1
Exhibit 13
1996 Annual Report to Stockholders
2
WE
MEAN
BUSINESS.
[ML BANCORP LOGO]
ANNUAL REPORT 1997
3
[GRAPHIC]
4
ML BANCORP, INC. AND SUBSIDIARIES
STOCK PRICE PERFORMANCE
- Closing Price
[ ] High & Low Price
9/30/94 12/31/94 3/31/95 6/30/95 9/30/95
Closing Price 7.94 6.75 8.00 9.63 11.57
High & Low Price $8.38/7.63 8.00/6.13 8.07/6.69 9.82/7.88 11.94/9.50
12/31/95 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97
Closing Price 11.13 11.94 12.13 14.06 13.88 15.38
High & Low Price 12.32/10.50 12.38/10.88 12.50/11.38 14.06/11.88 14.88/13.88 17.75/13.75
(quarter ended)
* All price per share information has been adjusted for the Company's
two-for-one stock split that occurred September 6, 1996.
5
ML BANCORP, INC. AND SUBSIDIARIES
SHAREHOLDER INFORMATION
ML Bancorp, Inc. is a holding company conducting business through its
wholly-owned subsidiary, Main Line Bank. The Bank is a federally-chartered,
FDIC-insured financial institution operating through its full-service business
centers located in the suburbs of Philadelphia, Pennsylvania and its mortgage
loan production offices located in Delaware, Florida, New Jersey and
Pennsylvania. The Company's headquarters are located at Two Aldwyn Center,
Lancaster Avenue & Route 320, Villanova, PA 19085.
TRANSFER AGENT/REGISTRAR:
Chase Mellon Shareholder Services
450 West 33rd Street
New York, NY 10001
SHAREHOLDER INFORMATION:
Requests for annual reports, quarterly reports and related stockholder
literature should be directed to Shareholder Relations, Two Aldwyn Center,
Lancaster Avenue & Rt. 320, Villanova, PA 19085 or (610) 526-6482.
Shareholders needing assistance with stock records, transfers or lost
certificates should contact the Company's transfer agent, Chase Mellon
Shareholder Services, at 1-800-851-9677.
INVESTOR INFORMATION:
Security analysts, retail brokers and individual investors may contact Mr.
Brian M. Hartline, Chief Financial Officer, for information about ML Bancorp,
Inc.
NASDAQ SYMBOL:
Shares of ML Bancorp, Inc.'s common stock are traded nationally under the
symbol "MLBC" in the Over-The-Counter Market and are listed in NASDAQ
Quotations.
ML BANCORP, INC.
DIRECTORS
JOHN R. EPPINGER
Chairman
DAVID B. HASTINGS
Owner and President,
Blue Hill Products
JOHN J. LEAHY
Retired, formerly
Operating Vice President,
Strawbridge & Clothier
HENRY M. LUEDECKE
President,
C. H. Marshall, Inc.
DENNIS S. MARLO
President and
Chief Executive Officer
ALLAN WOOLFORD
Owner, Tredyffrin Information
Systems, Inc.
CORPORATE OFFICERS
DENNIS S. MARLO
President, Chief Executive Officer
and Director
JOSEPH M. BLASTON
Vice President
ROBERT M. CAMPBELL, JR.
Vice President
BRIAN M. HARTLINE
Vice President,
Chief Financial Officer,
Secretary and Treasurer
MAIN LINE BANK
EXECUTIVE OFFICERS
JOHN R. EPPINGER
Chairman
DENNIS S. MARLO
President, Chief Executive Officer
and Director
JOSEPH M. BLASTON
President, Main Line Financial,
a division of Main Line Bank
ROBERT M. CAMPBELL, JR.
Executive Vice President
BRIAN M. HARTLINE
Executive Vice President,
Chief Financial Officer and
Secretary
6
LETTER
FROM THE PRESIDENT
At ML Bancorp, Inc., holding company for Main Line Bank, we mean business.
In fiscal 1997 we grew shareholder value to an all-time high. We reported our
best earnings as a public company. We significantly increased our commercial
loans and deposits. We created a mortgage division, Main Line Financial, which
is emerging as a market leader. We advanced technological services to customers
and opened six new business centers in expanding markets.
During the past year our stock price appreciated 30 percent and we returned 150
percent of our fiscal 1997 income to our shareholders through a combination of
cash dividends and our share repurchase programs. Our earnings per share and
net income grew 34 percent and 19 percent, respectively. Our stock price to
book value ratio increased from below 100 percent to 118 percent, and we raised
an additional $50 million of debt securities, which will facilitate our future
growth plans without diluting our common shareholder interest.
Our emergence as a full-service business bank was evident by a 17 percent
increase in commercial loan outstandings to $295 million, and a 38 percent
increase in commercial deposits to $43 million. Our competitive product and
service offerings and locally based decision making have earned us a reputation
in the local business community as a desirable alternative to the larger
financial institutions.
We integrated the mortgage banking operations of three area leaders--
Philadelphia Mortgage, Hart Mortgage and Main Line Bank--into Main Line
Financial, a new operating division of Main Line Bank with 10 offices in
Delaware, Florida, New Jersey and Pennsylvania. With loan originations of
nearly $500 million in the past year and with an income-producing residential
loan servicing portfolio of $4.4 billion, Main Line is the region's largest
bank servicer of residential mortgages for governmental agencies and other
investors. Our more than 50,000 loan servicing customers provide additional
opportunities to cross-sell products and services.
We opened six new business centers in the past year and in February 1997, we
announced plans to acquire Commonwealth State Bank and its parent company,
Penncore Financial Services Corporation of Newtown, Pa. After the completion of
the merger, we will have 29 branches in the Greater Philadelphia region
including five offices in the affluent, rapidly growing Bucks County. And we
are not stopping there--we plan to add at least four new business centers
throughout the region each year through the turn of the century.
Our objective is to become the primary relationship bank for businesses and
consumers in our region by offering a wide array of value-oriented products,
services and delivery channels. In addition to providing personalized service
in our business centers, we are offering customers more convenient distribution
sources, including telephone banking, Internet and PC banking, and other forms
of direct banking. Technology is an integral part of our business strategy and
we will continue to provide new banking technologies as they gain market
acceptance.
As we spread the Main Line Bank name into new markets, we increase our
commitment to the communities we serve. Last year we supported more than 160
community and charity groups through monetary donations and our large network
of employee volunteers. We were proud to be recognized for our accomplishments
by winning a 1996 community service award from the Pennsylvania Association of
Community Bankers and receiving our third consecutive "outstanding" Community
Reinvestment Act (CRA) rating from our primary regulator.
Our goal for fiscal 1998 is to make even greater improvements in our financial
performance, market penetration, product offerings, delivery channels, and
community involvement initiatives. We are not looking to join the ranks of the
Fortune 500, but we are committed to going head-to-head with top regional banks
in our market by offering comparable products with superior value and service.
We are dedicated to increasing your shareholder value. We are serious about
our position as a full-service business bank. We are committed to becoming the
premier financial services provider in the Greater Philadelphia region.
WE MEAN BUSINESS.
/s/ DENNIS S. MARLO
Dennis S. Marlo
President and Chief Executive Officer
[PHOTO]
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Commercial Loan Portfolio by Industry
Finance, Insurance & Real Estate 33%
Services 24%
Retail 14%
Manufacturing 10%
High-Tech 7%
Wholesale 6%
Construction 5%
Other 1%
Main Line Bank provides services to commercial customers in industries as
diverse as retail, hospitality, healthcare, food service, real estate, and
high-technology. With a legal lending limit of $20 million, we have the
capacity to meet the credit needs of most businesses in our market.
[PHOTO]
Main Line is a full-service business bank. We have helped build the Greater
Philadelphia business community and have gained a reputation as a source of
products and services that help businesses grow and remain competitive in a
global economy.
MARKET GROWTH
The consolidation that has occurred among the larger regional banks has created
a tremendous opportunity for forward thinking community banks to capitalize on
the business market left underserved by the mergers. In fiscal 1997 we made
great strides toward becoming the premier financial services provider to these
small- and mid-sized companies.
Through our aggressive new business development strategies, sophisticated cash
management products and exemplary service, our commercial customer base grew 63
percent during the past year.
We have prospered in providing financial services to industries as diverse as
retail, hospitality, healthcare, food service, real estate, and
high-technology. With a legal lending limit of $20 million, we have the
capacity to meet the credit needs of most businesses in our market, and our
geographic expansion places a Main Line office close to virtually any company
in Philadelphia's northern and western suburbs.
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8
[PHOTO]
Business Quest '97, the Bank's fiscal 1997 business development program, sent
commercial lenders and business center managers knocking on doors in the local
business community. The program generated significant new business loans and
deposits.
Loan Outstandings
(in millions)
3/31/94 3/31/95 3/31/96 3/31/97
Commercial Business $8.2 $30 $69.6 $84
Small Business $1.6 $4.2 $8.5 $15.8
Through aggressive marketing and new business development initiatives, Main
Line's commercial business loan outstandings increased 21 percent to $84 million
and small-business loan outstandings almost doubled to $16 million in fiscal
1997.
NEW BUSINESS DEVELOPMENT
In fiscal 1997 we embarked on a new business development program called
Business Quest '97, with the objective of acquiring new business accounts and
expanding existing customer relationships. Armed with leads of potential
business customers, our business center managers and commercial lenders began
knocking on doors in our business communities. And their efforts paid off. By
year end, Business Quest generated significant dollars for the Bank through new
business checking accounts and new loans booked.
In conjunction with Business Quest, we began producing BusinessLine, a
newsletter that provides financial advice and money-saving ideas to business
managers. The publication is distributed quarterly to thousands of existing and
potential business customers throughout the region and includes a business
reply card that has resulted in new business banking relationships.
Looking to fiscal 1998 and beyond, we recently developed a team of 10 market
area managers who are fully dedicated to generating new business relationships
for the Bank. Each area manager serves a designated market based on commercial
demographics and business center locations, and works with our business center
managers and commercial loan officers to build commercial banking alliances
with new and existing clients.
Main Line now has more employees devoted to new business development than any
comparable-sized financial institution in the region.
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9
[PHOTO]
BusinessMax, our PC-based cash management product, gives business customers a
powerful tool to manage their accounts with ease and accuracy from their
desktops. BusinessMax allows companies to issue and receive payments
electronically and provides 24-hour access to timely account information.
[PHOTO]
MediBanking, private banking services for healthcare professionals, is one of
Main Line's new programs targeted toward specific market segments. MediBanking
offers healthcare practitioners professional and personal banking products and
services designed to make their banking more convenient and their practices
more profitable.
THE PRODUCT MIX
In fiscal 1997 we developed several new products and services designed to
better serve our business customers and complement our standard cash management
and credit offerings.
Our PC-based cash management product, BusinessMax, allows users to perform all
their primary banking functions from their desktops using a proven software
program in a highly secure environment. Our business customers have found that
BusinessMax saves time and money by providing information at their fingertips
and streamlining their current paper-intensive cash management systems. Another
effective cash management service we offer is controlled disbursement, which
notifies business customers when a check is going to clear before it is
processed.
Our MediBanking program offers private banking services for healthcare
professionals. Participating members receive access to professional and
personal banking services designed to make their banking more convenient and
their practices more profitable. Our dedicated bankers provide personal
attention to each client and will even make "house calls" to a practitioner's
home or office.
In fiscal 1998 we will introduce a full line of private banking services that
will provide credit, deposit, and investment and trust options to affluent
clients and their related professional entities.
4
10
Business Checking Account Growth
(in number of accounts)
3/31/94 825
3/31/95 1286
3/31/96 2027
3/31/97 2846
The number of Main Line's business checking accounts increased 40 percent in
fiscal 1997. Our business checking accounts offer low fees and access to
services such as a business money market account, sweep account, zero balance
account, lock box service, direct deposit of employee payroll, and next-day
availability of all check deposits.
[PHOTO]
Our business customers find us to be an extremely good value for our cash
management products, competitive fee structure, business expertise and locally
based decision making. Our goal is to develop a synergetic working relationship
with each business client and to provide well-designed products with reasonable
fees and a level of personal service that's all too rare in banking today.
VALUE THROUGH SERVICE
Main Line is a value-driven institution and nowhere is value more evident than
in the form of service. We provide customers with the products they need, the
features they expect, and the service they deserve. Our goal is to develop a
synergetic working relationship with each business client and to provide
well-designed products with reasonable fees and a level of personal service
that's all too rare in banking today.
We provide business services such as next-day availability of all check
deposits, account reconciliation through check images and computer files of
checks paid each month, domestic and international wire transfer, night
depository, combined statements, and Express Line 24-hour telephone banking.
Business account customers have access to preferred banking, which offers their
employees a special package of banking discounts and benefits including free
checking, free traveler's checks and loan rate discounts. Merchant credit
card/MAC services and lock box services are available at competitive rates.
We are committed to helping businesses meet their current and future goals. Our
professional loan officers are experts at structuring the best financing to
meet a borrower's needs, and because all lending decisions are made at our
Villanova headquarters, we can provide the quick turnaround that today's
business managers require.
When it comes to providing local companies with the financial tools they need
to succeed, WE MEAN BUSINESS.
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[PHOTO]
Main Line's mortgage division, Main Line Financial, helps families throughout
the region realize the dream of home ownership.
Our wide array of mortgage loans, flexible programs and personal service
resulted in a 235 percent increase in loan productions in fiscal 1997, from
$200 million to $470 million.
Loan Servicing Growth
(in billions)
3/31/94 $.9
3/31/95 $1.7
3/31/96 $2.4
3/31/97 $4.4
Main Line Financial services $4.4 billion in mortgage loans for customers
throughout the United States--the largest investor loan servicing portfolio of
any bank in the Greater Philadelphia region.
A MORTGAGE BANKING LEADER
Main Line Financial is a mortgage powerhouse. Our mortgage division boasts the
largest investor loan servicing portfolio of any bank in the Greater
Philadelphia region--$4.4 billion in loans serviced for more than 50,000
customers throughout the United States.
We offer consumers a wide array of fixed, adjustable, balloon and FHA/VA
mortgages, swing loans, construction loans, and home equity loans for up to $1
million on selected programs. Our new EZ Link mortgaging system helps buyers
learn how much house they can afford before they buy, and a pre-approval
program helps them close the deal. With automated loan underwriting, we can
approve a loan within 48 hours and our new loan origination system, which will
be installed in fiscal 1998, will provide loan officers with increased
efficiency and the latest state-of-the-art "front-end" system.
At Main Line Bank, we strive to help all families realize the dream of home
ownership. Our HomeFirst program offers reduced interest rates, minimum down
payments, low fees and flexible underwriting guidelines to help first-time,
low- to moderate-income buyers purchase a home. And we now offer the Home Buyer
Equity Fund, a grant program sponsored by the Federal Home Loan Bank of
Pittsburgh that assists first-time buyers with down payment and closing costs
by providing up to a 3-to-1 match in grant funds for every dollar in savings.
It's no wonder our primary regulator recently awarded us our third consecutive
"outstanding" Community Reinvestment Act (CRA) rating for our record of meeting
community credit needs.
When it comes to mortgage banking, WE MEAN BUSINESS.
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[PHOTO]
Customers can get product, service and branch location information from our
World Wide Web page. The Internet site allows users to view our NASDAQ stock
price and stock performance chart.
Expanded Internet PC banking services are planned for next year.
[PHOTO]
Main Line Bank opened six new business centers in fiscal 1997 and introduced a
new prototype building design to increase recognition of branch locations. We
now have 24 business centers in the Greater Philadelphia region and we plan to
add five additional branches in fiscal 1998.
CONSUMER BANKING OPTIONS
Main Line opened six new business centers in fiscal 1997 for a total of 24
branches throughout Philadelphia's northern and western suburbs. Additional
branches in Oxford Valley and Warminster, Bucks County, and in Horsham,
Montgomery County, will open in the first half of fiscal 1998. Our planned
acquisition of Commonwealth State Bank will add two additional Bucks County
locations--Newtown and Yardley--in the same time period.
Through market expansion and our full spectrum of consumer banking products, we
increased our number of core checking accounts by 17 percent last year and
increased consumer loans by 28 percent for a total of $154 million outstanding.
Several products and services were introduced in fiscal 1997 to attract new
customers and provide existing customers with new banking options. Our popular
3-month EasyAccess certificate of deposit allows customers to withdraw funds
penalty-free after only seven days, and our Loan Connection lets consumers
apply for a variety of loans over the telephone and receive conditional
approval in just 10 minutes. We also instituted check imaging, which increases
efficiency and turnaround time by providing customers electronic images of
canceled checks rather than the originals. In addition to our FDIC insured
checking and savings products, we offer tax-deferred annuities, mutual funds,
equities and life insurance through our alliance with Main Line Investment
Services.
Main Line Bank provides 24-hour account information and funds transfer
capabilities through our telephone-based Express Line service, and our World
Wide Web page (www.mainlinebank.com) allows customers to access product and
service information, including business center locations and hours of
operation, via the Internet. We plan to expand our Internet PC banking services
in fiscal 1998.
To our thousands of consumer banking customers who demand the latest banking
options with the best value and service, WE MEAN BUSINESS.
7
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[PHOTO]
[] BUSINESS CENTER LOCATIONS
BUCKS COUNTY
HILLTOWN
NEWTOWN
(Commonwealth State Bank)
CONVERTING FALL 1997
OXFORD VALLEY
WARMINSTER
OPENING SUMMER 1997
YARDLEY
(Commonwealth State Bank)
CONVERTING FALL 1997
CHESTER COUNTY
DEVON
EXTON
GOSHEN
PAOLI
WEST CHESTER
DELAWARE COUNTY
BROOMALL
COLLINGDALE
DREXEL HILL
HAVERTOWN
MEDIA
NEWTOWN SQUARE
SPRINGFIELD
VILLANOVA
WAYNE
MONTGOMERY COUNTY
ABINGTON
ARDMORE
BLUE BELL
BRYN MAWR
COLLEGEVILLE
CONSHOHOCKEN
DRESHER
HORSHAM
KING OF PRUSSIA
LANSDALE
- - LOAN PRODUCTION OFFICES
DELAWARE
WILMINGTON
FLORIDA
NAPLES
NEW JERSEY
EDISON
VOORHEES
WEST TRENTON
PENNSYLVANIA
CAMP HILL
EASTON
HORSHAM
LANCASTER
ROSEMONT
TABLE OF CONTENTS
Five Year Review and
Price Per Share
of Common Stock 9
Management's Discussion
and Analysis 10
Independent
Auditors' Report 19
Consolidated Financial
Statements 20
Notes to Consolidated
Financial Statements 25
Directors, Officers
and Shareholder Inside
Information back
cover
8
14
ML BANCORP, INC. AND SUBSIDIARIES
FIVE YEAR REVIEW OF SELECTED FINANCIAL DATA AND
PRICE PER SHARE OF COMMON STOCK
Dollars in Thousands, except for earnings per share and percentages
.............................................................................................................................
AT OR FOR THE YEARS ENDED MARCH 31, 1997 1996 1995 1994 1993
=============================================================================================================================
Total Assets $1,959,847 $1,765,812 $1,563,452 $1,001,037 $989,308
- -----------------------------------------------------------------------------------------------------------------------------
Loans Receivable, Net 835,243 786,824 575,280 294,324 290,380
- -----------------------------------------------------------------------------------------------------------------------------
Investments and Mortgage-Related Securities, Net 1,015,189 898,413 926,448 666,838 648,724
- -----------------------------------------------------------------------------------------------------------------------------
Customer Accounts 873,357 861,016 693,988 679,525 618,693
- -----------------------------------------------------------------------------------------------------------------------------
Borrowings 893,703 748,206 705,231 256,795 304,881
- -----------------------------------------------------------------------------------------------------------------------------
Equity 135,704 140,337 141,300 53,978 57,056
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income 54,179 43,762 36,749 22,820 25,014
- -----------------------------------------------------------------------------------------------------------------------------
Provision for Loan Losses 5,310 4,000 3,400 1,113 3,169
- -----------------------------------------------------------------------------------------------------------------------------
Non-Interest Income 15,706 7,269 3,412 8,616 7,196
- -----------------------------------------------------------------------------------------------------------------------------
Non-Interest Expense 48,860 (1) 29,139 23,093 21,000 20,253
- -----------------------------------------------------------------------------------------------------------------------------
Net Income 13,810 11,620 8,694 1,862 7,488
=============================================================================================================================
Primary Earnings per Share $1.23 $0.92 $0.46 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Fully Diluted Earnings per Share 1.22 0.91 0.46 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Cash Earnings per Share (2) 1.59 1.07 0.53 -- --
=============================================================================================================================
Net Interest Margin 3.06% 2.79% 2.90% 2.39% 2.74%
- -----------------------------------------------------------------------------------------------------------------------------
Efficiency Ratio 63.76 56.59 55.50 66.80 62.88
- -----------------------------------------------------------------------------------------------------------------------------
Return on Average Assets 0.74 0.71 0.66 0.19 0.79
- -----------------------------------------------------------------------------------------------------------------------------
Return on Average Equity 9.73 7.88 8.22 3.17 14.81
=============================================================================================================================
Non-performing Assets as a Percent of Total Assets (3) 0.55 0.59 0.57 1.23 2.49
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses as a Percent of
Non-performing Loans (3) 156.86 156.20 134.74 137.50 55.16
=============================================================================================================================
(1) Includes one-time FDIC insurance assessment of $4.8 million.
(2) Earnings per share adjusted for goodwill amortization and stock benefit
plans expense.
(3) Asset Quality Ratios are end-of-period ratios. With the exception of
end-of-period ratios, all ratios are based on average daily balances during
the indicated periods.
The following table shows market price information for the Company's Common
Stock.
The prices set forth below represent the high, low and closing prices on the
NASDAQ National Market System during the periods indicated.
..............................................................................................................................
PRICE PER SHARE
==============================================================================================================================
QUARTERLY PERIOD ENDED HIGH LOW CLOSE
==============================================================================================================================
September 30, 1994 $8.38 $7.63 $7.94
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 8.00 6.13 6.75
- ------------------------------------------------------------------------------------------------------------------------------
March 31, 1995 8.07 6.69 8.00
- ------------------------------------------------------------------------------------------------------------------------------
June 30, 1995 9.82 7.88 9.63
- ------------------------------------------------------------------------------------------------------------------------------
September 30, 1995 11.94 9.50 11.57
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 12.32 10.50 11.13
- ------------------------------------------------------------------------------------------------------------------------------
March 31, 1996 12.38 10.88 11.94
- ------------------------------------------------------------------------------------------------------------------------------
June 30, 1996 12.50 11.38 12.13
- ------------------------------------------------------------------------------------------------------------------------------
September 30, 1996 14.06 11.88 14.06
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 14.88 13.88 13.88
- ------------------------------------------------------------------------------------------------------------------------------
March 31, 1997 17.75 13.75 15.38
- ------------------------------------------------------------------------------------------------------------------------------
* All share information has been adjusted for the Company's two-for-one stock
split which occurred September 6, 1996.
9
15
ML BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
ML Bancorp, Inc. (the "Company") is the holding company of its wholly owned
subsidiary, Main Line Bank (the "Bank"). For purposes of this discussion, ML
Bancorp, Inc., including its wholly owned subsidiaries, will be referred to as
the Company. The Company provides business, mortgage and consumer banking
services through 24 business centers in Bucks, Chester, Delaware and Montgomery
counties and 10 mortgage loan production offices which are located in Delaware,
Florida, New Jersey, and Pennsylvania.
The following discussion provides an overview of the general business,
financial condition and results of operations of the Company and should be read
in conjunction with the Company's consolidated financial statements presented
elsewhere herein. Accordingly, the discussion below with respect to results of
operations relates primarily to the Bank, and the financial data for the period
prior to the conversion to a federally chartered stock savings bank, which was
completed on August 11, 1994, also reflects financial data of the Bank.
The operating results of the Company depend primarily upon its net interest
income, which is determined by the difference between interest income on
interest-earning assets, principally loans, mortgage-related securities and
investments, and interest expense on interest-bearing liabilities, which
principally consist of customer accounts and borrowings. The Company's net
income is also affected by its provision for loan losses, as well as the level
of its other income, including mortgage banking income, net gains or losses on
sale of assets available for sale and its operating expenses, such as
compensation and employee benefits, net occupancy expense, federal deposit
insurance and miscellaneous other expenses, and income taxes.
The Company entered into a definitive agreement to acquire Penncore Financial
Services Corporation ("Penncore") the holding company for Commonwealth State
Bank ("Commonwealth") a $138 million, state-chartered bank in Bucks County,
Pennsylvania on February 4, 1997. The transaction, which is not expected to
materially affect earnings of the Company, is subject to regulatory and
Penncore shareholder approval and is projected to be consummated during the
second quarter of fiscal 1998.
ASSET AND LIABILITY MANAGEMENT
The principal objective of the Company's asset and liability management
function is to maximize the Company's net interest income, maintaining a level
of risk appropriate given the Company's business focus, operating environment,
capital and liquidity requirements and performance objectives, establish
prudent asset concentration guidelines and manage the risk consistent with
Board of Directors approved guidelines. Through such management, the Company
seeks to reduce the vulnerability of its operations to changes in interest
rates and to monitor the ratio of interest-rate sensitive assets to
interest-rate sensitive liabilities within specified maturities or repricing
dates. The Company's actions in this regard are taken under the guidance of the
Asset/Liability Management Committee ("ALCO"), which is chaired by the Chief
Financial Officer and comprised principally of members of the Company's senior
management. The ALCO meets once a month to review, among other things, the
sensitivity of the Company's assets and liabilities to interest rate changes,
the book and market values of assets and liabilities, unrealized gains and
losses, purchase and sale activity and maturities of investments and
borrowings. In connection therewith, the ALCO generally reviews the Company's
liquidity, cash flow needs, maturities of investments, deposits and borrowings
and current market conditions and interest rates. A pricing subcommittee meets
weekly to make pricing and funding decisions with respect to the Company's
retail deposits and selected consumer loans.
The Company's primary ALCO monitoring tool is asset/liability simulation
models, which are prepared at a minimum on a quarterly basis and are designed
to capture the dynamics of balance sheet, rate and spread movements and to
quantify variations in net interest income under different interest rate
environments. The Company also utilizes market-value analysis, which addresses
the change in equity value arising from movements in interest rates. The
estimated market value of equity is the difference in the market value of the
Company's assets and liabilities. The extent to which assets have gained or
lost value in relation to the gains or losses of liabilities determines the
appreciation or depreciation in equity on a market-value basis. Market value
analysis is intended to evaluate the impact of immediate and sustained
interest-rate shifts of the current yield curve upon the market value of the
current balance sheet.
A more conventional but limited ALCO monitoring tool involves an analysis of
the extent to which assets and liabilities are "interest rate sensitive" and
measuring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity "gap" is defined as the difference between interest-earning assets
and interest-bearing liabilities maturing or repricing within a given time
period.
10
16
ML BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The repricing and maturities of the Corporation's interest-earnings assets and
interest-bearing liabilities at March 31, 1997, are set forth in the following
table:
....................................................................................................................................
LESS THAN ONE TO OVER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
====================================================================================================================================
Interest earning assets: (1)
Real estate loans (2) $ 173,162 $ 113,849 $108,669 $ 395,680
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial loans (2) 146,977 91,981 64,684 303,642
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer loans (2) 75,085 43,607 26,613 145,305
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities (2) 352,768 323,517 274,193 950,478
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities 48,061 23,893 -- 71,954
- ------------------------------------------------------------------------------------------------------------------------------------
$ 796,053 $ 596,847 $474,159 $1,867,059
====================================================================================================================================
Interest-bearing liabilities:
Money market and interest bearing (3)
demand accounts (4) $ 156,322 $ -- $ -- $ 156,322
- ------------------------------------------------------------------------------------------------------------------------------------
Savings accounts (4) 91,269 -- -- 91,269
- ------------------------------------------------------------------------------------------------------------------------------------
Time deposits 342,966 122,228 1,349 466,543
- ------------------------------------------------------------------------------------------------------------------------------------
FHLB advances 247,918 164,750 24,750 437,418
- ------------------------------------------------------------------------------------------------------------------------------------
Senior notes -- -- 50,000 50,000
- ------------------------------------------------------------------------------------------------------------------------------------
Other borrowed funds 292,740 204,093 -- 496,833
- ------------------------------------------------------------------------------------------------------------------------------------
$1,131,215 $ 491,071 $ 76,099 $1,698,385
====================================================================================================================================
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities $ (335,162) $ 105,776 $398,060 $ 168,674
====================================================================================================================================
Cumulative excess (deficiency) of interest-
earning assets over interest-bearing liabilities $ (335,162) $(229,386) $168,674 $ --
====================================================================================================================================
(1) Adjustable-rate loans are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are due,
and fixed-rate loans are included in the periods in which they are scheduled to
be repaid, based on scheduled amortization, in each case as adjusted to take
into account estimated prepayments based on portfolio experience.
(2) Reflects estimated prepayments in the current interest rate environment.
(3) Does not include non-interest-bearing customer accounts.
(4) Although the Company's negotiable order of withdrawal ("NOW") accounts and
passbook savings accounts are subject to immediate withdrawal, management
considers a substantial amount of such accounts to be core customer accounts
having significantly longer effective maturities based on the Company's
retention of such customer accounts in changing interest rate environments.
CHANGES IN FINANCIAL CONDITION
GENERAL. The Company's total assets increased by $194 million or 11.0% to $2
billion during the fiscal year ended March 31, 1997. Asset growth occurred
primarily in loans receivable, mortgage servicing rights and securities
available for sale, which were partially offset by a modest decline in
mortgage-related securities. The growth of $198.7 million or 12.2% in total
liabilities and Corporation-obligated mandatorily redeemable capital securities
("trust preferred securities") was attributable to increases in securities sold
under agreements to repurchase, advances from the Federal Home Loan Bank
("FHLB") of Pittsburgh, customer accounts and newly issued trust preferred
securities. See Note 16 to the Consolidated Financial Statements for further
information regarding trust preferred securities. Stockholders' equity declined
$4.6 million or 3.3% during the year resulting from the acquisition of treasury
stock and dividend payments that more than offset net earnings for the year.
SECURITIES AND SECURITIES AVAILABLE FOR SALE. Securities and securities
available for sale, which include mortgage-related securities, mortgage-related
debt and equity securities, investments and securities available for sale,
increased by $116.8 million or 13.0% to $1.0 billion at March 31, 1997, from
$898.4 million at March 31, 1996. The $116.8 million change is the net effect
of the following: (1) mortgage-related securities and debt and equity
securities held in portfolio declined by $18.9 million to $385.3 million at
March 31, 1997, from $404.2 million at March 31, 1996; (2) mortgage-related
securities and debt and equity securities available for sale increased by
$128.5 million or 27.4% to $597.8 million at March 31, 1997, from $469.3
million at March 31, 1996; and (3) investments increased by $7.1 million to
$32.1 million at March 31, 1997, from $25.0 million at March 31, 1996. The
above changes occurred as a result of purchases of securities more than
offsetting repayments and sales, as well as purchases associated with the
initial investment of the trust preferred securities.
11
17
ML BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LOANS AVAILABLE-FOR-SALE AND LOANS RECEIVABLE, NET. Aggregate loans receivable
(loans receivable, net and loans available for sale) totaled $835.2 million at
March 31, 1997, an increase of $48.4 million or 6.2% from $786.8 million at
March 31, 1996, due to a $38.7 million or 5.6% increase in loans receivable,
net and a $9.7 million increase in loans available for sale. Loan growth of
$32.4 million or 29.4% occurred in consumer loans, primarily home equity loans
which are secured by the residential property. Also contributing to the
increase was a $21.9 million or 18.3% increase in commercial real estate and
multi-family loans; a $14.4 million or 20.7% increase in commercial business
loans and a $5.7 million increase in construction loans. This growth was
partially offset by a $25.6 million or 6.0% decrease in the residential
mortgage portfolio which was attributable to ALCO's strategy to de-emphasize
residential loans in the portfolio.
NON-PERFORMING ASSETS. At March 31, 1997, non-performing assets totaled $10.7
million or 0.55% of total assets, amounting to a $300,000 or 3% increase from
$10.4 million or 0.6% of total assets at March 31, 1996. Non-performing loans
increased by $1.0 million or 12% to $9.4 million at March 31, 1997, due
primarily to the addition of one commercial loan that was partially offset by a
decline in non-performing construction loans. The non-performing loans at March
31, 1997, were comprised of $3.4 million in commercial business loans, $1.3
million in consumer loans, and $4.5 million in residential mortgages.
Other real estate owned net decreased to $1.3 million as of March 31, 1997, as
compared to $2.0 million as of March 31, 1996, due primarily to the sale of a
segment of these assets.
The Company's allowance for loan losses amounted to $14.7 million at March 31,
1997, or 156.9% of non-performing loans and 1.8% of gross loans receivable
(including loans available for sale). At March 31, 1996, the allowance for loan
losses amounted to 156.2% of non-performing loans and 1.7% of gross loans
receivable (including loans available for sale). It is the policy of management
to maintain an allowance for losses based upon the general economic climate,
the type of lending activity of the Company, the prior loss experience, and
other factors associated with the repayment of loans.
Total chargeoffs were $3.8 million and $1.2 million for the years ended March
31, 1997 and 1996, respectively. The increase in 1997 was associated with one
large commercial business loan chargeoff.
MORTGAGE SERVICING RIGHTS. Mortgage servicing rights increased by $27.9 million
to $49.7 million at March 31, 1997, representing a 127.4% increase above the
prior year. The increase was comprised of the following: $19.4 million increase
associated with the Philadelphia Mortgage Corporation ("Philadelphia Mortgage")
acquisition, $13.3 million increase due to purchases of other mortgage
servicing rights, and originated mortgage servicing rights of $3.1 million
which were partially offset by amortization and an increase in the impairment
reserve which aggregated $8.0 million during the year.
CUSTOMER ACCOUNTS. Customer accounts increased by $12.3 million or 1.4% to
$873.4 million at March 31, 1997. Non-interest checking accounts increased
$37.1 million or 45.3% primarily due to the increase in business checking and
custodial accounts. The increase in balances of lower cost of fund accounts
were offset by decreases in balances of higher cost of fund accounts. Money
market accounts decreased by $13.4 million or 13.1% and certificate of deposit
accounts decreased by $37 million or 7.3% due to the reduction of higher
yielding certificate accounts.
BORROWINGS. Total borrowings increased by $145.5 million or 19.4% to $893.7
million at March 31, 1997, from $748.2 million at March 31, 1996. The Company's
borrowings are primarily comprised of advances from the FHLB and reverse
repurchase agreements. Reverse repurchase agreements are commitments the
Company enters into to sell securities under terms which require it to
repurchase the same securities by a specified date. Such agreements represent
an attractive funding source for the Company. The Company's borrowings are used
to fund lending and investment activities, withdrawals from customer accounts,
and other disbursements which occur in the normal course of business.
FHLB advances increased $61.4 million or 16.3% to $437.4 million at March 31,
1997, from $376 million at March 31, 1996. Reverse repurchase agreements
increased by $84.1 million or 22.6% to $456.3 million at March 31, 1997, from
$372.2 million at March 31, 1996.
EQUITY. Total equity at March 31, 1997, was $135.7 million or 6.9% of total
assets, compared to $140.3 million or 7.9% of total assets at March 31, 1996.
The resulting equity decline of $4.6 million during the year ended March 31,
1997, was comprised of the repurchase of 1,218,000 shares or 10.0% of the
Company's then outstanding common stock at an aggregate cost of $16.6 million,
and dividends paid to common shareholders totaling $4.1 million, which were
partially offset by net income of $13.8 million, and the $2.8 million of
amortization related to stock benefit plans. The Company's market value
position relative to its mortgage-related, debt and equity securities
classified as assets available for sale, net of income taxes, went from an
unrealized gain of $120,000 at March 31, 1996, to an unrealized loss of
$403,000 at March 31, 1997, unfavorably impacting equity by $523,000.
12
18
ML BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the periods and at the date indicated,
information regarding the Company's average balance sheet. Information is based
on average daily balances during the periods presented.
Dollars in Thousands
....................................................................................................................................
YEARS ENDED MARCH 31,
-----------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------- ------------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
====================================================================================================================================
Interest-earning assets:
Loans receivable:
Mortgage loans:
Residential (1) $ 393,093 $ 31,924 8.12% $ 366,363 $ 29,303 8.00% $ 208,126 $16,164 7.77%
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial 134,926 12,153 9.01 100,801 9,318 9.24 71,694 6,590 9.19
- ------------------------------------------------------------------------------------------------------------------------------------
Construction loans 63,353 7,304 11.53 37,455 4,883 13.04 16,522 2,028 12.27
- ------------------------------------------------------------------------------------------------------------------------------------
Other:
Consumer loans:
Home equity loans and
lines of credit 109,978 9,976 9.07 82,715 7,689 9.30 71,863 6,306 8.78
- ------------------------------------------------------------------------------------------------------------------------------------
Unsecured lines of credit 2,737 348 12.71 3,282 399 12.16 3,854 414 10.74
- ------------------------------------------------------------------------------------------------------------------------------------
Other (1) 27,992 2,751 9.83 22,411 2,045 9.12 19,072 1,539 8.07
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial business 73,022 5,595 7.66 49,133 3,966 8.07 21,333 1,671 7.83
====================================================================================================================================
Total loans receivable 805,101 70,051 8.70 662,160 57,603 8.70 412,464 34,712 8.42
====================================================================================================================================
Mortgage-related securities (1) 876,969 61,556 7.02 821,436 57,216 6.97 753,745 49,058 6.51
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities (1) 82,033 5,151 6.28 77,199 5,098 6.60 89,501 5,671 6.34
- ------------------------------------------------------------------------------------------------------------------------------------
Other interest-earning assets 7,182 561 7.81 8,283 504 6.08 13,608 792 5.82
====================================================================================================================================
Total interest-earning assets 1,771,285 $137,319 7.75% 1,569,078 $120,421 7.67% 1,269,318 $90,233 7.11%
====================================================================================================================================
Non-interest-earning assets 104,913 -- -- 59,059 -- -- 41,267 -- --
====================================================================================================================================
Total assets $1,876,198 -- -- $1,628,137 -- -- $1,310,585 -- --
====================================================================================================================================
Interest-bearing liabilities:
Customer Accounts $ 866,226 $ 33,623 3.88% $ 759,335 $ 32,555 4.29% $ 693,803 $25,742 3.72%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLB advances 405,921 24,365 6.00 $ 361,128 22,775 6.31 $ 320,572 18,078 5.64
- ------------------------------------------------------------------------------------------------------------------------------------
Other borrowings 444,785 25,151 5.65 343,139 21,329 6.22 177,735 9,664 5.37
====================================================================================================================================
Total interest-bearing
liabilities 1,716,932 $ 83,139 4.84% 1,463,602 $ 76,659 5.24% 1,192,110 $53,484 4.49%
====================================================================================================================================
Non-interest-bearing liabilities 17,355 -- -- 17,163 -- -- 12,666 -- --
====================================================================================================================================
Total liabilities 1,734,287 -- -- 1,480,765 -- -- 1,204,776 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Equity 141,911 -- -- 147,372 -- -- 105,809 -- --
====================================================================================================================================
Total liabilities and equity $1,876,198 -- -- $1,628,137 -- -- $1,310,585 -- --
====================================================================================================================================
Net interest-earning assets $ 54,353 -- -- $ 105,476 -- -- $ 77,208 -- --
====================================================================================================================================
Net interest income/
interest rate spread -- $ 54,180 2.91% -- $ 43,762 2.43% -- $36,749 2.62%
====================================================================================================================================
Net yield on interest-earning
assets (2) -- -- 3.06% -- -- 2.79% -- -- 2.90%
====================================================================================================================================
Ratio of interest-earning assets
to interest-bearing liabilities -- -- 103.17% -- -- 107.21% -- -- 106.48%
====================================================================================================================================
(1) Includes assets available for sale.
(2) Net interest income divided by interest-earning assets.
13
19
ML BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected the
Company's interest income and expense during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume), and (iii) total change in rate and volume.
The combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
Dollars in Thousands
....................................................................................................................................
YEARS ENDED MARCH 31, 1997 VS. 1996 1996 VS. 1995
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE INCREASE
(DECREASE) DUE TO (DECREASE) DUE TO
----------------------------------------------- --------------------------------------------
TOTAL INCREASE TOTAL INCREASE
RATE VOLUME (DECREASE) RATE VOLUME (DECREASE)
====================================================================================================================================
Interest-earnings assets:
Loans receivable:
Mortgage loans:
Residential (1) $ 456 $2,165 $ 2,621 $ 598 $12,541 $13,139
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial (232) 3,067 2,835 22 2,706 2,728
- ------------------------------------------------------------------------------------------------------------------------------------
Construction (486) 2,907 2,421 257 2,598 2,855
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer loans:
Home equity loans and lines of credit (181) 2,468 2,287 444 939 1,383
- ------------------------------------------------------------------------------------------------------------------------------------
Unsecured lines of credit 19 (70) (51) 56 (71) (15)
- ------------------------------------------------------------------------------------------------------------------------------------
Other (1) 101 605 706 195 311 506
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial loans (190) 1,819 1,629 31 2,264 2,295
====================================================================================================================================
Total loans receivable (513) 12,961 12,448 1,603 21,288 22,891
====================================================================================================================================
Mortgage-related securities (1) 445 3,895 4,340 4,456 3,702 8,158
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities (1) (193) 246 53 313 (886) (573)
- ------------------------------------------------------------------------------------------------------------------------------------
Other interest-earning assets 107 (50) 57 58 (346) (288)
====================================================================================================================================
Total interest-earning assets (154) 17,052 16,898 6,430 23,758 30,188
====================================================================================================================================
Interest-bearing liabilities:
Customer Accounts (2,191) 3,261 1,070 3,561 2,598 6,159
- ------------------------------------------------------------------------------------------------------------------------------------
FHLB advances (1,615) 3,520 1,905 2,510 2,187 4,697
====================================================================================================================================
Other borrowings (1,082) 4,587 3,505 2,652 9,667 12,319
====================================================================================================================================
Total interest-bearing liabilities (4,888) 11,368 6,480 8,723 14,452 23,175
====================================================================================================================================
Increase (decrease) in net
interest income $4,734 $5,684 $10,418 $(2,293) $ 9,306 $ 7,013
====================================================================================================================================
(1) Includes assets available for sale.
NET INCOME. The Company reported net income of $13.8 million or $1.22 per fully
diluted share for the year ended March 31, 1997. The $2.2 million or 18.8%
improvement in net income over the prior comparable period was attributable to
a $9.1 million or 23.0% increase in net interest income after provision for
loan losses, an increase of $8.4 million in non-interest income primarily
associated with mortgage banking fees and the positive after-tax impact of a
$3.8 million tax bad debt reserve recapture. Partially offsetting these
earnings enhancements were a one-time special FDIC insurance assessment of $4.8
million, an increase in non-interest expenses due to six new banking centers
and higher expense levels associated with the mortgage banking operations.
For the year ended March 31, 1996, the Company reported net income of $11.6
million or $0.91 per fully diluted share as compared to net income of $8.7
million or $0.49 per share for the year ended March 31, 1995. The increase of
$2.9 million or 33.7% was primarily due to a $6.4 million or 19.2% increase in
net interest income after provision for loan losses and a $3.9 million or
113.0% increase in non-interest income, which were partially offset by a $6.0
million or 26.2% increase in non-interest expenses and a $1.3 million or 26.1%
increase in provision for taxes.
NET INTEREST INCOME. Net interest income before provision for loan losses
amounted to $54.2 million during the year ended March 31, 1997, a $10.4 million
or 23.8% increase over the comparable period in 1996. During the 1997 period, a
$16.9 million or 14.0% increase in total interest income more than offset a $6.5
million or 8.5% increase in total interest expense. Net interest income before
provision for loan losses amounted to $43.8 million during the year ended March
31, 1996, a $7.0 million or 19.1% increase over the comparable period in 1995.
During the 1996 period, a $30.2 million or 33.5% increase in total interest
income more than offset a $23.2 million or 43.3% increase in total interest
expense.
14
20
ML BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total interest income increased by $16.9 million for the year ended March 31,
1997, over the prior comparable period. The increase is primarily attributable
to a $10.3 million increase in interest income on loans and a $10.7 million
increase in interest income from assets available for sale. Growth in average
balances of commercial real estate loans and construction loans of $60.0
million, consumer loans of $32.3 million, commercial business loans of $23.9
million and residential real estate loans of $26.7 million (including loans
available for sale) accounted for the majority of the increase. Also
contributing to the increase in interest income was the growth of $60.4 million
of securities (including securities available for sale). The average yield on
total loans receivable remained constant at 8.70% from year to year as the 12
basis point improvement to 8.12% in residential loans was entirely offset by
modest yield declines in other loan categories. The yield on total
interest-earning assets improved to 7.75% during fiscal 1997 as compared to
7.67% in the previous year due to the addition of higher yielding assets,
primarily in mortgage-related securities (5 basis points, with 100 basis points
equaling 1.0%).
The $30.2 million increase in total interest income during the year ended March
31, 1996, over the prior comparable period was primarily due to a $20.2 million
or 60.2% increase in interest income earned on loans receivable and an
aggregate $12.4 million or 23.9% increase in interest income earned on
mortgage-related, debt and equity securities and assets available for sale.
This increase was caused by a $249.7 million or 60.5% increase in the average
balance of total loans receivable (including assets available for sale), and a
$67.7 million or 9.0% increase in the average balance of total mortgage-related
securities (including assets available for sale), coupled with rate increases
in yields earned on the total loans receivable portfolio and the aggregate
mortgage-related securities portfolio of 28 and 46 basis points, respectively.
The $6.5 million or 8.5% increase in interest expense during the year ended
March 31, 1997, over the prior comparable period was due to increases in
interest expense of $1.1 million on customer accounts, $1.6 million in FHLB
advances, and $3.8 million in other borrowings. Although the average balance of
total customer accounts increased by $106.9 million for 1997 over 1996, the
average rate paid on these accounts decreased by 41 basis points to 3.88% for
the year ended March 31, 1997. The $1.6 million increase in interest on FHLB
advances was also the result of a combination of higher average balances,
increasing by $44.8 million for 1997 compared to the prior year, offset by
lower rates, decreasing 31 basis points to 6.00% for 1997. Interest expense on
other borrowings declined by $3.1 million as a result of a $101.6 million
increase in average balances offset by a 57 basis point decline in rates.
Total interest expense increased by $23.2 million or 43.3% for the year ended
March 31, 1996, over the prior comparable period. The increase was partly
attributable to a $12.3 million increase in interest expense on other borrowed
money, mainly reverse repurchase agreements, due primarily to a $177.2 million
or 98.5% increase in the average balance, and to a lesser extent, an increase
in the yield paid. Additionally, the increase in total interest expense was
caused by a $6.8 million or 26.5% increase in interest expense on customer
accounts and a $4.7 million or 26.0% increase in interest expense on FHLB
advances. In the fourth quarter of fiscal 1996, the Company prepaid
approximately $20.0 million in FHLB advances, extending the maturity by
approximately two years and reducing its cost of funds by approximately 225
basis points.
PROVISION FOR LOAN LOSSES
The Company establishes provisions for loan losses, which are charged to
earnings, in order to maintain the allowance for loan losses at a level which
is deemed to be appropriate based upon an assessment of prior loss experience,
the volume and type of lending presently being conducted by the Company,
industry standards, past due loans, economic conditions in the Company's market
area generally and other factors related to the collectibility of the Company's
loan portfolio. For the year ended March 31, 1997, the provision for loan
losses amounted to $5.3 million, an increase of $1.3 or 32.8% from the
comparable 1996 period. For the year ended March 31, 1996, the provision for
loan losses amounted to $4.0 million, an increase of $600,000 or 17.6% from the
comparable 1995 period. The increased provision during the year ended March 31,
1997, was the result of an additional provision of $1.3 million in the third
quarter related principally to a deteriorated commercial business loan. At
March 31, 1997, the allowance for loan losses amounted to 156.9% of total
non-performing loans and 1.8% of gross loans receivable, as compared to 156.2%
and 1.7%, respectively at March 31, 1996.
Although management utilizes its best judgment in providing for possible
losses, there can be no assurance that the Company will not have to increase
its provisions for loan losses in the future as a result of adverse changes in
non-performing loans or for other reasons, which could adversely affect the
Company's results of operations. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the
Company's provision for loan losses and the carrying value of its other
non-performing assets based on their judgments about information available to
them at the time of their examination.
NON-INTEREST INCOME. Total non-interest income more than doubled for the second
consecutive year reflecting the Company's efforts to increase its reliance on
fee-based income. Total non-interest income was $15.7 million for the year
ended March 31, 1997, an $8.4 million or 116% increase over the comparable
prior period. The largest component of this increase was $7.8 million relating
to mortgage banking operations. This increase was primarily caused by a $2.6
million increase in loan servicing fee income and a $5.8 million increase in
gains on the sale of loans. At March 31, 1997, the Company serviced $4.4
billion of real estate loans, which are not included in the consolidated
financial statements, for investors. The total amount of loans serviced for
others was $2.4 billion at March 31, 1996. During 1997 the Company acquired
Philadelphia Mortgage which was subsequently integrated into the Company's
newest division, Main Line Financial, a division of Main Line Bank.
Total non-interest income more than doubled to $7.3 million for the year ended
March 31, 1996, as compared to $3.4 million for the comparable period in 1995.
The $3.9 million increase is primarily attributable to gains on sales of
mortgage-related and equity securities of $255,000 in the current period
compared to a $2.0 million net loss recognized in 1995, and a $2.3 million
improvement in income from mortgage banking operations. The increase was due
primarily to the Company's adoption of SFAS No. 122 in the amount of $760,000.
Also, the Company sold a higher percentage of originated loans, servicing
released, in the secondary market, compared to the prior year, thus resulting
in increased gains. Partially offsetting these gains was a $514,000 increase in
loss on sale of other real estate owned.
15
21
ML BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-INTEREST EXPENSE. Total non-interest expense for the year ended March 31,
1997, were $48.9 million, up $19.7 million or 67.7% from $29.1 million at March
31, 1996. The largest components of this increase were a $7.6 million increase
in compensation and employee benefits expense, a $4.7 million increase in
Federal Deposit insurance premiums, and a $3.2 million increase in the
amortization of goodwill. The $7.6 million increase in compensation and
employee benefits expense relates primarily to the increase in personnel needed
to staff the Company's six new business centers and the nine new loan
production offices of Main Line Financial acquired during the latter part of
the previous year. The Federal Deposit insurance premiums increase of $4.7
million is the direct result of a one time special assessment by the Federal
Deposit Insurance Corporation as part of legislation adopted to recapitalize
the Savings Association Insurance Fund. As a result of the special assessment,
the Company's federal insurance premiums decreased from $0.23 per $100 of
deposits to $0.06 per $100 of deposits in the fourth fiscal quarter of 1997.
The Company anticipates paying this reduced premium for the foreseeable future.
This reduction in federal insurance premiums will favorably impact expense for
fiscal 1998. The $3.2 million increase in amortization of goodwill during 1997
was the result of recognizing the first full year of amortization expense
relating to the acquisitions of Suburban Federal Savings Bank ("Suburban"),
Hart Mortgage Company ("Hart Mortgage") and Philadelphia Mortgage.
For the year ended March 31, 1996, non-interest expenses totaled $29.1 million,
an increase of $6.0 million or 26.2% over the prior comparable period.
Compensation and employee benefits increased by $1.8 million or 15.2% from
$12.1 million for the year ended March 31, 1995, to $13.9 million for the year
ended March 31, 1996. The change was attributable primarily to increases in
expenses related to stock benefit plans, the addition of personnel from the
Suburban and Hart Mortgage acquisitions, and new business center openings.
Advertising expense increased by $1.1 million to $1.9 million at March 31,
1996, due to increased emphasis in various consumer and commercial product
campaigns and new business center openings. The Company's continued expansion
of its business center network and acquisitions was the primary reason for the
$993,000 or 30.9% increase in net occupancy costs, which totaled $4.2 million
for the year ended March 31, 1996. Operating expenses also increased due to the
amortization of goodwill and other intangible assets related to the purchases
of a certificate of deposit portfolio and the Suburban and Hart Mortgage
acquisitions in 1996. Included in the overall $1.2 million increase in other
operating expenses is a $462,000 prepayment penalty related to the debt
restructuring, and various other expenses related to the Suburban and Hart
Mortgage operations since acquisition, as well as a full year of expenses
related to being a publicly held company.
INCOME TAXES. For the year ended March 31, 1997, income tax expense totaled
$1.9 million or 12.1% of pre-tax earnings compared to $6.3 million or 35.1% of
pre-tax earnings for the year ended March 31, 1996. The decrease of $4.4
million or 69.8% is primarily attributable to federal legislation enacted
during the year that provided for a reduction in the amount of income tax
liability that would be incurred upon conversion to a commercial bank and lower
pre-tax earnings during the year.
Legislation enacted under the Small Business Job Protection Act ("Act") of 1996
provided for the Bank to recapture into income the portion of its tax bad debt
reserves that exceed its base year reserves (i.e., tax reserves for years
beginning before 1988). The Company had previously established a deferred tax
liability related to recapture of both the base year reserves and the excess
base year reserves, in anticipation of changing the Bank's charter to that of a
commercial bank. As a result of the signing of the Act, the Company recognized
approximately $3.8 million of after-tax income (net of state tax expense) due
to the reversal of the previously established base year tax bad reserve
liability.
The Company incurred income tax expense of $6.3 million or 35.1% of pre-tax
earnings, during the year ended March 31, 1996, compared to $5.0 million during
fiscal 1995. The primary reason for the $1.3 million increase was due to
additional pre-tax earnings for fiscal 1996.
LIQUIDITY
THE COMPANY'S PRIMARY SOURCES OF FUNDS ARE CUSTOMER ACCOUNTS, BORROWINGS,
REPAYMENTS, PREPAYMENTS AND MATURITIES OF OUTSTANDING LOANS AND
MORTGAGE-RELATED SECURITIES, SALES OF ASSETS AVAILABLE FOR SALE, MATURITIES OF
INVESTMENT SECURITIES AND OTHER SHORT-TERM INVESTMENTS, AND FUNDS PROVIDED FROM
OPERATIONS. WHILE SCHEDULED LOAN AND MORTGAGE-RELATED SECURITIES REPAYMENTS AND
MATURING INVESTMENT SECURITIES AND SHORT-TERM INVESTMENTS ARE RELATIVELY
PREDICTABLE SOURCES OF FUNDS, CUSTOMER ACCOUNT FLOWS AND LOAN PREPAYMENTS ARE
GREATLY INFLUENCED BY THE MOVEMENT OF INTEREST RATES IN GENERAL, ECONOMIC
CONDITIONS AND COMPETITION.
THE COMPANY MANAGES THE PRICING OF ITS CUSTOMER ACCOUNTS TO MAINTAIN BALANCES
DEEMED APPROPRIATE AND DESIRABLE. BECAUSE THE COMPANY'S CUSTOMER ACCOUNTS
REPRESENT APPROXIMATELY 49.2% OF ITS TOTAL LIABILITIES AT MARCH 31, 1997, THE
COMPANY HAS ALSO UTILIZED OTHER BORROWING SOURCES, NAMELY FHLB ADVANCES AND
REVERSE REPURCHASE AGREEMENTS, WHICH IN THE AGGREGATE REPRESENT APPROXIMATELY
50.4% OF TOTAL LIABILITIES AT MARCH 31, 1997. IN ADDITION TO ITS ABILITY TO
OBTAIN ADVANCES FROM THE FHLB UNDER SEVERAL DIFFERENT CREDIT PROGRAMS, THE
COMPANY HAS ESTABLISHED A LINE OF CREDIT WITH THE FHLB WHICH CAN BE USED FROM
TIME TO TIME FOR LIQUIDITY PURPOSES. AS AN ADDITIONAL SOURCE OF FUNDS, THE
COMPANY HAS ACCESS TO THE FEDERAL RESERVE BANK DISCOUNT WINDOW.
Liquidity management is both a daily and long-term function. Excess liquidity
is generally invested in short-term investments such as FHLB overnight
deposits. On a longer-term basis, the Company maintains a strategy of investing
in various mortgage-related securities and lending products. During the year
ended March 31, 1997, the Bank used its sources of funds to primarily fund loan
commitments and maintain a substantial portfolio of mortgage-related
securities. At March 31, 1997, the total approved loan commitments outstanding
amounted to $68.6 million. At the same date, commitments under unused lines and
letters of credit amounted to $84.6 million and the unadvanced portion of
construction loans approximated $59.9 million. Certificates of deposit
scheduled to mature in one year or less at March 31, 1997, totaled $337.0
million. Management believes that the Company has adequate resources, including
principal prepayments and repayments of loans and mortgage-related securities,
to fund all of its commitments to the extent required. In addition, although
the Company has extended commitments to fund loans or lines and letters of
credit, historically, the Company has not been required to fund all of its
outstanding commitments. Management believes that a significant portion of
maturing customer accounts will remain with the Company.
16
22
ML BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is required by the Office of Thrift Supervision ("OTS") to maintain
average daily balances of liquid assets and short-term liquid assets (as
defined) in amounts equal to 5% and 1%, respectively, of net withdrawable
deposits and borrowings payable in one year or less to assure its ability to
meet demand for withdrawals and repayment of short-term borrowings. The
liquidity requirements may vary from time to time at the direction of the OTS
depending upon economic conditions and deposit flows. The Company generally
maintains a liquidity ratio between 5% and 7% of its net withdrawable deposits
and borrowings payable in one year or less. The Bank's average monthly
liquidity ratio and short-term liquid assets ratio for March 1997 amounted to
6.57% and 4.61%, respectively.
CAPITAL RESOURCES
The OTS requires that the Company meet minimum regulatory tangible, core and
risk-based capital requirements. These standards currently require institutions
such as the Bank to maintain a "tangible" capital ratio equal to 1.5% of
adjusted total assets, "core" (or "leverage") capital equal to 3.0% of adjusted
total assets, "Tier I" capital equal to 4.0% of adjusted total assets and
"risk-based" capital (a combination of core and "supplementary" capital) equal
to 8.0% of "risk-weighted" assets. At March 31, 1997, the Company exceeded all
regulatory capital requirements. Management anticipates that the Bank will
continue to exceed all regulatory capital requirements. See Note 17 to the
Consolidated Financial Statements for additional information regarding the
Bank's regulatory capital compliance.
ML Bancorp, Inc. ("Bancorp"), as a separately incorporated company, does not
have any significant operations other than serving as sole stockholder of the
Bank. On an unconsolidated basis, Bancorp does not have paid employees. The
Bancorp's assets primarily consist of its investment in the Bank and has no
material sources of income other than the earnings of the Bank. The only
expenses incurred by Bancorp relate to its reporting obligations under the
Securities and Exchange Act of 1934, and related expenses as a publicly traded
company. Bancorp will be directly reimbursed by the Bank for all such expenses.
Management believes that Bancorp currently has adequate liquidity available to
respond to its obligations as the Bancorp itself engages only in limited
business operations independent of the Bank and its subsidiaries and therefore,
does not require a substantial amount of liquid assets. Under applicable
federal regulations, the Bank may pay dividends within certain limits and only
after notice to OTS.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements of the Company and related notes
presented herein have been prepared in accordance with generally accepted
accounting principles ("GAAP") which require the measurement of financial
position and operating results principally in terms of historical dollars,
without considering changes in the relative purchasing power of money over time
due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 establishes
accounting and reporting standards for stock-based employee compensation plans.
In general, this statement requires a fair value based method of accounting for
stock-based awards or similar equity instruments and encourages all entities to
adopt this method of accounting for all employee stock compensation plans. In
the event that fair value accounting is not adopted, SFAS 123 requires proforma
disclosure of net income and earnings per share as if fair value accounting had
been adopted. The Company has not adopted the fair value accounting option of
SFAS 123, but has instead provided the required proforma disclosures, as
permitted in the current fiscal year.
17
23
ML BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125").
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The approach focuses on the assets and liabilities that exist
after the transfer. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with pledge of collateral. The
Company adopted SFAS 125 prospectively, on January 1, 1997, and the impact on
earnings was not material.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, "Earnings Per Share", and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and the denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted.
This statement requires restatement of all prior period EPS data presented.
The Company has not yet determined the effect, if any, the adoption of this
statement will have on its EPS disclosure.
QUARTERLY RESULTS OF OPERATION. The following is a summary of the quarterly
results of operations for the years ended March 31, 1997 and 1996:
Dollars in Thousands
.................................................................................................................................
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1997 YEAR ENDED MARCH 31, 1996
--------------------------------------------------------------------------------------------------
JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30 DEC 31 MAR 31
=================================================================================================================================
Interest income $33,526 $34,606 $35,326 $33,860 $28,984 $29,898 $29,706 $31,833
- ---------------------------------------------------------------------------------------------------------------------------------
Interest expense 20,456 21,341 21,419 19,923 18,456 19,288 19,099 19,816
=================================================================================================================================
Net interest income 13,070 13,265 13,907 13,937 10,528 10,610 10,607 12,017
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 1,000 1,010 2,300 1,000 1,000 1,000 1,000 1,000
=================================================================================================================================
Net interest income after
provision for loan losses 12,070 12,255 11,607 12,937 9,528 9,610 9,607 11,017
- ---------------------------------------------------------------------------------------------------------------------------------
Non-interest income 4,164 4,186 3,311 4,045 1,164 1,914 1,755 2,436
- ---------------------------------------------------------------------------------------------------------------------------------
Non-interest expense 11,559 15,979 10,105 11,217 6,423 6,490 6,657 9,569
=================================================================================================================================
Income before income taxes 4,675 462 4,813 5,765 4,269 5,034 4,705 3,884
- ---------------------------------------------------------------------------------------------------------------------------------
Income taxes (benefit) 1,430 (3,638) 1,784 2,329 1,548 1,964 1,641 1,119
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,245 $ 4,100 $ 3,029 $ 3,436 $ 2,721 $ 3,070 $ 3,064 $ 2,765
=================================================================================================================================
Earnings per common and
common equivalent share 0.27 0.35 0.27 0.31 0.21 0.22 0.24 0.23
=================================================================================================================================
Earnings per common share -
assuming full dilution 0.27 0.35 0.27 0.31 0.21 0.22 0.24 0.23
=================================================================================================================================
For the fourth fiscal quarter ended March 31, 1997, net interest income after
provision for loan losses increased by $1.9 million or 17.4% over the
comparable quarter of fiscal 1996. The increase is primarily attributable to
the growth in average earning assets of approximately $77 million, coupled with
an improvement in the net interest spread from the fourth quarter of fiscal
1996.
Non-interest income grew by $1.6 million or 66.1% for the quarter ended March
31, 1997, mainly as a result of mortgage banking activity associated with the
Philadelphia Mortgage acquisition and purchases of mortgage servicing rights.
Non-interest expenses increased by $1.6 million to $11.2 million for the
quarter ended March 31, 1997. Higher operating costs, mostly compensation and
occupancy expenses, were incurred primarily as a result of new banking offices
and the previously noted expanded mortgage banking business.
18
24
ML BANCORP, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ML Bancorp, Inc.
We have audited the accompanying consolidated statements of financial condition
of ML Bancorp, Inc. and subsidiaries (the "Company") as of March 31, 1997 and
1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flow for each of the years in the three-year
period ended March 31, 1997. 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 ML Bancorp, Inc.
and subsidiaries as of March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
April 22, 1997
[KPMG PEAT MARWICK LLP LOGO]
19
25
ML BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1997 and 1996
Dollars in Thousands, except share and per share data
.................................................................................................................................
YEARS ENDED MARCH 31,
-------------------------------------------
1997 1996
=================================================================================================================================
ASSETS
=================================================================================================================================
Cash (including interest-bearing deposits of $7,082 and $11,283
at March 31, 1997 and March 31, 1996, respectively) $ 17,744 $ 23,323
- ---------------------------------------------------------------------------------------------------------------------------------
Assets available for sale:
Securities 597,825 469,321
- ---------------------------------------------------------------------------------------------------------------------------------
Loans 104,708 95,033
- ---------------------------------------------------------------------------------------------------------------------------------
Investments (market value $31,730 and $24,946
at March 31, 1997 and March 31, 1996, respectively) 32,071 24,942
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage-related securities (market value $380,046 and $401,231
at March 31, 1997 and March 31, 1996, respectively) 385,293 404,150
- ---------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net of allowance for loan loss ($14,733 and $13,124
at March 31, 1997 and March 31, 1996, respectively) 730,535 691,791
- ---------------------------------------------------------------------------------------------------------------------------------
Accrued income receivable 12,591 12,085
- ---------------------------------------------------------------------------------------------------------------------------------
Other real estate owned, net 1,332 2,043
- ---------------------------------------------------------------------------------------------------------------------------------
Premises and equipment, at cost less accumulated depreciation
($16,904 and $13,774 at March 31, 1997 and March 31, 1996, respectively) 16,988 14,343
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage servicing rights 49,721 21,865
- ---------------------------------------------------------------------------------------------------------------------------------
Goodwill and other intangible assets 2,751 3,499
- ---------------------------------------------------------------------------------------------------------------------------------
Other assets 8,288 3,417
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,959,847 $1,765,812
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
=================================================================================================================================
Customer Accounts $ 873,357 $ 861,016
- ---------------------------------------------------------------------------------------------------------------------------------
Advances from Federal Home Loan Bank 437,418 376,013
- ---------------------------------------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase 456,285 372,193
- ---------------------------------------------------------------------------------------------------------------------------------
Advance payments by borrowers for taxes and insurance 3,670 3,533
- ---------------------------------------------------------------------------------------------------------------------------------
Other liabilities 3,413 12,720
=================================================================================================================================
Total liabilities 1,774,143 1,625,475
=================================================================================================================================
Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the Corporation 50,000 --
=================================================================================================================================
Stockholders' Equity:
Preferred stock, no par value, authorized 5,000,000 shares;
no shares issued and outstanding -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.01 par value, authorized 30,000,000 shares;
14,547,600 shares issued 73 73
- ---------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 97,237 95,977
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock acquired by stock benefit plans (7,336) (8,888)
- ---------------------------------------------------------------------------------------------------------------------------------
Treasury stock, at cost; 3,271,046 and 2,053,000 shares
at March, 31, 1997 and March 31, 1996, respectively (37,147) (20,531)
- ---------------------------------------------------------------------------------------------------------------------------------
Retained earnings 83,280 73,586
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized (loss) gain on securities available for sale (403) 120
=================================================================================================================================
TOTAL STOCKHOLDERS' EQUITY 135,704 140,337
=================================================================================================================================
TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES AND STOCKHOLDERS' EQUITY $1,959,847 $1,765,812
=================================================================================================================================
See accompanying notes to consolidated financial statements.
20
26
ML BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended March 31, 1997, 1996, and 1995
Dollars in Thousands, except share and per share data
.................................................................................................................................
YEARS ENDED MARCH 31,
------------------------------------------------------------------
1997 1996 1995
=================================================================================================================================
Interest income:
Loans $ 64,022 $ 53,678 $ 33,512
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage-related and investment securities 27,039 30,539 29,340
- ---------------------------------------------------------------------------------------------------------------------------------
Investments 2,073 2,743 2,872
- ---------------------------------------------------------------------------------------------------------------------------------
Assets available for sale 43,623 32,957 23,717
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits 561 504 792
=================================================================================================================================
TOTAL INTEREST INCOME 137,318 120,421 90,233
=================================================================================================================================
Interest expense:
Customer Accounts 33,623 32,555 25,742
- ---------------------------------------------------------------------------------------------------------------------------------
FHLB advances 24,365 22,775 18,078
- ---------------------------------------------------------------------------------------------------------------------------------
Other borrowings 25,151 21,329 9,664
=================================================================================================================================
TOTAL INTEREST EXPENSE 83,139 76,659 53,484
=================================================================================================================================
Net interest income 54,179 43,762 36,749
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 5,310 4,000 3,400
=================================================================================================================================
Net interest income after provision for loan losses 48,869 39,762 33,349
=================================================================================================================================
Non-interest income:
Retail fees and charges 1,832 1,551 1,615
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage banking operations 12,236 4,420 2,151
- ---------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on:
Sales of securities available for sale (58) 255 (2,059)
- ---------------------------------------------------------------------------------------------------------------------------------
Other real estate activities 835 99 611
- ---------------------------------------------------------------------------------------------------------------------------------
Rental income 605 583 676
- ---------------------------------------------------------------------------------------------------------------------------------
Other 256 361 418
=================================================================================================================================
TOTAL NON-INTEREST INCOME 15,706 7,269 3,412
=================================================================================================================================
Non-interest expense:
Compensation and employee benefits $ 21,501 $ 13,892 $ 12,059
- ---------------------------------------------------------------------------------------------------------------------------------
Advertising 1,889 1,939 850
- ---------------------------------------------------------------------------------------------------------------------------------
Data processing 1,814 1,538 1,337
- ---------------------------------------------------------------------------------------------------------------------------------
Federal insurance premiums 6,236 1,549 1,749
- ---------------------------------------------------------------------------------------------------------------------------------
Amortization of goodwill and other intangible assets 4,619 1,412 368
- ---------------------------------------------------------------------------------------------------------------------------------
Net occupancy costs 6,178 4,211 3,218
- ---------------------------------------------------------------------------------------------------------------------------------
Professional fees 891 693 796
- ---------------------------------------------------------------------------------------------------------------------------------
Minority interest in expense of subsidiaries 274 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Other 5,458 3,905 2,716
=================================================================================================================================
TOTAL NON-INTEREST EXPENSE 48,860 29,139 23,093
=================================================================================================================================
Income before income taxes 15,715 17,892 13,668
- ---------------------------------------------------------------------------------------------------------------------------------
Income taxes 1,905 6,272 4,974
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 13,810 $ 11,620 $ 8,694
=================================================================================================================================
PRIMARY EARNINGS PER SHARE $1.23 $0.92 $0.49(1)
=================================================================================================================================
FULLY DILUTED EARNINGS PER SHARE $1.22 $0.91 $0.49(1)
=================================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES-PRIMARY 11,195,279 12,695,358 13,456,962
=================================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES-FULLY DILUTED 11,281,595 12,786,594 13,456,962
=================================================================================================================================
See accompanying notes to consolidated financial statements.
(1) Earnings per share is calculated since August 11, 1994, the date of the
initial public offering
21
27
ML BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended March 31, 1997, 1996, 1995 and 1994
Dollars in Thousands
..................................................................................................................................
COMMON STOCK UNREALIZED GAIN (LOSS)
ADDITIONAL ACQUIRED BY ON SECURITIES TOTAL
COMMON PAID-IN STOCK BENEFIT TREASURY AVAILABLE FOR SALE RETAINED STOCKHOLDERS'
STOCK CAPITAL PLANS STOCK (NET OF TAXES) EARNINGS EQUITY
==================================================================================================================================
Balance at March 31, 1994 $-- -- -- -- (2,494) 56,472 53,978
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock issued 73 95,499 -- -- -- -- 95,572
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock acquired
by stock benefit plans -- -- (11,446) -- -- -- (11,446)
- ----------------------------------------------------------------------------------------------------------------------------------
ESOP stock committed
to be released (1) -- -- 441 -- -- -- 441
- ----------------------------------------------------------------------------------------------------------------------------------
Excess of fair value above
cost of stock benefit plans -- 42 -- -- -- -- 42
- ----------------------------------------------------------------------------------------------------------------------------------
RRP stock amortization (2) -- -- 373 -- -- -- 373
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized loss on mortgage-
securities available for sale -- -- -- -- (706) -- (706)
- ----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (5,648) (5,648)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- -- 8,694 8,694
==================================================================================================================================
Balance at March 31, 1995 $73 95,541 (10,632) (5,648) (3,200) 65,166 141,300
- ----------------------------------------------------------------------------------------------------------------------------------
ESOP stock committed
to be released -- -- 915 -- -- -- 915
- ----------------------------------------------------------------------------------------------------------------------------------
Excess of fair value above
cost of stock benefit plans -- 436 -- -- -- -- 436
- ----------------------------------------------------------------------------------------------------------------------------------
RRP stock amortization -- -- 829 -- -- -- 829
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gain on
securities available for sale -- -- -- -- 3,320 -- 3,320
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options -- -- -- 152 -- (6) 146
- ----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock -- -- -- (15,035) -- -- (15,035)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends paid ($0.26 per share) -- -- -- -- -- (3,194) (3,194)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- -- 11,620 11,620
==================================================================================================================================
Balance at March 31, 1996 $73 95,977 (8,888) (20,531) 120 73,586 140,337
- ----------------------------------------------------------------------------------------------------------------------------------
ESOP stock committed to be
released (3) -- -- 930 -- -- -- 930
- ----------------------------------------------------------------------------------------------------------------------------------
Excess of fair value above
cost of stock benefit plans -- 1,260 -- -- -- -- 1,260
- ----------------------------------------------------------------------------------------------------------------------------------
RRP stock amortization (3) -- -- 622 -- -- -- 622
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized loss on mortgage-
securities available for sale -- -- -- -- (523) -- (523)
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options -- -- -- 6 -- -- 6
- ----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (3) -- -- -- (16,622) -- -- (16,622)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends paid ($0.38 per share) -- -- -- -- -- (4,116) (4,116)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- -- 13,810 13,810
==================================================================================================================================
BALANCE AT MARCH 31, 1997 $73 97,237 (7,336) (37,147) (403) 83,280 135,704
==================================================================================================================================
See accompanying notes to consolidated financial statements.
(1) The Employee Stock Option Plan ("ESOP") provides for the annual
distribution of stock to participating employees based upon years of service.
(2) The Recognition and Retention Plan ("RRP") is a long-term incentive plan
for granting stock awards to executives and directors.
(3) For fiscal year 1997, the changes to stockholders' equity included a
reduction of 1.2 million shares of common stock related to the purchase of
treasury stock and an increase of 168,000 shares of stock associated with the
stock benefit plans (ESOP and RRP).
22
28
ML BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 1997, 1996 and 1995
Dollars in Thousands
.................................................................................................................................
YEARS ENDED MARCH 31,
--------------------------------------------------------------
1997 1996 1995
=================================================================================================================================
Net cash flows from operating activities:
Net income $ 13,810 $ 11,620 $ 8,694
=================================================================================================================================
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Amortization of:
Goodwill $ 4,619 $ 1,412 $ 368
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred loan origination fees (2,083) (2,345) (1,308)
- ---------------------------------------------------------------------------------------------------------------------------------
Premiums and discounts 3,155 1,063 3,199
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage servicing rights 7,985 3,703 1,535
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock acquired by stock benefit plans 2,818 2,326 856
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 5,310 4,000 3,400
- ---------------------------------------------------------------------------------------------------------------------------------
Net (gain) loss on sale of assets available for sale:
Securities 58 (255) 2,059
- ---------------------------------------------------------------------------------------------------------------------------------
Loans (7,289) (2,129) (87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net (gain) loss on other real estate activities (835) (99) (611)
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation 2,980 2,156 1,616
- ---------------------------------------------------------------------------------------------------------------------------------
Increase/decrease in:
Loans available for sale (2,386) (67,637) 6,183
- ---------------------------------------------------------------------------------------------------------------------------------
Accrued income receivable (506) (1,401) (4,636)
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred federal income taxes (3,328) (1,540) (1,222)
- ---------------------------------------------------------------------------------------------------------------------------------
Other assets (4,871) (1,717) 913
- ---------------------------------------------------------------------------------------------------------------------------------
Other liabilities (5,211) (6,942) 11,312
=================================================================================================================================
TOTAL ADJUSTMENTS 416 (69,405) 23,577
=================================================================================================================================
Net cash provided (used) by operating activities 14,226 (57,785) 32,271
=================================================================================================================================
Cash flows from investing activities:
Net increase in loans receivable (43,190) (144,510) (289,673)
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of:
FHLB Stock 14,843 12,907 16,382
- ---------------------------------------------------------------------------------------------------------------------------------
Securities available for sale 141,433 100,801 76,541
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from maturities or repayments of:
Mortgage-related securities 56,811 56,735 62,708
- ---------------------------------------------------------------------------------------------------------------------------------
Securities available for sale 107,250 87,333 53,118
- ---------------------------------------------------------------------------------------------------------------------------------
Investments 6,041 30,000 --
- ---------------------------------------------------------------------------------------------------------------------------------
Purchases of:
Mortgage-related securities (39,754) (49,834) (48,887)
- ---------------------------------------------------------------------------------------------------------------------------------
Securities available for sale (379,895) (183,458) (120,268)
- ---------------------------------------------------------------------------------------------------------------------------------
Investments (28,009) (21,681) (305,517)
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage servicing rights
Purchases (32,780) (11,985) (12,316)
- ---------------------------------------------------------------------------------------------------------------------------------
Originations (3,061) (760) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net decrease (increase) in other real estate owned 153 972 3,657
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from other real estate activities 2,612 330 2,338
- ---------------------------------------------------------------------------------------------------------------------------------
Excess of liabilities assumed over assets acquired (3,871) (3,148) --
- ---------------------------------------------------------------------------------------------------------------------------------
Purchases of premises and equipment (5,625) (2,828) (2,377)
=================================================================================================================================
Net cash used by investing activities (207,042) (129,126) (564,294)
=================================================================================================================================
See accompanying notes to consolidated financial statements.
(continued)
23
29
ML BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Dollars in Thousands
.................................................................................................................................
YEARS ENDED MARCH 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
=================================================================================================================================
Cash flows from financing activities:
Net increase in customer accounts $ 12,341 $137,010 $ 14,301
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from customer accounts purchased -- 28,925 --
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends paid (4,116) (3,194) --
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from securities sold under
agreements to repurchase 170,575 202,414 385,303
- ---------------------------------------------------------------------------------------------------------------------------------
Payments of securities sold under
agreements to repurchase (86,483) (215,524) --
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from FHLB advances 138,405 166,165 183,651
- ---------------------------------------------------------------------------------------------------------------------------------
Payments of FHLB advances (77,000) (110,080) (120,356)
- ---------------------------------------------------------------------------------------------------------------------------------
Net decrease in advance payments
by borrowers for taxes and insurance 137 (454) 2,453
- ---------------------------------------------------------------------------------------------------------------------------------
Net proceeds from issuance of capital securities 50,000 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net proceeds from issuance of common stock -- -- 95,572
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock acquired by stock benefit plans, net -- -- (11,446)
- ---------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (16,622) (15,035) (5,648)
=================================================================================================================================
Net cash provided by financing activities 187,237 190,227 543,830
=================================================================================================================================
Net increase in cash and cash equivalents (5,579) 3,316 11,807
Cash and cash equivalents:
Beginning of period 23,323 20,007 8,200
- ---------------------------------------------------------------------------------------------------------------------------------
End of period $ 17,744 $ 23,323 $ 20,007
=================================================================================================================================
Supplemental disclosure:
Cash payments for interest $ 82,824 $ 75,120 $ 51,139
- ---------------------------------------------------------------------------------------------------------------------------------
Cash payments (refunds) for income taxes 5,310 14,498 (700)
- ---------------------------------------------------------------------------------------------------------------------------------
Transfer of loans receivable into other real estate owned 1,219 1,077 529
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash paid for companies acquired -- 3,200 --
- ---------------------------------------------------------------------------------------------------------------------------------
Transfer of mortgage-related securities to securities
available for sale -- 56,828 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net unrealized (loss) gain on securities available for sale (1,291) 5,576 (1,055)
- ---------------------------------------------------------------------------------------------------------------------------------
Tax effect on unrealized (loss) gain on securities
available for sale (768) 2,256 (349)
=================================================================================================================================
See accompanying notes to consolidated financial statements.
24
30
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP. On August 11, 1994, Main Line
Bank (the "Bank") converted from a federally chartered mutual savings bank to a
federally chartered stock savings bank with the concurrent formation of ML
Bancorp, Inc. (the "Bancorp"), a unitary savings and loan holding company (the
"Conversion") and issued 7,273,800 shares of its common stock (currently
14,547,600 shares based upon the two-for-one stock split in September, 1996) in
a public offering which resulted in proceeds to Bancorp of $95.6 million, net
of $2.6 million of costs associated with the Conversion.
BUSINESS. Bancorp's principal subsidiary, Main Line Bank, conducts business
from its bank branch system located in Bucks, Chester, Delaware and Montgomery
Counties, Pennsylvania, and its loan production offices in Delaware, Florida,
New Jersey and Pennsylvania. The Bank is subject to competition from other
financial institutions and other companies which provide financial services.
The Bank and Bancorp are subject to the regulations of certain federal agencies
and undergo periodic examinations by those regulatory authorities.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Bancorp, the Bank and the wholly owned subsidiaries (collectively
referred to as the "Company"). All significant intercompany transactions have
been eliminated in consolidation. Additionally, certain reclassifications have
been made in order to conform with the current year's presentation. The
accompanying consolidated financial statements have been prepared on an accrual
basis.
BASIS OF FINANCIAL STATEMENT PRESENTATION. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the statement of financial condition
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses, the
valuation of other real estate owned, and the valuation of deferred tax assets
as well as the effect of prepayments on mortgage servicing rights and premiums
and discounts associated with investments and mortgage-related securities.
Management believes that these estimates are adequate. Various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for loan losses, valuation of other real estate owned
and other accounting estimates.
CASH. For purposes of the statement of cash flows, cash and cash equivalents
include cash and interest-bearing deposits in other depository institutions.
ASSETS AVAILABLE FOR SALE. Included in assets available for sale are any
investments, loans, debt, and/or mortgage-related securities which the Company
believes may be involved in interest rate risk, liquidity, or other
asset/liability management decisions which might reasonably result in such
assets not being held until maturity. Assets available for sale are carried at
fair value with net unrealized gains and losses included, net of income taxes,
in stockholders' equity.
Loans available for sale are accounted for at the lower of cost or market which
is determined on an aggregate basis, with depreciation, if any, recorded in the
statement of operations. Realized gains and losses on assets available for sale
are computed using the specific identification method.
INVESTMENTS AND MORTGAGE-RELATED SECURITIES. Investments and mortgage-related
securities, including equity securities which are not readily marketable, are
stated at cost, adjusted for the amortization of premiums and the accretion of
discounts using a method which approximates level yield, because management has
the ability and the intent to hold such securities until maturity. The Company
is required to maintain stock in the Federal Home Loan Bank of Pittsburgh
("FHLB") in an amount of 5% of total borrowings from the FHLB. Such stock is
carried by the Company at cost.
LOANS RECEIVABLE. Loans held to maturity are stated at the amount of the unpaid
principal balance net of loan origination fees and certain direct origination
costs. These fees and costs are deferred and amortized over the contractual
life of the related loans using a level yield method. Interest on loans is
credited to income as it is earned. Generally, interest income is not accrued
for loans delinquent 90 days or greater. Payments received on nonaccrual and
impaired loans are generally applied to the outstanding principal balance. The
Bank considers a loan to be impaired when, based on current information and
events, it is probable that they will be unable to collect scheduled payments
of principal or interest when due according to the contractual terms of the
loan agreement. Large groups of smaller-balance, homogeneous loans such as
residential mortgage and consumer loans are collectively evaluated for
impairment and are not included in the impaired loans category. The Company
generally does not recognize interest on impaired loans.
ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible loan losses is
maintained at a level that management considers adequate to provide for
potential losses based upon an evaluation of known and inherent risks in the
loan portfolio. Management believes that the allowance for possible loan losses
is adequate. Management's periodic evaluation is based upon analysis of the
portfolio, past loss experience, current economic conditions, and other
relevant factors. While management uses the best information available to make
such evaluations, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making
the evaluation. In addition, various regulatory agencies as an integral part of
their examination process, periodically review the allowance for possible loan
losses. Such agencies may require the Company to recognize additions to the
allowance for possible loan losses based on their judgments of information
which is available to them at the time of their examination.
OTHER REAL ESTATE OWNED, NET. Real estate acquired through foreclosure is
classified as other real estate owned and is carried at the lower of cost or
fair value, less estimated selling costs. Fair value is generally determined
through the use of independent appraisals. In certain cases, internal cash flow
analyses are used as the basis for fair value, if such amounts are lower than
the appraised values.
PREMISES AND EQUIPMENT. Premises and equipment are carried at cost.
Depreciation and amortization are generally computed on the straight-line
method over their useful lives (30 years for buildings and 3 to 10 years for
furniture and equipment).
MORTGAGE SERVICING RIGHTS. Mortgage servicing rights represent the carrying
value of the rights to service mortgage loans for others. The mortgage
servicing rights are amortized against loan servicing fee income on an
accelerated basis in proportion to, and over the period of, estimated net
future loan servicing fee income, which periods initially do not exceed eight
years.
Servicing fee income is recognized when the related loan payments are
collected. Management evaluates the remaining balances of mortgage servicing
rights to determine if the fair value of the disaggregated servicing rights
indicate that the carrying value is not considered recoverable. Assumptions
utilized in the evaluations are based on current prepayment and investor rates
of return provided by an independent investment advisor.
EARNINGS PER SHARE. All share and per share data have been adjusted to reflect
the Company's two-for-one stock split that was paid on September 6, 1996.
25
31
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Effective April 1, 1995, the Company adopted SFAS No. 122 "Accounting for
Mortgage Servicing Rights." This standard requires the Bank to recognize
servicing rights as assets, regardless of how such assets were acquired.
Additionally, the Company is required to assess the fair value of these assets
at each reporting date to determine impairment. As a result of the adoption of
SFAS 122, the Company included $760,000 in income from mortgage banking
operations for the year ended March 31, 1996.
Impairment of mortgage servicing rights is assessed quarterly based upon a fair
market valuation of those rights using discounted cash flows based on current
market interest rates. For purposes of measuring impairment, the rights are
stratified based upon the predominant risk characteristics of the underlying
loans relying primarily on interest rate bands or pools. The impairment
recognized is the amount by which the mortgage servicing rights exceed the fair
value for each individual band.
GOODWILL. Goodwill, which represents the excess cost over fair value of assets
acquired and liabilities assumed, is being amortized to expense using the
straight-line method over periods not exceeding 15 years.
INCOME TAXES. Deferred tax assets and liabilities are recognized for the future
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, as well as operating loss and tax credit carryforwards. Deferred tax
assets are recognized for future deductible temporary differences and tax loss
and credit carryforwards if their realization is "more likely than not."
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.
2. ASSETS AVAILABLE FOR SALE
Assets available for sale at March 31, 1997 and 1996, consisted of the
following:
Dollars in Thousands
.................................................................................................................................
YEAR ENDED MARCH 31, 1997 YEAR ENDED MARCH 31, 1996
--------------------------------------------------------------------------------------------------
GROSS GROSS CARRYING GROSS GROSS CARRYING
UNREALIZED UNREALIZED (FAIR) UNREALIZED UNREALIZED (FAIR)
SECURITIES COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
=================================================================================================================================
Mortgage-related, debt
and equity securities:
Mortgage-related securities:
FHLMC $304,638 -- ($933) $303,705 $234,905 $1,768 ($1,873) $234,800
- ---------------------------------------------------------------------------------------------------------------------------------
FNMA 79,725 729 -- 80,454 114,260 1,683 (425) 115,518
- ---------------------------------------------------------------------------------------------------------------------------------
GNMA 131,580 -- (983) 130,597 41,236 4 (361) 40,879
- ---------------------------------------------------------------------------------------------------------------------------------
Privately-issued 21,250 -- (65) 21,185 39,376 387 (405) 39,358
- ---------------------------------------------------------------------------------------------------------------------------------
Debt securities:
Asset Management
Funds for Financial
Institutions, Inc. 13,030 -- (660) 12,370 12,242 -- (416) 11,826
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government
agency debentures 23,890 -- (360) 23,530 18,084 -- (322) 17,762
- ---------------------------------------------------------------------------------------------------------------------------------
Equity securities 18,817 1,193 -- 20,010 9,006 172 -- 9,178
- ---------------------------------------------------------------------------------------------------------------------------------
Trust preferred securities 5,974 -- -- 5,974 -- -- -- --
=================================================================================================================================
$598,904 1,922 (3,001) 597,825 469,109 4,014 (3,802) 469,321
=================================================================================================================================
YEAR ENDED MARCH 31, 1997 YEAR ENDED MARCH 31, 1996
---------------------------------------------------- ---------------------------------------------
GROSS GROSS GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
LOANS VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
=================================================================================================================================
Loans receivable:
Residential 93,103 -- -- 93,103 84,501 -- -- 84,501
- ---------------------------------------------------------------------------------------------------------------------------------
Consumer-education 11,605 -- -- 11,605 10,532 -- -- 10,532
=================================================================================================================================
$104,708 -- -- $104,708 $95,033 -- -- $95,033
=================================================================================================================================
Proceeds from sales of assets available for sale during the year ended March
31, 1997, were $682.3 million. Gross gains of $35.5 million and gross losses of
$28.2 million were realized on those sales.
Proceeds from sales of assets available for sale during the year ended March
31, 1996, were $719.4 million. Gross gains of $6.3 million and gross losses of
$4.8 million were realized on those sales.
Proceeds from sales of assets available for sale during the year ended March
31, 1995, were $284.8 million. Gross gains of $5.1 million, and gross losses of
$7.1 million were realized on those sales.
As of March 31, 1997, the U.S. government agency debt securities have scheduled
maturities of $18.9 million due after one year but within five years and $5.0
million due after five years but within ten years.
Accrued interest receivable on assets available for sale was $4.9 and $4.3
million at March 31, 1997 and 1996, respectively.
26
32
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
3. INVESTMENTS
Investments at March 31, 1997 and 1996, consisted of the following:
Dollars in Thousands
.................................................................................................................................
YEARS ENDED MARCH 31,
-------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------ ------------------------------------------------
GROSS GROSS GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
=================================================================================================================================
Equity securities:
Federal Home Loan
Bank stock $21,878 -- -- $21,878 $18,802 -- -- $18,802
- ---------------------------------------------------------------------------------------------------------------------------------
Other 258 -- -- 258 140 -- -- 140
- ---------------------------------------------------------------------------------------------------------------------------------
Debt securities:
U.S. government agency notes 9,935 -- 341 9,594 6,000 4 -- 6,004
=================================================================================================================================
$32,071 -- 341 $31,730 $24,942 $4 -- $24,946
=================================================================================================================================
Proceeds from the sales of investment securities during the years ended March
31, 1997, 1996 and 1995, were $14.8 million, $12.9 million and $16.4 million,
respectively. Such proceeds resulted from mandatory redemptions of FHLB stock.
No gains or losses were realized on those sales.
The FHLB maintains a blanket lien on investment securities as collateral for
borrowings from the FHLB.
Accrued interest receivable on investment securities was $174,000 and $240,000
at March 31, 1997 and 1996, respectively.
4. MORTGAGE-RELATED SECURITIES
Mortgage-related securities at March 31, 1997 and 1996, consisted of the
following:
Dollars in Thousands
.................................................................................................................................
YEARS ENDED MARCH 31,
--------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------- ------------------------------------------------
GROSS GROSS GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
=================================================================================================================================
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation
(FHLMC) $125,205 -- 2,015 123,190 $149,990 $762 $1,950 $148,802
- ---------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage
Association (FNMA) 124,433 -- 1,513 122,920 150,286 1,501 1,670 150,117
- ---------------------------------------------------------------------------------------------------------------------------------
Government National
Mortgage Association (GNMA) 7,130 142 -- 7,272 8,397 189 -- 8,586
- ---------------------------------------------------------------------------------------------------------------------------------
Privately issued 19,740 -- 79 19,661 1,785 -- 50 1,735
- ---------------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage
obligations 108,785 -- 1,782 107,003 93,692 -- 1,701 91,991
=================================================================================================================================
$385,293 142 5,389 380,046 $404,150 $2,452 $5,371 $401,231
=================================================================================================================================
There were no sales of mortgage-related securities during the years ended March
31, 1997, 1996 and 1995.
Certain mortgage-related securities are pledged to secure financings as
described in notes 8 and 9. Privately issued mortgage-backed securities are
rated AA or better by bond rating agencies. The loans which collateralize the
mortgage-related securities are geographically disbursed throughout the United
States.
Collateralized mortgage obligations and mortgage-backed securities totaling $70
million and $78.4 million were pledged as additional collateral for municipal
jumbo certificate deposits at March 31, 1997 and 1996, respectively.
Accrued interest receivable on mortgage-related securities was $2.7 million and
$2.9 million at March 31, 1997 and 1996, respectively.
27
33
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
5. LOANS RECEIVABLE
Loans receivable at March 31, 1997 and 1996, consisted of the following:
Dollars in Thousands
............................................................................
YEARS ENDED MARCH 31,
-----------------------------
1997 1996
============================================================================
Real estate loans:
One- to four-family $310,456 $344,713
- ----------------------------------------------------------------------------
Construction and land:
Residential 90,618 110,693
- ----------------------------------------------------------------------------
Commercial 38,913 14,625
- ----------------------------------------------------------------------------
Commercial real estate 130,017 109,135
- ----------------------------------------------------------------------------
Multi-family 12,411 11,348
============================================================================
Total real estate loans 582,415 590,514
============================================================================
Other loans:
Consumer:
Home equity and equity lines of credit 131,699 92,139
- ----------------------------------------------------------------------------
Other 10,990 18,115
- ----------------------------------------------------------------------------
Commercial 84,034 69,647
============================================================================
Total other loans 226,723 179,901
============================================================================
Loans receivable, gross 809,138 770,415
============================================================================
Loans in process
(construction loans) (59,916) (61,389)
- ----------------------------------------------------------------------------
Deferred loan fees (3,954) (4,111)
- ----------------------------------------------------------------------------
Allowance for loan losses (14,733) (13,124)
- ----------------------------------------------------------------------------
Loans receivable, net $730,535 $691,791
============================================================================
Included in loans receivable are loans past due 90 days or more in the amounts
of $9.4 million, $8.4 million and $6.8 million at March 31, 1997, 1996 and
1995, respectively, that are not accruing interest. Interest income that would
have been recognized on these nonaccrual loans had they been current in
accordance with their original terms is $583,000, $1.1 million and $642,000,
respectively. Interest income that was recognized on these nonaccrual loans is
$132,000, $96,000 and $227,000, respectively.
The Company is principally a local lender and, therefore, has a significant
concentration of loans to borrowers who reside in and/or which are
collateralized by real estate located in the suburban Philadelphia area.
In addition, the Company has a concentration of residential and commercial
construction real estate loans to 6 local real estate developers totaling
approximately $30.6 in additional commitments outstanding and approximately
$40.5 in outstanding balances at March 31, 1997.
6. MORTGAGE SERVICING ACTIVITIES
A summary of mortgage servicing rights activity follows:
Dollars in Thousands
...............................................................
YEARS ENDED MARCH 31,
--------------------------------
1997 1996 1995
===============================================================
Balance, beginning of year $21,865 $12,823 $ 2,042
- ---------------------------------------------------------------
Purchases 32,780 11,985 12,316
- ---------------------------------------------------------------
Originated servicing rights 3,061 760 --
- ---------------------------------------------------------------
Amortization (7,985) (3,703) (1,535)
===============================================================
Balance, end of year $49,721 $21,865 $12,823
===============================================================
Activity in the allowance for loan losses for the years ended March 31, 1997
and 1996, consisted of the following:
Dollars in Thousands
................................................................
YEARS ENDED MARCH 31,
---------------------------------
1997 1996 1995
================================================================
Balance, beginning of year $13,124 $ 9,111 $7,337
- ----------------------------------------------------------------
Provision for loan losses 5,310 4,000 3,400
- ----------------------------------------------------------------
Charge-offs (3,791) (1,188) (1,761)
- ----------------------------------------------------------------
Recoveries 90 181 135
- ----------------------------------------------------------------
Allowance acquired -- 1,020 --
================================================================
Balance, end of year $14,733 $13,124 9,111
================================================================
As of March 31, 1997 and 1996, the recorded investment in the loans for which
impairment has been recognized is $3.3 million and $3.7 million, respectively.
The average investment in such impaired loans was $4.6 million, $4.2 million
and $4.7 million for the years ended March 31, 1997, 1996 and 1995,
respectively. There is no allowance for loan losses pertaining to these
impaired loans because the Company provided and charged-off $312,000 and
$346,000 of such loans during the years ended March 31, 1997 and 1996,
respectively.
An analysis of the activity of loans to directors and officers follows:
Dollars in Thousands
..................................................................................
YEARS ENDED MARCH 31,
-------------------------
1997 1996
==================================================================================
Balance, beginning of year $674 $601
- ----------------------------------------------------------------------------------
Increase (decrease) due to change
in qualifying officers (117) 118
- ----------------------------------------------------------------------------------
New loans and line of credit advances 42 111
- ----------------------------------------------------------------------------------
Repayments (96) (156)
==================================================================================
Balance, end of year $503 $674
==================================================================================
Accrued interest receivable on loans receivable was $4.6 million and $4.6
million at March 31, 1997 and 1996, respectively.
During the years ended March 31, 1997, 1996, and 1995, the Company purchased
the servicing rights of whole loans with balances of $2.2 billion, $858.4
million and $801.9 million, respectively.
28
34
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
6. MORTGAGE SERVICING ACTIVITIES (continued)
Activity in the valuation allowance for mortgage servicing rights for the years
ended March 31, 1997, 1996 and 1995, consisted of the following:
Dollars in Thousands
................................................................
YEARS ENDED MARCH 31,
--------------------------------
1997 1996 1995
================================================================
Balance, beginning of year $1,200 $ 330 $ --
- ----------------------------------------------------------------
Provision for mortgage
servicing rights in excess
of fair value 1,000 870 330
================================================================
Balance, end of year $2,200 $1,200 $330
================================================================
The Company services real estate loans for investors which are not included in
the consolidated financial statements. The total amount of such loans serviced
for others was approximately $4.4 billion, $2.4 billion and $1.7 billion at
March 31, 1997, 1996, and 1995 respectively.
The Company is required to remit to investors the monthly principal collected
and scheduled interest payments on most mortgages, including those for which no
interest payments have been received due to delinquency. As of March 31, 1997
and 1996, approximately $469,800 and $249,000, respectively, had been advanced
on delinquent serviced loans. Substantially all of these loans were sold
without recourse and are guaranteed by FHLMC or FNMA.
7. CUSTOMER ACCOUNTS
The major types of customer accounts by weighted interest rates, amounts, and
the percentages of such types to total customer accounts are as follows:
Dollars in Thousands
..........................................................................................................................
YEARS ENDED MARCH 31,
------------------------------------------------------------------------------
1997 1996
---------------------------------------- -------------------------------------
WEIGHTED WEIGHTED
INTEREST % OF INTEREST % OF
RATE AMOUNT TOTAL RATE AMOUNT TOTAL
==========================================================================================================================
Non-interest-bearing accounts 0.00% $118,836 13.61% 0.00% $ 81,767 9.50%
- --------------------------------------------------------------------------------------------------------------------------
Money market and NOW accounts 2.46 156,325 17.90 2.62 155,115 18.02
- --------------------------------------------------------------------------------------------------------------------------
Passbook and statement savings accounts 2.14 88,574 10.14 2.22 88,011 10.22
==========================================================================================================================
1.58 363,735 41.65 1.85 324,893 37.73
- --------------------------------------------------------------------------------------------------------------------------
Certificates of deposit 5.61 469,073 53.71 5.80 506,104 58.78
- --------------------------------------------------------------------------------------------------------------------------
Repurchase agreements with customers 4.59 40,549 4.64 4.85 30,019 3.49
==========================================================================================================================
3.88% $873,357 100.00% 4.28% $861,016 100.00%
==========================================================================================================================
A summary of certificates by maturity is as follows:
Dollars in Thousands
.............................................................
YEARS ENDED MARCH 31,
-------------------------
1997 1996
=============================================================
Within one year $337,081 $318,107
- -------------------------------------------------------------
One to two years 53,453 100,745
- -------------------------------------------------------------
Two to three years 42,778 29,817
- -------------------------------------------------------------
Three to four years 18,817 32,046
- -------------------------------------------------------------
Four to five years 13,433 19,132
- -------------------------------------------------------------
Thereafter 3,511 6,257
=============================================================
$469,073 $506,104
=============================================================
Interest expense on customer accounts is as follows:
Dollars in Thousands
..............................................................
YEARS ENDED MARCH 31,
--------------------------------
1997 1996 1995
==============================================================
Money market accounts
and NOW accounts $ 3,861 $ 3,548 $ 3,165
- --------------------------------------------------------------
Passbook and statement
savings accounts 1,874 1,933 2,752
- --------------------------------------------------------------
Certificate accounts 26,327 26,304 19,709
- --------------------------------------------------------------
Repurchase agreements
with customers 1,561 770 116
==============================================================
Total interest expense $33,623 $32,555 $25,742
==============================================================
Included in customer accounts as of March 31, 1997 and 1996, are accounts
greater than $100,000 of approximately $175.4 million and $151.2 million,
respectively.
29
35
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
8. ADVANCES FROM FEDERAL HOME LOAN BANK
Under the terms of its collateral agreement with the FHLB, the Company
maintains otherwise unencumbered qualifying assets in an amount at least as
much as its advances from the FHLB. The Company's FHLB stock is also pledged to
secure these advances. At March 31, 1997 and 1996, such advances mature as
follows:
Dollars in Thousands
................................................................................................................................
WEIGHTED YEAR ENDED WEIGHTED YEAR ENDED
AVERAGE MARCH 31, AVERAGE MARCH 31,
DUE BY MARCH 31, INTEREST RATE 1997 INTEREST RATE 1996
================================================================================================================================
1997 0.00% $ -- 6.01% $229,513
- --------------------------------------------------------------------------------------------------------------------------------
1998 6.15 247,918 6.53 77,000
- --------------------------------------------------------------------------------------------------------------------------------
1999 6.08 27,750 6.07 17,750
- --------------------------------------------------------------------------------------------------------------------------------
2000 5.81 27,000 5.81 27,000
- --------------------------------------------------------------------------------------------------------------------------------
2001 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
2002 5.68 110,000 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Thereafter 7.45 24,750 7.45 24,750
================================================================================================================================
6.08% $437,418 6.21% $376,013
================================================================================================================================
The Company has entered into a warehouse loan participation program for
residential mortgage loan originations. The available line of credit from this
program totaled $87.5 at March 31, 1997, of which $31.8 and $51.5 million was
outstanding at March 31, 1997 and 1996, respectively. This line of credit
commitment expires in March 1998. The rate paid is determined by a daily
variable advance rate in effect at the FHLB and was 7.23% at March 31, 1997.
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company entered into sales of securities under agreements to repurchase
(the Agreements), which are treated as financings. Information relating to the
Agreements as of March 31, 1997 and 1996, is summarized as follows:
Dollars in Thousands
.................................................................................................................................
YEAR ENDED MARCH 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
LOAN ASSET CARRYING ASSET LOAN WEIGHTED AVERAGE
ASSET MATURITY DATE VALUE MARKET VALUE AMOUNT LOAN RATE
=================================================================================================================================
FNMA and FHLMC certificates WITHIN 30 DAYS 192,867 193,623 182,192 5.43
- ---------------------------------------------------------------------------------------------------------------------------------
FNMA and FHLMC certificates FROM 31-90 DAYS 48,964 49,272 40,000 6.25
- ---------------------------------------------------------------------------------------------------------------------------------
FNMA, FHLMC and GNMA certificates OVER 90 DAYS 263,066 263,325 234,093 5.63
- ---------------------------------------------------------------------------------------------------------------------------------
$504,897 $506,220 $456,285 5.60%
=================================================================================================================================
YEAR ENDED MARCH 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
LOAN ASSET CARRYING ASSET LOAN WEIGHTED AVERAGE
ASSET MATURITY DATE VALUE MARKET VALUE AMOUNT LOAN RATE
=================================================================================================================================
FNMA and FHLMC certificates Within 30 days 114,347 114,824 111,605 5.34
- ---------------------------------------------------------------------------------------------------------------------------------
FNMA and FHLMC certificates From 31-90 days 42,636 42,022 38,945 5.86
- ---------------------------------------------------------------------------------------------------------------------------------
FNMA, FHLMC and GNMA certificates Over 90 days 251,594 251,952 221,643 5.90
- ---------------------------------------------------------------------------------------------------------------------------------
$408,577 $408,798 $372,193 5.65%
=================================================================================================================================
The maximum amount outstanding at any month-end of the Agreements during fiscal
years 1997 and 1996 was $516.6 million and $406.3 million, respectively. The
average amount of outstanding Agreements during fiscal years 1997 and 1996 was
$444.8 million and $343.1 million, respectively.
30
36
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods, and assumptions are set forth below for the
Company's financial instruments whether or not recognized on the balance sheet,
for which it is practicable to estimate that value. The fair values may not
represent actual values of the financial instruments that could have been
realized as of year end or that will be realized in the future.
CASH AND CASH EQUIVALENTS: For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
INVESTMENTS AND MORTGAGE-RELATED SECURITIES AND ASSETS AVAILABLE FOR SALE: The
fair value of investments and mortgage-related securities is estimated based on
bid prices published in financial newspapers or bid quotations received from
securities dealers. The carrying amounts of stocks with no stated maturity
approximate fair value because shares may be redeemed at par. The fair value of
loans available for sale is estimated based on forward commitments to sell.
LOANS RECEIVABLE: The fair value of performing loans receivable is estimated by
discounting future cash flows using rates as of March 31, 1997 and 1996, for
which similar loans would be made to borrowers with similar credit history and
maturities.
The fair value for non-performing loans was derived through a discounted cash
flow analysis, which includes the opportunity costs of carrying a
non-performing asset. Estimated discount rates were based on the probability of
loss and the expected time to recovery. Loans with a higher probability of
loss were assigned higher risk premiums and were discounted over longer periods
of time, resulting in lower values.
MORTGAGE SERVICING RIGHTS: The fair value of capitalized excess servicing fees,
originated mortgage servicing rights, and purchased mortgage servicing rights
are estimated by discounting the future cash flows at current market rates
adjusting for prepayments.
ACCRUED INTEREST PAYABLE AND ACCRUED INTEREST RECEIVABLE: The fair value for
accrued interest payable and accrued interest receivable approximates fair
value.
CUSTOMER ACCOUNTS: The fair value of customer accounts with no stated maturity,
such as non-interest-bearing accounts, savings and NOW accounts, and money
market and checking accounts is equal to the amount payable on demand as of
March 31, 1997 and 1996. The fair value of certificates of deposit is based on
the present value of contractual cash flows. The discount rates used to compute
present values are estimated using the rates currently offered for customer
accounts of similar maturities in the Company's marketplace.
BORROWED FUNDS: Rates available to the Company for debt with similar terms and
remaining maturities at the dates presented are used to estimate the fair value
of existing debt.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT: The Company does
not normally charge fees for commitments to extend credit. Interest rates on
commitments to extend credit are normally committed for periods of less than
one month. Fees charged on standby letters of credit and other financial
guarantees are deemed to be immaterial and these guarantees are expected to be
settled at face amount or expire unused. It is impracticable to assign any fair
value to these commitments.
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
Dollars in Thousands
.................................................................................................................................
YEARS ENDED MARCH 31,
--------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
=================================================================================================================================
Financial assets:
Cash $ 17,744 $ 17,744 $ 23,323 $ 23,323
- ---------------------------------------------------------------------------------------------------------------------------------
Investments and
mortgage-related securities 417,364 411,776 429,092 426,177
- ---------------------------------------------------------------------------------------------------------------------------------
Assets available for sale 702,533 702,533 564,354 564,354
- ---------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 730,535 722,840 691,791 678,726
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage servicing rights 49,721 54,423 21,865 23,667
- ---------------------------------------------------------------------------------------------------------------------------------
Financial liabilities:
Customer accounts 873,357 876,984 861,016 869,348
- ---------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 893,703 885,089 748,206 747,207
=================================================================================================================================
31
37
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
11. INCOME TAXES
Income tax expense (benefit) for the years ended March 31, 1997, 1996, and
1995, is comprised of the following:
Dollars in Thousands
...............................................................
YEARS ENDED MARCH 31,
-------------------------------
1997 1996 1995
===============================================================
Current:
Federal $4,790 $7,812 $6,018
- ---------------------------------------------------------------
State 443 -- 178
===============================================================
Total current tax expense 5,233 7,812 6,196
===============================================================
Deferred:
Federal (3,757) (1,396) (1,220)
- ---------------------------------------------------------------
State 429 (144) (2)
===============================================================
Total deferred tax expense (3,328) (1,540) (1,222)
===============================================================
Income tax expense $1,905 $6,272 $4,974
===============================================================
The effective income tax rates of 12%, 35% and 36%, for the years ended March
31, 1997, 1996 and 1995, respectively, vary from the applicable statutory
federal income tax rate of 35%, 35% and 35%, respectively, for the following
reasons.
Dollars in Thousands
...............................................................................
YEARS ENDED MARCH 31,
-----------------------------------
1997 1996 1995
===============================================================================
Computed expected tax expense $5,500 $6,262 $4,784
- -------------------------------------------------------------------------------
Increase (decrease) resulting from:
Decrease in valuation allowance
for deferred tax assets -- (700) (700)
- -------------------------------------------------------------------------------
Tax-exempt income (801) (584) (360)
- -------------------------------------------------------------------------------
State tax (benefit) expense,
net of Federal impact 717 (144) 113
- -------------------------------------------------------------------------------
Subsidiary related items -- 1,007 888
- -------------------------------------------------------------------------------
Recapture of tax bad debt reserves (4,129) -- --
- -------------------------------------------------------------------------------
Other, net 618 431 249
===============================================================================
Income tax expense $1,905 $6,272 $4,974
===============================================================================
The significant components of deferred income tax (benefit) attributable to
income for the years ended March 31, 1997, 1996 and 1995, are as follows:
Dollars in Thousands
...............................................................
YEARS ENDED MARCH 31,
---------------------------------
1997 1996 1995
===============================================================
Deferred tax expense (benefit)
(exclusive of the effects of
the components listed below) $(3,757) $ (840) $ (895)
- ---------------------------------------------------------------
Decrease in beginning of year
balance of the valuation
allowance for deferred
tax assets -- (700) (700)
- ---------------------------------------------------------------
Adjustment to deferred
tax assets and liabilities
for change in tax rates -- -- 68
- ---------------------------------------------------------------
State tax net operating
loss utilization 429 -- 305
===============================================================
$(3,328) $ (1,540) $1,222
===============================================================
The Small Business Job Protection Act of 1996 ("Act"), enacted on August 20,
1996, provides for the repeal of the tax bad debt deduction computed under the
percentage of taxable income method. The repeal of the use of this method is
effective for tax years beginning after December 31, 1995. Prior to the change
in law, the Bank had qualified under the provisions of the Internal Revenue
Code which permitted it to deduct from taxable income an allowance for bad
debts based on 8% of taxable income.
Upon repeal, the Bank is required to recapture into income, over a six-year
period, the portion of its tax bad debt reserves that exceed its base year
reserves (i.e., tax reserves for tax years beginning before 1988). The base
year tax reserves, which may be subject to recapture if the Bank ceases to
qualify as a bank for federal income tax purposes, are restricted with respect
to certain distributions. The Bank's total tax bad debt reserves at March 31,
1997, are approximately $20.0 million, of which $11.8 million represents the
base year amount and $8.2 is subject to recapture.
The Company had previously established a deferred tax liability during its
fiscal year ended March 31, 1994, related to the base year bad debt reserves in
anticipation of changing the Bank's charter to that of a commercial bank. As a
result of the signing of the Act, the Company recognized $3.8 million of
after-tax income (net of state tax expense) due to the reversal of the base
year bad debt liability. Additionally, the Company has previously recorded a
deferred tax liability for the excess base year reserves to be recaptured;
therefore, this recapture will not impact the statement of operations.
32
38
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
11. INCOME TAXES (continued)
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 1997 and
1996, are presented below:
Dollars in Thousands
.................................................................................
YEARS ENDED MARCH 31,
------------------------
1997 1996
=================================================================================
Deferred tax assets:
Uncollected interest $ 217 $ 267
- ---------------------------------------------------------------------------------
Employee benefits 706 974
- ---------------------------------------------------------------------------------
Real estate valuation allowance 174 578
- ---------------------------------------------------------------------------------
Book bad debt reserves 4,876 4,330
- ---------------------------------------------------------------------------------
Purchased mortgage servicing rights 2,079 923
- ---------------------------------------------------------------------------------
Other reserves 398 367
- ---------------------------------------------------------------------------------
Federal tax net operating loss carryforwards 1,499 1,614
- ---------------------------------------------------------------------------------
State tax net operating loss carryforwards 23 452
- ---------------------------------------------------------------------------------
Depreciation 220 --
- ---------------------------------------------------------------------------------
Other 315 459
=================================================================================
Total deferred tax assets 10,507 9,964
=================================================================================
Deferred tax liabilities:
Tax bad debt reserve recapture (2,888) (6,212)
- ---------------------------------------------------------------------------------
Prepaid expenses (603) (599)
- ---------------------------------------------------------------------------------
Loss on mortgages sold (855) (956)
- ---------------------------------------------------------------------------------
Originated mortgage servicing rights (1,398) (262)
- ---------------------------------------------------------------------------------
IRC Sec. 475 mark-to-market items -- (192)
- ---------------------------------------------------------------------------------
Depreciation -- (254)
- ---------------------------------------------------------------------------------
Net unrealized gain of securities
available for sale (206) (70)
- ---------------------------------------------------------------------------------
Other (441) (495)
=================================================================================
Total deferred tax liabilities $(6,391) $(9,040)
=================================================================================
Net deferred tax asset (liability) 4,116 924
=================================================================================
In 1995, the Company reduced its valuation allowance for deferred tax assets in
the amount of $700,000 due to the liquidation of various subsidiaries during
the year.
In order to fully realize the net deferred tax asset at March 31, 1997 and
1996, the Company will need to generate future taxable income. Based upon the
Company's tax history and the anticipated level of future taxable income,
management of the Company believes the existing net deductible temporary
differences will, more likely than not, reverse in future periods in which the
Company generates net taxable income. There can be no assurance, however, that
the Company will generate any earnings or any specific level of continuing
earnings.
For federal tax purposes, the Company has approximately $4.3 million and $4.6
million of net operating loss carryforwards as of March 31, 1997 and 1996,
respectively. The net operating loss carryforward will expire March 31, 2010 if
not utilized.
For state tax purposes, the Company has approximately $330,000 and $5.8 million
of net operating loss carryforwards as of March 31, 1997 and 1996,
respectively. The $330,000 of the net operating loss carryforward will expire
March 31, 1998, if not utilized.
33
39
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
12. EMPLOYEE BENEFITS
During the fiscal year ended March 31, 1995, the Company restructured its
defined benefit pension plan ("Pension Plan") by withdrawing from a
multi-employer Pension Plan and starting a single-employer Pension Plan.
Effective August 1, 1994, each active participant was given the option to
transfer their accrued benefit to the new Pension Plan or leave it in the
multi-employer Pension Plan. For those electing to transfer their benefits,
additional benefits would accrue under the new Pension Plan for future service.
Assets accumulated for the past and future benefits of those transferring
benefits were calculated and a schedule determined for transfer into the new
Pension Plan.
Employees hired by the Company on or after August 1, 1993, were not eligible to
participate in the new Pension Plan, however, effective April 1, 1995, the
company began accepting new participants.
The Pension Plan provides retirement benefits based on years of service and
average compensation during the years of plan participation. The Company's
funding policy is to contribute an amount which meets the minimum funding
requirements of ERISA and which can be deducted for Federal Income Tax
purposes.
The following table sets forth the Company's plan accumulated funded status for
the years ended March 31, 1997 and 1996, and the amounts recognized in the
consolidated balance sheet as of March 31, 1997 and 1996:
Dollars in Thousands
..............................................................
YEARS ENDED MARCH 31,
-------------------------
1997 1996
==============================================================
Projected benefit obligation:
Accumulated benefit
obligation total (all vested) $1,923 $1,512
- --------------------------------------------------------------
Effect of projected future
compensation levels 220 150
- --------------------------------------------------------------
Projected benefit obligation total 2,143 1,662
- --------------------------------------------------------------
Plan assets at fair value 3,080 2,836
==============================================================
Projected plan assets in excess of
benefit obligation 937 1,174
==============================================================
Unrecognized transition asset 1,391 1,493
- --------------------------------------------------------------
Unrecognized prior service costs (54) --
- --------------------------------------------------------------
Unrecognized loss (59) (41)
- --------------------------------------------------------------
Accrued pension cost included on
consolidated balance sheet $ 341 $ 278
==============================================================
Net pension cost for the years ended March 31, 1997, 1996 and 1995, includes
the following components:
Dollars in Thousands
..........................................................................
YEARS ENDED MARCH 31,
------------------------------
1997 1996 1995
==========================================================================
Service cost $252 $217 $154
- --------------------------------------------------------------------------
Interest cost 133 99 51
- --------------------------------------------------------------------------
Actual return on plan assets (287) (383) (125)
- --------------------------------------------------------------------------
Amortization of transition asset (101) (101) (68)
- --------------------------------------------------------------------------
Amortization of prior service costs 4 -- --
- --------------------------------------------------------------------------
Asset gain 62 184 --
==========================================================================
Net pension cost $ 63 $ 16 $ 12
==========================================================================
In determining the estimated costs of the Pension Plan, the weighted average
discount rate used was 7.5% and the weighted average rate of increase in
compensation levels was 5.5% compounded annually for the years ended March 31,
1997, 1996 and 1995. The weighted average expected long-term rate of return on
Pension Plan assets used in determining net periodic pension cost was 8.00%.
The Pension Plan's assets consist primarily of bond and stock funds
administered by an independent asset manager.
COMMON STOCK ACQUIRED BY THE EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"). In
connection with the Conversion, the Company established the ESOP for the
benefit of eligible employees. The Company purchased 1,018,332 shares of common
stock on behalf of the ESOP in the Conversion, of which, as of March 31, 1997,
332,053 shares were committed to be released and allocated to participants. The
Company recognizes compensation expense equal to the fair value of the ESOP
shares during the periods in which they become committed to be released. To the
extent that the fair value of ESOP shares differs from the cost of such shares,
this differential will be charged or credited to equity. Management expects the
recorded amount of expense to fluctuate as continuing adjustments are made to
reflect changes in the fair value of the ESOP shares. The Company recorded
compensation and employee benefit expense related to the ESOP of $1.9 million,
$1.4 million and $483,000 for the years ended March 31, 1997, 1996 and 1995,
respectively. The fair market value of the unallocated ESOP shares on March 31,
1997, amounted to $10.6 million.
COMMON STOCK ACQUIRED BY THE RECOGNITION AND RETENTION PLAN AND TRUST ("RRP").
An aggregate of 371,120 shares, net of forfeitures, have been awarded to the
Company's Board of Directors and executive officers as of March 31, 1997,
subject to vesting and other provisions of the RRP.
At March 31, 1997, the deferred cost of unearned RRP shares totaled $2.7
million and is recorded as a charge against stockholders' equity. Compensation
expense will be recognized ratably over the five year vesting period only for
those shares awarded. The Company recorded compensation and employee benefit
expense related to the RRP of $617,420, $829,000 and $373,000 for the years
ended March 31, 1997, 1996 and 1995, respectively.
34
40
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995
12. EMPLOYEE BENEFITS (continued)
STOCK OPTION PLAN
Common stock totalling 1,454,760 shares has been reserved for issuance for the
1994 Option Plan. An aggregate of 634,600 stock options, net of forfeitures,
have been granted and are exercisable to the Bank's executive officers,
non-employee directors, and other key employees through March 31, 1997. The
exercise price per share ranges from $7.4688 to $7.8125; $7.4688 to $11.9375;
and $11.9688 to $17.375 for the plan years 1997, 1996 and 1995, respectively.
The following table summarizes the stock options outstanding and exercisable
for the Option Plan as of March 31, 1997:
...................................................................................................................................
YEARS ENDED MARCH 31,
===================================================================================================================================
1997 1996 1995
=================================================================== =============================== ===============================
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
===================================================================================================================================
Outstanding at beginning of year 1,184,200 $ 7.7704 1,120,000 $ 7.4688 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Granted 154,000 $13.7445 91,000 $11.3935 1,120,000 $7.4688
- -----------------------------------------------------------------------------------------------------------------------------------
Exercised (800) $ 7.4688 (19,600) $ 7.4688 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Canceled -- -- (7,200) $ 7.4688 -- --
===================================================================================================================================
Outstanding at end of year 1,337,400 $ 8.4585 1,184,200 $ 7.7704 1,120,000 $7.4688
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted remaining average
contractual life (years) -- 10 -- 9 -- 8
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Contractual
Life Exercisable at end of year 634,600 $ 7.6748 439,600 $ 7.6605 -- --
===================================================================================================================================
Weighted-average fair
value of awards granted $11,312,398 -- $9,201,708 -- $8,365,056 --
===================================================================================================================================
The Black-Scholes option-pricing model was used to determine the grant-date
fair-value of options in fiscal 1997. Significant assumptions used in the model
included a weighted average risk free rate of return of 6.74%; expected option
life of 6 years; expected stock price volatility of 84.0%; and expected
dividends of 2.42%.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation" ("SFAS 123"). This statement encourages, but does not require,
the adoption of fair-value accounting for stock-based compensation to
employees. The Company, as permitted, has elected not to adopt the fair value
accounting provisions of SFAS 123, and has instead continued to apply APB
Opinion 25 and related Interpretations in accounting for plans and provide the
required proforma disclosures of SFAS 123. Had the grant-date fair-value
provisions been adopted, the Corporation would have recognized $1,458,747 in
compensation expense related to its Option Plan in 1997. As a result, net
income of the Company would have been $13.0 million and fully diluted earnings
per share would have been $1.15 for the year ended March 31, 1997.
The effects on net income and earnings per share of applying the disclosure
requirement of SFAS 123 in 1997 may not be representative of the future
proforma effects on net income and earnings per share due to the vesting
provisions of the options and future awards that are available to be granted.
35
41
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
13. COMMITMENTS AND CONTINGENCIES
As of March 31, 1997, the Company is committed to the funding of certain loans.
Approximately $28.5 million is committed to fixed rate loans and $40.1million
committed to variable rate loans. These commitments are generally outstanding
for 45 days.
As of March 31, 1997, the Company is committed to purchase mortgage-related
securities totaling $14.8 million and investment securities totaling $10.0
million.
The Company has commitments outstanding of $51.0 million at March 31, 1997, to
sell fixed rate mortgage loans and $2.9 million of adjustable-rate mortgage
loans.
The Company had the following off-balance-sheet financial instruments:
Dollars in Thousands
...........................................................................
YEARS ENDED MARCH 31,
----------------------------
1997 1996
===========================================================================
Amounts representing credit risk:
- ---------------------------------------------------------------------------
Secured consumer lines of credit $55,549 $55,727
- ---------------------------------------------------------------------------
Unsecured consumer lines of credit 9,405 9,917
- ---------------------------------------------------------------------------
Commercial lines of credit 18,573 11,939
- ---------------------------------------------------------------------------
Commercial letters of credit 1,115 163
- ---------------------------------------------------------------------------
Notional or contract amounts
of off-balance-sheet financial instruments
not constituting credit risk:
Forward commitments to sell
in the secondary market $53,922 $58,729
===========================================================================
In the past, the Company pooled and sold with recourse certain mortgage-backed
securities through federal agencies which were collateralized substantially by
residential mortgage loans. At March 31, 1997 and 1996, the remaining
outstanding balance subject to recourse was $2.5 million and $3.3 million
respectively.
The Company is party to certain claims and litigation arising in the ordinary
course of business. In the opinion of management, the resolution of such claims
and litigation will not materially affect the Company's consolidated financial
position or results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has limited involvement with derivative financial instruments and
does not use them for trading purposes. Derivatives, such as forward
commitments to sell in the secondary market, are primarily used to manage
well-defined interest rate risks. In the ordinary course of business, the
Company may expose a portion of its available for sale mortgage loan portfolio,
including its pipeline, to interest rate risk, as volume and market conditions
warrant. This exposure represents those loans which have closed or are expected
to close which are not hedged at a given point in time. At March 31, 1997, the
Company's exposure is $6.7 million and the maximum exposure position authorized
by the Company is $20.0 million.
The Company produces a daily exposure report summarizing the exposure which is
reviewed and to the extent considered necessary by management, adjustments are
made.
14. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following at March 31, 1997 and
1996:
Dollars in Thousands
..............................................................
YEARS ENDED MARCH 31,
-------------------------
1997 1996
==============================================================
Premises owned $11,778 $11,778
- --------------------------------------------------------------
Furniture and fixtures 17,051 13,271
- --------------------------------------------------------------
Leasehold improvements 5,063 3,068
- --------------------------------------------------------------
Accumulated depreciation (16,903) (13,774)
==============================================================
$16,989 $14,343
==============================================================
The Company has entered into operating leases for several of its branch
facilities. The minimum annual rental payments under these leases at March 31,
1997, are as follows:
Dollars in Thousands
...............................................................
YEAR MINIMUM LEASE PAYMENTS
===============================================================
1998 $1,627
- ---------------------------------------------------------------
1999 1,330
- ---------------------------------------------------------------
2000 1,114
- ---------------------------------------------------------------
2001 1,090
- ---------------------------------------------------------------
2002 and after 7,515
===============================================================
The Company opened or acquired six new business centers and nine mortgage loan
production offices resulting in increased rent expense during the 1997 fiscal
year. Rent expense under these leases was $1.4 million, $487,000 and $248,000
for the years ended March 31, 1997, 1996 and 1995, respectively.
The Company has executed various operating leases covering portions of its
buildings with various unrelated lessees. Annual minimum lease payments to be
received by the Company are as follows:
Dollars in Thousands
...............................................................
YEAR MINIMUM LEASE PAYMENTS
===============================================================
1998 $666
- ---------------------------------------------------------------
1999 437
- ---------------------------------------------------------------
2000 287
- ---------------------------------------------------------------
2001 209
- ---------------------------------------------------------------
2002 and after 994
===============================================================
36
42
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
15. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statements of ML Bancorp, Inc. (parent company) are shown
below. The parent company has no significant operating activities.
CONDENSED STATEMENT OF FINANCIAL CONDITION:
Dollars in Thousands
...............................................................................................................................
YEARS ENDED MARCH 31,
- -------------------------------------------------------------------------------------------------------------------------------
Assets 1997 1996
===============================================================================================================================
Cash $ 3 $ 282
- -------------------------------------------------------------------------------------------------------------------------------
Equity securities
available for sale -- 2,355
- -------------------------------------------------------------------------------------------------------------------------------
Investment in subsidiaries 183,426 137,347
- -------------------------------------------------------------------------------------------------------------------------------
Other assets 3,959 528
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $187,388 $140,512
===============================================================================================================================
Liabilities and Equity
- -------------------------------------------------------------------------------------------------------------------------------
Other Borrowed Money 51,547 --
- -------------------------------------------------------------------------------------------------------------------------------
Other liabilities 137 175
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 51,684 175
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 135,704 140,337
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $187,388 $140,512
===============================================================================================================================
CONDENSED STATEMENT OF OPERATIONS:
Dollars in Thousands
..................................................................................................................................
YEARS ENDED MARCH 31, PERIOD FROM
----------------------------------------- AUGUST 11, 1994
TO
1997 1996 MARCH 31, 1995
==================================================================================================================================
Income:
Dividends from subsidiaries $28,000 $21,201 $6,000
- ----------------------------------------------------------------------------------------------------------------------------------
Gain on sales of securities available for sale 106 197 --
- ----------------------------------------------------------------------------------------------------------------------------------
Other 142 54 95
==================================================================================================================================
Total income 28,248 21,452 6,095
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Professional fees 361 389 86
- ----------------------------------------------------------------------------------------------------------------------------------
Other 495 250 33
==================================================================================================================================
Total expenses 856 639 119
==================================================================================================================================
Income before equity
in undistributed income of
subsidiaries and income tax benefit 27,392 20,813 5,976
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax benefit (175) (124) --
==================================================================================================================================
Income before equity
in undistributed income of subsidiaries 27,567 20,937 5,976
- ----------------------------------------------------------------------------------------------------------------------------------
(Return of) equity in
undistributed income of subsidiaries (13,757) (9,317) 517
==================================================================================================================================
Net income $13,810 $11,620 $6,493
==================================================================================================================================
37
43
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
15. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS:
Dollars in Thousands
..................................................................................................................................
YEARS ENDED MARCH 31, PERIOD FROM
--------------------------------------------- AUGUST 11, 1994
TO
1997 1996 MARCH 31, 1995
==================================================================================================================================
Operating activities:
Net income $13,810 $11,620 $ 6,493
- ----------------------------------------------------------------------------------------------------------------------------------
Adjustments to
reconcile net income to net cash
provided by operating activities:
Return of (equity in)
income of subsidiaries 13,757 9,317 (517)
- ----------------------------------------------------------------------------------------------------------------------------------
Amortization of common
stock acquired by stock benefit plans 2,812 2,326 856
- ----------------------------------------------------------------------------------------------------------------------------------
Net gain on sale of equity
securities available for sale (106) (197) --
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in investment
in subsidiaries (84,418) (22,596) --
- ----------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase
in other liabilities (38) (1,634) 1,809
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in other assets (3,431) (527) (1)
==================================================================================================================================
Net cash (used) provided by
operating activities (57,614) (1,691) 8,640
- ----------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of common
stock of subsidiaries -- -- (91,959)
- ----------------------------------------------------------------------------------------------------------------------------------
Purchase of assets
available for sale (1,094) (2,890) (745)
- ----------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of
assets available for sale 1,161 1,477 --
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends received from subsidiaries 28,000 21,201 6,000
==================================================================================================================================
Net cash provided (used)
by investing activities 28,067 19,788 (86,704)
- ----------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds from issuance
of debentures 50,000 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net proceeds from issuance
of common stock -- -- 95,572
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock acquired
by stock benefit plans -- -- (11,446)
- ----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (16,616) (15,035) (5,648)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends paid (4,116) (3,194) --
==================================================================================================================================
Net cash provided (used)
by financing activities 29,268 (18,229) 78,478
==================================================================================================================================
Net (decrease) increase
in cash (279) (132) 414
==================================================================================================================================
Cash, beginning of period 282 414 --
==================================================================================================================================
Cash, end of period $ 3 $ 282 $ 414
==================================================================================================================================
38
44
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
16. CAPITAL SECURITIES
During the year ended March 31, 1997, the Company issued $50.0 million of trust
preferred securities at an interest rate of 9.875%, with a scheduled maturity
of March 1, 2027. The securities were issued by ML Bancorp's recently formed
subsidiary, ML Capital Trust I, and proceeds from the issue were invested in
Junior Subordinated Debentures issued by ML Bancorp. Interest of $2.47 million
is payable semi-annually, commencing on September 1, 1997. The Company has the
option, subject to required regulatory approval, to prepay the securities
beginning March 1, 2007.
The securities are shown on the liability side of the balance sheet as
"Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the Corporation." The
interest cost associated with this issue is treated as a non-interest expense
on the consolidated statement of operations rather than interest expense.
17. REGULATORY MATTERS
The Company is required to maintain certain daily reserve balances in
accordance with Federal Reserve Board requirements. Aggregate reserves (in the
form of vault cash) were maintained to satisfy federal regulatory requirements
at March 31, 1997.
Retained earnings are substantially restricted in connection with regulations
related to the insurance of savings accounts, which require the Company to
maintain certain statutory reserves.
At the date of the Conversion to a capital stock form of ownership, the Company
established a liquidation account in an amount equal to its retained income as
of March 31, 1994. The liquidation account will be maintained for the benefit
of eligible account holders who continue to maintain their accounts at the
Company after the Conversion. The liquidation account will be reduced annually
to the extent that eligible account holders have reduced their qualifying
deposits as of each anniversary date. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the event of
a complete liquidation of the Company, each eligible account holder will be
entitled to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held.
The Company may not declare or pay cash dividends on or repurchase any of its
share of common stock if the effect thereof would cause equity to be reduced
below applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory requirements.
Dividends payable to the Company by the Bank are subject to certain regulatory
limitations. The payment of dividends in any year without regulatory permission
is limited to the net profits (as defined for regulatory purposes) for that
year plus the retained net profits for the preceding two calendar years.
Accordingly, as of March 31, 1997, dividends in excess of those already
declared from the Bank to the Company are limited to $4.9 million.
Under the Office of Thrift Supervision capital regulations, savings
institutions must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "core" capital equal to 3.0% of adjusted total assets, Tier I capital
equal to 4.0% of adjusted total assets, and "risk-based" capital equal to 8.0%
of risk-weighted assets. At March 31, 1997, the Bank was in compliance with all
such regulatory requirements.
The following sets forth the Bank's compliance with each of the regulatory
capital requirements at March 31, 1997 and 1996.
..................................................................................................................................
YEARS ENDED MARCH 31,
----------------------------------------------------------------------------------------------------
1997 (1) 1996
----------------------------------------------- -------------------------------------------------
TANGIBLE CORE TIER I RISK-BASED TANGIBLE CORE TIER I RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL
==================================================================================================================================
Total Regulatory Capital $116,611 $116,611 $116,611 $128,119 $131,881 $131,881 $131,881 $143,547
- ----------------------------------------------------------------------------------------------------------------------------------
Minimum Required
Regulatory Capital 29,498 59,019 78,495 73,458 26,461 52,960 70,437 75,011
==================================================================================================================================
Excess Regulatory Capital $ 87,113 $ 57,592 $38,116 $ 54,661 $105,420 $ 78,921 $ 61,444 $ 68,536
- ----------------------------------------------------------------------------------------------------------------------------------
Regulatory Capital as a
Percentage of Assets (1) 5.93% 5.93% 5.93% 13.95% 7.48% 7.48% 7.48% 15.31%
- ----------------------------------------------------------------------------------------------------------------------------------
Minimum Capital Required
as a Percentage of Assets 1.50 3.00 4.00 8.00 1.50 3.00 4.00 8.00
==================================================================================================================================
Excess Regulatory Capital
as a Percentage of Assets 4.43% 2.93% 1.93% 5.95% 5.98% 4.48% 3.48% 7.31%
==================================================================================================================================
(1) Tangible, core and Tier I capital are computed as a percentage of adjusted
total assets of $1.97 billion. Risk-based capital is computed as a percentage
of total risk-weighted assets of $918 million.
39
45
ML BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
18. SFAS NO. 128, "EARNINGS PER SHARE"
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, "Earnings Per Share," and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and the denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. This
statement requires restatement of all prior period EPS data presented. The
Company has not yet determined the effect, if any, the adoption of this
statement will have on its EPS disclosure.
19. PENDING ACQUISITION
On February 4, 1997, the Company entered into a definitive agreement to acquire
Penncore Financial Services Corporation ("Penncore") the holding company for
Commonwealth State Bank ("Commonwealth"). Commonwealth is a $138 million,
state-chartered bank with two branches in Newtown and Yardley, Bucks County,
Pennsylvania. Under the terms of the agreement, Penncore shareholders can
receive either $36.56 in cash or 2.5 shares of ML Bancorp, Inc. common stock
for each Penncore share owned. The transaction will be accounted for as a
purchase and is subject to regulatory and Penncore shareholder approvals. The
total value of the deal is $14.1 million subject to change based upon ML
Bancorp's stock price prior to finalization of the acquisition. When
consummated, the transaction is not expected to materially affect the earnings
per share and tangible book value of the Company. Penncore has granted the
Company an option to purchase, under certain circumstances, Penncore common
stock in an amount up to 19.9% of Penncore's outstanding shares, at an exercise
price of $24.00 per share.
40