1
EXHIBIT 99
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bell Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Bell Bancorp, Inc. and subsidiary (the Company) as of March 31, 1996 and
1995, and the related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended March 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bell Bancorp, Inc.
and subsidiary as of March 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 9 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1994 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
/s/ KPMG Peat Marwick LLP
May 24, 1996
Chicago, Illinois
1
2
BELL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
March 31, 1996 and 1995
ASSETS 1996 1995
------ ---- ----
(in thousands)
Cash and due from banks $ 15,304 10,647
Interest-earning deposits 59,092 7,503
Investment securities held-to-maturity (estimated fair value of
$120,398 and $44,336 at March 31, 1996 and 1995 (note 2) 120,309 44,266
Mortgage-backed securities held-to-maturity (estimated fair value
of $402,515 and $451,608 at March 31, 1996 and 1995) (note 3) 411,982 480,564
Loans receivable, net of allowance for loan losses of
$7,021 at March 31, 1996 and 1995 (note 4) 1,306,275 1,338,414
Accrued interest receivable (note 5) 11,928 10,988
Foreclosed real estate 3,094 4,256
Premises and equipment, net (note 6) 5,321 5,840
Prepaid expenses and other assets 5,149 4,981
------------ -----------
$ 1,938,454 1,907,459
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits (note 7) 1,604,325 1,519,220
Borrowed funds (note 8) 10,000 79,600
Advance payments by borrowers for taxes and insurance 6,676 7,736
Accrued interest payable 430 787
Taxes payable 2,673 1,318
Other liabilities 6,965 5,834
------------ -----------
Total liabilities 1,631,069 1,614,495
------------ -----------
Stockholders' equity (notes 11 and 15):
Preferred stock, $.01 par value. Authorized 10,000,000 shares;
none outstanding -- --
Common stock, $.01 par value. Authorized 30,000,000 shares;
issued 12,461,960 shares; 9,209,578 shares and 9,103,348
shares outstanding at March 31, 1996 and 1995 124 124
Additional paid-in capital 151,602 151,298
Retained earnings, substantially restricted (note 9) 229,335 221,075
Treasury stock, at cost (3,252,382 and 3,358,612 shares at
March 31, 1996 and 1995) (71,107) (73,429)
Common stock purchased by:
Employee Stock Ownership Plan (notes 8 and 12) (1,900) (4,593)
Association Recognition and Retention Plans (note 13) (669) (1,511)
------------ -----------
Total stockholders' equity 307,385 292,964
Commitments and contingencies (notes 14 and 16)
------------ -----------
$ 1,938,454 1,907,459
============ ===========
See accompanying notes to consolidated financial statements.
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3
BELL BANCORP, INC. AND SUBSIDIARY
Statements of Earnings
Years ended March 31, 1996, 1995, and 1994
1996 1995 1994
---- ---- ----
(in thousands, except per share amounts)
Interest income:
Interest on loans:
Mortgage loans $ 97,814 81,119 87,638
Other loans 54 82 119
---------- ------- -------
Total interest on loans 97,868 81,201 87,757
---------- ------- -------
Mortgage-backed securities 28,066 30,255 25,478
Investment securities 4,106 4,990 7,062
Interest-earning deposits 1,562 854 1,026
---------- ------- -------
Total interest income 131,602 117,300 121,323
---------- ------- -------
Interest expense:
Deposits 74,905 59,370 60,529
Borrowed funds 1,785 1,194 --
---------- ------- -------
Total interest expense 76,690 60,564 60,529
---------- ------- -------
Net interest income before provision for loan losses 54,912 56,736 60,794
Provision for loan losses (note 4) 3,698 3,926 2,623
---------- ------- -------
Net interest income after provision for loan losses 51,214 52,810 58,171
---------- ------- -------
Noninterest income:
Gain (loss) on sale of:
Loans receivable 269 445 310
Foreclosed real estate (735) (837) (621)
Fees and commissions 842 855 1,064
Other 750 198 307
---------- ------- -------
Total noninterest income 1,126 661 1,060
---------- ------- -------
Noninterest expense:
Compensation and benefits 19,063 19,063 18,104
Office occupancy and equipment 3,403 3,601 3,614
Federal deposit insurance premiums 3,523 3,613 3,200
Advertising and promotion 1,438 1,699 1,729
Other 4,778 4,107 4,220
---------- ------- -------
Total noninterest expense 32,205 32,083 30,867
---------- ------- -------
Income before income tax expense and cumulative
effect of change in accounting principle 20,135 21,388 28,364
Income tax expense (note 9) 8,100 8,021 9,950
---------- ------- -------
Income before cumulative effect of change in accounting principle 12,035 13,367 18,414
Cumulative effect of change in accounting for income taxes -- -- 3,001
---------- ------- -------
Net income $ 12,035 13,367 15,413
========== ======= =======
Primary earnings per share:
Before cumulative effect of change in accounting principle $ 1.26 1.32 1.66
Cumulative effect of change in accounting principle -- -- (.27)
---------- ------- -------
Net income 1.26 1.32 1.39
========== ======= =======
Fully-diluted earnings per share:
Before cumulative effect of change in accounting principle $ 1.26 1.32 1.66
Cumulative effect of change in accounting principle -- -- (.27)
---------- ------- -------
Net income $ 1.26 1.32 1.39
========== ======= =======
See accompanying notes to consolidated financial statements.
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4
BELL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years ended March 31, 1996, 1995
Common Common
Additional stock stock
Preferred Common paid-in Retained Treasury acquired acquired
stock stock capital earnings stock by ESOP by ARP Total
--------- ------ ---------- -------- -------- -------- -------- -----
(in thousands)
Balance at March 31, 1994 -- 124 151,379 209,885 (52,467) (6,493) (2,612) 299,816
Net income -- -- -- 13,367 -- -- -- 13,367
Purchase of treasury stock
(975,568 shares) -- -- -- -- (23,451)* -- -- (23,451)
Cash dividend paid
($.225 per share) -- -- -- (2,177) -- -- -- (2,177)
Exercise of stock options
(117,492 shares) -- -- (1,016) -- 2,489 * -- -- 1,473
Tax benefits related to exercise
of stock options and ARP#s
stock -- -- 935 -- -- -- -- 935
Contribution to fund ESOP loan -- -- -- -- -- 1,900 -- 1,900
Amortization of award of
ARP's stock -- -- -- -- -- -- 1,101 1,101
--------- ------- -------- -------- -------- -------- ------- -------
Balance at March 31, 1995 -- 124 151,298 221,075 (73,429) (4,593) (1,511) 292,964
Net income -- -- -- 12,035 -- -- -- 12,035
Cash dividend paid
($.4125 per share) -- -- -- (3,775) -- -- -- (3,775)
Exercise of stock options
(106,230 shares) -- -- (966) -- 2,322 -- -- 1,356
Tax benefits related to exercise
of stock options and ARP#s
stock -- -- 1,270 -- -- -- -- 1,270
Contribution to fund ESOP loan -- -- -- -- -- 2,693 -- 2,693
Amortization of award of --
ARP's stock -- -- -- -- -- -- 842 842
--------- ------- -------- -------- -------- ------- ------- -------
Balance at March 31, 1996 $ -- 124 151,602 229,335 (71,107) (1,900) (669) 307,385
========= ======= ======== ======== ======== ======= ======= -------
See accompanying notes to consolidated financial statements.
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5
BELL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended March 31, 1996, 1995
1996 1995 1994
---- ---- ----
(in thousands)
Cash flows from operating activities:
Net income $ 12,035 13,367 15,413
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 785 871 909
Amortization of cost of stock benefit plans 3,535 3,001 2,934
Tax benefit related to stock options and ARPs 1,270 935 1,076
Amortization of premiums, discounts, and deferred loan fees (1,757) (1,646) (2,812)
Additions to deferred income and unearned discounts 868 1,856 305
Provision for loan losses 3,698 3,926 2,623
Stock dividends on Federal Home Loan Bank stock -- (210) --
Loss (gain) on sale of:
Loans receivable (269) (445) (310)
Foreclosed real estate 735 837 621
(Increase) decrease in accrued interest receivable, prepaid expense, and other assets (1,108) (2,780) 654
Increase (decrease) in accrued interest payable, taxes payable, and other liabilities 2,129 (5,243) 9,697
Loans originated for sale (9,307) (6,319) (52,406)
Sale of loans originated for sale 9,577 6,764 52,716
---------- -------- --------
Net cash provided by operating activities 22,191 14,914 31,420
---------- -------- --------
Cash flows from investing activities:
Loan originations (55,757) (100,158) (69,945)
Principal repayments on:
Loans receivable 244,310 220,001 417,169
Mortgage-backed securities 68,175 103,493 202,175
Proceeds from maturities and call of investment securities 287,241 374,725 888,002
Proceeds from sale of foreclosed real estate 8,432 14,831 8,574
Purchase of:
Loans receivable (166,832) (330,051) (74,236)
Mortgage-backed securities -- (23,152) (417,803)
Investment securities (363,274) (261,284) (922,210)
Premises and equipment (266) (336) (430)
---------- -------- --------
Net cash provided by (used in) investing activities 22,029 (1,931) 31,296
---------- -------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings 94,800 144,000 --
Net proceeds from sale of treasury stock -- -- 780
Net increase (decrease) in deposits 85,105 (78,008) (48,188)
Repayment of borrowed funds (164,400) (64,400) --
Net decrease in advance payments by borrowers for taxes and insurance (1,060) (220) (1,518)
Purchase of treasury stock -- (23,451) (25,767)
Proceeds from exercise of stock options 1,356 1,473 1,393
Dividends paid (3,775) (2,177) --
---------- -------- --------
Net cash provided by (used in) financing activities 12,026 (22,783) (73,300)
---------- -------- --------
Net increase (decrease) in cash and cash equivalents 56,246 (9,800) (10,584)
Cash and cash equivalents at beginning of year 18,150 27,950 38,534
---------- -------- --------
Cash and cash equivalents at end of year $ 74,396 18,150 27,950
========== ======== ========
Supplement disclosure of cash flow information:
Cash paid during the year for interest on:
Deposits 74,834 59,325 60,599
Borrowed funds 2,213 1,194 --
---------- -------- --------
$ 77,047 60,519 60,599
========== ======== ========
Income taxes $ 6,647 7,781 10,848
Noncash investing activity-transfer of loans to foreclosed real estate 8,005 10,784 14,139
========== ======== ========
See accompanying notes to consolidated financial statements.
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BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Bell Bancorp, Inc. (the
Company or Holding Company) and its subsidiary conform to generally
accepted accounting principles and to general practice within the
thrift industry. In preparing the consolidated financial statements,
management is required to make estimates and assumptions that effect
the reported amounts of assets and liabilities as of the date of the
statement of financial condition and revenues and expenses for the
period.
The following is a description of the more significant policies which
the Company follows in preparing and presenting its consolidated
financial statements.
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company, its wholly owned subsidiary, Bell Federal
Savings and Loan Association (the Association) and the Association's
wholly owned subsidiary, Bell Savings Service Corporation. All
significant intercompany transactions and balances have been
eliminated in consolidation.
(b) INVESTMENT SECURITIES HELD-TO-MATURITY
Investment securities held-to-maturity are carried at cost, adjusted
for premiums and discounts, as the Company has both the ability and
positive intent to hold these securities to maturity.
(c) MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY
Mortgage-backed securities held-to-maturity represent participating
interests in pools of first mortgage loans originated and serviced by
the issuers of the securities. These securities are carried at
current unpaid principal balances, adjusted for premiums and
discounts, as the Company has both the ability and the positive intent
to hold them to maturity. Amortization of premiums and accretion of
discounts are recognized in interest income over the remaining life of
the related securities in proportion to the principal reduction of the
assets, which approximates the interest method.
(d) LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances less unearned
discounts, deferred loan fees, loans in process, and allowance for
loan losses.
Discounts on first mortgage loans are amortized to income over the
remaining life of the related assets in proportion to the principal
reduction of the loans, which approximates the interest method.
Loan origination fees and certain direct loan origination costs are
deferred and the net deferred fees are amortized as yield adjustments
over the contractual life of the related loans using the interest
method.
(Continued)
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7
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Allowances for
estimated losses on loans receivable are established when any
significant and permanent decline in value occurs. Additions to
allowance for losses are provided based on a periodic evaluation by
management. Management's periodic evaluation of the adequacy of the
allowance is based on the Association's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any
underlying collateral, and current and prospective economic
conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the
Association's allowances for losses on loans and foreclosed real
estate. Such agencies may require the Association to recognize
additions to the allowances based on their judgments of information
available to them at the time of their examination. Interest income
on loans is not recognized on loans which are five months or greater
delinquent and on loans which management believes are uncollectible.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition Disclosures," effective April 1, 1995.
Management, considering current information and events regarding the
borrower's ability to repay their obligations, considers a loan to be
impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the note
agreement, including principal and interest.
Loans past due five months or more are considered impaired. The
amount of impairment for individual loans is measured based on the
fair value of collateral, if the loan is collateral dependent, or
alternatively, at the present value of expected future cash flows
discounted at the loan's effective interest rate. Certain groups of
small balance homogenous loans represented by installment and consumer
credit and residential one-to-four family real estate loans are
excluded from the impairment provisions. At March 31, 1996, the
Company identified no loans that were considered impaired, as defined.
(e) FORECLOSED REAL ESTATE
Real estate acquired through foreclosure or deed in lieu of
foreclosure is carried at the lower of fair value or the related loan
balance at the date of foreclosure. Valuations are periodically
performed by management and an allowance for loss is established by a
charge to operations if the carrying value of a property subsequently
exceeds its estimated net realizable value.
(f) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of
premises and equipment are computed primarily using the straight-line
method over the estimated useful life of the respective asset. Useful
lives are 20 years for office buildings, 7 to 16 years for furniture,
fixtures and equipment, and 3 years for automobiles. Amortization of
leasehold improvements is computed on the straight-line method over
the lesser of the term of the lease or the useful life of the
property.
(Continued)
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8
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(g) INCOME TAXES
The Company files a consolidated Federal income tax return with the
Association. The provision for Federal and state taxes on income is
based on earnings reported in the financial statements.
Deferred income taxes arise from the recognition of certain items of
income and expense for tax purposes in years different from those in
which they are recognized in the consolidated financial statements.
In February 1992, FASB issued SFAS No. 109, Accounting for Income
Taxes. SFAS No. 109 requires a change from the deferred method of
accounting for income taxes required under Accounting Principles Board
(APB) No. 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to difference between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Effective April 1, 1993, the Company adopted SFAS No. 109 and has
reported the cumulative effect of that change in the method of
accounting for income taxes in the 1994 consolidated statement of
operations.
(h) POSTRETIREMENT BENEFITS
The Company does provide for certain postretirement benefits to
retired employees. Effective April 1, 1993, the Company adopted SFAS
No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, which requires that the projected future cost of providing
postretirement benefits be recognized as an expense as employees
render service. Prior to 1994, the Company recognized these benefits
on the pay-as-you-go method. The Company has elected to recognize the
initial liability of $4.6 million, which reflects the present value of
future payouts including anticipated medical inflation, over the
employees' expected future service of 23 years as is permitted by SFAS
No. 106.
(i) EARNINGS PER SHARE
Earnings per share for the year ended March 31, 1996 was determined by
dividing net income for the year by 9,543,037 and 9,578,978, the
weighted average number of primary and fully-diluted shares of common
stock and common stock equivalents outstanding. Earnings per share
for the year ended March 31, 1995 was determined by dividing net
income for the year by 10,160,308 and 10,160,447, the weighted average
number of primary and fully-diluted shares.
(Continued)
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9
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Earnings per share for the year ended March 31, 1994 was determined by
dividing net income for the year by 11,089,404 and 11,082,952, the
weighted average number of primary and fully-diluted shares. Stock
options are regarded as common stock equivalents and therefore
considered in the primary and fully-diluted earnings per share
calculations. Common stock equivalents are computed under the
treasury stock method.
(j) STOCK OPTIONS
Proceeds from the sale of stock to employees and directors under the
existing stock option plans are credited to treasury stock. Income
tax benefits attributable to nonqualified stock options exercised are
credited to additional paid-in capital.
(k) CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash and due from banks and interest-earning
deposits.
(l) STOCKHOLDERS' EQUITY
On July 21, 1994, the Board of Directors of Bell Bancorp, Inc.
approved a two-for-one stock split, effected in the form of a stock
dividend which was payable on September 8, 1994 to stockholders of
record on August 18, 1994. Accordingly, stockholders of record
received one (1) new share for each share owned as of August 18, 1994.
All prior share related information has been restated to reflect the
stock split effect, including earnings per share data.
(m) BASIS OF PRESENTATION
Certain amounts for 1995 have been reclassified to conform to the 1996
presentation.
(Continued)
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10
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) INVESTMENT SECURITIES HELD-TO-MATURITY
Investment securities held-to-maturity are summarized as follows as of
March 31, 1996 and 1995:
1996
-----------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
(in thousands)
United States Government
obligations and agencies $ 17,243 165 (75) 17,333
Corporate securities 88,550 1 (2) 88,549
Stock in Federal Home Loan
Bank of Chicago 14,516 -- -- 14,516
--------- ----- ----- ---------
$ 120,309 166 (77) 120,398
========= ===== ===== =========
The maturity of investment securities as of March 31, 1996 are
summarized as follows:
Estimated
Amortized fair
cost value
--------- ---------
(in thousands)
Due in one year or less $ 98,951 98,973
Due after one year through five years 6,095 6,098
Due after five years through ten years 747 811
Stock in Federal Home Loan Bank of Chicago 14,516 14,516
--------- ---------
$ 120,309 120,398
========= =========
(Continued)
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11
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1995
-----------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
(in thousands)
United States Government
obligations and agencies $25,611 135 (65) 25,681
Corporate securities 5,000 -- -- 5,000
Stock in Federal Home Loan
Bank of Chicago 13,655 -- -- 13,655
------- ---- ---- -------
$44,266 135 (65) 44,336
======= ==== ==== =======
The maturity of investment securities as of March 31, 1995 are summarized as follows:
Estimated
Amortized fair
cost value
--------- ---------
(in thousands)
Due in one year or less $16,234 16,235
Due after one year through five years 13,139 13,152
Due after five years through ten years 1,238 1,294
Stock in Federal Home Loan Bank of Chicago 13,655 13,655
------- --------
$44,266 44,336
======= ========
(Continued)
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12
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY
Mortgage-backed securities held-to-maturity are summarized as follows as
of March 31, 1996 and 1995:
1996
-----------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
(in thousands)
Collateralized mortgage obligations $316,337 46 (10,256) 306,127
Participation certificates:
Federal Home Loan
Mortgage Corporation 78,006 522 (67) 78,461
Federal National Mortgage
Association 6,796 105 (6) 6,895
Government National
Mortgage Association 10,843 189 -- 11,032
-------- ----- -------- ---------
$411,982 862 (10,329) 402,515
======== ===== ======== =========
1995
-----------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
(in thousands)
Collateralized mortgage obligations $359,836 16 (28,248) 331,604
Participation certificates:
Federal Home Loan
Mortgage Corporation 98,309 324 (851) 97,782
Federal National Mortgage
Association 9,446 41 (25) 9,462
Government National
Mortgage Association 12,973 18 (231) 12,760
-------- ----- -------- ---------
$480,564 399 (29,355) 451,608
======== ===== ======== =========
(Continued)
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13
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) LOANS RECEIVABLE
Loans receivable are summarized as follows as of March 31, 1996 and
1995:
1996 1995
---- ----
(in thousands)
Mortgage loans:
One- to four-family residential originated $ 378,199 383,226
One- to four-family residential purchased 906,488 931,346
Other mortgage loans 30,683 36,686
----------- ----------
Total mortgage loans 1,315,370 1,351,258
----------- ----------
Other loans 463 1,094
----------- ----------
Total loans receivable 1,315,833 1,352,352
----------- ----------
Less:
Loans in process 71 3,367
Unearned discounts, premiums, and deferred
loan fees, net 2,466 3,550
Allowance for loan losses 7,021 7,021
----------- ----------
Loans receivable, net $ 1,306,275 1,338,414
=========== ==========
Weighted average interest rate 7.28% 6.63
=========== ==========
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal
balances of these loans were approximately $15.4 million, $16.9 million,
and $16.7 million at March 31, 1996, 1995, and 1994, respectively.
Custodial balances maintained in connection with the mortgage loans
serviced for others and included in deposits were approximately
$487,605, $567,000, and $395,000 at March 31, 1996, 1995, and 1994,
respectively.
(Continued)
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14
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Activity in the allowance for loan losses is summarized as follows for
the years ended March 31, 1996, 1995, and 1994.
1996 1995 1994
---- ---- ----
(in thousands)
Balance at beginning of year $ 7,021 6,103 6,197
Provision for loan losses 3,698 3,926 2,623
Charge-offs (3,698) (3,008) (2,717)
------- ------- -------
$ 7,021 7,021 6,103
======= ======= =======
There was no allowance for specific loan losses in the balance of the
allowance for loan losses at March 31, 1996, 1995, and 1994.
Loans receivable delinquent three months or more are as follows:
Percentage
of total
Number loans
of loans Amount receivable
-------- ------ ----------
(in thousands)
March 31, 1996 188 $18,445 1.40%
March 31, 1995 206 19,188 1.42
March 31, 1994 250 18,861 1.63
==== ======= =====
(5) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows as of March 31,
1996 and 1995:
1996 1995
---- ----
(in thousands)
Investment securities $ 568 631
Mortgage-backed securities 2,306 2,611
Loans receivable 9,054 7,746
------- ---------
$11,928 10,988
======= =========
(Continued)
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15
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) PREMISES AND EQUIPMENT
Premises and equipment, at cost, less accumulated depreciation and
amortization, is summarized as follows as of March 31, 1996 and 1995:
1996 1995
---- ----
(in thousands)
Land $ 632 632
Buildings 9,650 10,517
Furniture, fixtures, and equipment 3,618 3,582
Leasehold improvements 1,223 1,338
Automobiles 356 338
------- ---------
15,479 16,407
Less accumulated depreciation and amortization 10,158 10,567
------- ---------
$ 5,321 5,840
======= =========
Depreciation and amortization of premises and equipment was
approximately $785,000, $871,000, and $909,000 for the years ended March
31, 1996, 1995, and 1994, respectively.
(Continued)
15
16
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(7) DEPOSITS
Deposits balances by interest rate are summarized as follows as of March
31, 1996 and 1995:
1996
-----------------------------------------
Percent Weighted
of total average
Amount deposits rate
------ -------- --------
(in thousands)
Passbook accounts $ 132,923 8.29% 2.78%
NOW accounts 81,212 5.06 1.99
Money market accounts 216,631 13.51 3.03
----------- -------- ------
430,766 26.86 2.76
----------- -------- ------
Certificate accounts:
3.99% or less 3,286 .20
4.00% to 4.99% 136,758 8.53
5.00% to 5.99% 803,827 50.10
6.00% to 6.99% 139,980 8.72
7.00% to 7.99% 87,258 5.44
8.00% and greater 2,567 .16
----------- -------- ------
1,173,676 73.15 5.65
----------- -------- ------
Gross deposits 1,604,442 100.01
Less premiums on deposits acquired (117) (.01)
----------- -------- ------
Total deposits $ 1,604,325 100.00% 4.87%
=========== ======== ======
(Continued)
16
17
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1995
---------------------------------------
Percent Weighted
of total average
Amount deposits rate
------ -------- --------
(in thousands)
Passbook accounts $ 143,697 9.46% 2.76%
NOW accounts 76,318 5.02 1.98
Money market accounts 243,429 16.02 3.00
---------- ------- ------
463,444 30.50 2.76
---------- ------- ------
Certificate accounts:
3.99% or less 71,613 4.72
4.00% to 4.99% 358,943 23.63
5.00% to 5.99% 388,244 25.56
6.00% to 6.99% 189,677 12.48
7.00% to 7.99% 29,771 1.96
8.00% and greater 17,691 1.16
---------- ------- ------
1,055,939 69.51 5.28
---------- ------- ------
Gross deposits 1,519,383 100.01
Less premiums on deposits acquired (163) (.01)
---------- ------- ------
Total deposits $1,519,220 100.00% 4.51%
========== ======= ======
Scheduled maturities of certificate accounts at March 31, 1996 are as follows (in thousands):
Less than 12 months $ 880,126
12 to 36 months 218,249
Over 36 months 75,301
----------------
$ 1,173,676
================
(Continued)
17
18
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Interest expense on deposits is summarized as follows for the years
ended March 31, 1996, 1995, and 1994:
1996 1995 1994
---- ---- ----
(in thousands)
Money market accounts $ 6,708 7,649 8,339
Passbook accounts 3,751 4,062 4,310
NOW accounts 1,461 1,549 1,597
Certificate accounts 62,985 46,110 46,283
------- ------- -------
$74,905 59,370 60,529
======= ======= =======
The aggregate amount of time deposits with a balance of $100,000 or
greater was approximately $197.2 million and $168.4 million at March 31,
1996 and 1995, respectively.
(8) BORROWED FUNDS
Advances from the Federal Home Loan Bank of Chicago which totaled $10.0
million at March 31, 1996, have a fixed interest rate of 5.99%, and will
mature on July 19, 1997.
Advances at March 31, 1995 were $79.6 million, were due within a year,
and had a weighted average interest rate of 6.19%.
The Association has adopted a collateral pledge agreement whereby the
Association has agreed to at all times keep in hand, free of all other
pledges, liens, and encumbrances, first mortgages with unpaid principal
balances aggregating no less than 167% of the outstanding secured
advances from the Federal Home Loan Bank of Chicago. All stock in the
Federal Home Loan Bank of Chicago is pledged as additional collateral
for these advances.
In connection with the initial public offering, the Association
established an Employee Stock Ownership Plan (ESOP). The ESOP was
funded by the proceeds from a $12.5 million loan which is currently held
by the Holding Company. The loan carries an interest rate of prime, and
matures in the year 2001. The loan is secured by the shares of the
Company purchased with the loan proceeds. The Association has committed
to make contributions to the ESOP sufficient to allow the ESOP to fund
the debt service requirements of the loan.
(Continued)
18
19
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) INCOME TAXES
Income tax expense is summarized as follows for the years ended March
31, 1996, 1995, and 1994.
1996 1995 1994
---- ---- ----
(in thousands)
Federal:
Current $6,969 8,112 10,554
Deferred (337) (1,648) (558)
------ ------- -------
6,632 6,464 9,996
------ ------- -------
State:
Current 1,514 1,780 41
Deferred (46) (223) (87)
------ ------- -------
1,468 1,557 (46)
------ ------- -------
Total income tax expense $8,100 8,021 9,950
====== ======= =======
Reasons for the difference between the effective income tax and the
corporate Federal income tax are detailed as shown below for the years
ended March 31, 1996, 1995, and 1994.
1996 1995 1994
---- ---- ----
(in thousands)
Federal income tax at applicable statutory rate of 35% $7,047 7,486 9,927
Items affecting Federal income tax rate:
State income tax expense, net 954 1,012 27
Other, net 99 (477) (4)
------ ------- -------
Income tax expense $8,100 8,021 9,950
====== ======= =======
(Continued)
19
20
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The sources of the deferred income tax assets and liabilities are as
follows:
1996 1995
---- ----
(in thousands)
General valuation reserve $ 2,790 2,790
Deferred compensation 285 268
Deferred loan fees 6 58
Book over tax depreciation -- 45
Other 1 6
-------- -------
Total gross deferred tax assets 3,082 3,167
Less valuation allowance -- --
-------- -------
Net deferred tax assets 3,082 3,167
-------- -------
Loan tax bad debt reserve over base year (2,005) (2,799)
Tax over book depreciation (13) --
Dividends on FHLB stock (1,058) (1,058)
Retirement provision (332) --
Deferred loss on closed futures contracts (59) (78)
-------- -------
Total gross deferred tax liabilities (3,467) (3,935)
-------- -------
Net deferred liability $ (385) (768)
======== =======
No valuation allowance for deferred tax assets at March 31, 1996 and
1995 has been recorded as the Company believes it is more likely than
not the deferred tax assets will be realized in the future.
Under the Internal Revenue Code, the Association is allowed to deduct an
annual addition to a reserve for bad debts in determining taxable
income, subject to certain limitations. The allowable deduction is
equal to the greater of the amount calculated using the experience
method or a percentage of taxable income. The percentage method was
used for fiscal years ended March 31, 1996, 1995, and 1994 as it
resulted in a greater allowable deduction.
Retained earnings at March 31, 1996 include approximately $53.5 million
for which no provision for Federal income tax has been made. This
amount represents allocation of income to bad debt deductions for tax
purposes only. Reduction of amounts so allocated for purposes other
than tax bad debt losses will create income for tax purposes which will
be subject to the then current corporate income tax rate.
(Continued)
20
21
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) PENSION AND POSTRETIREMENT BENEFIT PLANS
The Association maintains a noncontributory defined benefit pension plan
covering substantially all of its employees. The normal retirement
benefits provided by the plan are based on compensation and length of
service. The Association makes annual contributions to the plan equal
to an amount calculated by an outside consulting actuary. Pension
expense for the years ended March 31, 1996, 1995, and 1994, was
approximately $1,022,000, $919,000, and $649,000, respectively.
The table below sets forth the plan's funded status and amounts
recognized in the Association's financial statements at March 31, 1996
and 1995:
1996 1995
---- ----
(in thousands)
Actuarial present value of benefit obligations -
accumulated benefit obligations, including
vested benefits of $10,929 and $9,670 $ 12,251 10,822
========== =======
Plan assets, at fair value 13,761 10,851
Projected benefit obligation for service rendered to date (19,399) (16,349)
---------- -------
Plan assets less than projected benefit obligation (5,638) (5,498)
---------- -------
Contribution in fourth quarter -- 209
Unrecognized net gain from past experience different
from that assumed 6,545 5,504
Unrecognized prior service cost 520 568
Unrecognized net transition obligation being recognized
over 15 years (596) (795)
---------- -------
Prepaid (accrued) pension cost $ 831 (12)
========== =======
1996 1995 1994
---- ---- ----
(in thousands)
Net pension cost for the years ended March 31, 1996,
1995, and 1994 includes the following components:
Service cost benefits earned during the year $ 614 639 539
Interest cost on projected benefit obligation 1,266 1,172 1,126
Actual (return) loss on plan assets (1,425) 501 (743)
Net amortization and deferral 567 (1,393) (273)
------- ------- ------
Net periodic pension cost $ 1,022 919 649
======= ======= ======
(Continued)
21
22
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation at the beginning of
the year to determine the net periodic pension cost and at the end of
the year for the present value of the benefit obligation during 1996,
1995, and 1994 was 7.00%, 8.25%, and 7.00%, respectively. The expected
long-term rate of return on assets was 8.00% during 1996, 1995, and 1994
and the rate of increase in future compensation was 6.0% in 1996, 1995,
and 1994.
In addition to the Association's defined benefit pension plan, the
Association sponsors a health care plan that provides postretirement
benefits to full-time employees who meet minimum age and service
requirements. The plan is contributory, with retiree contributions
adjusted annually, and contains other cost-sharing features such as
deductibles and coinsurance. The accounting for the plan anticipates
future cost-sharing changes to the written plan that are consistent with
the Association's expressed intent to increase the retiree contribution
rate annually for the expected general inflation rate for that year.
The Association's policy is to fund the cost of medical benefits in
amounts determined at the discretion of management.
The Association adopted SFAS No. 106 as of April 1, 1993 and is
recognizing the initial liability over 23 years. The net periodic
postretirement benefit cost for the years ended March 31, 1996, 1995,
and 1994 were $508,000 and $736,000, and $654,000 respectively.
The Association's postretirement plan financial data for the plan years
ended March 31, 1996 and 1995 are shown below:
1996 1995
---- ----
(in thousands)
Accumulated postretirement benefit obligation:
Fully eligible actives $ 214 364
Other actives 1,510 1,385
Retirees 2,959 2,682
-------- -------
$ 4,683 4,431
======== =======
Net periodic postretirement benefit cost:
Service cost $ 68 146
Interest cost 293 389
Amortization of unrecognized liability 201 201
Amortization of unrecognized (gain) loss (54) --
-------- -------
$ 508 736
======== =======
For measurement purposes, a 9.5% annual rate of increase in the per
capita cost of covered benefits (i.e. health care cost trend rates) was
assumed for 1996. The rate was assumed to decrease gradually to 5.5% by
the year 2005 and remain at that level thereafter. Increasing the
health care cost trend rate by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of March
31, 1996 by approximately $612,000 and the service and interest cost
(Continued)
22
23
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
components of net periodic postretirement benefit cost for the year
ended March 31, 1996 by approximately $53,000. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% at March 31, 1996 and 8.25% at March 31, 1995.
(11) STOCK OPTION PLANS
In conjunction with the conversion of the Association, the Company
adopted an incentive stock option plan for the benefit of officers of
the Association and a director's stock option plan for the benefit of
outside directors of the Company. The number of shares of common stock
authorized under the Officers' Plan after restatement for the 2 for 1
stock split is 1,303,946. No options were granted for the year ended
March 31, 1996, while 8,860 and 25,554 options were granted at the
market value per share at the date of grant for the years ended
March 31, 1995 and 1994, respectively. Options granted under the
Officers' Plan become exercisable one year from the date of grant for
executive officers and senior officers of the Association and for other
officers on a cumulative basis in equal installments at a rate of 20%
per year commencing one year from the date of the grant. The fifth and
final installment of options for each officer will become exercisable on
June 7, 1996, the date of the merger with Standard Federal
Bancorporation, Inc. The number of shares of common stock authorized
under the Directors' Plan is 124,780. For the years ended March 31,
1996, 1995, and 1994, 12,478, 12,478, and -0- options were granted under
the Directors' Plan. For the years ended March 31, 1996, 1995, and
1994, 106,230, 117,492, and 111,098 options granted under both plans
have been exercised and issued from treasury stock at an average price
of $21.86, $21.18, and $19.59, respectively, per share. As of March 31,
1996, 1995, and 1994, 752,677, 611,586, and 584,906 options,
respectively, are exercisable under both plans. The term of the options
issued under both plans expires ten years from the date of grant.
(12) EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
In connection with the Association's conversion, the Association formed
an ESOP. The ESOP covers substantially all employees with more than one
year of employment and who have attained the age of 21. The ESOP
borrowed $12.5 million from an unaffiliated third-party lender and
purchased after restatement for the 2 for 1 stock split, 998,236 common
shares of the Company issued in the conversion. The debt was assumed by
the Holding Company in fiscal 1993. In accordance with generally
accepted accounting principles, the unpaid balances of the ESOP loan,
which is comparable to unearned compensation, is reported as a deduction
of stockholders' equity. In 1996, contributions to the ESOP which were
used to fund principal payments on the ESOP debt totaled approximately
$2.7 million. The Association has committed to make cash contributions
to the ESOP sufficient to service the requirements of the loan.
(13) ASSOCIATION RECOGNITION AND RETENTION PLANS
In conjunction with the Association's conversion, the Company formed two
Association Recognition and Retention Plans (ARPs), which purchased in
the aggregate, after restatement for the 2 for 1 stock split, 499,118
shares or 4% of the shares issued in the conversion. The shares
(Continued)
23
24
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
were purchased for $6.2 million with funds contributed to the ARPs from
the Association. As of March_31, 1996, 70,369 awards were outstanding,
with such awards to be earned by officers and directors in equal annual
installments over a five-year period from date of grant. An additional
3,205 shares owned by the ARPs have not yet been awarded. The $6.2
million contributed to the ARPs is being amortized to compensation
expense as the Association's officers and directors become vested in
those shares. As of March 31, 1996, $5.5 million of deferred
compensation expense has been recognized since inception. The
unamortized cost, which is comparable to deferred compensation, is
reflected as a reduction of stockholders' equity.
(14) COMMITMENTS
The Association's home office building is located on land subject to a
long-term lease agreement requiring annual rentals of $74,000 and
payment of all real estate taxes and assessments through June 20, 2103,
at which time the Association will surrender the leasehold, including
improvements. The Association also leases certain branch office
facilities under noncancelable long-term operating leases, which expire
at various dates through 2014. Certain leases contain renewal options
with negotiable terms. Rent expense amounted to approximately $678,000,
$668,000, and $667,000 for the years ended March 31, 1996, 1995, and
1994, respectively.
Minimum long-term operating lease commitments are as follows:
Year Amount
---- ------
(in thousands)
1997 $ 632
1998 473
1999 398
2000 334
2001 342
Thereafter 9,037
=======
(15) STOCKHOLDERS' EQUITY
As part of the conversion from a mutual to a stock form of ownership,
the Association established a liquidation account for the benefit of
eligible depositors who continue to maintain their deposit accounts in
the Association after conversion. In the unlikely event of a complete
liquidation of the Association, each eligible depositor will be entitled
to receive a liquidation distribution from the liquidation account, in
the proportionate amount of the then current adjusted balance for
deposit accounts held, before distribution may be made with respect to
the Association's capital stock. The Association may not declare or pay
a cash dividend to the Company on, or repurchase any of, its capital
stock if the effect thereof would cause the retained earnings of the
Association to be reduced below the amount required for the liquidation
account. Except for such restrictions, the existence of the liquidation
account does not restrict the use or application of retained earnings.
(Continued)
24
25
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Association's capital exceeds all of the fully phased-in capital
requirements imposed by the Financial Institution Reform, Recovery, and
Enforcement Act (FIRREA). Office of Thrift Supervision (OTS)
regulations provide that an institution that exceeds all fully phased-in
capital requirements before and after a proposed capital distribution
could, after prior notice but without the approval by the OTS, make
capital distributions during the calendar year of up to 100% of its net
income to date plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in
capital requirements) at the beginning of the calendar year. Any
additional capital distributions would require prior regulatory
approval.
Unlike the Association, the Company is not subject to these regulatory
restrictions on the payment of dividends to its stockholders.
(16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Association is a party to various transactions with off-balance
sheet risk in the normal course of business. These transactions are
primarily commitments to originate and purchase loans. These
commitments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recorded in the consolidated financial
statements.
Commitments to originate and purchase mortgage loans amounted to $9.1
million and $29.1 million, respectively, at March 31, 1996. The
estimated fair value of these commitments approximates market. There
were no commitments to purchase government insured mortgage-backed
securities.
In addition to financial instruments with off-balance sheet risk, the
Association is exposed to varying risks associated with concentrations
of credit. Concentrations of credit include significant lending
activities in specific geographical areas. Although the Association
conducts substantially all of its lending activities in the City of
Chicago, the surrounding suburbs of Chicago, and the City of Rockford,
Illinois, the Association has, however, purchased loans outside of its
primary lending area.
Included in the March 31, 1996 loan portfolio balance are $520.8
million, or 39.6% of the Association's total gross loan portfolio, of
loans purchased from California institutions which are secured by
properties primarily in California. Substantially all of the purchased
loans are secured by one-to-four family properties. California
represents the only significant concentration of loans purchased outside
of the Association's primary lending area.
The Association has approved, but unused, home equity lines of credit of
approximately $16.9 million and $18.4 million at March 31, 1996 and
1995. These unused lines of credit will be based on points over the
prime rate of interest and will approximate market. Approval of lines
of credit is based upon underwriting standards that do not allow total
borrowings, including the line of credit, to exceed 80% of the estimated
market value of the customer's home. These are similar to guidelines
used when the Association originates first mortgage loans, and are a
means of controlling its credit risk.
(Continued)
25
26
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17) CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition as of March
31, 1996 and 1995, and condensed statements of earnings and cash flows
for the years ended March 31, 1996, 1995, and 1994 for Bell Bancorp,
Inc. should be read in conjunction with the consolidated financial
statements and the notes thereto.
Statements of Financial Condition
1996 1995
---- ----
(in thousands)
Assets:
Cash $ 5 3
Investment securities 28,865 8,164
Mortgage-backed securities 19,803 27,470
Equity in net assets of Association 239,486 229,200
Due from Association 18,900 31,793
Prepaid expense and other assets 324 784
-------- ---------
Total assets $307,383 297,414
======== =========
Liabilities:
Accrued income taxes payable 311 --
Other liabilities 111 69
-------- ---------
Total liabilities 422 69
Stockholders' equity:
Common stock 124 124
Additional paid-in capital 148,609 149,575
Retained earnings 229,335 221,075
Treasury stock (71,107) (73,429)
-------- ---------
Total stockholders' equity 306,961 297,345
-------- ---------
Total liabilities and stockholders' equity $307,383 297,414
======== =========
(Continued)
26
27
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Statements of Earnings
1996 1995 1994
---- ---- ----
(in thousands)
Equity in earnings of Association $ 10,286 10,795 14,192
Interest income 4,951 5,029 2,587
Income tax expense (1,456) (1,478) (589)
Other (1,746) (979) (777)
-------- -------- --------
Net income $ 12,035 13,367 15,413
======== ======== ========
(Continued)
27
28
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Statements of Cash Flows
1996 1995 1994
---- ---- ----
(in thousands)
Operating activities:
Net income $ 12,035 13,367 15,413
Less equity in earnings of the Association not
providing funds (10,286) (10,795) (14,192)
Amortization 3 33 29
Tax benefit related to stock options -- -- 288
Decrease (increase) in prepaid expense and other
assets 460 (450) 11
Increase (decrease) in accrued income taxes payable 311 (23) 85
Increase (decrease) in other liabilities 42 (65) 93
------------ -------- --------
Net cash provided by operating activities 2,565 2,067 1,727
------------ -------- --------
Investing activities:
Advances to subsidiary (15,600) (42,400) --
Repayments from subsidiary 28,493 17,100 1,700
Purchase of investments (41,997) (192,284) (333,321)
Maturities of investments 21,294 208,075 338,603
Dividends received from Association -- 19,144 45,513
Purchase of mortgage-backed securities -- -- (38,309)
Principal repayments on mortgage-backed securities 7,667 12,453 7,681
------------ -------- --------
Net cash provided by (used in) investing activities (143) 22,088 21,867
------------ -------- --------
Financing activities:
Dividends paid (3,775) (2,177) --
Net proceeds from sale of treasury stock -- -- 780
Proceeds from exercise of stock options 1,355 1,473 1,393
Purchase of treasury stock -- (23,451) (25,767)
------------ -------- --------
Net cash used in financing activities (2,420) (24,155) (23,594)
------------ -------- --------
Net increase in cash and cash equivalents 2 -- --
Cash and cash equivalents at beginning of period 3 3 3
------------ -------- --------
Cash and cash equivalents at end of period $ 5 3 3
============ ======== ========
(Continued)
28
29
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (Statement No. 107), requires the
disclosure of estimated fair values of all asset, liability, and
off-balance sheet financial instruments. The estimated fair value
amounts under Statement No. 107 have been determined as of a specific
point in time utilizing various available market information,
assumptions, and appropriate valuation methodologies. Accordingly, the
estimated fair values presented herein are not necessarily
representative of the underlying value of the Holding Company. Rather
the disclosures are limited to reasonable estimates of the fair value of
only the financial instruments of the Holding Company. The use of
assumptions and various valuation techniques, as well as the absence of
secondary assets for certain financial instruments, will likely reduce
the comparability of fair value disclosures between financial
institutions. The Holding Company does not plan to sell its assets or
settle its liabilities at these fair values. The estimated fair values
of the financial instruments of the Holding Company as of March 31, 1996
and 1995 are set forth in the following table.
1996 1995
--------------------- --------------------
Carrying Fair Carrying Fair
amount value amount value
-------- ----- -------- -----
(in thousands)
Financial assets:
Cash and due from banks $ 15,304 15,304 10,647 10,647
Interest-earning deposits 59,092 59,092 7,503 7,503
Investment securities 120,309 120,398 44,266 44,336
Mortgage-backed securities 411,982 402,515 480,564 451,608
Loans receivable 1,306,275 1,289,000 1,352,352 1,323,000
Financial liabilities:
Passbook, NOW, and money market 430,766 430,766 463,444 463,444
Certificate accounts 1,173,559 1,176,000 1,055,776 1,048,000
Borrowed funds 10,000 9,958 79,600 79,600
============== ========== ========== ==========
The following methods and assumptions are used by the Holding Company in
estimating the fair value for its financial instruments.
(a) CASH AND DUE FROM BANKS AND
INTEREST-EARNING DEPOSITS
The carrying value of cash, due from banks, and interest-earning
deposits approximates fair value due to the short period of time between
origination of the instruments and their expected realization.
(Continued)
29
30
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(b) INVESTMENT SECURITIES AND
MORTGAGE-BACKED SECURITIES
The fair value of these financial instruments was estimated using quoted
market prices.
(c) LOANS RECEIVABLE
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as one-to-four
family residential, and multi-family. Each loan category is further
segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories.
The fair value of performing loans is calculated using assumptions
regarding credit risk, cash flows, and discount rates judgmentally
determined using available market information and specific borrower
information.
(d) DEPOSITS
The fair values of deposits with no stated maturity, such as passbook
savings, NOW accounts, and money market accounts, are disclosed as the
amount payable on demand. The fair value of fixed-maturity deposits is
based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently being offered for deposits
with similar remaining terms to maturity. The fair value estimates do
not include the benefit that results from the low-cost funding provided
by the deposit liabilities compared to the cost of borrowing funds in
the market.
(e) BORROWED FUNDS
The fair value of FHLB advances is estimated based on current rates for
advances with similar terms.
(f) COMMITMENTS TO EXTEND CREDIT
The fair value of commitments to extend credit approximates the
commitment amount due to the short-term nature of the commitment period.
(19) SUBSEQUENT EVENT
On December 14, 1995, the Company entered into a definitive agreement to
be acquired by Standard Federal Bancorporation, Inc. of Troy, Michigan
for a purchase price of $37.50 per share, in cash. Regulatory approval
from the Office of Thrift Supervision was received on April 10, 1996.
The agreement was approved by the Company's stockholders on May 16, 1996
and is expected to be consummated on June 7, 1996.
(Continued)
30
31
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Year ended March 31, 1996
----------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income $ 32,414 33,205 33,056 32,927
Interest expense 18,593 19,271 19,453 19,373
------------ -------- -------- --------
Net interest income before provision
for loan losses 13,821 13,934 13,603 13,554
Provision for loan losses 799 1,087 805 1,007
------------ -------- -------- --------
Net interest income after provision
for loan losses 13,022 12,847 12,798 12,547
Loss on sale of assets (98) (93) (118) (157)
Other income 268 190 561 573
Noninterest expense 7,888 8,069 8,599 7,649
------------ -------- -------- --------
Income before income tax expense 5,304 4,875 4,642 5,314
Income tax expense 2,198 1,888 1,814 2,200
------------ -------- -------- --------
Net income $ 3,106 2,987 2,828 3,114
============ ======== ======== ========
Earnings per share -- primary $ .33 .31 .30 .32
============ ======== ======== ========
Earnings per share -- fully-diluted $ .33 .31 .29 .32
============ ======== ======== ========
Dividends per share $ .075 .113 .113 .113
============ ======== ======== ========
(Continued)
31
32
BELL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Year ended March 31, 1995
----------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income $ 28,465 28,622 28,922 31,291
Interest expense 14,026 14,414 15,161 16,963
------------ -------- -------- --------
Net interest income before provision
for loan losses 14,439 14,208 13,761 14,328
Provision for loan losses 2,000 392 827 707
------------ -------- -------- --------
Net interest income after provision
for loan losses 12,439 13,816 12,934 13,621
Gain (loss) on sale of assets (193) (192) 275 (282)
Other income 280 244 244 285
Noninterest expense 7,948 7,994 8,057 8,084
------------ -------- -------- --------
Income before income tax expense and
cumulative effect of change in
accounting principle 4,578 5,874 5,396 5,540
Income tax expense 1,658 2,357 2,288 1,718
------------ -------- -------- --------
Income before cumulative effect of change
in accounting principle 2,920 3,517 3,108 3,822
Cumulative effect of change in accounting
for income taxes -- -- -- --
------------ -------- -------- --------
Net income $ 2,920 3,517 3,108 3,822
------------ -------- -------- --------
Earnings per share before accounting
change - primary $ .56 .34 .31 .41
Cumulative effect of accounting change -- -- -- --
------------ -------- -------- --------
Earnings per share after accounting
change - primary $ .56 .34 .31 .41
============ ======== ======== ========
Earnings per share before accounting
change - fully-diluted .56 .34 .31 .41
Cumulative effect of accounting change -- -- -- --
------------ -------- -------- --------
Earnings per share after accounting
change - fully-diluted $ .56 .34 .31 .41
============ ======== ======== ========
Dividends per share $ -- .075 .075 .075
============ ======== ======== ========
(Continued)
32