SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
MONTGOMERY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer in its Charter)
Indiana 35-1962246
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
119 East Main Street
Crawfordsville, Indiana 47933
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(765) 362-4710
(Registrant's telephone number, including area code)
Check here whether the issuer (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 12 months (or for such 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 [ ]
As of April 30, 1998, there were 1,653,032 shares of the Registrant's
common stock issued and outstanding.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Form 10-QSB
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement of Financial Condition
As of March 31, 1998 and June 30, 1997
Consolidated Condensed Statement of Income for the Three
And Nine Months Ended March 31, 1998 and 1997
Consolidated Condensed Statement of Cash Flows for the
Nine Months Ended March 31, 1998 and 1997
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Nine Months Ended March 31, 1998
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Financial Condition
(Unaudited)
March 31, June 30,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Cash ............................................... $ 381,210 $ 221,456
Short-term interest-bearing deposits ............... 4,537,143 11,373,316
------------- -------------
Total cash and cash equivalents ............. 4,918,353 11,594,772
Interest-bearing deposits .......................... 195,000 100,000
Securities available for sale ...................... 335,727 42,494
Loans .............................................. 98,686,104 87,088,294
Allowance for loan losses .......................... (183,000) (180,000)
------------- -------------
Net loans ..................................... 98,503,104 86,908,294
Real estate owned and held for development, net .... 1,436,255 1,301,734
Premises and equipment ............................. 1,745,977 1,620,885
Federal Home Loan Bank Stock ....................... 921,500 921,500
Interest receivable ................................ 794,910 684,479
Other assets ....................................... 283,434 225,147
------------- -------------
Total assets ................................ $ 109,134,260 $ 103,399,305
============= =============
Liabilities
Deposits
Noninterest bearing ............................ $ 1,253,808 $ 1,165,223
Interest bearing ............................... 76,973,917 70,100,001
------------- -------------
Total deposits .............................. 78,227,725 71,265,224
Federal Home Loan Bank advances .................... 9,067,771 11,428,373
Interest payable ................................... 463,615
423,305
Deferred tax liability ............................. 405,216 360,156
Dividends payable .................................. 90,917
Other liabilities .................................. 956,412 555,669
------------- -------------
Total liabilities ........................... 89,211,656 84,032,727
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Financial Condition
(Unaudited)
(continued)
March 31, June 30,
1998 1997
------------- -------------
<S> <C> <C>
Stockholders' Equity
Preferred stock, $.01 par value
authorized and unissued - 2,000,000 shares
Common stock, $.01 par value - 8,000,000 shares
authorized; 1,653,032 Issued .................. 16,530 16,530
Paid-in capital .................................... 13,564,860 13,547,619
Retained earnings - substantially restricted ....... 7,545,693 7,136,492
Unearned ESOP shares - 126,162 and 132,250 ........ (1,261,616) (1,322,500)
Unearned compensation ............................. (11,563) (11,563)
Net unrealized gain on securities available for sale 68,700
------------- -------------
Total stockholders' equity .................. 19,922,604 19,366,578
------------- -------------
Total liabilities and stockholders' equity .. $ 109,134,260 $ 103,399,305
============= =============
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Income
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- ----------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest and Dividend Income
Loans ................................. $ 2,028,082 $ 1,719,626 $ 5,823,466 $ 5,114,885
----------- ----------- ----------- -----------
Investment securities ................. 1,885 744 3,019 10,212
Deposits with financial institutions .. 72,354 89,144 261,646 186,622
Dividend Income ....................... 18,177 14,517 55,921 44,115
----------- ----------- ----------- -----------
Total interest and dividend income 2,120,498 1,824,031 6,144,052 5,355,834
----------- ----------- ----------- -----------
Interest Expense
Deposits .............................. 1,008,740 977,006 2,958,806 2,874,601
Federal Home Loan Bank advances ......... 131,567 163,496 402,575 466,895
Total interest expense .................. 1,140,307 1,140,502 3,361,381 3,341,496
Net Interest Income ..................... 980,191 683,529 2,782,671 2,014,338
Provision for losses on loans ......... 13,000 3,000 13,000
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Losses on Loans ......... 980,191 670,529 2,779,671 2,001,338
----------- ----------- ----------- -----------
Other Income
Service charges on deposit accounts ... 8,836 6,151 24,787 18,461
Net appraisal expense ................. (2,203) (4,132) (3,146) (682)
Other income .......................... 966 1,346 3,347 2,125
----------- ----------- ----------- -----------
Total other income ............... 7,599 3,365 24,988 19,904
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Income
(Unaudited)
(continued)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- ----------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other Expenses
Salaries and employee benefits ........ 308,048 243,227 901,540 692,216
Net occupancy expense ................. 29,215 27,132 80,589 78,464
Equipment expense ..................... 46,975 36,117 119,794 106,572
Data processing expense ............... 32,550 27,275 89,901 72,270
Deposit insurance expense ............. 12,021 11,269 35,227 511,424
Real estate operations, net ........... (5,690) (19,413) (18,094) (60,094)
Advertising expense ..................... 9,628 6,177 28,497 23,965
Other expenses .......................... 119,853 94,352 370,846 313,060
----------- ----------- ----------- -----------
Total other expenses ......... 552,600 426,156 1,608,300 1,737,877
----------- ----------- ----------- -----------
Income Before Income Tax ................ 435,190 247,738 1,196,359 283,365
Income tax expense .................... 178,582 101,200 514,407 120,318
----------- ----------- ----------- -----------
Net Income .............................. $ 256,608 $ 146,538 $ 681,952 $ 163,047
=========== =========== =========== ===========
Net Income Per Share:
Basic ............................. $ 0.17 $ 0.32 $ 0.45 $ 0.35
Diluted ........................... $ 0.17 $ 0.32 $ 0.44 $ 0.35
Dividends Per Share ..................... $ 0.055 $ 0.054 $ 0.165 $ 0.161
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating Activities
Net income ........................................... $ 681,952 $ 163,047
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ........................ 3,000 13,000
Depreciation ..................................... 153,539 155,457
Gain (loss) on sale of real estate owned ......... (22,023)
Deferred income tax
11,983
ESOP stock amortization .......................... 78,125
Change In
Interest receivable .......................... (110,431) (77,432)
Interest payable ............................. 40,310 (8,837)
Other assets ................................. (58,287) (41,678)
Other liabilities ............................ 400,743 (49,583)
------------ ------------
Net cash provided by operating activities . 1,188,951 143,934
------------ ------------
Investing Activities
Purchase of interest-bearing deposits ............... (95,000)
Proceeds from paydowns of
securities available for sale .................... 20,527 269,199
Purchase of securities available for sale ........... (200,000)
Net change in loans .................................. (11,719,727) (4,028,202)
Additions to real estate owned and held for investment (90,556) (182,081)
Proceeds from real estate owned sales ................ 52,795 166,301
Purchases of premises and equipment .................. (253,474) (147,131)
------------ ------------
Net cash used by investing activities ..... (12,285,435) (3,921,914)
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Continued)
Nine Months Ended
March 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Financing Activities
Net Change In
Noninterest-bearing, interest-bearing demand and
savings deposits ............................. $ 1,383,820 $ 1,893,276
Certificates of deposit .......................... 5,578,681 1,064,174
Proceeds from FHLB advances .......................... 2,807,056 4,000,000
Repayment of FHLB advances ........................... (5,167,658) (1,571,627)
Purchase of unearned compensation (MRP) stock .......... (11,563)
Dividends paid ....................................... (181,834) (75,000)
------------ ------------
Net cash provided by financing activities . 4,420,065 5,299,260
------------ ------------
Net Change in Cash and Cash Equivalents ................ (6,676,419) 1,521,280
Cash and Cash Equivalents, Beginning of Period ......... 11,594,772 3,636,204
------------ ------------
Cash and Cash Equivalents, End of Period ............... $ 4,918,353 $ 5,157,484
============ ============
Additional Cash Flow and Supplementary Information
Interest paid ........................................ $ 3,321,071 $ 3,350,333
Income tax paid ...................................... 230,527 92,246
Transfer from loans to other real estate owned ....... 121,917 351,836
Cash dividends payable ............................... 90,917 25,000
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Changes in Stockholders' Equity
(Unaudited)
Common Stock
------------------------- Paid-in Retained Unearned Unearned
Shares Amount Capital Earnings ESOP Shares Compensation
------ ------ ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance July 1, 1997 ............... 1,653,032 $ 16,530 $13,547,619 $ 7,136,492 $(1,322,500) $ (11,563)
Net income for the nine months
ended March 31, 1998 ........... 681,952
Cash dividends ($.055 per share) ... (272,751)
ESOP shares earned ................. 17,241 60,884
Net change in unrealized gain
on securities available for sale
--------- ----------- ----------- ----------- ----------- -----------
Balance March 31, 1998 ............. 1,653,032 $ 16,530 $13,564,860 $ 7,545,693 $(1,261,616) $ (11,563)
========= =========== =========== =========== =========== ===========
<CAPTION>
Net Unrealized
Gain On
Securities
Available for Sale Total
------------------ -----
<S> <C> <C>
Balance July 1, 1997 ............... $19,366,578
Net income for the nine months
ended March 31, 1998 ........... 681,952
Cash dividends ($.055 per share) ... (272,751)
ESOP shares earned ................. 78,125
Net change in unrealized gain
on securities available for sale $ 68,700 68,700
----------- -----------
Balance March 31, 1998 ............. $ 68,700 $19,922,604
=========== ===========
</TABLE>
See Notes to Consolidated Condensed Financial Statement
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited interim consolidated condensed financial statements include the
accounts of Montgomery Financial Corporation ("Montgomery"), its subsidiary,
Montgomery Savings, A Federal Association (the "Association") and its
subsidiary, MSA SERVICE CORP.
The unaudited interim consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore, do
not include all information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the financial statements reflect all adjustments necessary to
present fairly Montgomery's financial position as of March 31, 1998, results of
operations for the three and nine month periods ending March 31, 1998 and 1997,
and cash flows for the nine month periods ended March 31, 1998 and 1997. The
results of operations for the three and nine month periods ended March 31, 1998
are not necessarily indicative of the results of operations which may be
expected for the fiscal year ending June 30 1998.
Net Income Per Share
Net income per share for the three and nine month periods ended March 31, 1998
and 1997 are computed by dividing net earnings by the weighted average shares of
common stock outstanding during the period. For the three and nine month periods
ended March 31, 1997, the weighted average shares is computed based upon the
weighted average of the 250,000 shares of publicly owned common stock of the
Association that were outstanding during the three and six month periods
converted to 466,350 shares of Montgomery common stock in connection with the
second conversion and reorganization completed on June 30, 1997.
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1998 March 31, 1997
-------------- --------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
--------- --------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic Net Income Per Share:
Net Income Available
to Common Stockholders ...... $ 256,608 1,524,221 $ 0.17 $ 146,538 464,485 $ 0.32
======== ========
Effect of Dilutive Stock Options
and Grants .................. 0 26,421 0 0
--------- --------- --------- -------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders ...... $ 256,608 1,550,642 $ 0.17 $ 146,538 464,485 $ 0.32
========= ========= ======== ========= ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended March 31, 1998 March 31, 1997
-------------- --------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
--------- --------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic Net Income Per Share:
Net Income Available
to Common Stockholders $ 681,952 1,521,493 $ 0.45 $ 163,047 465,485 $ 0.35
====== ======
Effect of Dilutive Stock Options
and Grants 0 25,634 0 0
--------- ---------- ---------- -------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders $ 681,952 1,547,127 $ 0.44 $ 163,047 465,485 $ 0.35
========= ========= ======= ========== ======= ======
</TABLE>
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. When used in this Form 10-Q or future
filings by Montgomery with the Office of Thrift Supervision, in Montgomery's
press releases or other public shareholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases,
"will likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project", "believe", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Montgomery wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and to advise readers that various factors, including
regional and national economic conditions, changes in levels of market interest
rates, credit risks of lending activities, and competitive and regulatory
factors, could affect Montgomery" financial performance and could cause
Montgomery's actual results for future periods to differ materially from those
anticipated or projected. Montgomery does not undertake, and specifically
disclaims any obligation, to revise any forward-looking statements to reflect
the occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
Financial Condition. Montgomery's total assets were $109.1 million at
March 31, 1998, an increase of $5.7 million, or 5.5 percent from June 30, 1997.
During the three month period ending March 31, 1998, interest-earning assets
increased $5.1 million, or 5.2 percent. Short-term interest-earning deposits
decreased $6.8 million, or 60.1 percent primarily due to the use of liquidity
received from the sale of stock on June 30, 1997 to repay Federal Home Loan Bank
advances and fund loan growth. Loans increased $11.6 million, or 13.3 percent,
which is approximately $2.6 million above the increase budgeted for the current
year-to-date. Interest-earning deposits increased $95,000 or 95.0 percent, to
$195,000 and investment securities increased $293,000 to $336,000 during the
nine months ended March 31, 1998. Real estate owned increased $135,000, or 10.3
percent primarily due to the acquisition of two single-family residences due to
foreclosure. One of these two additions to real estate owned has been sold since
March 31, 1998. There was no loss recorded on this sale and a decrease in real
estate owned in the amount of $69,000 was recorded. Included in real estate
owned is a nine-unit condominium complex with a current book value of $496,000,
which Montgomery has been holding for resale. A local not-for-profit
organization has made a commitment to purchase this nine-unit complex for use as
office space and housing for abused family members. The sale of this complex
should be completed during the fourth quarter of this fiscal year with no loss
anticipated. Deposits increased $7.0 million, or 9.8 percent and borrowings
decreased $2.4 million, or 20.7 percent, causing a net increase in
interest-bearing liabilities of 5.5 percent. The increase in deposits was
primarily the result of an increase in public funds deposits. These deposits
were acquired at rates below comparable Federal Home Loan Bank advances.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Capital and Liquidity. At March 31, 1998, stockholders' equity was
$19,923,000 or 18.3 percent of total assets, compared with stockholders' equity
of $19,367,000, or 18.7 percent, at June 30, 1997. The Association continues to
exceed all minimum capital requirements. At March 31, 1998, the Association's
tangible and core capital was $15,273,000, or 14.1 percent of tangible assets,
$13,742,000 in excess of the 1.5 percent minimum required tangible capital and
$10,944,000 in excess of the 4.0 percent minimum required core capital.
Risk-based capital equaled $14,260,000, or 21.2 percent of risk-weighted assets,
$8,880,000 more than the minimum 8.0 percent risk-based level required. Tier 1
risk-based capital ratio equaled 22.7 percent at March 31, 1998. The director of
the OTS is required to set minimum liquidity levels between four and 10 percent
of assets. Current regulations require a minimum liquidity level of five
percent. Montgomery's average liquidity ratio for the nine months ended March
31, 1998, was 7.1 percent.
Asset/Liability Management. The Association, like other financial
institutions, is subject to interest rate risk to the extent that its'
interest-bearing liabilities reprice on a different basis than its'
interest-bearing assets. OTS regulations provide a Net Portfolio Value ("NPV")
approach to the quantification of interest rate risk. In essence, this approach
calculates the difference between the present value of liabilities, expected
cash flows from assets and cash flows from off balance sheet contracts. Under
OTS regulations, an institution's "normal" level of interest rate risk in the
event of an immediate and sustained 200 basis point change in interest rates is
a decrease in the institution's NPV in an amount not exceeding 2 percent of the
present value of its assets. Beginning September 30. 1995, thrift institutions
with greater than "normal" interest rate exposure must take a deduction from
their total capital available to meet their risk-based capital requirement.
Regulations exempt all institutions under $300 million in assets with risk-based
capital above 12 percent from reporting information to calculate exposure and
making any deduction from risk-based capital. At March 31, 1998, the Association
would have been exempt from calculating or making any risk-based capital
reduction. The Association's management feels interest-rate risk is an important
factor and makes all reports necessary to OTS to calculate interest-rate risk on
a voluntary basis. At December 31, 1997, the most recent date for which
information was available from the OTS, 2.0% of the present value of the
Association's assets was approximately $2.16 million, which was less than $3.70
million, the greatest decrease in NPV resulting from a 200 basis point change in
interest rates. As a result, the Association, for OTS reporting purposes, would
have been required to make a deduction from total capital in calculating its
risk-based capital requirement had this rule been in effect and had the
Association not been exempt from reporting on such date. Based on December 31,
1997 NPV information, the amount of the Association's deduction from capital,
had it been subject to reporting, would have been approximately $770,000.
It has been and continues to be a priority of the Association's Board
of Directors and management to manage interest rate risk and thereby limit any
negative effect of changes in interest rates on Montgomery's NPV. The
Association's Interest Rate Risk Policy, established by the Board of Directors,
promulgates acceptable limits on the amount of change in NPV given certain
changes in interest rates. Specific strategies have included shortening the
amortized maturity of fixed-rate loans and increasing the volume of adjustable
rate loans to reduce the average maturity of the Association's interest-earning
assets. FHLB advances are used in an effort to match the effective maturity of
the Association's interest-bearing liabilities to its interest-earning assets.
These strategies have resulted in the Association maintaining acceptable limits
as set out in the Interest Rate Risk Policy.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Presented below, as of December 31, 1997, and June 30, 1997, is an
analysis of the Association's estimated interest rate risk as measured by
changes in NPV for instantaneous and sustained parallel shifts in interest
rates, up and down 300 basis points in 100 point increments, compared to limits
set by the Board. Assumptions used in calculating the amounts in this table are
those assumptions utilized by the OTS for the purpose interest rate risk
assessment and should not be considered as an indicator of value of the
Association.
<TABLE>
<CAPTION>
At December 31, 1997 At June 30,1997
Assumed Board
Change in Limit -------------------------- --------------------------
Interest Rates % Change $ Change % Change $ Change % Change
(Basis Points) in NPV in NPV in NPV in NPV in NPV
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+300 -60 -6,010 -33 -5,754 -43
+200 -50 -3,703 -20 -3,637 -31
+100 -30 -1,621 -9 -1,622 -20
0 0 0 0 0 0
-100 -30 +934 +5 +988 +5
-200 -50 +1,315 +7 +1,237 +7
-300 -60 +1,867 +10 +1,347 +7
</TABLE>
In the event of a 300 basis point change in interest rate based upon
estimates as of December 31, 1997, the Association would experience a 10%
increase in NPV in a declining rate environment and a 33% decrease in NPV in a
rising environment. During periods of rising rates, the value of monetary assets
and liabilities decline. Conversely, during periods of falling rates, the value
of monetary assets and liabilities increase. However, the amount of change in
value of specific assets and liabilities due to changes in rates is not the same
in a rising rate environment as in a falling rate environment (i.e., the amount
of value increase under a specific rate decline may not equal the amount of
value decrease under an identical upward rate movement). Based upon the NPV
methodology, the increased level of interest rate risk experienced by the
Association in recent periods was primarily due to the interest rate on
interest-bearing liabilities increasing more than the interest rate on
interest-earning assets because of the annual and lifetime caps on interest rate
adjustments for adjustable rate loans and because of the lag in rate adjustments
for such loans as compared to interest-bearing liabilities.
Results of Operations. Montgomery's net income for the three months
ended March 31, 1998, was $257,000 compared to $147,000 for the three months
ended March 31, 1997, an increase of $110,000, or 75.1 percent. Net interest
income increased $297,000, or 43.4 percent, primarily due an increase in average
interest-earning assets of $11.3 million, or 12.3 percent. Average
interest-earning assets were $102.8 million for the three months ended March 31,
1998 compared to $91.5 million for the 1997 three-month period. Average
interest-bearing liabilities decreased from $84.4 million to $84.3 million
during the comparable three-month periods. Interest rate spread increased from
2.57 percent for the three months ended March 31, 1997, to 2.84 percent for the
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
three months ended March 31, 1998. Due to the increase in average
interest-earning assets, net interest margin increased to 3.81 percent for the
three months ended March 31, 1998 from 2.99 percent for the three months ended
March 31, 1997. Non-interest income was $8,000 for the 1998 three-month period
compared to $3,000 for the 1997 period. Non-interest expense was $553,000 for
the three months ended March 31, 1998 compared to $426,000 for the 1997
three-month period, an increase of $127,000, or 27.7 percent. This increase was
primarily due to an increase in employee benefits, including the establishment
of an employee stock ownership plan (ESOP) and additional expense of being a
publicly held company. Net income before income tax was $435,000 for the three
months ended March 31, 1998, compared to $248,000 for the three months ended
March 31, 1997, an increase of $187,000, or 75.7 percent. Income tax for the
three months ended March 31, 1998, was $179,000 compared to $101,000 for the
three months ended March 31, 1996.
For the nine months ended March 31, 1998, net income was $682,000
compared to $163,000 for the nine months ended March 31, 1997, an increase of
$519,000. The most significant factor effecting Montgomery's operations for the
nine months ended March 31, 1997 was the one time special assessment required by
the Deposit Insurance Funds Act of 1996. The after tax effect of this one time
assessment was approximately $258,700. Net income for the nine months ended
March 31, 1997, was $422,000 before the net effect of the Savings Association
Insurance Fund ("SAIF") special assessment. The increase in net income for the
nine-month period was also primarily due to an increase in net interest income
from $2.0 million for the 1997 period to $2.8 million for the 1998 nine-month
period, an increase of $768,000, or 38.1 percent. Average interest-earning
assets increased from $88.6 million for the nine months ended March 31, 1997 to
$102.8 million for the 1998 nine-month period. Non-interest expense decreased
$130,000, or 7.5 percent. This decrease was primarily caused by the one time
SAIF special assessment during the 1997 nine month period which was partially
offset by additional employee salaries and benefits and the increased cost of
operation of a publicly held corporation. Income tax expense was $514,000 for
the nine months ended March 31, 1998, compared to $120,000 for the nine months
ended March 31, 1997.
Interest Income. Montgomery's total interest income for the three
months ended March 31, 1998, was $2.1 million, an increase of $296,000, or 16.3
percent, compared to interest income for the three months ended March 31, 1997.
This increase was primarily caused by an increase in average interest-earning
assets from $91.5 million for the three months ended March 31, 1997, to $102.8
million for the three months ended March 31, 1998, an increase of $11.3 million,
or 12.3 percent principally due to loan growth. Average loans increased from
$83.7 million for the 1997 three-month period to $96.7 million for the 1998
three month period and average interest-earning deposits decreased from $7.0
million to $4.9 million for the respective periods. The average yield on
interest-earning assets was 8.25 percent for the three months ended March 31,
1998, compared to 7.97 percent for the three months ended March 31, 1997.
Interest income for the nine months ended March 31, 1998, was $6.1
million, an increase of $788,000, or 14.7 percent, from interest income for the
same period in 1997. Average interest-earning assets for the nine months ended
March 31, 1998, was $99.8 million compared to $88.6 million for the 1997 nine
month period, an increase of $11.2 million, or 12.6 percent, principally due to
loan growth. The average yield for the 1998 period was 8.25 percent compared to
8.06 percent for the 1997 period.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Interest Expense. Interest expense for the three months ended March
31, 1998, was $1.1 million, which was a decrease of $195 from the three months
ended March 31, 1997. Average interest-bearing liabilities decreased $101,000,
or 0.1 percent, from $84.4 million for the three months ended March 31, 1997, to
$84.3 million for the three months ended March 31, 1998. The average cost of
funds increased however, from 5.40 percent to 5.41 percent for the comparable
periods. The average cost of deposits increased from 5.29 percent to 5.31
percent for the comparable three-month periods. The average cost of borrowings
increased from 6.18 percent to 6.31 percent for the comparable periods due to
converting some short term FHLB advances to longer term fixed rate advances.
Interest expense for the nine months ended March 31, 1998, was $3.4
million, an increase of $20,000, or 0.6 percent, from the nine months ended
March 31, 1997. The average cost of funds for the 1998 period was 5.51 percent
compared to 5.48 percent for the 1997 period. Average interest-bearing
liabilities increased from $81.3 million for the nine months ended March 31,
1997 to $81.4 million for the 1997 nine-month period.
Provision for Losses on Loans. There was no provision for losses on
loans during the three months ended March 31, 1998 compared to a provision of
$13,000 for the three months ended March 31, 1997. During the nine months ended
March 31, 1998, a $3,000 provision was made compared to a $13,000 provision
being made in the comparable 1997 nine-month period. Provision or adjustment
entries are made based on the Internal Loan and Asset Review Policy. A review is
performed at least quarterly to determine the adequacy of the current balance in
the allowance for losses on loans. Loans delinquent ninety days or more were
$922,000 at March 31, 1998, compared to $502,000 at June 30, 1997. This increase
was primarily caused by loans with no prior history of delinquency and
loan-to-value ratios of less than 75 percent. Non-performing loans to total
loans at March 31, 1998 were 0.93 percent compared to 0.58 percent at June 30,
1997. Non-performing assets, consisting of non-performing loans in the amount of
$922,000 and other real estate in the amount of $240,000, totaled $1,162,000, or
1.06 percent of total assets, at March 31, 1998. At June 30, 1997,
non-performing assets were $611,000, or 0.59 percent of total assets. The
allowance for losses to non-performing assets was 15.7 percent at March 31, 1998
and 29.5 percent at June 30, 1997. The allowance to total loans was 0.19 percent
at March 31, 1998 and 0.21 percent at June 30, 1997. As new loan products are
offered, and Montgomery increases its amount of non-residential and consumer
loans, management will re-evaluate the level of the allowance for loan losses.
Non-Interest Income. Montgomery's other income for the three months
ended March 31, 1998, totalled $8,000 compared to $3,000 for the three months
ended March 31, 1997, an increase of $5,000, or 125.8 percent. This increase was
due to an increase in service charges on deposit accounts in the amount of
$3,000 and a decrease in net appraisal expense of $2,000.
Other income for the nine months ended March 31, 1998, was $25,000, an
increase of $5,000, or 25.5 percent, from the comparable 1997 nine month period.
During the nine months ended March 31, 1998, service charges on deposit accounts
increased $6,000 and appraisal income decreased $2,000 from the 1997 nine-month
period.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Non-Interest Expense. Montgomery's other expenses for the three months
ended March 31, 1998, totalled $553,000, an increase of $126,000, or 29.7
percent, from the three months ended March 31, 1997. Salaries and employee
benefits increased $65,000. Stock benefit plans were adopted subsequent to the
March, 1997 three-month period and the cost of these plans was $46,000 for the
three months ended March 31, 1998. The balance of the increase was primarily due
to an increase in branch office personnel to accommodate growth. Equipment
expense increased $11,000 and data processing expense increased $5,000. These
increases are generally reflective of Montgomery's growth. Real estate
operations net income for the three months ended March 31, 1998, was $5,000
compared to $19,000 for the 1997 comparable period, a decrease of $14,000 due to
the income on the sale of a real estate property during the 1997 three month
period. Advertising expense increased $3,000 from the 1997 comparative period.
Other expenses increased $26,000, or 27.0 percent, for the three months ended
March 31, 1998 compared to the same 1997 period, primarily due to increased
expenses relating the operation of a publicly held company and other expenses
reflective of Montgomery's growth.
Non-interest expense for the nine months ended March 31, 1998, was $1.6
million compared to $1.7 million, a decrease of $130,000, or 7.5 percent, from
the nine months ended March 31, 1997. Salary and employee benefits increased
$209,000 of which $108,000 was due to the adoption of stock benefit plans in
effect during the 1998 nine month period. An increase in personnel due to branch
office growth was the primary factor for the balance of the increase in salary
and employee benefits. Equipment expense increased $13,000 and data processing
expense increased $18,000 due to Montgomery's growth. Deposit insurance expense
decreased $476,000 for the nine months ended March 31, 1998, compared to the
same period in 1997 due to the one time SAIF special assessment of $428,000 and
the reduction in the regular assessment from 23 basis points to 6.4 basis
points. Net real estate operations generated a net income for the nine months
ended March 31, 1998, of $18,000 compared to a net income of $60,000 for the
1997 comparable period. This decrease was primarily caused by a gain on the sale
of real estate during the 1997 period. Advertising expense increased $4,000 from
the 1997 period. Other expenses for the nine months ended March 31, 1998, were
$371,000 compared to $313,000 for the nine months ended March 31, 1997, an
increase of $58,000, or 18.5 percent. Stockholder related expense increased
$33,000 and audit and accounting expense increased $8,000 due to the additional
cost of operation of the publicly held company. Expenses relating to the
operation of Montgomery's ATM, installed during the second quarter of 1997,
increased $11,000 due to the first full fiscal year of use and increased
customer usage.
Income Tax Expense. Income tax expense for the three months ended
March 31, 1998, was $179,000 compared to $101,000 for the three months ended
March 31, 1997. This increase was due to the increase in taxable income.
For the nine months ended March 31, 1998, income tax expense was
$514,000 compared to $120,000 for the nine months ended March 31, 1997. This
increase was due to the increase in taxable income, which included the effect of
the FDIC special assessment during the 1997 period.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Part II. OTHER INFORMATION
Item 1. Legal Proceedings None.
Item 2. Changes in Securities 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) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Montgomery Financial Corporation
Date: May 13, 1998 By: /s/ Earl F. Elliott
--------------------
Earl F. Elliott, President and
Chief Executive Officer
Date: May 13, 1998 By: /s/ J. Lee Walden
-------------------
J. Lee Walden, Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 381,210
<INT-BEARING-DEPOSITS> 4,732,143
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 335,727
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 98,686,104
<ALLOWANCE> 183,000
<TOTAL-ASSETS> 109,134,260
<DEPOSITS> 78,227,725
<SHORT-TERM> 9,067,771
<LIABILITIES-OTHER> 1,916,160
<LONG-TERM> 0
0
0
<COMMON> 16,530
<OTHER-SE> 19,906,074
<TOTAL-LIABILITIES-AND-EQUITY> 109,134,260
<INTEREST-LOAN> 5,823,466
<INTEREST-INVEST> 58,940
<INTEREST-OTHER> 261,646
<INTEREST-TOTAL> 6,144,052
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<EXPENSE-OTHER> 1,608,300
<INCOME-PRETAX> 1,196,359
<INCOME-PRE-EXTRAORDINARY> 681,952
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 681,952
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.44
<YIELD-ACTUAL> 8.21
<LOANS-NON> 874,000
<LOANS-PAST> 48,000
<LOANS-TROUBLED> 240,000
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<ALLOWANCE-OPEN> 180,000
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<ALLOWANCE-CLOSE> 180,000
<ALLOWANCE-DOMESTIC> 115,520
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