SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the transition period from _________ to _________
Commission File No. 0-28934
Empire Federal Bancorp, Inc.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 81-0512374
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
123 South Main Street, Livingston, Montana 59047
-------------------------------------------------
(Address of principal executive offices)
(406) 222-1981
--------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class: Common Stock, par value $.01 per share
Outstanding at July 30, 1997: 2,592,100
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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EMPIRE FEDERAL BANCORP, INC.
INDEX TO FORM 10-QSB
Page
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PART I FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
June 30, 1997 and December 31, 1996 (unaudited)......... 1
Consolidated Statements of Income for the Three
and Six Months Ended June 30, 1997 and 1996
(unaudited)............................................. 2
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996 (unaudited)......... 3
Notes to Unaudited Interim Consolidated Financial
Statements.............................................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8
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........................... 14
SIGNATURES ...........................................................15
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PART I, ITEM 1 - FINANCIAL STATEMENTS
EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
June 30, December 31,
Assets 1997 1996
(unaudited) (unaudited)
--------- ---------
Cash and cash equivalents $ 1,172,582 1,165,164
Interest-bearing deposits 821,477 29,824,391
Investment and mortgage-backed securities
available-for-sale 35,723,510 13,767,773
Investment and mortgage-backed securities
held-to-maturity (estimated market value of
$23,983,309 at June 30, 1997 and $26,385,527
at December 31, 1996) 23,846,428 26,187,821
Loans receivable, net 43,613,844 41,703,590
Stock in Federal Home Loan Bank of Seattle, at cost 1,211,800 1,168,800
Accrued interest receivable 549,734 330,927
Premises and equipment, net 1,308,283 1,276,818
Prepaid expenses and other assets 317,856 448,473
------------ -----------
Total assets $ 108,565,514 115,873,757
============ ===========
Liabilities and Stockholders' Equity
Liabilities:
Passbook Accounts $ 13,473,689 14,521,391
NOW Accounts 13,778,955 14,629,406
Certificates of Deposit 38,454,047 38,547,069
------------ -----------
Total Deposits $ 65,706,691 67,697,866
Stock oversubscription funds - 6,987,070
Advances from Federal Home Loan Bank of
Seattle 1,000,000 -
Advances from borrowers for taxes and
insurance 218,607 169,872
Accrued expenses and other liabilities 1,075,482 1,409,312
------------ -----------
Total liabilities 68,000,780 76,264,120
Stockholders' equity:
Preferred stock, par value $.01 per share,
250,000 shares authorized, none issued
and outstanding - -
Common stock, par value $.01 per share,
4,000,000 shares authorized, 2,592,100
issued 25,921 25,921
Additional paid-in capital 25,169,117 25,142,356
Unearned ESOP compensation (1,994,320) (2,073,680)
Retained earnings, substantially restricted 16,379,223 15,762,582
Unrealized gain on securities
available-for-sale, net 984,793 752,458
------------ -----------
Total stockholders' equity 40,564,734 39,609,637
------------ -----------
Total liabilities and stockholders' equity $ 108,565,514 115,873,757
============ ===========
See accompanying notes to unaudited interim consolidated financial statements.
1
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three and Six Months Ended June 30, 1997 and 1996
Three Months Six Months
Ended Ended
June 30 June 30
------------ ----------
1997 1996 1997 1996
------ ------ ------ ------
Interest Income:
Loan receivable 906,903 868,287 1,827,356 $1,769,190
Mortgage-backed securities 773,104 610,547 1,377,110 1,259,926
Investment securities 186,020 38,002 272,633 85,251
Other 64,447 41,903 326,508 73,136
------ ------ ------ ------
Total Interest Income 1,930,474 1,558,739 3,803,607 3,187,503
Interest Expense:
Deposits 744,148 789,439 1,484,267 1,586,837
Advances from Federal Home Loan 1,183 22,584 64,353 46,649
Bank and other
------ ------ ------ ------
Total Interest Expense 745,331 812,023 1,548,620 1,633,486
------ ------ ------ ------
Net Interest Income 1,185,143 746,716 2,254,987 1,554,017
Provision for loan losses 1,017 55,000 19,895 55,000
------ ------ ------ ------
Net Interest Income after 1,184,126 691,716 2,235,092 1,499,017
Provision for Loan Losses
Non-Interest Income
Insurance commission income 131,615 138,662 308,571 329,286
Customer service charges 43,375 41,705 85,104 76,745
Other 2,155 5,306 8,702 11,462
------ ------ ------ ------
Total Non-Interest Income 177,145 185,673 402,377 417,493
Non-Interest Expense:
Compensation and benefits 365,852 389,423 754,961 779,494
Occupancy and equipment 117,147 150,179 196,407 243,666
Deposit insurance premiums 10,525 39,128 40,058 93,377
Other 155,938 108,592 324,592 198,148
------ ------ ------ ------
Total Non-Interest Expense 649,462 687,322 1,316,018 1,314,685
------ ------ ------ ------
Income Before Income Taxes 711,809 190,067 1,321,451 601,825
Income Taxes 295,682 95,585 525,955 254,129
------ ------ ------ ------
Net Income $ 416,127 $ 94,482 $ 795,496 $ 347,696
======= ====== ======= =======
Earnings Per Share $ 0.17 N/A $ 0.33 N/A
======= ====== ======= =======
See accompanying notes to unaudited interim consolidated financial statements.
2
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
Six Months Ended
June 30,
1997 1996
(unaudited) (unaudited)
Cash flows from operating activities: ------- -------
Net income $ 795,496 347,696
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 19,895 55,000
Depreciation 71,557 130,553
ESOP shares available for allocation 106,121 -
Stock dividends reinvested in Federal
Home Loan Bank stock (43,000) (41,400)
Decrease (increase) in accrued interest
receivable (218,807) 56,256
Decrease in prepaid expenses and other
assets 130,618 142,289
Decrease in accrued expenses and other
liabilities (453,520) (199,590)
-------- --------
Net cash provided (used) by operating activities 408,360 490,804
-------- --------
Cash flows from investing activities:
Net change in interest-bearing deposits 29,002,914 (790,477)
Net change in loans receivable (1,930,149) (1,953,947)
Purchases of investment securities
held-to-maturity - (1,772,368)
Proceeds from matured or called investment
securities held-to-maturity 248,750 3,023,368
Principal payments on mortgage-backed
securities held-to maturity 2,092,643 2,717,295
Purchases of investment securities
available-for-sale (8,364,494) -
Principal payments on mortgage-backed
securities available-for sale 1,165,286 1,017,361
Purchases of mortgage-backed securities
available-for-sale (14,404,505) -
Purchases of premises and equipment (103,022) (31,413)
Purchase of mortgage-backed securities held to
maturity - (1,000,000)
Net cash provided by investing activities 7,707,423 1,209,819
--------- ----------
Cash flows from financing activities:
Net change in deposits (1,991,175) (1,311,744)
Repayment of advances from Federal Home Loan
Bank - (426,796)
Net change in advances from borrowers for
taxes and insurance 48,735 2,323
Refund of stock oversubscription (6,987,070) -
Dividends paid (178,855) -
Proceeds from advances from Federal Home
Loan Bank 1,000,000 -
Net cash used in financing activities (8,108,365) (1,736,217)
--------- ---------
Net increase (decrease) in cash and cash equivalents 7,418 (35,594)
Cash and cash equivalents, beginning of period 1,165,164 1,196,354
--------- ---------
Cash and cash equivalents, end of period $ 1,172,582 1,160,760
========= =========
See accompanying notes to unaudited interim consolidated financial statements.
3
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EMPIRE FEDERAL BANCORP, INC.
Notes to Unaudited Interim Consolidated Financial Statements
June 30, 1997
Note 1 Basis of Presentation
---------------------
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for audited financial statements. They
should be read in conjunction with the audited consolidated financial
statements filed as part of the Annual Report on Form 10-KSB for the
year ended December 31, 1996.
The accompanying consolidated financial statements include the accounts
of Empire Federal Bancorp, Inc. (the Holding Company) and its
wholly-owned subsidiary, Empire Federal Savings Bank (Empire) and Dime
Service Corporation (Dime), a wholly-owned subsidiary of Empire. The
Holding Company, Empire and Dime are herein referred to collectively as
"the Company." All significant intercompany balances and transactions
have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentations have
been included. The results of operations for the three and six months
ended June 30, 1997 and 1996 are not necessarily indicative of the
results which may be expected for an entire year or any other period.
Note 2 Conversion to Stock Ownership
-----------------------------
The Holding Company was incorporated in September 1996 to acquire and
hold all of the outstanding capital stock of Empire to be issued as a
part of Empire's conversion from a federally-chartered mutual savings
and loan association to a federally-chartered capital stock savings
bank. In connection with the conversion, which was consummated on
January 23, 1997, the Company issued and sold 2,592,100 shares of
common stock (par value $.01 per share) at a price of $10 per share for
net offering proceeds of $25,168,277 after conversion and offering
expenses of $752,723. Net cash offering proceeds were $23,094,597 which
is net of $2,073,680 in stock issued to the Employee Stock Ownership
Plan (ESOP) as consideration for future charges to compensation expense
as ESOP shares are earned by employees. The Holding Company used
$9,501,000 of the net cash proceeds to purchase the newly issued
capital stock of Empire. Since the offering proceeds and all required
regulatory approvals to consummate the conversion were received prior
to December 31, 1996, the conversion has been accounted for as being
effective as of December 31, 1996, with the net offering proceeds shown
on the statement of stockholders' equity as proceeds from the sale of
common stock and the stock oversubscription funds recorded as a
liability. The oversubscription funds and accrued interest due were
refunded as of January 23, 1997. In connection with the conversion, the
Company adopted December 31 as its fiscal year end. Prior to
conversion, Empire's fiscal year ended June 30.
4
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Note 3 New Accounting Pronouncements
-----------------------------
In October 1995, SFAS No. 123 was issued which establishes financial
accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 encourages all entities to adopt a new
method of accounting to measure compensation cost of all employee stock
compensation plans based on the estimated fair value of the award at
the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value
based method of accounting, which generally results in compensation
expense only when the exercise price is less than the fair value of the
underlying stock at the date of grant. Companies that elect to remain
with the intrinsic value method are required to disclose in a footnote
to the financial statements pro forma net income and, if presented,
earnings per share, as if the fair value method of SFAS No. 123 had
been adopted. The accounting requirements of SFAS No. 123 are effective
for transactions entered into by the Company beginning July 1, 1996.
The Company expects to utilize the intrinsic value method of accounting
for stock based compensation awards.
SFAS No. 125 provides guidance on accounting for transfers and
servicing of financial assets, recognition and measurement of servicing
assets and liabilities, financial assets subject to prepayment, secured
borrowings and collateral, and extinguishment of liabilities. SFAS No.
125 generally requires that the Company recognize as separate assets
the rights to service mortgage loans for others, whether the servicing
rights are acquired through purchases or loan originations. Servicing
rights are initially recorded at fair value based upon the present
value of estimated future cash flows. Subsequently, the servicing
rights are assessed for impairment, which is recognized in the
statement of income in the period the impairment occurs. For purposes
of performing the impairment evaluation, the related portfolio must be
stratified on the basis of certain risk characteristics including loan
type and note rate. SFAS No. 125 also specifies that financial assets
subject to prepayment, including loans that can be contractually
prepaid or otherwise settled in such a way that the holder would not
recover substantially all of its recorded investment, be measured like
debt securities available-for-sale or trading securities under SFAS No.
115, as amended by SFAS No. 125. The provisions of SFAS No. 125 apply
to transactions occurring after December 31, 1996 and is not expected
to have a material impact on the Company's consolidated financial
position or results of operations.
SFAS No. 128 was issued in February 1997 and will replace the
presentation of primary earnings per share ("EPS") with a presentation
of basic and diluted EPS on the face of the income statement for all
entities with complex capital structures. SFAS No. 128 also requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the equity.
This statement will be effective for the Company commencing February 1,
1998 and earlier application is not permitted. Once effective, this
statement requires restatement of all prior period EPS data.
5
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In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" (the "Statement"). The Statement 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. The
Statement requires all items that are required to be recognized under
accounting standards as components of comprehensive income to be
reported in a financial statement that is displayed in equal prominence
with other financial statements. It does not require a specific format
for that financial statement but requires that an enterprise display an
amount representing total comprehensive income for the period in that
financial statement. Enterprises 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. "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 (GAAP).
The statement is applicable to all entities that provide a full set of
financial statements consisting of a statement of financial position,
results of operations and cash flows. The Statement is effective for
both interim and annual periods beginning after December 15, 1997.
Earlier application is permitted. Comparative financial statements
provided for earlier periods are required to be reclassified to reflect
the provisions of this Statement.
6
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Note 4 Earnings Per Share
------------------
Earnings per common share is calculated by dividing net income by the
weighted average number of common shares and common stock equivalents
outstanding during the period. Shares sold in the conversion from
mutual to stock ownership are assumed to have been outstanding for the
three and six months ended June 30, 1997, for purposes of computing
weighted average shares outstanding. Additionally, unallocated ESOP
shares are excluded from the weighted average common shares outstanding
calculation, while allocated shares and shares committed to be released
are considered to be outstanding
Note 5 Cash Dividend Declared
----------------------
On August 1, 1997, the Board of Directors declared a quarterly cash
dividend of $.075 per common share to stockholders of record on August
15, 1997, payable on August 29, 1997.
Note 6 Capital Compliance
------------------
The following table presents the Savings Bank's compliance with its
regulatory capital requirements of June 30, 1997 (dollars in
thousands):
Percentage
Amount of Assets
------ -------
GAAP capital(1) $ 26,921 24.80%
====== ======
Tangible capital $ 25,533 23.94%
Tangible capital requirement 1,600 1.50%
------ ------
Excess $ 23,933 22.44%
====== ======
Core capital $ 25,533 23.94%
Core capital requirements 3,200 3.00%
------ ------
Excess $ 22,333 20.94%
====== ======
Total risk-based capital(2) $ 25,711 66.91%
Total risk-based capital
requirement(2) 3,074 8.00%
------ ------
Excess(1) $ 22,637 58.91%
====== ======
(1) GAAP capital includes unrealized gains on certain
available-for-sale securities of $984,000 and $404,000 of
investments in Dime, which are excluded for purposes of
calculating both tangible and core capital.
(2) Based on risk-weighted assets of $38,426.
Note 7 Subsequent Event
----------------
The Savings Bank's main office was owned by the president, her sister,
who is married to the executive vice president and their brother and
was leased by the Savings Bank through June 30, 1997. As previously
disclosed, the Board of Directors negotiated the purchase of the
building, which has been approved by the OTS. Effective July 1, 1997,
the property was purchased for $750,000. The negotiated price was based
on independent appraisals. The sellers accepted a 10-year 9% note as
payment.
7
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EMPIRE FEDERAL BANCORP, INC.
Notes to Unaudited Interim Consolidated Financial Statements
PART I, ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company.
OPERATING STRATEGY
The business of the Savings Bank consists principally of attracting deposits
from the general public and using such deposits to originate mortgage loans
secured primarily by one- to four-family residences. The Savings Bank also
invests in interest-bearing deposits, investment grade federal agency securities
and mortgage-backed securities. The Savings Bank plans to continue to fund its
assets primarily with deposits, although FHLB advances may be used as a
supplemental source of funds.
The Savings Bank's profitability depends primarily on its net interest income,
which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits. Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities. When interest-earning
assets equal or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The Savings Bank's profitability is
also affected by the level of other income and expenses. Other income consists
of service charges on NOW accounts and other fees, proceeds from the sale of
available-for-sale securities, insurance commissions and net real estate owned
income. Other expenses include compensation and employee benefits, occupancy
expenses, deposit insurance premiums, equipment and data servicing expenses,
professional fees and other operating costs. The Savings Bank's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government
legislation, and policies concerning monetary and fiscal affairs, housing, and
financial institutions and the attendant actions of the regulatory authorities.
FINANCIAL CONDITION
Consolidated assets decreased by approximately $7.3 million, or 6.3%, from
$115.9 million at December 31, 1996 to $108.6 million at June 30, 1997. This
decrease was primarily attributable to the refund of $8.5 million of excess
subscription funds from the sale of Company Stock.
8
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The comparison of the consolidated balance sheet was not materially affected by
market conditions between December 31, 1996 and June 30, 1997. The investment of
the net proceeds from the sale of Company stock during the first half of 1997
resulted in significant changes in interest-bearing deposits and investment and
mortgage-backed securities available-for-sale. Interest-bearing deposits at the
FHLB decreased from $29.8 million at December 31, 1996 to $821,000 at June 30,
1997 primarily as the result of the net reinvestment of $21.6 million of the
stock sales proceeds in mortgage-backed securities and U.S. Government agency
bonds available-for-sale coupled with the previously noted refund of excess
subscription funds. Investment and mortgage-backed securities held-to-maturity
decreased $2.4 million from $26.2 million at December 31, 1996 to $23.8 million
at June 30, 1997 as the result of payments and maturities. Net loans increased
by $1.9 million, or 4.6%, and consisted primarily of permanent and construction
loans of 1-4 dwelling units.
Deposits decreased by $2.0 million, or 2.9%, to $65.7 million at June 30, 1997
from $67.7 million at December 31, 1996. Stock oversubscriptions at December 31,
1996 amounted to $7.0 million and were refunded to subscribers as part of the
$8.5 million payment made in January 1997.
Stockholders' equity increased from $39.6 million at December 31, 1996 to $40.6
million at June 30, 1997. The increase is the result of net income of $795,000,
the release of ESOP shares in the amount of $106,000 and an increase of $232,000
related to the increase in market value of securities available-for-sale.
Offsetting these increases was the payment of a dividend of $179,000.
ASSET QUALITY
At June 30, 1997 and December 31, 1996, the Savings Bank did not have any
nonaccrual loans or troubled debt restructuring. At June 30, 1997, the Savings
Bank had five loans delinquent over 30 days amounting to $201,000 of which
$64,000 were delinquent over 90 days. The Savings Bank has no real estate
acquired through foreclosure.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996
Net Income. Net income increased by $448,000, or 128.79%, to $795,000 for the
six months ended June 30, 1997 from $348,000 for the same period in 1996. The
primary cause for this change was the increase in interest income related to the
investment of the net proceeds from the sale of stock of $23.1 million. Net
income for the six months ended June 30, 1997 also increased because of the
reduced cost of interest-bearing deposits and a reduction in deposit insurance
premiums. Dime incurred a reduction in profit sharing contingencies from
insurance companies for the period ended June 30, 1997 coupled with an increase
in other non-interest expense partially offset the aforementioned increases in
net income.
Net Interest Income. Net interest income increased $701,000, or 45.11%, to $2.2
million for the six months ended June 30, 1997 from $1.6 million for the same
period in 1996. The increase in net interest income primarily reflected an
increase in the volume of average interest earning assets attributed to the
$23.1 million of net proceeds from the sale of stock while interest-bearing
deposits declined by $2.0 million.
9
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Interest Income. Total interest income increased by $616,000, or 19.33%, to $3.8
million for the six months ended June 30, 1997 from $3.2 million for the same
period in 1996. The increase was primarily attributable to the net investment of
$21.6 million in investments and mortgage-backed securities available-for-sale
with stated rates ranging from 5.5% to 8.05% and maturities ranging from 1998 to
2024. These investments represent a majority of the proceeds from the sale of
the Company stock, most of which were received in late December 1996.
Interest income on loans increased $58,000, or 3.29%, from $1.7 million for the
period ended June 30, 1996 to $1.8 million for the same period in 1997. The
increase is partially attributable to the increase in the average balance of
loans outstanding from $41.1 million for the period ended June 30, 1996 to $42.7
million for the same period in 1997. This increase in volume was offset by a
decrease in average yield from 8.60% for the six months ended June 30, 1996 to
8.56% for the same period in 1997.
Interest Expense. Total interest expense was $1.5 million for the six months
ended June 30, 1997 as compared to $1.6 million for the same period in 1996. The
$85,000, or 5.2%, decrease was the result of a $103,000 decrease in interest on
deposits offset by an increase of $18,000 in other interest expense.
The decline in deposit interest is caused by a reduction of $2.1 million in
average outstanding deposits for the period ending June 30, 1996 of $68.9
million to $66.8 million for the same period in 1997. Management attributes a
substantial portion of the decrease to depositors converting their deposits to
stock purchases. In addition to the decline in average deposits, the average
cost of deposits for the period ended June 30, 1996 was 4.61% and for the same
period in 1997, the average cost declined to 4.44%.
Other interest expense of $47,000 for the period ended June 30, 1996 related
primarily to short-term borrowings from the FHLB. There were only nominal
borrowings from the FHLB during the period ended June 30, 1997; however, during
this period, $63,000 in interest was paid to subscribers of the stock sale on
stock issuance date of January 23, 1997.
Provision for Loan Losses. The provision for loan losses was $20,000 for the six
month period ended June 30, 1997 as compared to a $55,000 provision in the same
period in 1996. During the six months ended June 30, 1997, Empire charged off
$20,000 of mortgage loans. Management's analysis of the loan portfolio
determined that the reserve would be restored to $200,000. At the end of both
periods, the level of reserves was deemed to be adequate by management. Loan
loss reserves as a percentage of loans was .46% at June 30, 1997 and .48% at
June 30, 1996.
Non-Interest Income. Non-interest income decreased $15,000 for the six months
ended June 30, 1997 as compared to the same period in 1996 primarily as the
result of a $21,000 decrease in profit sharing contingencies from insurance
companies. This decrease was partially offset by an increase in customer service
charges of $8,000.
Insurance commissions received from Dime are the largest component of
non-interest income. Insurance commissions of $309,000 and $329,000 were
received for the six months ended June 30,
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1997 and 1996, respectively. The decrease in commission income resulted
primarily from increases in competition and reduced premiums and commissions
from key companies represented by Dime.
Non-Interest Expense. Total non-interest expense increased $1,000 for the six
months ended June 30, 1997 compared to the six months ended June 30, 1996.
This net change was the result of several factors:
* Compensation and benefits, while remaining relatively stable for the
periods ending June 30, 1997 and 1996, did include a $106,000 charge for
1997 related to the newly adopted ESOP. For the same period in 1996, a
bonus accrual of $68,000 and a pension accrual of $54,000 was recorded.
For the period ending June 30, 1997, no provision for the pension was made
because of the fully funded status of the plan and the ESOP accrual was in
lieu of the previous bonus accrual.
* Occupancy and equipment expense decreased $47,000 from the period ended
June 30, 1996 to the same period in 1997 primarily because of the fully
depreciated status of certain assets.
* Deposit insurance premiums decreased by $53,000, or 57.1%, from $93,000
for the six months ended June 30, 1996 to $40,000 for the same period in
1997 because of the reduced premiums resulting from the recapitalization
of SAIF in 1996.
* Other non-interest expense increased $126,000, or 63.81%, from the six
months ended June 30, 1996 to the same period in 1997. The increase
includes a $27,000 increase in accounting expense caused by the additional
audit required for the change in fiscal year, increased advertising and
stationery costs of $33,000 and legal costs of $28,000 associated with
being a public company.
Income Taxes. Income taxes increased $272,000 from the six month period ended
June 30, 1996 as compared to the same period in 1997 as the result of the
increase in income before income taxes. The effective combined federal and state
tax rate was 39.80% and 42.23% for the six months ended June 30, 1997 and 1996,
respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997
AND 1996
Net Income. Net income increased by $322,000, or 342.55%, to $416,000 for the
three months ended June 30, 1997 from $94,000 for the same period in 1996. The
primary cause for this change was the increase in interest income related to the
investment of the net proceeds from the sale of stock of $23.1 million. Net
income for the three months ended June 30, 1997 also increased because of the
reduced cost of interest-bearing deposits and interest paid on advances from the
Federal Home Loan Bank. A reduction in the provision for loan losses and
non-interest expense also contributed to the increase in net income.
Net Interest Income. Net interest income increased $438,000, or 58.63%, to $1.2
million for the three months ended June 30, 1997 from $747,000 for the same
period in 1996. The increase in net
11
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<PAGE>
interest income primarily reflected an increase in the volume of average
interest earning assets attributed to the $23.1 million of net proceeds from the
sale of stock while average interest-bearing deposits declined by $2.0 million
for the comparable periods.
Interest Income. Total interest income increased by $372,000, or 23.85%, to $1.9
million for the three months ended June 30, 1997 from $1.5 million for the same
period in 1996. The increase was primarily attributable to the net investment of
$21.6 million in investments and mortgage-backed securities available-for-sale
with stated rates ranging from 5.5% to 8.05% and maturities ranging from 1998 to
2024. $16.5 million of the $21.6 million was invested during the three months
ended March 31, 1997, and the remaining $5.1 million was invested during the
quarter ended June 30, 1997. These investments represent a majority of the
proceeds from the sale of the Company stock, most of which were received in late
December 1996.
Interest income on loans increased $39,000, or 4.45%, from $868,000 for the
three months ended June 30, 1996 to $907,000 for the same period in 1997. The
increase is partially attributable to the increase in the average balance of
loans outstanding from $41.7 million for the three months ended June 30, 1996 to
$43.2 million for the same period in 1997. The average yield was 8.32% for the
three months ended June 30, 1996 and 8.40% for the same period in 1997.
Interest Expense. Total interest expense was $745,000 for the three months ended
June 30, 1997 as compared to $812,000 for the same period in 1996. The $67,000,
or 8.21%, decrease was the result of a $45,000 decrease in interest on deposits
and $22,000 in other interest expense.
The decline in deposit interest is caused by a reduction of $2.0 million in
average outstanding deposits for the three months ending June 30, 1996 of $68.4
million to $66.4 million for the same period in 1997. Management attributes a
substantial portion of the decrease to depositors converting their deposits to
stock purchases. In addition to the decline in average deposits, the average
cost of deposits for the three months ended June 30, 1996 was 4.61% and for the
same period in 1997, the average cost declined to 4.48%.
Other interest expense of $22,000 for the three months ended June 30, 1996
related primarily to short-term borrowings from the FHLB. There were only
nominal borrowings from the FHLB during the period ended June 30, 1997.
Provision for Loan Losses. The provision for loan losses was $1,000 for the
three month period ended June 30, 1997 as compared to a $55,000 provision in the
same period in 1996. During the three months ended June 30, 1997, Empire charged
off $1,000 of mortgage loans. Management's analysis of the loan portfolio
determined that the reserve would be restored to $200,000. At the end of both
periods, the level of reserves was deemed to be adequate by management. Loan
loss reserves as a percentage of loans was .46% at June 30, 1997 and .48% at
June 30, 1996.
Non-Interest Income. Non-interest income decreased $9,000 for the three months
ended June 30, 1997 as compared to the same period in 1996 primarily as the
result of a $7,000 decrease in insurance commission income.
12
<PAGE>
<PAGE>
Insurance commissions received from Dime are the largest component of
non-interest income. Insurance commissions of $132,000 and $139,000 were
received for the three months ended June 30, 1997 and 1996, respectively. The
decrease in commission income resulted primarily from increases in competition
and reduced premiums and profit sharing contingencies from insurance companies
represented by Dime.
Non-Interest Expense. Total non-interest expense decreased $39,000 for the three
months ended June 30, 1997 compared to the three months ended June 30, 1996.
This net change was the result of several factors:
* Compensation and benefits, while remaining relatively stable for the three
months ending June 30, 1997 and 1996, did include a $47,000 charge for
1997 related to the newly adopted ESOP. For the same period in 1996, a
bonus accrual of $34,000 and a pension accrual of $27,000 was recorded.
For the period ending June 30, 1997, no provision for the pension was made
because of the fully funded status of the plan and the ESOP accrual was in
lieu of the previous bonus accrual.
* Occupancy and equipment expense decreased $33,000 from the three months
ended June 30, 1996 to the same period in 1997 primarily because of the
fully depreciated status of certain assets.
* Deposit insurance premiums decreased by $28,000, or 73.10%, from $39,000
for the three months ended June 30, 1996 to $11,000 for the same period in
1997 because of the reduced premiums resulting from the recapitalization
of SAIF in 1996.
* Other non-interest expense increased $47,000, or 43.60%, from the three
months ended June 30, 1996 to the same period in 1997. The primary reason
for the increase is additional auditing, legal, advertising and stationery
costs associated with being a public company.
Income Taxes. Income taxes increased $200,000 from the three month period ended
June 30, 1996 as compared to the same period in 1997 as the result of the
increase in income before income taxes. The effective combined federal and state
tax rate was 41.54% and 50.29% for the three months ended June 30, 1997 and
1996, respectively.
13
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<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the registrant
or its subsidiaries are a party.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Empire Federal Bancorp, Inc. (1)
3.2 Bylaws of Empire Federal Bancorp, Inc. (1)
10.1 Employment Agreement with Beverly D. Harris (2)
10.2 Employment Agreement with Ernest A. Sandberg (2)
10.3 Employee Stock Ownership Plan (1)
21 Subsidiaries of the Registrant (2)
27 Financial Data Schedule
- ------------------------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2, as amended (File No. 333-12653).
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
14
<PAGE>
<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.
Empire Federal Bancorp, Inc.
By /s/ Beverly D. Harris August 14, 1997
--------------------- ---------------
Beverly D. Harris Date
President & Chief Executive Officer
(Principal Executive Officer)
By /s/ Ernest A. Sandberg August 14, 1997
---------------------- ---------------
Ernest A. Sandberg Date
Executive Vice President & Secretary
(Principal Financial and Accounting Officer)
<PAGE>
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
This schedule contains financial information extracted from the unaudited
consolidated financial statements of Empire Federal Bancorp., Inc. for the six
months ended June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
Financial Data as of
or for the six months
Item Number ended June 30, 1997 Item Description
9-03(1) $ 1,172,582 Cash and due from banks
9-03(2) 821,477 Interest-bearing deposits
9-03(3) - Federal funds sold - purchased
securities for resale
9-03(4) - Trading account assets
9-03(6) 35,723,510 Investment and mortgage-backed
securities held-for-sale
9-03(6) 23,846,428 Investment and mortgage-backed
securities held to maturity -
carrying value
9-03(6) 23,983,309 Investment and mortgage-backed
securities held to maturity -
market value
9-03(7) 43,813,844 Loans
9-03(7)(2) 200,000 Allowance for losses
9-03(11) 108,565,514 Total assets
9-03(12) 65,706,691 Deposits
9-03(13) 1,000,000 Short-term borrowings
9-03(15) 1,294,089 Other liabilities
9-03(16) - Long-term debt
9-03(19) - Preferred stock - mandatory redemption
9-03(20) - Preferred stock - no mandatory
redemption
9-03(21) 25,921 Common stocks
9-03(22) 40,538,815 Other stockholders' equity
9-03(23) 108,565,514 Total liabilities and stockholders'
equity
9-04(1) 1,827,356 Interest and fees on loans
9-04(2) 1,649,743 Interest and dividends on investments
9-04(4) 326,508 Other interest income
9-04(5) 3,803,607 Total interest income
9-04(6) 1,484,267 Interest on deposits
9-04(9) 1,548,620 Total interest expense
9-04(10) 2,254,987 Net interest income
9-04(11) 19,895 Provisions for loan losses
9-04(13)(h) - Investment securities gains (losses)
9-04(14) 1,316,018 Other expenses
9-04(15) 1,321,451 Income/loss before income tax
9-04(17) 1,321,451 Income/loss before extraordinary items
9-04(18) - Extraordinary items, less tax
9-04(19) - Cumulative change in accounting
principles
9-04(20) 795,496 Net income of loss
9-04(21) .33 Earnings per share - primary
9-04(21) N/A Earnings per share - fully diluted
EXHIBIT 27,
CONTINUED
FINANCIAL DATA SCHEDULE
Financial Data as of
or for the six months
Item Number ended June 30, 1997 Item Description
I.B.5 4.31% Net yield - interest earning assets -
actual
III.C.1.(a) None Loans on nonaccrual
III.C.1.(b) 62,422 Accruing loans past due 90 days or
more
III.C.2.(c) None Troubled debt restructuring
III.C.2 None Potential problem loans
IV.A.1 200,000 Allowance for loan loss - beginning
of period
IV.A.2 19,895 Total charge-offs
IV.A.3 None Total recoveries
IV.A.4 200,000 Allowance for loan loss - end of
period
IV.B.1 200,000 Loan loss allowance to allocated to
domestic loans
IV.B.2 None Loan loss allowance to foreign loans
IV.B.3 None Loan loss allowance - unallocated
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1172582
<INT-BEARING-DEPOSITS> 821477
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35723510
<INVESTMENTS-CARRYING> 23846428
<INVESTMENTS-MARKET> 23983309
<LOANS> 43813844
<ALLOWANCE> 200000
<TOTAL-ASSETS> 108565514
<DEPOSITS> 65706691
<SHORT-TERM> 1000000
<LIABILITIES-OTHER> 1294089
<LONG-TERM> 0
0
0
<COMMON> 25921
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<TOTAL-LIABILITIES-AND-EQUITY> 108565514
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<INCOME-PRETAX> 1321451
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<NET-INCOME> 795496
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<LOANS-PAST> 62422
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