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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
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[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 0-22414
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Suburban Bancorporation, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 31-1385530
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10869 Montgomery Road, Cincinnati, Ohio 45242
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(Address of Principal Executive Office)
(513) 489-4888
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of 11/01/96: 1,474,932
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Transitional Small Business Disclosure Format (check one):
Yes No X
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SUBURBAN BANCORPORATION, INC.
AND SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
- Consolidated Balance Sheets
as of September 30, 1996 and June 30, 1996 2
- Consolidated Statements of Operations for the
Three Months ended September 30, 1996
and 1995 3
- Consolidated Statements of Cash Flows for the
Three Months ended September 30, 1996 and 1995 4
- Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of 10
Security Holders
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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SUBURBAN BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(Unaudited)
September, 30 June 30,
1996 1996
---- ----
ASSETS
Cash and cash equivalents:
Non-interest earning deposits $ 554 $ 482
Interest-earning deposits 1,682 2,481
Federal funds sold 5,000 4,000
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Total cash and cash equivalents 7,236 6,963
Available for sale securities 28,296 29,479
Held to maturity securities 100 100
Loans (less allowance for loan losses of $3,133 and $3,138
at September 30, 1996 and June 30, 1996, respectively) 167,408 158,728
Investment in FHLB stock, at cost 2,876 2,745
Property and equipment, net 1,508 1,511
Accrued interest receivable 1,024 987
Other assets 1,494 1,544
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$ 209,942 $ 202,057
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 124,420 $ 119,691
Advances from FHLB 56,544 54,027
Advances by borrowers for taxes and insurance 1,089 719
Accrued expenses and other liabilities 2,502 1,899
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Total liabilities 184,555 176,336
Stockholders' Equity:
Serial preferred stock ($.01 par value), authorized:
3,000,000 shares; none outstanding
Common stock ($.01 par value), authorized: 12,000,000
shares; issued: 1,581,710 shares 16 16
Additional paid-in-capital 15,115 15,092
Retained earnings, substantially restricted 13,261 13,728
Other equity adjustments (1,192) (1,302)
Treasury stock at cost: 106,778 shares at September 30,
and June 30, 1996 (1,813) (1,813)
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Total Stockholders' Equity 25,387 25,721
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$ 209,942 $ 202,057
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See notes to consolidated financial statements.
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SUBURBAN BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
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1996 1995
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Interest income:
Loans $3,244 $3,005
Investment securities 18 19
Mortgage-backed securities 495 670
Other interest-earning assets 146 115
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Total interest income 3,903 3,809
Interest expense:
Deposits 1,500 1,619
Borrowed funds 882 716
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Total interest expense 2,382 2,335
Net interest income 1,521 1,474
Noninterest income:
Gain on sale of loans 15 14
Fee Income 122 95
Other 24 24
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Total noninterest income 161 133
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Noninterest expense:
Compensation and benefits 646 567
Occupancy and equipment 103 115
FDIC deposit insurance premium 895 72
Data processing and automated teller service 102 68
Franchise tax 93 87
Advertising 98 37
Branch closing expense 15 0
Other 131 119
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Total noninterest expense 2,083 1,065
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Income (loss) before income taxes (401) 542
Income tax expense (benefit) (130) 193
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Net income (loss) $(271) $349
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Earnings (loss) per share $(0.19) $0.24
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See accompanying notes to consolidated financial statements.
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SUBURBAN BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($271) $349
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 27 29
Deferred federal income taxes 22 28
ESOP and MRP compensation 89 89
Gain on sale of mortgage loans (15) (13)
FHLB stock dividends (49) (40)
Decrease (increase) in accrued interest receivable (37) 12
Decrease (increase) in other assets 5 (25)
Increase (decrease) in accrued expenses and other liabilities 603 (19)
Proceeds from the sale of loans 279 1,308
Disbursements on loans originated for sale (365) (1,098)
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Net cash provided by operating activities 288 620
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CASH FLOWS FROM INVESTING ACTIVITIES:
Loans:
Principal repayments 6,805 9,364
Disbursements - mortgage and other (6,938) (4,138)
Purchased (8,445) (8,516)
Mortgage-backed securities:
Principal repayment-held to maturity 1,212
Principal repayment-available for sale 1,250
Purchase of FHLB stock (83)
Property and equipment additions (25)
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Net cash used in investing activities (7,436) (2,078)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 4,729 4,194
Advances from FHLB 10,600 1,500
Repayment of advances from FHLB (8,082) (2,423)
Increase in advances by borrowers for taxes and insurance 370 290
Treasury stock acquired (108)
Dividends paid to stockholders (196) (107)
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Net cash provided by financing activities 7,421 3,346
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NET INCREASE IN CASH AND CASH EQUIVALENTS 273 1,888
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,963 5,463
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CASH AND CASH EQUIVALENTS, END OF PERIOD $7,236 $7,351
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, including interest credited to deposit accounts $2,370 $2,281
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Income taxes $ 25 $ 0
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SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Real estate acquired in settlement of loans $ 0 $132
======= ======
See accompanying notes to consolidated financial statements.
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SUBURBAN BANCORPORATION, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) The Company is primarily engaged in the business of directing, planning, and
coordinating the business of the Bank, which mainly consists of accepting
deposits from the general public through its branches and investing these funds
in loans secured by real estate and other interest earning investments. In the
future, the Company may acquire or organize other operating subsidiaries,
including other financial institutions.
(2) BASIS OF PRESENTATION. The accompanying consolidated financial statements
were prepared in accordance with instructions for form 10QSB and, therefore, do
not include information for footnotes necessary for a complete presentation of
financial position, results of operations, retained earnings, and cash flows in
conformity with generally accepted accounting principles. However, all
adjustments of a normal and recurring nature which, in the opinion of
management, are necessary for a fair presentation of the consolidated financial
statements have been included in the results of operations for the three months
ended September 30, 1996 and 1995. The June 30, 1996 balance sheet is derived
from the June 30, 1996 audited financial statements. The September 30, 1996
balance sheet and the statements of operations and statements of cash flows for
the periods ended September 30, 1996 and 1995 are unaudited.
(3) PRINCIPLES OF CONSOLIDATION. The accompanying unaudited consolidated
financial statements include the accounts of Suburban Bancorporation, Inc.,
Suburban Federal Savings Bank, and its wholly owned subsidiary, Suburban
Financial Services, Inc. All significant intercompany items have been
eliminated.
(4) STOCKHOLDERS' EQUITY. The Bank is required to maintain certain minimum
levels of regulatory capital. At September 30, 1996, the highest of those levels
was $9.4 million (see "Liquidity and Capital Resources"). In addition to this
requirement the Bank may not reduce its capital below the level of the
"liquidation account" for the benefit of eligible deposits. In the event of a
complete liquidation of the Bank, eligible depositors would have an interest in
the account. As of September 30, 1996, the Company had purchased 106,778 shares
of its own stock as part of stock repurchase plans (see "Stock Repurchase
Plan").
(5) EARNINGS PER SHARE. Earnings per share is computed by dividing net income
for the period by the weighted average of common shares and common share
equivalents outstanding. Stock options are considered common share equivalents
in the computation under the treasury stock method. ESOP shares are included in
shares outstanding as they are released for allocation to individual employees.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
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The Company's total assets increased by $7.8 million from $202.1 million at
June 30, 1996 to $209.9 million at September 30, 1996. The increase was the
result of an $8.7 million increase in loans, which was funded primarily by a
$4.7 million increase in savings deposits and a $2.5 million increase in FHLB
advances during the period.
Loan originations and purchases for the period were higher by 14.6% overall
to $15.7 million as compared to $13.7 million for the same period in 1995. Loans
sold to investors were $279,000 and $1.3 million for the three months ended
September 30, 1996 and 1995, respectively. As a result loans receivable net
increased $8.7 million or 5.5% from $158.7 million at June 30, 1996 to $167.4
million at September 30, 1996.
Suburban Federal maintains a significant portfolio of mortgage-backed
securities in the form of FNMA, FHLMC, and GNMA participation certificates,
which are guaranteed by their respective agencies as to principal and interest.
Management has purchased mortgage-backed securities to increase the volume of
interest earning assets relative to the volume of equity ("leverage") to improve
income, and expects to replace these assets with loan production over the coming
years as they amortize or are sold. At September 30, 1996 the balance of
mortgage-backed securities available for sale was $27.3 million with an
amortized cost of $27.5 million. A market valuation allowance for the unrealized
loss is a component of stockholder's equity.
Savings deposits increased by 3.9% from $119.7 million June 30, 1996 to
$124.4 million at September 30, 1996. This increase is a result of more
competitive pricing by the Bank and the first full quarter of an innovative
program for the marketing of demand deposit accounts, which is expected in the
long term to lower deposit costs and increase the volume of deposits overall.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
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1996 AND 1995
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NET INCOME. Net income for the three months ended September 30, 1996 was
lower by $620,000 to a loss of ($271,000) as compared to $349,000 for the same
period in 1995. The decrease for the three months ended September 30, 1996 is
attributable to a one time after tax charge of $555,000 to recognize a federal
deposit insurance special assessment levied on all thrift institutions to
capitalize the SAIF fund. With the one time assessment out of the way the Bank
will be subject to much lower expenses in the future for federal deposit
insurance. It is expected that federal deposit insurance premiums paid by the
company will fall from 23 basis points to 6.5 basis points beginning January 1,
1997, which would result in savings of approximately $200,000 annually, based on
current deposit levels.
NET INTEREST INCOME. Net interest income for the three months ended
September 30, 1996 increased by $47,000 or 3.2% as compared to the same period
in 1995. The improvement is the result of an increased volume in loans which was
partially offset by a decline in average interest margin. The average yield on
assets decreased by 18 basis points and the average
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cost of deposits and borrowings decreased by 17 basis points for the quarter as
compared to the same period in the prior year. As a result the average margin
decreased by 5 basis points to 2.97% from 3.02% for the three months ended
September 30, 1996 as compared to the same period in 1995.
PROVISION FOR LOSSES ON LOANS. No provision for losses on loans was made
for the three months ended September 30, 1996 nor in the same period in the
prior year. The provision and the level of the allowance are determined by
management with consideration to and analysis of specific loans in the
portfolio, known and inherent risk in the portfolio, estimated value of the
underlying collateral, assessment of general trends in the real estate market,
and current and prospective economic and regulatory conditions.
NONINTEREST INCOME. Primarily as a result of an increase in fees on
checking accounts, noninterest income increased by $28,000 for the three months
ended September 30, 1996 as compared to the same period in 1995. The increase in
checking account fees is the result of a 20% increase in the number of
outstanding checking accounts since June 30, 1996. The increase in the number of
accounts is attributable to active marketing efforts which began in June 1996,
and will be continued throughout the fiscal year.
NONINTEREST EXPENSE. Noninterest expense for the three months ended
September 30, 1996 was higher by $1,018,000 as compared to the same period in
the prior year. The increase was primarily the result of an $822,000 one time
before tax assessment by the FDIC on all thrift institutions to capitalize the
SAIF fund. Compensation and benefits were $79,000 higher for the three months
ended September 30, 1996 as compared to the same period in 1995 due to the
staffing of some positions which were vacant the previous year as well as the
increase in average hours worked by employees. Advertising and data processing
and automated teller service expenses were $106,000 higher in aggregate in the
current period as compared to the prior year due to the increase in the number
of checking accounts and the associated marketing and operating support for the
program to increase such accounts. During the current period an additional
$15,000 was expensed for closing the downtown office which occurred in May 1996.
We do not anticipate any additional costs relating to the closing of the
downtown branch in future periods.
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NONACCRUING LOANS, IMPAIRED LOANS AND FORECLOSED ASSETS. Nonaccruing
loans, impaired loans and foreclosed assets are summarized as follows:
September 30, June 30,
1996 1996
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(in thousands)
Loans accounted for on a
nonaccrual basis:
One to four family $ 80 $ 70
Multi-family -- --
Commercial -- --
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Total 80 70
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Past Due 90 Days and Still Accruing: -- --
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Total nonaccrual and 90 Days Past
Due and still accruing: 80 70
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Foreclosed Assets:
One to four Family -- --
Multi-family -- --
Commercial 200 200
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Total $ 200 $ 200
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Total nonaccrual loans and
foreclosed assets $ 280 $ 270
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Nonperforming loans and foreclosed assets,
as a percent of total assets 0.13% 0.13%
General Loan Loss Reserves $3,133 $3,138
Loans are placed on nonaccrual status when either principal or interest is
more than 90 days past due and is not expected to be collectible. Interest
accrued and unpaid at the time a loan is placed on nonaccrual status is charged
against interest income. Loans are considered impaired if the full collection of
contractual principal and interest payments is not considered to be probable.
One loan having a stated principal balance of $1.1 million is considered to be
impaired and a specific reserve of $552,000 has been established.
LIQUIDITY AND CAPITAL RESOURCES
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As a holding company, the Company conducts its business through its
subsidiary, the Bank. The principal sources of funds for the Bank are deposits,
proceeds from principal and interest payments on loans and mortgage-backed
securities and borrowings from the FHLB of Cincinnati.
As of September 30, 1996 the Bank had total outstanding advances from the
FHLB of $56.5 million. Advances are used by the Bank to provide additional
liquidity and as a tool to balance the interest rate sensitivity of the balance
sheet.
The principal uses of funds by the Bank includes the origination and
purchase of loans secured by real estate and the purchase of mortgage-backed
securities and investment securities.
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Under Federal regulations, the Bank is required to maintain minimum
tangible capital in an amount equal to 1.5% of adjusted total assets, core
capital equal to 3% of adjusted total assets, and risk based capital in an
amount equal to 8.0% of risk weighted assets. As of September 30, 1996 the Bank
was in compliance with all capital requirements, having tangible and core
capital of 10.4%, and risk based capital of 19.9%.
The Bank is also required by current OTS regulations to maintain specified
liquid assets of at least 5% of its net withdrawable accounts plus short-term
borrowings. At September 30, 1996 the Bank had 5.5% in regulatory liquidity.
Management believes that the liquidity levels maintained as well as the Bank's
borrowing capacity and the portfolio available for sale of securities are
adequate to meet potential deposit outflows, loan demand, and normal operations.
As of September 30, 1996 the Bank had outstanding commitments to originate and
purchase loans totaling $1.8 million and $3.1 million respectively.
STOCK REPURCHASE PLAN
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On February 16, 1996 the Company announced a second stock repurchase plan
with authority to repurchase an additional 75,000 shares beyond the 79,000
shares approved previously. The repurchased shares will be held as treasury
stock and will be available for issuance upon the exercise of outstanding stock
options and for other corporate purposes. The repurchase program will be
dependent upon market conditions and the availability of shares, and there is no
guarantee as to the exact number of shares to be repurchased by the Company.
Management believes that liquidity of the Company is adequate to meet the cash
requirements of the repurchase plan. As of September 30, 1996, the company had
purchased 106,778 shares of its own stock at an average cost of $16.98 per
share.
IMPACT OF INFLATION AND CHANGING PRICES
---------------------------------------
The consolidated financial statements and accompanying notes appearing
elsewhere herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Bank's operations.
Unlike most industrial companies, nearly all the assets and liabilities of
the Bank are monetary in nature. As a result, interest rates have a greater
impact on the Bank's performance than do the effects of the general level of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
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SUBURBAN BANCORPORATION, INC.
AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Not Applicable.
Item 2. Changes in Securities
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Not Applicable.
Item 3. Defaults Upon Senior Securities
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Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable.
Item 5. Other Information
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Not Applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits:
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K:
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SUBURBAN BANCORPORATION, INC.
Registrant
Date: November 12, 1996 Joseph F. Hutchison
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Joseph F. Hutchison
President and Chief
Executive Officer
(The Duly Authorized Representative)
Christopher L. Henn
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Christopher L. Henn
Vice President and Principal
Financial Officer
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