<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996
Commission file number 0-27624
RELIANCE BANCSHARES, INC.
(Exact name of small business issue as specified in its charter)
WISCONSIN 39-1834823
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3140 SOUTH 27TH STREET
MILWAUKEE, WISCONSIN 53215
(Address of principal executive offices) (Zip Code)
(414) 671-2222
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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.
(1) Yes X No
----- -----
(2) Yes No X
----- -----
The number of shares outstanding for the issuer's common stock, $1.00 par value
per share, was 2,562,344 at April 30, 1996.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Reliance Bancshares, Inc. (the "Company") is a newly formed holding company,
and was organized for the purpose of acquiring all of the capital stock of
Reliance Savings Bank ("Bank") to be issued upon its conversion from the mutual
to stock form of ownership (the "Conversion"). At March 31, 1996, the Company
was a shell corporation with no substantial business activities. For a further
discussion of the formation and intended operations of the Company, see the
Form SB-2 Registration Statement (No. 33-99706) initially filed on November 22,
1995, and declared effective on February 29, 1996. The description of the
Company in these filings is hereby incorporated by reference. On April 17,
1996, the Conversion was completed and the Company was capitalized through the
sale and issuance of 2,562,344 shares of common stock at $8.00 per share. The
gross proceeds from the sale of the shares of common stock were $20.5 million.
Net proceeds to the Company were $19.1 million, after deduction of Conversion
expenses of approximately $720,000 and after lending $713,000 to the Bank's
Employee Stock Ownership Plan. The Company utilized approximately $9.5 million
of the net proceeds to purchase all of the issued and outstanding common stock
of the Bank.
The financial statements of the Company have been omitted because as of March
31, 1996, the Company had not yet issued any stock, had no assets and no
liabilities of any value and had no substantial business activities. Financial
information regarding the Bank has been provided in lieu of financial
information regarding the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
See Item 1.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Registrant nor the Bank is involved in any pending legal
proceedings involving amounts in the aggregate which management
believes are material to the financial condition and results of
operations of the Registrant and the Bank.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 99: Form 10-QSB equivalent financial information for
Reliance Savings Bank for the nine months ended
March 31, 1996.
(b) Reports on Form 8-K
None.
2
<PAGE> 3
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RELIANCE BANCSHARES, INC.
Dated: By:
---------------------------- -----------------------------------
Allan T. Bach, President and Chief
Executive Officer (Principal
Executive Officer)
Dated: By:
---------------------------- -----------------------------------
Carol A. Barnharst, Vice President,
Chief Financial Officer, Secretary
and Treasurer (Principal Financial
and Accounting Officer)
3
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 5,943
<INT-BEARING-DEPOSITS> 1,618
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,948
<INVESTMENTS-CARRYING> 2,570
<INVESTMENTS-MARKET> 2,638
<LOANS> 22,483
<ALLOWANCE> 120
<TOTAL-ASSETS> 39,540
<DEPOSITS> 21,145
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,346
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 10,049
<TOTAL-LIABILITIES-AND-EQUITY> 39,540
<INTEREST-LOAN> 1,393
<INTEREST-INVEST> 472
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,865
<INTEREST-DEPOSIT> 869
<INTEREST-EXPENSE> 874
<INTEREST-INCOME-NET> 991
<LOAN-LOSSES> 16
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 533
<INCOME-PRETAX> 454
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 275
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.47
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 104
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 120
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 120
</TABLE>
<PAGE> 1
EXHIBIT 99
Form 10-QSB
equivalent financial information for
Reliance Savings Bank for the
nine months ended March 31, 1996
<PAGE> 2
RELIANCE SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
--------- --------
(Unaudited)
(In Thousands)
<S> <C> <C>
Assets:
Cash $ 5,943 $ 293
Cash equivalent interest-bearing deposits 1,618 484
-------- -------
Total cash and cash equivalents 7,561 777
Investments
Certificates of deposit - at cost 294 479
Investment securities available for sale, at fair value 5,948 6,193
Investment securities held to maturity
(estimated market value of $1,703 at March 31, 1996 and $2,203 at June 30,
1995) 1,698 2,196
Mortgage-backed and related securities
(estimated market value of $935 at March 31, 1996 and $1,087 at June 30,
1995) 872 1,020
Federal Home Loan Bank stock - at cost 157 152
Loans receivable - net 22,363 21,034
Accrued interest receivable 94 95
Office properties and equipment 85 107
Prepaid expenses and other assets 468 207
-------- -------
Total assets $ 39,540 $32,260
======== =======
Liabilities and Equity:
Deposit accounts $ 21,145 $22,312
Stock conversion proceeds 8,111 -
Advance payment by borrowers for taxes - 172
Borrowed funds - -
Income taxes
Current 38 64
Deferred 99 6
Accrued and other liabilities
Interest 23 33
Other 75 57
-------- -------
Total liabilities 29,491 22,644
Commitments and contingencies - -
Retained earnings - substantially restricted 10,049 9,616
-------- -------
Total liabilities and equity $ 39,540 $32,260
======== =======
</TABLE>
See accompanying Notes to Unaudited Financial Statements.
5
<PAGE> 3
RELIANCE SAVINGS BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
(Unaudited)
(In thousands)
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans $ 479 $ 440 $ 1,392 $ 1,280
Investment securities 121 155 400 450
Mortgage-backed and related securities 19 22 64 78
Other loans 1 1 1 1
Dividends on stock in Federal Home Loan Bank 3 3 8 7
----- ----- ------- -------
Total interest and dividends 623 621 1,865 1,816
----- ----- ------- -------
Interest expense:
Deposits and escrows 284 260 869 779
Notes payable and other borrowings 5 9 5 9
----- ----- ------- -------
Total interest expense 289 269 874 788
----- ----- ------- -------
Net interest income 334 352 991 1,028
Provisions for loan losses 5 5 16 16
----- ----- ------- -------
Net interest income after provision
for loan losses 329 347 975 1,012
----- ----- ------- -------
Noninterest income:
Gain (loss) on sale of investment - - (3) (9)
Other income - 4 8 10
Loan fees and service charges 2 1 7 6
----- ----- ------- -------
Total noninterest income 2 5 12 7
----- ----- ------- -------
Operating income 331 352 987 1,019
----- ----- ------- -------
Noninterest expense:
Compensation and benefits 92 82 266 237
Occupancy 9 10 25 27
Advertising 2 4 6 12
Furniture and equipment 5 6 18 18
Federal insurance premiums 13 15 38 42
Professional services 5 10 20 24
Data processing 21 19 54 51
Stationery, communications, and other
operating expenses 15 16 39 41
Directors' fees and expenses of directors, officers, and employees 21 24 67 66
----- ----- ------- -------
Total noninterest expense 183 186 533 518
----- ----- ------- -------
Income before income taxes 148 166 454 501
----- ----- ------- -------
Income taxes:
Current 62 77 187 213
Deferred (3) (3) (8) (8)
----- ----- ------- -------
Total income taxes 59 74 179 205
----- ----- ------- -------
Net income $ 89 $ 92 $ 275 $ 296
===== ===== ======= =======
</TABLE>
See accompanying Notes to Unaudited Financial Statements.
6
<PAGE> 4
RELIANCE SAVINGS BANK
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on
Securities
Available
for Sale, Net
of Applicable
Retained Deferred
Earnings Income Taxes Total
-------- ------------- -----
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Year ended June 30, 1995:
Balance at June 30, 1994 $ 9,128 $ 12 $ 9,140
Net income 405 - 405
Change in unrealized gain (loss) on securities
available for sale, net of applicable deferred
income taxes of $46 - 71 71
------- ----- --------
Balance at June 30, 1995 $ 9,533 $ 83 $ 9,616
======= ===== ========
Nine months ended March 31, 1996:
Balance at June 30, 1995 $ 9,533 $ 83 $ 9,616
Net income 275 - 275
Change in unrealized gain (loss) on securities
available for sale, net of applicable deferred
income taxes of $101 - 158 158
------- ----- --------
Balance at March 31, 1996 $ 9,808 $ 241 $ 10,049
======= ===== ========
</TABLE>
See accompanying Notes to Unaudited Financial Statements.
7
<PAGE> 5
RELIANCE SAVINGS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------
(Unaudited)
(In thousands)
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 275 $ 296
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation 22 24
Provision for loan losses 16 14
Amortization of premiums, discounts and fees -
net (20) (26)
Increase (decrease) in income taxes payable (26) 105
Provision for (reduction of) deferred income
taxes (8) (8)
(Increase) decrease in interest receivable 1 (7)
Net increase (decrease) in accrued/other
liabilities 9 3
Net (increase) decrease in prepaid expense and
other assets (260) (208)
Loss (gain) on investments 3 9
------- --------
Net cash provided by operating activities 12 202
------- --------
Cash Flows from Investing Activities:
Purchase of Federal Home Loan Bank stock (5) -
Proceeds from sale of Federal Home Loan Bank stock - -
Proceeds from sales/maturities of investment securities 1,185 1,786
Purchase of investment securities - (1,000)
Net (increase) decrease in loans (1,329) (1,574)
Principal payments collected on mortgage-backed
securities 150 231
Purchase of fixed assets - (17)
Investment in real estate in judgment - -
Proceeds from real estate in judgment - 78
------- --------
Net cash provided (used) by investing activities 1 (496)
------- --------
Cash Flows from Financing Activities:
Repayments of short-term borrowing (400) (4,620)
Proceeds from short-term borrowing 400 5,500
Increase (decrease) in advance payments by borrowers (172) (218)
Increase (decrease) in deposit accounts (1,168) (1,294)
Proceeds from stock conversion 8,111 -
------- --------
Net cash provided (used) by financing activities 6,771 (632)
------- --------
Increase (decrease) in cash and cash equivalents 6,784 (926)
Cash and Cash Equivalents at beginning 777 1,221
------- --------
Cash and Cash Equivalent at end $ 7,561 $ 295
======= ========
Supplemental Cash Flow Information
Cash paid during the period for:
Interest on deposit accounts $ 145 $ 135
Income taxes 213 108
Interest on borrowings 5 4
Noncash investing activities:
Loans transferred to foreclosed properties and real
estate in judgment - 78
Total increase in unrealized gain on securities
available for sale 259 93
</TABLE>
Accounting Policies Note: Cash equivalents include demand deposits at other
financial institutions and the Federal Home Loan Bank.
See accompanying Notes to Unaudited Financial Statements.
8
<PAGE> 6
RELIANCE SAVINGS BANK
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
Operating results for the nine months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ending June 30, 1996. The accompanying unaudited financial statements and
related notes should be read in conjunction with the financial statements
and related notes included in the Prospectus of Reliance Bancshares, Inc.
(the "Company") dated February 29, 1996.
(2) FORMATION OF HOLDING COMPANY AND CONVERSION TO STOCK OWNERSHIP
On April 17, 1996, Reliance Savings Bank (the "Bank") consummated its
conversion from a state chartered mutual savings bank to a state chartered
stock savings bank and became a wholly-owned subsidiary of the Company.
The conversion was accomplished through the issuance and sale of 2,562,344
shares of common stock by the Company at $8.00 per share. The gross
proceeds from the sale of the shares of common stock were $20.5 million.
Net proceeds to the Company were $19.1 million, after deduction of
Conversion expenses of approximately $720,000 and after lending $713,000
to the Bank's Employee Stock Ownership Plan. The Company utilized
approximately $9.5 million of the net proceeds to purchase all of the
issued and outstanding common stock of the Bank.
(3) EARNINGS PER SHARE
Earnings per share have not been presented since the Bank did not have
any outstanding stock and the Company had only one share of common stock
outstanding at March 31, 1996.
(4) INVESTMENT SECURITIES AVAILABLE FOR SALE
The carrying value (amortized cost) and estimated market values of
investment securities available for sale are as follows:
<TABLE>
<CAPTION>
June 30, 1995
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Equity securities - common stock $ 27 $ 282 $ - $ 309
Equity securities - mutual funds 6,028 - (144) 5,884
------- ----- ------ -------
Total $ 6,055 $ 282 $ (144) $ 6,193
======= ===== ====== =======
<CAPTION>
March 31, 1996
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Equity securities - common stock $ 27 $ 546 $ - $ 573
Equity securities - mutual funds 5,528 - 153 5,375
------- ----- ------ -------
Total $ 5,555 $ 546 $ 153 $ 5,948
======= ===== ====== =======
</TABLE>
9
<PAGE> 7
RELIANCE SAVINGS BANK
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
(5) INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost and estimated market values of investment securities
held to maturity are as follows:
<TABLE>
<CAPTION>
June 30, 1995
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury obligations and
obligations of U.S. agencies $ 2,196 $ 9 $ 2 $ 2,203
======= ===== ====== =======
<CAPTION>
March 31, 1996
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury obligations and
obligations of U.S. agencies $ 1,698 $ 5 $ - $ 1,703
======= ===== ====== =======
</TABLE>
(6) MORTGAGE-BACKED AND RELATED SECURITIES
The amortized cost and estimated market value of mortgage-backed and
related securities are as follows:
<TABLE>
<CAPTION>
June 30, 1995
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Government National Mortgage
Association $ 896 $ 70 $ - $ 966
Federal Home Loan Mortgage
Corp. 24 2 - 26
Mortgage-related securities:
Collateralized Mortgage Obligation 100 - 5 95
------- ----- ------ -------
Total mortgage-backed and related
securities $ 1,020 $ 72 $ 5 $ 1,087
======= ===== ====== =======
<CAPTION>
March 31, 1996
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Government National Mortgage
Association $ 750 $ 67 $ - $ 817
Federal Home Loan Mortgage
Corp. 22 1 - 23
Mortgage-related securities:
Collateralized Mortgage Obligation 100 - 5 95
------- ----- ------ -------
Total mortgage-backed and related
securities $ 872 $ 68 $ 5 $ 935
======= ===== ====== =======
</TABLE>
10
<PAGE> 8
RELIANCE SAVINGS BANK
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
(7) LOANS RECEIVABLE
Loans receivable are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
--------- --------
(In thousands)
<S> <C> <C>
First mortgage loans:
One-to-four family residential $ 10,809 $ 10,425
Multi-family residential 4,569 4,711
Commercial 4,169 3,880
Construction 4,149 2,920
Consumer and other loans:
Other consumer 7 5
Home equity loans 3 7
-------- --------
Total loans 23,706 21,948
-------- --------
Less:
Undisbursed loan proceeds 1,099 701
Deferred loan fees 124 109
Allowance for loan losses 120 104
-------- --------
1,343 914
-------- --------
Loans receivable - net $ 22,363 $ 21,034
======== ========
</TABLE>
(8) DEPOSIT ACCOUNTS
Deposits are as follows:
<TABLE>
<CAPTION> March 31, 1996 June 30, 1995
--------------------------------------- ----------------------------------------
Weighted Weighted
Percent Average Percent Average
of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate
------ -------- ------- ------ -------- --------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand accounts:
Noninterest-bearing $ 34 0.16% -% $ 16 0.07% -%
NOW 76 0.36 2.50 66 0.30 2.50
Passbook 2,766 13.08 2.75 3,096 13.88 3.01
Money market 1,169 5.53 3.40 1,499 6.72 3.45
-------- ----- -------- -----
Total demand accounts 4,045 19.13 2.91 4,677 20.97 3.14
-------- ----- -------- -----
Certificate accounts:
3.00% to 3.99% 14 0.07 3.40 21 0.09 3.40
4.00% to 4.99% 353 1.67 4.66 2,504 11.22 4.59
5.00% to 5.99% 10,478 49.55 5.44 7,721 34.60 5.36
6.00% to 6.99% 5,590 26.44 6.44 6,626 29.70 6.46
7.00% to 7.99% 616 2.91 7.18 710 3.18 7.19
8.00% to 8.99% 49 0.23 8.00 53 0.24 8.00
-------- ------ -------- ------
Total certificates 17,100 80.87 5.81 17,635 79.03 5.74
-------- ------ -------- ------
Total deposit accounts $ 21,145 100.00% 5.26 $ 2,312 100.00% 5.20
======== ====== ======== ======
</TABLE>
Deposit accounts with individual balances of $100,000 or more totalled
$2,399,000 and $2,413,000 at March 31, 1996 and at June 30, 1995, respectively.
11
<PAGE> 9
RELIANCE SAVINGS BANK
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
(9) RETAINED EARNINGS
The Bank is required to maintain a minimum level of capital (retained ings)
according to State of Wisconsin regulations and according to FDIC
regulations. The following table summarizes the Bank's capital requirements
ratios:
<TABLE>
<CAPTION>
At March 31, 1996
------------------------------------------------------------------------
Amount Ratios
Actual Required Excess Actual Required Excess
------ -------- ------ ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 risk-based
capital $ 9,808 $ 780 $ 9,028 50.29% 4.00% 46.29%
Tier 2 risk-based
capital 9,928 1,560 8,368 50.91 8.00 42.91
Leverage ratio 9,808 1,186 8,622 24.81 3.00 21.81
State of Wisconsin 10,169 2,372 7,797 25.72 6.00 19.72
<CAPTION>
At June 30, 1995
------------------------------------------------------------------------
Amount Ratios
Actual Required Excess Actual Required Excess
------ -------- ------ ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 risk-based
capital $ 9,533 $ 725 $ 8,008 52.63% 4.00% 48.63%
Tier 2 risk-based
capital 9,637 1,449 8,188 53.20 8.00 45.20
Leverage ratio 9,533 968 8,565 29.55 3.00 26.55
State of Wisconsin 9,720 1,936 7,784 30.13 6.00 24.13
</TABLE>
12
<PAGE> 10
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Reliance Bancshares, Inc. (the "Company") is the holding company for Reliance
Savings Bank (the "Bank"). On April 17, 1996, the Bank completed its
conversion from a Wisconsin-chartered mutual savings bank to a
Wisconsin-chartered stock savings bank (the "Conversion"). On that date, the
Company issued 2,562,344 shares of common stock at $8.00 per share to complete
the Conversion. The gross proceeds from the sale of the shares of common stock
were $20.5 million. Net proceeds to the Company were $19.1 million, after
deduction of Conversion expenses of approximately $720,000 and after lending
$713,000 to the Bank's Employee Stock Ownership Plan. The Company utilized
approximately $9.5 million of the net proceeds to purchase all of the issued
and outstanding common stock of the Bank.
The Bank is headquartered in Milwaukee, Wisconsin and is a community-oriented
full-service financial institution offering a variety of retail financial
services to meet the needs of the communities it serves. The Bank's principal
business consists of attracting funds in the form of deposits and investing
such funds in loans secured by real estate, investment securities (including
United States treasury securities and mutual funds) and mortgage-backed and
related securities. At March 31, 1996, the Bank had total assets of $39.5
million, total deposits of $21.1 million and retained earnings of $10.0
million. Liabilities included $8.1 million of payments for shares of the
Company's common stock, $1.00 par value per share ("Common Stock") in
conjunction with the Conversion.
The earnings of the Bank depend primarily upon its level of net interest
income, which is the difference between interest earned on interest earning
assets, consisting primarily of mortgage loans, mortgage-backed and related
securities and other investment securities, and the interest paid on interest
bearing liabilities, consisting primarily of deposits. Net interest income is
a function of the Bank's interest rate spread, which is the difference between
the average yield earned on interest earning assets and the average rate paid
on interest bearing liabilities, as well as a function of the average balance
of interest earning assets as compared to interest bearing liabilities. Many
of the Bank's assets, including mortgage loans and mortgage-backed and related
securities, are subject to reinvestment risk. During periods of falling
interest rates, higher yielding loans and mortgage-backed and related
securities are more likely to prepay, and the Bank may not be able to reinvest
the proceeds from such prepayment in loans or securities with yields similar to
those prepaying. The Bank's earnings also are affected by the level of its
other income, including loan servicing, commitment and origination fees and
gains on sale of loans and investments, as well as its level of general and
administrative expenses, including employee compensation and benefits,
directors' fees, occupancy and equipment costs and federal deposit insurance
premiums. The Bank's operating results are significantly affected by general
economic conditions, and the monetary, fiscal and regulatory policies of
governmental agencies. Lending activities are influenced by the demand for and
supply housing, competition among lenders, the level of interest rates and the
availability of funds. Deposit flow and costs of funds likewise are heavily
influenced by prevailing market rates of interest on competing investment
alternatives, account maturities and the levels of personal income and savings
in the Bank's primary market area.
CURRENT ACCOUNTING DEVELOPMENTS
In December 1991, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 107, "Disclosures about
Fair Value of Financial Instruments". This statement requires disclosure of
the fair value of financial instruments, both assets and liabilities, whether
or not such instruments are recognized in the balance sheet. Financial
instruments involve either a right or an obligation to receive or deliver cash
or an equivalent to another entity. Such disclosure could be on the face of
the financial statements or in footnotes thereto to the extent that such fair
value is reasonably attainable, and would not necessarily result in any
adjustment to the carrying amounts of such instruments on the Bank's statement
of financial condition. As it relates to the Bank's financial instruments,
including cash equivalents, investment securities, mortgage-backed and related
securities, loans receivable and deposits, FAS No. 107 must be adopted by the
Bank no later than its year ending June 30, 1996.
13
<PAGE> 11
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations,
Continued
In May 1993, FASB issued FAS No. 114, "Accounting by Creditors for Impairment
of a Loan". This statement was substantially amended by FAS No. 118. The
amended statement addresses the accounting by creditors for certain impaired
loans and requires that applicable impaired loans be measured based on future
cash flows or fair value of the underlying collateral. The statement is
required to be adopted by the Bank on or before July 1, 1995. It is
anticipated that the adoption of FAS No. 114, as amended, will have a minimal
effect on the Bank's financial position.
In October 1994, the FASB issued FAS No. 119, "Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments". FAS No. 119 is
effective for financial statements issued for years ending after December 15,
1995 for companies with $150 million or more in total assets, as reflected in
their 1994 statement of financial condition. For companies with less than $150
million in total assets, FAS 119 is effective for the 1995 year. FAS 119
prescribes new disclosures about derivatives and other financial instruments
held or issued for trading purposes and for purposes other than trading. FAS
No. 119 modifies FAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial instruments with
Concentrations of Credit Risk", by requiring disclosures for derivative
financial instruments without off-balance-sheet risks. FAS No. 119 also
requires the distinction of financial instruments with off-balance-sheet risk
held or issued between trading and other than trading purposes. FAS No. 119
modifies FAS No. 107 by requiring a summary table for the fair value of
financial instruments and restricting the combination, aggregation and netting
of derivative with nonderivative financial instruments in fair value
disclosures. In addition, FAS No. 119 encourages, but does not require,
certain quantitative disclosures. The Bank will adopt FAS 119 for its year
ending June 30, 1996, and has not determined what effect, if any, adoption of
this statement will have on the Bank's financial condition or results of
operations.
In March 1995, the FASB issued FAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". FAS No. 121
requires entities to review long-lived assets and certain identifiable
intangibles to be held and used for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recovered. If events or changes in circumstances indicate that the carrying
amount of an asset that an entity expects to hold and use may not be
recoverable, the entity shall estimate the future cash flows expected to result
from the use of the assets and its eventual disposition. If the sum of the
expected future cash flows is less than the carrying amount of the assets, the
entity shall recognize an impairment loss as a component of income from
continuing operations before income taxes. The provisions of FAS No. 121 shall
be effective for years beginning after December 15, 1996. The Bank plans to
implement FAS No. 121 in 1996 and does not expect implementation to have a
material impact on the Bank's financial position or results of operations.
During 1993, the Accounting Standards Executive Committee of the AICPA issued
SOP 93-6, "Employers' Accounting for Stock Ownership Plans". Under SOP 93-6,
employers are required to recognize compensation cost equal to the fair value
for ESOP shares committed to be released to compensate employees directly. For
ESOP shares committed to be released to settle or fund liabilities for other
employee benefits, such as an employer's match of employees' 401(k)
contributions, employers would be required to report satisfaction of the
liabilities when the shares are committed to be released to settle the
liabilities. Compensation cost and liabilities associated with providing such
benefits would be recognized the way they would be if an ESOP had not been used
to fund the benefit. Under SOP 93-6, employers must charge dividends on
allocated ESOP shares to retained earnings. They must report dividends on
unallocated shares as a reduction of debt or accrued interest or as
compensation cost (depending on whether the dividends are used for debt service
or paid to participants). For earnings per share computations, ESOP shares
that have been committed to be released should be considered outstanding. SOP
93-6 is effective for years beginning after December 15, 1993. The Bank will
follow the requirements of SOP 93-6 upon the establishment of its ESOP.
14
<PAGE> 12
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations,
Continued
On December 30, 1994, the AICPA issued SOP 94-6, "Disclosure of Certain
Significant Risks and Uncertainties". SOP 94-6 requires financial statement
disclosures concerning: (i) the nature of operations; (ii) use of estimates
in the preparation of financial statements; (iii) certain significant
estimates, and (iv) current vulnerability due to certain concentrations. The
provisions of SOP 94-6 are effective for financial statements issued for years
ending after December 15, 1995, and for financial statements for interim
periods in years subsequent to the year for which the SOP is first applied.
The Bank plans to implement SOP 94-6 in 1996 and does not expect implementation
to have a material impact on the Bank's financial position or results of
operations.
Financial Condition
The following table summarizes certain information relating to the Bank's
statement of financial condition at the dates indicated.
<TABLE>
<CAPTION>
At At
March 31, June 30,
1996 1995
--------- -------------
(In thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 7,561 $ 777
Investment securities 7,940 8,868
Mortgage-backed securities 872 1,020
Loans receivable, net 22,363 21,034
Liabilities:
Deposits 21,145 22,312
Stock conversion proceeds 8,111 -
Retained earnings 10,049 9,616
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents increased $7.6 million at March 31, 1996 from
$777,000 at June 30, 1995. The increase was attributable to the proceeds
received from the stock conversion.
Investment Securities
Investment securities decreased to $7.9 million at March 31, 1996 from $8.9
million at June 30, 1995. The change was primarily the result of management's
decision to reinvest the sales and maturity proceeds from these securities into
higher yielding mortgage loans. The Bank may, in future periods, leverage its
capital base by using the proceeds of borrowings from the FHLB-Chicago to
purchase mortgage-backed and related securities and investment securities.
Therefore, if the leveraging strategy is implemented, the size of the Bank's
investment securities portfolio may increase in future periods.
Mortgage-Backed and Related Securities
Mortgage-backed and related securities declined to $872,000 at March 31, 1996
from $1.0 million at June 30, 1995. The decrease was the result of normal
principal repayments and escalated prepayments on mortgage-backed pools
yielding over 10% since market rates were significantly lower during this
period. Management decided to reinvest the repayment and prepayment proceeds
into higher yielding mortgage loans. The Bank may, in future periods, leverage
its capital base by using the proceeds of borrowings from the FHLB-Chicago to
purchase mortgage-backed and related securities and investment securities.
Therefore, if the leveraging strategy is implemented, the size of the Bank's
mortgage-backed and related securities portfolio may increase in future
periods.
15
<PAGE> 13
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations,
Continued
Loans Receivable
Net loans receivable increased to $22.4 million at March 31, 1996 from $21.0
million at June 30, 1995. The net change in loans arising from originations
and principal repayments for the nine months ended March 31, 1996 and for the
year ended June 30, 1995 was $384,000 and $1.2 million for one-to-four family
loans, respectively; ($142,000) and ($200,000) for multi-family loans,
respectively; $1.2 million and $317,000 for construction and land development
loans, respectively; and $289,000 and $262,000 for commercial real estate
loans, respectively. There were no loans sold during these periods. As a
result of the originations and repayments during these periods, mortgage loans
increased or decreased as follows: one-to-four family mortgage loans were
$10.8 million at March 31, 1996 compared to $10.4 million at June 30, 1995;
commercial construction and land development loans were $4.1 million at March
31, 1996 compared to $2.9 million at June 30, 1995; multi-family loans were
$4.6 million at March 31, 1996 compared to $4.7 million at June 30, 1995; and
commercial real estate loans were $4.2 million at March 31, 1996 compared to
$3.9 million at June 30, 1995.
Deposits and Borrowings
Deposits were $21.1 million and $22.3 million at March 31, 1996 and June 30,
1995, respectively. Deposits are the Bank's primary source of externally
generated funds. The level of deposits is heavily influenced by factors such
as the general level of short and long-term interest rates, as well as
alternative yields that investors may obtain on competing investment
instruments such as mutual funds. In recent years, the lower yields on bank
deposit products have made alternative financial products more competitive with
the Bank's traditional deposit products. During the nine months ended March
31, 1996, this competition caused the Bank's certificate of deposit accounts to
decline by $535,000, and noncertificate accounts to decline by $632,000. At
March 31, 1996 and June 30, 1995, demand accounts, which consist of
interest-bearing and noninterest-bearing NOW accounts, money market accounts
and passbook accounts, were $4.0 million and $4.7 million, respectively. The
general decrease in these accounts was primarily due to the general decline in
the average rates paid on demand accounts from 3.16% for the year ended June
30, 1994 to 3.14% for the year ended June 30, 1995 and 2.91% for the nine
months ended March 31, 1996. The Bank intends to focus on increasing its core
deposits in order to maintain a more stable deposit base. In addition,
although the Bank has been competitively pricing its deposit products over the
past two years, its core deposits have continued to decline. During the three
months ended March 31, 1996, and during all further subsequent periods prior to
the consummation of the Conversion, the Bank's liability balance increased by
the amount of deposits accompanying stock orders received (in escrow) in
connection with the Conversion. This increase, however, was offset by other
overall deposit account activity not connected with the Conversion. Upon
consummation of the Conversion, the Bank's liability balance will decrease by
the amount of stock proceeds received (in escrow) in connection with the
Conversion. In addition, the Bank's deposit account balance will decline by
the amount authorized to be withdrawn by depositors for payment for shares of
common stock in connection with the Conversion. These decreases, however, may
be partially offset by, or further decreased by, other overall deposit account
activity not connected with the Conversion.
The Bank had no outstanding advances or other borrowings at March 31, 1996 or
June 30, 1995. However, during the period December 1994 through May 1995, the
Bank did make use of repurchase agreements to fund short-term liquidity needs.
The maximum outstanding on repurchase agreements during this period was
$880,000. The Bank, on an ongoing basis, considers the use of these other
borrowings and FHLB-Chicago advances in the management of its total
asset/liability portfolio. During the nine months ended March 31, 1996, the
Bank borrowed $400,000 on FHLB-Chicago advances which was repaid prior to March
31, 1996. The Bank may, in future periods, leverage its capital base by using
the proceeds of borrowings from the FHLB-Chicago to purchase mortgage-backed
and related securities and investment securities. The Bank may implement this
strategy, and continue such a strategy, until other earning asset growth fully
utilizes its capital.
16
<PAGE> 14
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations,
Continued
Retained Earnings
The Bank's retained earnings increased to $10.0 million at March 31, 1996 from
$9.6 million at June 30, 1995. The increased retained earnings were primarily
the result of the Bank's net income of $275,000 for the nine months ended March
31, 1996. In addition, retained earnings also were increased by unrealized
gains, net of taxes, for the Bank's securities which were held as available for
sale. For the nine months ended March 31, 1996, the unrealized gain was
$158,000, which was net of assumed taxes of $101,000, and for the year ended
June 30, 1995, the unrealized gain was $71,000, which was net of assumed taxes
of $46,000.
Comparison of Operating Results for the Nine Months Ended March 31, 1996 and
1995
General
Net income decreased $3,000, or 3.3% to $89,000 for the three months ended
March 31, 1996 compared to $92,000 for the three months ended March 31, 1995
and net income decreased $21,000, or 7.1%, to $275,000 for the nine months
ended March 31, 1996 compared to $296,000 for the nine months ended March 31,
1995. This decline in both periods was due primarily to a decrease in the
Bank's net interest income of $18,000, or 5.1%, to $334,000 for the three
months ended March 31, 1996 compared to $352,000 for the three months ended
March 31, 1995 and a decrease of $37,000, or 3.6%, to $991,000 for the nine
months ended March 31, 1996 compared to $1,208,000 for the nine months ended
March 31, 1995. The Bank's provision for loan losses remained unchanged
between the periods, while noninterest expense decreased $3,000 for the three
months ended March 31, 1996, compared to the three months ended March 31, 1995
and increased $15,000 for the nine months ended March 31, 1996, compared to the
nine months ended March 31, 1995. The return on average assets and the return
on average equity was 1.08% and 3.54%, respectively, for the three months ended
March 31, 1996, compared to 1.13% and 3.92% for the three months ended March
31, 1995 and 1.13% and 3.71%, respectively, for the nine months ended March 31,
1996, compared to 1.20% and 4.24% for the nine months ended March 31, 1995.
Net Interest Income
Net interest income decreased $18,000 to $334,000 for the three months ended
March 31, 1996 compared to $352,000 for the three months ended March 31, 1995
and decreased $37,000 to $991,000 for the nine months ended March 31, 1996
compared to $1,028,000 for the nine months ended March 31, 1995. The decline
in net interest income primarily reflects a decrease in the Bank's interest
rate spread to 2.60% for the three months ended March 31, 1996 compared to
3.11% for the three months ended March 31, 1995 and 2.59% for the nine months
ended March 31, 1996 compared to 3.01% for the nine months ended March 31,
1995, which was partially offset by an increase in the excess of the Bank's
average interest-earning assets over average interest-bearing liabilities to
9.7 million for the three months ended March 31, 1996 compared to $8.9 million
for the three months ended March 31, 1995 and $9.5 million for the nine months
ended March 31, 1996, compared to $8.8 million for the nine months ended March
31, 1995. The increase in average interest-earning assets over
interest-bearing liabilities between March 31, 1996 and 1995 was due to the
decrease in the average balances of deposit accounts between periods of
$995,000 and the decrease in the average balances of escrow accounts between
periods of $480,000, while the average balances of loans and investments
decreased by $820,000 for the same period. Management believes deposits
declined due to general demographic changes in the Bank's local market area and
due to a competition from alternative investments that were more attractive to
depositors during the period. Escrows declined as a result of the Bank's
decision to return all escrow balances to customers in July and August 1995,
and have the borrowers be responsible for their own insurance and real estate
taxes. The decline in interest rate spread for the three months ended March
31, 1996 compared to the three months ended March 31, 1995 was due to the
increase in the average cost of deposit accounts by 64 basis points, while the
average yield on interest-earning assets increased only 8 basis points and for
the nine months ended March 31, 1996 compared to the nine months ended March
31, 1995 the decline was due to the increase in the average cost of deposit
accounts by 77 basis points, while the average yield on interest-earning assets
increased by only 40 basis points.
17
<PAGE> 15
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations,
Continued
Interest Income
Total interest income increased $2,000, or .3%, to $623,000 for the three
months ended March 31, 1996 compared to $621,000 for the three months ended
March 31, 1995 and increased $49,000, or 2.7%, to $1.865 million for the nine
months ended March 31, 1996 compared to $1.816 million for the nine months
ended March 31, 1995, as a result of an increase in the average yield on
interest-earning assets, partially offset by a reduction in the average balance
of interest-earning assets. The average yield on interest-earning assets
increased 8 basis points to 7.86% for the three months ended March 31, 1996
compared to 7.78% for the three months ended March 31, 1995 and increased 40
basis points to 7.87% for the nine months ended March 31, 1996 compared to
7.47% for the nine months ended March 31, 1995. For the three months ended
March 31, 1996, the Bank's aveage yield on loans was 8.56% compared to 8.62%
for the three months ended March 31, 1996 and for the nine months ended March
31, 1996, the Bank's average yield on loans was 8.51% compared to 8.56% for the
nine months ended March 31, 1995. During the nine months ended March 31, 1996,
lower-yielding interest-earning deposit funds and lower-yielding maturing
certificates of deposit were reinvested by the Bank primarily in permanent and
construction mortgage loans secured by one-to-four family residences. Total
interest-earning assets decreased 2.5% to $31.6 million for the nine months
ended March 31, 1996 from $32.4 million for the nine months ended March 31,
1995, primarily due to the decrease in the Bank's investment securities.
Interest income on loans increased to $480,000 for the three months ended March
31, 1996 compared to $441,000 for the three months ended March 31, 1995 and
increased to $1.393 million for the nine months ended March 31, 1996 compared
to $1.281 million for the nine months ended March 31, 1995. The increase in
both periods was due to an increase in average loan balances of $2.0 million
for the three months ended March 31, 1996 and $1.9 million for the nine months
ended March 31, 1996, partially offset by a decline in the average yield of six
basis points for the three months ended March 31, 1996 and five basis points
for the nine months ended March 31, 1996. Interest income on investments
decreased to $121,000 for the three months ended March 31, 1996 from $155,000
for the three months ended March 31, 1995 and to $400,000 for the nine months
ended March 31, 1996 from $450,000 for the nine months ended March 31, 1995.
The decrease in both periods was the result of the reinvestment of proceeds
from matured lower-yielding investments and certificates into substantially
higher yielding loans.
Interest income on mortgage-backed and related securities declined to $19,000
for the three months ended March 31, 1996, compared to $22,000 for the three
months ended March 31, 1995 and to $64,000 for the nine months ended March 31,
1996 compared to $78,000 for the nine months ended March 31, 1995. The decline
in both periods was due to a reduction in the balance of mortgage-backed and
related securities due to increased prepayments on mortgage-backed pools
yielding over 10%.
Interest Expense
Total interest expense, which consisted mainly of interest expense on deposits,
increased $20,000, or 7.4%, to $289,000 for the three months ended March 31,
1996 from $269,000 for the three months ended March 31, 1995 and $90,000, or
11.6%, to $869,000 for the nine months ended March 31, 1996 from $779,000 for
the nine months ended March 31, 1995. The general increase in market rates of
interest subsequent to March 31, 1995 resulted in increases in average rates
paid on all of the Bank's major categories of deposits to 5.30% for the three
months ended March 31, 1996 from 4.66% for the three months ended March 31,
1995 and 5.29% for the nine months ended March 31, 1996 from 4.52% for the nine
months ended March 31, 1995. This increase was partially offset by a $900,000
decrease in average deposits to $21.4 million for the three months ended March
31, 1996 from $22.3 million for the three months ended March 31, 1995 and a
$1.0 million decrease in average deposits to $21.9 million for the nine months
ended March 31, 1996 from $22.9 million for the nine months ended March 31,
1995. The level of deposit inflows during any given period is heavily
influenced by factors such as the general level of interest rates in the
economy, as well as alternative yields that investors may obtain on competing
investment instruments. Management believes the higher returns on equity
investments over the past few years has made alternative financial products,
such as mutual funds, more competitive with the Bank's traditional deposit
base, and the Bank's deposit base has been decreasing
18
<PAGE> 16
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Interest Expense, continued
as competition for funds has increased and as the Bank's local market area has
experienced demographic changes and recessionary conditions.
The following table sets forth certain information relating to the Bank's
average unaudited statements of financial condition and the statements of
income for the three months and nine months ended March 31, 1996 and 1995, and
reflects the average yield on interest-earning assets and average cost of
interest-bearing liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods indicated. Average balances are
derived principally from average daily balances and include nonaccruing loans.
The yields and costs include fees which are considered adjustments to yields.
The amount of interest income resulting from the recognition of loan fees was
$25,000 and $16,000 for the nine months ended March 31, 1996 and 1995,
respectively. Interest income on nonaccruing loans is reflected in the period
it is collected and not in the period it is earned. Such amounts are not
material to net interest income or net change in net interest income in any
period. Nonaccrual loans are included in the average balances and do not have
a material effect on the average yield.
19
<PAGE> 17
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------------------------------
1995 1996
--------------------------------------- -------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans $ 20,462 $ 441 8.62% $ 22,441 $ 480 8.56%
Mortgage-backed securities 1,044 22 8.43% 890 19 8.54%
Investment and other
securities 10,292 155 6.02% 8,207 121 5.90%
Federal Home Loan Bank
Stock 137 3 8.76% 152 3 7.89%
-------- ------- -------- -------
Total interest-
earning assets(1) 31,935 621 7.78% 31,690 623 7.86%
Non-interest earning
assets 646 - 1,141 -
-------- ------- -------- -------
Total assets $ 32,581 $ 621 $ 32,831 $ 623
======== ======= ======== =======
Liabilities and retained earnings:
Deposits $ 22,319 $ 260 4.66% $ 21,451 $ 284 5.30%
Advances from borrowers for
taxes and insurance 150 - 0.00% - -
Borrowings 590 9 6.10% 518 5 3.86%
-------- ------- -------- -------
Total interest-
bearing liabilities 23,059 269 4.67% 21,969 289 5.26%
Non-interest bearing
liabilities 127 - 802 -
Retained earnings 9,395 - 10,060 -
-------- ------- -------- -------
Total liabilities and
retained earnings $ 32,581 $ 269 $ 32,831 $ 289
======== ======= ======== =======
Net interest income/interest
rate spread(2) $ 352 3.11% $ 334 2.60%
Net earning assets/net
interest margin(3) $ 8,876 4.41% $ 9,721 4.22%
Average interest-earning
assets to average
interest-bearing
liabilities 138.49% 144.25%
</TABLE>
20
<PAGE> 18
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------------------------------------------------------------------
1995 1996
--------------------------------------- -------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans $ 19,948 $ 1,281 8.56% $ 21,825 $ 1,393 8.51%
Mortgage-backed securities 1,055 78 9.86% 923 64 9.25%
Investment and other
securities 11,271 450 5.32% 8,706 400 6.13%
Federal Home Loan Bank
Stock 138 7 6.76% 152 8 7.02%
-------- ------- -------- -------
Total interest-
earning assets(1) 32,412 1,816 7.47% 31,606 1,865 7.87%
Non-interest earning
assets 569 - 789 -
-------- ------- -------- -------
Total assets $ 32,981 $ 1,816 $ 32,395 $ 1,865
======== ======= ======== =======
Liabilities and retained
earnings:
Deposits $ 22,882 $ 775 4.52% $ 21,887 $ 869 5.29%
Advances from borrowers for
taxes and insurance 489 4 1.09% 9 - 0.00%
Borrowings 200 9 6.00% 178 5 3.75%
-------- ------- -------- -------
Total interest-
bearing liabilities 23,571 788 4.46% 22,074 874 5.28%
Non-interest bearing
liabilities 97 - 426 -
Retained earnings 9,313 - 9,895 -
-------- ------- -------- -------
Total liabilities and
retained earnings $ 32,981 $ 788 $ 32,395 $ 874
======== ======= ======== =======
Net interest income/interest
rate spread(2) $ 1,028 3.01% $ 991 2.59%
Net earning assets/net
interest margin(3) $ 8,841 4.23% $ 9,532 4.18%
Average interest-earning
assets to average
interest-bearing
liabilities 137.51% 143.18%
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process
and allowance for loan losses.
(2) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average rate paid on interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
21
<PAGE> 19
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Provision for Loan Losses
The provision for loan losses was $5,000 for both the three months ended March
31, 1996 and 1995 and $16,000 for both the nine months ended March 31, 1996 and
1995. The Bank determines the desired level of allowance for loan losses based
on the Bank's historical loan loss experience, the condition and composition of
the Bank's loan portfolio and general economic conditions. The amount of the
provision for loan losses for both the three and nine months ended March 31,
1996 and 1995 reflects management's intention to continue to make annual
additions to the Bank's allowance for loan losses until it is equal to
approximately 1.0% of the Bank's gross loan portfolio. However, the Bank will
continue to monitor its loan loss experience, the condition and composition of
its loan portfolio and general economic conditons, and may make further
additions to its allowance for loan losses to a greater or lesser extent than
it has done historically, depending upon changes in the aforementioned factors.
The allowance for loan losses totalled $120,000 and $99,0000 at March 31, 1996
and 1995, respectively. The allowance for loan losses was 0.51% and .046% of
gross loans at March 31, 1996 and 1995, respectively, and there were no
nonperforming loans at March 31, 1996. While the Bank recorded no charge-offs
for the three months ended March 31, 1996 and 1995 or the nine months ended
March 31, 1996, charge-offs in the amount of $2,000 were recorded for the nine
months ended March 31, 1995.
Noninterest Income
Noninterest income decreased to $2,000 for the three months ended March 31,
1996 compared to $5,000 for the three months ended March 31,1995 and increased
to $12,000 for the nine months ended March 31, 1996, compared to $7,000 for the
nine months ended March 31, 1995. The change during the nine months ended
March 31, 1996 was due in part to a $9,000 investment loss during the nine
months ended March 31, 1995 compared to a $3,000 investment loss during the
nine months ended March 31, 1996. The remainder of the change in both periods
was due to real estate loan brokerage fee income of $4,000 for the three months
ended March 31, 1995 compared to $0 for the three months ended March 31, 1996
and $8,000 for the nine months ended March 31, 1996 compared to $10,000 for the
nine months ended March 31, 1995.
Noninterest expense
Noninterest expense decreased $3,000, or 1.6% to $183,000 for the three months
ended March 31, 1996 from $186,000 for the three months ended March 31, 1995
and increased $15,000, or 2.9%, to $533,000 for the nine months ended March 31,
1996 from $518,000 for the nine months ended March 31, 1995. The decrease for
the three months ended March 31, 1996 was due to a $10,000 increase in
compensation and benefits being offset by cost reductions in in most other
areas. The increase for the nine months ended March 31, 1996 was primarily due
to an increase of $29,000 in compensation and benefits, which was partially
offset by cost reductions in other areas. The Bank anticipates an increase in
noninterest expense after the Conversion due to anticipated increased legal and
accounting fees and the hiring of additional personnel for accounting and loan
origination purposes. Noninterest expense as a percentage of average assets
(on an annualized basis) was 2.23% and 2.28%, respectively, for the three
months ended March 31, 1996 and 1995 and 2.19% and 2.09%, respectively, for the
nine months ended March 31, 1996 and 1995.
Income Tax Expense
Income tax expense decreased $15,000 or 20.3%, to $59,000 for the three months
ended March 31, 1996 from $74,000 for the three months ended March 31, 1995 and
decreased $26,000 or 12.7%, to $179,000 for the nine months ended March 31,
1996 from $205,000 for the nine months ended March 31, 1995, primarily due to
decreased income before income taxes. The Bank's effective tax rates were
39.9% and 44.6%, respectively, for the three months ended March 31, 1996 and
1995 and 39.4% and 40.9%, respectively, for the nine months ended March 31,
1996 and 1995.
Liquidity, Capital Resources and Regulatory Capital
The Bank's primary sources of funds are deposits, proceeds from principal and
interest payments on loans, and principal and interest payments on
mortgage-backed and related
22
<PAGE> 20
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Liquidity, Capital Resources and Regulatory Capital, continued
securities and investment securities. Although maturity and scheduled
amortization of loans and investments are predictable sources of funds, deposit
flows, mortgage loan prepayments and prepayments on mortgage-backed and related
securities are influenced significantly by general interest rates, economic
conditions and competition. During the nine months ended March 31, 1996 and the
year ended June 30, 1995, rates in general declined only moderately and mortgage
loan prepayments thus were fairly stable. Prepayments on mortgage-backed and
related securities, however, were considerably higher during these years because
the yield on many of those securities was over 10%. For the nine months ended
March 31, 1996, and for the year ended June 30, 1995, the Bank reinvested loan
and mortgage-backed and related securities repayments into new mortgage loan
originations. For the nine months ended March 31, 1996 and year ended June 30,
1995, respectively, the Bank originated $4.8 million and $5.3 million in
mortgage loans. The Bank did not originate or purchase any mortgage-backed and
related securities during these periods. In a period of rising interest rates,
it is anticipated that mortgage loan prepayments will decrease, and any proceeds
from such prepayments may be invested in higher yielding loans or investments
which would have the effect of increasing interest income.
The Bank is required to maintain minimum levels of liquid assets under the
Commissioner's regulations for state-chartered mutual savings banks. Savings
banks are required to maintain an average balance of liquid assets (including
cash, certain time deposits, certain banker's acceptances, certain corporate
debt securities and highly rated commercial paper, securities of certain mutual
funds and specified United States government, state or federal agency
obligations) of not less than 5% of its average daily balance of net
withdrawable accounts plus short-term borrowings. The Bank's liquidity ratios
were 71.19% and 43.62% at March 31, 1996 and at June 30, 1995, respectively.
The Bank's most liquid assets are cash and cash equivalents, which include
investments in highly liquid, short-term investments. The levels of these
assets are dependent on the Bank's operating, financing, lending and investing
activities during any given period. At March 31, 1996 and June 30, 1995, cash
and cash equivalents were $7.6 million and $800,000, respectively. The
increase in cash and cash equivalents resulted primarily from proceeds received
from the Conversion.
Until the net proceeds from the Conversion are permanently invested, management
anticipates initially maintaining somewhat higher levels of liquid assets after
the Conversion.
Liquidity management for the Bank is both a daily and long-term component of
the Bank's management strategy. The Bank maintains liquidity levels sufficient
to accommodate normal deposit fluctuations and various funding needs, and to
meet its asset and liability management objectives. Excess funds generally are
invested in short-term investments. At March 31, 1996, the Bank had no
borrowings outstanding, but has an approved borrowing resolution with the FHLB,
and uses FHLB advances if liquidity conditions or investment strategies warrant
their use.
At March 31, 1996, the Bank had no outstanding loan commitments. The Bank had
no commitments to purchase mortgage-backed and related securities at that date.
The Bank anticipates it will have sufficient funds available to meet its
current loan commitments, including loan applications received and in process
prior to the issuance of firm commitments. Certificates of deposit which are
scheduled to mature in one year or less at March 31, 1996 were $12.8 million.
Based on its historical experience, management believes that a significant
portion of such deposits will remain with the Bank.
Cash flows are categorized as to whether they relate to the operating,
investing or financing activities of the Bank. Cash flow from operating
activities includes net income plus or minus noncash income statement items and
cash flow related to the origination and sale of mortgage loans held for sale.
Cash flow from investing activities includes proceeds form the sale or maturity
of investment securities, principal payments collected on loans and
mortgage-backed and related securities, loan originations and purchases of
investments and mortgage-backed and related securities. Cash flow from
financing activities includes the increase or decrease in deposits, borrowings
and escrows. The
23
<PAGE> 21
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Liquidity, Capital Resources and Regulatory Capital, continued
amount of principal repayments on loans and mortgage-backed and related
securities are heavily influenced by the general level of loans that it intends
to retain, such as ARM loans and other loans with shorter terms and during
periods of high principal repayments, the Bank will increase liquid assets,
with remaining amounts invested in mortgage-backed and related securities.
The primary investing activity of the Bank is the origination of loans. For
the nine months ended March 31, 1996 and the year ended June 30, 1995,
respectively, the Bank originated $4.8 million and $5.3 million in mortgage
loans. There were no sales or purchases of mortgage loans during these
periods. The Bank also did not originate or purchase any mortgage-backed and
related securities during these periods.
During the nine months ended March 31, 1996, and the year ended June 30, 1995,
respectively, the Bank received principal repayments on loans totalling $3.1
million and $3.7 million, and principal repayments on mortgage-backed and
related securities of $148,000 and $273,000.
Deposits were $21.1 million and $22.3 million at March 31, 1996 and June 30,
1995, respectively. The Bank's certificates of deposit accounts declined from
$17.6 million at June 30, 1995 to $17.1 million at March 31, 1996 due to
competition for these accounts from other investment sources. Demand accounts,
which consist of NOW accounts, money market accounts and passbook accounts,
were $4.0 million and $4.7 million, respectively, at March 31, 1996 and at June
30, 1995. The decreases were due to the general decline in the average rate on
demand accounts from 3.16% for the year ended June 30, 1994 to 3.14% for the
year ended June 30, 1995, and to 2.91% for the nine months ended March 31,
1996.
During the three months ended March 31, 1996, and during all further subsequent
periods prior to the consummation of the Conversion, the Bank's liability
balance will increase by the amount of deposits accompanying stock orders
received (in escrow) in connection with the Conversion. This increase,
however, has been offset by other overall deposit account activity not
connected with the Conversion. Upon consummation of the Conversion, the Bank's
liability balance will decrease by the amount of stock proceeds received (in
escrow) in connection with the Conversion. In addition, the Bank's deposit
account balance will decline by the amount authorized to be withdrawn by
depositors for payment for shares of Common Stock in connection with the
Conversion. These decreases, however, may be partially offset by, or further
decreased by, other overall deposit account activity not connected with the
Conversion.
Effective May 31, 1993, the Bank, as a state-chartered mutual savings bank, is
subject to regulation by the FDIC and the Commissioner. FDIC regulations set
forth certain capital standards that require banks to have a minimum 3% Tier 1
capital to total assets ratio, a minimum 4% Tier 1 capital to risk-weighted
assets ratio and a minimum 8% qualifying total capital to risk-weighted assets
ratio. Wisconsin-chartered savings banks also are required to maintain a
minimum capital to assets ratio of 6%, and must maintain total capital
necessary to ensure the continuation of insurance of deposit accounts by the
FDIC. The Bank's regulatory capital exceeds all minimum standards required
under the FDIC regulations and Wisconsin law.
24
<PAGE> 22
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations,
Continued
Liquidity, Capital Resources and Regulatory Capital, continued
The following table summarizes the Bank's capital amounts and capital ratios,
and the capital ratios required by the FDIC and the State of Wisconsin on a
fully phased-in basis:
<TABLE>
<CAPTION>
At March 31, 1996 At June 30,1995
------------------------ ----------------------
Percent Percent
Amount of Assets Amount of Assets
------ --------- ------ ---------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C>
Total capital under generally accepted
accounting principles $ 10,049 25.41% $ 9,616 29.81%
======== ===== ======= =====
Tier 1 capital leverage $ 9,808 24.81% $ 9,533 29.55%
Tier 1 capital leverage requirement 1,186 3.00 968 3.00
-------- ----- ------- -----
Excess $ 8,622 21.81% $ 8,565 26.55%
======== ===== ======= =====
Tier 1 risk-based capital $ 9,808 50.29% $ 9,533 52.63%
Tier 1 risk-based capital requirement 780 4.00 725 4.00
-------- ----- ------- -----
Excess $ 9,028 46.29% $ 8,808 48.63%
======== ===== ======= =====
Total risk-based capital $ 9,928 50.91% $ 9,637 53.20%
Total risk-based capital requirement 1,560 8.00 1,449 8.00
-------- ----- ------- -----
Excess $ 8,368 42.91% $ 8,188 45.20%
======== ===== ======= =====
Wisconsin regulatory capital $ 10,169 25.72% $ 9,720 30.13%
Wisconsin regulatory capital requirement 2,372 6.00 1,936 6.00
-------- ----- ------- -----
Excess $ 7,797 19.72% $ 7,784 24.13%
======== ===== ======= =====
</TABLE>
Asset Quality
Delinquencies, Nonperforming Assets and Classified Assets
At March 31, 1996, the Bank had no nonperforming assets, classified assets or
loans delinquent more than 89 days.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its portfolio
and the general economy. Such evaluation, which includes a review of all loans
on which full collectibility may not be reasonably assured, considers, among
other matters, the estimated value of the underlying collateral, the nature and
type of collateral, economic conditions, recent loan loss experience, industry
standards, regulatory considerations and other factors that warrant recognition
in providing for an adequate loss allowance. There can be no assurance that
the allowance for loan losses will be adequate to cover losses which may in
fact be realized in the future and that additional provisions for loan losses
will not be required. The amount of the provision for loan losses for the nine
months ended March 31, 1996 and 1995 and for the three months ended March 31,
1996 and 1995, reflected management's intention to continue to make annual
additions to the Bank's allowance for loan losses until it is equal to
approximately 1.0% of the Bank's gross loan portfolio. However, the Bank will
continue to monitor its loan loss experience, the condition and composition of
its loan portfolio and general economic conditions, and may make further
additions to its allowance for loan losses to a greater or lesser extent than
it has done historically, depending upon changes in the aforementioned
conditons.
25
<PAGE> 23
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations,
Continued
Asset Quality, continued
The following table sets forth the Bank's allowance for loan losses for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- ----------------
1995 1996 1995 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 93 $ 115 $ 84 $ 104
Provision for loan losses 5 5 16 16
Charge-offs net of recoveries:
Mortgage loans - - (2) -
Consumer loans - - - -
---- ----- ---- -----
Total charge-offs (net) $ 98 $ 120 $ 98 $ 120
==== ===== ==== =====
Balance at end of period
Ratio of allowance for loan losses to gross
loans receivable at the end of period 0.46% 0.51% 0.46% 0.51%
Ratio of allowance for loan losses to
nonperforming loans at the end of period 0.00% 0.00% 0.00% 0.00%
Ratio of allowance for loan losses to total
nonperforming assets at the end of the period 0.00% 0.00% 0.00% 0.00%
Ratio of net charge-offs to average gross loans
during period 0.00% 0.00% 0.01% 0.00%
</TABLE>
Asset/Liability Management
The Banks' profitability, like that of most financial institutions, depends to a
large extent upon its net interest income, which is the difference between the
interest it earns on interest-earning assets, such as loans and investments, and
the interest expense it pays on interest-bearing liabilities, such as deposits
and borrowings. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity "gap".
An asset or liability is said to be interest rate sensitive within a specific
time period if it matures or reprices within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities that mature or reprice within a specified time period. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets that mature or reprice
within a specified time period. During a period of rising interest rates,
therefore, a negative gap theoretically would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. Conversely, during a period of falling interest rates, a
negative gap position would theoretically tend to result in an increase in net
interest income while a positive gap would tend to affect net interest income
adversely.
In an attempt to manage vulnerability to interest rate changes, management
monitors the Bank's interest rate risk. The principal objective of the Bank's
interest rate risk management function is to evaluate the interest rate risk
included in certain balance sheet accounts, determine the level of risk for the
Bank given its operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with board approved
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operations to changes in interest rates. The Bank monitors its interest
rate risk as such risk relates to its operating strategies. The Bank's Board of
Directors has established an Asset/Liability Committee, responsible for
reviewing its asset/liability policies and interest rate risk position, which
meets monthly and reports trends to the Board of Directors on a monthly basis
and the Bank's interest rate risk position on a quarterly basis.
26
<PAGE> 24
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Asset/Liability Management, continued
In recent years, the Bank has utilized the following strategies to manage
interest rate risk: (i) emphasizing the origination of adjustable rate
one-to-four family mortgage loans and non-one-to-four family mortgages loans
(which typically are either adjustable rate or short-term) for its loan
portfolio; (ii) holding primarily short-term mortgage-backed and related
securities and investment securities; and (iii) attempting to reduce the
overall interest rate sensitivity of liabilities by emphasizing core and
longer-term deposits.
By originating ARM loans and other mortgage loans with short to medium terms
and by investing in relatively short to medium term securities and investment
securities, the Bank has been able to reduce interest rate risk by more closely
matching the terms and repricing characteristics of its assets and liabilities.
Although the Bank has significantly increased its emphasis upon originating
ARM loans and has been developing other types of mortgage loans with shorter
average lives or terms and invests in mortgage-backed and related securities
with shorter average lives, the level of the Bank's portfolio of fixed rate
mortgage loans and investments with longer average lives continues to affect
its gap position. The Bank's ARM loans also typically have annual and lifetime
caps on interest rate increases, which reduces the extent to which they protect
the Bank against interest rate risk. Further, mortgage-backed securities are
subject to reinvestment risk. For example, during periods of falling interest
rates, mortgage-backed securities are more likely to prepay, and the Bank may
not be able to reinvest the proceeds from prepayments in securities or other
assets with yields similar to those of prepaying mortgage-backed securities.
Mortgage-backed and related securities also are subject to extension risk,
which is the risk that the effective maturity of the security may increase in a
rising interest rate environment. The market value of a security with a longer
maturity typically is more sensitive to changes in market rates of interest,
and rising interest rates may have a more pronounced adverse effect on the
market value of mortgage-backed and related securities than on other types of
investment securities.
The Bank continues to closely monitor its interest rate risk as that risk
relates to its strategies. At March 31, 1996, total interest-earning assets
maturing or repricing within one year exceeded total interest-bearing
liabilities maturing or repricing in the same period by $2.6 million,
representing a positive cumulative one year gap ratio of 6.66%. With a
positive gap position, during periods of rising interest rates it is projected
that the cost of the Bank's interest-bearing liabilities would rise slower than
the yield on its interest-earning assets, which would have a positive effect
upon net interest income. The opposite effect on the net interest income would
occur in periods of falling interest rates. The Bank also could experience
substantial prepayments of its fixed rate mortgage loans in periods of falling
interest rates, which would likely result in the reinvestment of such proceeds
at market rates which are lower than current rates.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1996 which are
anticipated by the Bank to mature or reprice in each of the periods shown,
based on the information and assumptions set forth in the notes below. Except
as stated below, the amount of assets and liabilities shown which reprice or
mature during a particular period were determined in accordance with the
earlier of term to repricing or the contractual maturity of the asset or
liability. It is intended to provide an approximation of the projected
repricing of assets and liabilities at March 31, 1996, on the basis of
contractual maturities, anticipated prepayments, and schedule rate adjustments
within a three month period and subsequent selected time intervals. The loan
amounts in the table reflect principal balances expected to be redeployed
and/or repriced as a result of contractual amortization and anticipated
prepayments of adjustable rate loans and fixed rate loans, and as a result of
contractual rate adjustments on adjustable rate loans. For loans on
residential properties, adjustable rate loans and fixed rate loans are
projected to prepay at rates between 15% and 30% annually. Prepayment
assumptions are based on OTS prepayment assumptions of 10% - 30% based on loan
type. Mortgage-backed and unrelated securities are projected to prepay at
rates between 23% and 29% annually. Money market savings accounts,
27
<PAGE> 25
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations,
Continued
Asset/Liability Management, continued
passbook accounts and negotiable order of withdrawal ("NOW") accounts are
assumed to have decay rates between 40% and 79% annually.
<TABLE>
<CAPTION>
At March 31, 1996
-------------------------------------------------------------------------------------
More Than More Than
Within Four to One Year Three Years Over
Three Twelve To Three To Five Five
Months Months Years Years Years Total
------ ------- --------- ----------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1)
Mortgage loans(2):
Fixed $ 1,274 $ 3,254 $ 1,676 $ 1,036 $ 7,802 $ 15,042
Variable 1,004 4,814 1,500 - - 7,318
Consumer loans(2) 2 - 1 - - 3
Mortgage-backed
securities:
Fixed 9 29 86 104 644 872
Investment securities
and other assets 6,993 100 498 95 2,029 9,715
------- -------- ------- ------- ------- --------
Total interest-earning
assets $ 9,282 $ 8,197 $ 3,761 $ 1,235 $10,475 $ 32,950
======= ======== ======= ======= ======= ========
Interest-bearing liabilities:
Deposits(3)
NOW accounts $ 8 $ 23 $ 29 $ 10 $ 6 $ 76
Money market
deposit accounts 231 693 157 56 32 1,169
Passbook savings
accounts 277 830 1,062 382 215 2,766
Certificates of
deposit 4,620 8,164 3,410 856 49 17,099
FHLB advances - - - - - -
------- -------- ------- ------- ------- --------
Total interest-
bearing liabilities $ 5,136 $ 9,710 $ 4,658 $ 1,304 $ 302 $ 21,110
======= ======== ======= ======= ======= ========
Excess (deficiency)
of interest earning
assets over interest-
bearing liabilities $ 4,146 $ (1,513) $ (897) $ (69) $10,173 $ 11,840
======= ======== ======= ======= ======= ========
</TABLE>
28
<PAGE> 26
RELIANCE SAVINGS BANK
Management's Discussion and Analysis of Financial Condition and
Results of Operations,
Continued
<TABLE>
<CAPTION>
At March 31, 1996
-------------------------------------------------------------------------------------
More Than More Than
Within Four to One Year Three Years Over
Three Twelve To Three To Five Five
Months Months Years Years Years Total
------ ------- --------- ----------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cumulative excess
(deficiency) of
interest-earning
assets over interest-bearing
liabilities $ 4,146 $ 2,633 $ 1,736 $ 1,667 $11,840 $ 11,840
======= ======= ======= ======= ======= ========
Cumulative excess
(deficiency) of
interest-earning
assets over
interest-bearing
liabilities as a
percent of total
assets 10.49% 6.66% 4.39% 4.22% 29.94% 29.94%
======= ======= ======= ======= ======= ========
</TABLE>
(1) Adjustable and floating rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed rate assets are included in the periods in
which they are scheduled to be repaid based on scheduled amortization, in
each case adjusted to take into account estimated prepayments utilizing
OTS prepayment assumptions of 10% - 30% based on loan type.
(2) Balances have been reduced for undisbursed loan proceeds, unearned
interest, deferred loan fees and allowances for loan losses, which
aggregated $1,343,000 at March 31, 1996.
(3) Although the Bank's negotiable order of withdrawal ("NOW") accounts,
money market accounts and passbook accounts generally are subject to
immediate withdrawal, management considers a certain amount of such
accounts to be core deposits having significantly longer effective
maturities based on the Bank's retention of such deposits in changing
interest rate environments. NOW accounts, passbook savings accounts and
money market deposit accounts have been assumed to be withdrawn at annual
rates of 40%, 40% and 79%, respectively, of the declining balance of such
accounts during the period shown. The withdrawal rates are higher than
the Bank's historical rates but are considered by management to be more
indicative of expected withdrawal rates currently. If all of the Bank's
NOW accounts, passbook savings accounts and money market deposit accounts
had been assumed to be subject to repricing within one year, the one year
cumulative excess of interest-earning assets over interest-bearing
liabilities would have been $684,000 or 1.73% of total assets.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as ARM loans and mortgage-backed and
related securities, have features which restrict changes in interest rates on a
short-term basis and over the life of the assets. In addition, the proportion
of ARM loans and mortgage-backed and related securities in the Bank's portfolio
could decrease in future periods if market interest rates remain at or decrease
below current levels due to the exercise of conversion options and refinancing
activity. Further, in the event of a change in interest rates, prepayment and
early withdrawal levels would likely deviate significantly from those assumed
in the table.
29
