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 March 31, 1997
----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18918
-------------------
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
Common Stock April 30, 1997
-------------- ----------------
Par Value $.01 13,754,266
The index to exhibits is located on page 18.
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.....................................10-15
PART II. OTHER INFORMATION
Other Information..................................16
Exhibits and Reports on Form 8-K...................16
Signatures.........................................17
3
MAGNA BANCORP, INC.
AND SUBSIDIARIES
----------------
Condensed Consolidated Statements of Financial Condition
--------------------------------------------------------
(UNAUDITED)
March 31, 1997 June 30,1996
-------------- ------------
Assets
- ------
Loans receivable....................... $ 901,656,431 863,762,122
Mortgage-backed securities............. 11,028,875 12,727,245
Mortgage-backed securities available
for sale............................. 124,045,662 118,872,676
Mortgage-backed securities held for
trading.............................. 42,744,724 34,486,798
Investment securities.................. 58,645,174 67,485,783
Investment securities available for
sale................................. 14,912,579 7,188,768
Investment securities held for
trading.............................. 2,551,500 -
Stock in Federal Home Loan Bank of
Dallas............................... 15,398,318 12,027,000
Accrued interest receivable............ 10,769,775 11,059,971
Cash................................... 99,625,048 81,294,510
Real estate owned...................... 11,277,635 10,230,943
Premises and equipment, net............ 44,837,341 43,160,425
Mortgage servicing rights, net......... 8,821,180 5,788,245
Premium on purchased deposits, net..... 4,331,418 6,778,400
Prepaid expenses and other assets...... 32,484,495 33,794,935
------------- -------------
Total assets..................... $ 1,383,130,155 1,308,657,821
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits............................. $ 911,654,605 922,370,122
Advances by borrowers for property
taxes, insurance and other......... 8,380,589 11,219,490
Borrowings from Federal Home Loan
Bank of Dallas..................... 296,508,958 221,961,222
Interest payable on deposits......... 3,716,487 5,320,261
Accrued expenses and other
liabilities........................ 30,624,059 21,968,146
------------- -------------
Total liabilities................ 1,250,884,698 1,182,839,241
------------- -------------
Stockholders' equity:
Serial preferred stock, $.01 par
value; authorized 500,000 shares,
none issued and outstanding........ - -
Common stock, $.01 par value;
authorized 14,500,000; issued and
outstanding 13,754,266 shares and
13,702,656 shares.................. 137,543 137,027
Additional paid-in capital........... 18,416,617 18,373,306
Retained earnings, substantially
restricted......................... 115,944,377 109,028,066
Unrealized losses on securities
available for sale, net............ (2,253,080) (1,719,819)
------------- -------------
Net stockholders' equity......... 132,245,457 125,818,580
------------- -------------
Total liabilities and
stockholders' equity........... $ 1,383,130,155 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 Nine Months Ended
March 31 March 31
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
Interest income:
Loans........................$23,116,613 22,791,841 69,311,438 67,196,860
Mortgage-backed securities... 3,222,373 1,682,103 9,060,561 4,912,798
Investment securities........ 1,280,966 1,527,069 4,086,474 4,703,987
Interest-earning cash
balances................... 111,282 117,096 254,249 1,635,738
Other investments............ 221,840 127,780 567,757 383,227
---------- ---------- ---------- ----------
Total interest income...... 27,953,074 26,245,889 83,280,479 78,832,610
---------- ---------- ---------- ----------
Interest expense:
Deposits..................... 7,696,597 7,872,541 23,465,825 23,333,773
Borrowings from Federal Home
Loan Bank of Dallas........ 4,082,086 2,502,083 10,851,988 7,332,539
---------- ---------- ---------- ----------
Total interest expense..... 11,778,683 10,374,624 34,317,813 30,666,312
---------- ---------- ---------- ----------
Net interest income........ 16,174,391 15,871,265 48,962,666 48,166,298
Provision for possible loan
losses....................... 996,165 595,464 2,334,100 1,038,783
---------- ---------- ---------- ----------
Net interest income after
provision for possible
loan losses.............. 15,178,226 15,275,801 46,628,566 47,127,515
---------- ---------- ---------- ----------
Non-interest income:
Loan servicing income, net... 2,856,870 3,086,102 9,326,339 9,362,891
Service fees on deposits..... 4,453,926 4,064,228 13,932,401 12,062,255
Other service fees and
commissions................ 464,668 545,472 1,431,670 1,255,177
Unrealized holding gains
(losses) on trading
securities and loans held
for sale, net.............. (36,583) (825,042) 304,432 (664,334)
Gains(losses)on sales of
assets held for sale,
available for sale or held
for trading, net........... 166,915 (62,719) 732,161 1,039,445
Losses on sales and operation
of real estate owned, net.. (123,153) (438,781) (1,240,706) (1,165,389)
Insurance fees, commissions
and premiums, net.......... 649,603 633,948 2,054,679 2,096,372
Appraisal fees, net.......... 233,267 302,921 701,197 948,537
Other income, net............ 337,686 756,577 1,128,447 2,412,862
---------- ---------- ---------- ----------
Net non-interest income.... 9,003,199 8,062,706 28,370,620 27,347,816
---------- ---------- ---------- ----------
General and administrative expenses:
Compensation, payroll taxes
and fringe benefits........ 7,416,633 7,959,035 22,859,223 22,720,957
Rent and other occupancy
expense.................... 1,367,990 1,354,105 4,691,332 4,434,713
Equipment and fixtures
expense.................... 1,219,162 1,121,259 3,426,946 3,336,146
Communication, postage,
printing and office
supplies................... 1,518,274 1,521,900 5,069,117 4,813,653
Deposit and other insurance
premiums................... 148,120 631,264 1,441,737 1,919,407
Special SAIF deposit insurance
assessment................. - - 5,917,174 -
Advertising.................. 278,842 338,585 1,039,132 1,914,710
Expenses of officers, directors
and employees, including
directors' fees............ 394,568 381,201 1,233,755 1,176,400
Data processing expense...... 754,641 906,365 2,254,268 2,277,668
Amortization of premium on
purchased deposits......... 688,671 896,546 2,260,957 2,890,736
Professional fees............ 697,198 832,502 2,339,339 2,239,392
Mortgage servicing costs..... 505,922 440,656 1,510,069 1,556,616
Other expenses............... 233,099 474,352 797,056 919,469
---------- ---------- ---------- ----------
Total general and
administrative expenses.. 15,223,120 16,857,770 54,840,105 50,199,867
---------- ---------- ---------- ----------
Earnings before income
taxes.................... 8,958,305 6,480,737 20,159,081 24,275,464
Income tax expense............. 3,438,944 1,736,001 7,298,078 8,612,004
---------- ---------- ---------- ----------
Net earnings...............$ 5,519,361 4,744,736 12,861,003 15,663,460
========== ========== ========== ==========
Earnings per common share......$ 0.40 0.34 0.93 1.11
========== ========== ========== ==========
Weighted average number of
common shares outstanding...... 13,883,586 14,101,530 13,880,355 14,115,762
_____________________
See accompanying Notes to Condensed Consolidated
Financial Statements.
5
MAGNA BANCORP, INC.
AND SUBSIDIARIES
----------------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(UNAUDITED)
Nine Months Ended
March 31
-------------------------
1997 1996
Cash flows from operating activities:
Net earnings......................................$ 12,861,003 15,663,460
Adjustments to reconcile net earnings to net
cash used by operating activities:
Provision for possible loan losses.............. 2,334,100 1,038,783
Depreciation and amortization................... 6,865,188 7,058,723
Amortization of premium on purchased deposits... 2,260,957 2,890,736
Decrease (increase) in prepaid expenses and
other assets.................................. 1,688,196 (11,075,704)
Increase (decrease) in interest payable and
other liabilities............................. 7,052,139 (10,059,659)
Gains on sales of real estate owned, net........ (1,981,085) (410,790)
Unrealized holding losses (gains) on
trading securities and loans held for sale.... (304,432) 664,334
Gains on sales of assets held for sale,
available for sale, or held for trading, net.. (732,161) (1,039,445)
Gains on sales of premises and equipment, net... (115,707) (816)
Accretion of deferred fees, discounts and
premiums, net................................. (4,044,922) (4,343,102)
Other, net...................................... 531,692 (140,469)
Proceeds from sales of assets held for sale or
held for trading................................ 114,112,929 145,474,792
Principal payments on mortgage-backed
securities held for trading..................... 2,567,539 1,242,982
Purchases of mortgage-backed securities held
for trading..................................... (2,042,145) (3,198,603)
Origination of loans held for sale................(164,684,277) (189,942,019)
----------- -----------
Net cash used by operating activities....... (23,630,986) (46,176,797)
----------- -----------
Cash flows from investing activities:
Net change in loans held for investment........... (6,602,254) (57,412,956)
Purchases of loans................................ (9,605,965) (30,365,936)
Proceeds from sales of mortgage-backed
securities available for sale................... - 2,155,965
Proceeds from maturities of investment
securities...................................... 9,276,500 9,050,000
Principal payments on investment securities
and mortgage-backed securities.................. 12,468,529 7,716,810
Purchases of investment securities and
mortgage-backed securities available for sale... (8,222,409) (20,788,875)
Purchases of investment securities and
mortgage-backed securities held to maturity..... - (1,116,235)
Proceeds from sales of real estate owned.......... 3,478,240 3,512,161
Purchases of mortgage servicing rights............ (5,287,479) -
Purchases of stock in Federal Home Loan Bank
of Dallas ...................................... (3,371,318) (2,146,800)
Proceeds from sales of premises and equipment..... 521,922 55,944
Additions to premises and equipment............... (5,547,737) (7,431,557)
----------- -----------
Net cash used by investing activities....... (12,891,971) (96,771,479)
----------- -----------
Cash flows from financing activities:
Net increase(decrease) in deposits................ (10,715,517) 34,629,391
Net increase in borrowings from
Federal Home Loan Bank of Dallas................ 74,547,736 92,890,217
Issuance of common stock.......................... 45,816 6,460
Repurchase of common stock........................ (2,181) (1,829,197)
Cash dividends paid............................... (6,183,458) (2,437,759)
Increase(decrease) in advance payments by
borrowers for property taxes, insurance
and other....................................... (2,838,901) 3,138,005
----------- -----------
Net cash provided by financing activities... 54,853,495 126,397,117
----------- -----------
Net increase(decrease) in cash.............. 18,330,538 (16,551,159)
Cash at beginning of period......................... 81,294,510 85,391,455
----------- -----------
Cash at end of period...............................$ 99,625,048 68,840,296
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings from
Federal Home Loan Bank of Dallas................$ 35,631,952 31,256,866
=========== ===========
Income taxes....................................$ 10,202,500 10,391,200
=========== ===========
- ---------------------------------
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 financial 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 March 31, 1997 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 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 nine-month period ended March 31,
1997 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 nine-month periods ended March 31, 1997 and 1996.
1997 1996
-------- --------
Balance at beginning of fiscal year... $ 9,451,693 9,213,496
Charge-offs........................... (1,795,005) (1,214,461)
Recoveries............................ 189,905 113,875
Provision charged to operations....... 2,334,100 1,038,783
---------- ----------
Balance at March 31................... $10,180,693 9,151,693
========== ==========
Percentage of net charge-offs during
the period to average loans
outstanding(annualized)............. 0.24% 0.17%
========== ==========
7
Note 3 - Loans of Concern
At March 31, 1997, the Company had $20,812,280 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 $12,571,389 and $333,059, respectively, at March 31,
1997.
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 nine-month period
ended March 31, 1997. 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 March 31, 1997, and the related
condensed consolidated statements of earnings for the three-month and nine-
month periods ended March 31, 1997 and 1996 and the related condensed
consolidated statements of cash flows for the nine-month periods ended March
31, 1997 and 1996. 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 KPMG Peat Marwick LLP
April 17, 1997
9
MAGNA BANCORP, INC.
AND SUBSIDIARIES
-------------------
Consolidated Summary of Financial Information
---------------------------------------------
(UNAUDITED)
At and For the Three At and For the Nine
Months Ended March 31 Months Ended March 31
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(Dollars in millions except per share data)
SELECTED CONSOLIDATED
FINANCIAL CONDITION DATA
------------------------
Total assets..................... $ 1,383.1 1,290.8 1,383.1 1,290.8
Loans receivable, net (1)........ 901.7 896.7 901.7 896.7
Deposits......................... 911.7 952.3 911.7 952.3
Stockholders' equity............. 132.2 126.1 132.2 126.1
SELECTED CONSOLIDATED
OPERATIONS DATA
---------------
Net interest income.............. 16.2 15.9 49.0 48.2
Provision for possible loan
losses.......................... 1.0 0.6 2.3 1.0
Non-interest income.............. 9.0 8.1 28.4 27.3
Operating expenses, excluding
special SAIF deposit
insurance assessment............ 15.2 16.9 48.9 50.2
Special SAIF deposit insurance
assessment (2).................. - - 5.9 -
Net earnings..................... 5.5 4.7 12.9 15.7
PER SHARE DATA
- --------------
Book value per share at end
of period....................... 9.61 9.06 9.61 9.06
Earnings per share............... 0.40 0.34 0.93 1.11
OTHER DATA
- ----------
Yield on average interest-earning
assets.......................... 9.52% 9.84% 9.65% 9.89%
Cost of funds.................... 4.58% 4.52% 4.63% 4.52%
Net interest margin (3).......... 5.51% 5.95% 5.67% 6.04%
Annualized return on average
assets, excluding the effect
of the special SAIF deposit
insurance assessment (2)........ 1.63% 1.55% 1.68% 1.74%
Annualized return on average
assets.......................... 1.63% 1.55% 1.31% 1.74%
Annualized return on average
equity, excluding the effect
of the special SAIF deposit
insurance assessment (2)........ 16.85% 15.20% 17.15% 17.31%
Annualized return on average
equity.......................... 16.85% 15.20% 13.36% 17.31%
Efficiency ratio (4)............. 54.91% 60.53% 57.65% 59.10%
Stockholders' equity as a
percentage of total assets...... 9.56% 9.77% 9.56% 9.77%
Non-performing assets as a
percentage of total assets (5).. 2.34% 2.56% 2.34% 2.56%
Dividend payout percentage....... 37.50% 14.93% 48.39% 13.51%
<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 expenses, 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 March 31, 1997 and the results of
operations for the three- and nine-month periods then ended.
Forward-Looking Statements
- --------------------------
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", "believe" or similar expressions are intended to identify "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the
date made, and to advise readers that various factors, including regional and
national economic conditions, changes in levels of market interest rates,
credit risks of lending activities, and competitive and regulatory factors,
could affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from those anticipated
or projected.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect the occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.
Financial Condition
- -------------------
Total consolidated assets of the Company increased $74.5 million, or 5.7%, to
$1.4 billion at March 31, 1997, compared to $1.3 billion at June 30, 1996.
This increase was primarily due to an increase in the amount of loans
receivable of $37.9 million, or 4.4%, to $901.7 million at March 31, 1997 from
$863.8 million at June 30, 1996. The expansion of the Company's loan
production capabilities through its retail offices and broker/correspondent
network and the favorable long-
11
term interest rate environment resulted in the continued growth of the Bank's
loan portfolio. The combined mortgage-backed securities portfolios increased
a net $11.7 million, or 7.1%, to $177.8 million at March 31, 1997 from $166.1
million at June 30, 1996 as a large volume of newly originated, fixed-rate,
15-year loans were packaged and transferred to the mortgage-backed securities
portfolio during the current quarter. Cash also increased $18.3 million during
the nine-month period ended March 31, 1997 to $99.6 million in order to
maintain minimum regulatory levels of liquid assets in anticipation of short-
term liquidity needs.
Deposits decreased $10.7 million, or 1.2%, during the nine-month period to
$911.7 million at March 31, 1997. This decrease is primarily attributable to
the Company's sale of $5.8 million of deposits related to a branch outside the
Bank's primary market area. Advances and other short-term borrowings from the
Federal Home Loan Bank of Dallas increased $74.5 million during the nine-month
period to provide liquidity for anticipated cash needs and funding for the
Company's increased loan and mortgage-backed securities portfolios. The
balance of the Bank's portfolio of loans serviced for others increased slightly
during the period to $3.2 billion, as in-house originations were supplemented
by acquisitions of loan servicing from others.
Non-performing assets totaled $32.4 million, or 2.34% of assets, at March 31,
1997, compared to $33.0 million, or 2.52% of assets, at June 30, 1996 and
included non-accruing loans of $20.8 million, troubled debt restructurings of
$333,000, and foreclosed real estate of $11.3 million. Foreclosed real estate
increased $1.0 million during the nine-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 decreased to $12.6 million at March 31, 1997,
compared to $19.5 million at June 30, 1996, primarily as a result of the
Company reducing the number of 90-day delinquent FHA/VA insured/guaranteed
loans purchased from the Bank's GNMA mortgage loan servicing portfolio.
Accruing delinquent loans of $11.6 million were 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.
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 $10.2 million at March 31, 1997,
representing 31.4% of the Bank's non-performing assets and 1.12% of loans
receivable at such date. Real estate loans, net, which accounted for 90.0% of
the Company's loan portfolio, were allocated $8.5 million of the allowance for
possible loan losses. Consumer loans of $91.2 million were allocated an
allowance for possible loan losses of $1.7
12
million. The $1.6 million in net charge-offs during the period resulted in an
annualized net charge-off to average loans outstanding of 0.24% for the nine-
month period ended March 31, 1997.
Liquidity and Capital Resources
- -------------------------------
The Bank is required by regulations 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 March 31, 1997, the Bank's
liquidity ratio (cash and eligible securities as a percentage of net
withdrawable savings and borrowings due within one year) was 9.4%, exceeding
the minimum requirement of 5.0%. The Bank had forward sales commitments of
$15.3 million in mortgage-backed securities at March 31, 1997 and had
designated $17.3 million of loans and $42.7 million in mortgage-backed
securities to serve as the source for meeting such commitments. At March 31,
1997, the Bank had outstanding commitments to originate loans of $43.6 million.
At March 31, 1997, the Company's total stockholders' equity was $132.2 million
or $9.61 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 March 31, 1997
exceeds the three current minimum requirements of the Office of Thrift
Supervision as follows:
Capital Summary
---------------
(Dollars in thousands)
Capital Actual % of Requirement % of Excess % of
Requirement Amount Assets Amount Assets Amount Assets
- ----------- ------ ------ ----------- ------ ------ ------
Tangible $ 109,658 8.02% $ 20,511 1.50% $ 89,147 6.52%
Core 109,658 8.02% 41,022 3.00% 68,636 5.02%
Risk-based 118,608 16.45% 57,693 8.00% 60,915 8.45%
Results of Operations
- ---------------------
The Company had consolidated net earnings of $12.9 million, or $0.93 per share,
for the nine-month period ended March 31, 1997, compared to net earnings of
$15.7 million, or $1.11 per share, for the nine-month period ended March 31,
13
1996. In the period ended March 31, 1997, the Company recognized a $5.9
million special pretax 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 held as of March 31, 1995 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 $16.5 million, or $1.19 per share, and
annualized return on average assets and return on average equity were 1.68%
and 17.15%, respectively, for the current nine-month period. Net earnings for
the three-month period ended March 31, 1997 were $5.5 million, or $0.40 per
share, compared to $4.7 million, or $0.34 per share, for the same period in the
prior year.
Net interest income increased $796,000, or 1.7%, to $49.0 million for the
nine-month period ended March 31, 1997, compared to $48.2 million for the nine-
month period ended March 31, 1996. Net interest margin for the nine-month
period ended March 31, 1997 declined to 5.67% from 6.04% for the same period
a year ago. Interest income increased $4.4 million, or 5.6%, for the nine-
month period ended March 31, 1997, compared to the prior period as a result of
increases in average interest-earning asset balances. Interest expense
increased $3.7 million, reflecting increases in the average balances of non-
deposit borrowings. The Bank's average cost of funds was 4.63% for the nine-
month period ended March 31, 1997, compared to 4.52% for the same period in the
prior year.
Net interest income for the three-month period ended March 31, 1997 increased
$303,000, or 1.9%, compared to the same period a year ago. Interest income
increased $1.7 million, or 6.5%, for the three-month period ended March 31,
1997, compared to the three-month period ended March 31, 1996 due to increased
interest-earning balances. However, interest expense increased $1.4 million,
or 13.5%, for the same period primarily due to the increased dependence on
non-deposit borrowings.
The provision for possible loan losses was $2.3 million for the nine-month
period ended March 31, 1997 and $1.0 million for the three-month period then
ended, compared to $1.0 million and $600,000, respectively, for the same
periods during the prior year. Only minor provisions were made for the periods
ended March 31, 1996 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 the increase in the Company's loan portfolio
and the higher level of consumer loan delinquencies and charge-offs. The
provision for possible loan losses is based on management's continued
evaluation of the real estate and consumer loan portfolios and the potential
impact of the local and national
14
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 to $28.4 million for the nine-month period ended
March 31, 1997 from $27.3 million for the same period a year ago. Service fees
on deposits increased $1.9 million during the nine-month period ended March 31,
1997, compared to the same period a year earlier due to an increase in the
number of checking accounts to 160,000 at March 31, 1997 from 154,000 at March
31, 1996. Due to fluctuations in long-term market interest rates during the
period, the Company recorded an unrealized gain of $304,000 on trading
securities and loans held for sale compared to a $664,000 unrealized loss
recorded for the same period a year ago. Net losses on sales and operations
of real estate owned ("REO") increased slightly for the nine-month period ended
March 31, 1997 to $1.2 million, compared to the same period ended March 31,
1996. Year-to-date expenses on REO increased mainly because of the increased
number of recently foreclosed assets in process of being repaired before being
made available for sale. Appraisal fees and other net loan fee income
decreased, compared to the prior year period, primarily due to a decreased
volume of loan originations in the current period. Loan servicing income,
which was reported net of $2.8 million in amortization of purchased mortgage
servicing rights and $600,000 in amortization of originated servicing rights
was unchanged, compared to the same period in 1996.
Non-interest income increased $940,000, or 11.7%, for the three-month period
ended March 31, 1997, compared to the three-month period ended March 31, 1996,
principally due to significant reductions in net unrealized losses on assets
held for sale or trading to $37,000 in the current quarter, compared to
$825,000 in the prior year quarter. Net losses on sales and operations of real
estate owned were $123,000 in the current three-month period, compared to
$439,000 in the prior year period, reflecting increased sales of foreclosed
properties at higher prices relative to the carrying value of such properties.
Increases in realized gains on sale of assets held for sale or trading and
service fees on deposits were offset by decreased loan servicing income,
appraisal fees, and other income.
General and administrative expenses increased $4.6 million, or 9.2%, to $54.8
million for the nine-month period ended March 31, 1997, compared to $50.2
million for the same period in the prior year. Excluding the $5.9 million
expense related to the special SAIF deposit insurance assessment, general and
administrative expenses decreased $1.3 million, or 2.5%, to $48.9 million from
the same period a year ago. Marketing expenses primarily related to checking
account
15
promotions, decreased $876,000 from the nine-month period ended March 31, 1996
as the Company focused on more targeted marketing campaigns. The increase in
rent and other occupancy costs of $257,000 includes expenses of a recently
renovated ten-story corporate office building. The three-month period ended
March 31, 1997 reflected a decrease in compensation cost to $7.4 million,
compared to $8.0 million in the 1996 quarter due to a reduction in the number
of employees and the number of overtime hours worked.
Income tax expense for the three- and nine-month periods ended March 31, 1997
reflected higher effective tax rates than the rates for the same periods of the
prior year. Taxes in the prior year included the reversal of expected income
tax due as a result of the Company's settlement of pending tax issues
associated with return filings of prior years.
16
PART II. OTHER INFORMATION
Item 5. Other Information
As previously announced, on May 8, 1997, the Company entered into
a definitive agreement to be acquired by Union Planters Corp.
("Union Planters"). Under the terms of the definitive agreement,
holders of the Company's common stock will receive approximately
0.5165 shares of the common stock of Union Planters for each
share of the Company's common stock held.
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.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
MAGNA BANCORP, INC.
------------------------------
Registrant
DATE: May 12, 1997 BY:/s/ LOU ANN POYNTER
-------------------- ------------------------------
LOU ANN POYNTER, President
DATE: May 12, 1997 BY:/s/KAREN K. GRIFFIS
-------------------- ------------------------------
KAREN K. GRIFFIS, Treasurer
18
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 Months For the Nine Months
Ended March 31 Ended March 31
---------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
Weighted average number of
shares outstanding......... 13,747,789 13,919,050 13,743,303 14,062,628
Common stock equivalents
Stock Options.............. 125,613 182,880 130,300 183,516
Shares issuable under
compensation plan........ 10,184 - 6,953 -
Common stock repurchased.... - (400) (201) (130,382)
---------- ---------- ---------- ----------
Weighted average shares,
primary and fully
diluted.................... 13,883,586 14,101,530 13,880,355 14,115,762
========== ========== ========== ==========
Computation of net earnings
per share:
Net earnings...............$ 5,519,361 4,744,736 12,861,003 15,663,460
========== ========== ========== ==========
Earnings per share,
primary and fully
diluted..................$ 0.40 0.34 0.93 1.11
========== ========== ========== ==========
EXHIBIT 15
Magna Bancorp, Inc.
Hattiesburg, Mississippi
Members of the Board:
Re: March 31, 1997 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 April 17, 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
May 13, 1997