UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________.
Commission file number 0-24566
AVONDALE FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 36-3895923
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20 North Clark Street, Chicago, Illinois 60602
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 782-6200
--------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
----
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES: XXX NO: __ ___
--------
3,811,468 common shares of stock were outstanding as of May 13, 1996.
AVONDALE FINANCIAL CORP. AND SUBSIDIARIES
-----------------------------------------
FORM 10-Q
---------
MARCH 31, 1996
--------------
INDEX
- -----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at March 31, 1996, December 31, 1995
and March 31, 1995........................................................... 2
Condensed consolidated statements of income for the three months ended
March 31, 1996 and March 31, 1995............................................ 3
Condensed consolidated statements of stockholders' equity for the three months
ended March 31, 1996 and March 31, 1995...................................... 4
Condensed consolidated statements of cash flows for the three months ended
March 31, 1996 and March 31, 1995............................................ 5 - 6
Notes to condensed consolidated financial statements......................... 7 - 8
Item 2. Management's discussion and analysis of financial condition and results
of operations.......................................................... 9 - 13
PART II. OTHER INFORMATION
Calculation of earnings per share............................................ 14
Signatures................................................................... 15
1
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AVONDALE FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) MAR 31, 1996 DEC 31, 1995 MAR 31, 1995
------------ ------------ ------------
ASSETS (in thousands except per share data)
Cash and due from banks $ 6,014 $ 5,275 $ 2,565
Interest-bearing deposits 1,591 1,067 33,077
----------------------------------------
Total cash and cash equivalents 7,605 6,342 35,642
Securities available-for-sale - At fair value (amortized cost Mar 31, 1996 -
$47,584; Dec 31, 1995 - $76,198; Mar 31, 1995 - $53,423) 48,166 77,879 54,068
Securities held-to-maturity - At amortized cost (fair value Mar 31, 1996 -
$6,806; Dec 31, 1995 - $6,732; Mar 31, 1995 - $9,985) 6,885 6,880 10,364
Mortgage-backed securities available-for-sale - At fair value (amortized cost
Mar 31, 1996 - $202,909; Dec 31, 1995 - $218,643; Mar 31, 1995 - $75,010) 203,080 219,121 73,600
Mortgage-backed securities held-to-maturity - At amortized cost (fair value
Mar 31, 1996 - $64,571; Dec 31, 1995 - $65,244; Mar 31, 1995 - $162,874) 64,310 64,734 165,719
Loans 235,118 221,927 184,145
Less: Allowance for loan loss 4,043 3,460 2,796
----------------------------------------
Loans, net 231,075 218,467 181,349
Federal Home Loan Bank stock - at cost 4,790 4,415 3,915
Office buildings and equipment, net 4,156 3,978 4,295
Other real estate owned, net 1,062 837 316
Accrued interest receivable 4,235 5,063 3,559
Prepaid expenses and other assets 1,528 516 1,713
Deferred income tax 2,839 2,305 3,212
Income taxes receivable - - 1,951
----------------------------------------
Total assets $579,731 $610,537 $539,703
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $329,152 $335,861 $347,096
Advances from Federal Home Loan Bank 95,803 78,303 63,303
Securities sold under agreements to repurchase 42,568 76,792 21,398
Other borrowings 40,000 41,500 -
Advance payments by borrowers for taxes and insurance 708 1,455 1,699
Accrued interest payable 1,198 1,054 726
Income taxes payable 674 35 -
Other liabilities 8,000 8,622 81,911
----------------------------------------
Total liabilities 518,103 543,622 516,133
----------------------------------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common stock ($.01 par: 10,000,000 shares authorized, 4,014,568 shares
issued and outstanding) 44 44 -
Capital surplus 43,018 43,018 -
Retained earnings 27,755 26,815 24,038
Unrealized net gain (loss) on securities available-for-sale, net of tax of $287
at Mar 31, 1996; $832 at Dec 31, 1995; and $(297) at Mar 31, 1995 453 1,313 (468)
Treasury stock - 583,100 shares at cost (5,634) - -
Common Stock acquired by ESOP (2,116) (2,116) -
Unearned portion of restricted stock awards (1,892) (2,159) -
----------------------------------------
Total stockholders' equity 61,628 66,915 23,570
----------------------------------------
Total liabilities and stockholders' equity $579,731 $610,537 $539,703
========================================
2
See accompanying notes to Condensed Consolidated Financial Statements
AVONDALE FINANCIAL CORP. FOR THE QUARTERS ENDED:
CONDENSED CONSOLIDATED STATEMENTS OF MAR. 31, 1996 MAR. 31, 1995
INCOME ------------- -------------
(UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA)
INTEREST INCOME:
Loans $ 5,010 $ 4,065
Securities 1,582 905
Mortgage-backed securities 4,757 3,347
Other 115 185
---------- --------
Total interest income 11,464 8,502
---------- --------
INTEREST EXPENSE:
Deposits 3,760 3,757
Advances from the Federal Home Loan
Bank 1,197 895
Securities sold under agreements to
repurchase 1,107 150
Other borrowings 419 200
---------- --------
Total interest expense 6,483 5,002
---------- --------
NET INTEREST INCOME 4,981 3,500
Provision for loan losses 650 130
---------- --------
Net interest income after provision for
loan losses 4,331 3,370
---------- --------
NONINTEREST INCOME:
Net gains on trading activities - 198
Net security gains (losses) 596 (116)
Net gains on sales of loans 7 -
Loan servicing income 60 32
Fees for other customer services 88 62
Other operating income 121 136
---------- --------
Total noninterest income 872 312
---------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 1,964 1,686
Occupancy and equipment expenses, net 233 457
Federal deposit insurance premiums 196 203
Advertising and public relations 234 51
Data processing 238 187
Real estate owned (income) expense,
net 30 (15)
Legal and professional 115 93
Other operating expenses 799 439
---------- --------
Total noninterest expense 3,809 3,101
Income before income taxes 1,394 581
Provision for income taxes 454 177
---------- --------
NET INCOME (LOSS) $ 940 $ 404
========== ========
PER COMMON SHARE:
Earnings per common share $ 0.23 n/a
Weighted average common shares
outstanding 4,025,660 n/a
See accompanying notes to Condensed Consolidated Financial Statements
3
AVONDALE FINANCIAL CORP. FOR THE THREE MONTHS ENDED:
CONDENSED CONSOLIDATED STATEMENT OF MAR. 31, 1996 MAR. 31, 1995
CHANGES IN STOCKHOLDERS' EQUITY -------------- --------------
(UNAUDITED) (In Thousands)
COMMON STOCK
Beginning of Period $ 44 $ -
-----------------------
End of Period 44 -
-----------------------
CAPITAL SURPLUS
Beginning of period 43,018 -
-----------------------
End of period 43,018 -
-----------------------
RETAINED EARNINGS
Beginning of period 26,815 23,634
Net income 940 404
-----------------------
End of period 27,755 24,038
-----------------------
TREASURY STOCK
Stock repurchased for treasury (5,634) -
-----------------------
End of period (5,634) -
-----------------------
UNREALIZED NET GAIN (LOSS) ON SECURITIES
AVAILABLE-FOR-SALE, NET OF TAX
Beginning of period 1,313 (1,613)
Change in unrealized gain (loss) on
securities available-for-sale, net of tax (860) 1,145
-----------------------
End of period 453 (468)
-----------------------
COMMON STOCK ACQUIRED BY ESOP
Beginning of period (2,116) -
-----------------------
End of period (2,116) -
-----------------------
UNEARNED PORTION OF RESTRICTED STOCK
AWARDS
Beginning of period (2,159)
Net amortization of unearned portion of
restricted stock 267
-----------------------
End of period (1,892) -
-----------------------
TOTAL STOCKHOLDERS' EQUITY $61,628 $23,570
=======================
See accompanying notes to Condensed Consolidated Financial Statements
4
AVONDALE FINANCIAL CORP. FOR THE THREE MONTHS ENDED:
CONSOLIDATED STATEMENTS OF CASH FLOWS MAR. 31, 1996 MAR. 31, 1995
------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 940 $ 402
Adjustments to reconcile net income
to net cash flows from operating
activities:
Depreciation 244 168
Amortization (accretion), net (1,588) 2,299
Provision for loan losses 650 130
Provision for deferred income taxes 12 (101)
Net gain(loss) on sales of
securities available-for-sale (596) 82
Net gains on sales of other real
estate owned (35) (36)
Income taxes receivable - 278
Prepaid expenses and other assets (1,019) 2,912
Accrued interest receivable 828 (576)
Income taxes payable 639 -
Accrued interest payable 144 (526)
Other liabilities (615) 67,893
----------------------------
Net cash flows provided by (used in)
operating activities $ (396) $ 72,925
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities
held-to-maturity - (900)
Purchases of Federal Home Loan Bank
stock (375) -
Proceeds from sales of securities
available-for-sale 43,506 9,999
Proceeds from sales of
mortgage-backed securities
available-for-sale 52,555 9,418
Purchases of securities
available-for-sale (14,550) (49,500)
Purchases of mortgage-backed
securities available-for-sale (45,324) (19,397)
Purchases of mortgage-backed
securities held-to-maturity (1,829) (20,435)
Principal collected on
mortgage-backed securities
held-to-maturity 2,303 3,310
Principal collected on
mortgage-backed securities
available-for-sale 9,825 3,303
Principal collected on securities
available-for-sale 465 -
Net increase in loans (13,707) (2,052)
Proceeds from sales of other real
estate owned 259 358
Expenditures for office buildings and
equipment (422) (114)
----------------------------
Net cash flows provided by (used in)
investing activities $ 32,706 $(66,010)
----------------------------
5
AVONDALE FINANCIAL CORP. FOR THE THREE MONTHS ENDED:
CONSOLIDATED STATEMENTS OF CASH FLOWS MAR. 31, 1996 MAR. 31, 1995
-------------- --------------
(In Thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits $ (6,709) $(5,358)
Net decrease in advance payments by
borrowers for taxes and insurance (747) (321)
Net increase (decrease) in securities
sold under agreements to repurchase (34,224) 21,398
Net decrease in other borrowings (1,500) -
Proceeds from Federal Home Loan Bank
advances 32,500 -
Repayment of Federal Home Loan Bank
advances (15,000) (5,000)
Unearned restricted stock 267 -
Purchase stock for treasury (5,634)
------------------------
Net cash flows provided by (used in)
financing activities $(31,047) $10,719
------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,263 17,634
CASH AND CASH EQUIVALENTS
Beginning of period 6,342 18,008
------------------------
Ending of period $ 7,605 $35,642
========================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 6,339 $ 5,528
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AVONDALE FINANCIAL CORP. AND SUBSIDIARIES
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of Avondale
Financial Corp. and its subsidiaries (the "Company"). In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods have been made. The results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected for the entire fiscal year.
The unaudited interim financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices. Certain
information in footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles has been
condensed or omitted pursuant to rules and regulations of the Securities and
Exchange Commission, although the Company believes the disclosures are adequate
to make the information not misleading. These financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's December 31, 1995 Annual Report.
Primary and fully diluted earnings per share are computed by dividing net income
by average shares of common stock and common stock equivalents outstanding. The
strike price of stock options outstanding is above the market price as of March
31, 1996 and therefore do not represent a dilutive effect. These options
therefore are not included in the earnings per share calculation. As of March
31, 1995 there are no stock equivalents outstanding.
NOTE 2 - REGULATORY CAPITAL
Pursuant to the Financial Institution Reform, Recovery and Enforcement Act of
1989 (FIRREA), savings institutions must meet three separate minimum capital-to-
assets requirements: (1) a risk-based capital requirement of 8% of risk-weighted
assets, (2) a core capital ratio of 3% core capital to adjusted total assets,
and (3) a tangible capital requirement of 1.5% tangible core capital to adjusted
total assets. The following table summarizes, as of March 31, 1996, Avondale
Federal Savings Bank's (the "Bank") capital requirements under FIRREA and its
actual capital ratios at that date:
Bank
Capital Actual
Requirement Capital
------------- ---------
Risk-based 8.00% 23.79%
Core 3.00% 10.44%
Tangible 1.50% 10.44%
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS - In March, 1995, FASB issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of", which is effective for
financial statements issued for the fiscal years beginning after December 15,
1995. SFAS 121 requires that long-lived assets and certain identifiable
intangibles that are used in operations be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
might not be recoverable. Management believes that the adoption of SFAS 121 does
not have a material effect on the Company's financial condition or results of
operations.
7
In May, 1995, FASB issued Statement of Financial Accounting Standards No. 122
("SFAS 122"), "Accounting for Mortgage Servicing Rights", which is effective for
fiscal years beginning after December 15, 1995. SFAS 122 provides guidance on
the accounting for mortgage servicing rights and the evaluation and recognition
of impairment of mortgage servicing rights. Management believes that the
provisions of SFAS 122 does not currently have a material impact on the
Company's financial condition or results of operations.
In October, 1995, FASB issued Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-based Compensation". The accounting
method for stock-based compensation provided in the statement, in particular for
stock options, differs from APB Opinion No. 25, under which most of the
accounting requirements for stock-based compensation were previously contained.
The measurement and recognition provisions of the statement are effective in
1996. An entity that continues to apply Opinion 25 is required to provide pro
forma net income and earnings per share, as if the accounting method in SFAS No.
123 had been used for stock-based compensation costs. The Company has decided
not to adopt the measurement recognition provisions of SFAS No. 123.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
GENERAL
The Company was formed in June 1993 and became the holding company for
Avondale upon consummation of the Conversion to stock form on April 3, 1995. The
Company has conducted no business other than that directly related to the Bank.
The Company's results of operations are primarily dependent upon the Bank's net
interest income, which is the difference between interest income on its
interest-earning assets such as loans and mortgage-backed or other securities,
and interest paid on its interest-bearing liabilities, such as deposits and
other borrowed funds. Net interest income is directly affected by the relative
amounts of interest-earning assets and interest-bearing liabilities and the
interest rates earned or paid on such amounts. The Company's results of
operations are also affected by the provision for loan losses and the level of
noninterest income and expenses. Noninterest income consists primarily of
service charges and other fees. In the three month period ended March 31, 1996,
substantial additional income was derived from securities gains in the
continuing effort to manage the available-for-sale portfolio. Noninterest
expense includes salaries and employee benefits, real estate owned, occupancy
of premises, federal deposit insurance premiums, data processing expenses and
other operating expenses.
The operating results of Avondale are also affected by general economic
conditions, the monetary and fiscal polices of federal agencies and the policies
of agencies that regulate financial institutions. Avondale's cost of funds is
influenced by interest rates on competing investments and general market rates
of interest. Lending activities are influenced by the demand for real estate
loans and other types of loans, which is in turn affected by the interest rates
at which such loans are made, general economic conditions affecting loan demand
and the availability of funds for lending activities.
COMPARISON OF FINANCIAL CONDITION AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
GENERAL. Total assets decreased $30.8 million or 5.05% to $579.7 million as
of March 31, 1996 from $610.5 million as of December 31, 1995. This decrease was
primarily due to a $29.7 million decrease in securities available for sale and a
$16.0 million decrease in mortgage-backed securities available for sale. The
deleveraging of the available-for-sale portfolios was the result of the Company
reducing its risk of market loss in a declining market. These decreases were
partially offset by a $13.2 million increase in loans. Avondale continues to
focus on the origination of equity lines of credit. The Company has implemented
a credit scoring model, whereby the equity lines of credit are priced according
to the credit worthiness of the customer, as well as the loan to value
percentage. The Company originated equity line of credit loans with lines of
$24.4 million and outstanding balances of $10.7 million for the three months
ended March 31, 1996. Manufactured home loans have also increased $2.3 million
from December 31, 1995 to March 31, 1996. This increase was due to the continued
manufactured home originations through a third party broker. Total liabilities
decreased $25.5 million from December 31, 1995 to March 31, 1996. Deposits
decreased $6.7 million and borrowings decreased $18.2 million over this period
of time. The Company had initiated a stock buy back program in February, 1996.
The Company had repurchased $5.6 million of stock in this month. The net
unrealized gain on securities available-for-sale had decreased $860,000 over the
three month period ended March 31, 1996. Therefore total stockholders' equity
had decreased $5.3 million from December 31, 1996 to March 31, 1996 in spite of
$940,000 in net income for the three month period ended March 31, 1996.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND
1994.
GENERAL. Net income increased $536,000 or 132.67% to $940,000 for the three
months ended March 31, 1996 from $404,000 for the quarter ended March 31, 1995.
This increase in net income was primarily attributable to increases in net
interest income, and increases in securities gains, which were partially offset
by increases in the provision for loan losses and other expenses for the three
months ended March 31, 1996 compared to the same period a year earlier. The
Company's return on average assets increased to 0.62% for the period ended March
31, 1996 from 0.34% for the three months ended March 31, 1995.
9
NET INTEREST INCOME. Net interest income increased $1.5 million to $5.0 million
for the quarter ended March 31, 1996 from $3.5 million for the three months
ended March 31, 1995 primarily due to a $127.1 million increase in average
interest earning assets outstanding to $587.1 million from $460.0 million for
the three months ended March 31, 1995. On April 3, 1995 the Company had
increased its equity by $37.4 million due to the completion of its public
offering. Initially, these funds were invested in securities. Over the year, the
Company has focused on loan origination. For the three months ended March 31,
1996 the average loans had increased $43.8 million, securities increased $19.9
million and mortgage-backed securities increased $63.4 million. The net interest
margin for the quarter was 3.39% compared to 3.04% for the same period ended
March 31, 1995.
TABLE 1 - AVERAGE BALANCES, INTEREST RATES AND YIELDS
(In Thousands)
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
and the resultant costs, expressed both in dollars and rates. No tax equivalent
adjustments were made. To the extent received, interest on non-accruing loans
has been included in the table.
For the three months ended Mar 31,1996 For the three months end Mar 31, 1995
--------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------------------------------- ---------------------------------
Assets:
Interest-earning assets:
Loans receivable $224,396 $ 5,010 8.93% $180,551 $4,065 9.01%
Securities 81,767 1,696 8.30 61,849 1,090 7.05
Mortgage-backed securities 280,943 4,757 6.77 217,557 3,347 6.15
-------------------- ----------------------
Total interest-earning assets 587,106 11,463 7.81 459,957 8,502 7.39
------- ------
Non-interest-earning assets 17,853 17,931
-------- --------
$604,959 $477,888
======== ========
Liabilities and stockholders' equity
Interest-bearing liabilities:
Deposits $328,208 $ 3,760 4.58% $353,986 $3,757 4.25%
FHLB advances 86,902 1,197 5.51 65,565 895 5.46
Securities sold under repurchase agreement 77,337 1,107 5.73 9,734 151 6.21
Other borrowings 31,780 419 5.27 9,571 199 8.32
-------------------- --------
524,227 6,483 4.95 438,856 5,002 4.56
Non-interest bearing deposits 4,631 3,720
Other liabilities 11,044 12,650
-------- --------
Total liabilities 539,902 455,226
Stockholders' equity 65,057 22,662
-------- --------
total liabilities and
stockholders' equity $604,959 $477,888
======== ========
Net interest income/Interest rate
spread 4,980 2.86% 3,500 2.83%
=================== =================
Net interest-earning assets/net
interest margin 62,879 3.39% 3.04%
======== ==== ====
Ratio of interest-earning assets to
interest-bearing liabilities 111.99% 104.81%
======== ========
10
TABLE 2 - RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(In Thousands)
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated (in thousands). Information is provided in each
category with respect to (1) changes attributable to changes in volumes, (ii)
changes attributable to changes in rate, and (iii) net changes. The changes
attributable to the combined impact of volume and rate have been allocated to
the changes due to volume.
Three months ended:
March 31, 1996
vs Three months ended:
March 31, 1995
--------------------------------------------------
Increase (Decrease) Due to
--------------------------------------------------
Volume Rate Net
------ ---- ---
Interest Income
Loans $ 979 $(34) $ 945
Securities 414 193 607
Mortgage-backed securities 1,073 337 1,410
--------------------------------------------------
Total interest income 2,466 496 2,962
--------------------------------------------------
Interest Expense
Deposits (296) 299 3
Advances from the Federal Home
Loan Bank 294 8 302
Securities sold under agreements to
repurchase 969 (12) 957
Other borrowings 292 (73) 219
--------------------------------------------------
Total interest expense 1,259 222 1,481
--------------------------------------------------
Net interest income $1,207 $274 $1,481
==================================================
INTEREST INCOME: Interest income increased $3.0 million to $11.5 million in the
three months ended March 31, 1996 from $8.5 million for the quarter ended March
31, 1995. This increase was the result of a $127.1 million increase in average
interest-earning assets outstanding to $587.1 million in the three months ended
March 31, 1996 from $460.0 million during the same period for the prior year.
Though the average prime rate dropped 0.50% from 8.83% for the quarter ended
March 31, 1995 to 8.33% for the quarter ended March 31, 1996, the yield on loans
decreased 0.08%. The Company has emphasized the origination of equity lines of
credit utilizing credit-scoring models using risk-based pricing, whereby the
interest rate of the loan is determined by both the borrower's credit score and
the ratio of the loan to the appraised value of the property. Interest on
securities increased $606,000 from $1.1 million for the three months ended March
31, 1995 to $1.7 million for the quarter ended March 31, 1996. The average
securities outstanding increased 32.20% from $61.8 million for the quarter ended
March 31, 1995 to $81.8 million for the same period ended March 31, 1996. The
yield on securities increased from 7.05% to 8.30% respectively for the same time
periods. Included in interest for the quarter ended March 31, 1996 was $289,000
of accelerated accretion of discounts on callable securities that were called
during the quarter. Interest on mortgage-backed securities increased $1.5
million from $3.3 million to $4.8 million. The average mortgage-backed
securities outstanding increased $63.3 million from $217.6 million for the
quarter ended March 31, 1995 to $280.9 million for the three months ended March
31, 1996. Yields on
11
mortgage-backed securities increased over the same period from 7.39% for the
period ended March 31, 1995 to 7.81% for the three months ended March 31, 1996,
as several adjustable-rate securities were not fully indexed as of the period
ended March 31, 1995.
INTEREST EXPENSE. Interest expense increased $1.5 million from $5.0 million for
the three months ended March 31, 1995 to $6.5 million for the quarter ended
March 31, 1996. This increase was attributable to both an average increase in
interest-bearing liabilities of $85.3 million from $438.9 million for the three
months ended March 31, 1995 to $524.2 million for the three months ended March
31, 1996; as well as an increase in the average cost of interest-bearing
liabilities of 0.39% from 4.56% for the three months ended March 31, 1995 to
4.95% for the same period ended March 31, 1996. Interest on deposits remained
flat for the comparable three month period, however the average balance on
deposits decreased $25.8 million, and the cost of interest-bearing deposits
increased from 4.25% for the quarter ended March 31, 1995 to 4.58% for the three
months ended March 31, 1996. During the same period of time, non-interest-
bearing deposits increased from an average of $3.7 million for the three months
ended March 31, 1995 to $4.6 million for the three months ended March 31, 1996.
Interest on Federal Home Loan Bank advances increased $302,000 from the three
months ended March 31, 1995 to the same period ended March 31, 1996. This
increase was mainly volume related as the average Federal Home Loan Bank
advances outstanding increased $21.3 million from $65.6 million for the three
months ended March 31, 1995 to $86.9 million for the three months ended March
31, 1996. Interest on securities sold under agreement to repurchase and other
borrowings increased $1.2 million from $350,000 for the three months ended March
31, 1995 to $1.5 million for the three months ended March 31, 1996. The average
balance of securities sold under agreement to repurchase and other borrowings
increased $89.8 million from the three months ended March 31, 1995 to the same
period ended March 31, 1996. The average rate on these borrowings grew from
5.59% to 7.25% for the quarters ended March 31, 1995 and March 31, 1996,
respectively.
PROVISION FOR LOAN LOSS AND NON-PERFORMING ASSETS. The Company maintains its
allowance for loan losses at level which is considered by management to be
adequate to absorb loan losses on existing loans, based on an evaluation of the
collectibility of loans and prior loan loss experience. The evaluation takes
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problems, the value of
related collateral, the regulators' stringent view of adequate reserve levels
for the thrift industry and the current economic conditions that may affect the
borrower's ability to pay. Loans are evaluated and categorized into risk
categories. For each risk category, the methodology assigns a percentage of
principal amount of the category that should be maintained as a general
valuation allowance. To the extent that the amount of loans categorized into the
respective risk categories requires the general valuation allowance to be
increased, the provision for loan losses will be impacted accordingly.
Therefore, in the event Avondale is required to increase its allowance for loan
losses, operating results could be adversely affected. The allowance for loan
losses is established through a provision for loan losses charged to expense.
The provision for loan losses increased $520,000 to $650,000 for the three
months ended March 31, 1996 from $130,000 for the quarter ended March 31, 1995.
The allowance for loan losses was $4.0 million as of March 31, 1996 compared
$2.8 million as of March 31, 1995, while non-performing loans were 1.63% of
total loans as of March 31, 1996, as compared to 2.23% as of March 31, 1995. The
decrease in ratio of non-performing loans to total loans was a result of both
non-performing loans decreasing $276,000 to $3.8 million as of March 31, 1996
from $4.1 million as of March 31, 1995, and total loans increasing $51.0 million
to $235.1 million as of March 31, 1996 from $184.1 million as of March 31, 1995.
During the same period the allowance for loan loss as a percentage of loans
outstanding increased to 1.72% at March 31, 1996 from 1.52% at March 31, 1995 as
the Company continues to conservatively record provisions for the continued
growth in the home equity line of credit portfolio. The allowance for loan loss
as a percentage of non-performing loans increased from 67.93% on March 31, 1995
to 105.29% as of March 31, 1996.
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NON-INTEREST INCOME: Non-interest income increased $560,000 or 179.49% to
$872,000 for the three months ended March 31, 1996 from $312,000 for the same
period a year ago, due to substantial securities gains as a result of managing
the available-for-sale portfolios. The Company had $596,000 in securities gains
for the three months ended March 31, 1996, compared to a net loss of $116,000
for the three months ended March 31, 1995.
NON-INTEREST EXPENSE: Non-interest expenses increased $708,000 or 22.83% to
$3.8 million for the three months ended March 31, 1996 from $3.1 million for the
three months ended March 31, 1995. This increase was attributable to increased
salaries and employee benefits of $278,000 or 16.49% primarily as a result of
increased headcount; an increase in advertising and public relations due to
stepped up advertising campaigns utilized to promote the equity line of credit
product; and increase in data processing expense of $51,000 due to the
implementation of new technologies in our operations; an increase in other real
estate own expense due to gains realized in the quarter ended March 31, 1995;
and $360,000 of other operating expenses due to the increase of non-deferred
loan origination costs due to increased loan originations, and the expense of
costs pertaining to being a public corporation.
PROVISION FOR INCOME TAXES. The provision for income taxes increased $277,000
for the three month period ended March 31, 1996 from the same period ended March
31, 1995. The respective income tax expense represented effective tax rates of
32.57% for the quarter ended March 31, 1996 and 30.46% for the three months
ended March 31, 1995.
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PART 11 - OTHER INFORMATION
The calculation of the Registrant's primary and fully diluted earnings per share
required by 601(b)(11) of Regulation S-K is presented below (dollars in
thousands, except per share data):
For the Three Months Ended March 31, 1996:
Primary
------------------------------------------
Net income $ 940
Average common shares outstanding 4,026
Common stock equivalent -
------
Average primary shares outstanding 4,026
Primary earning per share $ 0.23
Fully diluted earnings per share
------------------------------------------
Net income $ 940
Average common shares outstanding 4,026
Common stock equivalent -
------
Average fully diluted shares outstanding 4,026
Fully diluted earning per share $ 0.23
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SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized, on this 13th day of May, 1996.
AVONDALE FINANCIAL CORP.
(Registrant)
Robert S. Engelman, Jr.
President and Chief Executive Officer
/s/ Robert S. Engelman, Jr. (Principal Executive Officer)
- -------------------------------------
Howard A. Jaffe,
Vice President
and Chief Financial Officer
(Principal Financial Officer and
/s/ Howard A. Jaffe (Principal Executive Officer)
- -------------------------------------
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