1
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 December 31, 1996
----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18918
-------------------
Magna Bancorp, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 64-0793093
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 West Front Street, Hattiesburg, MS 39401
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
601-545-4722
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding
January 31, 1997
-------------- ----------------
Common Stock
Par Value $.01 13,741,018
2
MAGNA BANCORP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Financial
Condition......................................3
Condensed Consolidated Statements of Earnings....4
Condensed Consolidated Statements of Cash Flows..5
Notes to Condensed Consolidated Financial
Statements...................................6-7
Independent Auditors' Review Report..............8
Consolidated Summary of Financial Information.......9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.....................................10-14
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K...................15
Signatures.........................................16
3
MAGNA BANCORP, INC.
AND SUBSIDIARIES
----------------
Condensed Consolidated Statements of Financial Condition
--------------------------------------------------------
(UNAUDITED)
Dec. 31, 1996 June 30,1996
------------- ------------
Assets
- ------
Loans receivable....................... $ 905,208,830 863,762,122
Mortgage-backed securities............. 11,583,034 12,727,245
Mortgage-backed securities available
for sale............................. 112,812,566 118,872,676
Mortgage-backed securities held for
trading.............................. 34,929,777 34,486,798
Investment securities.................. 66,602,650 67,485,783
Investment securities available for
sale................................. 7,569,882 7,188,768
Stock in Federal Home Loan Bank of
Dallas............................... 13,928,300 12,027,000
Accrued interest receivable............ 10,839,071 11,059,971
Cash................................... 74,842,948 81,294,510
Real estate owned...................... 12,679,168 10,230,943
Premises and equipment, net............ 44,194,456 43,160,425
Mortgage servicing rights, net......... 9,786,778 5,788,245
Premium on purchased deposits, net..... 5,206,114 6,778,400
Prepaid expenses and other assets...... 31,801,154 33,794,935
------------- -------------
Total assets..................... 1,341,984,728 1,308,657,821
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits............................. 901,413,774 922,370,122
Advances by borrowers for property
taxes, insurance and other......... 12,301,925 11,219,490
Borrowings from Federal Home Loan
Bank of Dallas..................... 262,057,279 221,961,222
Interest payable on deposits......... 1,976,618 5,320,261
Accrued expenses and other
liabilities........................ 33,968,468 21,968,146
------------- -------------
Total liabilities................ 1,211,718,064 1,182,839,241
------------- -------------
Stockholders' equity:
Serial preferred stock, $.01 par
value; authorized 500,000 shares,
not issued and outstanding......... - -
Common stock, $.01 par value;
authorized 14,500,000; issued and
outstanding 13,741,018 shares and
13,702,656 shares.................. 137,410 137,027
Additional paid-in capital........... 18,405,019 18,373,306
Retained earnings, substantially
restricted......................... 112,247,211 109,028,066
Unrealized losses on securities
available for sale, net............ (522,976) (1,719,819)
------------- -------------
Net stockholders' equity......... 130,266,664 125,818,580
------------- -------------
Total liabilities and
stockholders' equity........... $ 1,341,984,728 1,308,657,821
============= =============
- -----------------------------------
See accompanying Notes to Condensed
Consolidated Financial Statements.
4
MAGNA BANCORP, INC.
AND SUBSIDIARIES
----------------
Condensed Consolidated Statements of Earnings
---------------------------------------------
(UNAUDITED)
Three Months Ended Six Months Ended
December 31 December 31
---------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
Interest income:
Loans........................$23,390,279 22,484,636 46,194,825 44,405,019
Mortgage-backed securities... 2,856,038 1,606,220 5,838,188 3,230,695
Investment securities........ 1,395,238 1,587,260 2,805,508 3,176,918
Interest-earning cash
balances................... 57,767 603,888 142,967 1,518,642
Other investments............ 175,479 128,319 345,917 255,447
---------- ---------- ---------- ----------
Total interest income...... 27,874,801 26,410,323 55,327,405 52,586,721
---------- ---------- ---------- ----------
Interest expense:
Deposits..................... 7,856,743 7,772,311 15,769,228 15,461,232
Borrowings from Federal Home
Loan Bank of Dallas........ 3,467,029 2,480,355 6,769,902 4,830,456
---------- ---------- ---------- ----------
Total interest expense..... 11,323,772 10,252,666 22,539,130 20,291,688
---------- ---------- ---------- ----------
Net interest income........ 16,551,029 16,157,657 32,788,275 32,295,033
Provision for possible loan
losses....................... 605,052 310,721 1,337,935 443,319
---------- ---------- ---------- ----------
Net interest income after
provision for possible
loan losses.............. 15,945,977 15,846,936 31,450,340 31,851,714
---------- ---------- ---------- ----------
Non-interest income:
Loan servicing income, net... 3,177,208 3,177,521 6,469,469 6,276,789
Service fees on deposits..... 4,913,704 4,212,041 9,478,475 7,998,027
Other service fees and
commissions................ 484,780 374,530 967,002 709,705
Unrealized holding gains on
trading securities and
loans held for sale, net... 425,318 155,102 341,015 160,708
Gains on sales of assets held
for sale, available for sale
or held for trading, net... 215,076 389,574 565,246 1,102,164
Losses on sales and operation
of real estate owned, net.. (802,839) (593,034) (1,117,553) (726,608)
Insurance fees, commissions
and premiums, net.......... 737,050 701,911 1,405,076 1,462,424
Appraisal fees, net.......... 251,061 313,271 467,930 645,616
Other income, net............ 317,030 718,003 790,761 1,656,285
---------- ---------- ---------- ----------
Net non-interest income.... 9,718,388 9,448,919 19,367,421 19,285,110
---------- ---------- ---------- ----------
General and administrative expenses:
Compensation, payroll taxes
and fringe benefits........ 7,432,519 7,399,449 15,442,590 14,761,922
Rent and other occupancy
expense.................... 1,661,024 1,528,389 3,323,342 3,080,608
Equipment and fixtures
expense.................... 1,202,330 1,179,024 2,207,784 2,214,887
Communication, postage,
printing and office
supplies................... 1,807,429 1,764,010 3,550,843 3,291,753
Deposit and other insurance
premiums................... 638,767 665,726 1,293,617 1,288,143
Special SAIF deposit insurance
assessment................. -- -- 5,917,174 --
Advertising.................. 338,366 813,987 760,290 1,576,125
Expenses of officers, directors
and employees, including
directors' fees............ 441,581 372,028 839,187 795,199
Data processing expense...... 739,675 679,970 1,499,627 1,371,303
Amortization of premium on
purchased deposits......... 759,774 970,726 1,572,286 1,994,190
Professional fees............ 929,286 688,886 1,642,141 1,406,890
Mortgage servicing costs..... 502,495 502,049 1,004,147 1,115,960
Other expenses............... 239,718 257,734 563,957 445,117
---------- ---------- ---------- ----------
Total general and
administrative expenses.. 16,692,964 16,821,978 39,616,985 33,342,097
---------- ---------- ---------- ----------
Earnings before income
taxes.................... 8,971,401 8,473,877 11,200,776 17,794,727
Income tax expense............. 3,380,950 3,270,410 3,859,134 6,876,003
---------- ---------- ---------- ----------
Net earnings...............$ 5,590,451 5,203,467 7,341,642 10,918,724
========== ========== ========== ==========
Earnings per common share...... 0.40 0.37 0.53 0.77
========== ========== ========== ==========
Weighted average number of
common shares outstanding...... 13,881,350 14,111,856 13,878,774 14,122,800
_____________________
See accompanying Notes to Condensed Consolidated
Financial Statements.
5
MAGNA BANCORP, INC.
AND SUBSIDIARIES
----------------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(UNAUDITED)
Six Months Ended
December 31
-------------------------
1996 1995
------ ------
Cash flows from operating activities:
Net earnings......................................$ 7,341,642 10,918,724
Adjustments to reconcile net earnings to net
cash used by operating activities:
Provision for possible loan losses.............. 1,337,935 443,319
Depreciation and amortization................... 4,273,259 4,787,464
Amortization of premium on purchased deposits... 1,572,286 1,994,190
Decrease (increase) in prepaid expenses and
other assets.................................. 1,284,572 (4,429,870)
Increase (decrease) in interest payable and
other liabilities............................. 8,656,679 (10,136,536)
Gains on sales of real estate owned, net........ (1,281,218) (204,856)
Unrealized holding gain on trading securities
and loans held for sale....................... (341,015) (160,708)
Gains on sales of assets held for sale,
available for sale, or held for trading, net.. (565,246) (1,102,164)
Gains on sales of premises and equipment, net... (60,562) (425)
Accretion of deferred fees, discounts and
premiums, net................................. (2,753,924) (2,877,813)
Other, net...................................... 89,432 139,733
Proceeds from sales of assets held for sale or
held for trading................................ 80,899,529 113,432,310
Principal payments on mortgage-backed
securities held for trading..................... 1,422,692 635,619
Purchases of mortgage-backed securities held
for trading..................................... (206,229) (1,164,540)
Origination of loans held for sale................(104,260,594) (130,752,785)
----------- -----------
Net cash used by operating activities....... (2,590,762) (18,478,338)
----------- -----------
Cash flows from investing activities:
Net change in loans held for investment........... (15,018,586) (22,497,793)
Purchases of loans................................ (6,538,722) (22,590,229)
Proceeds from sales of mortgage-backed
securities available for sale................... -- 2,155,965
Proceeds from maturities of investment
securities...................................... 1,165,900 --
Principal payments on investment securities
and mortgage-backed securities.................. 8,460,775 5,113,777
Purchases of investment securities and
mortgage-backed securities held to maturity..... -- (52,750)
Proceeds from sales of real estate owned.......... 2,270,033 2,466,892
Purchases of mortgage servicing rights............ (5,284,606) --
Redemption of stock in Federal Home Loan Bank
of Dallas ...................................... (1,901,300) (95,700)
Proceeds from sales of premises and equipment..... 258,095 53,425
Additions to premises and equipment............... (3,404,132) (5,129,567)
----------- -----------
Net cash used by investing activities....... (19,992,543) (40,575,980)
----------- -----------
Cash flows from financing activities:
Net decrease in deposits.......................... (20,956,348) (3,993,139)
Net increase in advances from
Federal Home Loan Bank of Dallas................ 40,096,057 48,804,223
Issuance of common stock.......................... 34,086 6,460
Repurchase of common stock........................ (2,181) (1,816,795)
Cash dividends paid............................... (4,122,306) (1,393,847)
Increase in advance payments by borrowers for
property taxes, insurance, and other............ 1,082,435 2,404,738
----------- -----------
Net cash provided by financin activities.... 16,131,743 44,011,640
----------- -----------
Net decrease in cash........................ (6,451,562) (15,042,678)
Cash at beginning of period......................... 81,294,510 85,391,455
----------- -----------
Cash at end of period...............................$ 74,842,948 70,348,777
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits, advances and other
borrowings....................................$ 25,327,535 22,644,018
=========== ===========
Income taxes....................................$ 6,802,500 6,600,000
=========== ===========
- ---------------------------------
See accompanying Notes to
Condensed Consolidated Financial Statements.
6
MAGNA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The condensed consolidated statements have been prepared by Magna Bancorp, Inc.
(the "Company") in accordance with the instructions to Form 10-Q without audit.
In the opinion of management, all adjustments (which include normal recurring
adjustments and those related to adoption of new accounting principles)
necessary to present fairly the financial position, results of operations and
cash flows at December 31, 1996 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto for the year ended June 30, 1996 included in the
Company's 1996 Annual Report to Stockholders, attached as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
The results of operations for the six-month period ended December 31, 1996 are
not necessarily indicative of the operating results for the full fiscal year.
Note 2 - Allowance for Possible Loan Losses
The following table summarizes the activity in the allowance for possible loan
losses for the six-month periods ended December 31, 1996 and 1995.
1996 1995
------ ------
Balance at June 30.................... $ 9,451,693 9,213,496
Charge-offs........................... (955,295) (925,815)
Recoveries............................ 103,360 79,455
Provision charged to operations....... 1,337,935 443,319
---------- ----------
Balance at December 31................ $ 9,937,693 8,810,455
========== ==========
Percentage of net chargeoffs during
the period to average loans
outstanding(annualized)............. 0.19% 0.20%
========== ==========
7
Note 3 -- Loans of Concern
At December 31, 1996, the Company had $20,001,041 of loans for which the
accrual of interest has been ceased or reduced. Accruing loans delinquent 90
days or more and loans on which the terms have been modified by reducing
interest rates and/or modifying payment terms under troubled debt
restructurings totaled $15,449,456 and $427,353, respectively, at December 31,
1996.
Note 4 -- Special SAIF Deposit Insurance Assessment
The deposits of savings associations such as Magnolia Federal Bank are insured
by the Savings Association Insurance Fund ("SAIF"), which together with the
Bank Insurance Fund ("BIF"), are the two insurance funds administered by the
Federal Deposit Insurance Corporation ("FDIC"). In 1995, the FDIC recognized
that the BIF was fully capitalized at its statutory reserve ratio and reduced
the premium schedule for BIF insured banks to a rate as low as zero percent in
1996. The SAIF rates, however, were not adjusted because the SAIF had not yet
attained its required reserve ratio. In order to eliminate the disparity
between premiums paid by BIF and SAIF member institutions and any resulting
competitive advantage of BIF-insured institutions over SAIF-insured
institutions, federal legislation was enacted on September 30, 1996 providing
for a one-time special assessment of 0.657% imposed on all SAIF deposits held
as of March 31, 1995 in order to recapitalize the SAIF. The legislation also
provides for the merger of the BIF and the SAIF on January 1, 1999 if no
savings associations then exist. This one-time assessment resulted in a $5.9
million charge to the Company's pretax earnings for the six-month period ended
December 31, 1996. The SAIF recapitalization plan also provides for a
reduction in annual SAIF assessment rates in future periods that will result in
an estimated annual benefit to the Company of $1.5 million before income taxes.
Note 5 -- Stock Dividends
On July 19, 1996, the Company declared a two-for-one stock split in the form of
a 100% stock dividend payable on August 15, 1996. This split increased the
number of shares outstanding from 6,870,509 to 13,741,018. All references to
the number of common shares and per common share amounts in the financial
statements have been adjusted for such stock split.
8
Independent Auditors' Review Report
-----------------------------------
The Board of Directors
Magna Bancorp, Inc.:
We have reviewed the condensed consolidated statement of financial condition of
Magna Bancorp, Inc. and subsidiaries as of December 31, 1996, and the related
condensed consolidated statements of earnings for the three-month and six-month
periods ended December 31, 1996 and 1995 and the related condensed consolidated
statements of cash flows for the six-month periods ended December 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of Magna Bancorp,
Inc. and subsidiaries as of June 30, 1996, and the related consolidated
statements of earnings, stockholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated August 23, 1996, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated statement of financial condition as of June 30,1996, is fairly
stated, in all material respects, in relation to the consolidated statement of
financial condition from which it has been derived.
Jackson, Mississippi /s/KPMG Peat Marwick LLP
-------------------------
January 16, 1997 KPMG PEAT MARWICK LLP
9
MAGNA BANCORP, INC.
AND SUBSIDIARIES
------------------
Consolidated Summary of Financial Information
---------------------------------------------
(UNAUDITED)
At and For the At and For the
Three Months Ended Six Months Ended
------------------ ------------------
12-31-96 12-31-95 12-31-96 12-31-95
-------- -------- -------- --------
(Dollars in millions except per share data)
SELECTED CONSOLIDATED
FINANCIAL CONDITION DATA
------------------------
Total Assets...................... $ 1,342.0 1,204.8 1,342.0 1,204.8
Loans Receivable, net (1)......... 905.2 855.2 905.2 855.2
Deposits.......................... 901.4 913.7 901.4 913.7
Stockholder's equity.............. 130.3 123.7 130.3 123.7
SELECTED CONSOLIDATED
OPERATIONS DATA
---------------
Net interest income............... 16.6 16.2 32.8 32.3
Provision for possible loan
losses........................... 0.6 0.3 1.3 0.4
Non-interest income............... 9.7 9.4 19.4 19.3
Operating expenses, excluding
special SAIF deposit
insurance assessment............ 16.7 16.8 33.7 33.3
Special SAIF deposit insurance
assessment (2).................. -- -- 5.9 --
Net earnings...................... 5.6 5.2 7.3 10.9
PER SHARE DATA
- --------------
Book value per share at end
of period....................... 9.48 8.88 9.48 8.88
Earnings per share................ 0.40 0.37 0.53 0.77
OTHER DATA
- ----------
Yield on average earning assets... 9.77% 9.96% 9.72% 9.92%
Cost of funds..................... 4.67% 4.54% 4.66% 4.51%
Net interest margin (3)........... 5.80% 6.10% 5.76% 6.09%
Annualized return on average
assets, excluding the effect
of the special SAIF deposit
insurance assessment (2)........ 1.72% 1.74% 1.70% 1.83%
Annualized return on average
assets.......................... 1.72% 1.74% 1.14% 1.83%
Annualized return on average
equity, excluding the effect
of the special SAIF deposit
insurance assessment (2)........ 17.46% 17.21% 17.30% 18.40%
Annualized return on average
equity.......................... 17.46% 17.21% 11.55% 18.40%
Efficiency ratio (4).............. 57.58% 58.93% 58.98% 58.40%
Stockholders' equity as a
percentage of total assets...... 9.71% 10.26% 9.71% 10.26%
Non-performing assets as a
percentage of total assets (5).. 2.47% 2.55% 2.47% 2.55%
Dividend payout percentage........ 37.50% 13.51% 56.60% 12.90%
<FN>
- -------------------------------
<F1> (1) Includes loans held for investment and loans held for sale.
<F2> (2) Legislation to recapitalize the Savings Association Insurance Fund
("SAIF") was enacted on September 30, 1996 and required SAIF-insured
savings institutions to pay a one-time special assessment of
approximately 0.657% of deposits.
<F3> (3) Net interest income divided by average interest-earning assets.
<F4> (4) Operating expense, excluding amortization of premium on purchased
deposits and one-time special deposit insurance assessment, divided
by operating income, excluding amortization of mortgage servicing
rights, gain/loss on real estate owned and gain/loss on loans and
securities.
<F5> (5) Non-performing assets, net of unearned discounts, deferred fees,
undisbursed loan funds and specific reserves, consist of non-accruing
loans, troubled debt restructurings and foreclosed real estate.
Non-performing assets do not include accruing loans that are in a
delinquent status.
</FN>
10
MAGNA BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion reviews the financial condition of Magna Bancorp, Inc.
(the "Company") and its wholly-owned subsidiaries, including Magnolia Federal
Bank for Savings (the "Bank"), as of December 31, 1996 and the results of their
operations for the three-month and six-month periods then ended.
Financial Condition
- -------------------
Total consolidated assets of the Company increased $33.3 million, or 2.5%, to
$1.3 billion at December 31, 1996 from June 30, 1996. The expansion of the
Company's loan production capabilities through its retail offices and
broker/correspondent network and the long-term interest rate environment
resulted in the continued growth of the Bank's loan portfolio. The combined
mortgage-backed securities portfolios decreased a net $6.8 million, or 4.1%, to
$159.3 million at December 31, 1996, from $166.1 million at June 30, 1996 as no
new investments were made to replace repayments on these securities. Cash
decreased $6.5 million during the six-month period ended December 31, 1996 to
$74.8 million as excess liquidity was invested in the Company's loan portfolio.
Deposits decreased $21.0 million, or 2.3%, during the six-month period to
$901.4 million at December 31, 1996. Custodial account balances related to
escrow funds held for tax and insurance disbursements decreased $8.7 million
during the six-month period primarily due to sizable property tax disbursements
during the quarter ended December 31, 1996. Borrowings from the Federal Home
Loan Bank of Dallas increased $40.1 million during the six-month period to
provide liquidity for anticipated cash needs and replace the capacity lost from
the deposit outflow. The balance of the Bank's portfolio of loans serviced for
others increased during the period to $3.2 billion as in-house originations
were supplemented by acquisitions of loan servicing from others.
Non-performing assets totaled $33.1 million, or 2.47% of assets, at December
31, 1996, compared to $33.0 million, or 2.52% of assets, at June 30, 1996 and
included non-accruing loans of $20.0 million, troubled debt restructurings of
$427,000 and foreclosed real estate of $12.7 million. Foreclosed real estate
11
increased $2.4 million during the six-month period as a result of increased
single-family foreclosures in the Company's market area. In order to obtain
the highest sales prices and mitigate its losses, the Company makes any needed
repairs before aggressively marketing these properties. Accruing loans
delinquent 90 days or more totaled $15.4 million at December 31, 1996 compared
to $19.5 million at June 30, 1996. The high level of delinquent accruing loans
is primarily attributable to the purchases of high-rate 90-day delinquent
FHA/VA insured/guaranteed loans from the Bank's GNMA mortgage loan servicing
portfolio. The loans are purchased from GNMA pools to eliminate the cost of
advancing funds on these relatively high-rate loans to the security holders as
required by GNMA and result in no increase in risk to the Bank. The decrease
in the accruing delinquent GNMA loans reflects the Company's current strategy
of only repurchasing loans with high yields.
On a quarterly basis the Bank evaluates its loan and real estate portfolios,
reviews its historical loss experience, considers current economic conditions,
and determines the adequacy of the allowance for possible loan losses. The
allowance for possible loan losses was $9.9 million at December 31, 1996,
representing 30.0% of the Bank's non-performing assets and 1.09% of loans
receivable at such date. Real estate loans, net, which accounted for 89.9% of
the Company's loan portfolio, was allocated $8.1 million of the allowance for
possible loan losses. Consumer loans of $92.7 million were allocated an
allowance for possible loan losses of $1.8 million. The $852,000 in net
charge-offs during the period resulted in an annualized net charge-off to
average loans outstanding of 0.19% for the six-month period ended December 31,
1996.
Liquidity and Capital Resources
- -------------------------------
The Bank is required by regulation to maintain minimum levels of liquid assets
(cash and certain investment securities generally having remaining maturities
of less than five years) to meet the funding demands of loan commitments,
deposit withdrawals and other obligations. At December 31, 1996, the Bank's
liquidity ratio (cash and eligible securities as a percentage of net
withdrawable savings and borrowings due within one year) was 9.0%, exceeding
the minimum requirement of 5.0%. The Bank had forward sales commitments of
$15.0 million in mortgage-backed securities at December 31, 1996 and had
designated $50.5 million of loans and $34.9 million in mortgage-backed
securities to serve as the source for meeting such commitments. At December
31, 1996, the Bank had outstanding commitments to originate loans of $53.0
million.
At December 31, 1996, the Company's total stockholders' equity was $130.3
million or $9.48 per share of common stock, compared to $125.8 million at June
30, 1996, or $9.18 per share. The Bank's regulatory capital at December 31,
1996 exceeded the three current minimum requirements as follows:
12
Capital Summary
---------------
(Dollars in thousands)
Capital Actual % of Requirement % of Excess % of
Requirement Amount Assets Amount Assets Amount Assets
- ----------- ------ ------ ----------- ------ ------ ------
Tangible $ 106,035 8.0% $ 20,000 1.5% $ 86,035 6.5%
Core 106,035 8.0 40,001 3.0 66,034 5.0
Risk-based 114,872 16.1 56,999 8.0 57,873 8.1
Results of Operations
- ---------------------
The Company had consolidated net earnings of $7.3 million, or $0.53 per share,
for the six-month period ended December 31, 1996, compared with net earnings of
$10.9 million, or $0.77 per share, for the six-month period ended December 31,
1995. Annualized return on average assets and return on average equity were
1.14% and 11.55%, respectively, for the period, compared to 1.83% and 18.40%
for the same period a year ago. In the period ended December 31, 1996, the
Company recognized a $5.9 million pretax special one-time Savings Association
Insurance Fund ("SAIF") deposit insurance assessment. Legislation to
recapitalize the SAIF of the Federal Deposit Insurance Corporation ("FDIC")
was enacted on September 30, 1996 and required SAIF-insured savings
institutions, such as the Bank, to pay a one-time special assessment of
0.657% of deposits to recapitalize the insurance fund. Declines in future
annual SAIF assessments of approximately $1.5 million will enhance future
earnings and offset the negative impact on the current period's earnings.
Before considering the special assessment, net earnings were $11.0 million, or
$0.79 per share, and annualized return on average assets and return on average
equity were 1.70% and 17.30%, respectively, for the six-month period. Net
earnings for the three-month period ended December 31, 1996 were $5.6 million,
or $0.40 per share, compared to $5.2 million, or $0.37 per share, for the same
period in the prior year.
Net interest income increased $493,000, or 1.5%, to $32.8 million for the
six-month period ended December 31, 1996, compared to $32.3 million for the
six-month period ended December 31, 1995. Net interest margin for the six-
month period ended December 31, 1996 declined to 5.76% from 6.09% for the same
period a year ago. Interest income increased $2.7 million, or 5.2%, for the
six-month period ended December 31, 1996, compared with the prior period as a
result of an increase in average interest-earning asset balances. Interest
expense increased $2.2 million reflecting an increase in short-term market
interest rates as well as an increase in the average balance of non-deposit
13
borrowings. The Bank's average cost of funds was 4.66% for the six-month
period ended December 31, 1996, compared to 4.51% for the same period in the
prior year.
Net interest income for the three-month period ended December 31, 1996
increased $393,000, or 2.4%, compared to the same period a year ago. Interest
income increased $1.5 million, or 5.6%, in the three-month period ended
December 31, 1996, compared to the three-month period ended December 31, 1995,
reflecting the earnings impact of higher interest-earning balances offset
somewhat by the decreased yield on those balances. Interest expense increased
$1.1 million, or 10.5%, for the same period from the combined effect of an
increase in interest-bearing liabilities and a higher average cost of funds
rate resulting primarily from an increase in the average balance of non-deposit
borrowings.
The provision for possible loan losses was $1.3 million for the six-month
period ended December 31, 1996 and $605,000 for the three-month period then
ended, compared to $443,000 and $311,000, respectively, in the same periods the
prior year. Only minor provisions were made for the prior period ended
December 31, 1995 due to the credit quality of the Company's loan portfolio and
economic conditions in the Bank's market area at that time. Current provisions
were required due to increases in the balance of the loan portfolio, the higher
level of consumer loan delinquencies and charge-offs, and general economic
conditions in the Bank's market area. The provision for possible loan losses
is based on management's continued evaluation of the real estate loan and
consumer loan portfolio and the potential impact of the local and national
economies. It reflects management's on-going strategy to maintain the general
loan loss allowance at an appropriate level designed to help insulate the Bank
against potential future losses. Although management uses available
information to recognize possible loan losses and to determine that the
carrying value of real estate owned does not exceed its fair market value,
future additions to the allowance or future writedowns to real estate owned
may be necessary based on changes in economic or market conditions.
Non-interest income increased slightly to $19.4 million for the six-month
period ended December 31, 1996, from $19.3 million for the same period a year
ago. With the lower volume of loan refinancings in recent months, decreases
in insurance commissions, appraisal fees and other sources of income related
to loan closings were experienced in the 1996 period compared to the comparable
1995 period. Similarly, gains on the sale of loans and securities decreased
$537,000 due to decreased sales activity of newly originated, aggressively-
priced, secondary-market loans. Loan servicing income, which was reported net
of amortization of purchased mortgage servicing rights of $1.7 million and
originated servicing rights of $380,000, increased $193,000, compared to the
same period in 1995. Service fees on deposits increased $1.5 million, compared
to the same period a year ago due to an increase in the number of checking
accounts to 157,000 at December 31, 1996 from 149,000 at December 31, 1995.
14
Fluctuations in long-term market interest rates during the six-month period
impacted the market value of the increased loan and securities portfolios. The
Company recorded an unrealized gain of $341,000 on trading securities and loans
held for sale in the six-month period ended December 31, 1996 compared to a
$161,000 unrealized gain recorded in the same period a year ago. The volume of
asset sales also declined to $80.9 million in the 1996 period from $113.4
million in the 1995 period which, along with market fluctuations, contributed
to a decline in net gains on sales of assets held for sale, available for sale
or held for trading to $565,000 in the 1996 period from $1.1 million in the
same period a year ago. Net losses on sales and operations of real estate
owned increased $391,000, or 53.8%, primarily due to the increased number of
properties in the process of being refurbished prior to being marketed for
sale.
Similarly, non-interest income increased $269,000, or 2.9%, in the three-month
period ended December 31, 1996 compared to the three-month period ended
December 31, 1995. Increases in service fees on deposits and unrealized gains
on assets held for sale or trading were offset by increased losses on sales and
operations of real estate owned and decreases in other income and realized
gains on sale of assets for the three-month period ended December 31, 1996.
General and administrative expenses increased $6.3 million, or 18.8%, to $39.6
million for the six-month period ended December 31, 1996, compared to $33.3
million for the same period in the prior year. However, excluding the $5.9
million expense related to the special SAIF deposit insurance assessment,
general and administrative expenses increased only $358,000, or 1.1%, to $33.7
million from the same period a year ago. Compensation expense, the primary
source of the increase in recurring expenses, increased $681,000, or 4.6%, from
the six-month period ended December 31, 1995, primarily due to the higher cost
of expanded employee benefits offered by the Bank to its employees.
The increase in rent and other occupancy costs of $243,000 include expenses of
a recently renovated ten-story corporate office building. Marketing expenses
primarily related to checking account promotions, decreased $816,000 from the
six-month period ended December 31, 1995 as the Company focused on more
targeted marketing campaigns. Data processing expense increased $128,000
compared to the prior year period primarily due to costs related to the
outsourcing of the Company's mortgage loan data processing without benefit of
full displacement of corresponding in-house data processing expenses. The
three-month period ended December 31, 1996 reflected similar trends in
advertising, rent and other occupancy expense and data processing compared to
the same period in the prior year. Professional fees increased $240,000 in the
period compared to the same period the prior year due to expenses of special
consulting services recently utilized by the Company.
15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement re: computation of per share
earnings
Exhibit 15 - Letter re: unaudited interim financial
information
Exhibit 27 - Financial Data Schedule
(b) No Form 8-Ks were filed during the period covered by this
report.
16
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.
MAGNA BANCORP, INC.
------------------------------
Registrant
DATE: February 13, 1997 BY:/s/ LOU ANN POYNTER
----------------- ------------------------------
LOU ANN POYNTER, President
DATE: February 13, 1997 BY:/s/KAREN K. GRIFFIS
----------------- ------------------------------
KAREN K. GRIFFIS, Treasurer
17
INDEX TO EXHIBITS
Exhibit Number
--------------
11 Statement re: computation of per share
earnings
15 Letter re: unaudited interim financial
information
27 Financial Data Schedule
EXHIBIT 11
MAGNA BANCORP, INC.
AND SUBSIDIARIES
Computation of Per Share Earnings
(UNAUDITED)
For the Three For the Six
Months Ended Months Ended
--------------------- ---------------------
12-31-96 12-31-95 12-31-96 12-31-95
-------- -------- -------- --------
Weighted average number of
shares outstanding.......... 13,741,018 13,939,204 13,741,011 14,062,340
Common stock equivalents:
Stock options............. 132,384 183,516 132,593 183,832
Shares issuable under
compensation plan...... 7,948 -- 5,371 --
Common stock repurchased.... -- (10,864) (201) (123,372)
Weighted average shares,
primary and fully diluted. 13,881,350 14,111,856 13,878,774 14,122,800
Computation of net earnings
per share:
Net earnings.............. 5,590,451 5,203,467 7,341,426 10,918,724
Earnings per share,
primary and fully
diluted................. 0.40 0.37 0.53 0.77
EXHIBIT 15
Magna Bancorp, Inc.
Hattiesburg, Mississippi
Members of the Board:
Re: December 31, 1996 Quarterly Report of Form 10-Q
With respect to the subject Quarterly Report, we acknowledge our awareness of
the use therein of our report dated January 16, 1997 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act, such report is not considered
a part of a Registration Statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of Sections 7
and 11 of the Act.
Very truly yours,
/s/KPMG PEAT MARWICK LLP
------------------------
KPMG Peat Marwick LLP
Jackson, Mississippi
February 7, 1997