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 December 31, 1999
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 36-410848-0
(State or other jurisdiction of (IRS 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 FEBRUARY 10, 2000
----- -----------------
Common Stock, Par Value $.01 2,047,909
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS OF BIG FOOT FINANCIAL CORP.
Consolidated Statements of Financial Condition (Unaudited)
December 31, 1999 and June 30, 1999 ......................... Page 3
Consolidated Statements of Earnings (Unaudited) - Three
months and Six months ended December 31, 1999 and 1998 ...... Page 4
Consolidated Statements of Cash Flows (Unaudited) - Six
months ended December 31, 1999 and 1998 ..................... 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 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ........................................... Page 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ................... Page 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................. Page 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......... Page 16
ITEM 5. OTHER INFORMATION ........................................... Page 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................ Page 16
SIGNATURES
2
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1999 1999
-------------- --------------
<S> <C> <C>
Cash and due from banks ....................................................... $ 3,093 $ 3,126
Interest-earning deposits ..................................................... 2,299 7,501
Mortgage-backed securities held-to-maturity, at amortized cost
(fair value of $22,749 at December 31, 1999 and $28,055 at June 30, 1999)... 23,513 28,567
Mortgage-backed securities available-for-sale, at fair value .................. 21,877 25,447
Investment in mutual funds and preferred stock, at fair value ................. 2,804 3,320
Loans receivable, net ......................................................... 146,830 138,517
Accrued interest receivable ................................................... 907 979
Stock in Federal Home Loan Bank of Chicago, at cost ........................... 2,800 2,600
Investment in real estate held for sale and development, net .................. -- 154
Office properties and equipment, net .......................................... 4,673 4,820
Prepaid expenses and other assets ............................................. 363 462
--------- ---------
Total assets................................................................... $ 209,159 $ 215,493
========= =========
LIABILITIES
Noninterest-bearing NOW accounts .............................................. $ 5,781 $ 5,949
Interest-bearing NOW accounts ................................................. 8,447 10,020
Money market demand accounts .................................................. 11,091 10,865
Passbook accounts ............................................................. 36,660 39,358
Certificates of deposit ....................................................... 54,536 57,725
--------- ---------
Total savings deposits ........................................................ 116,515 123,917
Borrowed money ................................................................ 56,000 52,000
Advance payments by borrowers for taxes and insurance ......................... 1,891 1,866
Accrued interest payable and other liabilities ................................ 2,125 2,988
--------- ---------
Total liabilities ............................................................. 176,531 180,771
--------- ---------
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 25 25
Treasury stock, at cost (380,381 shares at December 31, 1999 and 241,801
shares at June 30, 1999) .................................................... (5,119) (3,259)
Additional paid-in capital .................................................... 24,496 24,463
Retained earnings-substantially restricted .................................... 16,936 16,866
Common stock acquired by the ESOP ............................................. (1,508) (1,508)
Common stock acquired by Recognition and Retention Plan ....................... (1,194) (1,385)
Accumulated other comprehensive loss .......................................... (1,008) (480)
--------- ---------
Total stockholders' equity .................................................... 32,628 34,722
--------- ---------
Total liabilities and stockholders' equity .................................... $ 209,159 $ 215,493
========= =========
</TABLE>
(See accompanying notes to unaudited consolidated financial statements)
3
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Mortgage-backed securities held-to-maturity .................. $ 334 $ 564 $ 698 $1,204
Mortgage-backed securities available-for-sale ................ 360 411 740 884
Mutual funds and preferred stock ............................. 54 121 108 164
Loans receivable ............................................. 2,551 2,230 5,015 4,421
Interest-earning deposits .................................... 59 177 133 335
FHLB of Chicago stock ........................................ 45 51 87 108
------ ------ ------ ------
Total interest income ........................................ 3,403 3,554 6,781 7,116
------ ------ ------ ------
INTEREST EXPENSE
Savings deposits ............................................. 1,046 1,185 2,129 2,388
Borrowed money ............................................... 778 743 1,507 1,490
------ ------ ------ ------
Total interest expense ....................................... 1,824 1,928 3,636 3,878
------ ------ ------ ------
Net interest income before provision for loan losses ......... 1,579 1,626 3,145 3,238
Provision for loan losses .................................... -- -- -- --
------ ------ ------ ------
Net interest income after provision for loan losses .......... 1,579 1,626 3,145 3,238
------ ------ ------ ------
NONINTEREST INCOME
Service fees ................................................. 66 67 136 128
Other ........................................................ 17 6 27 14
------ ------ ------ ------
Total noninterest income ..................................... 83 73 163 142
------ ------ ------ ------
NONINTEREST EXPENSE
Compensation and benefits .................................... 790 846 1,537 1,573
Office occupancy ............................................. 270 261 559 528
Federal deposit insurance premiums ........................... 19 19 37 38
Real estate held for sale and development .................... -- 11 8 23
Professional services ........................................ 209 76 328 148
Other ........................................................ 204 252 382 440
------ ------ ------ ------
Total noninterest expense .................................... 1,492 1,465 2,851 2,750
------ ------ ------ ------
Income before income taxes ................................... 170 234 457 630
Income tax expenses........................................... 61 93 167 238
------ ------ ------ ------
NET INCOME $ 109 $ 141 $ 290 $ 392
====== ====== ====== ======
- -------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic ..................................................... $ 0.05 $ 0.06 $ 0.14 $ 0.17
Diluted ................................................... 0.05 0.06 0.14 0.17
</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
SIX MONTHS ENDED
DECEMBER 31,
---------------------------
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................. $ 290 $ 392
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amoritization......................................................... 243 208
Market adjustment for committed ESOP shares............................................ 33 49
Amortization of award of RRP shares.................................................... 191 255
Net amortization of deferred loan fees................................................. (33) (102)
Net amortization of discounts and premiums............................................. 186 186
(Increase) decrease in accrued interest receivable/.................................... 72 (2)
(Increase) decrease in prepaid expenses and other assets............................... 99 (17)
Decrease in accrued interest payable and other liabilities, net........................ (591) (940)
-------- ---------
Net cash provided by operating activities.............................................. 490 29
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of loans receivable........................................................ (17,683) (19,068)
Principal repayment of loans receivable................................................ 9,403 11,029
Principal repayments on mortgage-back securities held-to-maturity...................... 4,922 9,045
Principal repayments on mortgage-back securities available-for-sale.................... 3,232 8,800
Purchase of investment securities available-for-sale................................... -- (879)
(Purchase) redemption of stock in Federal Home Loan Bank of Bank of Chicago............ (200) 800
Proceeds from sale of real estate held for development................................. 154 --
Purchase of office properties and equipment............................................ (96) (449)
-------- ---------
Net cash provided by (used in) investing activities.................................... (268) 9,278
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in savings deposits....................................................... (7,402) (1,157)
Net increase (decrease) in borrowed money.............................................. 4,000 (1,000)
Increase (decrease) in advance payments by borrowers for taxes and insurance........... 25 (71)
Payment of cash dividend............................................................... (220) --
Purchase of treasury stock............................................................. (1,860) (1,492)
Purchase of RRP shares................................................................. -- (1,013)
-------- ---------
Net cash used in financing activities.................................................. (5,457) (4,478)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents................................... (5,235) 4,574
Cash and cash equivalents at the beginning of period................................... 10,627 13,146
-------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD..................................... $ 5,392 $ 17,720
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................................................... 3,645 3,871
Income taxes...................................................................... 301 325
</TABLE>
(See accompanying notes to unaudited consolidated financial statements)
5
<PAGE>
BIG FOOT FINANCIAL CORP. AND 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 December 31, 1999
and June 30, 1999 and for the three and six month periods ended December 31,
1999 and 1998. 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, 1999, and the notes thereto
included in the Company's Annual Report.
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) EARNINGS PER SHARE
Basic earnings per share is calculated by dividing income available to
common stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share is calculated by dividing income available to common
stockholders by the weighted average number of common shares adjusted for the
dilative effect of outstanding stock options. ESOP shares are only considered
outstanding for earnings per share calculations when they are committed to be
released. Presented below are the calculations for basic and diluted earnings
per share:
6
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- ----------------------------
1999 1998 1999 1998
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
BASIC:
Net income ............................................... $ 109,000 $ 141,000 $ 290,000 $ 392,000
Weighted average shares outstanding ...................... 2,037,059 2,275,603 2,074,798 2,305,740
Basic earnings per share ................................. 0.05 0.06 0.14 0.17
DILUTED:
Net income $ 109,000 $ 141,000 $ 290,000 392,000
Weighted average shares outstanding ...................... 2,037,059 2,275,603 2,074,798 2,305,740
Effect of dilutive stock options outstanding ............. -- -- 353 --
Diluted weighted average shares outstanding ............. 2,037,059 2,275,603 2,075,151 2,305,740
Diluted earnings per share ............................... 0.05 0.06 0.14 0.17
</TABLE>
(3) COMPREHENSIVE INCOME
The Company's comprehensive income (loss) for the three and six month
periods ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- --------------------------
1999 1998 1999 1998
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income ....................................................... $ 109,000 $ 141,000 $ 290,000 $ 392,000
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period ... (292,000) (124,000) (528,000) (107,000)
--------- --------- --------- ---------
Comprehensive income (loss) ....................................... $(183,000) $ 17,000 $(238,000) $ 285,000
========= ========= ========= =========
</TABLE>
(4) DIVIDEND DECLARATION
On November 19, 1999, the Board of Directors declared a quarterly dividend
of $.05 per share, which was paid on December 15, 1999 to stockholders of record
on November 30, 1999.
(5) STOCK REPURCHASE PROGRAM
In December 1999, the Board of Directors approved the repurchase of an
additional 107,718 shares of the Company's outstanding common stock. The shares
of common stock available for repurchase under the current repurchase program,
together with shares of common stock previously repurchased, totals
approximately 18.55% of the total shares issued by the Company in the initial
public offering. Repurchase will be made from time to time through privately
negotiated transactions, odd-lot purchases and open-market transactions at the
discretion of management. At December 31, 1999, 380,381 shares had been
repurchased under all of the repurchase programs at an average cost of $13.46
per share. Management continues to believe that stock repurchase programs are an
effective capital management tool and provide enhanced value to both the Company
and its stockholders.
7
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include: changes in general, economic and market
conditions; the development of an adverse interest rate environment that
adversely affects the interest rate spread or other income anticipated from the
Company's operations and investments; depositor and borrower preferences; and
the factors described under "Year 2000."
GENERAL
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 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.
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)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------ -----------
<S> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets ......................................... $209,159 $215,493
Loans receivable (net) ............................... 146,830 138,517
Allowance for loan losses ............................ 300 300
Mortgage-backed securities ........................... 45,390 54,014
Savings deposits ..................................... 116,515 123,917
Borrowed funds ....................................... 56,000 52,000
Stockholders' equity ................................. 32,628 34,722
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Net interest income before provision for loan losses .............. $ 1,579 $ 1,626 $ 3,145 $ 3,238
Net income ........................................................ 109 141 290 392
SELECTED FINANCIAL RATIOS:
Bank capital ratios:
Tangible ..................................................... 12.30% 12.59% 12.30% 12.59%
Core ......................................................... 12.30 12.59 12.30 12.59
Risk-based ................................................... 28.20 31.40 28.20 31.40
Return on average assets (1) ..................................... 0.21 0.26 0.27 0.36
Return on average stockholders' equity (1) ....................... 1.30 1.54 1.71 2.11
Consolidated equity to assets at end of period ................... 15.60 16.79 15.60 16.79
Noninterest expense to average assets (1) ........................ 2.84 2.68 2.68 2.51
Non-performing assets as a percent of total assets ............... 0.20 0.11 0.20 0.11
Allowance for loan losses as a percent of total loans ............ 0.20 0.24 0.20 0.24
Allowance for loan losses as a percent of non-performing loans ... 71.77 125.52 71.77 125.52
PER SHARE DATA:
Basic earnings per share ......................................... $ 0.05 $ 0.06 $ 0.14 $ 0.17
Diluted earnings per share ....................................... 0.05 0.06 0.14 0.17
Book value per share ............................................. 15.30 15.04 15.30 15.04
Cash dividend per share .......................................... 0.05 -- 0.10 --
STOCK QUOTES:
High ............................................................. $ 13.500 $ 15.000 $ 15.063 $ 18.500
Low .............................................................. 11.500 13.250 11.500 12.750
At December 31 ................................................... 12.500 14.250 12.500 14.250
</TABLE>
- ----------
(1) Three and six month results have been annualized.
9
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND JUNE 30, 1999
Total assets decreased $6.3 million from $215.5 million at June 30, 1999 to
$209.2 million at December 31, 1999. The components of the Company's asset base
also changed from June 30, 1999 to December 31, 1999. Mortgage-backed securities
("MBS") (including both held-to-maturity and available-for-sale portfolios)
decreased $8.6 million from $54.0 million at June 30, 1999 to $45.4 million at
December 31, 1999. This decrease is primarily due to the receipt of $8.2 million
principal repayments during the six month period. An increase of $8.3 million in
loans receivable was the result of loan originations of $17.7 million which
exceeded the $9.4 million of loan repayments. Interest earning deposits
decreased $5.2 million from $7.5 million at June 30, 1999 to $2.3 million at
December 31, 1999, primarily funded the savings outflows.
Investments in mutual funds and preferred stock are recorded at fair value
and were $2.8 million and $3.3 million at December 31, 1999 and June 30, 1999,
respectively. The net unrealized loss in this portfolio is included as a
component of accumulated other comprehensive income (loss).
The allowance for loan losses at December 31, 1999 and June 30, 1999 was
$300,000. Management believes that the allowance for loan losses is 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 0.20% and 0.22% at December 31, 1999 and June 30, 1999, respectively. At
December 31, 1999 and June 30, 1999, the ratio of the allowance for loan losses
to non-performing loans was 71.77% and 155.44%, respectively. The Bank had four
non-performing loans totaling approximately $418,000 at December 31, 1999 and
three non-performing loans totaling approximately $193,000 at June 30, 1999.
There were no loan chargeoffs during the six month periods ended December 31,
1999 and 1998.
Savings deposits decreased $7.4 million from June 30, 1999 to Dectember 31,
1999; during this time, borrowed funds increased by $4.0 million. Interest
bearing NOW accounts declined $1.6 million primarily due to withdrawals from
government entity deposits, whose balances fluctuate during the year. Passbook
savings were $36.7 million at December 31, 1999 compared to $39.4 million at
June 30, 1999. Certificate of deposit accounts declined $3.2 million to $54.5
million at December 31, 1999. Some maturing CD's were withdrawn from the Bank
during the quarter.
Stockholders' equity at December 31, 1999 was $32.6 million or $2.1 million
less than at June 30, 1999. This decline was due primarily to the Company's
stock repurchase program and the payment of two $0.05 per share quarterly cash
dividends during the six months ended December 31, 1999. Under the stock
repurchase program the Company acquired 138,580 shares of its common stock at an
aggregate cost of $1,860,000 during the six months ended December 31, 1999.
Since December 31, 1999, the Company has also purchased an additional 84,460
shares at an aggregate cost of $1,061,785.
10
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND 1998
GENERAL. For the three months ended December 31, 1999, net income was
$109,000 or $0.05 per basic and diluted share, compared to net income of
$141,000 or $0.06 per basic and diluted share for the three months ended
December 31, 1998.
INTEREST INCOME. Interest income was $3.4 million and $3.6 million for the
three months ended December 31, 1999 and 1998, respectively. The average balance
of interest-earning assets decreased $6.9 million from $209.0 million for the
three months ended December 31, 1998 to $202.1 million for the three months
ended December 31, 1999. The average yield on the Bank's interest-earning assets
decreased seven basis points from 6.80% for the three months ended December 31,
1998 to 6.73% for the three months ended December 31, 1999.
INTEREST EXPENSE. Interest expense decreased $104,000 to $1.8 million for
the three months ended December 31, 1999, as compared to the same period in
1998. The average rate paid on interest-bearing liabilities decreased 15 basis
points from 4.48% for the three months ended December 31, 1998 to 4.33% for the
three months ended December 31, 1999. The average balance of interest-bearing
liabilities decreased $3.7 million to $167.0 million for the three months ended
December 31, 1999 from $170.7 million for the three months ended December 31,
1998. The decrease in the cost of average interest-bearing liabilities resulted
primarily from the renewal of maturing certificates of deposit at lower rates.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses was $1.6 million for the three months ended
December 31, 1999 and 1998. The average interest rate spread increased eight
basis points from 2.32% for the three months ended December 31, 1998 to 2.40%
for the comparable period in 1999. Net interest margin increased one basis point
and was 3.15% for the three months ended December 31, 1999.
PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the
three months ended December 31, 1999 or for the comparable period in 1998. See
"Comparison of Financial Condition at December 31, 1999 and June 30, 1999".
NONINTEREST INCOME. Noninterest income was $83,000 for the three months
ended December 31, 1999, compared to $73,000 for the three months ended December
31, 1998.
NONINTEREST EXPENSE. Noninterest expense increased $27,000 from $1,465,000
for the three months ended December 31, 1998 to $1,492,000 for the comparable
period in 1999. Professional services expense was $209,000 for the three months
ended December 31, 1999, an increase of $133,000 over the comparable 1998
period. This increase was primarily due to increases in legal fees in a suit to
recover damages in a real estate development known as The Trails of Olympia
Fields. A trial date has been set for May 2000. Compensation and benefits
expense decreased $56,000 during the 1999 quarter over the similar period in
1998 primarily due to the decreased cost of stock incentive employee benefits.
Other noninterest expense was $204,000 for the three months ended December 31,
1999, compared to $252,000 for the
11
<PAGE>
comparable period in 1998. This decrease was due to expenses that were incurred
in the 1998 period for Year 2000 safeguards, and decreased expenses as a result
of reduced mortgage loan origination volume.
INCOME TAX EXPENSE. Income tax expense decreased $32,000 from $93,000 for
the three months ended December 31, 1998 to $61,000 for the three months ended
December 31, 1999. This decrease was primarily due to the decrease of $64,000 in
pre-tax income and a decrease in the effective tax rate. The effective tax rate
was 35.9% and 39.7% for the three month periods ended December 31, 1999 and
1998, respectively.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999 AND 1998
GENERAL. For the six months ended December 31, 1999, net income was
$290,000 or $0.14 basic and diluted earnings per share, compared to $392,000 or
$0.17 basic and diluted earnings per share for the six months ended December 31,
1998.
INTEREST INCOME. Interest income was $6.8 million for the six months ended
December 31, 1999, compared to $7.1 million for the six months ended December
31, 1998. The average balance of interest earning assets decreased $5.9 million
from $209.6 million for the six months ended December 31, 1998 to $203.7 million
for the six months ended December 31, 1999. The average yield on the Bank's
interest-earning assets decreased 13 basis points from 6.79% for the six months
ended December 31, 1998 to 6.66% for the six months ended December 31, 1999.
INTEREST EXPENSE. Interest expense decreased $242,000 and was $3.6 million
for the six months ended December 31, 1999. This decrease was due primarily to a
lower cost of funds. The average rate paid on interest-bearing liabilities
decreased 21 basis points from 4.51% for the six months ended December 31, 1998
to 4.30% for the six months ended December 31, 1999. The average balance of
interest-bearing liabilities decreased $2.9 million to $167.8 million for the
six months ended December 31, 1999 from $170.7 million for the six months ended
December 31, 1998.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses decreased $93,000 and was $3.1 million for the
six months ended December 31, 1999 and $3.2 million for the comparable period in
1998. The average interest rate spread increased eight basis points from 2.25%
for the six months ended December 31, 1998 to 2.33% for the comparable period in
1999. Net interest margin remained the same at 3.09% for the six months ended
December 31, 1999.
PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the
six months ended December 31, 1999 and for the comparable period in 1998. See
"Comparison of Financial Condition at December 31, 1999 and June 30, 1999".
NONINTEREST INCOME. Noninterest income was $163,000 for the six months
ended December 31, 1999 compared to $142,000 for the six months ended December
31, 1998.
12
<PAGE>
NONINTEREST EXPENSE. Noninterest expense increased $101,000 from $2.8
million for the six months ended December 31, 1998 as compared to the six months
ended December 31, 1999.
Compensation and benefits expense decreased $36,000 to $1.5 million for the
six month period ended December 31, 1999 compared to the same period in the
prior year, primarily due to the reduced cost of stock incentive employee
benefits.
Professional service expense for the six month period ended December 31,
1999 was $328,000, as compared to $148,000 for the six months ended December 31,
1998. This increase is primarily due to increases in legal fees in a suit to
recover damages in a real estate development known as The Trails of Olympia
Fields.
Office occupancy expense was $559,000 for the six months ended December 31,
1999, compared to $528,000 for the same period in 1998. This increase was
primarily due to furniture and fixture depreciation expense, resulting from the
purchase of new ATMs and in-house data processing equipment, which were placed
into service in the second half of fiscal year 1999.
Other noninterest expense was $382,000 for the six month period ended
December 31, 1999 compared to $440,000 for the six month period ended December
31, 1998. The decrease was due to expenses that were incurred during the 1998
period for Year 2000 safeguards, and decreased expenses as a result of reduced
mortgage loan origination volume.
INCOME TAX EXPENSE. Income tax expense decreased $71,000 from $238,000 for
the six months ended December 31, 1998 to $167,000 for the six months ended
December 31, 1999. This decrease was primarily due to a decrease of $173,000 in
pre-tax income and a decrease in the effective tax rate. The effective tax rate
was 36.5% and 37.8% for the six month periods ended December 31, 1999 and 1998,
respectively.
YEAR 2000
The year 2000 problem was the result of computer programs being written
using two digits rather than four to define the applicable year. Miscalculations
or system failures could have occurred to any of the Company's programs on or
after January 1, 2000 that had time-sensitive software if they had recognized
dates using "00" as the year 1900, rather than the year 2000. Based on a review
of the Bank's and the Company's business since January 1, 2000, the Company has
not experienced any material effects of the year 2000 problem. Although the
Company has not been informed of any material risks associated with the year
2000 problem from third parties, there can be no assurance that the Company will
not be impacted in the future. The Company will continuously monitor its
business applications and maintain contact with its third party vendors,
customers and key business partners to resolve any year 2000 problems that may
arise in the future.
The Company's total Year 2000 project cost and estimates to complete
include the estimated costs and time associated with the impact of a third
party's Year 2000 problem, and are based on presently available information.
Both direct and indirect costs of addressing the Year 2000 problem will be
charged to earnings as incurred. Total direct costs incurred were approximately
$33,000 and such costs did not have a material effect on the results of
operations.
13
<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
(cash, certain time deposits, bankers' acceptances, specified United States
Government, state or federal agency obligations, shares of certain mutual funds
and certain corporate debt securities and commercial paper) equal to a monthly
average of not less than a specified percentage of its net withdrawable deposits
accounts plus short-term borrowings. This liquidity requirement may be changed
from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and is currently 4%. At December 31, 1999, the Bank's liquidity ratio was 37.7%.
The Bank's liquidity ratio is high due to the amount of
mortgage-backed-securities held in the Bank's investment 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 three months ended
December 31, 1999 were the origination of mortgage 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 six
months ended December 31, 1999 and 1998.
At December 31, 1999, the Bank had outstanding loan origination commitments
of $1.4 million and unused lines of consumer credit of $381,000. 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 December 31, 1999 totaled $41.8 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 December 31, 1999, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $25.1 million, or 12.30% of total
adjusted assets, which is above the required level of $3.1 million or 1.5%; core
capital of $25.1 million, or 12.30% of total adjusted assets, which is above the
required level of $6.1 million or 3.0%; and total risk-based capital of
14
<PAGE>
$25.4 million, or 28.20% of risk-weighted assets, which is above the required
level of $7.2 million, or 8.0%.
FINANCIAL SERVICE MODERNIZATION BILL
Landmark financial services legislation, titled the Gramm-Leach-Bliley Act,
was signed into law by President Clinton on November 12, 1999. The legislation
modernizes the financial services industry by establishing a comprehensive
framework to permit affiliations among commercial banks, insurance companies and
other financial service providers. Generally, the legislation: (i) repeals the
historical restrictions and eliminates many federal and state law barriers to
affiliations among banks and securities firms, insurance companies and other
financial service providers; (ii) provides a uniform framework for the
activities of banks, savings institutions and their holding companies; (iii)
broadens the activities that may be conducted by national banks, banking
subsidiaries of bank holding companies and their financial subsidiaries; (iv)
provides an enhanced framework for protecting privacy of consumers' information;
(v) adopts a number of provisions related to the capitalization, membership,
corporate governance and other measures designed to modernize the Federal Home
Loan Bank system; (vi) modifies the laws governing the implementation of the
Community Reinvestment Act; and (vii) addresses a variety of other legal and
regulatory issues affecting both day-to-day operations and long-term activities
of financial institutions, including the functional regulation of securities and
insurance activities conducted in a financial holding company.
In addition, the legislation restricts certain of the powers that unitary
savings and loan holding companies currently have. Unitary savings and loan
holding companies that are "grandfathered," i.e., became a unitary savings and
loan holding company pursuant to an application filed with the OTS before May 4,
1999, (such as the Company) retain their original authority under the law. All
subsequent savings and loan holding companies would be limited to financially
related activities permissible for bank holding companies, as defined under the
new law. The legislation also prohibits non-financial companies from acquiring
savings and loan holding companies.
The new law also requires financial institutions to disclose, on ATM
machines, any non-customer fees and to disclose to their customers upon the
issuance of an ATM card any fees that may be imposed by the institutions on ATM
users. For older ATMs, financial institutions will have until December 31, 2004
to provide such notices.
The OTS has recently proposed regulations implementing the privacy
protection provisions of the legislation. The proposed regulations would require
each financial institution to adopt procedures to protect customers' and
consumers' "nonpublic personal information" by November 13, 2000. We would be
required to disclose our privacy policy, including identifying with whom we
share "nonpublic personal information," to customers at the time of establishing
the customer relationship and annually thereafter. In addition, we would be
required to provide our customers with the ability to "opt-out" of having us
share their personal information with unaffiliated third parties. We currently
have a privacy protection policy in place and intend to review and amend that
policy, if necessary, for compliance with the regulations when they are adopted
in final form.
15
<PAGE>
It is believed that the legislation will not have a material adverse effect
on the Company's operations in the near term. However, to the extent the
legislation permits banks, securities firms and insurance companies to
affiliates, the financial services industry may experience further
consolidation. This could result in a growing number of larger financial
institutions that offer a wider variety of financial services than the Company
currently offers and who may one day be aggressive competitors in markets served
by the Company.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There has been no material change in market risk since that disclosed in
Item 7A of the Company's Form 10-K for the year ended June 30, 1999.
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.
16
<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
Senior Vice President and Chief
Financial Officer
February 14, 2000
17
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