SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR the quarter ended JUNE 30, 1997
or
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
COMMISSION FILE NUMBER 0-27014
AFFILIATED COMMUNITY BANCORP, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3277217
------------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
716 Main Street, Waltham, Massachusetts 02254-9035
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(617) 894-6810
------------------------------------------
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
At July 31, 1997 there were 6,469,559 shares of common stock, par value
$.01 per share, outstanding.
1
AFFILIATED COMMUNITY BANCORP, INC.
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1.
- -------
Consolidated Statements of Financial Condition at
June 30, 1997 and December 31, 1996....................... 3
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 1997 and 1996............... 4
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 1997 and 1996................... 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996.............................. 6
Notes to Consolidated Financial Statements................ 7
Item 2.
- -------
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three and
Six Month Periods Ended June 30, 1997 and 1996............ 9
PART II - OTHER INFORMATION
Item 1.
- -------
Legal Proceedings......................................... 18
Item 2.
- -------
Changes in Securities..................................... 18
Item 3.
- -------
Defaults Upon Senior Securities........................... 18
Item 4.
- -------
Submission of Matters to a Vote of Security Holders....... 18
Item 5.
- -------
Other Information......................................... 18
Item 6.
- -------
Exhibits and Reports on Form 8-K.......................... 18
SIGNATURES................................................ 19
EXHIBITS:
Computation of Primary and Fully Diluted Earnings Per
Share for the Three and Six Month Periods Ended
June 30, 1997 and June 30, 1996........................... 20
Financial Data Schedule................................... 21
2
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
June 30, December 31,
1997 1996
-------- ------------
(Unaudited)
ASSETS
Cash and due from banks $ 19,933 $ 11,331
Federal funds sold and overnight deposits 7,991 4,464
Investment securities - held to maturity
(market value $177,620 and $173,372
at June 30, 1997 and December 31, 1996,
respectively) 177,790 173,510
Investment securities - available for sale
(amortized cost $167,931 and $160,395
at June 30, 1997 and December 31, 1996,
respectively) 167,728 159,844
Loans held for sale 1,445 -
Loans receivable - net of allowance for
possible loan losses of $8,228 and $7,759
at June 30, 1997 and December 31, 1996,
respectively 675,889 645,797
Federal Home Loan Bank stock - at cost 15,034 14,638
Other real estate owned, net 1 133
Accrued interest receivable 7,658 7,124
Office properties and equipment, net 8,804 8,428
Deferred tax asset, net 3,262 3,405
Other assets 4,896 3,539
---------- ----------
Total assets $1,090,431 $1,032,213
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 676,447 $ 652,509
Federal Home Loan Bank advances 294,424 267,171
ESOP debt 1,215 1,394
Mortgagors' escrow payments 1,983 2,087
Securities sold under agreements to repurchase 3,044 727
Other 6,693 6,923
---------- ----------
Total liabilities 983,806 930,811
---------- ----------
Stockholders' Equity (Note 4):
Preferred stock, $0.01 Par Value; 2,000,000
shares authorized, none issued - -
Common stock, $0.01 Par Value; 18,000,000
shares authorized; shares issued 6,712,834
in 1997 and 6,683,957 in 1996 67 66
Additional paid-in capital 49,557 49,146
Retained earnings - restricted 61,874 57,518
Treasury stock at cost, 247,500 shares (3,402) (3,402)
Unearned compensation - ESOP (1,198) (1,394)
Unrealized gain (loss) on investment securities,
net of tax effects (273) (532)
---------- ----------
Total stockholders' equity 106,625 101,402
---------- ----------
Total liabilities and stockholders' equity $1,090,431 $1,032,213
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
Interest and dividend income:
Interest and fees on loans $13,928 $11,766 $27,509 $23,088
Interest and dividend income on investment securities 6,008 5,646 11,942 10,913
Interest on federal funds sold and overnight deposits 47 51 92 122
------- ------- ------- -------
Total interest and dividend income 19,983 17,463 39,543 34,123
------- ------- ------- -------
Interest expense:
Interest on deposits 6,938 6,216 13,733 12,411
Interest on borrowed funds 4,269 3,545 8,357 6,665
------- ------- ------- -------
Total interest expense 11,207 9,761 22,090 19,076
------- ------- ------- -------
Net interest income 8,776 7,702 17,453 15,047
Provision for possible loan losses 250 135 450 270
------- ------- ------- -------
Net interest income after provision for possible loan losses 8,526 7,567 17,003 14,777
------- ------- ------- -------
Noninterest income:
Mortgage loan servicing fees 67 79 134 162
Customer service fees and other 371 316 732 636
Gain on sales of securities, net 9 - 7 -
Gain on sales of loans, net 22 28 23 57
------- ------- ------- -------
Total noninterest income 469 423 896 855
------- ------- ------- -------
Noninterest expenses:
Compensation and employee benefits 2,561 2,238 5,069 4,555
Occupancy and equipment 553 493 1,090 1,010
Data processing 255 205 489 414
Professional services 114 176 280 369
Federal Deposit Insurance premiums 67 196 132 389
Other real estate owned (income) expenses, net (102) 45 (124) 139
Marketing and promotion 175 176 331 303
Other 676 642 1,239 1,244
------- ------- ------- -------
Total noninterest expenses 4,299 4,171 8,506 8,423
------- ------- ------- -------
Income before provision for income taxes 4,696 3,819 9,393 7,209
Provision for income taxes 1,754 1,420 3,514 2,687
------- ------- ------- -------
Net Income $ 2,942 $ 2,399 $ 5,879 $ 4,522
======= ======= ======= =======
Earnings per share (Note 4):
Primary $0.44 $0.37 $0.89 $0.70
======= ======= ======= =======
Fully diluted $0.44 $0.37 $0.89 $0.70
======= ======= ======= =======
Weighted average shares outstanding:
Primary 6,617 6,410 6,594 6,454
======= ======= ======= =======
Fully diluted 6,638 6,417 6,625 6,458
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 4)
For the Six Months Ended June 30, 1997 and 1996
(In thousands, except per share data)
(Unaudited)
Net Unrealized
Additional Unearned Gain (Loss) on
Common Paid-in Treasury Retained Compensation- Investment
Stock Capital Stock Earnings ESOP Securities Total
------ ------- ------- -------- ---- ---------- -----
Balance at December 31,
1995 $66 $48,250 $ - $51,563 ($679) $ 90 $ 99,290
Net income - - - 4,522 - - 4,522
ESOP transactions - 53 - - 72 - 125
Issuance of common stock
under stock option plan - 163 - - - - 163
Purchase of treasury stock - - (4,081) - - - (4,081)
Cash dividends declared
($0.19 per share) - - - (1,228) - - (1,228)
Changes in net unrealized
gain (loss) on securities
available for sale, net
of tax effect - - - - - (1,920) (1,920)
-------- ------- ------- ------- ------- ------- --------
Balance at June 30, 1996 $66 $48,466 ($4,081) $54,857 ($607) ($1,830) $ 96,871
======== ======= ======= ======= ======= ======= ========
Net Unrealized
Additional Unearned Gain (Loss) on
Common Paid-in Treasury Retained Compensation- Investment
Stock Capital Stock Earnings ESOP Securities Total
------ ------- ------- -------- ---- ---------- -----
Balance at December 31,
1996 $66 $49,146 ($3,402) $57,518 ($1,394) ($532) $101,402
Net income - - - 5,879 - - 5,879
ESOP transactions - 129 - 26 196 - 351
Issuance of common stock
under stock option plan 1 198 - - - - 199
Tax benefit from stock
options exercised - 84 - - - - 84
Purchase of treasury stock - - - - - - -
Cash dividends declared
($.24 per share) - - - (1,549) - - (1,549)
Changes in net unrealized
gain (loss) on securities
available for sale, net
of tax effect - - - - - 259 259
-------- ------- ------- ------- ------- ------- --------
Balance at June 30, 1997 $67 $49,557 ($3,402) $61,874 ($1,198) ($273) $106,625
======== ======= ======= ======= ======= ======= ========
The accompanying notes are integral part of these consolidated financial
statements.
5
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
June 30,
----------------
1997 1996
---- ----
Cash flows from operating activities:
Net Income $ 5,879 $ 4,522
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 450 270
Provision for losses on other real estate
owned - 120
Depreciation and amortization 415 372
Gain on sales of loans (23) (57)
Gain on sales of securities (7) -
Net gain on sales of other real estate
owned (44) (105)
Net amortization of premiums and discounts
on investment securities 146 362
Provision for deferred income taxes 4 232
ESOP transactions 351 125
Increase in Federal Home Loan Bank stock (396) (2,862)
Increase in loans held for sale (1,445) (62)
Increase in accrued interest receivable (534) (924)
Other, net (790) (2,052)
-------- --------
Net cash provided (used) by operating
activities 4,006 (59)
-------- --------
Cash flows from investing activities:
Proceeds from sales of investment securities
available for sale 7,220 -
Proceeds from sales of investment securities
held to maturity which were called 3,953 -
Proceeds from maturities of investment
securities available for sale 6,020 13,510
Proceeds from maturities of investment
securities held to maturity 13,697 3,206
Purchase of investment securities available
for sale (26,631) (61,695)
Purchase of investment securities held to
maturity (34,076) (17,804)
Principal payments received on investment
securities available for sale 5,058 4,716
Principal payments received on investment
securities held to maturity 12,141 14,594
Loan originations, net of repayments (30,691) (55,127)
Proceeds from sale of office properties and
equipment - -
Purchases of office properties and equipment (791) (435)
Capitalized costs associated with other real
estate owned, net of payments received - 4
Proceeds from sales of other real estate
owned 348 727
-------- --------
Net cash used by investing activities (43,752) (98,304)
-------- --------
Cash flows from financing activities:
Net increase in deposits 23,938 37,506
Additions to Federal Home Loan Bank advances 27,253 71,162
Increase in mortgagors' escrow payments (104) (134)
Increase in repurchase agreements 2,317 -
Purchase of treasury stock - (4,081)
Proceeds from issuance of common stock 199 163
ESOP transactions (179) (72)
Cash dividends paid on common stock (1,549) (1,228)
-------- --------
Net cash provided by financing activities 51,875 103,316
-------- --------
Net increase in cash and cash equivalents 12,129 4,953
Cash and cash equivalents at beginning of period 15,795 18,162
-------- --------
Cash and cash equivalents at end of period $ 27,924 $ 23,115
======== ========
Supplemental disclosures of cash flow
information:
Interest paid on deposits $ 13,322 $ 11,587
Interest paid on borrowed funds 8,538 6,888
Income taxes paid, net of refunds 3,733 3,910
Supplemental disclosures of non-cash
transactions:
Transfers to foreclosed real estate 172 858
Loans granted on sale of foreclosed real
estate - 372
Securitization of loans to mortgage-backed
investments - 1,190
The accompanying notes are an integral part of these consolidated financial
statements
6
AFFILIATED COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Affiliated Community Bancorp, Inc. (the "Company" or "Affiliated") and its
three wholly-owned subsidiaries, Lexington Savings Bank ("Lexington"), a
Massachusetts chartered savings bank, The Federal Savings Bank ("Federal"), a
federally chartered savings bank, and Middlesex Bank & Trust Company
("Middlesex") a Massachusetts chartered trust company, which are headquartered
in Lexington, Massachusetts, Waltham, Massachusetts, and Newton Massachusetts,
respectively.
Affiliated Community Bancorp, Inc. was incorporated on April 13, 1995 for
the purpose of effecting the affiliation (the "Affiliation") of Lexington and
Main Street Community Bancorp, Inc. ("Main Street") including Main Street's
wholly-owned subsidiary, Federal, pursuant to the Affiliation Agreement and
Plan of Reorganization dated March 14, 1995 between Lexington and Main Street.
The Affiliation was consummated on October 18, 1995 and was treated as a
pooling of interests for accounting purposes. On May 20, 1997, Affiliated
provided the initial capital to Middlesex in exchange for all of Middlesex's
outstanding stock, making Middlesex a wholly owned subsidiary of Affiliated.
Middlesex opened on June 2, 1997 as a de novo, full-service commercial bank.
The operations of Affiliated consist of those of its three bank subsidiaries,
Lexington, Federal and Middlesex. The information presented herein for 1997
and 1996 represents the financial condition and the operating results of the
Company and its wholly-owned bank subsidiaries on a consolidated basis.
Lexington and Middlesex are insured by the Bank Insurance Fund ("BIF") and
Federal is insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC").
Certain reclassifications have been made to the 1996 consolidated
financial statements to conform with the June 30, 1997 presentation. Such
reclassifications had no effect on previously reported consolidated net
income.
In the opinion of management, the unaudited consolidated financial
statements presented herein reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation. Interim results are
not necessarily indicative of results to be expected for the entire year.
2) EARNINGS AND DIVIDENDS DECLARED PER SHARE
Primary earnings per share computations include common stock issued
(excluding treasury shares and unallocated ESOP shares) and dilutive common
stock equivalents attributable to outstanding stock options. Fully diluted
earnings per share computations reflect the higher market price of the
Company's common stock at period end, if applicable, and the assumed further
dilution applicable to outstanding stock options.
3) ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following is a summary of the allowance for possible loan losses for
the three and six month periods ended June 30, 1997 and 1996:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
(In thousands)
Balance at beginning of period $7,962 $7,203 $7,759 $7,127
Provision for possible loan losses 250 135 450 270
Recoveries 16 79 59 133
------ ------ ------ ------
8,228 7,417 8,268 7,530
Loans charged-off - 177 40 290
------ ------ ------ ------
Balance at end of period $8,228 $7,240 $8,228 $7,240
====== ====== ====== ======
7
The Company's allowance for possible loan losses is established and
maintained through a provision for possible loan losses. Charges to the
provision for possible loan losses are based on management's evaluation of
numerous factors, including the risk characteristics of the Company's loan
portfolio generally, the portfolio's historical experience, the level of non-
accruing loans, current economic conditions, collateral values, and trends in
loan delinquencies and charge-offs. Although management believes it uses the
best information available to make determinations with respect to the
Company's allowance for possible loan losses, loan losses may ultimately vary
significantly from current estimates and future adjustments may be necessary
if economic conditions differ substantially from the assumed economic
conditions used in making the initial determination or if other circumstances
change.
Loans are considered impaired when it is probable that the Company will
not be able to collect all amounts due according to the contractual terms of
the loan agreement. Management considers the paying status, net worth and
earnings potential of a borrower, and the value and cash flow of the
collateral, as factors to determine if a loan will be paid in accordance with
its contractual terms. Management does not set any minimum delay of payments
as a factor in reviewing for impaired classification. The amount judged to be
impaired is the difference between the present value of the expected cash
flows using as a discount rate the original contractual effective interest
rate and the recorded investment of the loan. If foreclosure on a
collateralized loan is probable, impairment is measured based on the fair
value of the collateral compared to the recorded investment. If appropriate, a
valuation reserve is established to recognize the difference between the
recorded investment and the present value. Impaired loans are charged off when
management believes that the collectibility of the loan's principal is remote.
All impaired loans are classified as nonaccrual.
For the six months ended June 30, 1997 and 1996, the average recorded
investment in impaired loans was $3,756,000 and $2,918,000 respectively, and
the income recognized on related impaired loans was $77,000 and $62,000,
respectively. At June 30, 1997 and December 31, 1996, the Company classified
$3,532,000 and $3,798,000, respectively, of its loans as impaired. Of the
$3,532,000 in impaired loans at June 30, 1997, $3,430,000 has been measured
under the fair value of collateral method and $102,000 has been measured under
the present value of the expected cash flows method. At June 30, 1997 impaired
loans totaling $2,583,000, had a related valuation reserve of $670,000. Of the
$3,798,000 in impaired loans at December 31, 1996, $3,691,000 has been
measured under the fair value of collateral method and $107,000 has been
measured under the present value of the expected cash flows method. At
December 31, 1996, impaired loans totaling $3,555,000 had a related valuation
reserve of $667,000.
4) STOCK SPLIT
On April 23, 1997 the Board of Directors of the Company approved a 25%
stock split, to be effected in the form of a stock dividend, payable on May
30, 1997. All common stock share and per share information prior to the stock
split, except for shares authorized, has been retroactively restated to
reflect this stock split.
5) IMPACT OF NEW ACCOUNTING STANDARDS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which is
generally effective for transfers and servicing of financial assets and
extinguishments of liabilities, as defined, after December 31, 1996. SFAS No.
125, as amended, requires an entity to recognize upon a transfer the financial
and servicing assets it controls and the liabilities it has incurred,
derecognize financial assets when control has been surrendered, and
derecognize liabilities when extinguished. SFAS No. 125 supersedes SFAS No.
122. For servicing contracts in existence before January 1, 1997, previously
recognized servicing rights and "excess servicing" receivables that do not
exceed contractually specified servicing fees are combined, net of any
previously recognized servicing obligations, as a servicing asset or
liability, with previously recognized servicing receivables that exceed
contractually specified servicing fees being reclassified as interest-only
strips receivable. The adoption of this statement did not have a material
impact on its financial condition or results of operations.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which is to become effective for fiscal years ending after December 15, 1997.
The more significant changes are the replacement of primary earnings per share
(EPS) with basic EPS. Basic EPS is computed by dividing reported earnings
available to common stockholders by weighted average shares issued (excluding
treasury shares and unallocated ESOP shares). No dilution for any potentially
dilutive securities is included. Fully diluted EPS, now called diluted EPS, is
still required. The Company's management anticipates that the application of
the new statement will not have a significant impact on the Company's reported
results when adopted.
If SFAS No. 128 were in effect, basic EPS for the second quarter of 1997
would have been $0.46 versus $0.38 for the second quarter of 1996 and basic
EPS for the first six months of 1997 would have been $0.93 versus $0.72 for
the first six months of 1997.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996.
GENERAL
- -------
The Company is a holding company that conducts substantially all its
activities through its bank subsidiaries. The Company's results of operations
are dependent primarily on net interest income, which is the difference between
(i) the interest income earned on loans and investment securities and (ii) the
cost of funds, which consists of the interest paid on deposits and borrowings.
Net interest income can be adversely affected by changes in interest rates,
interest rate caps in effect on adjustable rate securities and loans in the
portfolio, and loan and mortgage-backed security prepayments.
The Company's net income is also affected by noninterest income, such as
service charges and fees and gains or losses on asset sales, and operating
expenses, which consist primarily of compensation and benefits, occupancy and
equipment expenses, federal deposit insurance premiums, Other Real Estate Owned
("OREO") operations and other general administrative expenses. The earnings of
the Company are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory authorities.
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Important
factors that might cause such a difference include general economic conditions,
particularly the real estate market, in the Company's primary market area,
potential increases in the Company's non-performing assets (as well as increases
in the allowance for possible loan losses that might be necessary),
concentrations of loans in a particular geographic area or with certain large
borrowers, changes in government regulation and supervision, including increased
deposit insurance premiums or increased capital or reserve requirements, changes
in interest rates and increased competition, and bank consolidations in the
Company's market area.
Changes in Financial Condition from December 31, 1996
- -----------------------------------------------------
Total assets at June 30, 1997 amounted to $1.09 billion as compared to
$1.03 billion at December 31, 1996, reflecting an increase of $58 million or
5.6%. The increase in the Company's assets is primarily attributed to growth in
loans and additional purchases of investment securities.
Investments: Investment securities designated as held to maturity amounted
-----------
to $177.8 million at June 30, 1997 versus $173.5 million at December 31, 1996.
At June 30, 1997 investment securities available for sale amounted to $167.7
million versus $159.8 million at December 31,1996. During the current six month
period ended June 30, 1997, sales of investment securities amounted to $11.2
million and resulted in a net gain of $7,000. There were no sales during the
comparable 1996 period. The $4 million in sales of investment securities held
to maturity represent issues that had been called by the issuers, and as a
result would have matured within three months.
The carrying value of investment securities at June 30, 1997 is presented
in the following table:
Available Held to
for Sale Maturity
--------- --------
(In thousands)
Government securities $ 87,050 $ 45,397
Corporate bonds 1,024 -
Mortgage-backed and asset-backed securities 50,835 119,628
Mortgage-backed derivatives 5,811 12,765
Marketable equity securities 23,008 -
-------- --------
$167,728 $177,790
======== ========
The mortgage-backed derivatives portfolio consisted of planned
amortization classes (PAC's), targeted amortization classes (TAC's), sequential
payment classes (SEQ's), scheduled amortization classes (SCH's) and accretion
directed classes (AD's). The balance at June 30, 1997 had an average life of
1.7 years with 29% in monthly adjusting securities and the remaining 71% in
fixed rate securities.
Loans: Gross loans outstanding, excluding loans held for sale, at June
-----
30, 1997 amounted to $684.1 million versus $653.6 million at December 31, 1996.
The increase of $30.5 million or 4.7% was primarily attributed to growth in
residential real estate loans. The gross balances of loans outstanding at June
30, 1997 and December 31, 1996 are shown in the following table:
9
June 30, December 31,
1997 1996
-------- ------------
(In thousands)
Real estate:
1-4 family $452,773 $428,308
Commercial and construction 173,235 171,990
Commercial 38,032 35,338
Equity lines of credit and other 21,554 19,749
Less: net deferred loan fees (1,477) (1,829)
-------- --------
$684,117 $653,556
======== ========
At June 30, 1997 loans delinquent 60 days or more amounted to $2.1 million
and represented 0.3% of total loans outstanding. The comparable amounts at
December 31, 1996 were $4.2 million or 0.6%.
The following table sets forth information regarding non-accrual loans,
troubled debt restructurings, OREO and other assets:
June 30, December 31,
1997 1996
--------- -------------
(Dollars in thousands)
Non-accrual loans $ 4,105 $ 4,886
Troubled debt restructurings 185 -
------- -------
Total non-performing loans 4,290 4,886
Other real estate owned, net 1 133
------- -------
Total non-performing assets $ 4,291 $ 5,019
======= =======
Loans past due 90 days or more and
still accruing $ - $ 136
======= =======
Non-performing loans as a percent of
total loans .63% .75%
Non-performing assets as a percent of
total assets .39% .49%
Allowance for possible loan losses as
a percent of non-performing loans 191.79% 158.80%
Allowance for possible loan losses as
a percent of total loans 1.20% 1.19%
======= =======
Liabilities: The Company's deposit products include passbook and statement
-----------
savings accounts, NOW accounts, demand (checking) accounts, money market
accounts and certificate of deposit accounts. The certificate accounts consist
of regular and retirement funds and are either fixed or variable in nature.
The following table summarizes the Company's deposit liabilities at June
30, 1997 and December 31, 1996:
June 30, December 31,
1997 1996
-------- ------------
(Dollars in thousands)
Demand $ 49,784 $ 41,557
NOW 58,036 51,347
Regular savings 123,821 122,739
Money market 70,017 66,492
-------- --------
Total non-certificate accounts 301,658 282,135
-------- --------
Certificates less than $100,000 301,887 297,990
Certificates of $100,000 and over 72,902 72,384
-------- --------
Total certificate accounts 374,789 370,374
-------- --------
Total deposits $676,447 $652,509
======== ========
10
At June 30, 1997 and December 31, 1996, brokered certificates of deposits
amounted to $21.8 million and $29.1 million, respectively. Brokered certificates
of deposits include $10.2 and $14.9 million in Depository Trust Company ("DTC")
certificates at June 30, 1997 and December 31, 1996, respectively.
Borrowings from the Federal Home Loan Bank ("FHLB") amounted to $294.4
million at June 30, 1997 versus $267.2 million at December 31, 1996 as a result
of continued leveraging of the Company's strong capital position. The additional
borrowings funded residential loans and investments that were added to the
balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of liquidity are dividends from
subsidiaries, and maturities, repayments and interest on investments. The
Company may use its liquidity to pay cash dividends to stockholders, fund
operating expenses and pay taxes. On July 17, 1997 the Company declared a
regular quarterly dividend of $0.12 per share payable on August 15, 1997 to
stockholders of record on July 30, 1997. This second quarter dividend
represented a 25% increase over the $0.10 per share (as adjusted for the effect
of the stock split) paid a year ago.
The primary sources of funds for the Company's bank subsidiaries are
deposits, FHLB borrowings, principal and interest payments on loans, mortgage-
backed and mortgaged-backed derivative securities, and maturities of investment
securities. While maturities and scheduled amortization of loans and investment
securities are predictable sources of funds, deposit inflows and mortgage
prepayments are greatly influenced by economic conditions, interest rate levels,
and regulatory changes. The earning asset growth of $48.1 million for the six
month period ended June 30, 1997 was funded by a net gain in deposits of $23.9
million, primarily from core deposits, and additional advances from the FHLB
amounting to $27.3 million.
The Company's bank subsidiaries, as members of the FHLB, have overnight
lines of credit of approximately $25 million and an overall borrowing capacity
of approximately $626.2 million from the FHLB. At June 30, 1997 outstanding
borrowings were $294.4 million under these facilities. Any borrowings must be
collateralized by a combination of investment securities and certain first
mortgage loans. The subsidiaries also have the ability to enter into repurchase
agreements, with an aggregate credit line of $150 million, with various brokers.
At June 30, 1997, the Company had outstanding commitments of $101.7
million to originate loans and advance funds. As of that date, the Company had
commitments to sell loans of $1.4 million. The Company believes that it will
have sufficient funds available to meet all of its commitments as a result of
the liquidity inherent in its balance sheet, combined with its available
borrowing capacity through the FHLB.
On April 23, 1997 the Company announced a 25% stock split of its common
stock to be effected in the form of a stock dividend. This split was
implemented on May 30, 1997 in the form of one additional share for each four
shares of common stock held by stockholders of record as of the close of
business on May 15, 1997.
On May 20, 1997 Affiliated completed the transaction entered into on
December 18, 1996 by providing the initial capitalization for Middlesex Bank &
Trust Company located in Newton, Massachusetts. Middlesex opened for business
on June 2, 1997.
The Company's bank subsidiaries are subject to certain capital standards
prescribed by regulations. While the regulations are the same for Affiliated,
Lexington, and Middlesex, the method of calculation differs for banks regulated
by the Office of Thrift Supervision such as Federal. The following tables show
the subsidiaries' regulatory capital ratios as they compare to the minimum
guidelines at June 30, 1997. The high capital ratios of Middlesex reflect its
status as a start-up bank.
Affiliated
The Federal Lexington Middlesex Community Minimum
Savings Bank Savings Bank Bank & Trust Co. Bancorp, Inc. Requirements
------------- ------------- ----------------- -------------- -------------
Risk-based ratios:
Tier 1 capital....... 18.59% 14.27% 241.90% 17.93% 4.00%
Total capital........ 19.84 15.26 241.90 19.18 8.00
Tangible capital......... 9.29 N/A N/A N/A 1.50
Core capital............. 9.29 N/A N/A N/A 3.00
Tier 1 leverage capital 9.42 8.43 173.21 9.92 3.00
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
- --------------------------------------------------------------------------------
1996
- ----
GENERAL OPERATING RESULTS. Net income for the three months ended June
30, 1997 was $2.9 million or $0.44 per share, compared to net income of $2.4
million or $0.37 per share in the corresponding quarter of 1996, an increase of
$543,000 or 22.6%. The earnings increase was attributed to a higher level of
net interest income achieved with only a modest increase in overall operating
expenses.
11
The following table sets forth the Company's average balances and net
interest income components for the three months ended June 30, 1997 and 1996.
It includes (i) the average balance sheet for the period, based on daily average
balances; (ii) the total amount of interest earned or paid on the various
categories of interest-earning assets and interest-bearing liabilities; and
(iii) the resulting weighted average yields and costs. Such yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown except where noted otherwise.
In addition, the table reflects the Company's interest rate spreads and net
yields on earning assets. The average balance of loans receivable includes
loans on which the Company has discontinued accruing interest. The yields and
costs include fees which are considered "adjustments to yield."
Three Months Ended June 30,
--------------------------------------------------------------
1997 1996
--------------------------------------------------------------
(Dollars in thousands)
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------- ------- ------- -------- ------- -------
ASSETS
Interest-earning assets:
Loans $ 674,866 $13,928 8.26% $575,777 $11,766 8.17%
---------- ------- ------- -------- ------- -------
Investments:
Investment and
mortgage-backed
securities
held-to-maturity 185,167 3,091 6.68% 178,577 2,901 6.50%
Investment and
mortgage-backed
securities available-
for-sale 160,403 2,678 6.68% 156,673 2,544 6.50%
Federal Home Loan Bank
stock 14,807 240 6.48% 12,632 201 6.36%
Federal funds sold and
overnight deposits 4,232 46 4.35% 5,139 51 3.97%
---------- ------- ------- -------- ------- -------
Total investments 364,609 6,055 6.64% 353,021 5.697 6.46%
---------- ------- ------- -------- ------- -------
Total interest-earning
assets 1,039,475 19,983 7.69% 928,798 17,463 7.52%
---------- ------- ------- -------- ------- -------
Noninterest-earning assets 33,954 33,508
Allowance for possible
loan losses (8,064) (7,168)
---------- --------
Total assets $1,065,365 $955,138
========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Regular savings, NOW
and money
market accounts $ 244,479 $ 1,571 2.57% $236,912 $ 1,529 2.58%
Certificate accounts 377,660 5,367 5.68% 327,843 4,687 5.72%
Borrowings 288,317 4,269 5.92% 250,433 3,545 5.66%
---------- ------- ------- -------- ------- -------
Total interest-
bearing liabilities 910,456 11,207 4.92% 815,188 9,761 4.79%
---------- ------- ------- -------- ------- -------
Noninterest-bearing
liabilities:
Demand deposits 43,470 36,121
Other 6,930 7,567
---------- --------
Total liabilities 960,856 858,876
---------- --------
Stockholders' equity 104,509 96,262
---------- --------
Total liabilities
and stockholders'
equity $1,065,365 $955,138
========== ========
Net interest income $ 8,776 $7,702
======= ======
Interest rate spread 2.77% 2.73%
===== =====
Net yield on earning assets 3.38% 3.32%
===== =====
INTEREST INCOME. Total interest and dividend income increased from $17.5
million in the second quarter of 1996 to $20.0 million in the same period of
1997, an increase of 14.4%. The additional income was due mostly to the higher
volume of loans and investments. The yield on average earning assets increased
from 7.52% in the second quarter of 1996 to 7.69% in the same period of 1997 due
to higher yields on the loans and investments, and an increase in loans as a
percentage of earning assets. Average loans outstanding in the current quarter
amounted to $674.9 million and produced an average yield of 8.26%, as compared
to a 1996 average volume of $575.8 million with an average yield of 8.17%. The
average balance of all investment categories amounted to $364.6 million in the
second quarter of 1997 with an average yield of 6.64% compared to $353.0 million
and 6.46%, respectively, in the comparable quarter of 1996.
INTEREST EXPENSE. Interest expense in the second quarter of 1997 amounted
to $11.2 million, up $1.4 million or 14.3% from $9.8 million in the same
quarter of 1996. The main factors contributing to this increase were higher
volumes in certificates of deposits and borrowed funds. The average rate paid on
total interest bearing deposits increased fractionally from 4.40% in the second
quarter of 1996 to 4.46% in the
12
comparable period of 1997. Average interest bearing deposit volume increased
from $564.8 million in the 1996 period to $622.1 million in the second quarter
of 1997, up $57.3 million or 10.1%. Average certificates increased $49.8 million
or 15.2% in 1997 from the comparable 1996 quarter. The Company had average
borrowings of $288.3 million for the three months ended to June 30, 1997, with a
related interest expense of $4.3 million, compared to $250.4 million and $3.5
million, respectively, for the second quarter of 1996. The average rate paid on
borrowings increased from 5.66% to 5.92%.
The following table illustrates the extent to which changes in interest
rates and changes in the volumes of interest-earning assets and interest-bearing
liabilities affected the components of the Company's interest income and
interest expense during the period. For each interest related asset and
liability category, information is provided with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) change attributable to changes in interest rates (changes in rate
multiplied by prior volume), and (iii) the net change. The changes attributable
to the combined impact of both volume and rates have been allocated
proportionately to the change due to volume and the change due to rates.
Three Months Ended June 30,
---------------------------
1997 Compared with 1996
---------------------------
Increase (Decrease)
Due to Change in:
-----------------
Average Average
Volume Rate Total
------ ---- -----
(In thousands)
Interest Income:
Loans $2,044 $118 $2,162
Investments:
Investment and mortgage-backed
securities held-to-maturity 108 81 189
Investment and mortgage-backed
securities available-for-sale 61 73 134
Federal Home Loan Bank stock 35 4 39
Federal funds sold (10) 6 (4)
------ ---- ------
Total interest income 2,238 282 2,520
------ ---- ------
Interest Expense:
Regular savings, NOW and money
market accounts 49 (7) 42
Certificate accounts 708 (28) 680
------ ---- ------
Total deposits 757 (35) 722
Borrowed funds 555 169 724
------ ---- ------
Total interest expense 1,312 134 1,446
------ ---- ------
Change in net interest income $ 926 $148 $1,074
====== ==== ======
The increase in 1997 second quarter net interest income was primarily
attributed to a volume increase in loans. Volume increases in certificates of
deposits and borrowed funds partially offset the favorable benefit of the volume
increase in earning assets.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
for the second quarter of 1997 amounted to $250,000 versus $135,000 for the
second quarter of 1996. The increased provision is attributable to the ongoing
growth of the Company's loan portfolio. At June 30, 1997, the Company's
allowance for possible loan losses amounted to $8.2 million which represented
192% of non-performing loans at that date. The provision and the level of the
allowance are evaluated on a regular basis by management and are based upon
management's periodic review of the collectibility of the loans, in light of
historical experience, known and inherent risks in the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and prevailing economic
conditions. The allowance is a forward-looking estimate and ultimate losses may
vary from current estimates and future additions to the allowance may be
necessary. As adjustments become necessary, they are reported in the results of
operations for the periods in which they become known. Loan losses are charged
against the allowance when management believes the collectibility of the loan
balance is unlikely. Although no assurance can be given, management believes
that the June 30, 1997 level of the allowance was adequate to provide for known
and reasonably anticipated loan losses inherent in the portfolio at that date.
NONINTEREST INCOME. For the second quarter of 1997, total noninterest
income amounted to $469,000, an increase of $46,000 or 10.9% from $423,000 in
the second quarter of 1996. Customer service and other fees increased by
$55,000 or 17.4% in the second quarter from the same period in 1996, as a result
of safe deposit fees, and an increased level of penalty charges and service
charges on deposit accounts. Loan
13
servicing fees amounted to $67,000 this quarter, compared to $79,000 in the
second quarter of 1996 reflecting amortization of servicing rights on loans
originated and sold and a reduction in the volume of loans serviced for
investors. The Company had gains on securities sales of $9,000 in the second
quarter of 1997, versus no gains or losses for the quarter ended June 30, 1996.
The gains on sales of loans were $22,000 in the second quarter of 1997, versus
$28,000 for the same period in 1996.
NONINTEREST EXPENSES. Total noninterest expenses increased by $128,000 or
3.1% in the second quarter of 1997 to $4.3 million, compared to $4.2 million in
the corresponding quarter of 1996. The significant components of the change in
expenses include a $323,000 or 14.0% increase in compensation and benefits, a
$129,000 decrease in federal deposit insurance premiums, a decrease in OREO
expense of $147,000, and $62,000 decrease in professional fees.
The increase in compensation and benefits costs was caused by staff
additions, normal salary increases, payroll taxes, and increased costs
associated with the 401(k), and ESOP plans at subsidiary banks. The decrease in
federal deposit insurance premiums for the second quarter reflects the reduced
rate structure of the FDIC for 1997. OREO expenses, which tend to be volatile
and are not tied to the Company's core business, decreased as a result of income
recognized on fully developed properties and carrying cost repayments.
Professional expense declined as a result of a reduction in legal costs.
PROVISION FOR INCOME TAXES. The provision for income taxes was $1.8
million for the second quarter of 1997, compared to $1.4 million for the
corresponding quarter in 1996. The combined effective tax rate for the three
months ended June 30, 1997 was 37.4% versus 37.2% for the same period in 1996.
At June 30, 1997, the net deferred income tax asset amounted to $3.3 million.
The primary sources of recovery of the deferred income tax asset are taxes paid,
which are available for carry back, from 1996, 1995, and 1994, and the
expectation that the deductible temporary differences will reverse during
periods when the Company generates taxable income.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
- ------------------------------------------------------------
JUNE 30, 1997 AND 1996
- ----------------------
GENERAL OPERATING RESULTS. Net income for the six months ended June 30,
1997 was $5.9 million or $0.89 per share, compared to net income of $4.5 million
or $0.70 per share in the corresponding period of 1996, an increase of $1.4
million or 30.0%. The earnings increase is attributed to a higher level of net
interest income, and a one percent increase in operating expenses. As a result
of increased levels of interest earning assets, net interest income increased by
$2.4 million or 16.0% in the first six months of 1997 versus the same period of
1996. Noninterest expense increased by $83,000 or 1.0% in the first half of 1997
compared to the first half of 1996. A significant portion of the expense
moderation resulted from a net gain of $124,000 for OREO expenses for the first
half of 1997, versus a net loss of $139,000 for the comparable period of 1996,
and a decrease in federal deposit insurance premiums.
The following table sets forth the Company's average balances and net
interest income components for the six months ended June 30, 1997 and 1996. It
includes (i) the average balance sheet for the period, based on daily average
balances; (ii) the total amount of interest earned or paid on the various
categories of interest-earning assets and interest-bearing liabilities; and
(iii) the resulting weighted average yields and costs. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown except where noted otherwise.
In addition, the table reflects the Company's interest rate spreads and net
yields on earning assets. The average balance of loans receivable includes
loans on which the Company has discontinued accruing interest. The yields and
costs include fees which are considered "adjustments to yield."
14
Six Months Ended June 30,
--------------------------------------------------------------
1997 1996
--------------------------------------------------------------
(Dollars in thousands)
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------- ------- ------- -------- ------- -------
ASSETS
Interest-earning assets:
Loans $ 667,078 $27,509 8.25% $563,177 $23,088 8.20%
---------- ------- ------- -------- ------- -------
Investments:
Investment and
mortgage-backed
securities
held-to-maturity 183,805 6,131 6.67% 177,280 5,762 6.50%
Investment and
mortgage-backed
securities
available-for-sale 160,682 5,340 6.65% 146,552 4,778 6.52%
Federal Home Loan Bank
stock 14,722 471 6.40% 11,808 373 6.32%
Federal funds sold and
overnight deposits 4,360 92 4.22% 5,640 122 4.33%
---------- ------- ------- -------- ------- -------
Total investments 363,569 12,034 6.62% 341,280 11,035 6.47%
---------- ------- ------- -------- ------- -------
Total interest-earning
assets 1,030,647 39,543 7.67% 904,457 34,123 7.55%
---------- ------- ------- -------- ------- -------
Noninterest-earning assets 33,551 33,142
Allowance for possible
loan losses (7,944) (7,172)
---------- --------
Total assets $1,056,254 $930,427
========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Regular savings, NOW
and money
market accounts $ 240,431 $ 3,067 2.55% $234,576 $ 3,053 2.60%
Certificate accounts 377,596 10,666 5.65% 324,410 9,358 5.77%
Borrowings 286,287 8,357 5.84% 232,253 6,665 5.74%
---------- ------- ------- -------- ------- -------
Total interest-
bearing liabilities 904,314 22,090 4.89% 791,239 19,076 4.82%
---------- ------- ------- -------- ------- -------
Noninterest-bearing
liabilities:
Demand deposits 41,474 34,678
Other 7,134 7,790
---------- --------
Total liabilities 952,922 833,707
---------- --------
Stockholders' equity 103,332 96,720
---------- --------
Total liabilities and
stockholders' equity $1,056,254 $930,427
========== ========
Net interest income $17,453 $15,047
======= =======
Interest rate spread 2.78% 2.73%
===== =====
Net yield on earning assets 3.39% 3.33%
===== =====
INTEREST INCOME. Total interest income increased from $34.1 million in the
first six months of 1996 to $39.5 million in the same period of 1997, an
increase of 15.9%. The higher level of interest income is chiefly due to an
increased volume of loans, and investments available for sale. The yield on
average earning assets was 7.55% in the first six months of 1996 and 7.67% in
the same period of 1997. Average loans outstanding in the current period
amounted to $667.1 million and produced an average yield of 8.25%, as compared
to a 1996 average volume of $563.2 million with an average yield of 8.20%. The
average balance of all investment categories amounted to $363.6 million in the
first half of 1997 with an average yield of 6.62% compared to $341.3 million and
6.47%, respectively, in the comparable period of 1996.
INTEREST EXPENSE. Interest expense in the first half of 1997 amounted to
$22.1 million, up $3.0 million or 15.8% from $19.1 million in 1996. The
contributing factors to this increase were higher interest rates on borrowings,
and higher volumes in certificate accounts and borrowed funds. The average rate
paid on deposits remained level at 4.44% for the first six months of 1996 and
the comparable period of 1997. Average interest bearing deposits increased from
$559.0 million in the 1996 period to $618.0 million in the first half of 1997,
up $59.0 million or 10.6%. Average certificates increased $53.2 million or
16.4% in 1997 from the comparable 1996 period. The Company had average
borrowings of $286.3 million for the six months ended June 30, 1997, with a
related interest expense of $8.4 million, compared to $232.3 million and $6.7
million, respectively, for the first six months of 1996. The average rate paid
on borrowings increased from 5.74% to 5.84%.
15
The following table illustrates the extent to which changes in interest
rates and changes in the volumes of interest-earning assets and interest-bearing
liabilities affected the components of the Company's interest income and
interest expense during the periods indicated. For each interest related-asset
and liability category, information is provided with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) changes attributable to changes in interest rates (changes in rate
multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of both volume and rates have been allocated
proportionately to the change due to volume and the change due to rates.
Six Months Ended June 30,
---------------------------
1997 Compared with 1996
---------------------------
Increase (Decrease)
Due to Change in:
-----------------
Average Average
Volume Rate Total
------ ---- -----
(In thousands)
Interest Income:
Loans $4,284 $ 137 $4,421
Investments:
Investment and mortgage-backed
securities held-to-maturity 215 154 369
Investment and mortgage-backed
securities available-for-sale 467 95 562
Federal Home Loan Bank stock 93 5 98
Federal funds sold (26) (4) (30)
------ ----- ------
Total interest income 5,033 387 5,420
------ ----- ------
Interest Expense:
Regular savings, NOW and money
market accounts 69 (55) 14
Certificate accounts 1,498 (190) 1,308
------ ----- ------
Total deposits 1,567 (245) 1,322
Borrowed funds 1,575 117 1,692
------ ----- ------
Total interest expense 3,142 (128) 3,014
------ ----- ------
Change in net interest income $1,891 $ 515 $2,406
====== ===== ======
The increase in the year-to-date net interest income was primarily attributed
to volume increases in loans. Volume increases in certificates of deposits and
borrowed funds tended to offset the volume increases in earning assets.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
for the first six months of 1997 amounted to $450,000 versus $270,000 for the
first half of 1996. The increased provision is attributable to the ongoing
growth of the Company's loan portfolio.
NONINTEREST INCOME. For the first six months of 1997, total noninterest
income amounted to $896,000, an increase of $41,000 or 4.8% from $855,000 in the
first half of 1996. Customer service and other fees increased by $96,000 or
15.1% in the first half of the year from the same period in 1996 due to
increases in penalties on early withdrawals, and service charges on deposit
accounts. Loan servicing fees, which amounted to $134,000 this period compared
to $162,000 in the first six months of 1996, reflect the amortization of
servicing rights and a reduction in the volume of loans serviced. The Company
had gains on loan sales of $23,000 in the first half of 1997 compared to gains
of $57,000 in the same period of 1996. Sales of investments produced gains of
$7,000 in the first half of 1997 compared to no gains or losses during the 1996
period.
NONINTEREST EXPENSES. Total noninterest expense increased by $83,000 or 1.0%
in the first six months of 1997 to $8.5 million, compared to $8.4 million in the
corresponding period of 1996. The significant components of the change in
expense include a $514,000 or 11.3% increase in compensation and benefits, a
decrease in professional services of $89,000 or 24.1%, a $257,000 or 66.1%
decrease in federal deposit insurance premiums, and a decrease in OREO expense
of $263,000.
The increase in compensation and benefits costs were caused by staff
additions, normal salary increases, and increased costs associated with the
medical insurance, 401(k) and ESOP plans at subsidiary banks. Professional
fees declined as a result of a recovery of prior period legal costs. The
decrease in federal deposit insurance premiums for the first six months reflects
the new rate restructuring of the FDIC. OREO
16
expenses, a net of $139,000 in the first half of 1996, was the result of
foreclosure activity in that period. In 1997 there was a net credit of $124,000
in OREO expenses reflecting gains on sales of foreclosed property, deferred
income recognized, and carrying cost recoveries.
PROVISION FOR INCOME TAXES. The provision for income taxes was $3.5
million for the first six months of 1997, compared to $2.7 million for the
corresponding period in 1996. The combined effective tax rate for the six
months ended June 30, 1997 was 37.4% versus 37.3% for the same period in 1996.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
The Company and its subsidiaries are not involved in any pending legal
proceedings other than those arising in the ordinary course of the
Company's business. Management believes that the resolution of these
matters will not materially affect the Company's business or the
consolidated financial condition of the Company.
Item 2. Changes in Securities.
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
--------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
Not applicable.
Item 5. Other Information.
-----------------
At a meeting of the Board of Directors held on July 17, 1997, the
payment of a cash dividend was declared, providing for payment of $0.12
per share on August 15, 1997 to holders of record on July 30, 1997.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a. Exhibits: 11.0 -- Computation of per share earnings.
27.0 -- Financial Data Schedule.
b. Reports on Form 8-K: The Company filed a report on Form 8-K dated
June 10, 1997, reporting the capitalization of Middlesex
Bank & Trust under items 5 and 7 of Form 8-K.
18
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Affiliated Community Bancorp, Inc.
---------------------------------------------
(Registrant)
Date: August 8, 1997 By /s/ Timothy J. Hansberry
___________________________________
Timothy J. Hansberry
President and Chief Executive Officer
By /s/ John G. Fallon
___________________________________
John G. Fallon
Executive Vice President and
Chief Financial Officer
19