SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1996
or
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NUMBER 0-27014
AFFILIATED COMMUNITY BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3277217
- ------------------------------- ----------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) identification Number)
716 Main Street, Waltham, Massachusetts 02254-9035
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(617) 893-3969
----------------------------------------------------
(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 [ ]
At October 31, 1996, there were 5,095,666 shares of common stock, par value
$.01 per share, outstanding.
<PAGE> 2
AFFILIATED COMMUNITY BANCORP, INC.
<TABLE>
INDEX
<CAPTION>
PAGE NO.
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1.
Consolidated Statements of Financial Condition at
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income for the Three
Months Ended and Nine Months Ended
September 30, 1996 and 1995 4
Consolidated Statements of Stockholders' Equity
for the Nine Months Ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September
30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis of Financial
Condition, including Liquidity and Capital
Resources, and Results of Operations for the
Three and Nine Month Periods Ended
September 30, 1996 and 1995 9
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings 19
Item 2.
Changes in Securities 19
Item 3.
Defaults Upon Senior Securities 19
Item 4.
Submission of Matters to a Vote of Security Holders 19
Item 5.
Other Information 19
Item 6.
Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBITS:
Computation of Primary and Fully Diluted Earnings
Per Share for the Three Months Ended and
Nine Months Ended September 30, 1996 and
September 30, 1995 21
Financial Data Schedule 22
</TABLE>
<PAGE> 3
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $14,098 $14,037
Federal funds sold and overnight deposits 9,151 4,125
Investment securities - held to maturity (market value $173,829 and
$177,384
at September 30, 1996 and December 31, 1995, respectively) 175,938 176,100
Investment securities - available for sale (amortized cost $158,107 and $114,292
at September 30, 1996 and December 31, 1995, respectively) 155,845 114,836
Federal Home Loan Bank stock - at cost 13,492 10,355
Loans receivable - net of allowance for possible loan losses of $7,386 and $7,127
at September 30, 1996 and December 31, 1995, respectively 612,102 535,679
Loans held for sale 476 1,071
Other real estate owned, net 979 1,201
Accrued interest receivable 7,022 5,873
Office properties and equipment, net 8,397 8,446
Deferred tax asset, net 4,405 3,096
Other assets 3,511 3,661
---------- ----------
Total assets $1,005,416 $878,480
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $637,029 $583,832
Federal Home Loan Bank advances 257,841 186,835
Securities sold under agreements to repurchase 972 -
ESOP debt 571 679
Mortgagors' escrow payments 2,051 1,904
Other 8,890 5,940
---------- ----------
Total liabilities $907,354 $779,190
Stockholders' Equity:
Preferred stock, $0.01 Par Value; 2,000,000 shares authorized, none issued - -
Common stock, $0.01 Par Value; 18,000,000 shares authorized; shares
issued 5,332,666 in 1996 and 5,296,700 in 1995 53 53
Additional paid-in capital 48,636 48,263
Treasury stock at cost, 238,000 share at September 30, 1996 (4,081) -
Retained earnings - restricted 55,550 51,563
Unearned compensation - ESOP (571) (679)
Unrealized gain (loss) on investment securities, net of tax effects (1,525) 90
---------- ----------
Total stockholders' equity 98,062 99,290
---------- ----------
Total liabilities and stockholders' equity $1,005,416 $878,480
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
---------------------- ---------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $12,498 $10,711 $35,586 $30,750
Interest and dividend income on investment securities 5,704 4,544 16,617 13,832
Interest on federal funds sold and overnight deposits 78 188 200 348
------- ------- ------- -------
Total interest and dividend income 18,280 15,433 52,403 44,930
------- ------- ------- -------
Interest expense:
Interest on deposits 6,577 6,010 18,988 16,655
Interest on borrowed funds 3,724 2,473 10,389 7,656
------- ------- ------- -------
Total interest expense 10,301 8,483 29,377 24,311
------- ------- ------- -------
Net interest income 7,979 6,960 23,026 20,619
Provision for possible loan losses 135 100 405 300
------- ------- ------- -------
Net interest income after provision for possible loan losses 7,844 6,860 22,621 20,319
------- ------- ------- -------
Noninterest income:
Mortgage loan servicing fees 63 87 225 238
Customer service fees and other 312 379 948 1,045
Gain on sales of securities - - - 33
Gain (loss) on sales of loans, net 29 (12) 86 7
------- ------- ------- -------
Total noninterest income 404 454 1,259 1,323
------- ------- ------- -------
Noninterest expenses:
Compensation and employee benefits 2,251 2,042 6,731 6,271
Occupancy and equipment 552 471 1,562 1,414
Data processing 205 220 619 609
Professional services 169 258 538 710
Federal Deposit Insurance premiums 2,318 172 2,707 791
Other real estate owned expenses, net 25 44 164 (71)
Marketing and promotion 132 127 435 365
Other 715 752 2,034 2,115
------- ------- ------- -------
Total noninterest expenses 6,367 4,086 14,790 12,204
------- ------- ------- -------
Income before provision for income taxes 1,881 3,228 9,090 9,438
Provision for income taxes 579 1,335 3,266 3,866
------- ------- ------- -------
Net Income $1,302 $1,893 $5,824 $5,572
======= ======= ======= =======
Earnings per share:
Primary $0.25 $0.35 $1.13 $1.05
========== ========== ========== ==========
Fully diluted $0.24 $0.35 $1.12 $1.05
========== ========== ========== ==========
Weighted average shares outstanding:
Primary 5,168 5,340 5,160 5,319
======= ======= ======= =======
Fully diluted 5,186 5,343 5,197 5,330
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1996 and 1995
(Dollars in thousands)
<CAPTION>
Net Unrealized
Additional Unearned Gain (Loss) on
Common Paid-in Retained Compensation- Investment
Stock Captial Earnings ESOP Securities Total
-------- ------------ ---------- -------------- ----------------- -------
Balance at December 31, 1994 $53 $48,069 $47,528 ($821) ($1,543) $93,286
Net income - - 5,572 - 5,572
ESOP transactions - 62 - 107 - 169
Issuance of common stock under
stock option plan - 37 - - - 37
Cash dividends declared - - (1,672) - - (1,672)
Changes in net unrealized gain
loss on securities available
for sale, net of tax effect - - - - 1,334 1,334
-------- -------- -------- -------- -------- --------
Balance at September 30, 1995 $53 $48,168 $51,428 ($714) ($209) $98,726
======== ======== ======== ======== ======== ========
Net Unrealized
Additional Unearned Gain (Loss) on
Common Paid-in Treasury Retained Compensation- Investment
Stock Captial Stock Earnings ESOP Securities Total
-------- ------------ ---------- ---------- -------------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $53 $48,263 $- $51,563 ($679) $90 $99,290
Net income - - - 5,824 - - 5,824
ESOP transactions - 86 - 108 - 194
Stock repurchase - - (4,081) - - - (4,081)
Issuance of common stock under
stock option plan - 287 - - - 287
Cash dividends declared - - - (1,837) - - (1,837)
Changes in net unrealized gain
loss on securities available
for sale, net of tax effect - - - - - (1,615) (1,615)
-------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1996 $53 $48,636 ($4,081) $55,550 ($571) ($1,525) $98,062
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
<PAGE> 6
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
September 30,
---------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income $5,824 $5,572
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for possible loan losses 405 300
Provision for losses on other real estate owned 180 160
Depreciation and amortization 568 459
Gain on sales of loans (86) (7)
Gain on sales of securities - (33)
Net gain on sales of other real estate owned (177) (275)
Net amortization of premiums and discounts on
investment securities 603 513
Provision for deferred income taxes 421 549
ESOP transactions 194 169
Increase in Federal Home Loan Bank stock (3,137) -
Decrease (increase) in loans held for sale 595 (727)
Increase in accrued interest receivable (1,149) (772)
Other, net 1,452 (755)
-------- --------
Net cash provided by operating activities 5,693 5,153
-------- --------
Cash flows from investing activities:
Proceeds from sales of investment securities
available for sale - 4,423
Proceeds from maturities of investment
securities available for sale 16,510 8,540
Proceeds from maturities of investment
securities held to maturity 3,251 13,003
Purchase of investment securities available
for sale (68,076) (21,771)
Purchase of investment securities held
to maturity (22,949) (16,270)
Principal payments received on investment
securities available for sale 6,558 1,772
Principal payments received on investment
securities held to maturity 21,559 20,549
Loan originations, net of repayments (77,748) (41,221)
Proceeds from sale of office properties
and equipment - 201
Purchases of office properties and equipment (519) (1,169)
Capitalized costs associated with other
real estate owned, net of payments
received (42) (87)
Proceeds from sales of other real estate owned 1,267 2,896
-------- --------
Net cash used by investing activities (120,189) (29,134)
-------- --------
Cash flows from financing activities:
Net increase in deposits 53,197 42,461
Additions to Federal Home Loan Bank advances 71,006 (3,562)
Increase in mortgagors' escrow payments 147 190
Increase in repurchase agreements 972 -
Additions to treasury stock (4,081) -
Net proceeds from common stock issued pursuant
to stock options exercised 287 37
ESOP transactions (108) (107)
Cash dividend paid on common stock (1,837) (1,672)
-------- --------
Net cash provided by financing activities 119,583 37,347
-------- --------
Net increase in cash and cash equivalents 5,087 13,366
Cash and cash equivalents at beginning of period 18,162 13,645
-------- --------
Cash and cash equivalents at end of period $23,249 $27,011
======== ========
Supplemental disclosures of cash flow information:
Interest paid on deposits $19,590 $15,477
Interest paid on borrowed funds 10,766 7,738
Income taxes paid, net of refunds 3,432 3,472
Supplemental disclosures of non-cash transactions:
Transfers to foreclosed real estate 1,006 1,108
Loans granted on sale of foreclosed real estate 857 284
Securitization of loans to mortgage-backed investments 2,326 -
(classified as available for sale)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE> 7
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Affiliated Community Bancorp, Inc. (the "Company" or
"Affiliated") and its two wholly-owned subsidiaries, Lexington Savings
Bank ("Lexington"), a Massachusetts chartered savings bank, and The
Federal Savings Bank ("Federal"), a federally chartered savings bank,
which are based in Lexington, Massachusetts and Waltham, Massachusetts,
respectively.
Affiliated Community Bancorp, Inc. was incorporated on April 13, 1995
for the purpose of effecting the affiliation (the "Affiliation") of
Lexington and Main Street Community Bancorp, Inc. ("Main Street")
including Main Street's wholly-owned subsidiary, Federal, pursuant to
the Affiliation Agreement and Plan of Reorganization dated March 14,
1995 between Lexington and Main Street. The Affiliation was consummated
on October 18, 1995 and was treated as a pooling of interests for
accounting purposes. As of such date, Lexington and Federal became
wholly-owned subsidiaries of Affiliated and Affiliated issued 5,290,700
shares of its $.01 par value per share common stock. The operations of
Affiliated consist of those of its two bank subsidiaries, Lexington and
Federal. The information presented herein for 1996 and 1995 represents
the financial condition and the results of the Company and its wholly-
owned bank subsidiaries on a consolidated basis.
Lexington is insured by the Bank Insurance Fund ("BIF") and Federal is
insured by the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC").
In the opinion of management, the unaudited consolidated financial
statements presented herein reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation.
Interim results are not necessarily indicative of results to be expected
for the entire year.
2) EARNINGS AND DIVIDENDS DECLARED PER SHARE
Primary earnings per share computations include common stock
(excluding treasury shares and unallocated ESOP shares) and dilutive
common stock equivalents attributable to outstanding stock options.
Fully diluted earnings per share computations reflect the higher market
price of the Company's common stock at period end, if applicable, and
the assumed further dilution applicable to outstanding stock options.
Dividends declared per share for the three and nine month periods
ended September 30, 1995 represent the combined historical dividends
declared by Lexington and Main Street determined by dividing the sum of
the total dividends declared by Lexington and Main Street by the sum of
the outstanding shares of common stock of Lexington and Main Street to
which the dividends declared apply.
3) ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following is a summary of the allowance for possible loan losses
for the three and nine month periods ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
---------------------- ---------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $7,240 $7,120 $7,127 $6,996
Provision for possible loan losses 135 100 405 300
Recoveries 14 8 147 91
-------- -------- -------- --------
7,389 7,228 7,679 7,387
Loans charged-off 3 98 293 257
-------- -------- -------- --------
Balance at end of period $7,386 $7,130 $7,386 $7,130
======== ======== ======== ========
</TABLE>
The Company's allowance for possible loan losses is established and
maintained through a provision for possible loan losses. Charges to the
provision for possible loan losses are based on management's evaluation
of numerous factors, including the risk characteristics of the Company's
loan portfolio generally, the portfolio's historical experience, the
level of non-accruing loans, current economic conditions, collateral
values, and trends in loan delinquencies and charge-offs. Although
management believes it uses the best information available to make
determinations with respect to the Company's allowance for possible loan
losses, loan losses may ultimately vary significantly from current
estimates and future adjustments may be necessary if economic conditions
differ substantially from the assumed economic conditions used in making
the initial determination or if other circumstances change.
<PAGE> 8
The Company adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures", on
January 1, 1995. Under these new accounting standards, loans are
considered impaired when it is probable that the Company will not be
able to collect all amounts due according to the contractual terms of
the loan agreement. Management considers the paying status, net worth
and earnings potential of a borrower, and the value and cash flow of the
collateral, as factors to determine if a loan will be paid in accordance
with its contractual terms. Management does not set any minimum delay
of payments as a factor in reviewing for impaired classification. The
amount judged to be impaired is the difference between the present value
of the expected cash flows using as a discount rate the original
contractual effective interest rate and the recorded investment of the
loan. If foreclosure on a collateralized loan is probable, impairment
is measured based on the fair value of the collateral compared to the
recorded investment. If appropriate, a valuation reserve is established
to recognize the difference between the recorded investment and the
present value. Impaired loans are charged off when management believes
that the collectibility of the loan's principal is remote. All impaired
loans are classified as nonaccrual. The adoption of this new standard
on January 1, 1995 did not have an impact on the Company's allowance for
possible loan losses.
SFAS No. 114 also revises the definition of In-Substance Foreclosures
("ISF"). Under the new definition, ISF classification applies only to
loans for which collateral is in the physical possession of the
creditor. Upon adoption of SFAS No. 114, $1,816,000 of the Company's
ISF was reclassified to loans.
During the nine months ended September 30, 1996 and 1995, the average
recorded investment in impaired loans was $3,536,000 and $3,013,000
respectively, and the income recognized on related impaired loans was
$134,000 and $120,000, respectively. At September 30, 1996 and December 31,
1995, the Company classified $4,152,000 and $2,693,000, respectively, of its
loans as impaired. Of the $4,152,000 in impaired loans at September 30,
1996, $4,042,000 has been measured under the fair value of collateral method
and $110,000 has been measured under the present value of the expected cash
flows method. At September 30, 1996 impaired loans totaling $3,076,000, had
a related valuation reserve of $779,000.
4) IMPACT OF NEW ACCOUNTING STANDARDS
In September 1995, the FASB issued SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of", which is effective for fiscal years beginning after December 15,
1995. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The statement
also requires that certain long-lived assets and identifiable
intangibles to be disposed of be reported at the lower of the carrying
amount or fair value less cost to sell. The Company adopted this new
statement on January 1, 1996, and such adoption did not have a
significant impact on its results of operations or financial condition.
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights", which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 122 requires entities that engage in
mortgage banking activities to recognize as separate assets rights to
service mortgage loans for others acquired through either the purchase
or origination of mortgage loans and sale or securitization of those
loans with servicing retained. In addition, capitalized mortgage
servicing rights are required to be assessed for impairment based on the
fair value of those rights. The Company adopted this new statement on
January 1, 1996, and such adoption did not have a significant impact on
the Company's results of operations or financial condition.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
GENERAL
The Company is a holding company that conducts substantially all its
activities through its bank subsidiaries. The Company's results of
operations are dependent primarily on net interest income, which is the
difference between (i) the interest income earned on loans and investment
securities and (ii) the cost of funds, which consists of the interest paid
on deposits and borrowings. Net interest income can be adversely affected
by changes in interest rates, interest rate caps in effect on adjustable
rate securities and loans in the portfolio, and loan and mortgage-backed
security prepayments.
The Company's net income is also affected by noninterest income, such as
service charges and fees and gains or losses on asset sales, and operating
expenses, which consist primarily of compensation and benefits, occupancy
and equipment expenses, federal deposit insurance premiums, real estate
owned operations and other general administrative expenses. The earnings
of the Company are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities.
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward-looking statements.
Important factors that might cause such a difference include general
economic conditions, particularly the real estate market, in the Company's
primary market area, potential increases in the Company's non-performing
assets (as well as increases in the allowance for possible loan losses that
might be necessary), concentrations of loans in a particular geographic
area or with certain large borrowers, changes in government regulation and
supervision, including increased deposit insurance premiums, or capital or
reserve requirements, changes in interest rates and increased competition in
the Company's market area.
Changes in Financial Condition from December 31, 1995
Total assets at September 30, 1996 amounted to $1.005 billion as
compared to $878.5 million at December 31, 1995, reflecting an increase of
$126.5 million or 14.40%. The increase in the Company's assets is attributed
to growth in loans and additional purchases of investment securities for the
available for sale portfolio.
Investments: Investment securities designated as available for sale
amounted to $155.8 million at September 30, 1996 versus $114.8 million at
December 31, 1995. The increase of $41.0 million for the current year
represents additional purchases of government agency securities and high
quality preferred stocks that were added to the Company's portfolio during
the nine month period of 1996. Total marketable equity securities at
September 30, 1996 amounted to $20.0 million as compared to $3.4 million at
December 31, 1995. There were no sales of investment securities during
the nine month period of 1996.
The carrying value of investment securities at September 30, 1996 is
presented in the following table:
<TABLE>
<CAPTION>
Available Held to
For Sale Maturity
----------- ----------
(In thousands)
<S> <C> <C>
Government securities $ 80,547 $ 35,556
Corporate bonds 3,047 3,005
Mortgage-backed and asset-backed
securities 44,087 123,537
Mortgage-backed derivatives 8,181 13,840
Marketable equity securities 19,983 -
--------- ---------
$155,845 $175,938
========= =========
</TABLE>
The mortgage-backed derivatives portfolio consisted of planned
amortization classes (PAC's), targeted amortization classes (TAC's),
sequential payment classes (SEQ's), scheduled amortization classes (SCH's)
and accretion directed classes (AD's). The balance at September 30, 1996
had an average life of 2.44 years with 32.4% in monthly adjusting
securities and the remaining 67.6% in fixed rate securities.
Loans: Gross loans outstanding, excluding loans held for sale, at
September 30, 1996 amounted to $619.5 million versus $542.8 million
at December 31, 1995. The increase of $76.7 million or 14.1% was primarily
attributed to growth in residential real estate loans, commercial real
estate loans and small business commercial loans. The gross balances of
loans outstanding at September 30, 1996 and December 31, 1995 are shown in
the following table:
<PAGE> 10
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- --------------
(In thousands)
<S> <C> <C>
Real estate:
1-4 family $408,720 $367,867
Commercial and construction 161,684 129,134
Commercial 32,027 28,636
Equity lines of credit and other 18,819 19,051
Less: net deferred loan fees (1,762) (1,882)
-------- --------
$619,488 $542,806
======== ========
</TABLE>
At September 30, 1996 loans delinquent 60 days or more amounted to
$5,039,000 and represented .81% of total loans outstanding. The comparable
amounts at December 31, 1995 were $5,764,000 or 1.06%.
The following table sets forth information regarding non-accrual loans,
troubled debt restructurings, other real estate owned and other assets:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- --------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans $5,108 $5,402
Troubled debt restructurings, accruing -- 199
------- -------
Total non-performing loans 5,108 5,601
Other real estate owned, net 979 1,201
Other assets 100 200
------- -------
Total non-performing assets $6,187 $7,002
======= =======
Loans past due 90 days or more and
still accruing $ - $ -
======= =======
Non-performing loans as a percent of
total loans .82% 1.03%
Non-performing assets as a percent of
total assets .62% .80%
Allowance for possible loan losses as
a percent of non-performing loans 144.60% 127.25%
Allowance for possible loan losses as
a percent of total loans 1.19% 1.31%
========== ==========
</TABLE>
Liabilities: The Company's deposit products include regular passbook and
statement savings accounts, NOW accounts, demand (checking) accounts, money
market accounts and certificate of deposit accounts. The certificate
accounts consist of regular and retirement funds and are either fixed or
variable in nature.
The following table summarizes the Company's deposit liabilities at
September 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- --------------
(In thousands)
<S> <C> <C>
Demand $ 39,850 $ 33,680
NOW 48,307 50,487
Regular savings 121,597 119,995
Money market 65,530 61,219
--------- ---------
Total non-certificate accounts 275,284 265,381
--------- ---------
Certificates less than $100,000 294,438 276,512
Certificates of $100,000 and over 67,307 41,939
--------- ---------
Total certificate accounts 361,745 318,451
--------- ---------
Total deposits $637,029 $583,832
========= =========
</TABLE>
<PAGE> 11
At September 30, 1996 and December 31, 1995, brokered certificates of
deposits amounted to $31.1 million and $10.9 million, respectively.
Brokered certificates of deposits at September 30, 1996 include $15.0
million in Depository Trust Company ("DTC") certificates.
Borrowings from the Federal Home Loan Bank ("FHLB") amounted to $257.8
million at September 30, 1996 versus $186.8 million at December 31, 1995
as a result of continued leveraging of the Company's strong capital
position. The additional borrowings funded loans and government agency
securities that were added to the balance sheet.
During the first quarter of 1996, the Company instituted and completed
a stock repurchase program under which 238,000 shares or 4.5% of its common
stock was purchased in open market transactions. At September 30, 1996
total shares outstanding, excluding 238,000 shares of treasury stock, were
5,094,666 as compared to 5,296,700 at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are dividends from
subsidiaries, and maturities, repayments and interest on investments. The
Company may use its liquidity to pay cash dividends to stockholders, fund
operating expenses and pay taxes. On October 17, 1996 the Company declared
a regular quarterly dividend of $0.15 per share payable on November 15,
1996 to stockholders of record on October 31, 1996. This fourth quarter
dividend represented a 25% increase over the $0.12 per share paid in recent
periods.
The primary sources of funds for the Company's bank subsidiaries are
deposits, FHLB borrowings, principal and interest payments on loans,
mortgage-backed and mortgaged-backed derivative securities, and maturities
of investment securities. While maturities and scheduled amortization of
loans and investment securities are predictable sources of funds, deposit
inflows and mortgage prepayments are greatly influenced by economic
conditions, interest rate levels, and regulatory changes. The earning
asset growth of $124.8 million for the nine month period ended September
30, 1996 was funded by a net gain in deposits of $53.2 million, primarily
from term certificates and additional advances from the FHLB amounting to
$71.0 million.
The Company's bank subsidiaries, as members of the FHLB, have overnight
lines of credit of approximately $24.8 million and an overall borrowing
capacity of approximately $594.1 million from the FHLB. At September 30,
1996 outstanding borrowings were $257.8 million under these facilities.
Any borrowings must be collateralized by a combination of investment
securities and certain first mortgage loans. In addition, the subsidiaries
have the ability to enter into repurchase agreements, with an aggregate
credit line of $150.0 million, with various brokers.
At September 30, 1996, the Company had outstanding commitments of $92.0
million to originate loans and advance funds. As of that date, the Company
had commitments to sell loans of $476,000. The Company believes that it
will have sufficient funds available to meet all of its commitments as a
result of the liquidity inherent in its balance sheet, combined with its
available borrowing capacity through the FHLB.
The Company's bank subsidiaries are subject to certain capital standards
prescribed by regulations. The following tables show the subsidiaries
regulatory capital ratios as they compare to the minimum guidelines at
September 30, 1996:
<TABLE>
<CAPTION>
Affiliated
The Federal Lexington Community Minimum
Savings Bank Savings Bank Bancorp, Inc. Requirements
<S> <C> <C> <C> <C>
Risk-based ratios:
Tier 1 capital 18.95% 14.32% 18.29% 4.00%
Total capital 20.20 15.23 19.54 8.00
Tangible capital 9.34 N/A N/A 1.50
Core capital 9.34 N/A N/A 3.00
Tier 1 leverage capital N/A 8.59 9.84 4.00
</TABLE>
<PAGE> 12
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 AND 1995
GENERAL OPERATING RESULTS. Net income for the three months ended
September 30, 1996 was $1,302,000 or $0.24 per share, compared to net
income of $1,893,000 or $0.35 per share in the corresponding quarter of
1995, a decrease of $591,000 or 31.2%. This net income is after a pre-tax
charge of $2,121,000 ($1,236,000 after tax or $.24 per share) for
recapitalization of the Savings Association Insurance Fund (SAIF) of the
FDIC.
One of Affiliated's bank subsidiaries, Federal, is insured by the
SAIF. As a result of the enactment of the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 (EGRPRA) on September 30, 1996, the FDIC
was required to impose a special one-time assessment on the SAIF-insured
deposits of each depository institution in an amount sufficient to
recapitalize the SAIF to 1.25% of total insured deposits. The FDIC
determined that a special assessment of 0.657% of the SAIF-assessable
deposits as of March 31, 1995 was required. The resulting one time charge
to Federal, and thus Affiliated, was $2,121,000 as noted above.
Under the terms of opinion D-47 issued by the FASB's Emerging Issues
Task Force on November 15, 1995, this charge must be reported as an expense
in the quarter in which the legislation was enacted and cannot be reported as
an extraordinary item. Under the provisions of EGRPRA, it is a tax
deductible expense.
Excluding the cost of SAIF recapitalization, Affiliated would have
reported fully diluted net income for the third quarter of 1996 of
$2,538,000 or $.48 per share versus $1,893,000 or $.35 per share for the
same period in 1995. Those third quarter results would have represented a
37% increase in earnings per share. Net interest income continued on a
positive trend with only a modest increase in normal operating expenses.
As a result of higher levels of interest earning assets, net interest
income increased by $1,019,000 or 14.6% in the third quarter of 1996 versus
the same period of 1995.
<PAGE> 13
The following table sets forth the Company's average balances and net
interest income components for the three months ended September 30, 1996
and 1995. It includes (i) the average balance sheet for the period, based
on daily average balances; (ii) the total amount of interest earned or paid
on the various categories of interest-earning assets and interest-bearing
liabilities; and (iii) the resulting weighted average yields and costs.
Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
shown except where noted otherwise. In additional, the table reflects the
Company's interest rate spreads and net yields on earning assets. The
average balance of loans receivable includes loans on which the Company has
discontinued accruing interest. The yields and costs include fees which
are considered "adjustments to yield."
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------------------------------
1996 1995
------------------------------------- -------------------------------------
(Dollars in thousands)
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans $604,714 $12,498 8.27% $508,387 $10,711 8.43%
-------- -------- ------ -------- -------- ------
Investments:
Investment and mortgage-backed
securities held-to-maturity 178,308 2,861 6.42% 196,832 3,177 6.46%
Investment and mortgage-backed
securities available for sale 156,885 2,622 6.69% 76,987 1,200 6.23%
Federal Home Loan Bank stock 13,492 221 6.55% 9,806 167 6.81%
Federal funds sold 6,132 78 5.09% 12,136 188 6.20%
-------- -------- ------ -------- -------- ------
Total investments 354,817 5,782 6.52% 295,761 4,732 6.40%
-------- -------- ------ -------- -------- ------
Total interest-earning assets 959,531 18,280 7.62% 804,148 15,443 7.68%
-------- -------- ------ -------- -------- ------
Noninterest earning assets 32,249 35,046
Allowance for possible loan losses (7,288) (7,156)
-------- --------
Total assets $984,492 $832,038
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Regular savings, NOW and money
market accounts $236,024 $1,547 2.62% $233,373 $1,551 2.66%
Certificate accounts 349,341 5,030 5.76% 300,683 4,459 5.93%
Borrowings 255,213 3,724 5.84% 160,481 2,473 6.16%
-------- -------- ------ -------- -------- ------
Total interest-bearing liabilities 840,578 10,301 4.90% 694,537 8,483 4.89%
-------- -------- ------ -------- -------- ------
Noninterest-bearing liabilities:
Demand deposits 37,771 30,947
Other 8,352 8,446
-------- --------
Total liabilities 886,701 733,930
-------- --------
Stockholders' equity 97,791 98,108
-------- --------
Total liabilities and
stockholders' equity $984,492 $832,038
======== ========
Net interest income $7,979 $6,960
====== ======
Interest rate spread 2.72% 2.79%
==== ====
Net yield on earning assets 3.33% 3.46%
==== ====
</TABLE>
INTEREST INCOME. Total interest and dividend income increased from
$15.4 million in the third quarter of 1995 to $18.3 million in the same period
of 1996, an increase of 18.4%. The additional income is due mostly to the
higher volume of investments and loans. The yield on average earning
assets decreased from 7.68% in the third quarter of 1995 to 7.62% in the
same period of 1996 due to a lower yield on the company's loan portfolio.
Average loans outstanding in the current quarter amounted to $604.7 million
and produced an average yield of 8.27%, as compared to a 1995 average
volume of $508.4 million with an average yield of 8.43%. The average
balance of all investment categories amounted to $354.8 million in the
third quarter of 1996 with an average yield of 6.52% compared to $295.8
million and 6.40%, respectively, in the comparable quarter of 1995.
INTEREST EXPENSE. Interest expense in the third quarter of 1996
amounted to $10.3 million, up $1.8 million or 21.2% from $8.5 million in the
same quarter of 1995. The main contributing factors to this increase were
higher volumes in certificates of deposits and borrowed funds. The average
rate paid on total interest bearing deposits decreased fractionally from
4.50% in the third quarter of 1995 to 4.49% in the comparable period of
1996. Average interest bearing deposit volume increased from $534.1
<PAGE> 14
million in the 1995 period to $585.4 million in the third quarter of 1996,
up $51.3 million or 9.6%. Average certificates increased $48.7 million or
16.2% in 1996 from the comparable 1995 quarter. The Company had average
borrowings of $255.2 million for the three months ended to September 30,
1996, with a related interest expense of $3.7 million, compared to $160.5
million and $2.5 million, respectively, for the third quarter of 1995,
although the average rate paid on such borrowings decreased from 6.16% to
5.84%.
The following table illustrates the extent to which changes in interest
rates and changes in the volumes of interest-earning assets and interest-
bearing liabilities affected the components of the Company's interest
income and interest expense during the period. For each interest related-
asset and liability category, information is provided with respect to (i)
changes attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) change attributable to changes in interest rates (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of both volume and rates have been
allocated proportionately to the change due to volume and the change due to
rates.
<TABLE>
<CAPTION>
Three Months Ended September 30,
1996 Compared with 1995
Increase (Decrease)
Due to Change in:
Average Average
Volume Rate Total
--------- --------- -------
(Dollars in thousands)
Interest Income:
<S> <C> <C> <C>
Loans $1,987 ($200) $1,787
Investments:
Investment and mortgage-backed
securities held-to-maturity (297) (19) (316)
Investment and mortgage-backed
securities available-for-sale 1,329 93 1,422
Federal Home Loan Bank stock 60 (6) 54
Federal funds sold (81) (29) (110)
-------- -------- --------
Total interest income 2,998 (161) 2,837
-------- -------- --------
Interest Expense:
Regular savings, NOW and money
market accounts 19 (23) (4)
Certificate accounts 696 (125) 571
-------- -------- --------
Total deposits 715 (148) 567
Borrowed funds 1,375 (124) 1,251
-------- -------- --------
Total interest expense 2,090 (272) 1,818
-------- -------- --------
Change in net interest income $ 908 $ 111 $1,019
======== ======== ========
</TABLE>
The increase in 1996 third quarter net interest income was primarily
attributed to volume increases in loans and in investment and mortgage-
backed securities designated as available for sale. Volume increases in
certificates of deposits and borrowed funds partially offset the favorable
benefit of volume increase in earning assets.
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses for the third quarter of 1996 amounted to $135,000 versus $100,000
for the third quarter of 1995. At September 30, 1996, the Company's
allowance for possible loan losses amounted to $7.4 million which
represented 145% of non-performing loans at that date. The provision and
the level of the allowance are evaluated on a regular basis by management
and are based upon management's periodic review of the collectibility of
the loans, in light of historical experience, known and inherent risks in
the nature and volume of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any underlying
collateral and prevailing economic conditions. The allowance is a forward-
looking estimate and ultimate losses may vary from current estimates and
future additions to the allowance may be necessary. As adjustments become
necessary, they are reported in the results of operations for the periods
in which they become known. Loan losses are charged against the allowance
when management believes the collectibility of the loan balance is
unlikely. Although no assurance can be given, management believes that the
September 30, 1996 level of the allowance is adequate to provide for known
and reasonably anticipated loan losses inherent in the portfolio at that
date.
<PAGE> 15
NONINTEREST INCOME. For the third quarter of 1996, total noninterest
income amounted to $404,000, a decrease of $50,000 or 11.0% from $454,000
in the third quarter of 1995. Customer service and other fees decreased by
$67,000 or 17.7% in the third quarter from the same period in 1995.
Customer service and other fees for the 1995 third quarter includes late
charges of $50,000 which were classified as interest income for the third
quarter of 1996. Loan servicing fees amounted to $63,000 this quarter,
compared to $87,000 in the third quarter of 1995 reflecting amortization of
servicing rights on loans originated and sold and a reduction in volume. The
Company had gains on loan sales of $29,000 in the third quarter of 1996,
as compared to losses of $12,000 in the same quarter of 1995.
NONINTEREST EXPENSES. Total noninterest expenses increased by $2.3
million or 55.8% in the third quarter of 1996 to $6.4 million, compared to
$4.1 million in the corresponding quarter of 1995. The significant
components of the change in expenses include a $2.1 million increase in
federal deposit insurance premiums for recapitalization of the SAIF, as
previously mentioned, a $209,000 or 10.2% increase in compensation and
benefits, a $81,000 or 17.2% increase in occupancy and equipment costs, and
a decrease in professional services of $89,000 or 34.5%.
The increase in federal deposit insurance premiums for the third
quarter reflects the 1996 one time charge of the FDIC to fund the SAIF,
Federal's deposit insurer. The increase in compensation and benefits costs
was caused by staff additions, normal salary increases, and increased costs
associated with the Company's 401(k), ESOP and profit sharing plans.
Occupancy expenses increased as a result of higher rental costs,
maintenance of facilities, and depreciation expense. Professional fees
declined as a results of cost savings in the areas of consulting, legal,
and accounting services.
PROVISIONS FOR INCOME TAXES. The provision for income taxes was
$579,000 for the third quarter of 1996, compared to $1.3 million for the
corresponding quarter in 1995. The combined effective tax rate for the
three months ended September 30, 1996 was 30.8% versus 41.4% for the same
period in 1995. The lower effective rate in 1996 reflects a lower state
tax rate applicable to certain subsidiaries of the Company's bank
subsidiaries and an increase in dividend income from preferred stocks. At
September 30, 1996, the net deferred income tax asset amounted to $4.4
million. The primary sources of recovery of the deferred income tax asset
are taxes paid, which are available for carry back, from 1995, 1994, and
1993, and the expectation that the deductible temporary differences will
reverse during periods when the Company generates taxable income.
The Small Business Job Protection Act of 1996 repealed Section 593 of
the Internal Revenue Code relating to the method used by thrift institutions to
calculate bad debt deduction for federal income tax purposes. While both
bank subsidiaries of Affiliated were covered by this Section, it has been
determined that its repeal has no material impact on their financial
results and thus those of Affiliated.
<PAGE> 16
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 AND 1995
GENERAL OPERATING RESULTS. Net income for the nine months ended
September 30, 1996 was $5,824,000 or $1.12 per share, compared to net
income of $5,572,000 or $1.05 per share in the corresponding period of
1995, an increase of $252,000 or 4.5%. Excluding the cost of the previously
noted SAIF recapitalization, Affiliated would have reported net income for
the first nine months of 1996 of $7,060,000 or $1.36 per share, fully
diluted. Such results would have represented a 30% increase in earnings
per share when compared to net income for the first nine months of 1995.
The growth in earnings per share also reflects the effect of the 238,000
share (4.5%) stock buyback program announced in January, 1996 and completed
in February. The current year results also reflects a higher level of net
interest income with only a modest increase in normal operating expenses.
As a result of increased levels of interest earning assets, net interest income
increased by $2,407,000 or 11.7% in the nine month period of 1996 versus
the same period of 1995. Noninterest expense, excluding the SAIF
recapitalization, increased by $465,000 or 3.8% in the nine month period of
1996 compared to the nine month period of 1995. A significant portion of
this $465,000 expense increase resulted from a net cost of $164,000 for other
real estate owned expenses for the nine months of 1996, versus a net gain of
$71,000 for the comparable period of 1995.
The following table sets forth the Company's average balances and net
interest income components for the nine months ended September 30, 1996 and
1995. It includes (i) the average balance sheet for the period, based on
daily average balances; (ii) the total amount of interest earned or paid on
the various categories of interest-earning assets and interest-bearing
liabilities; and (iii) the resulting weighted average yields and costs.
Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
shown except where noted otherwise. In addition, the table reflects the
Company's interest rate spreads and net yields on earning assets. The
average balance of loans receivable includes loans on which the Company has
discontinued accruing interest. The yields and costs include fees which
are considered "adjustments to yield."
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------------------------
1996 1995
------------------------------------- -------------------------------------
(Dollars in thousands)
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans $577,091 $35,586 8.22% $493,247 $30,750 8.31%
-------- -------- ------ -------- -------- ------
Investments:
Investment and mortgage-backed
securities held-to-maturity 177,638 8,623 6.47% 205,927 9,838 6.37%
Investment and mortgage-backed
securities available for sale 150,014 7,400 6.58% 73,306 3,339 6.07%
Federal Home Loan Bank stock 12,373 594 6.40% 9,806 655 8.91%
Federal funds sold 5,811 200 4.59% 7,799 348 5.95%
-------- -------- ------ -------- -------- ------
Total investments 345,836 16,817 6.48% 296,838 14,180 6.37%
-------- -------- ------ -------- -------- ------
Total interest-earning assets 922,927 52,403 7.57% 790,085 44,930 7.58%
-------- -------- ------ -------- -------- ------
Noninterest earning assets 32,840 32,642
Allowance for possible loan losses (7,211) (7,097)
-------- --------
Total assets $948,556 $815,630
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Regular savings, NOW and money
market accounts $235,064 4,600 2.61% $237,776 4,687 2.63%
Certificate accounts 332,766 14,388 5.77% 279,798 11,968 5.70%
Borrowings 239,961 10,389 5.77% 165,326 7,656 6.17%
-------- -------- ------ -------- -------- ------
Total interest-bearing liabilities 807,791 29,377 4.85% 682,900 24,311 4.75%
-------- -------- ------ -------- -------- ------
Noninterest-bearing liabilities:
Demand deposits 34,255 28,822
Other 9,432 7,661
-------- --------
Total liabilities 851,478 719,383
-------- --------
Stockholders' equity 97,078 96,247
-------- --------
Total liabilities and
stockholders' equity $948,556 $815,630
======== ========
Net interest income $23,026 $20,619
======== ========
Interest rate spread 2.72% 2.83%
====== =====
Net yield on earning assets 3.33% 3.48%
====== =====
</TABLE>
<PAGE> 17
INTEREST INCOME. Total interest income increased from $44.9 million in
the nine month period of 1995 to $52.4 million in the same period of 1996,
an increase of 16.6%. The higher level of interest income is chiefly due
to an increased volume of loans and investments available for sale. The
yield on average earning assets was 7.58% in the nine month period of 1995
and 7.57% in the same period of 1996. Average loans outstanding in the
current period amounted to $577.1 million and produced an average yield of
8.22%, as compared to a 1995 average volume of $493.2 million with an
average yield of 8.31%. The average balance of all investment categories
amounted to $345.8 million in the nine month period of 1996 with an average
yield of 6.48% compared to $296.8 million and 6.37%, respectively, in the
comparable period of 1995.
INTEREST EXPENSE. Interest expense in the nine month period of 1996
amounted to $29.4 million, up $5.1 million or 21.0% from $24.3 million in
1995. The significant factors to this increase were higher volumes in
certificate accounts and borrowed funds. The average rate paid on deposits
increased from 4.29% for the nine month period of 1995 to 4.46% for the
comparable period in 1996. Average interest bearing deposit volume
increased to $567.8 million in the nine month period of 1996, up $50.2
million or 9.7% from 1995. Average certificates increased by $53.0 million
or 18.9% in 1996 from the comparable 1995 period. The Company had average
borrowings of $240.0 million for the nine months ended September 30, 1996,
with a related interest expense of $10.4 million, compared to $165.3
million and $7.7 million, respectively, for the nine month period of 1995,
although the average rate paid on such borrowings decreased from 6.17% to
5.77%.
The following table illustrates the extent to which changes in interest
rates and changes in the volumes of interest-earnings assets and interest-
bearing liabilities affected the components of the Company's interest
income and interest expense during the periods indicated. For each
interest related-asset and liability category, information is provided with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in interest
rates (changes in rate multiplied by prior volume), and (iii) the net
change. The changes attributable to the combined impact of both volume and
rates have been allocated proportionately to the change due to volume and
the change due to rates.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 Compared with 1995
Increase (Decrease)
Due to Change in:
Average Average
Volume Rate Total
--------- --------- -------
(Dollars in thousands)
Interest Income:
<S> <C> <C> <C>
Loans $5,166 ($330) $4,836
Investments:
Investment and mortgage-backed
securities held-to-maturity (1,376) 161 (1,215)
Investment and mortgage-backed
securities available-for-sale 3,763 298 4,061
Federal Home Loan Bank stock 819 (880) (61)
Federal funds sold (78) (70) (148)
-------- -------- --------
Total interest income 8,294 (821) 7,473
-------- -------- --------
Interest Expense:
Regular savings, NOW and money
market accounts (53) (34) (87)
Certificate accounts 2,290 130 2,420
-------- -------- --------
Total deposits 2,237 96 2,333
Borrowed funds 3,193 (460) 2,733
-------- -------- --------
Total interest expense 5,430 (364) 5,066
-------- -------- --------
Change in net interest income $2,864 ($457) $2,407
======== ======== ========
</TABLE>
The increase in 1996 year-to-date net interest income was primarily
attributed to volume increases in loans and volume and rate increases in
investment and mortgage-backed securities designated as available for sale.
Volume increases in certificates of deposits and borrowed funds tended to
offset the favorable benefit of volume increases in earning assets.
<PAGE> 18
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses for the nine month period of 1996 amounted to $405,000 versus $300,000
for the nine month period of 1995.
NONINTEREST INCOME. For the nine month period of 1996, total non-
interest income amounted to $1,259,000 down $64,000 or 4.8% from the nine month
period of 1995. Customer service and other fees were down $97,000 or 9.3%
in the nine month period from the same period in 1995 due to decreases in
penalties on early withdrawals, commissions, and certain prior period loan
fee income which is being reported in interest income for the current
period. Loan servicing fees amounted to $225,000 this period, compared to
$238,000 reported in the nine month period of 1995. The Company had gains
on loan sales of $86,000 in the nine month period of 1996, compared to
gains of $7,000 in the same period of 1995. Sales of investments produced
gains of $33,000 in the nine month period of 1995, compared to no gain or
loss during the 1996 period.
NONINTEREST EXPENSES. Total noninterest expense increased by $2.6
million or 21.3% in the nine month period of 1996 to $14.8 million,
compared to $12.2 million in the corresponding period of 1995. The
significant components of the change in expense include a $2,121,000
increase in Federal's federal deposit insurance premiums for
recapitalization of SAIF as previously mentioned, a $236,000 decrease in
Lexington's BIF federal deposit insurance premiums, a $460,000 or 7.3%
increase in compensation and benefits, a $148,000 or 10.5% increase in
occupancy and equipment costs, a decrease in professional services of
$172,000 or 24.2%, an increase in other real estate owned expense of
$235,000 and a $70,000 or 19.2% increase in marketing and promotion costs.
The increase in compensation and benefits costs were caused by staff
additions, normal salary increases, and increased costs associated with the
Company's 401(k), ESOP and profit sharing plans. Occupancy expenses
increased as a result of higher rental costs, maintenance of facilities,
and depreciation expense. Professional fees declined as a result of cost
savings in the areas of consulting, legal, and accounting services. Other
real estate owned expense, a net of $164,000 in the nine month period of
1996, is the result of foreclosure activity. In 1995 there was a net
credit of $71,000 in other real estate owned expenses reflecting gains on
sales of foreclosed property.
PROVISION FOR INCOME TAXES. The provision for income taxes was $3.3
million for the nine month period of 1996, compared to $3.9 million for the
corresponding period in 1995. The combined effective tax rate for the nine
months ended September 30, 1996 was 35.9% versus 41.0% for the same period
in 1995. The lower effective rate in 1996 reflects a lower state tax rate
applicable to certain subsidiaries of the Company's bank subsidiaries and
an increase in dividend income from preferred stocks.
The Small Business Job Protection Act of 1996 repealed Section 593 of
the Internal Revenue Code relating to the method used by thrift insitutions to
calculate bad debt deduction for federal income tax purposes. While both
bank subsidiaries of Affiliated were covered by this Section, it has been
determined that its repeal has no material impact on their financial
results and thus those of Affiliated.
<PAGE> 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and its subsidiaries are not involved in any pending legal
proceedings other than those arising in the ordinary course of the Company's
business. Management believes that the resolution of these matters will not
materially affect the Company's business or the consolidated financial
condition of the Company.
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.
At a meeting of the Board of Directors held on October 17, 1996, the
payment of a cash dividend was declared, providing for payment of $0.15 per
share on November 15, 1996 to holders of record on October 31, 1996.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits: 11.0 -- Computation of per share earnings.
27.0 -- Financial Data Schedule.
b. Reports on Form 8-K: None.
<PAGE> 20
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.
AFFILIATED COMMUNITY BANCORP, INC.
(Registrant)
Date: November 13, 1996 By: /s/ Timothy J. Hansberry
TIMOTHY J. HANSBERRY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ John G. Fallon
JOHN G. FALLON
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
<PAGE> 21
AFFILIATED COMMUNITY BANCORP, INC. EXHIBIT 11.0
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
---------------------- ----------------------
PRIMARY:
<S> <C> <C> <C> <C>
Weighted average shares 5,086,311 5,290,227 5,100,964 5,288,200
ESOP shares not released
or committed to be released (60,676) (71,429) (64,234) (77,381)
--------- --------- --------- ---------
5,025,635 5,218,798 5,036,730 5,210,819
Common stock equivalents:
Stock options 142,224 120,812 123,333 107,691
--------- --------- --------- ---------
Primary weighted average
shares 5,167,859 5,339,610 5,160,063 5,318,510
========= ========= ========= =========
Net income $1,302 $1,893 $5,824 $5,572
========= ========= ========= =========
Earnings per share $0.25 $0.35 $1.13 $1.05
============ ============ ============ ============
FULLY DILUTED:
Weighted average shares 5,086,311 5,290,227 5,100,964 5,288,200
ESOP shares not released or
committed to be released (60,676) (71,429) (64,234) (77,381)
--------- --------- --------- ---------
5,025,635 5,218,798 5,036,730 5,210,819
Common stock equivalents:
Stock options 160,351 124,443 160,129 119,081
--------- --------- --------- ---------
Fully diluted weighted
average shares 5,185,986 5,343,241 5,196,859 5,329,900
========= ========= ========= =========
Net income $1,302 $1,893 $5,824 $5,572
========= ========= ========= =========
Earnings per share $0.24 $0.35 $1.12 $1.05
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,098
<INT-BEARING-DEPOSITS> 9,151
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 169,337
<INVESTMENTS-CARRYING> 175,938
<INVESTMENTS-MARKET> 173,829
<LOANS> 619,488
<ALLOWANCE> 7,386
<TOTAL-ASSETS> 1,005,416
<DEPOSITS> 637,029
<SHORT-TERM> 161,800
<LIABILITIES-OTHER> 8,890
<LONG-TERM> 96,041
<COMMON> 53
0
0
<OTHER-SE> 98,009
<TOTAL-LIABILITIES-AND-EQUITY> 1,005,416
<INTEREST-LOAN> 35,586
<INTEREST-INVEST> 16,617
<INTEREST-OTHER> 200
<INTEREST-TOTAL> 52,403
<INTEREST-DEPOSIT> 18,988
<INTEREST-EXPENSE> 29,377
<INTEREST-INCOME-NET> 23,026
<LOAN-LOSSES> 405
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,790<F1>
<INCOME-PRETAX> 9,090
<INCOME-PRE-EXTRAORDINARY> 9,090
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,824
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.12
<YIELD-ACTUAL> 3.33
<LOANS-NON> 5,108
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,127
<CHARGE-OFFS> 293
<RECOVERIES> 147
<ALLOWANCE-CLOSE> 7,386
<ALLOWANCE-DOMESTIC> 7,386
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>"EXPENSE - OTHER" includes a federally-mandated "SAIF" re-capitalization charge
of $2.1 million. The after-tax effect on income of this one-time charge was
$0.24 per share.
</FN>
</TABLE>
