------- --------
Total interest-bearing
liabilities............ 5.41% 1,278,741 51,373 5.36% 1,076,289 44,073 5.46%
------- --------
Noninterest-bearing liabilities 16,403 22,683
---------- ----------
Total liabilities...... 1,295,144 1,098,972
Stockholders' equity....... 154,301 153,399
---------- ----------
Total liabilities and
stockholders' equity... $1,449,445 $1,252,371
========== ==========
Net interest-earning assets $ 113,767 $ 135,721
========== ==========
Net interest income and
interest-rate spread..... 2.31% $ 27,578 2.20% $ 25,227 2.16%
======== ========
Net interest margin........ 2.64% 2.79%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.09x 1.13x
<FN>
(1) Annualized
</FN>
</TABLE>
Noninterest Income. Noninterest income for the nine months ended September
30, 1997, was $3.6 million compared to $2.5 million in the comparable nine
months of 1996. This increase resulted mostly from a $1.2 million profit on the
sale of mortgage-backed securities during the first and third quarters of 1997.
Noninterest Expense. Noninterest expenses decreased by $5.0 million during
the nine months ended September 30, 1997, to $13.9 million, compared to $18.9
million during the nine months ended September 30, 1996. Consistent with the
SAIF recapitalization legislation, during the third quarter of 1996 the Bank was
assessed $4.4 million by the FDIC as its pro rata share to recapitalize the
SAIF. As a result of the special assessment, relative to deposits obtained in
the Seaboard Savings Bank, FSB
17
<PAGE>
acquisition, the acquired goodwill relating to Seaboard was adjusted through a
charge to noninterest expense of $451,000. Before the one-time assessment and
related charge, noninterest expenses were $14.1 million for the nine months
ended September 30, 1996.
Income Tax Provision. The provision for income taxes increased by $3.7
million due to both an increase in the provision rate and the level of pre-tax
income. The income tax provision rate increased from 40.0% of income before
taxes, for the nine-month period of 1996, to 42.1%, for the nine-month period of
1997, due to additional taxable income in higher income tax brackets and the
effects of non-tax deductible expenses for 1997.
Impact of New Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS 128, "Earnings per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share ("EPS") and restate all prior periods. The
new requirements replace the current primary EPS and fully diluted EPS with two
new calculations, basic EPS and diluted EPS. Basic EPS, unlike primary EPS,
excludes all dilution caused by any common stock equivalents (e.g., options on
stock). Diluted EPS is calculated similarly to fully diluted EPS, except diluted
EPS uses the average price of the Company's stock during the accounting period,
while fully diluted EPS uses the price of the Company's stock at the end of the
accounting period. If SFAS 128 had been in effect during the first nine months
of 1997, the Company would have reported basic EPS of $0.37 and diluted EPS of
$0.35 for the three months ended September 30, 1997, and basic EPS of $1.10 and
diluted EPS of $1.06, for the nine months ended September 30, 1997.
In June 1997, FASB issued SFAS 130, "Reporting Comprehensive Income", which
is required to be adopted for fiscal years beginning after December 15, 1997. In
1998, the Company will be required to report items of comprehensive income in
the complete set of financial statements. Additionally, the Company will be
required to display the accumulated balance of other comprehensive income
separately in the equity section of a statement of financial position. The only
anticipated item of comprehensive income reportable by the Company will be the
unrealized gains or losses on available-for-sale securities, in accordance with
SFAS 115.
In June 1997, FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information", which is required to be adopted for fiscal
years beginning after December 15, 1997. The statement requires public business
enterprises, like the Company, to report financial and descriptive information
about its reportable operating segments and report a measure of segment profit
or loss, certain specific revenue and expense items, segment assets, and other
disclosures about products and services, geographic areas, and major customers.
Since the Company does not have reportable segments, as defined in the
statement, the Company believes that the statement will have no impact on the
Company's financial statements.
Liquidity and Capital Resources
The Bank's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Bank's primary
sources of funds are deposits; borrowings; amortization, prepayments and
maturities of outstanding loans and mortgage-backed securities; sales of loans;
maturities of investment securities and other short-term investments; and funds
provided from operations. While scheduled payments from the amortization of
loans and mortgage-backed securities and maturing investment securities and
short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions
18
<PAGE>
and competition. In addition, the Bank invests excess funds in overnight
deposits and other short-term interest-earning assets, which provide operational
liquidity. The Bank has been able to generate sufficient cash through its
deposits as well as borrowings (primarily consisting of FHLB advances and
repurchase agreements). At September 30, 1997, the Bank had $299.4 million of
outstanding FHLB advances and $273.7 million in repurchase agreements and other
borrowings.
Excess liquidity is generally invested in short-term investments such as
overnight deposits. On a longer-term basis, the Bank maintains a strategy of
investing in various lending products. The Bank uses its sources of funds
primarily to meet its ongoing operations, to fund maturing savings certificates
and savings withdrawals and to fund loan commitments and its portfolio of
mortgage-backed and investment securities. At September 30, 1997, the total
approved loan commitments outstanding amounted to $29.1 million. At the same
date, commitments under unused lines of credit amounted to $9.5 million.
Certificates of deposits scheduled to mature in one year or less at September
30, 1997, totaled $388.0 million; however, management believes that a
significant portion of maturing deposits will remain with the Bank. The Bank
anticipates that even with interest rates at lower levels than have been
experienced in recent years, it will continue to have sufficient funds to meet
its operational needs. At September 30, 1997, the Bank had a liquidity ratio of
7.86%, which exceeded the required minimum liquid asset ratio of 5.0%.
At September 30, 1997, the Bank's regulatory capital was well in excess of
applicable minimums required by federal regulations. The Bank, as a member of
the thrift industry, is required to maintain tangible capital of 1.5% of
adjusted total assets, core capital of 3.0% of adjusted total assets and
risk-based capital of 8.0% of adjusted risk-weighted assets. At September 30,
1997, the Bank's tangible capital was $132.7 million, or 8.98%, of adjusted
total assets, core capital was $132.7 million, or 8.98%, of adjusted total
assets and risk-based capital was $138.2 million, or 22.45%, of adjusted
risk-weighted assets, exceeding the requirements by $110.5 million, $88.3
million and $89.0 million, respectively.
19
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K.
None
b) Reports on Form 8-K filed during the quarter.
None
20
<PAGE>
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.
LIFE BANCORP, INC.
Date: November 14, 1997 By: /s/ Tollie W. Rich, Jr.
_____________________________________________
Tollie W. Rich, Jr., Executive Vice President,
Chief Operating Officer
Date: November 14, 1997 By: /s/ Emory J. Dunning, Jr.
______________________________________________
Emory J. Dunning, Jr., Senior Vice President,
Treasurer and Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1997, 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000926039
<NAME> Life Bancorp, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 17,072
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 652,495
<INVESTMENTS-CARRYING> 119,841
<INVESTMENTS-MARKET> 120,872
<LOANS> 645,192
<ALLOWANCE> 8,639
<TOTAL-ASSETS> 1,486,357
<DEPOSITS> 740,839
<SHORT-TERM> 568,885
<LIABILITIES-OTHER> 13,177
<LONG-TERM> 4,176
0
0
<COMMON> 98
<OTHER-SE> 159,182
<TOTAL-LIABILITIES-AND-EQUITY> 1,486,357
<INTEREST-LOAN> 41,047
<INTEREST-INVEST> 2,272
<INTEREST-OTHER> 35,632
<INTEREST-TOTAL> 78,951
<INTEREST-DEPOSIT> 28,303
<INTEREST-EXPENSE> 51,373
<INTEREST-INCOME-NET> 27,578
<LOAN-LOSSES> (122)
<SECURITIES-GAINS> 1,246
<EXPENSE-OTHER> 13,907
<INCOME-PRETAX> 17,410
<INCOME-PRE-EXTRAORDINARY> 17,410
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,087
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 2.64
<LOANS-NON> 3,349
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,532
<LOANS-PROBLEM> 4,500
<ALLOWANCE-OPEN> 9,656
<CHARGE-OFFS> 1,629
<RECOVERIES> 734
<ALLOWANCE-CLOSE> 8,639
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,639
</TABLE>
