FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
MARK ONE
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
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OR
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from __________ to _____________.
Commission File Number: 0-22414
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Suburban Bancorporation, Inc.
- ----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 31-1385530
- ------------------------------- -----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
10869 Montgomery Road, Cincinnati, Ohio 45242
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(Address of Principal Executive Office)
(513) 489-4888
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Change
Since Last Report)
Check whether the issuer : (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
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State the number of shares outstanding of each of the
issuer's classes of common equity, as of 2/01/97:
1,474,932
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Transitional Small Business Disclosure Format (check one):
YES NO X
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SUBURBAN BANCORPORATION, INC.
AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1996 2
Consolidated Statements of Operations
for the Six and Three Months Ended
December 31, 1996 and 1995 3
Consolidated Statements of Cash Flows
For the Six Months Ended December 31,
1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
1
SUBURBAN BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
December 31, June 30,
1996 1996
------------ ------------
ASSETS
Cash and cash equivalents:
Non-interest earning deposits $ 614 $ 482
Interest-earning deposits 3,173 2,481
Federal funds sold 6,000 4,000
-------- --------
Total cash and cash equivalents 9,787 6,963
Available for sale securities 27,815 29,479
Held to maturity securities 100 100
Loans (less allowance for loan losses
of $3,134 and $3,138 at December 31,
1996 and June 30, 1996, respectively) 173,966 158,728
Investment in FHLB stock, at cost 3,086 2,745
Property and equipment, net 1,512 1,511
Accrued interest receivable 941 987
Other assets 1,527 1,544
-------- --------
$218,734 $202,057
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits $128,872 $119,691
Advances from FHLB 60,170 54,027
Advances by borrowers for taxes
and insurance 1,573 719
Accrued expenses and other liabilities 2,288 1,899
-------- --------
Total liabilities 192,903 176,336
Stockholders' Equity:
Serial preferred stock ($.01 par value),
authorized: 3,000,000 shares; none
outstanding
Common stock ($.01 par value),
authorized: 12,000,000 shares;
issued: 1,581,710 shares 16 16
Additional paid-in-capital 15,137 15,092
Retained earnings - substantially restricted 13,433 13,728
Other equity adjustments (942) (1,302)
Treasury stock at cost: 106,778 shares
at December 31, and June 30, 1996 (1,813) (1,813)
-------- --------
Total Stockholders' Equity 25,831 25,721
-------- --------
$218,734 $202,057
======== ========
See notes to consolidated financial statements.
2
SUBURBAN BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited) (Unaudited)
Six Months Ended Three Months Ended
December 31, December 31,
--------------------- --------------------
1996 1995 1996 1995
---------- --------- -------- --------
Interest income:
Loans $6,645 $5,953 $3,401 $2,949
Investment securities 37 37 19 18
Mortgage-backed securities 974 1,323 479 653
Other interest-earning assets 298 238 151 123
------ ------ ------ ------
Total interest income 7,954 7,551 4,050 3,743
Interest expense:
Savings deposits 3,060 3,246 1,560 1,627
Borrowed funds 1,819 1,416 937 701
------ ------ ------ ------
Total interest expense 4,879 4,662 2,497 2,328
Net interest income 3,075 2,889 1,553 1,415
Provision for loan losses 0 0 0 0
------ ------ ------ ------
Net interest income after provision
for loan losses 3,075 2,889 1,553 1,415
Noninterest income:
Gain on sale of loans 38 38 23 24
Fee income 263 184 141 100
Other 69 48 45 24
------ ------ ------ ------
Total noninterest income 370 270 209 148
------ ------ ------ ------
Noninterest expense:
Compensation and benefits 1,270 1,142 625 575
Occupancy and equipment 196 231 93 116
FDIC deposit insurance premium 948 144 54 72
Data processing and automated
teller service 202 119 99 62
Franchise tax 167 174 74 87
Advertising 198 67 100 36
Branch closing expense 15 0 0 0
Other 269 236 137 111
------ ------ ------ ------
Total noninterest expense 3,265 2,113 1,182 1,059
------ ------ ------ ------
Income before income taxes 180 1,046 580 504
Income tax expense 71 372 200 179
------ ------ ------ ------
Net income $ 109 $ 674 $ 380 $ 325
====== ====== ====== ======
Earnings per share $ 0.08 $ 0.46 $ 0.27 $ 0.22
====== ====== ====== ======
See notes to consolidated financial statements.
3
<PAGE)
SUBURBAN BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited) (Unaudited)
Six Months Ended Six Months Ended
December 31, December 31,
1996 1995
--------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 109 $ 674
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 53 58
Deferred federal income taxes 42 54
ESOP and MRP compensation 172 180
Gain on sale of mortgage loans (38) (38)
FHLB stock dividends (101) (81)
Decrease in accrued interest receivable 45 75
(Increase) decrease in other assets (146) 32
Increase (decrease) in accrued expenses and
other liabilities 390 (221)
Proceeds from the sale of loans 1,578 3,492
Disbursements on loans originated for sale (2,046) (3,134)
-------- --------
Net cash provided by operating activities 58 1,091
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans:
Principal repayments 12,328 19,730
Disbursements - mortgage and other (14,051) (9,268)
Purchased (13,009) (13,648)
Mortgage-backed securities:
Principal repayment - held to maturity 1,212
Principal repayment - available for sale 2,018 1,230
Purchase of FHLB stock (240)
Property and equipment additions (54)
-------- --------
Net cash used in investing activities (13,008) (744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 9,181 3,719
Advances from FHLB 24,200 2,000
Repayment of advances from FHLB (18,056) (3,290)
Increase in advances by borrowers for
taxes and insurance 853 719
Treasury stock acquired (108)
Dividends paid to stockholders (404) (248)
-------- --------
Net cash provided by financing activities 15,774 2,792
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,824 3,139
CASH AND CASH EQUIVALENTS, JUNE 30th 6,963 5,464
-------- --------
CASH AND CASH EQUIVALENTS, DECEMBER 31st $ 9,787 $ 8,603
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, including interest credited
to deposit accounts $ 4,832 $ 4,666
======== ========
Income taxes $ 275 $ 360
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Real estate acquired in settlement of loans $ 0 $ 132
======== ========
See notes to consolidated financial statements.
4
SUBURBAN BANCORPORATION, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) The Company is primarily engaged in the business of
directing, planning, and coordinating the business of the Bank,
which mainly consists of accepting deposits from the general
public through its branches and investing these funds in loans
secured by real estate and other interest earning investments.
In the future, the Company may acquire or organize other
operating subsidiaries, including other financial institutions.
(2) Basis of Presentation. The accompanying consolidated
financial statements were prepared in accordance with
instructions for form 10QSB and, therefore, do not include
information for footnotes necessary for a complete presentation
of financial position, results of operations, retained earnings,
and cash flows in conformity with generally accepted accounting
principles. However, all adjustments of a normal and recurring
nature which, in the opinion of management, are necessary for a
fair presentation of the consolidated financial statements have
been included in the results of operations for the six and three
months ended December 31, 1996 and 1995. The June 30, 1996
balance sheet is derived from the June 30, 1996 audited
consolidated financial statements. The December 31, 1996 balance
sheet and the consolidated statements of operations and cash
flows for the periods ended December 31, 1996 and 1995 are
unaudited.
(3) Principles of Consolidation. The accompanying consolidated
financial statements include the accounts of Suburban
Bancorporation, Inc., Suburban Federal Savings Bank, and its
wholly owned subsidiary, Suburban Financial Services, Inc. All
significant intercompany items have been eliminated.
(4) Stockholders' Equity. The Bank is required to maintain
certain minimum levels of regulatory capital. At December 31,
1996, the highest of those levels was $9.7 million (see
"Liquidity and Capital Resources"). In addition to this
requirement the Bank may not reduce its capital below the level
of the "liquidation account" for the benefit of eligible
deposits. In the event of a complete liquidation of the Bank,
eligible depositors would have an interest in the account. As of
December 31, 1996, the Company had purchased 106,778 shares of
its own stock as part of stock repurchase plans (see "Stock
Repurchase Plan").
(5) Earnings Per Share. Earnings per share is computed by
dividing net income for the period by the weighted average of
common shares and common share equivalents outstanding. Stock
options are considered common share equivalents in the
computation under the treasury stock method. ESOP shares are
included in shares outstanding as they are released for
allocation to individual employees.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
-------------------
The Company's total assets increased by $16.6 million from
$202.1 million at June 30, 1996 to $218.7 million at December 31,
1996. The increase was the result of a $15.2 million increase in
loans, which was funded primarily by a $9.2 million increase in
savings deposits and a $6.1 million increase in FHLB advances
during the period.
Loan originations and purchases for the period were higher
by 11.9% overall to $29.1 million as compared to $26.0 million
for the same period in 1996. Loans sold to investors were $1.6
million and $3.5 million for the six months ended December 31,
1996 and 1995, respectively. As a result net loans receivable
increased $15.2 million or 9.6% from $158.7 million at June 30,
1996 to $174.0 million at December 31, 1996.
Suburban Federal maintains a significant portfolio of
mortgage-backed securities in the form of FNMA, FHLMC, and GNMA
participation certificates, which are guaranteed by their
respective agencies as to principal and interest. Management has
purchased mortgage-backed securities to increase the volume of
interest earning assets relative to the volume of equity
("leverage") to improve income, and expects to replace these
assets with loan production over the coming years as they
amortize or are sold. At December 31, 1996 the balance of
mortgage-backed securities available for sale was $26.8 million
with an amortized cost of $26.7 million. A market valuation
allowance for the unrealized loss is a component of stockholders'
equity.
Savings deposits increased by 7.7% from $119.7 million June
30, 1996 to $128.9 million at December 31, 1996. This increase
is a result of more competitive pricing by the Bank and the first
two full quarters of an innovative program for the marketing of
demand deposit accounts, which is expected in the long term to
lower deposit costs and increase the volume of deposits overall.
Results of Operations for the Six and Three
-------------------------------------------
Months Ended December 31, 1996 and 1995
---------------------------------------
Net Income. Net income for the six months ended December
31, 1996 was lower by $565,000 to $109,000 as compared to
$674,000 for the same period in 1995. However, net income for
the three months ended December 31, 1996 was higher by $55,000 to
$380,000 as compared to $325,000 for the same period in 1995.
The decrease for the six months ended December 31, 1996 is
attributable to a one time after tax charge of $555,000 to
recognize a federal deposit insurance special assessment levied
on all thrift institutions to capitalize the SAIF fund. With the
one time assessment out of the way the Bank will be subject to
much lower expenses in the future for federal deposit insurance.
The federal deposit insurance premiums paid by the company
decreased from 23 basis points to 6.5 basis points beginning
January 1, 1997, which will result in savings of approximately
$212,000 annually, based on current deposit levels.
Net Interest Income. Net interest income for the six and
three months ended December 31, 1996 increased by $186,000 and
$138,000 respectively, to $3.1 million and $1.6 million as
compared to $2.9 million and $1.4 million
6
for the same periods in 1995. The improvement is the result of
an increased volume in loans while average interest margin
remained relatively constant. The average yield on assets
decreased by 12 and 6 basis points and the average cost of
deposits and borrowings decreased by 15 and 14 basis points for
the six and three months ended December 31, 1996, respectively.
As a result the average margin decreased by 1 basis point for the
six months ended and increased by 2 basis points for the three
months ended December 31, 1996 as compared to the same periods in
1995.
Provision for Losses on Loans. No provision for losses on
loans was made for the six and three months ended December 31,
1996 nor in the same periods in the prior year. The provision
and the level of the allowance are determined by management with
consideration to and analysis of specific loans in the portfolio,
known and inherent risk in the portfolio, estimated value of the
underlying collateral, assessment of general trends in the real
estate market, and current and prospective economic and
regulatory conditions.
Noninterest Income. Primarily as a result of an increase in
fees on checking accounts, noninterest income increased by
$100,000 and $61,000 for the six and three months ended December
31, 1996 as compared to the same period in 1995. The increase in
checking account fees is the result of a 33% increase in the
number of outstanding checking accounts since June 30, 1996. The
increase in the number of accounts is attributable to active
marketing efforts which began in June 1996, and will be continued
throughout the fiscal year.
Noninterest Expense. Noninterest expense for the six and
three months ended December 31, 1996 was higher by $1,152,000 and
$123,000 as compared to the same period in the prior year. The
six month increase was primarily the result of an $822,000 one
time before tax assessment by the FDIC on all thrift institutions
to capitalize the SAIF fund. Compensation and benefits were
$128,000 and $50,000 higher for the six and three months ended
December 31, 1996 as compared to the same period in 1995 due to
the staffing of some positions which were vacant the previous
year as well as the increase in average hours worked by
employees. Advertising and data processing and automated teller
service expenses were $214,000 and $101,000 higher in aggregate
for the six and three months ended December 31, 1996 as compared
to the prior year due to the increase in the number of checking
accounts and the associated marketing and operating support for
the program to increase such accounts.
7
Nonaccruing Loans, Impaired Loans and Foreclosed
Assets. Nonaccruing loans, impaired loans and
foreclosed assets are summarized as follows:
December 31, June 30,
1996 1996
------------ ------------
(in thousands)
Loans accounted for on a
nonaccrual basis:
One to four family $ 239 $ 70
Multi-family 119 -
Commercial - -
------ ------
Total 358 70
------ ------
Past Due 90 Days and Still Accruing: - -
------ ------
Total nonaccrual and 90 Days Past
Due and still accruing: 358 70
------ ------
Foreclosed Assets:
One to four Family - -
Multi-family - -
Commercial 200 200
------ ------
Total $ 200 $ 200
------ ------
Total nonaccrual loans and
foreclosed assets $ 558 $ 270
====== ======
Nonperforming loans and foreclosed
assets, as a percent of total assets 0.26% 0.13%
General Loan Loss Reserves $3,134 $3,138
Residential loans accounted for on a nonaccrual basis
increased by $288,000 from $70,000 at June 30, 1996 to $358,000
at December 31, 1996. This increase was the result of 7
residential loans being more than 90 days past due at December
31, 1996 as compared to 3 residential loans at June 30, 1996. As
a result nonperforming loans and foreclosed assets as a percent
of total assets increased to .26% at December 31, 1996 from .13%
at June 30, 1996.
Loans are placed on nonaccrual status when either principal
or interest is more than 90 days past due and is not expected to
be collectible. Interest accrued and unpaid at the time a loan
is placed on nonaccrual status is charged against interest
income. Loans are considered impaired if the full collection of
contractual principal and interest payments is not considered to
be probable. One loan having a stated principal balance of $1.1
million is considered to be impaired and a specific reserve of
$552,000 has been established.
Liquidity and Capital Resources
-------------------------------
As a holding company, the Company conducts its business
through its subsidiary, the Bank. The principal sources of funds
for the Bank are deposits, proceeds from principal and interest
payments on loans and mortgage-backed securities and borrowings
from the FHLB of Cincinnati.
As of December 31, 1996 the Bank had total outstanding
advances from the FHLB of $60.2 million. Advances are used by
the Bank to provide additional liquidity and as a tool to balance
the interest rate sensitivity of the balance sheet.
8
The principal uses of funds by the Bank includes the
origination and purchase of loans secured by real estate and the
purchase of mortgage-backed securities and investment securities.
Under Federal regulations, the Bank is required to maintain
minimum tangible capital in an amount equal to 1.5% of adjusted
total assets, core capital equal to 3% of adjusted total assets,
and risk based capital in an amount equal to 8.0% of risk
weighted assets. As of December 31, 1996 the Bank was in
compliance with all capital requirements, having tangible and
core capital of 10.2%, and risk based capital of 19.7%.
The Bank is also required by current OTS regulations to
maintain specified liquid assets of at least 5% of its net
withdrawable accounts plus short-term borrowings. At December
31, 1996 the Bank had 6.8% in
regulatory liquidity. Management believes that the liquidity
levels maintained as well as the Bank's borrowing capacity and
the portfolio available for sale of securities are adequate to
meet potential deposit outflows, loan demand, and normal
operations. As of December 31, 1996 the Bank had outstanding
commitments to originate and purchase loans totaling $2.7 million
and $4.1 million, respectively.
Stock Repurchase Plan
---------------------
On February 16, 1996 the Company announced a second stock
repurchase plan with authority to repurchase an additional 75,000
shares beyond the 79,000 shares approved previously. The
repurchased shares will be held as treasury stock and will be
available for issuance upon the exercise of outstanding stock
options and for other corporate purposes. The repurchase program
will be dependent upon market conditions and the availability of
shares, and there is no guarantee as to the exact number of
shares to be repurchased by the Company. Management believes
that liquidity of the Company is adequate to meet the cash
requirements of the repurchase plan. As of December 31, 1996,
the company had purchased 106,778 shares of its own stock at an
average cost of $16.98 per share.
Impact of Inflation and Changing Prices
---------------------------------------
The consolidated financial statements and accompanying notes
appearing elsewhere herein have been prepared in accordance with
generally accepted accounting principles, which require the
measurement of financial position and operating results in terms
of historical dollars without considering the changes in the
relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of the
Bank's operations.
Unlike most industrial companies, nearly all the assets and
liabilities of the Bank are monetary in nature. As a result,
interest rates have a greater impact on the Bank's performance
than do the effects of the general level of inflation. Interest
rates do not necessarily move in the same direction or to the
same extent as the prices of goods and services.
9
SUBURBAN BANCORPORATION, INC.
AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not Applicable.
Item 2. Changes in Securities
---------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security
Holders
-------------------------------------------
On October 16, 1996, the registrant held its
annual meeting of stockholders. At the
meeting, the following director was elected
to serve for a three year term:
Name For Withheld
---- --- --------
Robert A. Baron 1,132,097 37,380
Item 5. Other Information
-----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits:
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K:
None
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUBURBAN BANCORPORATION, INC.
Registrant
Date: February 4, 1997 /s/ Joseph F. Hutchison
---------------- ------------------------
Joseph F. Hutchison
President and Chief
Executive Officer
(The Duly Authorized
Representative)
/s/ Christopher L. Henn
------------------------
Christopher L. Henn
Vice President and Principal
Financial Officer
11