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, 1998
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.
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(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
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(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 31, 1998: 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. Condensed Financial Statements
Consolidated Balance Sheets at June 30, 1998 and
December 31, 1997 (unaudited)........................... 1
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 1998 and 1997 (unaudited)..... 2
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 (unaudited)......... 3
Notes to Unaudited Interim Condensed Consolidated
Financial Statements.................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings......................................... 13
Item 2. Changes in Securities..................................... 13
Item 3. Defaults upon Senior Securities........................... 13
Item 4. Submission of Matters to a Vote of Security Holders....... 13
Item 5. Other Information......................................... 13
Item 6. Exhibits and Reports on Form 8-K.......................... 13
SIGNATURES........................................................ 14
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Part I, Item 1 - Financial Statements
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
June 30, December 31,
Assets 1998 1997
------------ ------------
(unaudited) (unaudited)
Cash and due from banks $ 1,126,160 $ 1,078,823
Interest-bearing deposits 2,467,691 1,825,208
Investment and mortgage-backed securities
available-for-sale 35,866,364 36,495,581
Investment and mortgage-backed securities
held-to-maturity (estimated market value
of $14,579,140 at June 30, 1998 and
$20,802,559 at December 31, 1997) 14,361,174 20,556,479
Loans receivable, net 49,128,098 45,713,508
Stock in Federal Home Loan Bank of Seattle,
at cost 1,309,900 1,261,100
Accrued interest receivable 395,404 427,496
Premises and equipment, net 1,968,692 2,051,238
Prepaid expenses and other assets 316,128 391,470
------------ ------------
Total assets $106,939,611 $109,800,903
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Passbook accounts $ 13,942,748 $ 13,572,343
NOW accounts 14,190,285 14,838,604
Certificates of deposit 37,896,255 38,448,145
------------ ------------
Total deposits 66,029,288 66,859,092
Note payable 673,190 698,136
Advances from borrowers for taxes
and insurance 248,777 208,258
Accrued expenses and other liabilities 1,252,765 1,437,029
------------ ------------
Total liabilities 68,204,020 69,202,515
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 25,258,534 25,208,225
Unearned ESOP and MRDP compensation (3,488,176) (2,737,305)
Retained earnings, substantially restricted 17,238,760 16,815,367
Accumulated other comprehensive income, net 1,440,961 1,286,180
Treasury stock, at cost (1,740,409) --
------------ ------------
Total stockholders' equity 38,735,591 40,598,388
------------ ------------
Total liabilities and stockholders'
equity $106,939,611 $109,800,903
============ ============
See accompanying notes to unaudited interim consolidated financial statements.
1
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Three and Six Months Ended June 30, 1998 and 1997
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
Interest income:
Loans receivable $ 998,244 $ 906,903 $ 1,965,310 $ 1,827,356
Mortgage-backed securities 805,663 773,104 1,579,387 1,377,110
Investment securities 94,315 186,020 207,042 272,633
Other 44,141 64,447 126,272 326,508
---------- ---------- ----------- -----------
Total interest income 1,942,363 1,930,474 3,878,011 3,803,607
---------- ---------- ----------- -----------
Interest expense:
Deposits 740,455 744,148 1,478,620 1,484,267
Note payable and other 16,102 1,183 31,768 64,353
---------- ---------- ----------- -----------
Total interest expense 756,557 745,331 1,510,388 1,548,620
---------- ---------- ----------- -----------
Net interest income 1,185,806 1,185,143 2,367,623 2,254,987
Provision for loan losses -- 1,017 -- 19,895
---------- ---------- ----------- -----------
Net interest income after
provision for loan losses 1,185,806 1,184,126 2,367,623 2,235,092
Non-interest income:
Insurance commission income 139,032 131,615 301,317 308,571
Customer service charges 50,618 43,375 96,904 85,104
Other 5,284 2,155 14,948 8,702
---------- ---------- ----------- -----------
Total non-interest income 194,934 177,145 413,169 402,377
Non-interest expense:
Compensation and benefits 451,671 365,852 879,456 754,961
Occupancy and equipment 91,434 90,755 165,212 160,373
Deposit insurance premiums 7,150 10,525 34,954 40,058
Other 161,533 182,330 366,953 360,626
---------- ---------- ----------- -----------
Total non-interest expense 711,788 649,462 1,446,575 1,316,018
---------- ---------- ----------- -----------
Income before income taxes 668,952 711,809 1,334,217 1,321,451
Income taxes 277,087 295,682 539,047 525,955
---------- ---------- ----------- -----------
Net income $ 391,865 $ 416,127 $ 795,170 $ 795,496
========== ========== =========== ===========
Basic earnings per share $ 0.17 $ 0.17 $ 0.34 $ 0.33
========== ========== =========== ===========
Diluted earnings per share $ 0.17 $ 0.17 $ 0.34 $ 0.33
========== ========== =========== ===========
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, 1998 and 1997
Six Months Ended
June 30,
----------------
1998 1997
---- ----
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 795,170 $ 795,496
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- 19,895
Depreciation 79,821 71,557
ESOP shares committed to be released 117,573 106,121
MRDP shares vested 107,735 --
Stock Dividends reinvested in Federal Home
Loan Bank (48,800) (43,000)
Decrease (increase) in accrued interest
receivable 32,092 (218,807)
Decrease in prepaid expenses and other assets 98,243 130,618
Decrease in accrued expenses and other
liabilities (283,222) (453,520)
---------- -----------
Net cash provided by operating activities 898,612 408,360
---------- -----------
Cash flows from investing activities:
Net change in interest-bearing deposits (642,483) 29,002,914
Net change in loans receivable (3,414,590) (1,930,149)
Proceeds from matured or called investment
securities held-to-maturity 1,500,200 248,750
Principal payments on mortgage-backed securities
held-to maturity 4,695,105 2,092,643
Purchases of investment securities available-
for-sale (500,000) (8,364,494)
Proceeds from matured or called investment
securities available sale 2,000,000 --
Principal payments on mortgage-backed securities
available-for-sale 7,247,342 1,165,286
Purchases of mortgage-backed securities available-
for-sale (7,864,385) (14,404,505)
Purchases of premises and equipment (20,176) (103,022)
---------- -----------
Net cash provided by investing activities 3,001,013 7,707,423
---------- -----------
Cash flows from financing activities:
Net change in deposits (829,804) (1,991,175)
Repayment of note payable (24,947) --
Net change in advances from borrowers for taxes
and insurance 40,519 48,735
Dividends paid (370,671) (178,855)
Funding of MRDP trust (926,976) --
Refund of stock oversubscription -- (6,987,070)
Proceeds from advances from Federal Home Loan Bank -- 1,000,000
Purchase of treasury stock (1,740,409) --
---------- -----------
Net cash used in financing activities (3,852,288) (8,108,365)
---------- -----------
Net increase in cash and cash equivalents 47,337 7,418
Cash and cash equivalents, beginning of period 1,078,823 1,165,164
---------- -----------
Cash and cash equivalents, end of period $1,126,160 1,172,582
========== ===========
See accompanying notes to unaudited interim consolidated financial statements.
3
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements
June 30, 1998
Note 1 Basis of Presentation
---------------------
The accompanying unaudited 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, 1997.
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 six months ended June 30, 1998,
and 1997 are not necessarily indicative of the results which may be expected
for an entire year or any other period.
Note 2 New Accounting Pronouncements
-----------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS') No. 130 "Reporting
Comprehensive Income," which establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. This statement requires that all items required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence
as other financial information. The Company adopted the provisions of SFAS
No. 130 as of January 1, 1998. The only additional component of comprehensive
income other than net income is the Company's net unrealized gains or losses
on securities available-for-sale. The following summarizes accumulated other
comprehensive income for the periods ended June 30, 1998, and 1997, and for
the year ended December 31, 1997:
Accumulated Other
Comprehensive Income, Net
------------------------------------------
June 30, 1998 June 30, 1997 Dec.31, 1997
------------- ------------- ------------
Beginning of period $1,286,180 $ 752,458 $ 752,458
Increase in unrealized gains
on securities-available-
for-sale, net 154,781 232,335 533,722
---------- ----------- -----------
Ending balance $1,440,961 $ 984,793 $ 1,286,180
========== =========== ===========
4
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
The increases in unrealized gains on securities-available-for-sale are
shown net of tax. Federal and state income taxes related to the unrealized
gains are $99,000 and $120,000 for the six-month periods ended June 30, 1998
and 1997, and $341,000 for the year ended December 31, 1997.
Note 3 Earnings Per Share
------------------
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share." SFAS
No. 128 replaces 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 and 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. Additionally, ESOP shares which are
unallocated and not yet committed to be released (unallocated) and unvested
MRDP shares issued are excluded from the weighted-average common shares
outstanding calculation. At June 30, 1998, there were 13,825 allocated shares
and 6,912 committed to be released ESOP shares. There were 6,480 vested MRDP
shares. The weighted-average common shares outstanding for the year ended
June 30, 1998, was 2,312,787, which is net of weighted-average unallocated
ESOP and unvested MRDP shares.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or resulted
in the issuance of common stock that would share in the earnings of the
entity. At June 30, 1998, outstanding stock options and unvested MRDP shares
resulted in dilution of EPS. Dilutive potential common shares are added to
the weighted-average shares used to compute basic EPS. The following
information provides a reconciliation of the numerators and denominators of
the basic and fully diluted EPS computation:
For the six months ended June 30, 1998
-------------------------------------------
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
Net income available to
common stockholders $ 795,170 2,334,051 $0.34
========== =====
Effect of Dilutive Securities
Stock Options - granted 6,796
Unvested MRDP shares 3,739
---------
Diluted EPS
Income available to common
stockholders plus assumed
conversion $ 795,170 2,344,586 $0.34
========== ========= =====
The weighted-average number of common shares outstanding was the same for both
basic and diluted EPS for the six months ended June 30, 1997, given that there
were no potential common shares.
5
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Note 4 Cash Dividend Declared
----------------------
On May 1, 1998, the Board of Directors declared a quarterly cash
dividend of $.08 per common share to stockholders of record on May 15, 1998,
payable on May 29, 1998.
Note 5 Capital Compliance
------------------
The following table presents Empire's compliance with its regulatory
capital requirements of June 30, 1998 (dollars in thousands):
Percentage
Amount of Assets
------ ----------
GAAP capital(1) $ 28,796 26.93%
========== =====
Tangible capital $ 26,972 25.90%
Tangible capital requirement 1,562 1.50%
---------- -----
Excess $ 25,410 24.40%
========== =====
Core capital $ 26,972 25.90%
Core capital requirement 4,165 3.00%
---------- -----
Excess $ 22,807 22.90%
========== =====
Total risk-based capital(2) $ 27,149 68.04%
Total risk-based capital requirement(2) 3,192 8.00%
---------- -----
Excess $ 23,957 60.04%
========== =====
(1) GAAP capital includes unrealized gains on certain available-
for-sale securities of $1,441,000 and $383,000 of investments
in Dime, which are excluded for purposes of calculating both
tangible and core capital.
(2) Based on risk-weighted assets of $39,900,000.
6
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
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 Empire 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. Empire also invests in interest-
bearing deposits, investment grade federal agency securities and mortgage-
backed securities. Empire plans to continue to fund its assets primarily with
deposits, although FHLB advances may be used as a supplemental source of
funds.
Empire'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
and debt. 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. Empire'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,
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. Empire'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.
Year 2000 Issues
For nearly two years Empire has been investigating and addressing potential
Year 2000 problems. In the course of this process Empire has examined its
computer systems, phone systems, mailing and fax capabilities, office
environmental systems, and servicer relationships related to daily business
processing, ATM processing, ACH processing, check processing, wire transfers
processing, travelers check processing, and all other relevant out-based
services. The general plan for addressing Year 2000 problems has been
examined and found satisfactory by the OTS, and Empire is currently on
schedule with respect to implementation of that plan. As of January 1998 all
areas of potential impact directly addressable by Empire appear to be Year
2000 compliant, except the teller system as discussed below. Areas to be
addressed by servicers have been represented as either fully compliant or on
schedule for full compliance by December 1998. Empire's plan for full Year
2000 compliance, including testing of servicers' provided system, is scheduled
to be complete by the end of 1998.
7
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
The primary negative impact of the potential Year 2000 problem lies in
Empire's present Olivetti-America 8-window teller hardware/software system now
in use in all three offices. This system has known Year 2000 problems as well
as other inadequacies relevant to current needs on the working teller line.
Empire is developing a plan for replacement of the existing teller system with
a PC-based teller system working internally at each office with a Local Area
Network (LAN) and tied together to the central office and our primary servicer
by a Wide Area Network (WAN). This conversion will not only solve the
potential Year 2000 problem in the teller system, but will also position
Empire to take maximum advantage of current technology in banking as it enters
the 21st Century. The estimated cost of conversion and re-training and
implementation of the new PC-based system is approximately $215,000 based on
information currently available, and the estimated timetable for conversion is
that it will be in process or complete by the end of 1998. Most of the
estimated cost will be for the new teller system and will be depreciated over
five years.
Financial Condition
Consolidated assets decreased by approximately $2.9 million, or 2.6%, from
$109.8 million at December 31, 1997 to $106.9 million at June 30, 1998. This
decrease was primarily attributable to the purchase of treasury shares of $1.7
million, and the funding of the Management Recognition and Development Plan
("MRDP') of $927,000.
The consolidated balance sheet was not materially affected by market
conditions between December 31, 1997 and June 30, 1998. Maturities and
payments of $6.2 million reduced investment and mortgage-backed securities
held-to-maturity from $20.6 million at December 31, 1997, to $14.4 million at
June 30, 1998. Net loans increased $3.4 million, or 7.5% of which $1.9
million consisted primarily of permanent and construction loans of 1-4
dwelling units and multi-family units, and $1.5 million was related to
commercial real estate.
Deposits decreased by $830,000, or 1.2%, to $66.0 million at June 30, 1998,
from $66.9 million at December 31, 1997.
Stockholders' equity decreased from $40.6 million at December 31, 1997, to
$38.7 million at June 30, 1998. The change is the result of net income of
$795,000, the release of ESOP shares in the amount of $118,000 and an increase
of $155,000 related to the increase in market value of securities
available-for-sale. In addition, during the first six months of 1998 the MRDP
purchased, through a trust funded by the Company, 53,684 additional shares of
company shares for a total cost of $927,000. During the six-month period
ended June 30, 1998, 6,480 shares of the MRDP vested and unearned MRDP
compensation was reduced by $108,000. Shareholders' equity was also decreased
by the payments of $371,000 in dividends. During the six-month period ended
June 30, 1998, the Company repurchased 111,616 shares of its common stock in
the open market for an average price of $15.59 per share for a total of $1.7
million.
Asset Quality
At June 30, 1998 and December 31, 1997, Empire did not have any nonaccrual
loans or troubled debt restructuring. At June 30, 1998, Empire had five loans
delinquent over 30 days amounting to $348,000 of which $13,000 were delinquent
over 90 days. Empire has no real estate acquired through foreclosure.
8
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Comparison of Results of Operations for the Six Months Ended June 30, 1998 and
1997
Net Income. Net income was $795,000 for both the six months ended June 30,
1998 and 1997. Net interest income after provision for loan losses increased
by $133,000; however, this increase was offset by an increase in non-interest
expense of $131,000.
Interest Income. Total interest income increased by $74,000, or 2.0%, for the
six months ended June 30, 1998 as compared to the same period in 1997. The
increase in interest on mortgage loans of $138,000 was attributable to the
increase in the average balance of loans outstanding from $43.2 million for
the period ended June 30, 1997, to $47.3 million for the same period in 1998.
This increase in volume was partially offset by a decrease in the average
yield from 8.46% for the six months ended June 30, 1997 to 8.31% for the same
period in 1998. Interest on mortgage-backed securities increased $202,000, or
14.69%, from $1.4 million for the six months ended June 30, 1997 to $1.6
million for the comparable period in 1998 as a result of an increase in
average outstanding mortgage-backed securities of $4.1 million and an increase
in the average yield from 6.42% to 6.72%. Offsetting these increases were
decreases in interest on investment securities and other interest of $66,000
and $200,000 respectively. These decreases are the result of the reinvestment
of maturing securities and interest bearing deposits in mortgage loans and
mortgage-backed securities, as previously noted.
Interest Expense. Total interest expense decreased by $38,000 for the six
months ended June 30, 1998, as compared to the same period in 1997. The
decrease was the result of a $5,000 decrease in interest on deposits and a
$33,000 decrease in other interest expense.
Average deposits for the six month periods ended June 30, 1998 and 1997 were
approximately $66.8 million. The decline in deposit interest is the result of
a nominal decrease in the average rate paid to depositors.
Other interest expense of $64,000 for the six months ended June 30, 1997,
related to the interest paid to stock subscribers on the stock issuance date
of January 23, 1997. Interest expense of $32,000 for the comparable period in
1998 is related to the debt associated with the purchase of the main office
building.
Provision for Loan Losses. There was no provision for loan losses during the
six month period ended June 30, 1998 as compared to $20,000 for the comparable
period in 1997. During the six months ended June 30, 1997, Empire charged off
$20,000 of mortgage loans. 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 .41% at June 30, 1998, and .46% at June 30, 1997.
Non-Interest Income. Non-interest income increased $11,000 for the six months
ended June 30, 1998, as compared to the same period in 1997 primarily as the
result of an $18,000 increase in customer service charges and other
non-interest income. This increase was partially offset by a decrease in
commissions and profit sharing contingencies from insurance companies of
$7,000.
Insurance commissions received from Dime are the largest component of
non-interest income. Insurance commissions of $301,000 and $308,000 were
received for the six months ended June 30,
9
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
1998, and 1997, 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 $131,000 for the
six months ended June 30, 1998, compared to the six months ended June 30,
1997. This increase was the result of an increase in compensation and
benefits of $124,000, or 16.49%, from $755,000 for the six month period ended
June 30, 1997 to $879,000 for the comparable period in 1998. The primary
cause of this increase is the result of the award of vested shares of the MRDP
during 1998. Compensation expense of $108,000 related to the MRDP was
recorded during the period ended June 30, 1998.
Income Taxes. Income taxes increased $13,000 from the six month period ended
June 30, 1997, as compared to the same period in 1998 as the result of the
increase in income before income taxes. The effective combined federal and
state tax rate was 40.40% and 39.80% for the six months ended June 30, 1998
and 1997, respectively.
10
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EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Comparison of Results of Operations for the Three Months Ended June 30, 1998
and 1997
Net Income. Net income decreased by $24,000 to $392,000 for the three months
ended June 30, 1998, as compared to $416,000 for the same period in 1997. The
decrease in net income was due, in part, to a increase in non-interest
expense. This increase was somewhat offset by an increase in non-interest
income.
Interest Income. Total interest income increased by $12,000, or .62%, for the
three months ended June 30, 1998 as compared to the same period in 1997. The
increase was primarily attributable to the increase in the average balance of
loans outstanding from $43.2 million for the period ended June 30, 1997, to
$47.0 million for the same period in 1998. This increase in volume was
partially offset by a decrease in the average yield from 8.40% for the three
months ended June 30, 1997, to 8.30% for the same period in 1998.
Interest Expense. Total interest expense was $756,000 for the three months
ended June 30, 1998, as compared to $745,000 for the same period in 1997. The
$11,000, or 1.51%, increase was the result of a $4,000 decrease in interest on
deposits offset by an increase of $15,000 in other interest expense.
Average deposits for the three-month periods ended June 30, 1998 and 1997 were
$66.8 million and $66.4 million. The nominal decrease in interest paid
depositors is the result of the slight decline in average deposits coupled
with a decrease in the average rate paid in the three months ended June 30,
1997, of $4.48% as compared to 4.43% in the same period in 1998.
Other interest expense of $1,000 for the three months ended June 30, 1997,
related to short-term borrowings from the FHLB. Interest expense of $16,000
for the comparable period in 1998 is related to the debt associated with the
purchase of the main office building.
Provision for Loan Losses. There was no provision for loan losses during the
three-month period ended June 30, 1998, as compared to $1,000 for the
comparable period in 1997. During the three months ended June 30, 1997,
Empire charged off $1,000 of mortgage loans. 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 .41% at June 30, 1998, and .46% at June 30, 1997.
Non-Interest Income. Non-interest income increased $18,000 for the three
months ended June 30, 1998, as compared to the same period in 1997 primarily
as a result of a $14,000 increase in commissions and profit sharing
contingencies from insurance companies and customer service charges.
Insurance commissions received from Dime are the largest component of
non-interest income. Insurance commissions of $139,000 and $132,000 were
received for the three months ended June 30, 1998, and 1997, respectively.
Non-Interest Expense. Total non-interest expense increased $62,000 for the
three months ended June 30, 1998, compared to the three months ended June 30,
1997. This increase was the result of the following factors:
11
<PAGE>
<PAGE>
EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
. Compensation and benefits increased $86,000, or 23.46%, from $366,000 for
the three month period ended June 30, 1997, to $452,000 for the comparable
period in 1998. The primary cause of this increase is the result of the award
of vested shares of the MRDP during 1998. Compensation expense of $65,000
related to the MRDP was recorded during the period ended June 30, 1998.
. Other non-interest expense decreased $21,000, or 11.41%, from the
three-month period ended June 30, 1998, as compared to the same period in
1997. The decrease includes a reduction in legal expenses of $10,000 and
reduced marketing costs of $11,000.
Income Taxes. Income taxes decreased $19,000 from the three-month
period ended June 30, 1997, as compared to the same period in 1998 as the
result of the decrease in income before income taxes. The effective combined
federal and state tax rate was 41.42% and 41.54% for the three months ended
June 30, 1998 and 1997, respectively.
12
<PAGE>
<PAGE>
EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
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)
10.4 Management Recognition and Development Plan (3)
10.5 Stock Option Plan (3)
21 Subsidiaries of the Registrant (2)
27 Financial Data Schedule
- ----------------
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-1, 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, 1997.
(3) Incorporated by reference to the Company's Annual Meeting Proxy
Statement dated March 16, 1998.
(b) Report on Form 8-K
No forms 8-K were filed during the quarter ended June 30, 1998.
13
<PAGE>
<PAGE>
EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
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/s Beverly D. Harris August 14,1998
------------------------------------ ------------------
Beverly D. Harris Date
President & Chief Executive Officer
(Principal Executive Officer)
By s/s Walter J. Peterson Jr. August 14, 1998
------------------------------------ ------------------
Walter J. Peterson Jr. Date
Chairman of the Board of Directors
16
<PAGE>
<PAGE>
EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
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, 1998, 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, 1998 Item Description
- ----------- --------------------- ----------------
9-03(1) $ 1,126,160 Cash and due from banks
9-03(2) 2,467,691 Interest-bearing deposits
9-03(3) -- Federal funds sold - purchased
securities for resale
9-03(4) -- Trading account assets
9-03(6) 35,866,364 Investment and mortgage-backed
securities held-for-sale
9-03(6) 14,361,174 Investment and mortgage-backed
securities held to maturity -
carrying value
9-03(6) 14,579,140 Investment and mortgage-backed
securities held to maturity - market
value
9-03(7) 49,328,098 Loans
9-03(7)(2) 200,000 Allowance for losses
9-03(11) 106,939,611 Total assets
9-03(12) 66,029,288 Deposits
9-03(13) -- Short-term borrowings
9-03(15) 1,501,542 Other liabilities
9-03(16) 673,190 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) 38,709,670 Other stockholders' equity
9-03(23) 106,939,611 Total liabilities and stockholders'
equity
9-04(1) 1,965,310 Interest and fees on loans
9-04(2) 1,786,429 Interest and dividends on investments
9-04(4) 126,272 Other interest income
9-04(5) 3,878,011 Total interest income
9-04(6) 1,478,620 Interest on deposits
9-04(9) 1,510,388 Total interest expense
9-04(10) 2,367,623 Net interest income
9-04(11) -- Provisions for loan losses
9-04(13)(h) -- Investment securities gains (losses)
9-04(14) 1,446,575 Other expenses
9-04(15) 1,334,217 Income/loss before income tax
9-04(17) 1,334,217 Income/loss before extraordinary items
9-04(18) -- Extraordinary items, less tax
9-04(19) -- Cumulative change in accounting
principles
9-0420) 795,170 Net income of loss
9-04(21) 0.34 Earnings per share - primary
9-04(21) 0.34 Earnings per share - fully diluted
15
<PAGE>
<PAGE>
EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Exhibit 27, Continued
Financial Data Schedule
Financial Data as of
or for the six months
Item Number ended June 30, 1998 Item Description
- ----------- --------------------- ----------------
I.B.5 4.55% Net yield - interest earning assets
- actual
III.C.1.(a) None Loans on nonaccrual
III.C.1.(b) 13,000 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 -- 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
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 1126160
<INT-BEARING-DEPOSITS> 2467691
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35866364
<INVESTMENTS-CARRYING> 14361174
<INVESTMENTS-MARKET> 14579140
<LOANS> 49328098
<ALLOWANCE> 200000
<TOTAL-ASSETS> 106939611
<DEPOSITS> 66029288
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1501542
<LONG-TERM> 673190
0
0
<COMMON> 25921
<OTHER-SE> 38709670
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<INCOME-PRETAX> 1334217
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<NET-INCOME> 795170
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 4.55
<LOANS-NON> 0
<LOANS-PAST> 13000
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 200000
<CHARGE-OFFS> 0
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<ALLOWANCE-CLOSE> 200000
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</TABLE>
