FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20552
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-----------------------------------
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 No. 0-26248
LONDON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-1452807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2 East High Street
London, Ohio 43140
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (614) 852-0787
Check whether the issuer (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 the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
As of August 10, 1998, the latest practicable date, 479,450 of the registrant's
common shares, without par value, were issued and outstanding.
Page 1 of 15 pages
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London Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION 14
SIGNATURES 15
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<TABLE>
London Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, September 30,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 435 $ 322
Interest-bearing deposits in other financial institutions 2,028 3,342
------ ------
Cash and cash equivalents 2,463 3,664
Investment securities designated as available for sale - at market 141 155
Investment securities - at amortized cost, approximate market
value of $502 at September 30, 1997 - 500
Mortgage-backed securities - at cost, approximate market
value of $2,928 and $3,613 at June 30, 1998 and
September 30, 1997, respectively 2,894 3,586
Loans receivable - net 30,097 29,465
Office premises and equipment - at depreciated cost 369 360
Stock in Federal Home Loan Bank - at cost 283 280
Accrued interest receivable 173 169
Prepaid expenses and other assets 82 31
------ ------
Total assets $36,502 $38,210
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $31,213 $29,951
Advances from the Federal Home Loan Bank 300 300
Other liabilities 128 162
Accrued federal income taxes 1 141
Deferred federal income taxes 33 52
------ ------
Total liabilities 31,675 30,606
Shareholders' equity
Common shares - authorized 5,000,000 shares without par value;
529,000 shares issued - -
Additional paid-in capital 2,391 4,910
Shares acquired by Employee Stock Ownership Plan (381) (423)
Shares acquired by Management Recognition Plan (262) (315)
Retained earnings - substantially restricted 3,895 3,683
Unrealized gains (losses) on securities designated as available for
sale, net of related tax effects (13) 31
Less 49,550 and 18,840 treasury shares - at cost (803) (282)
------ ------
Total shareholders' equity 4,827 7,604
------ ------
Total liabilities and shareholders' equity $36,502 $38,210
====== ======
</TABLE>
3
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<TABLE>
London Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Nine months ended Three months ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $1,916 $1,773 $626 $608
Mortgage-backed securities 155 175 46 59
Investment securities 7 50 4 7
Interest-bearing deposits and other 125 115 45 46
----- ----- --- ---
Total interest income 2,203 2,113 721 720
Interest expense
Deposits 1,115 1,047 376 356
Borrowings 40 31 6 14
----- ----- --- ---
Total interest expense 1,155 1,078 382 370
----- ----- --- ---
Net interest income before provision
for losses on loans 1,048 1,035 339 350
Provision for losses on loans 14 - 6 -
----- ----- --- ---
Net interest income after provision
for losses on loans 1,034 1,035 333 350
Other income
Gain on investment securities transactions 75 - - -
Other operating 44 45 13 14
----- ----- --- ---
Total other income 119 45 13 14
General, administrative and other expense
Employee compensation and benefits 345 332 123 127
Occupancy and equipment 57 50 22 17
Federal deposit insurance premiums 14 28 4 5
Franchise taxes 60 60 28 28
Data processing 43 42 13 14
Other 173 183 52 56
----- ----- --- ---
Total general, administrative and other expense 692 695 242 247
----- ----- --- ---
Earnings before income taxes 461 385 104 117
Federal income taxes
Current 154 36 16 12
Deferred 3 92 23 24
----- ----- --- ---
Total federal income taxes 157 128 39 36
----- ----- --- ---
NET EARNINGS $ 304 $ 257 $ 65 $ 81
===== ===== === ===
EARNINGS PER SHARE
Basic $.64 $.54 $.14 $.17
=== === === ===
Diluted $.62 $.53 $.13 $.17
=== === === ===
</TABLE>
4
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<TABLE>
London Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30,
(In thousands)
1998 1997
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 304 $ 257
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Gain on investment securities transactions (75) -
Amortization of deferred loan origination fees (96) (64)
Provision for losses on loans 14 -
Depreciation and amortization 16 21
Federal Home Loan Bank stock dividends (15) (14)
Amortization expense of stock benefit plans 109 -
Increase (decrease) in cash due to changes in:
Accrued interest receivable (4) (1)
Prepaid expenses and other assets (51) (44)
Other liabilities (34) (130)
Federal income taxes
Current (140) 13
Deferred 3 92
----- ----
Net cash provided by operating activities 31 130
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 506 1,500
Principal repayments on mortgage-backed securities 692 347
Proceeds from sale of investment securities 177 -
Purchase of investment securities (160) -
Principal repayments on loans 7,180 4,107
Loan disbursements (7,730) (6,482)
Purchase of office equipment (25) (24)
Proceeds from redemption of Federal Home Loan Bank stock 12 -
----- -----
Net cash used in investing activities 652 (552)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 1,262 1,392
Proceeds from Federal Home Loan Bank advances - 500
Purchase of shares for Management Recognition Plan - (315)
Purchase of treasury shares (521) (282)
Distributions paid on common shares (2,625) (88)
----- -----
Net cash provided by (used in) financing activities (1,884) 1,207
----- -----
Net increase in cash and cash equivalents (1,201) 785
Cash and cash equivalents at beginning of period 3,664 2,643
----- -----
Cash and cash equivalents at end of period $2,463 $3,428
===== =====
Supplemental disclosure of cash flow information: Cash paid during the year for:
Federal income taxes $ 180 $ 23
===== =====
Interest on deposits and borrowings $1,155 $1,076
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net $ (44) $ 40
===== =====
</TABLE>
5
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London Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine month periods ended June 30, 1998 and 1997
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Accordingly, these financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto of London Financial Corporation ("LFC" or the
"Corporation") included in the Annual Report on Form 10-KSB for the year ended
September 30, 1997. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for a fair
presentation of the consolidated financial statements have been included. The
results of operations for the nine and three month periods ended June 30, 1998,
are not necessarily indicative of the results which may be expected for an
entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of LFC
and The Citizens Loan & Savings Company, a savings and loan association
wholly-owned by LFC, ("Citizens"). All significant intercompany items have been
eliminated.
3. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the London Financial Corp.
Employee Stock Ownership Plan (the "ESOP") that are unallocated and not
committed to be released. Weighted-average common shares outstanding, which
gives effect to 33,856 unallocated ESOP shares, totaled 475,080 and 472,631 for
the nine and three month periods ended June 30, 1998. Weighted-average common
shares deemed outstanding, which gives effect to 42,320 unallocated ESOP shares,
totaled 479,201 and 472,455 for the nine and three month periods ended June 30,
1997.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under LFC's stock
option plan. Weighted-average common shares deemed outstanding for purposes of
computing diluted earnings per share totaled 493,434 and 492,977 for the nine
and three month periods ended June 30, 1998, respectively, 480,703 and 473,048
for each of the nine and three month periods ended June 30, 1997.
4. Effects of Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", that provides
accounting guidance on transfers of financial assets, servicing of financial
assets, and extinguishment of liabilities. SFAS No. 125 introduces an approach
to accounting for transfers of financial assets that provides a means of dealing
with more complex transactions in which the seller disposes of only a partial
interest in the assets, retains rights or obligations, makes use of special
purpose
6
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London Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine month periods ended June 30, 1998 and 1997
4. Effects of Recent Accounting Pronouncements (continued)
entities in the transaction, or otherwise has continuing involvement with the
transferred assets. The new accounting method, the financial components
approach, provides that the carrying amount of the financial assets transferred
be allocated to components of the transaction based on their relative fair
values. SFAS No. 125 provides criteria for determining whether control of assets
has been relinquished and whether a sale has occurred. If the transfer does not
qualify as a sale, it is accounted for as a secured borrowing. Transactions
subject to the provisions of SFAS No. 125 include, among others, transfers
involving repurchase agreements, securitizations of financial assets, loan
participations, factoring arrangements, and transfers of receivables with
recourse.
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management adopted SFAS No. 125 effective January 1, 1998, as required, without
material effect on LFC's consolidated financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on LFC's financial statements.
7
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London Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine month periods ended June 30, 1998 and 1997
4. Effects of Recent Accounting Pronouncements (continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No.
131 is not expected to have a material impact on LFC's financial statements.
8
<PAGE>
London Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Corporation's operations and the Corporation's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, the effects of the year 2000 on certain information
technology systems and the effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from September 30, 1997 to June 30,
1998
At June 30, 1998, LFC had total assets of $36.5 million, a decrease of $1.7
million, or 4.5%, from September 30, 1997. The decrease in assets resulted
primarily from the $5.00 per share return of capital distribution, totaling $2.5
million, which was paid to LFC's shareholders in November, 1997, which was
partially offset by a $1.3 million increase in deposits.
Investment securities and mortgage-backed securities decreased by $1.2 million,
to a total of $3.0 million at June 30, 1998, reflecting the maturity of
investment securities totaling approximately $500,000 and principal repayments
on mortgage-backed securities of $692,000.
Loans receivable increased by $632,000, or 2.1%, as loan disbursements of $7.7
million exceeded principal repayments of $7.2 million. Loan disbursements during
the nine month period ended June 30, 1998, exceeded the volume of disbursements
for the same period in 1997 by $1.2 million, or 19.3%.
At June 30, 1998, Citizens' allowance for loan losses totaled $193,000, as
compared to the $187,000 level maintained at September 30, 1997. Nonperforming
loans totaled $199,000, or .7% of the total loan portfolio at June 30, 1998, as
compared to nonperforming loans of $268,000, or .9% of the total loan portfolio
at September 30, 1997. At June 30, 1998, Citizens' allowance for loan losses was
comprised solely of a general loan loss allowance which is includible as a
component of regulatory risk-based capital. Although management of LFC believes
that its allowance for loan losses was adequate at June 30, 1998, based on the
available facts and circumstances, there can be no assurance that the allowance
will be adequate to absorb actual loan losses during the current period or that
additions to such allowance will not be necessary in future periods, which could
adversely affect LFC's results of operations.
Deposits totaled $31.2 million at June 30, 1998, an increase of $1.3 million, or
4.2%, over the $30.0 million of deposits outstanding at September 30, 1997. Such
increase resulted primarily from management's efforts to increase deposits
through marketing strategies.
9
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London Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from September 30, 1997 to June 30,
1998 (continued)
Shareholders' equity totaled $4.8 million at June 30, 1998, a decrease of $2.8
million, or 36.5%, from September 30, 1997, levels. The decrease resulted
primarily from the $2.5 million, or $5.00 per share, return of capital
distribution paid to LFC's shareholders in November, 1997, coupled with regular
dividends totaling $92,000, or $.18 per share, which were partially offset by
net earnings of $304,000.
Citizens is required to maintain regulatory capital sufficient to meet certain
minimum capital standards promulgated by the Office of Thrift Supervision. As of
June 30, 1998, Citizens' regulatory capital was well in excess of such minimum
capital requirements.
Comparison of Operating Results For the Nine Month Periods Ended June 30, 1998
and 1997
General
Net earnings for the nine month period ended June 30, 1998, totaled $304,000, an
increase of $47,000, or 18.3%, over the comparable 1997 period. The increase in
earnings resulted primarily from a $13,000 increase in net interest income and a
$74,000 increase in other income, which were partially offset by a $14,000
increase in the provision for losses on loans and a $29,000 increase in the
federal income tax provision.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $123,000,
or 6.3%, for the nine months ended June 30, 1998, as compared to the nine months
ended June 30, 1997. The increase was primarily due to an approximate $500,000
increase in the weighted average portfolio balance outstanding year to year,
coupled with an increase in yield. Interest income on investment securities and
other interest-earning assets decreased by $34,000, or 20.6%, due primarily to
decreases in balances outstanding year to year and yields available on
short-term deposits.
Interest expense on deposits increased by $68,000, or 6.5%, during the nine
months ended June 30, 1998. This increase resulted primarily from a $1.7 million
increase in the weighted average balance of deposits outstanding. Interest
expense on borrowings increased by $9,000, or 29.0%, due to an increase in
borrowings outstanding during the period, as LFC borrowed $1.4 million to
partially fund the special $5.00 per share distribution paid in November 1997.
10
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London Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results For the Nine Month Periods Ended June 30, 1998
and 1997 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $13,000, or 1.3%, during the nine months ended
June 30, 1998, as compared to the nine months ended June 30, 1997. The interest
rate spread totaled approximately 3.11% for the nine months ended June 30, 1998,
compared to 2.96% for the same period in 1997, while the net interest margin
increased to approximately 3.84% in the 1998 period from 3.83% in the 1997
period.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by Citizens,
the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to Citizens' market area, and
other factors related to the collectibility of Citizen's loan portfolio. The
provision for losses on loans totaled $14,000 for the nine months ended June 30,
1998. There can be no assurance that the loan loss allowance of Citizens will be
adequate to cover losses on nonperforming assets in the future.
Other Income
Other income totaled $119,000 during the nine months ended June 30, 1998, an
increase of $74,000, or 164.4% over the same period in 1997. The increase
resulted primarily from a $6,000 gain realized upon the call of a $500,000 U.S.
Government agency bond and a $69,000 gain on the sale of equity securities.
Other operating income is comprised primarily of service fees on deposit
accounts, late charges on loan accounts and rental income on leased office space
and safety deposit boxes.
General, Administrative and Other Expense
General, administrative and other expense decreased by approximately $3,000, or
.4%, during the nine months ended June 30, 1998, as compared to 1997, reflecting
the $14,000, or 50.0%, decline in federal deposit insurance premiums, due to
lower premium rates during the period, while employee compensation and benefits
increased by $13,000, or 3.9%. The increase in employee compensation and
benefits resulted from the employment of a loan officer and staff related to
Citizens initiative to pursue growth in the loan portfolio, which was partially
offset by an increase in deferred loan origination costs related to the increase
in lending volume.
Federal Income Taxes
The provision for federal income taxes increased by $29,000, or 22.7%, during
the nine months ended June 30, 1998, due primarily to an increase in earnings
before taxes of $76,000, or 19.7%. LFC's effective tax rates amounted to 34.1%
and 33.2% during the nine months ended June 30, 1998 and 1997, respectively.
11
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London Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results For the Three Month Periods Ended June 30, 1998
and 1997
General
Net earnings for the three month period ended June 30, 1998, totaled $65,000, a
decrease of $16,000, or 19.8%, from the comparable 1997 period. The decrease in
earnings resulted primarily from an $11,000 decrease in net interest income and
a $6,000 increase in the provision for losses on loans, which was partially
offset by a $5,000 decrease in general, administrative and other expense.
Net Interest Income
Interest income on loans for the three months ended June 30, 1998, increased by
$18,000, or 3.0%, as compared to the three months ended June 30, 1997. The
increase was primarily due to an approximate $450,000 increase in the
weighted-average balance outstanding. Interest income on mortgage-backed
securities decreased by $13,000, or 22.0%, due primarily to a decrease in the
weighted-average portfolio balance outstanding year to year. Interest income on
investment securities and other interest-earning assets decreased by $4,000, or
7.5%.
Interest expense on deposits increased by $20,000, or 5.6%, during the three
months ended June 30, 1998. This increase resulted primarily from an increase in
the weighted average balance of deposits outstanding, which was offset by a
decrease in the cost of deposits.
Interest expense on borrowings decreased by $8,000, or 57.1%, during the three
months ended June 30, 1998. The decrease is primarily due to a decrease in the
weighted-average balance of advances outstanding.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $11,000, or 3.1%, during the three months ended
June 30, 1998, as compared to the three months ended June 30, 1997.
Other Income
Other income totaled $13,000 during the three months ended June 30, 1998, a
decrease of $1,000 from the three month period ended June 30, 1997. Other
operating income is comprised primarily of service fees on deposit accounts,
late charges on loan accounts and rental income on leased office space and
safety deposit boxes.
General, Administrative and Other Expense
General, administrative and other expense decreased by approximately $5,000, or
2.0%, during the three months ended June 30, 1998, as compared to 1997, due
primarily to management's' overall efforts to control operating costs. The
decrease was primarily comprised of a $4,000, or 3.1%, decrease in employee
compensation and benefits.
12
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London Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results For the Three Month Periods Ended June 30, 1998
and 1997 (continued)
Federal Income Taxes
The provision for federal income taxes increased by $3,000, or 8.3%, for the
three month period ended June 30, 1998 as compared to the same period in 1997.
LFC's effective tax rates amounted to 37.5% and 30.8% during the three months
ended June 30, 1998 and 1997, respectively.
Other Matters
Citizens' lending and deposit activities are almost completely dependent upon
computer systems which process and record transactions, although Citizens can
effectively operate with manual systems for brief periods when such systems
malfunction or cannot be accessed. Citizens utilizes the services of a
nationally-recognized data processing service bureau which specializes in data
processing for financial institutions. In addition to its basic operating
activities, Citizens' facilities and infrastructure, such as security systems
and communications equipment, are dependent to varying degrees upon computer
systems.
Citizens is aware of the potential problems associated with the possibility that
the computers which control or operate Citizens' operating systems, facilities
and infrastructure may not be set up to read four-digit date codes and, upon
arrival of the year 2000, may recognize the two-digit code "00" as the year
1900, causing systems to fail to function or to generate erroneous data. In
fiscal 1997, Citizens began the process of identifying any year 2000 related
problems that may be experienced by its computer-operated or -dependent systems.
Citizens has contacted the companies that supply or service Citizens
computer-operated or -dependent systems to obtain confirmation that each such
system that is material to the operations of Citizens is either currently year
2000 compliant or is expected to be year 2000 compliant. With respect to systems
that cannot presently be confirmed as year 2000 compliant, Citizens will
continue to work with the appropriate supplier or service to ensure that all
such systems will be rendered compliant in a timely manner, with minimal expense
to Citizens and minimal disruption of Citizens' operations. If compliance is not
certified by the end of 1998 with respect to systems the failure of which would
have a material adverse effect on Citizens' operations, financial condition or
results, Citizens expects to have a sufficient time to establish a relationship
with another supplier that is year 2000 compliant. The expense of such a change
in suppliers is not expected to be material to Citizens.
In addition to possible expense related to its own systems, Citizens could incur
losses if loan payments are delayed due to year 2000 problems affecting any of
Citizens' significant borrowers or impairing the payroll systems of large
employers in Citizens' primary market area. Because Citizens' loan portfolio is
highly diversified with regard to individual borrowers and types of businesses
and Citizens' primary market area is not significantly dependent upon one
employer or industry, Citizens does not expect any significant or prolonged
difficulties that will affect net earnings or cash flow.
13
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London Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
Any proposals of shareholders intended to be included in the Company's
proxy statement and proxy card for the 1999 Annual Meeting of
Shareholders should be sent to the Company by certified mail and must
be received by the Company not later than August 14, 1998. In
addition, if a shareholder intends to present a proposal at the 1999
Annual Meeting without including the proposal in the proxy materials
related to that meeting, and if the proposal is not received by
October 27, 1998, then the proxies designated by the Board of
Directors of the Company for the 1999 Annual Meeting of Shareholders
of the Company may vote in their discretion on any such proposal any
shares for which they have been appointed proxies without mention of
such matter in the proxy statement or on the proxy card for such
meeting.
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None.
Exhibits:
27.1 Financial Data Schedule for the nine months
ended June 30, 1998.
27.2 Restated Financial Data Schedule for the
nine months ended June 30, 1997.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1998 By: /s/John J. Bodle
------------------------ ----------------
John J. Bodle
President and
Chief Executive Officer
Date: August 12, 1998 By: /s/Joyce E. Bauerle
------------------------ -------------------
Joyce E. Bauerle
Treasurer and
Principal Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
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