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 December 31, 1997
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 January 31, 1997, 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 December 31, 1997 and June 30, 1997
Consolidated Condensed Statement of Income for the Three
And Six Months Ended December 31, 1997 and 1996
Consolidated Condensed Statement of Cash Flows for the
Six Months Ended December 31, 1997 and 1996
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Six Months Ended December 31, 1997
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)
December 31, June 30,
1997 1997
------------- -------------
<S> <C> <C>
Assets
Cash ............................................ $ 321,991 $ 221,456
Short-term interest-bearing deposits ............ 6,042,110 11,373,316
------------- -------------
Total cash and cash equivalents .......... 6,364,101 11,594,772
Interest-bearing deposits ....................... 195,000 100,000
Securities Available for Sale ................... 232,407 42,494
Loans ........................................... 94,022,523 87,088,294
Allowance for loan losses ....................... (183,000) (180,000)
------------- -------------
Net loans .................................. 93,839,523 86,908,294
Real estate owned and held for development, net .. 1,360,868 1,301,734
Premises and equipment .......................... 1,714,082 1,620,885
Federal Home Loan Bank Stock .................... 921,500 921,500
Interest receivable ............................. 764,773 684,479
Other Assets .................................... 278,422 225,147
------------- -------------
Total assets ............................. $ 105,670,676 $ 103,399,305
============= =============
Liabilities
Deposits
Noninterest bearing ......................... $ 1,047,113 $ 1,165,223
Interest bearing ............................ 75,097,586 70,100,001
------------- -------------
Total deposits ........................... 76,144,699 71,265,224
Federal Home Loan Bank advances ................. 8,260,715 11,428,373
Interest payable ................................ 580,260 423,305
Deferred Tax Liability .......................... 360,156 360,156
Dividends Payable ............................... 90,917
Other Liabilities ............................... 577,347 555,669
------------- -------------
Total liabilities ........................ 86,014,094 84,032,727
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Financial Condition
(Unaudited)
(continued)
December 31, June 30,
1997 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 ................................. 13,561,050 13,547,619
Retained earnings - substantially restricted .... 7,380,002 7,136,492
Unearned ESOP shares - 127,665 and 132,250 ..... (1,289,437) (1,322,500)
Unearned compensation .......................... (11,563) (11,563)
------------- -------------
Total stockholders' equity ............... 19,656,582 19,366,578
------------- -------------
Total liabilities and stockholders' equity $ 105,670,676 $ 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 Six Months Ended
December 31, December 31,
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest and Dividend Income
Loans ................................. $ 1,940,951 $ 1,719,134 $ 3,795,384 $ 3,395,258
Investment securities ................. 567 3,461 1,134 9,469
Deposits with financial institutions .. 74,547 49,400 189,292 97,479
Dividend Income ....................... 18,581 14,799 37,744 29,598
----------- ----------- ----------- -----------
Total interest and dividend income 2,034,646 1,786,794 4,023,554 3,531,804
----------- ----------- ----------- -----------
Interest Expense
Deposits .............................. 993,303 935,893 1,950,066 1,897,595
Federal Home Loan Bank advances ........ 125,847 170,816 271,008 303,399
Total interest expense ....... 1,119,150 1,106,709 2,221,074 2,200,994
----------- ----------- ----------- -----------
Net Interest Income ..................... 915,496 680,085 1,802,480 1,330,810
Provision for losses on loans ......... 3,000
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Losses on Loans ......... 915,496 680,085 1,799,480 1,330,810
----------- ----------- ----------- -----------
Other Income
Service charges on deposit accounts ... 8,713 6,294 15,951 12,309
Net appraisal income (expense) ........ 111 369 (943) 3,450
Other income .......................... 1,063 1,097 2,381 1,989
----------- ----------- ----------- -----------
Total other income ............... 9,887 7,760 17,389 17,748
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Income
(Unaudited)
(continued)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other Expenses
Salaries and employee benefits ........ 317,634 235,310 593,492 448,990
Net occupancy expense ................. 25,188 25,801 51,374 51,332
Equipment expense ..................... 37,486 36,314 72,819 70,435
Data processing expense ............... 29,393 22,570 57,351 44,995
Deposit insurance expense ............. 11,778 31,318 23,206 500,156
Real estate operations, net ........... (1,719) (27,610) (12,404) (40,681)
Advertising expense ................... 10,270 9,198 18,869 17,788
Other expenses ........................ 136,811 113,019 250,993 219,916
----------- ----------- ----------- -----------
Total other expenses ......... 566,841 445,920 1,055,700 1,312,931
----------- ----------- ----------- -----------
Income Before Income Tax ................ 358,542 241,925 761,169 35,627
Income tax expense .................... 158,775 98,350 335,825 19,118
----------- ----------- ----------- -----------
Net Income .............................. $ 199,767 $ 143,575 $ 425,344 $ 16,509
=========== =========== =========== ===========
Net Income Per Share:
Basic ............................. $ 0.13 $ 0.31 $ 0.28 $ 0.04
Diluted ........................... $ 0.13 $ 0.31 $ 0.28 $ 0.04
Dividends Per Share ..................... $ 0.055 $ 0.054 $ 0.110 $ 0.107
</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)
Six Months Ended
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Operating Activities
Net income ................................................ $ 425,344 $ 16,509
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ............................. 3,000
Depreciation .......................................... 102,214 105,607
Gain (loss) on sale of real estate owned .............. (17,915)
Deferred income tax ................................... 37
ESOP stock amortization ............................... 46,494
Change In
Interest receivable ............................... (80,294) (48,691)
Interest payable .................................. 156,955 114,254
Other assets ...................................... (53,275) (260,120)
Other liabilities ................................. 21,678 (219,869)
----------- -----------
Net cash (used) provided by operating activities 622,116 (310,188)
----------- -----------
Investing Activities
Purchase of interest-bearing deposits .................... (95,000)
Proceeds from paydowns of
securities available for sale ......................... 10,087 259,454
Purchase of securities available for sale ................ (200,000)
Net change in loans ....................................... (6,987,383) (4,003,485)
Additions to real estate owned and held for investment .... (75,460) (173,586)
Proceeds from Real Estate Owned Sales ..................... 52,795 107,315
Purchases of premises and equipment ....................... (178,726) (98,658)
----------- -----------
Net cash used by investing activities .......... (7,473,687) (3,908,960)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Continued)
Six Months Ended
December 31,
--------------------------------
1997 1996
------------- ------------
<S> <C> <C>
Financing Activities
Net Change In
Noninterest-bearing, interest-bearing demand and
savings deposits ............................... $ 993,652 $ 390,689
Certificates of deposit ............................ 3,885,823 2,243,299
Proceeds from FHLB advances ............................ 2,000,000 4,000,000
Repayment of FHLB advances ............................. (5,167,658) (71,627)
Purchase of unearned compensation (MRP) stock ............ (11,563)
Dividends paid ......................................... (90,917) (50,000)
------------ ------------
Net cash provided by financing activities ... 1,620,900 6,500,798
------------ ------------
Net Change in Cash and Cash Equivalents .................. (5,230,671) 2,281,650
Cash and Cash Equivalents, Beginning of Period ........... 11,594,772 3,636,204
------------ ------------
Cash and Cash Equivalents, End of Period ................. $ 6,364,101 $ 5,917,854
============ ============
Additional Cash Flow and Supplementary Information
Interest Paid .......................................... $ 2,064,119 $ 2,086,740
Income Tax Paid ........................................ 174,450 62,847
Transfer from Loans to Other Real Estate Owned ......... 53,154 307,894
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 Total
--------- ----------- ----------- ----------- ------------ ------------- -----------
<S> <C> <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) $19,366,578
Net income for the six months
ended December 31, 1997 .... 425,344 425,344
Cash dividends ($.055 per share) (181,834) (181,834)
ESOP shares earned ............. 13,431 33,063 46,494
--------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 ...... 1,653,032 $ 16,530 $13,561,050 $ 7,380,002 $(1,289,437) $ (11,563) $19,656,582
========= =========== =========== =========== =========== =========== ===========
</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 December 31, 1997, results
of operations for the three and six month periods ending December 31, 1997 and
1996, and cash flows for the six month periods ended December 31, 1997 and 1996.
The results of operations for the three and six month periods ended December 31,
1997 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 six month periods ended December 31, 1997
and 1996 are computed by dividing net earnings by the weighted average shares of
common stock outstanding during the period. For the three and six month periods
ended December 31, 1996, 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 December 31, 1997 December 31, 1996
----------------------------------- ----------------------------------
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 ...... $ 199,767 1,521,209 $ 0.13 $ 143,575 465,620 $ 0.31
======== ========
Effect of Dilutive Stock Options
and Grants .................. 0 26,515 0 0
--------- --------- --------- -------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders ...... $ 199,767 1,547,724 $ 0.13 $ 143,575 465,620 $ 0.31
========= ========= ======== ========= ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
For the Six Months Ended December 31, 1997 December 31, 1996
----------------------------------- ----------------------------------
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 $ 425,344 1,520,636 $ 0.28 $ 16,509 465,985 $ 0.04
======== =======
Effect of Dilutive Stock Options
and Grants 0 25,248 0 0
--------- --------- ----------- -------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders $ 425,344 1,545,884 $ 0.28 $ 16,509 465,985 $ 0.04
========= ========= ========= =========== ====== =======
</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 $105.7 million at
December 31, 1997, an increase of $2.3 million, or 2.2 percent from June 30,
1997. During this three month period interest-earning assets increased $1.9
million, or 1.9 percent. Short-term interest-earning deposits decreased $5.3
million, or 46.9 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 $6.9 million, or 8.0 percent, which is the
approximate 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 $190,000, or 446.9 percent, to $232,000 during the six
months ended December 31, 1997. Real estate owned increased $59,000, or 4.5
percent primarily due to the acquisition of one single-family residence due to
foreclosure. Included in real estate owned is a nine-unit condominium complex
Montgomery has been holding for resale. The Family Crisis Shelter, 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 late third quarter or early fourth
quarter of this fiscal year. Deposits increased $4.9 million, or 6.8 percent and
borrowings decreased $3.2 million, or 27.7 percent, causing a net increase in
interest-bearing liabilities of 2.2 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.
Capital and Liquidity. At December 31, 1997, stockholders' equity was
$19,657,000 or 18.6 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 December 31, 1997, the Association's
tangible and core capital was $15,015,000, or 14.3 percent of tangible assets,
$13,442,000 in excess of the 1.5 percent minimum required tangible capital and
$11,869,000 in excess of the 3.0 percent minimum required core capital.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Risk-based capital equaled $14,000,000, or 21.9 percent of risk-weighted assets,
$8,891,000 more than the minimum 8.0 percent risk based level required. 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 six months ended
December 31, 1997, was 7.7 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 December 31, 1997, 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 September 30, 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 $2.10 million, which was less than
$3.31 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
September 30, 1997 NPV information, the amount of the Association's deduction
from capital, had it been subject to reporting, would have been approximately
$605,000.
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 September 30, 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>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
At September 30, 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 -5,414 -29 -5,754 -43
+200 -50 -3,313 -18 -3,637 -31
+100 -30 -1,425 -8 -1,622 -20
0 0 0 0 0 0
-100 -30 +721 +4 +988 +5
-200 -50 +979 +5 +1,237 +7
-300 -60 +1,297 +7 +1,347 +7
</TABLE>
In the event of a 300 basis point change in interest rate based upon
estimates as of September 30, 1997, the Association would experience a 7%
increase in NPV in a declining rate environment and a 29% 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 December 31, 1997, was $200,000 compared to $144,000 for the three months
ended December 31, 1996, an increase of $56,000, or 39.1 percent. Net interest
income increased $235,000, or 34.6 percent, primarily due an increase in
interest-earning assets of $11.4 million, or 13.0 percent. Average
interest-earning assets were $99.4 million for the three months ended December
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
31, 1997 compared to $88.0 million for the 1996 three-month period. Average
interest-bearing liabilities decreased from $81.7 million to $81.3 million
during the comparable three-month periods. Interest rate spread decreased from
2.71 percent for the three months ended December 31, 1996, to 2.68 percent for
the three months ended December 31, 1997. Due to the increase in average
interest-earning assets, net interest margin increased to 3.68 percent for the
three months ended December 31, 1997 from 3.09 percent for the three months
ended December 31, 1996. Non-interest income was $10,000 for the 1997
three-month period compared to $8,000 for the 1996 period. Non-interest expense
was $567,000 for the three months ended December 31, 1997 compared to $446,000
for the 1996 three-month period, an increase of $121,000, or 27.1 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 $359,000 for
the three months ended December 31, 1997, compared to $242,000 for the three
months ended December 31, 1996, an increase of $117,000, or 48.3 percent. Income
tax for the three months ended December 31, 1997, was $159,000 compared to
$98,000 for the three months ended December 31, 1996.
For the six months ended December 31, 1997, net income was $425,000
compared to $17,000 for the six months ended December 31, 1996, an increase of
$408,000. The most significant factor effecting Montgomery's operations for the
six months ended December 31, 1996 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 six months ended
December 31, 1996, was $275,000 before the net effect of the Savings Association
Insurance Fund ("SAIF") special assessment. The increase in net income for the
six-month period was also primarily due to an increase in net interest income
from $1.3 million for the 1996 period to $1.8 million for the 1997 six-month
period, an increase of $472,000, or 35.4 percent. Average interest-earning
assets increased from $87.1 million for the six months ended December 31, 1996
to $98.4 million for the 1997 six-month period. Non-interest expense decreased
$257,000, or 19.6 percent. This decrease was primarily caused by the one time
SAIF special assessment during the 1996 six 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 $336,000 for
the six months ended December 31, 1997, compared to $19,000 for the six months
ended December 31, 1996.
Interest Income. Montgomery's total interest income for the three
months ended December 31, 1997, was $2.0 million, an increase of $248,000, or
13.9 percent, compared to interest income for the three months ended December
31, 1996. This increase was primarily caused by an increase in average
interest-earning assets from $88.0 million for the three months ended December
31, 1996, to $99.4 million for the three months ended December 31, 1997, an
increase of $11.4 million, or 13.0 percent principally due to loan growth.
Average loans increased from $83.4 million for the 1996 three-month period to
$93.0 million for the 1997 three month period and average interest-earning
deposits increased from $3.6 million to $5.5 million for the respective periods.
The average yield on interest-earning assets was 8.19 percent for the three
months ended December 31, 1997, compared to 8.13 percent for the three months
ended December 31, 1996.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Interest income for the six months ended December 31, 1997, was $4.0
million, an increase of $492,000, or 13.9 percent, from interest income for the
same period in 1996. Average interest-earning assets for the six months ended
December 31, 1997, was $98.4 million compared to $87.1 million for the 1996 six
month period, an increase of $11.3 million, or 13.0 percent, principally due to
loan growth. The average yield for the 1997 period was 8.18 percent compared to
8.11 percent for the 1996 period.
Interest Expense. Interest expense for the three months ended December
31, 1997, was $1.1 million, which was an increase of $12,000, or 1.1 percent,
from the three months ended December 31, 1996. Average interest-bearing
liabilities decreased $398,000, or 0.5 percent, from $81.7 million for the three
months ended December 31, 1996, to $81.3 million for the three months ended
December 31, 1997. The average cost of funds increased however, from 5.42
percent to 5.50 percent for the comparable periods. The average cost of deposits
increased from 5.34 percent to 5.43 percent for the comparable three-month
periods. The average cost of borrowings increased from 5.89 percent to 6.18
percent for the comparable periods due to converting some short term FHLB
advances to longer term fixed rate advances.
Interest expense for the six months ended December 31, 1997, was $2.2
million, an increase of $20,000, or 0.9 percent, from the six months ended
December 31, 1996. The average cost of funds for the 1997 period was 5.55
percent compared to 5.52 percent for the 1996 period. Average interest-bearing
liabilities increased from $79.8 million for the six months ended December 31,
1996 to $80.0 million for the 1996 six-month period.
Provision for Losses on Loans. There was no provision for losses on
loans during the three months ended December 31, 1997 or the three months ended
December 31, 1996. During the six months ended December 31, 1997, a $3,000
provision was made compared to no provision being made in the comparable 1996
six-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 $656,000 at December 31, 1997,
compared to $502,000 at June 30, 1997. Non-performing loans to total loans at
December 31, 1997, were 0.70 percent compared to 0.58 percent at June 30, 1997.
Non-performing assets, consisting of non-performing loans in the amount of
$656,000 and other real estate in the amount of $163,000, totaled $819,000, or
0.78 percent of total assets, at December 31, 1997. 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 22.3 percent at December 31,
1997 and 29.5 percent at June 30, 1997. The allowance to total loans was 0.19
percent at both December 31, 1997 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 December 31, 1997, totalled $10,000 compared to $8,000 for the three
months ended December 31, 1996, an increase of $2,000, or 27.4 percent. This
increase was due to an increase in service charges on deposit accounts.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Other income for the six months ended December 31, 1997, was $17,000, a
decrease of $400, or 2.0 percent, from the comparable 1996 six month period.
During the six months ended December 31, 1997, service charges on deposit
accounts increased $4,000 and appraisal income decreased $4,000 from the 1996
six-month period.
Non-Interest Expense. Montgomery's other expenses for the three months
ended December 31, 1997, totalled $567,000, an increase of $121,000, or 27.1
percent, from the three months ended December 31, 1996. Salaries and employee
benefits increased $82,000. Stock benefit plans were adopted subsequent to the
December, 1996 three-month period and the cost of these plans was $36,000 for
the three months ended December 31, 1997. The balance of the increase was
primarily due to an increase in branch office personnel to accommodate growth.
Equipment expense increased $1,000 and data processing expense increased $7,000.
These increases are generally reflective of Montgomery's growth. Deposit
insurance expense decreased $20,000 for the comparable three-month periods
primarily due to the decrease in the annual SAIF premium from 23 basis points to
6.4 basis points effective January 1, 1997. Real estate operations net income
for the three months ended December 31, 1997, was $2,000 compared to $28,000 for
the 1996 comparable period, a decrease of $26,000 due to the income on the sale
of two real estate properties during the 1996 three month period. Advertising
expense increased $1,000 from the 1996 comparative period. Other expenses
increased $24,000, or 21.1 percent, for the three months ended December 31, 1997
compared to the same 1996 period, primarily due to increased expenses relating
the operation of a publicly held company including the annual meeting of
Montgomery held in October.
Non-interest expense for the six months ended December 31, 1997, was
$1.1 million compared to $1.3 million, a decrease of $257,000, or 19.6 percent,
from the six months ended December 31, 1996. Salary and employee benefits
increased $145,000 of which $62,000 was due to the adoption of stock benefit
plans in effect during the 1997 six 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 $2,000 and data
processing expense increased $12,000 due to Montgomery's growth. Deposit
insurance expense decreased $477,000 for the six months ended December 31, 1997,
compared to the same period in 1996 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 six
months ended December 31, 1997, of $12,000 compared to a net income of $41,000
for the 1996 comparable period. This decrease was primarily caused by a gain on
the sale of real estate in the 1996 period compared to a loss on sale of real
estate during the 1996 period. Other expenses for the six months ended December
31, 1997, were $251,000 compared to $220,000 for the six months ended December
31, 1996, an increase of $31,000, or 14.1 percent. Stockholder related expense
increased $31,000 due to the additional cost of Montgomery's annual meeting and
operation of the publicly held company.
Income Tax Expense. Income tax expense for the three months ended
December 31, 1997, was $159,000 compared to $98,000 for the three months ended
December 31, 1996. This increase was due to the increase in taxable income.
For the six months ended December 31, 1997, income tax expense was
$336,000 compared to $19,000 for the six months ended December 31, 1996. This
increase was due to the increase in taxable income which included the effect of
the FDIC special assessment during the 1996 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
The Annual Meeting of Shareholders of Montgomery Financial Corporation
("Montgomery") was held at the principal office of Montgomery, 119 East Main
Street, Crawfordsville, Indiana 47933, on Tuesday, October 21, 1997, at 2:00
p.m., Crawfordsville time for the purpose of electing three Directors, to ratify
the appointment of Geo. S. Olive & Co. LLC, as Montgomery's independent auditors
for the 1998 fiscal year and to transact such other business as may properly
come before the Annual Meeting. Proxy Statements were furnished to such holders
on or about September 22, 1997. A total of 1,653,032 shares of common stock of
Montgomery were outstanding on August 31, 1997, and a total of 1,417,672 shares
were represented at the meeting. Of the 1,417,672 shares, 1,412,076 were
represented by proxy and 5,596 were represented in person.
Earl F. Elliott, Mark E. Foster and Robert C. Wright were nominated to hold
office until the year 2000 Annual Meeting of Shareholders. Mr. Elliott has been
a director since 1973, Mr. Foster since 1990 and Mr. Wright since 1996. No other
nominations were made at the meeting. Earl F. Elliott was elected receiving
1,403,901 votes for, with 13,771 votes withheld. Mark E. Foster was elected
receiving 1,404,047 votes for, with 13,625 votes withheld. Robert C. Wright was
elected receiving 1,404,808 votes for, with 12,864 votes withheld. With the
election of Messrs. Elliott, Foster and Wright, the terms of the Directors as of
October 21, 1997, expire as follows: 1998 - Joseph M. Malott and J. Lee Walden;
1999 - C. Rex Henthorn and John E. Woodward; 2000 - Earl F. Elliott, Mark E.
Foster and Robert C. Wright.
Geo S. Olive & Co. LLC ("GSO"), served as independent auditors for Montgomery in
fiscal 1997. The Board of Directors approved the appointment of GSO as
independent auditors for fiscal 1998, subject to ratification by the
shareholders. The appointment of the independent auditors is ratified if more
votes are cast in favor of the appointment than against the appointment. The
ratification of GSO was approved by 1,400,174 votes in favor, 10,657 votes
against and 6,841 abstentions.
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: February 12, 1998 By: /s/Earl F. Elliott
------------------
Earl F. Elliott, President and Chief
Executive Officer
Date: February 12, 1998 By: /s/ J. Lee Walden
-----------------
J. Lee Walden, Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 321,991
<INT-BEARING-DEPOSITS> 6,237,110
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 232,407
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<ALLOWANCE> 183,000
<TOTAL-ASSETS> 105,670,676
<DEPOSITS> 76,144,699
<SHORT-TERM> 8,260,715
<LIABILITIES-OTHER> 1,608,680
<LONG-TERM> 0
0
0
<COMMON> 16,530
<OTHER-SE> 19,640,052
<TOTAL-LIABILITIES-AND-EQUITY> 105,670,676
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<INCOME-PRETAX> 761,169
<INCOME-PRE-EXTRAORDINARY> 761,169
<EXTRAORDINARY> 0
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<NET-INCOME> 425,344
<EPS-PRIMARY> 0.28
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<LOANS-NON> 628,000
<LOANS-PAST> 28,000
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