<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------- ----------------------
COMMISSION FILE NUMBER: 0-27124
NHS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0359326
(State of incorporation) (I.R.S. Employer Identification Number)
1050 Fourth Street
SAN RAFAEL, CALIFORNIA 94901
(Address of principal executive office (Zip Code)
Registrant's telephone number: (415) 257-3761
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Number of Shares of Common Stock Outstanding as of August 5, 1996: 2,522,827
<PAGE>
NHS FINANCIAL, INC.
FORM 10-Q
TABLE OF CONTENTS
Item
Number Description Page
- --------------------------------------------------------------------------
PART I.
1. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CONDITION
JUNE 30, 1996 AND DECEMBER 31, 1995. . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 . . . . 4
CONSOLIDATED STATEMENTS OF CASHFLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 . . . . . . . . . 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. . . . . . 6
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . 8
PART II.
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . .18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .19
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NHS FINANCIAL, INC.
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
JUNE 30, 1996 December 31, 1995
-------------------------------------
<S> <C> <C>
ASSETS
Cash, including non-interest bearing deposits $164,762 $169,202
Interest-bearing deposits 6,233,266 5,310,416
Mortgage-backed securities available for sale, at fair value 3,282,315 4,053,873
Investment securities held to maturity
(Fair value: 1996, $13,772,502; 1995, $11,025,888) 13,998,793 11,000,000
Mortgage-backed securities held to maturity
(Fair value: 1996, $7,804,791; 1995, $8,835,578) 7,868,320 8,829,881
Loans receivable, net of allowance for losses:
(1996, $3,603,899; 1995, $3,507,899) 245,186,644 257,040,178
Investment in Federal Home Loan Bank of San Francisco, at cost 2,330,000 2,212,500
Real estate owned 1,409,398 1,652,666
Accrued interest receivable:
Loans 1,664,746 1,740,432
Securities 337,258 223,926
Leasehold improvements and equipment, net 698,535 842,338
Other assets 1,017,350 1,170,944
- --------------------------------------------------------------------------------------------------
Total assets $284,191,387 $294,246,356
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $225,817,677 246,952,323
Advances from Federal Home Loan Bank of San Francisco (FHLBSF) 31,000,000 21,000,000
Other liabilities 2,340,735 2,063,389
- --------------------------------------------------------------------------------------------------
Total liabilities 259,158,412 $270,015,712
- --------------------------------------------------------------------------------------------------
Capital stock, no par value; authorized 5,000,000 shares;
issued and outstanding, 1996 and 1995: 2,522,827 shares 11,772,003 11,772,003
Unrealized loss on securities available for sale, net of tax (62,519) (27,220)
Retained earnings, substantially restricted 13,323,491 12,485,861
- --------------------------------------------------------------------------------------------------
Total stockholders' equity 25,032,975 24,230,644
- --------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $284,191,387 $294,246,356
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
NHS FINANCIAL, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $5,389,150 5,072,265 10,916,947 9,728,153
Mortgage-backed securities 176,173 227,555 366,715 463,697
Other investments 329,767 141,093 599,615 322,960
- ---------------------------------------------------------------------------------------------------------
5,895,090 5,440,913 11,883,277 10,514,810
- ---------------------------------------------------------------------------------------------------------
Interest Expense:
Customer deposits 2,980,551 3,485,782 6,110,238 6,403,188
Advances from the FHLBSF 441,968 184,393 892,622 465,235
- ---------------------------------------------------------------------------------------------------------
3,422,519 3,670,175 7,002,860 6,868,423
- ---------------------------------------------------------------------------------------------------------
Net interest income before provision
for loan losses 2,472,571 1,770,738 4,880,417 3,646,387
Provision for loan losses 150,000 1,361,600 290,000 1,361,600
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 2,322,571 409,138 4,590,417 2,284,787
- ---------------------------------------------------------------------------------------------------------
Non-interest income:
Gain on sale of real estate owned 85,900 - 232,322 1,068
Income from real estate owned 7,077 11,200 17,982 11,200
Loan and deposit fees 69,350 47,256 119,597 157,847
Other 8,233 12,278 11,902 34,830
- ---------------------------------------------------------------------------------------------------------
Total non-interest income 170,560 70,734 381,803 204,945
- ---------------------------------------------------------------------------------------------------------
Non-interest expense:
General and administrative expense:
Compensation and benefits 699,407 417,301 1,413,439 1,072,589
Deposit insurance and regulatory
assessments 178,306 142,192 357,167 284,380
Rent and occupancy 139,033 133,656 280,074 263,293
Professional fees 208,004 58,820 330,737 104,614
Depreciation and amortization 95,432 76,434 171,837 149,525
Information systems 37,431 65,222 79,789 118,925
Other 210,130 181,713 390,233 362,125
- ---------------------------------------------------------------------------------------------------------
Total general and administrative expense 1,567,743 1,075,338 3,023,276 2,355,451
Expenses of real estate owned 46,934 29,466 99,796 46,868
- ---------------------------------------------------------------------------------------------------------
Total non-interest expense 1,614,677 1,104,804 3,123,072 2,402,319
- ---------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 878,454 (624,932) 1,849,148 87,413
Income taxes expense (benefit) 406,854 (259,346) 809,692 36,277
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $471,600 (365,586) 1,039,456 51,136
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Earnings (loss) per share $0.19 (0.14) 0.41 0.02
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
NHS FINANCIAL, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
JUNE 30, 1996 June 30, 1995
-----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,039,456 $51,136
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Amortization of net deferred loan origination fees (416,547) (355,977)
Amortization of premiums and discounts on
mortgage-backed securities, net 34,238 41,458
Accretion of discounts on loans (43,303) (3,141)
Provision for loan losses 290,000 1,361,600
Net gain on sale of real estate owned (232,322) (1,068)
Loss on retirement of fixed assets - 16,892
Depreciation and amortization of fixed assets 171,837 149,525
FHLBSF stock dividends (59,700) (56,000)
Increase in accrued interest receivable (37,646) (270,483)
(Increase)/decrease in other assets (87,396) 66,367
Decrease/(increase) in income tax receivable, net 260,220 (368,723)
Increase in other liabilities 277,346 891,744
-----------------------------------
Net cash provided by operating activities 1,196,183 1,523,330
-----------------------------------
Cash flows from investing activities:
Net decrease/(increase) in loans resulting from originations,
net of principal collections 10,621,648 (12,730,824)
Loans purchased - (7,257,245)
Purchases of leasehold improvements and equipment (23,155) (283,768)
(Purchases)/redemption of FHLBSF stock (57,800) 145,300
Maturity or calls of securities held to maturity 10,000,000 -
Purchase of securities held to maturity (12,998,750) -
Principal repayments on securities held to maturity 923,548 535,902
Principal repayments on securities available for sale 715,882 528,226
Proceeds from sale of real estate owned 1,877,326 1,029,558
-----------------------------------
Net cash provided by (used in) investing activities 11,058,699 (18,032,851)
-----------------------------------
Cash flows from financing activities:
Net (decrease)/increase in customer deposits (21,134,646) 35,334,455
Proceeds from FHLBSF advances 15,000,000 3,700,000
Repayments of FHLBSF advances (5,000,000) (14,700,000)
Cash dividends (201,826) (201,826)
-----------------------------------
Net cash (used in) provided by financing activities (11,336,472) 24,132,629
-----------------------------------
Net increase in cash and cash equivalents 918,410 7,623,108
Cash and cash equivalents at the beginning of period 5,479,618 3,211,334
-----------------------------------
Cash and cash equivalents at the end of period $6,398,028 $10,834,442
-----------------------------------
-----------------------------------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $7,199,166 $6,831,917
-----------------------------------
-----------------------------------
Income taxes, net of refunds $770,000 $405,000
-----------------------------------
-----------------------------------
Supplemental disclosure of noncash investment and
financing activities:
Transfer of loans to real estate owned $1,401,736 $492,248
-----------------------------------
-----------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
NHS FINANCIAL, INC.
Notes to the Consolidated Financial Statements
(1) BASIS OF PRESENTATION
The financial statements of the Company presented above reflect all adjustments
consisting of normal recurring accruals which are, in the opinion of management,
necessary to present a fair statement of the financial condition and results of
operations for the interim periods presented. The accompanying unaudited
financial statements have been prepared in accordance with the instructions to
Form 10-Q and therefore do not include all information and footnotes necessary
for a fair presentation of financial condition, results of operations and cash
flows in accordance with generally accepted accounting principles. Therefore,
these financial statements should be read in conjunction with the Company's 1995
Annual Report on Form 10-K which contains the latest audited financial
statements and notes thereto.
Certain of the 1995 financial statement amounts have been reclassified to
conform to the 1996 presentation.
(2) EARNINGS PER SHARE
Weighted average shares used for calculation of earnings per share for the three
months and six months ended June 30, 1996 and 1995 were 2,522,827 shares.
Earnings per share for the first half of 1995 has been adjusted to give
retroactive effect to a 15% stock dividend paid on February 10, 1995.
The Company has not separately reported its fully diluted earnings per share
(which includes outstanding stock options as common stock equivalents) as it is
not materially different than primary earnings per share.
(3) DIVIDEND DECLARATION
The Company declared a quarterly dividend on June 18, 1996 of $0.04 per share
payable July 15, 1996. The dividend totaling $100,913 was reflected as a
reduction of retained earnings in the accompanying Statement of Financial
Condition.
This dividend represents the tenth consecutive quarterly cash dividend declared
since its first such dividend in the third quarter of 1993 and reflects the
Company's commitment to enhancing shareholder value.
(4) CAPITAL
In 1989, the Financial Institutions Reform, Recovery, and Enforcement Act
(FIRREA) stipulated the requirement that insured savings institutions meet three
separate capital requirements. Those requirements are to have tangible capital
of 1.5% of adjusted total assets, core capital of 3% of adjusted total assets
and risk-based capital equal to 8.0% of risk-weighted assets.
In response to the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA), the Office of Thrift Supervision (OTS) adopted final rules, effective
December 19, 1992, based upon FDICIA's five capital tiers: well capitalized,
adequately capitalized, under capitalized, significantly undercapitalized, and
critically undercapitalized. The rules provide that a savings institution is
"well capitalized" if its total risk-based capital ratio is 10% or greater, its
tier 1 risk-based capital ratio is 6% or greater and its leverage ratio is 5% or
greater.
(Continued)
6
<PAGE>
NHS FINANCIAL, INC.
Notes to Consolidated Financial Statements (Continued)
At June 30, 1996, the Association's regulatory capital substantially exceeds the
requirements of each regulatory capital standard and the Association is
considered "well capitalized" at that date. Table One provides a comparison of
the Association's regulatory capital to its minimum requirement at June 30,
1996.
TABLE ONE
<TABLE>
<CAPTION>
Minimum Excess over
(Dollars in thousands) Actual at June 30, 1996 Requirement Requirement
------------------------- ---------------------- ------------------------
Capital Ratio Capital Ratio Capital Ratio
------------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
FIRREA Capital Standards:
Tangible $24,409 8.59% $4,263 1.50% $20,146 7.09%
Core (leverage) 24,409 8.59% 8,527 3.00% 15,882 5.59%
Risk-based 26,652 14.97% 14,244 8.00% 12,408 6.97%
FDICIA Capital Standards (Well Capitalized):
Core (leverage) 24,409 8.59% 14,212 5.00% 10,197 3.59%
Tier 1 risk-based 24,409 13.71% 10,683 6.00% 13,726 7.71%
Total risk-based 26,652 14.97% 17,805 10.00% 8,847 4.97%
</TABLE>
(5) PROPOSED MERGER WITH LUTHER BURBANK CORPORATION
As previously announced, NHS Financial, Inc. has agreed to be acquired by Luther
Burbank Corporation, the holding company for Luther Burbank Savings. Luther
Burbank, which is headquartered in Santa Rosa, California, is a privately held
company. Both corporations have signed a definitive agreement to merge, through
which the acquisition will be completed. Under the terms of the agreement,
Luther Burbank will pay a total cash consideration of approximately $29.7
million, or $11.50 per share to the shareholders of NHS Financial.
The proposed merger, which is subject to approval by the shareholders of both
corporations as well as the Office of Thrift Supervision and the California
Department of Savings and Loan, is estimated to close at the end of the third
quarter of 1996. In connection with the merger, NHS Financial has granted
Luther Burbank an option to purchase newly issued shares, giving Luther Burbank
19.9% ownership of NHS Financial. This option would be triggered should NHS
Financial accept an offer to be acquired at a higher price.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
NHS Financial, Inc. (the "Company"), a California Corporation, is the holding
company for New Horizons Savings and Loan Association (Association). The
principal business of the Company is to attract deposits from the general public
and invest those funds in residential, construction and, to a lesser extent,
commercial real estate loans. The Company's geographical area for attracting
deposits and making real estate loans is the San Francisco Bay Area,
concentrating in Marin and Sonoma counties, and the City and County of San
Francisco. The Company conducts its business in three facilities in Marin
County; one located in San Rafael, California, another in Mill Valley,
California and the third in Novato, California.
The Company's operations are significantly influenced by general economic
conditions, the regional real estate market and by related monetary, fiscal and
regulatory policies of the federal government. Deposit flows and cost of funds
are influenced by interest rates on competing investments and general market
rates of interest. Lending activities are affected by the demand for mortgage
financing and the types of loans the Company offers, which in turn are affected
by the interest rates at which such financing may be offered and other factors
affecting the supply of housing and availability of funds.
The Company engages primarily in real estate lending for its own portfolio,
specializing in short-term fixed rate and longer term adjustable rate real
estate loans. The Company attracts and maintains deposit funds by offering
competitive interest rates and emphasizing customer service. The Company also
uses Federal Home Loan Bank of San Francisco (FHLBSF) advances and occasionally
other short term borrowings, such as reverse repurchase agreements (reverse
repos), as a supplementary source of funds.
Table Two provides a summary of key operating statistics at or for the three
months and six months ending June 30, 1996 and June 30, 1995.
TABLE TWO
<TABLE>
<CAPTION>
At Or For The At Or For The
SUMMARY OF KEY STATISTICS Three Months Ended Six Months Ended
(in thousands, except per share data) June 30, June 30, June 30, June 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest margin on earning assets:
For period 3.48% 2.53% 3.41% 2.65%
At period end 3.43% 2.69% 3.43% 2.69%
Ratio of G & A expenses to average assets 2.18% 1.50% 2.09% 1.68%
Return on average assets 0.66% (0.51)% 0.72% 0.04%
Return on average equity 7.59% (5.93)% 8.42% 0.42%
Average equity to average assets 8.65% 8.59% 8.51% 8.71%
Dividend payout ratio 21.40% N.M. 19.42% N.M.
Stockholders' equity per share $9.92 $9.55
Regulatory Capital (the Association):
Tangible 8.59% 8.30%
Core (leverage) 8.59% 8.30%
Risk-based 14.97% 12.56%
Ratio of nonperforming assets to total assets 1.44% 1.14%
General Valuation Allowances to:
Gross loans 1.38% 1.15%
Nonperforming loans 134.49% 124.77%
</TABLE>
N.M. = Not meaningful
The discussion that follows focuses on the components of the Company's
financial condition, results of operations, liquidity and regulatory
matters for the three and six months ended June 30, 1996.
8
<PAGE>
FINANCIAL CONDITION
CASH AND INVESTMENTS
Income from investments provides the second largest source of income for the
Company, after interest income on loans. The Company is required by federal
regulation to maintain a specified minimum amount of liquid assets which may be
invested in specific short term securities. It is the Company's policy to
maintain a liquidity portfolio which exceeds regulatory minimum requirements.
The Company's cash and investment portfolio consists, from time to time, of
mortgage-backed securities, callable U.S. government agency notes, certificates
of deposit and overnight investments with the FHLBSF. Cash and investments at
June 30, 1996 amounted to $31.5 million compared with $29.4 million at December
31, 1995. The Company utilizes its investment portfolio to effectively invest
periodic excess cash flows in interest earning assets, to enhance net interest
income and margin and to meet regulatory liquidity requirements.
LOAN PORTFOLIO
The Company's principal investment activity has been and continues to be the
origination of real estate loans. The Company's lending activities consist
primarily of making loans secured by first or second liens on residential and
other real estate. These loans are made in connection with purchases,
refinancing, construction or improvement of property located principally in the
San Francisco Bay Area, concentrating in Marin, Sonoma and San Francisco
Counties. Historically, the Company has relied upon its ability to provide
customized loans for homes and for home construction. The economy of the Bay
Area counties is varied and includes manufacturing, technology, services and
agricultural industries, providing a balanced deposit and mortgage lending
market. The Company's loans are primarily obtained through a selected group of
independent loan brokers. Loan applications are also obtained from existing
customers and other individuals. The Company has no foreign or out of state
loans in its portfolio.
The Company principally originates adjustable rate mortgages (ARMs) which re-
price at six month intervals in accordance with the FHLBSF's 11th District Cost
of Funds Index (COFI). Fixed rate real estate loans are generally made with
terms of 5 years or less. Shorter fixed rate loans include construction, swing,
and land loans and generally carry terms of 12 to 18 months. As of June 30,
1996 and December 31, 1995, approximately 86% of the Company's portfolio
consisted of ARMs. By concentrating on ARMs, as well as short-term construction
and fixed rate loans with average maturities of twelve months, the Company
believes that it can better manage the sensitivity of its earnings to market
interest rate fluctuations.
New loan originations and loan participations purchased for the first half of
1996 were $21.9 million, a decrease of $8.8 million from $30.7 million for the
same period in 1995. In the first quarter of 1995, the Company also purchased
$7.3 million of loans from local lenders. Occasional purchases of loans and
loan participations from local lenders are utilized to assist the Company in
meeting its asset/liability objectives.
Loan originations for the first half 1996 were below those for the 1995 period
reflecting the slow real estate market, increased competition and borrower
preference during much of the 1996 period for fixed rate loans. The Company's
future levels of loan originations and portfolio growth will depend on the pace
of recovery of the Northern California real estate market, the extent of
competition for loans in the Company's geographical market, borrower preference
for fixed or ARM loans and the relationship of loan payoffs to borrower
refinancing opportunities.
9
<PAGE>
Table Three below is a summary of the Company's gross loan portfolio (before
deductions for construction loans in process, deferred loan fees and allowance
for loan losses) at June 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
TABLE THREE
(Dollars in thousands) June 30, 1996 December 31, 1995
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Mortgage loans:
One-to-four family $ 144,613 55.21% $ 157,301 57.21%
Multi-family 43,456 16.59% 43,184 15.71%
Construction 32,895 12.56% 29,722 10.81%
Commercial 36,995 14.12% 39,586 14.40%
Land 3,661 1.40% 4,812 1.75%
--------- -------- --------- --------
261,620 99.88% 274,605 99.88%
Loans secured by savings accounts 309 0.12% 337 0.12%
--------- -------- --------- --------
$ 261,929 100.00% $ 274,942 100.00%
--------- -------- --------- --------
--------- -------- --------- --------
Weighted average interest rate 8.23% 8.23%
--------- ---------
--------- ---------
</TABLE>
The above weighted average interest rates for loans receivable represent the
contractual interest rates on the underlying mortgage loans. If amortization of
deferred loan origination fees and loan discounts is factored into the average
interest rate calculation, the resulting loan yields would be 8.56% at both June
30, 1996 and December 31, 1995.
ASSET QUALITY
DELINQUENT LOANS. When a borrower fails to make required payments on a loan
within 30 days of the due date, the loan is considered contractually
delinquent. Table Four below shows the amount of loan delinquencies by loan
type at June 30, 1996 and December 31, 1995.
TABLE FOUR
<TABLE>
<CAPTION>
Number of Days Delinquent
--------------------------------------------------------------------------------
(Dollars in thousands) 30-59 60-89 90 or more Total
--------------------------------------------------------------------------------
6/30/96 12/31/95 6/30/96 12/31/95 6/30/96 12/31/95 6/30/96 12/31/95
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family $ 3,194 6,761 553 1,747 1,810 2,385 5,557 10,893
Multi-family 260 262 866 867 - - 1,126 1,129
Construction and land 62 728 - 204 870 1,624 932 2,556
Commercial real estate 876 1,722 604 609 - - 1,480 2,331
--------------------------------------------------------------------------------
Total $ 4,392 9,473 2,023 3,427 2,680 4,009 9,095 16,909
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Delinquencies to Gross Loans 1.68% 3.45% 0.77% 1.25% 1.02% 1.46% 3.47% 6.15%
</TABLE>
The 46% decline in delinquent loans at June 30, 1996 from year-end 1995 resulted
from focused efforts by the Company to increase the rate of collection on
delinquent loans, resolve problem loans and to speed-up foreclosure of
nonperforming loans.
NONACCRUAL LOANS. It is the Company's policy to put loans that are
contractually delinquent 90 days or more on non-accrual status. Management
reviews other loans less than 90 days contractually delinquent. When the
collection of interest and principal payments on a loan appears unlikely the
loan is placed on non-accrual status. Accrued interest income deemed
uncollectible is reversed. Income is subsequently recognized only to the extent
cash payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments is in accordance with
the loan terms, at which time the loan is returned to accrual status.
10
<PAGE>
IMPAIRED LOANS. Management periodically reviews specific loans on an individual
basis. The Company considers a loan to be impaired when, based upon the
evaluation of the credit worthiness, cash flows and financial condition of the
borrower, and the condition and appraised value of the collateral, it is
unlikely that the Company will be able to collect all the principal and interest
due under the contractual terms of the loan. The Company provides, through a
charge to income, for estimated losses on impaired loans when fair value,
including consideration of potential holding and disposition costs, exceeds the
carrying value of the loan.
REAL ESTATE OWNED. Real estate acquired through foreclosure is recorded at
estimated fair value (including consideration of costs of holding and
disposition) at the time of foreclosure. Valuations are periodically performed
and related adjustments, if any, are made as a charge to income when the
carrying value exceeds fair value. At June 30, 1996, the Company's real estate
owned (REO) portfolio had an aggregate fair value of $1.4 million and consisted
of three residential properties, two parcels of land, and one commercial
property. At December 31, 1995, the Company's real estate owned portfolio had
an aggregate fair value of $1.7 million and consisted of four residential
properties, two parcels of land, and one multi-family and commercial mixed use
property. During the first half of 1996, the Company foreclosed on and
transferred to REO $1.4 million of loans and sold REO properties with a carrying
value of $1.6 million. A gain on sale of REO of $232,000 was recorded.
The following Table Five sets forth information with respect to the Company's
nonperforming assets at June 30, 1996 and December 31, 1995.
TABLE FIVE
(Dollars in thousands) June 30, 1996 December 31, 1995
------------- -----------------
Percentage Percentage
Book of Book of
Value Total Assets Value Total Assets
------- ------------ ------ ------------
Nonaccrual loans:
One-to-four family $ 1,920 0.68% $ 2,436 0.83%
Construction and land 1,452 0.51% 2,206 0.75%
------- ------------ ------ ------------
3,372 1.19% 4,642 1.58%
Real estate acquired by foreclosure:
One-to-four family 1,150 0.40% 984 0.33%
Multi-family - - 607 0.21%
Commercial 197 0.07% - -
Land 62 0.02% 62 0.02%
------- ------------ ------ ------------
1,409 0.49% 1,653 0.56%
Charge-offs of nonaccrual loans (692) -0.24% (633) -0.22%
------- ------------ ------ ------------
Net nonperforming assets $ 4,089 1.44% $ 5,662 1.92%
------- ------------ ------ ------------
------- ------------ ------ ------------
Table Six below sets forth the relationship of the Company's General Valuation
Allowances (GVA) to gross loans and nonperforming loans and assets at June 30,
1996 and December 31, 1995.
TABLE SIX
June 30, 1996 December 31,
1995
--------------------------------
Ratios of:
GVA / nonperforming assets 88.13% 61.96%
GVA / gross loans 1.38% 1.28%
GVA / nonperforming loans 134.49% 87.50%
TROUBLE DEBT RESTRUCTURINGS. As of June 30, 1996, the Company had three
mortgage loans for which certain concessions were granted to the borrowers in
light of their financial difficulties. Such concessions include the extension
of maturity dates and the lowering of interest rates or payments. No reductions
in the principal amount of the loans have been granted. The objective of these
modifications in terms (i.e., troubled debt restructurings) is to maximize the
recovery of the Company's investment. The principal balance of the three loans
falling under the definition of troubled debt restructurings amounted to $2.4
million at June 30, 1996, and $3.9 million at December 31, 1995. All such loans
were current according to their modified terms.
11
<PAGE>
ASSET CLASSIFICATION SYSTEM
Under federal regulations, each insured institution is required to classify its
assets on a regular basis. In addition, in connection with examinations of
insured institutions, OTS examiners have authority to identify problem assets
and, if appropriate, direct the Company to classify them. Under the
regulations, assets are subject to evaluation under a classification system with
three categories: substandard, doubtful and loss. The regulations have also
created a special mention category. This category includes assets which do not
currently expose an insured institution to a sufficient degree of risk to
warrant classification, but do possess credit deficiencies or potential
weaknesses deserving management's close attention. At June 30, 1996, the
percentage of classified assets to total assets was 6.62% ($18.8 million)
compared with 6.38% ($18.8 million) at December 31, 1995. At June 30, 1996 and
December 31, 1995, there were no assets classified as doubtful or loss.
VALUATION ALLOWANCES
The Company maintains an overall loan loss reserve to cover estimated potential
losses in the portfolio. This GVA is provided through periodic charges to
income and is determined based upon management's analysis. This analysis
incorporates a number of factors including current economic considerations and
the level of classified and nonperforming loans, management's assessment of
credit risk inherent in its portfolio, past loss experience, and the Company's
underwriting practices.
The provision for loan losses for the six months ended June 30, 1996 was
$290,000. The provision for loan loss during the second quarter and first half
of 1995 was $1.4 million. This provision was recorded as a result of a re-
evaluation of the Company's general and specific loan loss allowances in
relation to the portfolio as a whole and the identification of specific loans
that were performing but with certain credit weaknesses.
The following Table Seven sets forth an analysis of the Company's allowance for
loan and real estate losses for the six months ending June 30, 1996 and 1995.
TABLE SEVEN
(Dollars in thousands) 1996 1995
--------------------------
Loan loss allowance at beginning of year $ 3,508 3,412
Provision for loan losses 290 1,362
Charge offs, net of recoveries (194) 148
--------------------------
Loan loss allowance at June 30 $ 3,604 4,922
--------------------------
--------------------------
Loan loss allowance at June 30:
General valuation allowance (GVA) $ 3,604 3,200
Specific valuation allowances $ - 1,722
--------------------------
$ 3,604 4,922
--------------------------
--------------------------
During the third quarter of 1995, the Company adopted the direct charge-off
method of accounting for non-performing loans, as well as for performing loans
considered by management to be impaired, and accordingly, specific valuation
allowances at June 30, 1995 of $1.7 million were charged-off by the Company. At
December 31, 1995 and June 30, 1996, no specific valuation allowances were
outstanding. This change in procedure did not effect current loss provisions
and will not alter provisions for general loan losses in future periods.
Management considers its allowance for losses to be adequate to cover losses
from loan and REO assets. However, future adjustments may be necessary and
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making such determinations. In addition, various
regulatory agencies review the Company's allowances for losses as a part of
their examination process. Such agencies may require the Company to recognize
additions to this allowance based on their judgment relating to information
available to them at the time of their examination.
12
<PAGE>
CUSTOMER DEPOSITS, FHLBSF ADVANCES AND OTHER BORROWINGS
Deposits are the major source of the Company's funds for lending and other
investment purposes. The Company obtains deposits primarily through its retail
branches and offers a broad selection of deposit instruments including NOW
accounts, money market accounts, regular savings accounts, checking accounts,
certificates of deposit and retirement savings plans. While the deregulation of
insured deposits has allowed the Company to be more competitive in obtaining
funds and given it more flexibility to meet the threat of net deposit outflows,
it has also resulted in a more volatile cost of funds. The Company's interest
rates paid on deposits are not determined by regulatory authorities but rather
by prevailing market conditions.
The Company regularly evaluates its internal cost of funds, measures its cost of
deposits against the costs of alternative sources of funds, surveys deposit
rates offered by competing institutions, reviews liquidity and executes rate
changes when deemed appropriate. The Company's primary strategy for attracting
and retaining deposits is to emphasize customer service and personal attention,
and to pay competitive interest rates on deposits.
During the first half of 1996, customer deposits decreased $21.1 million from
balances at December 31, 1995. The decrease was primarily the result of a
reduction in deposit rates the Company offered combined with the maturity and
repricing of approximately $107 million of relatively high cost certificates of
deposit during the first quarter of 1996. Approximately $53 million of these
maturing deposits represented deposits obtained during the first quarter of 1995
as a result of a one-time marketing program which promoted certificates of
deposit by offering attractive rates and other terms.
The following Table Eight summarizes customer deposits at June 30, 1996 and
December 31, 1995:
TABLE EIGHT
(Dollars in thousands) 6/30/96 12/31/95
-------------------------
Customer Deposits:
Transaction and Money Market Accounts $ 36,679 $ 32,232
Certificates of Deposit:
$100,000 and over 55,230 67,620
Under $100,000 133,909 147,100
-------------------------
$ 225,818 $ 246,952
-------------------------
-------------------------
Weighted Average Interest Rate 5.23% 5.84%
-------------------------
-------------------------
The Company may rely upon advances from the FHLBSF to supplement its supply of
funds for lending and investment purposes. Advances may also be used to fund
large deposit withdrawals. Advances from the FHLBSF are typically secured by
the Company's stock in the FHLBSF and by pledges of certain real estate loans
and securities. The Company had pledged loans and securities with outstanding
principal balances of $92.0 million at June 30, 1996.
At June 30, 1996, FHLBSF advances and other borrowings amounted to $31.0 million
compared to $21.0 million at December 31, 1995. The Company had no other
borrowings at June 30, 1996 and December 31, 1995. The increases in FHLBSF
advances were used to replace maturing higher costing deposits and to obtain
specific maturities of liabilities as determined by the Company's
asset/liability analysis, and to assist in reducing the Company's overall cost
of funds. The weighted average interest rate on borrowings at June 30, 1996
and December 31, 1995 were 5.51% and 5.46%, respectively.
13
<PAGE>
RESULTS OF OPERATIONS
GENERAL
The Company earned $471,600 or $.19 per share for the second quarter ended June
30, 1996 compared with a loss of $365,586 or $.14 per share for the like
quarter a year ago. First half 1996 earnings were $1.0 million or $.41 per share
compared with $51,000 or $.02 per share for the same period in 1995. The
increase in operating results for both periods in 1996 over 1995 resulted from
greatly improved interest margins and a substantial reduction in loan loss
provisions as discussed below.
INTEREST RATE SPREAD AND MARGIN
The following Table Nine sets forth the average interest-earning assets and
interest-bearing liabilities, interest income and expense and the average annual
interest rates during the six months ended June 30, 1996 and 1995.
TABLE NINE
<TABLE>
<CAPTION>
Six Months Ended 6/30/96 Six Months Ended 6/30/95
------------------------------------ ----------------------------------
(Dollars in thousands) Average Yield/ Average Yield/
Balance (3) Interest Rate Balance (3) Interest Rate
----------- -------- ------ ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) (2) $ 252,300 $ 10,917 8.64% $ 249,415 $ 9,728 7.80%
Mortgage-backed securities 12,035 367 6.09% 14,987 464 6.19%
Other interest-earning assets 21,500 599 5.57% 11,000 323 5.87%
----------- -------- ------ ----------- -------- ------
Total interest-earning assets 285,835 11,883 8.31% 275,402 10,515 7.64%
-------- ------ -------- ------
Non-earning assets 4,167 5,705
----------- ----------
Total average assets $ 290,002 $ 281,107
----------- ----------
----------- ----------
Interest-bearing liabilities:
Customer deposits 229,220 6,110 5.33% 236,387 6,403 5.42%
FHLBSF advances 32,852 893 5.43% 17,467 465 5.33%
Other borrowings - - - % - - - %
----------- -------- ------ ----------- -------- ------
Total interest-bearing liabilities 262,072 7,003 5.35% 253,854 6,868 5.41%
-------- ------ -------- ------
Non-interest bearing liabilities 3,243 2,763
Stockholders' equity 24,687 24,490
----------- ----------
Average liabilities and equity $ 290,002 $ 281,107
----------- ----------
----------- ----------
Net interest income and spread $ 4,880 2.96% $ 3,647 2.23%
-------- ------ -------- ------
-------- ------ -------- ------
Net margin on interest-earning assets (4) 3.41% 2.65%
------ ------
------ ------
</TABLE>
(1) Average loans exclude nonaccrual loans and are before allowances for loan
losses, loans in process and deferred loan origination fees.
(2) Loan interest income includes the amortization of deferred loan origination
fees (in thousands) of $460 and $359 in 1996 and 1995, respectively.
(3) Average balances for 1996 are daily average balances; for 1995, average
balances are computed from month-end balances.
(4) Net interest margin is computed as net interest income divided by interest-
earning assets.
14
<PAGE>
NET INTEREST INCOME
The Company's net interest income is determined by both its interest rate spread
and net interest margin. Interest rate spread is the difference between the
yields earned on interest-earning assets and the rates paid on deposits and
borrowings. Margin is interest rate spread adjusted for the excess of interest-
earning assets over interest-costing liabilities. The Company's interest rate
spread and margin are influenced by changes in market interest rates as, for the
reasons discussed below, the Company's liabilities tend to respond to interest
rate movements more rapidly than its assets.
At June 30, 1996, 86% of the Company's gross loan portfolio consists of ARM
loans which are tied to the Cost of Funds Index (COFI) with rates that adjust
semi-annually. Because of this semi-annual repricing factor and the lag between
the monthly change in COFI and the related change in the Company's ARM loans
indexed to COFI, the time between a change in COFI and an adjustment to the rate
on ARM loans can range from three to six months. Thus, in times of rapidly
rising interest rates, the repricing of the ARM loans will adversely lag upward
movements in the Company's cost of funds. Conversely, in a significant falling
rate environment, ARM loan repricing and interest income will favorably lag the
decrease in the Company's cost of funds.
Net interest income for the second quarter of 1996 was $2.5 million compared
with $1.8 million for the 1995 second quarter. Net interest income for the first
half of 1996 was $4.9 million compared with $3.6 million for the same period in
1995. Most of the increase in net interest income for 1996 over 1995 for each
period resulted from favorable changes primarily in the yields on interest-
earning assets and, secondarily in the interest rate cost of deposits and
borrowings. The effect on net interest income of the net change in balances of
average interest earning assets and average interest costing liabilities was
minor.
Market interest rates rose rapidly during the second half of 1994 and peaked
during the first quarter of 1995 and moderately declined throughout the rest of
1995. Through the process discussed above, the Company's cost of funds markedly
increased during the first half of 1995 compared with much slower increases in
the yields on its loan portfolio. In addition, the Company introduced a
marketing program for certificates of deposit which increased certificates of
deposit by $35 million during the first quarter of 1995. Accordingly, the
Company's net interest margin dropped to 2.53% and 2.65% for the second quarter
and first half, respectively, of 1995 from the margin at year end 1994 of 3.15%,
thereby lowering net interest income for the 1995 periods.
During the second quarter and first half of 1996, the yields on the Company's
loan portfolio were higher than those for the 1995 periods, reflecting the
lagging increases in the COFI index that occurred during 1995. This factor was
principally responsible for increasing net interest income for the 1996 periods
compared with the 1995 periods. The decline in market interest rates during much
of 1995 and the first quarter of 1996, lowered the Company's cost of funds for
1996. In addition, during January 1996, $82.6 million of relatively higher cost
term deposits matured. At January 31, 1996, the Company's cost of funds dropped
to 5.39% from 5.81% at year end 1995 and its net interest margin increased to
3.33% from 2.90%.
INTEREST INCOME
Interest income on loans for the second quarter and first half of 1996, compared
with the same periods in 1995, increased $317,000 and $1.2 million,
respectively. Most of these increases in loan interest income arose from upward
repricing adjustments to the Company's ARM loans subsequent to June 30, 1995, as
discussed above. Interest income from securities investments for the 1996
periods increased $137,000 and $180,000, respectively, from the comparable 1995
periods. These increases resulted from higher levels of securities investments
in 1996 over 1995.
INTEREST EXPENSE
Interest expense on deposits for the second quarter and first half of 1996,
compared with the same periods in 1995, decreased $505,000 and $293,000,
respectively. These declines resulted from lower amounts of deposits during the
1996 periods combined with the decrease in interest rates on the Company's
deposit portfolio that occurred during the first half of 1996, as discussed
above. The lower amounts of deposits during the 1996 periods were replaced with
greater borrowings from the FHLBSF thereby increasing interest expense on
borrowings in 1996 over 1995.
15
<PAGE>
Table Ten below shows the extent to which changes in interest rates and changes
in volume of interest-earning assets and interest-bearing liabilities have
affected the Company's net interest income for the three months ended June 30,
1996 compared with the same period in 1995, and the six months ended June 30,
1996 compared with the same period in 1995.
TABLE TEN
<TABLE>
<CAPTION>
Second Quarter 1996 and 1995 First Half 1996 and 1995
Variance (1) Variance (1)
----------------------------- ---------------------------
(Dollars in thousands) Volume Rate Total Volume Rate Total
--------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans receivable $ (106) 423 317 $ 125 1,064 1,189
Mortgage-backed securities (49) (3) (52) (90) (7) (97)
Other interest-earning assets 164 25 189 279 (2) 277
----------------------------- --------------------------
Total Interest Income 9 445 454 314 1,055 1,369
----------------------------- --------------------------
Interest Expense:
Customer deposits (253) (252) (505) (192) (101) (293)
FHLBSF advances 249 8 257 418 10 428
----------------------------- --------------------------
Total Interest Expense (4) (244) (248) 226 (91) 135
----------------------------- --------------------------
Net Interest Income $ 13 689 702 $ 88 1,146 1,234
----------------------------- --------------------------
----------------------------- --------------------------
</TABLE>
(1) The changes have been computed as follows: average balance changes - change
in volume holding initial rate constant; average rate changes - change in
average rate holding the initial balance constant; changes attributable to both
volume and rate have been allocated proportionately.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months and six months ended June 30,
1996 was $150,000 and $290,000, respectively, compared with $1.4 million for the
same periods in 1995. See discussion under VALUATION ALLOWANCES above.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Non-interest income and non-interest expense by major categories are shown in
the Consolidated Statements of Operations for the three months and six months
ended June 30, 1996 and 1995.
Non-interest income was $171,000 and $71,000 for the three months ended June 30,
1996 and 1995, respectively, and $382,000 and $205,000 for the six months ended
June 30, 1996, respectively. The greater amounts of non-interest income in the
1996 periods resulted from gains on sale of REO of $86,000 and $232,000,
respectively, in 1996 compared with minimal gains in the 1995 periods. See
discussion under ASSET QUALITY above. Loans and deposit fees for the first half
of 1995 included deposit withdrawal penalties of $90,000 compared with $16,000
for the same 1996 period. Relatively higher market interest rates and a one-time
certificate of deposit program in effect during the first quarter of 1995
resulted in certain depositors withdrawing their certificates prior to maturity.
Non-interest expense includes general and administrative expenses (G&A) and
expenses of real estate owned. G&A expenses for the three and six months ended
June 30, 1996 were $1.6 million and $3.0 million, respectively, compared with
$1.1 million and $2.4 million, respectively, for the same periods in 1995. The
Company's G&A ratio to average assets for the three months and six months ended
June 30, 1996 were 2.18% and 2.09%, respectively, compared with 1.50% and 1.68%,
respectively, for the same periods in 1995. The increases in 1996 expenses over
1995 expenses primarily resulted from the following:
16
<PAGE>
- - Compensation and benefits increased $282,000 (68%) for the second quarter
of 1996 and $341,000 (32%) for the first half of 1996 compared with
compensation and benefits expenses for the same periods in 1995. During the
second quarter of 1995, benefits expense was reduced $116,000 by the
reversal of a prior year profit sharing plan accrual. The remaining portion
of the 1996 over 1995 increases in compensation and benefits, $166,000 and
$225,000, respectively, mainly reflected the cost of additions to staff
relating to the planning, loan service, loan credit review and asset
evaluation processes.
- - Deposit insurance and regulatory assessments increased $36,000 (25%) and
$73,000 (26%) for the second quarter and first half of 1996 over
assessments for the same periods in 1995. These increases resulted from
higher deposit balances during the third and fourth quarters of 1995 and a
13% increase in the Company's deposit insurance assessment rate, effective
January 1, 1996. Deposit assessments for any quarter are based on average
deposit balances for the prior two quarters.
- - Professional fees increased to $208,000 and $331,000 for the second quarter
and first half 1996 periods, respectively, compared with $50,000 and
$105,000 for the second quarter and first half of 1995. Professional fees
for the second quarter of 1996 includes $102,000 of legal and other costs
relating to the proposed merger with Luther Burbank Corporation (see Note 5
of Notes to Consolidated Financial Statements). In addition, during the
1996 periods the Company expended greater amounts for professional services
to assist in enhancing the loan credit review process and in resolving or
disposing of problem loans and real estate owned.
INCOME TAX EXPENSE
The ratio of income tax expense to pre-tax income is 46.3% and 43.8% for the
second quarter and first half of 1996, compared with the Company's normal ratio
of 41.5%. The higher 1996 ratios reflect the nondeductibility for tax purposes
of the $102,000 of merger-related costs which are discussed above.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's primary sources of funds include loan and securities repayment,
deposit generation,, advances from the Federal Home Loan Bank of San Francisco,
and cash flows generated from operations. The Company uses its liquidity
resources principally to fund mortgage loans, repay maturing borrowings, fund
maturing time deposit and savings withdrawals and provide for its foreseeable
short and long-term needs. The Company expects to be able to fund or refinance,
on a timely basis, its commitments and long-term liabilities.
Office of Thrift Supervision regulations require savings institutions to
maintain a specified liquidity ratio (presently 5%) of cash and specified
securities to customer deposits and borrowings due in one year or less. The
Company continues to be in compliance with the liquidity regulation. Liquidity
ratios at June 30, 1996 and December 31, 1995 were 8.52% and 8.38%,
respectively.
CAPITAL
The Company continues to meet and exceed all regulatory capital tests at June
30, 1996 and is deemed well-capitalized. See Note 4 of Notes to Consolidated
Financial Statements for further information.
17
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company was not involved in any claims or lawsuits which, in the opinion of
management after conferring with legal counsel, would have a material effect on
the financial position of the Company.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF COMMON STOCKHOLDERS
At the annual meeting of shareholders held on May 29, 1996, the shareholders
reelected Jody Anne Becker, Pat Glasner and Judith A. Waller to the Board of
Directors of NHS Financial, Inc. to serve three year terms to 1999. The
election of directors was the only business to be presented at the annual
meeting. Of the 2,522,827 shares of common stock outstanding as of the record
date, April 2, 1996, the following indicates the number of votes cast for each
of the three directors:
Yes Votes Votes Withheld
--------- --------------
Jody Anne Becker 2,050,231 31,788
Pat Glasner 2,049,343 32,676
Judith A. Waller 2,049,678 31,341
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
On June 10, 1996, the Company filed a report on Form 8-K which consisted of a
copy of the press release, dated May 23, 1996, announcing that NHS Financial,
Inc. agreed to be acquired by Luther Burbank Corporation and that both
corporations have signed a definitive agreement to merge. Under the terms of
the agreement, Luther Burbank will pay a total cash consideration of
approximately $29.7 million or $11.50 per share to the shareholders of NHS
Financial, Inc.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
NHS FINANCIAL, INC.
(Registrant)
Date: August 5, 1996 /s/ JAMES W. BARNETT
-------------------------------------------------
JAMES W. BARNETT
President and Chief Executive Officer
Date: August 5, 1996 /s/ ALBERT J. THOMSON
-------------------------------------------------
ALBERT J. THOMSON
Senior Vice President and Chief Financial Officer
Date: August 5, 1996 /s/ JARED L. BOOK
-------------------------------------------------
JARED L. BOOK
Vice President and Chief Accounting Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0001003084
<NAME> NHS FINANCIAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 165
<INT-BEARING-DEPOSITS> 9233
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3282
<INVESTMENTS-CARRYING> 21867
<INVESTMENTS-MARKET> 21577
<LOANS> 245187
<ALLOWANCE> 3604
<TOTAL-ASSETS> 284191
<DEPOSITS> 225818
<SHORT-TERM> 20000
<LIABILITIES-OTHER> 2341
<LONG-TERM> 11000
0
0
<COMMON> 11772
<OTHER-SE> 13261
<TOTAL-LIABILITIES-AND-EQUITY> 284191
<INTEREST-LOAN> 10917
<INTEREST-INVEST> 966
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11883
<INTEREST-DEPOSIT> 6110
<INTEREST-EXPENSE> 7003
<INTEREST-INCOME-NET> 4880
<LOAN-LOSSES> 290
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3123
<INCOME-PRETAX> 1849
<INCOME-PRE-EXTRAORDINARY> 1039
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1039
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
<YIELD-ACTUAL> 8.31
<LOANS-NON> 3372
<LOANS-PAST> 0
<LOANS-TROUBLED> 2372
<LOANS-PROBLEM> 17399
<ALLOWANCE-OPEN> 3508
<CHARGE-OFFS> 194
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3604
<ALLOWANCE-DOMESTIC> 3604
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
