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 March 31, 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 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
(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
requirement 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 MARCH 31, 1998
----- --------------
Common Stock, Par Value $.01 2,512,750
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS OF BIG FOOT FINANCIAL CORP.
Consolidated Statements of Financial Condition (Unaudited)
March 31, 1998 and June 30, 1997.............................. Page 3
Consolidated Statements of Earnings (Loss) (Unaudited) -
Three and nine months ended March 31, 1998 and
1997.......................................................... Page 4
Consolidated Statements of Cash Flows (Unaudited) -
Nine months ended March 31, 1998 and
1997.......................................................... Page 5
Notes to Unaudited Consolidated Financial Statements.......... Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... Page 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... Page 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................. Page 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................... Page 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................... Page 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ Page 15
ITEM 5. OTHER INFORMATION.............................................. Page 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... Page 15
SIGNATURES
2
<PAGE>
ITEM 1.
FINANCIAL STATEMENTS OF BIG FOOT FINANCIAL CORP.
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 1998 1997
---- ----
<S> <C> <C>
Cash and due from banks ................................................. $ 2,576 $ 2,191
Interest-earning deposits ............................................... 7,150 1,701
Mortgage-backed securities held-to-maturity, at amortized cost .......... 40,456 47,376
Mortgage-backed securities available-for-sale, at fair value ............ 39,762 60,219
Investment in mutual funds and preferred stock, at fair value ........... 2,642 1,087
Loans receivable, net ................................................... 108,244 93,624
Accrued interest receivable ............................................. 931 1,051
Stock in Federal Home Loan Bank of Chicago, at cost ..................... 2,580 2,480
Investment in real estate held for sale and development ................. 262 262
Real estate owned ....................................................... -- --
Office properties and equipment, net .................................... 4,635 4,737
Prepaid expenses and other assets ....................................... 236 168
========= =========
Total assets ............................................................ $ 209,474 $ 214,896
========= =========
LIABILITIES
Noninterest-bearing NOW accounts ........................................ $ 4,900 $ 4,582
Interest-bearing NOW accounts ........................................... 7,072 7,178
Money market demand accounts ............................................ 11,976 12,281
Passbook accounts ....................................................... 38,962 39,607
Certificates of deposit ................................................. 59,802 59,333
--------- ---------
Total savings deposits .................................................. 122,712 122,981
Borrowed money ......................................................... 43,000 49,600
Advance payments by borrowers for taxes and insurance ................... 1,490 1,610
Accrued interest payable and other liabilities .......................... 3,984 3,728
--------- ---------
Total liabilities ....................................................... $ 171,186 $ 177,919
--------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value, 2,000,000 shares authorized; none issued -- --
Common Stock, $.01 par value, 8,000,000 shares authorized; 2,512,750
shares issued and outstanding ....................................... 25 25
Additional paid-in capital .............................................. 24,205 24,039
Retained earnings-substantially restricted .............................. 15,732 14,869
Unrealized gain (loss) on securities available-for-sale, net of tax ..... 236 (46)
Common stock acquired by the ESOP ...................................... (1,910) (1,910)
--------- ---------
Total stockholders' equity .............................................. 38,288 36,977
--------- ---------
Total liabilities and stockholders' equity .............................. $ 209,474 $ 214,896
========= =========
</TABLE>
(See accompanying notes to unaudited consolidated financial statements)
3
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Mortgage-backed securities held-to-maturity ... $ 612 $ 723 $ 1,943 $ 1,934
Mortgage-backed securities available-for-sale.. 663 1,026 2,496 2,937
Mutual funds and preferred stock .............. 5 -- 144 --
Loans receivable .............................. 1,966 1,588 5,715 4,723
Interest-earning deposits .................... 159 118 273 310
FHLB of Chicago stock ........................ 42 37 131 110
-------- -------- -------- --------
Total interest income ......................... 3,447 3,492 10,702 10,014
-------- -------- -------- --------
INTEREST EXPENSE:
Savings deposits .............................. 1,192 1,196 3,598 3,863
Borrowed money ................................ 706 680 2,273 2,051
-------- -------- -------- --------
Total interest expense ........................ 1,898 1,876 5,871 5,914
-------- -------- -------- --------
Net interest income before provision for loan
losses ........................................ 1,549 1,616 4,831 4,100
Provision for loan losses ..................... -- -- -- --
-------- -------- -------- --------
Net interest income after provision for loan
losses ........................................ 1,549 1,616 4,831 4,100
-------- -------- -------- --------
NONINTEREST INCOME:
Service fees .................................. 50 49 166 161
Gain on sale of mortgage-backed securities
available-for-sale ............................ -- -- 229 --
Other ......................................... 7 6 27 65
-------- -------- -------- --------
Total noninterest income ...................... 57 55 422 226
-------- -------- -------- --------
NONINTEREST EXPENSE:
Compensation and benefits ..................... 779 620 2,181 1,796
Office occupancy ............................. 259 250 797 770
Federal deposit insurance premiums ............ 19 3 59 1,104
Real estate held for development .............. 11 11 32 55
Professional services ........................ 68 41 237 145
Other ......................................... 194 210 663 497
-------- -------- -------- --------
Total noninterest expense ..................... 1,330 1,135 3,969 4,367
-------- -------- -------- --------
Income(loss) before income taxes .............. 276 536 1,284 (41)
Income tax expense (benefit) .................. 98 187 421 (9)
======== ======== ======== ========
NET INCOME(LOSS): $ 178 $ 349 $ 863 $ (32)
======== ======== ======== ========
Earnings per share:
Basic ...................................... $ 0.08 $ 0.15 $ 0.37 n/a
Diluted .................................... 0.07 0.15 0.37 n/a
</TABLE>
(See accompanying notes to unaudited consolidated financial statements)
4
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) ............................................................... $ 863 $ (32)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation .................................................................... 304 287
Gain on sale of mortgage-backed securities available-for-sale ................... (229) --
Net amortization of deferred loan fees .......................................... (68) (52)
Net amortization of discounts and premiums ...................................... 214 179
(Increase) decrease in prepaid expenses and other assets ........................ (68) 114
(Increase) decrease in accrued interest receivable .............................. 120 (78)
Market adjustment for committed ESOP shares ..................................... 166 --
Increase (decrease) in accrued interest payable and other liabilities, net ...... 256 (191)
-------- --------
Net cash provided by (used in) operating activities ............................. 1,558 227
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of loans receivable ................................................. (25,695) (11,322)
Principal repayment of loans receivable ......................................... 11,143 6,921
Principal repayments on mortgage-backed securities held-to-maturity ............. 6,706 5,066
Principal repayments on mortgage-backed securities available-for-sale ........... 11,457 6,596
Purchase of mortgage-backed securities held-to-maturity ......................... -- (10,243)
Purchase of mortgage-backed securities available-for-sale ....................... -- (9,156)
Proceeds from sale of mortgage-backed securities available-for-sale ............. 9,511 --
Purchase of investment securities and preferred stock available-for-sale ........ (1,555) (1,000)
Purchase of stock in Federal Home Loan Bank of Chicago .......................... (100) (185)
Purchase of office properties and equipment ..................................... (202) (265)
-------- --------
Net cash provided by (used in) investing activities ............................. 11,265 (13,588)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in savings deposits ................................................ (269) (12,715)
Net increase (decrease) in borrowed money ....................................... (6,600) 3,700
Net proceeds from stock offering ................................................ -- 21,992
Increase (decrease) in advance payments by borrowers for taxes and insurance .... (120) (321)
-------- --------
Net cash provided by (used in) financing activities ............................. (6,989) 12,656
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ............................ 5,834 (705)
Cash and cash equivalents at beginning of period ................................ 3,892 5,200
-------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ............................ $ 9,726 $ 4,495
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period
for:
Interest ............................................................ 5,865 5,902
Income taxes ........................................................ 666 71
</TABLE>
(See accompanying notes to unaudited consolidated financial statements)
5
<PAGE>
BIG FOOT FINANCIAL CORP. SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED 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 March 31, 1998 and
June 30, 1997 and for the three and nine month periods ended March 31, 1998 and
1997. The consolidated financial statements for periods prior to December 19,
1996 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 June 30, 1997, and the notes thereto included in the Company's Form 10-K.
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.
During the 1997 fiscal year, the Bank changed its fiscal year end to June
30. The Company's and the Bank's 1997 fiscal year ended June 30, 1997. The
Company believes it is appropriate to compare this year's fiscal quarter and
nine month period to the corresponding periods in the prior 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 (the "OTS") 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 common stock of the Company were
fully subscribed by eligible members of the Bank and the Company's Employee
Stock Ownership Plan.
The common stock was offered and sold at $10 per share. A total of
2,512,750 shares were sold. After giving effect to offering expenses of
approximately $1,125,000 and the cost of 201,020 shares issued to the Company's
tax qualified Employee Stock Ownership Plan, net proceeds from the conversion
were $22.0 million.
6
<PAGE>
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 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 OTS; or pursuant to an open-market
stock repurchase program that complies with certain regulatory criteria. The OTS
approved the Company's stock repurchase program ("Repurchase Program") that was
adopted by the Board of Directors of the Company on August 19, 1997. The
Repurchase Program authorizes the Company to repurchase up to 125,637 shares, or
five percent, of its 2,512,750 outstanding common shares. The repurchases, if
any, will be made from time to time at the discretion of management. At March
31, 1998, the Company had not repurchased any shares of its common stock
pursuant to the Repurchase Program. On December 4, 1997, the OTS provided its
non-objection to the Company's notification that it may purchase up to an
additional 4% of its shares of common stock, or 100,510 shares, for the
Company's 1997 Recognition and Retention Plan ("RRP"). At March 31, 1998, no
shares of common stock have been purchased for the RRP.
(3) EARNINGS PER SHARE
In February 1997, the FASB issued Statement 128, "Earnings Per Share."
Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share," and specifies
the computation, presentation, and disclosure requirements for earnings per
share (EPS) for entities with publicly held common stock or potential common
stock. It replaces the presentations of primary EPS with the presentation of
basic EPS, and replaces fully diluted EPS with diluted EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures, and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Statement 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997.
Earnings per share of common stock for the three and nine months ended
March 31, 1998 has been calculated according to the guidelines of Statement 128.
Basic earnings per share of common stock for the three and nine months
ended March 31, 1998 has been determined by dividing net income for the period
by 2,321,781, the weighted average number of shares of common stock outstanding.
Diluted earnings per share of common stock for the three and nine months ended
March 31, 1998 has been determined by dividing net income for the period by
2,387,007 and 2,363,785, respectively, the weighted number of shares of common
stock and common stock equivalents outstanding. ESOP shares are only considered
outstanding for earnings per share calculations when they are committed to be
released.
The initial public offering was completed December 19, 1996. Accordingly,
earnings per share calculations for the nine month period ended March 31, 1997
is not meaningful and is therefore not presented.
7
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 meet the needs of the communities 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 savings deposits and,
to a lesser extent, advances from the Federal Home Loan Bank of Chicago (the
"FHLB"). The Bank does not have any subsidiaries.
During the 1997 fiscal year, the Bank changed its fiscal year end to
June 30. The Company's and the Bank's 1997 fiscal year ended June 30, 1997. The
Company believes it is appropriate to compare this year's fiscal quarter and
nine month period with the corresponding periods in the prior year.
The Company's stock repurchase program ("Repurchase Program")
authorizes the Company to repurchase up to 125,637 shares, or five percent, of
its 2,512,750 outstanding common shares. The repurchases, if any, will be made
from time to time at the discretion of management. At March 31, 1998, the
Company had not repurchased any shares of its common stock pursuant to the
Repurchase Program. On December 4, 1997, the OTS provided its non-objection to
the Company's notification that it would repurchase up to an additional 4% of
its shares of common stock, or 100,510 shares, for the Company's 1997
Recognition and Retention Plan ("RRP"). At March 31, 1998, no shares of common
stock have been repurchased for the RRP.
The selected financial ratios and other data of the Company set forth
in the table on the next page are derived in part from, and should be read in
conjunction with, the Unaudited Consolidated Financial Statements of the Company
presented elsewhere in this report.
8
<PAGE>
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
March 31, June 30,
1998 1997
------------- -------------
SELECTED FINANCIAL CONDITION DATA:
Total assets .............................. $209,474 $214,896
Loans receivable (net) .................... 108,244 93,624
Allowance for loan losses ................. 300 300
Mortgage-backed securities ................ 80,218 107,595
Savings deposits .......................... 122,712 122,981
Borrowed money ............................ 43,000 49,600
Stockholders' equity ...................... 38,288 36,977
<TABLE>
<CAPTION>
At or for the At or for the
Three Months ended Nine Months ended
March 31, March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
-------------- ------------- ------------- --------------
SELECTED OPERATING DATA:
<S> <C> <C> <C> <C>
Net interest income after provision
for loan losses ................................ $ 1,549 $ 1,616 $ 4,831 $ 4,100
Net income (loss) ................................... 178 349 863 (32)
Net income excluding
special SAIF assessment, net of tax ............ 178 349 863 585
SELECTED FINANCIAL RATIOS:
Bank Capital ratios:
Tangible ....................................... 12.87% 12.20% 12.87% 12.20%
Core ........................................... 12.87 12.20 12.87 12.20
Risk-based ..................................... 33.62 35.29 33.62 35.29
Return on average assets (1)(2) ..................... 0.33 0.65 0.54 0.38
Return on average stockholders' equity (1)(2) ....... 1.87 3.91 3.05 3.17
Consolidated equity to assets at end of period ...... 18.28 17.04 18.28 17.04
Noninterest expense to average assets (1)(3) ........ 2.50 2.12 2.47 2.24
Non-performing assets as a percent of total assets .. 0.09 0.17 0.09 0.17
Allowance for loan losses as a percent of total loans 0.28 0.36 0.28 0.36
Allowance for loan losses as a percent of
non-performing loans ............................. 150.75 86.46 150.75 86.46
PER SHARE DATA:
Basic earnings per share ............................ $ 0.08 $ 0.15 $ 0.37 n/a
Diluted earnings per share .......................... 0.07 0.15 0.37 n/a
Book value per share ................................ 15.24 14.23 15.24 n/a
STOCK QUOTES:
High (4) ............................................ $ 23.938$ $ 14.750 $ 23.938 $ 14.750
Low (4) ............................................. 20.125 12.688 16.000 12.313
At end of period (4) ................................ 21.000 14.125 21.000 14.125
</TABLE>
- ---------------------------------------------------------------
(1) Results have been annualized.
(2) Nine month 1997 results exclude special SAIF assessment of $617,000,
net of tax.
(3) Nine month 1997 results exclude special SAIF assessment of
$936,000.
(4) Quotes for 1997 include the period December 19, 1996 to March
31, 1997.
9
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND JUNE 30, 1997
Total assets decreased $5.4 million from $214.9 million at June 30,
1997 to $209.4 million at March 31, 1998. The components of the Company's asset
base also changed from June 30, 1997 to March 31, 1998. Mortgage-backed
securities ("MBS") (including both held-to-maturity and available-for-sale
portfolios) decreased $27.4 million from $107.6 million at June 30, 1997 to
$80.2 million at March 31, 1998. This decrease is due to principal repayments
and the sale of $9.0 million of MBS in the available-for-sale portfolio during
the period, which were offset in part by an increase in the market value of the
available-for-sale portfolio. An increase of $14.6 million in loans receivable
was the result of loan originations of $25.7 million, which exceeded loan
repayments. Stock in the FHLB increased by $100,000 because of additional
advances from the FHLB during the period used to fund short term liquidity
needs. Borrowers are required to hold FHLB stock based upon outstanding advances
from the FHLB, and stock purchases were made to meet the requirement. Subsequent
repayment of a FHLB advance has caused the Bank's current stock holdings to be
in excess of the required amount.
The allowance for loan losses at March 31, 1998 and June 30, 1997 was
$300,000. There was no provision for loan loss for the nine month periods ended
March 31, 1998 and 1997. 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 0.28%
and 0.36% at March 31, 1998 and June 30, 1997, respectively. At March 31, 1998
and June 30, 1997, the ratio of the allowance for loan losses to non-performing
loans remained constant at 150.8%. Non-performing loans remained constant at
approximately $199,000 at March 31, 1998, and at June 30, 1997.
Savings deposits declined $269,000 from June 30, 1997 to March 31,
1998; during this time, borrowed funds also decreased by $6.6 million. Excess
liquidity was used to repay a $7.7 million FHLB advance in February of 1998.
Stockholders' equity increased $1.3 million for the nine months ended
March 31, 1998. The increase was due primarily to net income of $863,000 and an
increase in the net unrealized gain on the available-for-sale portfolio of
$282,000.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997
GENERAL. For the three months ended March 31, 1998, net income was
$178,000 or $.08 basic earnings per share, compared to net income of $349,000 or
$.015 basic earnings per share, for the three months ended March 31, 1997.
INTEREST INCOME. Interest income decreased $45,000 to $3.4 million for
the three months ended March 31, 1998, compared to $3.5 million for the three
months ended March 31, 1997. The average balance of interest-earning assets
increased $580,000 from $203.7 million for the three months ended March 31, 1997
to $204.3 million for the three months ended March 31, 1998. The majority of
this increase was due to increased lending volume. The average yield on the
Bank's interest-earning assets decreased 11 basis points from 6.86% for the
three months ended March 31, 1997 to 6.75% for the three months ended March 31,
1998.
10
<PAGE>
INTEREST EXPENSE. Interest expense remained constant at $1.9 million
for the three months ended March 31, 1998 and for the comparable period in 1997.
The average rate paid on interest-bearing liabilities increased nine basis
points from 4.58% for the three months ended March 31, 1997 to 4.67% for the
three months ended March 31, 1998. The average balance of interest-bearing
liabilities decreased $1.4 million to $164.8 million for the three months ended
March 31, 1998 from $166.2 million for the three months ended March 31, 1997.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest
income before provision for loan losses was $1.5 million for the three months
ended March 31, 1998 and $1.6 million for the comparable period in 1997. The
average interest rate spread decreased 20 basis points from 2.28% for the three
months ended March 31, 1997 to 2.08% for the comparable period in 1998.
PROVISION FOR LOAN LOSSES. There was no provision for loan losses for
the three months ended March 31, 1998 and for the comparable period in 1997.
NONINTEREST INCOME. Noninterest income was $57,000 for the three
months ended March 31, 1998 compared to $55,000 for the three months ended March
31, 1997.
NONINTEREST EXPENSE. Noninterest expense increased $195,000 to $1.3
million for the three months ended March 31, 1998 as compared to $1.1 million
for the three months ended March 31, 1997. Compensation and professional
services expenses increased $159,000 and $27,000, respectively, for the three
month period ending March 31, 1998 compared to the prior year. Compensation
expenses increased due primarily to the Employee Stock Ownership Plan ("ESOP"),
RRP and other employee benefits. Professional service expense increased due
primarily to costs incurred in connection with the incoporation of the Company
and its operation as a public company.
INCOME TAX EXPENSE. Income tax expense decreased $89,000 from $187,000
for the three months ended March 31, 1997 to $98,000 for the three months ended
March 31, 1998. This decrease was due to the decrease of $260,000 in pre-tax
income. The effective tax rate was 35.5% and 34.9% for the three month periods
ended March 31, 1998 and 1997, respectively.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED
MARCH 31, 1998 AND 1997
GENERAL. For the nine months ended March 31, 1998, net income was
$863,000 or $.37 basic earnings per share, compared to a net loss of $32,000 for
the nine months ended March 31, 1997. 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 nine months
ended March 31, 1997. Net income for the nine months ended March 31, 1997,
excluding the SAIF assessment, would have been $585,000.
11
<PAGE>
INTEREST INCOME. Interest income was $10.7 million for the nine months
ended March 31, 1998, compared to $10.0 million for the nine months ended March
31, 1997. The average balance of interest earning assets increased $12.6 million
from $193.3 million for the nine months ended March 31, 1997 to $205.9 million
for the nine months ended March 31, 1998. The average yield on the Bank's
interest-earning assets increased 2 basis points from 6.91% for the nine months
ended March 31, 1997 to 6.93% for the nine months ended March 31, 1998.
INTEREST EXPENSE. Interest expense decreased $43,000 and was $5.9
million for both the nine months ended March 31, 1998 and 1997. This decrease
was due primarily to a decrease in the average balance of interest-bearing
liabilities and a lower cost of borrowed funds. The average rate paid on
interest-bearing liabilities increased two basis points from 4.66% for the nine
months ended March 31, 1997 to 4.68% for the nine months ended March 31, 1998.
The average balance of interest-bearing liabilities decreased $2.0 million to
$167.2 million for the nine months ended March 31, 1998 from $169.2 million for
the nine months ended March 31, 1997. The decrease in average balance of
interest-bearing liabilities was due to the outflow of $6.1 million in
certificates of deposit, competitive market conditions, and the Bank's decision
not to offer 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 $4.8 million for the nine months
ended March 31, 1998 and $4.1 million for the comparable period in 1997. The
average interest rate spread remained constant at 2.25% for the nine months
ended March 31, 1998 and for the comparable period in 1997.
PROVISION FOR LOAN LOSSES. There was no provision for loan losses for
both the nine months ended March 31, 1997 and for the comparable period in 1998.
NONINTEREST INCOME. Noninterest income was $422,000 for the nine months
ended March 31, 1998 compared to $226,000 for the nine months ended March 31,
1997. The primary reason for the increase is due to a gain of $229,000 that was
realized from a sale of $9.0 million MBS classified as available-for-sale.
Service fees and other noninterest income declined $33,000 to $193,000 for the
nine months ending March 31, 1998, as compared to the nine months ended March
31, 1997.
NONINTEREST EXPENSE. Noninterest expense decreased $398,000 for the
nine months ended March 31, 1998 as compared to the nine months ended March 31,
1997. The Bank was assessed and paid to the FDIC a one-time special SAIF
assessment of $936,000 in September 1996. After this special assessment, regular
deposit insurance premiums were reduced.
Compensation, professional services, and other expenses increased
$385,000, $92,000, and $166,000, respectively, for the nine month period ending
March 31, 1998 compared to the similar period in 1997. Compensation expenses
primarily increased due to the ESOP, RRP and other employee benefits.
Professional service expense and other expense primarily increased due to costs
incurred in connection with the incorporation of the Company and its operation
as a public company.
INCOME TAX EXPENSE. Income tax expense increased $430,000 from a tax
benefit of $9,000 for the nine months ended March 31, 1997 to a $421,000 tax
expense for the nine months ended March 31, 1998. This increase was due to the
increase of $1.3 million in pre-tax income. The effective tax rate was 32.8% and
34.0% for the nine month periods ended March 31, 1998 and 1997, respectively.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are savings deposits, principal and
interest payments on loans and mortgage-backed securities, and borrowings from
the FHLB. While maturities and scheduled amortization of loans and
mortgage-backed 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
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 ratio is currently 4.0%. At March 31, 1998, the Bank's liquidity ratio
was 56.9%. 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 nine months
ended March 31, 1998 were the origination of mortgage loans and other loans.
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
nine months ended March 31, 1998 and 1997.
At March 31, 1998, the Bank had outstanding loan origination
commitments of $4.7 million and unused lines of consumer credit of $554,000. 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 March 31, 1998 totaled $40.1
million. Based upon the Bank's most recent 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 March 31, 1998, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $25.7 million, or 12.87% of total
adjusted assets, which is above the required level of $3.0 million or 1.5%; core
capital of $25.7 million, or 12.87% of total adjusted assets, which is above the
required level of $6.0 million or 3.0%; and total risk-based capital of $26.0
million, or 33.62% of risk-weighted assets, which is above the required level of
$6.1 million, or 8.0%.
YEAR 2000
The "Year 2000 Problem" centers on the inability of computer systems to
recognize the Year 2000. Many existing computer programs and systems were
originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending millennium, these programs and
computers will recognize "00" as the year 1900 rather than the year 2000. Like
most financial service providers, the Company and the Bank may be significantly
affected by the Year 2000 Problem due to the nature of financial information.
Thus, if not adequately addressed, the Year 2000 Problem could result in an
impact on the Company's products, services, and competitive condition.
13
<PAGE>
A committee of senior officers of the Company, has been formed to
evaluate the effects that the upcoming Year 2000 could have on computer programs
utilized by the Bank. The majority of software used by the Company is provided
by third party vendors. All of the Company's vendors are aware of the Year 2000
situation, and each has assured the Company that it is currently working to have
its software compliant by March 31, 1999, and that testing for programming
changes made for the critical applications will be underway by December 31,
1998. This will enable the Company to devote substantial time to the testing of
the upgraded systems prior to the arrival of the millennium.
The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 Problem will be
mitigated without causing a material adverse impact on the Company's results of
operations, liquidity or capital resources. However, if such modifications and
conversions are not made, or are not timely completed, the Year 2000 Problem
could have an impact on the operations of the Company.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" (Statement 130) which establishes standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. The term "comprehensive income" is used in the
Statement to describe the total of all components of comprehensive income
including net income. "Other comprehensive income" refers to revenues, expenses,
gains and losses that are included in comprehensive income but excluded from
earnings (net income) under current accounting standards. Statement 130 requires
the display of comprehensive income and its components in a financial statement
that is displayed in equal prominence with other financial statements that
constitute a full set of financial statements. Statement 130 does not require a
specific format for the financial statement. Entities are required to classify
items of "other comprehensive income" by their nature in the financial statement
and display the balance of other comprehensive income separately in the equity
section of a statement of financial position.
Statement 130 is effective for fiscal years beginning after December
15, 1997 and includes interim period reporting requirements for the initial year
of adoption. Adoption of Statement 130 by the Company on July 1, 1998 is not
expected to have a material impact on the Company.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (Statement 131) which
establishes standards for the way public business enterprises are to report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. Statement 131 is effective for
financial periods beginning after December 15, 1997 and is not expected to have
a material impact on the Company.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits" (Statement No. 132) which
amends the disclosure requirements of Statements No. 87, "Employers' Accounting
for Pensions" (Statement No. 87), No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits"
(Statement No. 88), and No. 106, "Employers' Accounting Postretirement Benefits
Other Than Pensions" (Statement No. 106).
14
<PAGE>
This Statement standardizes the disclosure requirements of Statements
No. 87 and No. 106 to the extent practicable and recommends a parallel format
for presenting information about pensions and other postretirement benefits.
Statement No. 132 only addresses disclosure and does not change any of the
measurement of recognition provisions provided for in Statements No. 87, No. 88,
or No. 106. Statement 132 is effective for fiscal years beginning after December
15, 1997 and is not expected to have a material impact on the Company.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There has been no material change in market risk since June 30, 1997 as
reported in Item 7A of the Company's Form 10K.
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
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) Exhibit 27 - Financial Data Schedule*
(b) Reports on Form 8-K
None
*Submitted only with filing in electronic format.
15
<PAGE>
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
May 11, 1998
<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-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,575,921
<INT-BEARING-DEPOSITS> 7,149,608
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,761,935
<INVESTMENTS-CARRYING> 40,455,654
<INVESTMENTS-MARKET> 40,262,309
<LOANS> 108,544,397
<ALLOWANCE> 300,000
<TOTAL-ASSETS> 209,473,693
<DEPOSITS> 122,711,880
<SHORT-TERM> 27,000,000
<LIABILITIES-OTHER> 3,983,932
<LONG-TERM> 16,000,000
0
0
<COMMON> 25,128
<OTHER-SE> 38,263,015
<TOTAL-LIABILITIES-AND-EQUITY> 209,473,693
<INTEREST-LOAN> 1,965,395
<INTEREST-INVEST> 1,481,973
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,447,368
<INTEREST-DEPOSIT> 1,191,722
<INTEREST-EXPENSE> 1,898,241
<INTEREST-INCOME-NET> 1,549,127
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,329,876
<INCOME-PRETAX> 276,336
<INCOME-PRE-EXTRAORDINARY> 276,336
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178,136
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
<YIELD-ACTUAL> 6.75
<LOANS-NON> 199,132
<LOANS-PAST> 0
<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
</TABLE>
