SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-21491
BIG FOOT FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-4108480
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1190 RFD, Long Grove, IL 60047-7304
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(847) 634-2100
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
NA
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(Former name, former address and former fiscal year,
if changed from last Report)
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 preceding twelve 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 .
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
OUTSTANDING AT
CLASS JANUARY 31, 1997
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Common Stock, 2,512,750
par value $.01
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS OF BIG FOOT FINANCIAL CORP.
Consolidated Statements of Financial Condition (Unaudited) - January 31, 1997
and July 31, 1996..............................................................3
Consolidated Statements of Earnings (Unaudited) - Three months and six months
ended January 31, 1997 and 1996................................................4
Consolidated Statements of Cash Flows (Unaudited) - Six months ended
January 31, 1997 and 1996......................................................5
Notes to Unaudited Consolidated Financial Statements...........................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..........................................................7
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS....................................................14
ITEM 2. CHANGES IN SECURITIES................................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................14
ITEM 5. OTHER INFORMATION....................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................15
SIGNATURES
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<TABLE>
<CAPTION>
BIG FOOT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(In thousands)
JANUARY 31, JULY 31,
----------- --------
1997 1996
--------------- -------
ASSETS
<S> <C> <C>
Cash and due from banks................................................................ $2,301 $2,569
Interest-earning deposits.............................................................. 2,927 2,040
Mortgage-backed securities held-to-maturity............................................ 51,017 44,133
Mortgage-backed securities available-for-sale.......................................... 63,881 58,278
Loans receivable, net.................................................................. 81,397 79,143
Accrued interest receivable............................................................ 1,041 964
Stock in Federal Home Loan Bank of Chicago at cost..................................... 2,230 2,045
Investment in real estate held for sale and development ............................... 262 262
Real estate owned ..................................................................... 0 0
Office properties and equipment, net................................................... 4,837 4,801
Prepaid expenses and other assets...................................................... 193 389
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TOTAL ASSETS........................................................................... 210,086 194,624
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LIABILITIES
Savings deposits....................................................................... 125,924 137,177
Borrowed money......................................................................... 44,600 39,900
Advance payments by borrowers for taxes and insurance.................................. 1,757 1,800
Accrued interest payable and other liabilities......................................... 1,915 2,168
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TOTAL LIABILITIES...................................................................... 174,196 181,045
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STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value, 2,000,000 shares authorized; none issued.............. 0 0
Common Stock, $.01 par value, 8,000,000 shares authorized; 2,512,750 shares issued at
January 31, 1997 and none issued at July 31, 1996...................................... 25 0
Excess Common Stock, $.01 par value, 7,200,000 shares authorized; none issued......... 0 0
Additional paid-in capital............................................................. 23,977 0
Retained earnings-substantially restricted............................................. 14,351 14,649
Unrealized loss on securities available- for-sale, net of tax.......................... (453) (1,070)
Common stock acquired by the ESOP...................................................... (2,010) 0
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TOTAL STOCKHOLDERS' EQUITY ............................................................ 35,890 13,579
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................ $210,086 $194,624
=============================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
Page 3
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<TABLE>
<CAPTION>
BIG FOOT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JANUARY 31 JANUARY 31
-------------------------- --------------------------
1997 1996 1997 1996
------------- ------------ ------------ -------------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Mortgage-backed securities held-to-maturity.................. $614 $863 $1,225 $1,601
Mortgage-backed securities available-for-sale................ 935 928 1,886 1,893
Loans receivable............................................. 1,590 1,506 3,166 2,978
Interest-earning deposits .................................. 247 20 266 69
FHLB of Chicago stock ....................................... 39 41 74 81
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TOTAL INTEREST INCOME........................................ 3,425 3,358 6,617 6,622
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INTEREST EXPENSE:
Savings deposits............................................. 1,250 1,502 2,609 3,036
Borrowed money............................................... 734 702 1,384 1,249
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TOTAL INTEREST EXPENSE....................................... 1,984 2,204 3,993 4,285
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Net interest income before provision (credit) for loan losses 1,441 1,154 2,624 2,337
Provision for loan losses.................................... 0 0 0 0
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NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES. 1,441 1,154 2,624 2,337
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NONINTEREST INCOME:
Gain on sale of real estate owned............................ 0 0 0 36
Gain on sale of equity securities............................ 0 0 46 0
Service fees................................................. 52 53 109 111
Other........................................................ 7 26 14 40
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TOTAL NONINTEREST INCOME..................................... 59 79 169 187
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NONINTEREST EXPENSE:
Compensation and benefits.................................... 630 562 1,201 1,127
Office Occupancy............................................. 225 252 487 524
Federal deposit insurance premiums........................... 55 87 1,073 170
Real estate held for development............................. 25 49 39 73
Professional services....................................... 48 79 105 139
Other........................................................ 174 171 339 329
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TOTAL NONINTEREST EXPENSE.................................... 1,157 1,200 3,244 2,362
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Income (loss) before income taxes............................ 343 33 (451) 162
Income tax expense (benefit)................................. 117 12 (153) 56
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NET INCOME (LOSS): $226 $21 $(298) $106
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</TABLE>
See accompanying notes to unaudited consolidated financial statements
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<TABLE>
<CAPTION>
BIG FOOT FINANCIAL CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JANUARY 31
------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss).......................................................................... $(298) $106
Adjustments to reconcile net income (loss) to net cash provided by operating activities....
Depreciation............................................................................... 189 215
Gain on sale of real estate owned.......................................................... 0 (36)
Net amortization of deferred loan fees..................................................... (31) (53)
Net amortization of discounts & premiums................................................... 111 108
Provision for loan losses................................................................. 0 0
(Increase) Decrease in prepaid expenses and other assets................................... 196 (79)
(Increase) Decrease in accrued interest receivable......................................... (77) (61)
Increase (Decrease) in accrued interest payable and other liabilities, net................. (253) 193
------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES.......................................... (163) 393
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans receivable........................................................... (2,223) (3,744)
Purchases of mortgage-backed securities held-to-maturity...................................(10,207) 0
Purchases of mortgage-backed securities available-for-sale................................. (9,156) (10,081)
Principal repayments on mortgage-backed securities held-for-maturity....................... 3,324 6,443
Principal repayments on mortgage-backed securities available-for-sale...................... 4,057 691
Proceeds from sale of real estate owned.................................................... 0 203
Purchase of stock in Federal Home Loan Bank of Chicago..................................... (185) 0
Purchase of office properties and equipment................................................ (225) (118)
------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES........................................(14,615) (6,606)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in savings deposits...........................................................(11,253) (5,846)
Net increase in borrowed money............................................................. 4,700 7,600
Net proceeds from Stock Offering........................................................... 21,993 0
Decrease in advance payments by borrowers for taxes and insurance.......................... (43) (530)
------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........................................ 15,397 1,224
- -------------------------------------------------------------------------------------------------------------------
Net Increase (decrease) in cash and cash equivalents....................................... 619 (4,989)
Cash and cash equivalents at beginning of year............................................. 4,609 9,044
------------------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD....................................... 5,228 4,055
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................................................... 3,985 4,248
Income taxes................................................................... 71 60
</TABLE>
See accompanying notes to unaudited consolidated financial statements
Page 5
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BIG FOOT FINANCIAL CORP.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of Big Foot Financial Corp. (the "Company") and its wholly-owned
subsidiary, Fairfield Savings Bank F.S.B. (the "Bank") as of January 31, 1997
and July 31, 1996 and for the three and six month periods ended January 31, 1997
and 1996, respectively. The consolidated financial statements for periods prior
to January 31, 1997 include only the accounts of the Bank. Material intercompany
accounts and transactions have been eliminated in consolidation. The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of management the unaudited consolidated financial statements include
all necessary adjustments, consisting of normal recurring accruals, necessary
for a fair presentation for the periods presented. These consolidated financial
statements should be read in conjunction with the audited financial statements
for the year ended July 31, 1996, and the notes thereto.
The Company believes that the disclosures are adequate to make the
information presented not misleading, however, the results for the periods
presented are not necessarily indicative of results to be expected for the
entire fiscal year.
(2) CONVERSION TO STOCK FORM OF OWNERSHIP
On May 21, 1996, the Board of Directors of the Bank adopted a Plan of
Conversion ("Plan") (which was amended on September 17, 1996) whereby the Bank
converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank. The Plan was approved by the Office of Thrift
Supervision and by the Bank's members at a special meeting. The stock of the
Bank was issued to the Company, which was formed in connection with the
conversion. On December 19, 1996, shares of capital stock of the Company were
fully subscribed by eligible members of the Bank and the Company's Employee
Stock Ownership Plan. The capital stock was offered and sold at $10 per share. A
total of 2,512,750 shares were sold. After giving effect to offering expenses
estimated at $1,125,000 and the cost of 201,020 shares issued to the Company's
tax qualified Employee Stock Ownership Plan, net proceeds of the conversion are
$22.0 million.
Capital distribution regulations limit the Bank's ability to make
capital distributions which include dividends, stock redemptions or repurchases,
cash-out mergers, interest payments on
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certain convertible debt and other transactions charged to the capital account
based on the Bank's capital level and supervisory condition. Federal regulations
also preclude any repurchase of the stock of the Bank or its holding company for
three years after conversion except for repurchases pursuant to an offer made on
a pro rata basis to all stockholders and with prior approval of the Office of
Thrift Supervision; or pursuant to an open-market stock repurchase program that
complies with certain regulatory criteria.
(3) EARNINGS PER SHARE
The initial public offering was completed December 19, 1996.
Accordingly, net income per share calculations for the three and six month
periods ended January 31, 1997 are not meaningful and are therefore not
presented.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
Big Foot Financial Corp., (the"Company") an Illinois corporation, is
the holding company for Fairfield Savings Bank, F.S.B.( the "Bank"), a federally
chartered stock savings bank. On December 19, 1996, the Bank completed its
conversion (the "Conversion") from a federally chartered mutual savings bank to
a federally chartered stock savings bank, and all of the capital stock of the
Bank was acquired by the Company. The Company issued and sold 2,512,750 shares
of its common stock, $.01 par value, at a price of $10.00 per share in a
subscription offering (the "Offering") to eligible members of the Bank and to
the Company's Employee Stock Ownership Plan ("ESOP"). Net proceeds from the
Offering amounted to $22.0 million.
The Company's principal business is its investment in the Bank, which
is a community-oriented financial institution providing a variety of financial
services to the communities which it serves. The Bank's principal business
consists of gathering savings deposits from the general public within its market
area and investing those funds primarily in mortgage loans secured by one- to
four-family owner occupied properties, mortgage-backed securities and
obligations of the U.S. Government. To a lesser extent, the Bank makes
multifamily residential loans, commercial real estate loans, land, construction
and development loans, consumer loans and commercial lines of credit. The Bank's
revenues are derived principally from interest on mortgage loans and interest
and dividends on investments, mortgage-backed securities and, to a much lesser
extent, short-term investments. The Bank also derives income from fees and
service charges. The Bank's primary sources of funds are retain savings deposits
and, to a lesser extent, advances from the FHLB of Chicago. The Bank does not
have any subsidiaries.
COMPARISON OF FINANCIAL CONDITION AT JANUARY 31, 1997 AND JULY 31, 1996
Total assets increased $15.5 million or 7.9% from $194.6 million at
July 31, 1996 to $210.1 million at January 31,1997. This increase was due to the
funds received in the Company's initial public offering. The components of the
Company's asset base also changed from July 31, 1996 to January 31, 1997.
Mortgage-backed securities ("MBS") (including both held-to- maturity and
available-for-sale portfolios) increased $12.5 million to $114.9 million at
January 31, 1997. This increase is primarily due to the purchase of MBS in an
amount that exceeded principal repayments as well as the increased market value
adjustment for the available for sale portfolio during the six month period. An
increase of $2.3 million in loans receivable was the result of loan originations
of $7.3 million which exceeded loan repayments. Stock in the Federal Home Loan
Bank of Chicago ("FHLB") increased because Fairfield borrowed from the FHLB
during the period. Borrowers are required to hold FHLB Stock based upon
outstanding advance balances, and stock purchases were made to meet the
requirement. Other
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assets decreased $0.2 million due to the recognition of the prepaid conversion
expense in the net proceeds of the conversion.
The allowance for loan losses at January 31, 1997 and July 31, 1996 was
$300,000. Management believes that the provision for loan losses and the
allowance for loan losses are reasonable and adequate to cover any known losses,
and any losses reasonably expected in the loan portfolio. While management
estimates loan losses using the best available information no assurance can be
made that future additions to the allowance will not be necessary. The ratio of
the allowance for loan losses to total loans was 0.37% and 0.38% at January 31,
1997 and July 31, 1996, respectively. At January 31, 1997 and July 31, 1996, the
ratio of the allowances for loan losses to non-performing loans was 134.5% and
254.2%, respectively. Non-performing loans increased during the six month period
ending January 31, 1997, causing this ratio to decline. However, the increase in
non-performing loans resulted from one loan, and this non-performing loan was
repaid subsequent to the period end.
Savings deposits and accrued interest payable/other liabilities
declined $11.3 million and $0.3 million, respectively from July 31, 1996 to
January 31, 1997; during this time, borrowed funds increased by $4.7 million.
The decrease in savings deposits was attributable to savings certificates
withdrawals of $8.0 million for the six months ended January 31, 1997. The Bank
had attracted 19 month certificates of deposits by offering above market rates
of interest in a prior fiscal year. Upon maturity, the Bank sought to retain
these funds by offering a market rate of interest, and while a portion of such
funds were retained, the Bank experienced some outflow of funds.
Stockholder's equity increased $22.3 million for the six months ended
January 31, 1997. The increase was due primarily to the infusion of the net
proceeds of the initial public offering, completed December 19, 1996, of $22.0
million, and the net unrealized gain on the available-for-sale portfolio of
$617,000, which was offset, in part, by a recognition of the $298,000 operating
loss for the period.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JANUARY 31, 1997 AND
1996
GENERAL. For the three months ended January 31, 1997, net income was
$226,000 compared to net income of $21,000 for the three months ended January
31, 1996.
INTEREST INCOME. Interest income remained relatively constant at $3.4
million for the three months ended January 31, 1997 and January 31, 1996,
increasing only $67,000. The increase was due to an increase in the average
balance of interest-earning assets, and average yield earned on interest-earning
assets. The average balance of interest-earning assets increased $0.5 million or
from $194.2 million for the three months ended January 31, 1996 to $194.7
million for the three months ended January 31, 1997. The average yield on the
Bank's interest-earning assets increased 12 basis points from 6.92% for the
three months ended January 31, 1996 to 7.04% for the three months ended January
31, 1997.
INTEREST EXPENSE. Interest expense decreased $220,000 or 10.0% from
$2.2 million for the three months ended January 31, 1996 to $2.0 million for the
comparable period in 1997.
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This decrease was due to a decrease in the cost of average interest-bearing
liabilities resulting primarily from new certificates of deposit issued at lower
rates than maturing certificates of deposit and lower average balances of
interest-bearing liabilities. The average rate paid on interest-bearing
liabilities decreased 19 basis points from 4.91% for the three months ended
January 31, 1996 to 4.72% for the three months ended January 31, 1997. The
average balance of interest-bearing liabilities decreased $11.2 million to
$168.2 million for the three months ended January 31, 1997 from $179.4 million
for the three months ended January 31, 1996. The decrease in average
interest-bearing liabilities was due to the outflow of $11.2 million in
certificates of deposit, competitive market conditions and the Bank's decision
not to offer substantially above market interest rates on its savings deposits.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest
income before provision for loan losses was $1,441,000 for the three months
ended January 31, 1997 and $1,154,000 for the comparable period in 1996. The
average interest rate spread increased 31 basis points from 2.01% for the three
months ended January 31, 1996 to 2.32% for the comparable period in 1997.
PROVISION FOR LOAN LOSSES. There was no provision for loan losses for
the three months ended January 31, 1997 or for the comparable period in 1996.
NONINTEREST INCOME. Noninterest income was $59,000 for the three months
ended January 31, 1997 compared to $79,000 for the three months ended January
31, 1996.
NONINTEREST EXPENSE. Noninterest expense decreased $43,000 and had
remained constant at $1.2 million for the three months ended January 31, 1997
and January 31, 1996.
INCOME TAX EXPENSE (BENEFIT). Income tax expense increased $105,000
from a $12,000 tax expense for the three months ended January 31, 1996 to a
$117,000 tax expense for the three months ended January 31, 1997. This increase
was due to the increase of $310,000 in pre-tax income. The effective tax rate
was 34.0% for the three month period ended January 31, 1997 and 1996.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JANUARY 31, 1997 AND
1996
GENERAL. For the six months ended January 31, 1997, there was a net
loss of $298,000 compared to net income of $106,000 for the six months ended
January 31, 1996. To address and resolve the SAIF/BIF assessment disparity, the
Deposit Insurance Funds Act of 1996 ( the "1996 Act") was enacted into law on
September 30, 1996. The 1996 Act authorized the FDIC to impose a special
assessment on all institutions with SAIF-assessable deposits in an amount
necessary to recapitalize the SAIF. The Bank recorded an expense for the special
SAIF assessment of $936,000. The impact on operations, net of related tax
effects, reduced reported earnings by $617,000 for the six months ended January
31, 1997. Net income for the six months of 1997, excluding the SAIF assessment,
would have been $319,000.
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INTEREST INCOME. Interest income was constant at $6.6 million for the
six months ended January 31, 1996 and for the comparable period in 1997. The
average balance of interest-earning assets decreased, which was partially offset
by an increase in the average yield on interest-earning assets. The average
balance of interest-earning assets decreased $1.6 million from $192.0 million
for the six months ended January 31, 1996 to $190.4 million for the six months
ended January 31, 1997. The average yield on the Bank's interest-earning assets
increased 5 basis points from 6.90% for the six months ended January 31, 1996 to
6.95% for the six months ended January 31, 1997.
INTEREST EXPENSE. Interest expense decreased $292,000 or 6.8% from $4.3
million for the six months ended January 31, 1996 to $4.0 million for the
comparable period in 1997. This decrease was due primarily to a decrease in the
cost of average interest-bearing liabilities on new certificates of deposit
issued at lower rates than maturing certificates of deposit, lower average
balances of interest-bearing liabilities and a lower cost of borrowed funds. The
average rate paid on interest-bearing liabilities decreased 13 basis points from
4.84% for the six months ended January 31, 1996 to 4.71% for the six months
ended January 31, 1997. The average balance of interest-bearing liabilities
decreased $7.6 million to $169.5 million for the six months ended January 31,
1997 from $177.1 million for the six months ended January 31, 1996. The decrease
in average balance of interest-bearing liabilities was due to the outflow of
$10.0 million in certificates of deposit, competitive market conditions and the
Bank's decision not to offer substantially above market interest rates on its
savings deposits.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest
income before provision for loan losses was $2.6 million for the six months
ended January 31, 1997 and $2.3 million for the comparable period in 1996. The
average interest rate spread increased 18 basis points from 2.06% for the six
months ended January 31, 1996 to 2.24% for the comparable period in 1997.
PROVISION FOR LOAN LOSSES. There was no provision for loan losses for
the six months ended January 31, 1997 or for the comparable period in 1996.
NONINTEREST INCOME. Noninterest income was $169,000 for the six months
ended January 31, 1997 compared to $187,000 for the six months ended January 31,
1996.
NONINTEREST EXPENSE. Noninterest expense increased $882,000 from $2.4
million for the six months ended January 31, 1996 to $3.2 million for the six
months ended January 31, 1997. This increase was due primarily to the special
SAIF assessment of $936,000.
INCOME TAX EXPENSE (BENEFIT). Income tax expense decreased $209,000
from a $56,000 tax expense for the six months ended January 31, 1996 to a
$153,000 tax benefit for the six months ended January 31, 1997. This was due to
the decrease in income before taxes of $613,000 for the six months ended January
31, 1997, which related to the SAIF assessment. The effective tax rate was 34.0%
for the six month period ended January 31, 1997 and 1996.
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LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are savings deposits, principal and
interest payments on loans and securities, and borrowings from the Federal Home
Loan Bank of Chicago. While maturities and scheduled amortization of loans and
securities provide an indication of the timing of the receipt of funds, changes
in interest rates, economic conditions, and competition strongly influence
mortgage prepayment rates and savings deposit flows, reducing the predictability
of the timing of sources of funds.
The Bank is required to maintain an average daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable savings
deposit accounts plus short-term borrowings as defined by the regulations of the
OTS. The minimum required liquidity and short-term liquidity ratios are
currently 5.0% and 1.0%, respectively. At January 31,1997, the Bank's liquidity
ratio was 33.0% and its short-term liquidity ratio was 9.2%. The Bank's
liquidity ratio is high due to the amount of mortgage-backed-securities in the
portfolio with a stated maturity of less than five years. The levels of the
Bank's short-term liquid assets are dependent on the Bank's operating, financing
and investing activities during any given period.
The primary investing activities of the Bank during the first six
months of fiscal year 1997 were the origination of mortgage loans, other loans
and purchases of mortgage-backed-securities.
See the "Consolidated Statements of Cash Flows" in the Unaudited
Consolidated Financial Statements included in this Form 10-Q for the sources and
uses of cash flows for operating activities and financing activities for the six
months ended January 31, 1997.
At January 31, 1997, the Bank had outstanding loan origination
commitments of $695,000 and unused lines of consumer credit of $522,000. The
Bank anticipates that it will have sufficient funds available to meet its
current origination and other lending commitments. Certificates of deposit
scheduled to mature in one year or less from January 31, 1997 totaled $44.3
million. Based upon the Bank's most recent experience and pricing strategy,
management believes that a significant portion of such deposits will remain with
the Bank. Management believes it will have adequate resources to fund all
commitments on a short term and long term basis in accordance with its business
strategy.
At January 31, 1997, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $24.3 million, or 12.08% of total
adjusted assets, which is above the required level of $3.0 million or 1.5%; core
capital of $24.3 million, or 12.08% of total adjusted assets, which is above the
required level of $6.0 million or 3.0%; and total risk-based capital of $24.6
million, or 35.4% of risk-weighted assets, which is above the required level of
$5.6 million, or 8.0%.
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IMPACT OF NEW ACCOUNTING STANDARDS
The Bank will be required to account for the ESOP under Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership Plan" ("SOP
93-6'). SOP 93-6 measured compensation expense recorded by employers for
leveraged ESOPs using the fair value of ESOP shares. Under SOP 93-6, the Company
will recognize compensation cost equal to the fair value of the ESOP shares
during the periods in which they become committed to be released. To the extend
that the fair value of the Company's ESOP shares differs from the cost of such
shares, this differential will be charged or credited to equity. Employers with
internally leveraged ESOPs will not report the loan receivable from the ESOP as
an asset and will not report the ESOP debt as a liability.
In March, 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"). Various assets are excluded from the scope of SFAS 121, including
financial instruments which constitute most of the Bank's assets. For assets
included in the scope of SFAS 121, such as office property and equipment, an
impairment loss must be recognized when the estimate of total undiscounted
future cash flows attributable to the asset is less than the asset's carrying
value. Measurement of the impairment loss is based on the fair value of the
asset. SFAS 121 is effective for financial statements issued for fiscal years
beginning after December 15, 1995. The Bank adopted SFAS 121 on August 1, 1996,
and it did not have a material impact on the Bank's results of operations or
financial position.
In May, 1995, the FASB issued Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights," ("SFAS 122"),
which amends Statement of Financial Accounting Standards No. 65, "Accounting for
Certain Mortgage Banking Activities." SFAS 122 is effective for fiscal years
beginning after December 15, 1995. SFAS 122 required that entities recognize, as
separate assets, rights to service mortgage loans for others regardless of how
those servicing rights are acquired. Additionally, SFAS 122 required that the
capitalized mortgage servicing rights be assessed for impairment based on the
fair value of those rights and that the impairment be recognized through a
valuation allowance. These requirements will accelerate the income recognition
associated with mortgage banking activities. The implementation of SFAS 122 on
August 1, 1996, did not have a material impact on the Bank's financial condition
or results of operations, because the Bank does not currently conduct any
material mortgage banking activities or purchase loan servicing rights.
In June, 1996, the FASB issued Statement of Financial Account Standards
No. 125, "Accounting for Transfer and Servicing of Financial Assets and
Extinquishments of Liabilities: (SFAS 125"), which supersedes FASB Statements
No. 76, "Extinquishments of Debt," and No. 77, "Reporting by Transferors for
Transfers of Receivable with Recourse." This statement amends FASB Statement No
115, "Accounting for Certain Investments in Debt and Equity Securities," and
amends and extends to all servicing assets and liabilities, the accounting
standards for mortgage servicing rights not set forth in SFAS 65, and supersedes
SFAS 122. SFAS 125 provides accounting and reporting standards for transfers and
servicing of financial
Page 13
<PAGE>
assets and extinquishments of liabilities. After a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered and derecognizes liabilities when extinguished. SFAS 125 provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. A transfer of financial assets
in which the transferor surrenders control over those assets is accounted for as
a sale to the extent that consideration other than beneficial interest in the
transferred assets is received in exchange.
SFAS 125 further requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer to financial assets be initially
measured at fair value, if practicable. It also requires that servicing assets
and other retained interest in the transferred assets be measured by allocating
the previous carrying amount between the assets sold, if any, and retained
interest, if any, based on their relative fair values on the date of the
transfer. SFAS 125 also requires that servicing assets and liabilities be
subsequently measured by (a) amortization in proportion to and over the period
of estimated net servicing income or loss and (b) assessment for asset
impairment or increased obligation based on their fair values. SFAS 125 requires
that debtors reclassify financial assets pledged as collateral and that secured
parties recognize those assets and their obligation to return them to certain
circumstances in which the secured party has taken control of those assets. SFAS
125 requires that a liability be derecognized if and only if either (i) the
debtor pays the creditor and is relieved of its obligation for the liability or
(ii) the debtor is legally released from being the primary obligor under the
liability either judicially or by the creditor. Therefore, a liability is not
considered extinguished by an in-substance defeasance.
SFAS 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. Earlier or retroactive application is not permitted.
Management believes that the adoption of SFAS 125 will not have a material
impact on the Company's financial condition or results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES.
The closing of the Company's initial public offering and sale of the
Company's Common Stock occurred on December 19, 1996.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On February 18, 1997, the Bank's Board of Directors elected Jerome A.
Maher to the position of Vice President and Chief Lending Officer. Mr. Maher
joined the Bank in June,
Page 14
<PAGE>
1996. Mr. Maher served as Vice President and Director of Covenant Mortgage
Corporation from March, 1994 to September, 1996 and as a Senior Vice President
of Hanover Capital Mortgage Corporation from July, 1993 to February 1994. Prior
to that, Mr. Maher was an Executive Vice President and Director of Labe Federal
Savings and Loan Association.
In connection with the conversion, the Bank changed its fiscal year to
coincide with the calendar quarters. Accordingly, the current fiscal year of the
Bank and the Company will end on June 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule*
(b) Reports on Form 8-K
None
*Submitted only with filing in electronic format.
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.
Big Foot Financial Corp.
------------------------
(Registrant)
By:/s/ Timothy L. McCue
--------------------
Timothy L. McCue
Vice President and Chief
Financial Officer
March 14, 1997
Page 15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the statements of income of Big Foot Financial
Corp. and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JAN-31-1997
<CASH> 2,301,366
<INT-BEARING-DEPOSITS> 2,927,016
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,880,558
<INVESTMENTS-CARRYING> 51,017,281
<INVESTMENTS-MARKET> 49,736,720
<LOANS> 81,696,514
<ALLOWANCE> 300,000
<TOTAL-ASSETS> 210,086,032
<DEPOSITS> 125,923,946
<SHORT-TERM> 34,900,000
<LIABILITIES-OTHER> 3,672,028
<LONG-TERM> 9,700,000
0
0
<COMMON> 25,128
<OTHER-SE> 35,864,930
<TOTAL-LIABILITIES-AND-EQUITY> 210,086,032
<INTEREST-LOAN> 1,589,219
<INTEREST-INVEST> 1,835,370
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,424,589
<INTEREST-DEPOSIT> 1,249,892
<INTEREST-EXPENSE> 1,983,676
<INTEREST-INCOME-NET> 1,440,914
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,157,277
<INCOME-PRETAX> 342,646
<INCOME-PRE-EXTRAORDINARY> 226,246
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226,246
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<YIELD-ACTUAL> 6.92
<LOANS-NON> 199,458
<LOANS-PAST> 33,994
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 300,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 300,000
<ALLOWANCE-DOMESTIC> 300,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Value not presented. See note 3 to the unaudited consolidated financial
statements.
</FN>
</TABLE>
