1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended .......................December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ............... to ............
COMMISSION FILE NUMBER: 0-24358
ML BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2752439
- --------------------------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Two Aldwyn Center
Villanova, Pennsylvania 19085
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code:)
(610) 526-6460
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------------- ------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of January 31, 1998, there were 14,547,600 shares issued and
12,150,461 shares outstanding of the Registrant's Common Stock.
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ML BANCORP, INC.
TABLE OF CONTENTS
Item
No.
PART I - CONSOLIDATED FINANCIAL INFORMATION
1 CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
December 31, (unaudited) and March 31, 1997..............................1
Consolidated Statements of Operations for the Three and Nine Months
Ended December 31, 1997 and 1996 (unaudited).............................2
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1997 and 1996 (unaudited) ............................3
Notes to Consolidated Financial Statements (unaudited)...................5
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................8
PART II - OTHER INFORMATION
1 Legal Proceedings........................................................14
2 Changes in Securities ...................................................14
3 Defaults Upon Senior Securities .........................................14
4 Submission of Matters to a Vote of Security Holders .....................14
5 Other Information .......................................................14
6 Exhibits and Reports on Form 8-K ........................................14
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ML BANCORP, INC.
Consolidated Statements of Financial Condition
December 31 and March 31, 1997
(in thousands, except share and per share data)
==================================================================================================================
(Unaudited)
DECEMBER 31, March 31,
ASSETS 1997 1997
- ------------------------------------------------------------------------------------------------------------------
Cash (including interest-bearing deposits of $4,974 and $7,082
at December 31 and March 31, 1997, respectively) $ 148,149 17,744
Assets available for sale:
Securities 717,324 597,825
Loans 224,140 104,708
Investments (market value $57,531 and $31,730
at December 31 and March 31, 1997, respectively) 57,936 32,071
Mortgage-related securities (market value $344,183 and $380,046
at December 31 and March 31, 1997, respectively) 342,873 385,293
Loans receivable, net of allowance for loan loss ($18,691 and $14,733
at December 31 and March 31, 1997, respectively) 822,951 730,535
Accrued income receivable 14,820 12,591
Other real estate owned, net 1,833 1,332
Premises and equipment, at cost less accumulated depreciation
($19,389 and $16,904 at December 31 and March 31, 1997, respectively) 18,219 16,988
Mortgage servicing rights 55,826 49,721
Goodwill and other intangible assets 10,222 2,751
Other assets 9,938 8,288
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 2,424,231 1,959,847
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
Customer accounts $ 1,018,988 873,357
Advances from Federal Home Loan Bank 607,809 437,418
Securities sold under agreements to repurchase 559,181 456,285
Advance payments by borrowers for taxes and insurance 2,617 3,670
Other liabilities 17,267 3,413
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 2,205,862 1,774,143
- ------------------------------------------------------------------------------------------------------------------
Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the Corporation 50,000 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 102,312 97,237
Common stock acquired by stock benefit plans (6,248) (7,336)
Treasury stock, at cost; 2,589,823 and 3,271,046 shares
at December 31 and March 31, 1997, respectively (27,064) (37,147)
Retained earnings 92,254 83,280
Unrealized gain (loss) on securities available for sale 7,042 (403)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 168,369 135,704
- ------------------------------------------------------------------------------------------------------------------
Total liabilities, minority interest in subsidiaries and stockholders' equity $ 2,424,231 1,959,847
==================================================================================================================
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ML BANCORP, INC.
Consolidated Statements of Operations
Three and nine months ended December 31, 1997 and 1996
(in thousands, except share and per share data)
=================================================================================================================================
(Unaudited) (Unaudited)
Three months Nine months
ended December 31, ended December 31,
-----------------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans $ 20,374 16,685 $ 55,968 48,637
Mortgage-related and investment securities 5,479 7,332 19,741 21,985
Assets available for sale 16,433 11,175 42,520 32,426
Interest-bearing deposits 112 134 450 410
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 42,398 35,326 118,679 103,458
- ---------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Customer accounts 10,125 8,046 27,083 24,391
FHLB advances 6,037 5,615 19,990 19,082
Other borrowings 10,087 7,758 23,666 19,743
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 26,249 21,419 70,739 63,216
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 16,149 13,907 47,940 40,242
Provision for loan losses 980 2,300 3,000 4,310
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 15,169 11,607 44,940 35,932
Non-interest income:
Retail fees and charges 884 458 2,241 1,305
Mortgage banking operations 2,838 2,573 9,268 9,270
Net gain (loss) on: -
Sales of securities available for sale 1,263 (158) 1,618 (144)
Other real estate activities 24 274 33 600
Rental income 164 127 518 435
Other 171 37 383 195
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 5,344 3,311 14,061 11,661
- ---------------------------------------------------------------------------------------------------------------------------------
Non-interest expenses:
Compensation and employee benefits $ 6,968 4,790 $ 19,523 15,863
Advertising 339 424 1,181 1,649
Data processing 512 436 1,459 1,290
Federal insurance premiums 143 393 405 6,104
Amortization of goodwill and other intangible
assets 478 997 1,076 3,793
Net occupancy costs 1,810 1,586 4,946 4,414
Professional fees 178 210 1,163 600
Minority interest in expense of subsidiaries 1,272 - 3,840 -
Other 1,542 1,269 4,702 3,930
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 13,242 10,105 38,295 37,643
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,271 4,813 20,706 9,950
Income taxes 2,791 1,784 8,404 (424)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,480 3,029 $ 12,302 10,374
=================================================================================================================================
Basic earnings per share $ 0.40 0.28 $ 1.14 0.95
=================================================================================================================================
Diluted earnings per share $ 0.38 0.27 $ 1.08 0.92
=================================================================================================================================
Weighted average number of shares-primary 12,093,632 11,421,036 11,577,829 11,346,811
=================================================================================================================================
Weighted average number of shares-fully diluted 12,110,119 11,421,036 11,723,002 11,408,793
=================================================================================================================================
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ML BANCORP, INC.
Consolidated Statements of Cash Flows
Nine months ended December 31, 1997 and 1996
(in thousands)
=====================================================================================================================
(Unaudited)
Nine months
ended December 31,
---------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities:
Net income $ 12,302 10,374
- ---------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Amortization of:
Goodwill and other intangible assets $ 1,076 3,793
Deferred loan origination fees (1,439) (1,498)
Premiums and discounts 34,313 2,240
Common stock acquired by stock benefit plans 2,547 2,143
Mortgage servicing rights 7,070 5,990
Provision for loan losses 3,000 4,310
Net (gain) loss on sale of assets available for sale:
Securities (1,618) 144
Loans (6,094) (5,647)
Net (gain) loss on other real estate activities (33) (600)
Depreciation and amortization 2,344 2,041
Increase/decrease in net of effects from purchase of Penncore:
Loans available for sale (113,338) 8,363
Accrued income receivable (2,229) 274
Deferred federal income taxes 6,383 (3,554)
Other assets (1,650) (2,929)
Other liabilities 2,756 6,157
- ---------------------------------------------------------------------------------------------------------------------
Total adjustments (66,912) 21,227
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (54,610) 31,601
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in loans receivable (95,134) (33,587)
Proceeds from sales of:
FHLB stock 8,132 10,668
Securities available for sale 19,930 118,072
Proceeds from maturities or repayments of:
Mortgage-related securities 43,777 44,781
Securities available for sale 102,153 83,431
Investments 5,000 6,000
Purchases of:
Mortgage related securities - (29,735)
Securities available for sale (225,571) (240,798)
Investments (76,900) (22,057)
Mortgage servicing rights (13,175) (33,821)
Net decrease (increase) in other real estate owned 54 294
Proceeds from other real estate activities 635 1,878
Excess of liabilities assumed over assets acquired (8,547) (3,795)
Purchases of premises and equipment (3,575) (5,107)
Payment for purchase of Penncore, net of cash acquired 3,621 -
- ---------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (239,600) (103,776)
- ---------------------------------------------------------------------------------------------------------------------
(Continued)
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ML BANCORP, INC.
Consolidated Statements of Cash Flows, Continued
(in thousands)
===========================================================================================================
(Unaudited)
Nine months
ended December 31,
---------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in customer accounts $ 145,631 2,825
Dividends paid (3,333) (3,150)
Proceeds from securities sold under agreements to repurchase 247,059 162,901
Payments of securities sold under agreements to repurchase (144,163) (35,712)
Proceeds from FHLB advances 204,891 100,000
Payments of FHLB advances (34,500) (126,453)
Net decrease in advance payments by borrowers for taxes and insurance (1,053) 1,173
Treasury stock issued for purchase 9,224 -
Purchase of treasury stock - (10,559)
Stock options exercised 859 -
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 424,615 91,025
- -----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 130,405 18,850
Cash and cash equivalents:
Beginning of period 17,744 23,323
- -----------------------------------------------------------------------------------------------------------
End of period $ 148,149 42,173
===========================================================================================================
Supplemental disclosure:
Cash payments for interest $ 66,348 62,190
Cash payments for income taxes 11,600 2,000
Transfer of loans receivable into other real estate owned 1,157 1,203
Net unrealized gain (loss) on securities available for sale 12,160 2,018
Tax effect on unrealized gain (loss) on securities available for sale 7,445 1,116
===========================================================================================================
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ML BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
================================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions to Form 10-Q, and therefore, do not
include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
However, all normal, recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the financial
statements, have been included. These financial statements should be
read in conjunction with the audited financial statements and the
notes thereto included in the ML Bancorp, Inc. ("Company") Annual
Report for the period ended March 31, 1997. The results for the nine
months ended December 31, 1997 are not necessarily indicative of the
results that may be expected for the fiscal year ended March 31,
1998.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share" (EPS). This statement, which supercedes APB Opinion No. 15,
simplifies the standards for computing EPS and makes them comparable
to international standards. SFAS No. 128 replaces the current
"primary" and "fully diluted" earnings per share with "basic" and
"diluted" earnings per share. Basic EPS is computed by dividing
income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock, or resulted in the issuance of common stock that
then shared in the earnings of the company. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. 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 reflected the
changes required by SFAS No. 128 in the data presented for the three
and nine months ended December 31, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general purpose financial statements. SFAS No. 130 requires that all
items that are required to be recognized as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
The statement does not require a specific format for that financial
statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that
financial statement. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Company will include this new
reporting information in its fiscal 1999 consolidated financial
statements as required.
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ML BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
================================================================================
(2) CONTINUED
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to stockholders. Is also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997. The Company will include
this new reporting information in its fiscal 1999 consolidated
financial statements as required.
(3) LOANS RECEIVABLE
Loans receivable at December 31 and March 31, 1997 consisted of the
following (in thousands):
DECEMBER 31, March 31,
1997 1997
-----------------------------------------------------------------------------------
Real estate loans:
One- to four-family $ 290,650 310,456
Construction and land:
Residential 142,241 90,618
Commercial 26,103 38,913
Commercial real estate 149,715 130,017
Multi-family 16,204 12,411
-----------------------------------------------------------------------------------
Total real estate loans 624,913 582,415
-----------------------------------------------------------------------------------
Other loans:
Consumer:
Home equity and equity lines of credit 158,621 131,699
Other 11,675 10,990
Commercial 132,080 84,034
-----------------------------------------------------------------------------------
Total other loans 302,376 226,723
-----------------------------------------------------------------------------------
927,289 809,138
Loans in process (construction loans) (82,619) (59,916)
Deferred loan fees (3,028) (3,954)
Allowance for loan losses (18,691) (14,733)
-----------------------------------------------------------------------------------
$ 822,951 730,535
===================================================================================
Activity in the allowance for loan losses for the three months ended
December 31, 1997 and 1996 consisted of the following (in thousands):
Three months ended Nine months ended
December 31, December 31,
-------------------------- --------------------------
1997 1996 1997 1996
- ------------------------------------------------------------ --------------------------
Balance, beginning of period $ 17,758 14,981 $ 14,733 13,124
Provision for loan losses 980 2,300 3,000 4,310
Charge-offs (200) (418) (623) (617)
Recoveries 153 31 165 77
Acquisitions 0 0 1,416 0
- ------------------------------------------------------------ --------------------------
Balance, end of period $ 18,691 16,894 $ 18,691 16,894
============================================================ ==========================
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ML BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
================================================================================
(4) CUSTOMER ACCOUNTS
The major types of customer accounts by amounts and the percentages
of such types to total customer accounts are as follows (in
thousands):
DECEMBER 31, 1997 March 31, 1997
-------------------------- ------------------------
% OF % of
AMOUNT TOTAL Amount total
- ------------------------------------------------------------------------------------------------------
Noninterest-bearing accounts $ 169,288 16.61% $118,836 13.61%
Money market and NOW accounts 177,674 17.44 156,325 17.90
Passbook and statement savings accounts 91,032 8.93 88,574 10.14
- ------------------------------------------------------------------------------------------------------
437,994 42.98 363,735 41.65
Certificates of deposit 528,541 51.87 469,073 53.71
Repurchase agreements with customers 52,453 5.15 40,549 4.64
- ------------------------------------------------------------------------------------------------------
$1,018,988 100.00% $873,357 100.00%
======================================================================================================
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net income amounted to $4.5 million or $0.37 per fully diluted share for the
quarter ended December 31, 1997, compared to net income of $3.0 million and
earnings per share of $0.27 for the comparable period of fiscal 1997. For the
nine month period ended December 31, 1997, net income was $12.3 million or $1.05
per fully diluted share, representing an increase of $1.9 million or 18.6 % in
net income and an increase of $0.14 or 15.4% in earnings per share above the
prior comparable period of fiscal 1997. The current period was the first full
quarter that included the financial results of Penncore Financial Services
Corporation, which transaction was closed on September 8, 1997. The acquisition
was accounted for as a purchase accounting transaction and had no significant
impact on net income or earnings per share during the current quarter.
FINANCIAL CONDITION
CASH AND INVESTMENTS. Cash and Investments increased by $156.3 million or 313.8%
from $49.8 million at March 31, 1997 to $206.1 million at December 31, 1997. The
increase in cash from $17.7 million at March 31,1997 to $148.1 at December
31,1997 was attributable to an increase of five branches in retail banking but
was primarily caused by a one-time occurrence in delayed processing of customer
checks related to an outsourcing arrangement amounting to approximately $100
million at December 31, 1997. The overall net increase in investments amounted
to $25.9 million or 80.6% above the March 31, 1997 level of $32.1 million.
MORTGAGE-RELATED SECURITIES AND MORTGAGE-RELATED, DEBT AND EQUITY SECURITIES
AVAILABLE-FOR-SALE. Mortgage-related securities and mortgage-related, debt and
equity securities available-for-sale increased by $77.1 million or 7.8% at
December 31, 1997 to $1,060.2 million from $983.1 million at March 31, 1997.
This increase is mainly associated with $236.5 million in mortgage-related
security purchases partially offset by $156.5 million in repayments and
maturities.
LOANS AVAILABLE-FOR-SALE AND LOANS RECEIVABLE, NET. At December 31,1997, total
loans receivable (loans receivable, net and loans available-for-sale) amounted
to $1,047.1 million representing an increase of $211.8 million or 25.4% above
the March 31, 1997 level. This was comprised of an increase of $119.4 million or
114.1% in loans available-for-sale and an increase of $92.4 million or 12.7% in
loans receivable, net. The increase in loans available-for-sale was primarily
related to increased residential mortgage warehouse loans while the increase in
loans receivable, net was caused by the addition of $64.3 million related to the
Penncore Financial Services acquisition (mainly commercial loans and residential
mortgages), core consumer loan growth of $24.1 million and core commercial loan
growth of $25.6 million.
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NONPERFORMING ASSETS. Total nonperforming assets for the Company declined by
$1.1 million from $10.7 million or 0.55% of total assets at March 31,1997 to
$9.6 million or 0.40% of total assets at December 31, 1997. The Company's
nonperforming loans at December 31,1997 amounted to $7.8 million resulting in a
decline of $1.6 million or 17.0% from March 31,1997. Other real estate owned
amounted to $1.8 million at December 31, 1997 representing an increase of $501
thousand or 37.6 % from the March 31, 1997 level of $1.3 million.
At December 31, 1997, the Company's allowance for loan losses amounted to $18.7
million (which included $500,000 of specific reserves for one commercial loan)
or 239.7 % of nonperforming loans and 1.75% of gross loans receivable. At March
31, 1997, the Company's allowance for loan losses was $14.7 million (which
included $500,000 for the commercial loan previously noted and $300,000 for two
residential mortgage project loans) or 156.9% of nonperforming loans and 1.73%
of gross loans receivable.
MORTGAGE SERVICING RIGHTS. Mortgage servicing rights, both purchased and
originated ("MSRs") increased $6.1 million or 12.3% from $49.7 million at March
31,1997 to $55.8 million at December 31, 1997. The increase was due primarily to
the purchase of $10.3 million of MSRs, primarily the People's Heritage, York
Federal and Cardinal portfolios, and the origination of $3.6 of MSRs during the
nine month period. Partially offsetting these increases were $7.0 of
amortization of MSRs during the nine month period and an impairment reserve
increase of $795 thousand to $3.0 million. The higher level of impairment
reserve and increased amortization reflect the decline in market value of the
MSRs due to the anticipated acceleration of mortgage loan payoffs associated
with the recent decline in long term interest rates.
CUSTOMER ACCOUNTS. Customer accounts totaled $1,019.0 million at December 31,
1997 representing an increase of $145.6 million or 16.7 % from the level
recorded at March 31, 1997 of $873.4 million. The change was comprised of
increases in all customer account types, but primarily occurred in demand
deposit accounts, time deposit accounts and repurchase agreements with
customers. $95.0 million of the customer account increase was associated with
the Penncore acquisition during September of 1997.
BORROWINGS. Borrowings totaled $1,167.0 million at December 31, 1997 as compared
to $893.7 at March 31, 1997, amounting to an increase of $273.3 million or
30.6%. The Company's borrowings are primarily comprised of advances from the
Federal Home Loan Bank ("FHLB") and repurchase agreements. 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 a competitive cost funding source for the Company; however,
the Company is subject to the risk that the lender may default at maturity and
not return the collateral. The repurchase agreements are primarily comprised of
various Federal Home Loan Mortgage Corporation ("FHLMC") and large, established
brokerage institution repurchase agreements. At December 31, 1997, the Company
had repurchase agreements amounting to $559.2 million with a weighted average
maturity of approximately 19 months and a
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weighted average interest rate of 5.76%. FHLB advances totaled $607.8 million at
December 31, 1997, with a weighted average maturity of approximately 24 months
and a weighted average interest rate of 6.05%.
EQUITY. At December 31, 1997, total equity amounted to $168.4 million or 6.95%
of total assets as compared to $135.7 million or 6.92% at March 31,1997. The
increase in equity of $32.7 million during the nine months ended December 31,
1997 was primarily due to net income of $12.3 million, a $7.4 million net of tax
increase in unrealized gains related to mortgage-related, debt and equity
securities classified as assets available for sale, a reduction of treasury
stock associated with exercised stock options resulting in increased equity of
$10.1 million and $9.9 million of additional equity associated with the Penncore
acquisition. This was partially offset by dividends paid out to shareholders
during this period of $3.3 million and the reduction of additional paid in
capital in the amount of $5.0 million due to exercised stock options.
RESULTS OF OPERATIONS
NET INCOME. For the quarter ended December 31, 1997, net income amounted to $4.5
million or $0.37 per fully diluted share, which amounted to an increase of $1.5
million or 47.9 % in net income and $0.10 or 37.0 % per fully diluted share
above the comparable period in the previous year. The improvement in core
earnings for the current quarter was primarily attributable to an increase in
net interest income due to an increase in interest earning assets, a higher
level of fee income in retail banking and mortgage banking, lower federal
deposit insurance premiums and a reduction in goodwill amortization. This
favorable change was partially offset by a higher level of core operating
expenses above the prior comparable period due to the continuation of the
business center expansion program and the Trust Preferred minority interest
expense. In addition, gains on the sale of securities during the current quarter
were offset by increased amortization and an increase in the impairment
reserve.for the MSRs. For the nine month period ended December 31, 1997, net
income totaled $12.3 million or $1.05 per share, an increase of $1.9 million or
18.6 % in net income and $0.14 or 15.4 % over the prior comparable period.
NET INTEREST INCOME. Net interest income before the provision for loan losses
amounted to $16.1 million for the quarter ended December 31, 1997, resulting in
an increase of $2.2 million or 16.1 % above the $13.9 recorded in the prior
comparable period. For the nine months ended December 31, 1997, net interest
income before the provision for loan losses was $47.9 million, which represented
an increase of $7.7 million or 19.1 % above the $40.2 million recorded in the
prior comparable period in 1996.
Total interest income for the quarter ended December 31, 1997, of $42.4 million
was $7.1 million or 20.0% above the prior comparable period of $35.3 million.
For the nine months ended September 30, 1997, interest income of $118.7 million
was $15.2 million or 14.7% above the $103.5 recorded in the comparable period in
1996. These increases
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were primarily attributable to the growth in average interest-earning assets of
$367.2 million or 20.5% and $253.3 million or 14.3% for the three and nine
months ended December 31, 1997, compared to the comparable periods ended
December 31, 1996, respectively.
For the quarter ended December 31, 1997, interest expense totaled $26.2 million
amounting to an increase of $4.8 million or 22.6% above the prior comparable
period in 1996 of $21.4 million. Interest expense of $70.7 million for the nine
months ended December 31, 1997, resulted in an increase of $7.5 million or 11.9%
above the comparable nine month period of 1996. The increase in interest expense
for the quarter ended December 31, 1997, relative to the comparable period in
1996, was attributable to higher average interest-bearing liabilities. For the
nine months ended December 31, 1997, the increase in higher average
interest-bearing liabilities was partially offset by the Company's lower cost of
funds relative to the comparable period of 1996. The increase in average
interest-bearing liabilities amounted to $352.9 million or 20.2% and $272.1
million or 15.8 % for the three and nine months ended December 31,1997,
respectively, over the comparable periods in 1996. The average interest rate
paid for interest-bearing liabilities declined by 2 and 22 basis points over the
respective three and nine month periods.
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 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 quarter ended December 31, 1997, the
provision for loan losses amounted to $980 thousand.
Consistent with its long-term goals, the Company intends to continue to increase
its originations and/or participations of commercial real estate and commercial
business loans. Commercial loans, while typically having a higher yield, entail
different risks when compared to residential lending because such loans usually
involve larger loan balances to single borrowers and because the payment
experience on such loans is dependent on the successful operation of the project
or the borrower's business. The Company attempts to mitigate risk exposure by
limiting such lending to proven developers/owners, only considering properties
with existing operating performance which can be analyzed, requiring
conservative debt coverage ratios and continually monitoring the operation and
physical condition of the collateral.
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
provision for loan losses in the future as a result of adverse changes in
nonperforming loans or for other reasons, which could affect the Company's
results of operations. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review
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the Company's provision for loan losses and the carrying value of its other
nonperforming assets based on their judgements about information available to
them at the time of their review.
NONINTEREST INCOME. Noninterest income totaled $5.3 million and $14.1 million
for the three and nine month periods ended December 31, 1997, resulting in
increases of $2.0 million or 61.4% and $2.4 million or 20.6% over the prior
comparable periods of 1996, respectively. Retail fees and charges were one of
the primary reasons for the increases for both periods due to the larger retail
customer base associated with the larger branch network and the higher level of
investment product sales. Gains on the sale of securities of $1.3 million and
$1.6 million during the current quarter and the nine months ended December 31,
1997, accounted for significant increases over the previous comparable periods
of 1996 due to modest losses posted during the prior periods. Income from
Mortgage Banking operations of $2.8 million and $9.3 million for the three and
nine months, respectively, represented an increase of $265 thousand or 10.3% and
a nominal change from the comparable prior year periods, for the three and nine
months, respectively. Increased Mortgage Banking originations in the current
quarter were partially offset by a higher level of amortization and the addition
of $795 thousand to the impairment reserve for the MSRs that reduced the Loan
Servicing income. These reductions to income reflected the decline in market
value of the Loan Servicing portfolio due to the anticipated acceleration of
mortgage loan payoffs associated with the recent drop in longer term interest
rates.
NONINTEREST EXPENSES. Noninterest expenses amounted to $13.2 million and $38.3
million for the three and nine months ended December 31, 1997, as compared to
$10.1 million and $37.6 million for the prior comparable periods in 1996. If the
prior year one-time special SAIF assessment of $4.8 million were excluded from
the nine month expense total, noninterest expenses would have increased by $3.1
million or 31.0% and $5.5 million or 16.6% above the same periods in 1996.
Compensation and employee benefits expense increased by $2.2 million or 45.5%
and $3.7 million or 23.1% for the three and nine month comparable periods of the
prior year due to the continued business center expansion, the addition of
Private Banking Division, general merit increases for employees, expenses
related to the Penncore acquisition and higher employee benefit expenses. The
employee benefit expense increase was primarily due to the cost of the Employee
Stock Option Plan resulting from a significantly higher stock price in the
current quarter relative to the prior periods. The Trust Preferred securities
expense amounted to $1.3 million and $3.8 million for the current quarter and
the nine month period resulting from the issuance of the ML Capital Trust
securities during the last quarter of fiscal 1997. Net occupancy expenses and
other operating costs increased due primarily to the business center expansion
as well as new product initiatives. Offsetting the above expense increases were
reductions in federal insurance premiums of $250 thousand or 63.6% and $5.7
million or 93.4% from the three and nine month prior comparable periods of 1996
due to a reduction of the SAIF rates from $0.23 per $100 of deposits in 1996 to
$0.06 per $100 of deposits in the current fiscal year as well as the recognition
of a one-time SAIF assessment in the nine month prior period. Amortization of
goodwill amounted to $478 thousand and $1.1 million for the quarter and nine
month
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period representing declines of $519 thousand or 52.0% and $2.7 million or 71.6
% from the comparable periods of 1996 due to the completion of a portion of
goodwill for the Suburban Federal and Philadelphia Mortgage acquisitions and the
completion of goodwill amortization for Hart Mortgage, the Colonial IRA Deposits
and the Aldwyn Center buildings. These reductions were partially offset by an
increase in goodwill due to the recent Penncore Financial Services acquisition.
INCOME TAXES. Income tax expense totaled $2.8 million or an effective tax rate
of 38.4% for the three months ended December 31, 1997 compared to $1.8 million
(effective tax rate of 37.1 %) for the prior comparable period. For the nine
months ended December 31, 1997, income tax expense amounted to $8.4 million or
an effective tax rate of 40.6% compared to a benefit of $424 thousand for the
prior comparable period of 1996 due to the recapture of a tax bad debt reserve
of $3.8 million in the second fiscal quarter of 1997. Differences between the
effective and statutory rates for the periods ended December 31, 1997 and 1996
are due to items that are either nontaxable or nondeductible, such as tax-exempt
interest income and amortization of goodwill.
CAPITAL RESOURCES. The Office of Thrift Supervision ("OTS") regulators require
that the Company's subsidiary, Main Line Bank ("Bank") meet minimum regulatory
tangible, core and risk-based capital requirements. At December 31, 1997, the
Bank exceeded all regulatory capital requirements.
The following table sets forth the Bank's compliance with each of the regulatory
capital requirements at December 31, 1997:
Tangible Core Risk-Based
Capital Capital Capital
--------------------------------------------------
Total Regulatory Capital $129,237 $129,237 $143,437
Minimum Required Regulatory Capital 36,011 72,219 90,562
-----------------------------------------------
Excess Regulatory Capital $ 93,226 $ 57,018 $ 52,875
-----------------------------------------------
Regulatory Capital as a
Percentage of Assets (1) 5.38% 5.38% 12.67%
Minimum Capital Required as a
Percentage of Assets 1.50 3.00 8.00
--------------------------------------------------------------
Excess Regulatory Capital as a
Percentage of Assets 3.88% 2.38% 4.67%
---------------------------------------------
(1) Tangible and Core Capital are computed as a percentage of adjusted total
assets of $2.4 billion. Risk-based capital is computed as a percentage of total
risk-weighted assets of $1.1 billion.
LIQUIDITY. The Company is required by the 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's liquidity ratio and short-term
liquid asset ratio as of December 31, 1997 was 9.1% and 7.8%, respectively.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Registrant or any
of its subsidiaries is a part or to which any of their property is
subject.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Special Meeting of the Registrant's Shareholders was held January
22, 1998. The item of business acted upon at the Special Meeting was
to vote upon the Agreement and Plan of Merger dated as of September
18, 1997 relating to the merger of ML Bancorp with and into Sovereign
Bancorp.
For Against Abstain Not Voted
--- ------- ------- ---------
Approval of the Merger 7,509,777 81,556 12,865 4,274,299
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Not Applicable
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned, thereunto duly authorized.
ML BANCORP, INC.
Date: February 12, 1998
/s/ Brian M. Hartline
- ----------------------
Brian M. Hartline
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)