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, 2000
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, 2000, there were 1,225,089 shares of the Registrant's
common stock issued and outstanding.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Form 10-QSB
Index
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement of Financial Condition
As of March 31, 2000 and June 30, 1999 3
Consolidated Condensed Statement of Income for the Three
And Nine Months Ended March 31, 2000 and 1999 4
Consolidated Condensed Statement of Cash Flows for the
Nine Months Ended March 31, 2000 and 1999 5
Consolidated Condensed Statement of Stockholders'
Equity for the Nine Months Ended March 31, 2000 7
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Financial Condition
(Unaudited)
March 31, June 30,
2000 1999
--------- ---------
Assets
<S> <C> <C>
Cash $ 710,068 $ 523,585
Short-term interest-bearing deposits 8,712,130 4,409,228
------------- -------------
Total cash and cash equivalents 9,422,198 4,932,813
Interest-bearing deposits 158,689 219,463
Securities available for sale 498,130 880,900
Loans 118,954,614 111,641,224
Allowance for loan losses (226,000) (226,000)
------------- -------------
Net loans 118,728,614 111,415,224
Real estate owned and held for development, net 1,099,182 1,181,720
Premises and equipment 3,250,125 2,839,409
Federal Home Loan Bank Stock 1,893,300 1,250,700
Interest receivable 1,010,253 893,854
Other assets 391,681 345,036
------------- -------------
Total assets $ 136,452,172 $ 123,959,119
============= =============
Liabilities
Deposits
Noninterest bearing $ 1,669,966 $ 1,349,282
Interest bearing 88,013,063 81,118,363
------------- -------------
Total deposits 89,683,029 82,467,645
Federal Home Loan Bank advances
and other borrowings 28,241,258 20,632,069
Interest payable 474,218 566,632
Deferred tax liability 321,542 347,089
Other liabilities 846,883 548,612
------------- -------------
Total liabilities 119,566,930 104,562,047
------------- -------------
Stockholders' Equity
Preferred stock, $.01 par value
authorized and unissued - 2,000,000 shares
Common stock, $.01 par value - 8,000,000 shares
authorized; 1,225,089 and 1,521,142 issued 12,251 15,211
Paid-in capital 10,021,046 12,464,781
Retained earnings - substantially restricted
8,022,710 8,131,251
Unearned ESOP shares - 107,706 and 114,180 (1,077,061) (1,141,796)
Unearned compensation (65,870) (92,714)
Accumulated other comprehensive income (27,834) 20,339
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Total stockholders' equity 16,885,242 19,397,072
------------- -------------
Total liabilities and stockholders' equity $136,452,172 $123,959,119
============ ============
</TABLE>
See notes to Consolidated Condensed Financial Statements.
3
<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,
------------------------------- -------------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest and Dividend Income
Loans $ 2,343,987 $ 2,147,964 $ 6,873,080 $ 6,419,724
Investment securities 4,491 7,114 16,528 16,362
Deposits with financial institutions 128,969 121,015 361,229 316,933
Dividend Income 37,659 24,672 103,338 64,320
----------- ----------- ----------- -----------
Total interest and dividend income 2,515,106 2,300,765 7,354,175 6,817,339
Interest Expense
Deposits 1,110,329 1,015,877 3,258,506 3,179,019
Federal Home Loan Bank advances
and other borrowings 411,582 281,431 1,102,598 678,093
----------- ----------- ----------- -----------
Total interest expense 1,521,911 1,297,308 4,361,104 3,857,112
----------- ----------- ----------- -----------
Net Interest Income 993,195 1,003,457 2,993,071 2,960,227
Provision for losses on loans 15,000 40,000
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Losses on Loans 993,195 988,457 2,993,071 2,920,227
----------- ----------- ----------- -----------
Other Income
Service charges on deposit accounts 15,283 11,814 43,961 35,613
Gain on sale of investment securities 55,644
Net appraisal income (expense) (3,083) 1,032 2,188 (3,503)
Other income 6,777 1,976 21,143 5,365
----------- ----------- ----------- -----------
Total other income 18,977 14,822 122,936 37,475
----------- ----------- ----------- -----------
Other Expenses
Salaries and employee benefits 425,695 334,954 1,215,434 978,267
Net occupancy expense 47,822 31,506 128,733 84,953
Equipment expense 58,191 43,147 176,497 135,662
Data processing expense 48,820 48,401 137,610 126,451
Deposit insurance expense 4,554 13,113 29,327 38,305
Real estate operations, net (1,591) (4,302) (20,385) (20,499)
Advertising expense 20,308 11,201 66,299 34,714
Other expenses 143,673 128,805 460,524 392,603
----------- ----------- ----------- -----------
Total other expenses 747,472 606,825 2,194,039 1,770,456
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Income Before Income Tax 264,700 396,454 921,968 1,187,246
Income tax expense 93,590 145,610 364,050 445,500
----------- ----------- ----------- -----------
Net Income $ 171,110 $ 250,844 $ 557,918 $ 741,746
=========== =========== =========== ===========
Net Income Per Share:
Basic $ 0.14 $ 0.17 $ 0.44 $ 0.50
Diluted $ 0.14 $ 0.17 $ 0.43 $ 0.50
Dividends Per Share $ 0.055 $ 0.055 $ 0.165 $ 0.165
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating Activities
Net income $ 557,918 $ 741,746
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 40,000
Depreciation 238,020 177,191
Investment securities gains (55,644)
ESOP stock amortization 57,057 70,659
Amortization of unearned compensation 15,505 6,511
Change In
Interest receivable (116,399) 3,539
Interest payable (92,414) (26,480)
Other assets (46,645) (137,169)
Other liabilities 319,173 (181,829)
Net cash provided by operating activities 876,571 694,168
Investing Activities
Net change in interest-bearing deposits 60,774
Proceeds from paydowns of
securities available for sale 21,967
Proceeds from sale of securities
available for sale 358,644
Purchase of securities available for sale (441,220)
Net change in loans (7,357,874) (7,278,877)
Additions to real estate owned and held for investment (87,782) (164,257)
Proceeds from real estate owned sales 187,853 319,222
Purchases of premises and equipment (621,785) (921,745)
Purchase of FHLB of Indianapolis Stock (642,600) (329,200)
Net cash used by investing activities (8,102,770) (8,794,110)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Continued)
Nine Months Ended
March 31,
--------------------------------
2000 1999
----------- ----------
<S> <C> <C>
Financing Activities
Net Change In
Noninterest-bearing, interest-bearing demand and
savings deposits $ 4,569,095 $ 3,141,514
Certificates of deposit 2,646,289 (3,753,451)
Proceeds from FHLB advances
and other borrowings 22,500,000 11,000,000
Repayment of FHLB advances
and other borrowings (14,890,811) (2,247,413)
Stock purchase (2,894,430) (890,960)
Dividends paid (214,559) (255,128)
------------ ------------
Net cash provided by financing activities 11,715,584 6,994,562
Net Change in Cash and Cash Equivalents 4,489,385 (1,105,380)
Cash and Cash Equivalents, Beginning of Period 4,932,813 10,896,745
------------ ------------
Cash and Cash Equivalents, End of Period $ 9,422,198 $ 9,791,365
Additional Cash Flow and Supplementary Information
Interest paid $ 4,453,518 $ 3,883,592
Income tax paid 402,394 935,789
Transfer from loans to other real estate owned 44,484 112,191
Cash dividends payable 67,383 79,601
</TABLE>
See Notes to Consolidated Condensed Financial Statements
6
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Stockholders' Equity
(Unaudited)
Common Stock
-------------------- Paid-in Comprehensive Retained Unearned
shares Amount Capital Income Earnings ESOP Shares
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance July 1, 1999 1,521,142 $15,211 $12,464,781 $8,131,251 $(1,141,796)
Net income for the nine months
ended March 31, 2000 $577,918 557,918
--------
Other comprehensive income,
net of tax
Unrealized holding losses arising
during the period, net of tax
benefit of $9,556 (14,570)
Less: Reclassification adjustment
for gain included in net income,
net of tax benefit of $22,041 33,603
----------
Unrealized loss on securities (48,173)
----------
Other comprehensive income $529,745
========
Cash dividends ($.165 per share) (199,707)
Stock purchase (296,053) (2,960) (2,424,718) (466,752)
ESOP shares earned (7,678) 64,735
Amortization of unearned
compensation expense (11,339)
- -------------------------------------------------------------------------------------------------------------------------------
Balance March 31, 2000 1,225,089 $12,251 $10,021,046 $8,022,710 $(1,077,061)
===============================================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statement
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Stockholders' Equity
(Unaudited)
Other
Unearned Comprehensive
Compensation Income (Loss) Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance July 1, 1999 $ (92,714) $ 20,339 $19,397,072
Net income for the nine months
ended March 31, 2000 557,918
Other comprehensive income,
net of tax
Unrealized holding losses arising
during the period, net of tax
benefit of $9,556
Less: Reclassification adjustment
for gain included in net income,
net of tax benefit of $22,041
Unrealized loss on securities (48,173) (48,173)
Other comprehensive income
Cash dividends ($.165 per share) (199,707)
Stock purchase (2,894,430)
ESOP shares earned 57,057
Amortization of unearned
compensation expense 26,844 15,505
- -----------------------------------------------------------------------------------------
Balance March 31, 2000 $ (65,870) $(27,834) $16,885,242
=========================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statement
7
<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, 2000, results of
operations for the three and nine month periods ending March 31, 2000 and 1999,
and cash flows for the nine month periods ended March 31, 2000 and 1999. The
results of operations for the three and nine month periods ended March 31, 2000
are not necessarily indicative of the results of operations which may be
expected for the fiscal year ending June 30, 2000.
Net Income Per Share
Net income per share for the three and nine month periods ended March 31, 2000
and 1999 are computed by dividing net earnings by the weighted average shares of
common stock outstanding during the period.
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000 March 31, 1999
-------------- --------------
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 $ 171,110 1,232,010 $ 0.14 $ 250,844 1,445,724 $ 0.17
========= =========
Effect of Dilutive Stock Options
and Grants 0 5,220 0 10,662
-------- ------------ ---------- ----------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders $ 171,110 1,237,230 $ 0.14 $ 250,844 1,456,386 $ 0.17
========= ========= ========= ========== ========= =========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
For the Nine Months Ended March 31, 2000 March 31, 1999
-------------- --------------
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 $ 557,918 1,281,955 $ 0.44 $ 781,746 1,485,529 $ 0.50
Effect of Dilutive Stock Options
and Grants 0 7,318 0 12,654
-------- ------------ ---------- ---------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders $ 557,918 1,289,273 $ 0.43 $ 741,746 1,498,183 $ 0.50
========= ========= ========= ========== ========= =========
</TABLE>
9
<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-QSB or future
filings by Montgomery with the Securities and Exchange Commission, 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's 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 $136.5 million at
March 31, 2000, an increase of $12.5 million, or 10.1 percent from June 30,
1999. During the nine month period ending March 31, 2000, interest-earning
assets, including Federal Home Loan Bank stock, increased $11.8 million, or 10.0
percent. Short-term interest-earning deposits increased $4.3 million, or 97.6
percent. Loans increased $7.3 million, or 6.6 percent. Federal Home Loan Bank
Stock increased $643,000 due to an increase in Federal Home Loan Bank advances.
Deposits increased $7.2 million, or 8.7 percent and borrowings increased $7.6
million, or 36.9 percent, causing a net increase in interest-bearing liabilities
of $14.5 million or 14.3 percent. The increase in borrowings was used to fund
loan growth and increase liquidity levels.
Capital and Liquidity. At March 31, 2000, stockholders' equity was
$16.9 million or 12.4 percent of total assets, compared with stockholders'
equity of $19.4 million, or 15.7 percent, at June 30, 1999. With the approval of
the OTS on May 5, 1999, Montgomery began to repurchase 209,171 shares of
outstanding common stock. The repurchase was completed on September 24, 1999 at
a total cost of $2.1 million. On March 2, 2000, the OTS approved the repurchase
of an additional 136,121 shares of common stock. The repurchase of these shares
was completed on March 31, 2000 at a total cost of $1.3 million. The repurchase
of stock during the nine months ended March 31, 2000 reduced capital in the
amount of $2.9 million. The Association continues to exceed all minimum capital
requirements. At March 31, 2000, the Association's tangible and core capital was
$15,009,000, or 11.1 percent of tangible assets, $12,982,000 in excess of the
1.5 percent minimum required tangible capital and $9,605,000 in excess of the
4.0 percent minimum required core capital. Risk-based capital equaled
$14,513,000, or 17.2 percent of risk-weighted assets, $7,742,000 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 four percent.
Montgomery's average liquidity ratio for the nine months ended March 31, 2000
was 8.5 percent.
10
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
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. The OTS issued a regulation which provides 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 assumed 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. Under the regulation, 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. The amount
of that deduction is one-half of the difference between (a) the institution's
actual calculated exposure to the 200 basis point interest rate increase or
decrease (whichever results in the greater pro forma decrease in NPV) and (b)
its "normal" level of exposure which is 2% of the present value of its assets.
The regulation does 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, 2000,
the Association's total assets were $136.5 million and risk based capital was
17.2 percent; therefore the Association would have been exempt from calculating
or making any risk-based capital reduction. The Association's management
believes 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, 1999, 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
$2.72 million, which was less than $4.77 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, 1999 NPV information, the amount
of the Association's deduction from capital, had it been subject to reporting,
would have been approximately $1.03 million.
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.
Presented below, as of December 31, 1999, and December 31, 1998, 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
assumptions utilized by the OTS in assessing the interest risk of the thrifts it
regulates. Based upon these assumptions at December 31, 1999 and December 31,
1998, the NPV of the Association was $18.9 million and $19.2 million
respectively. NPV is calculated by the OTS for the purpose of interest rate risk
assessment and should not be considered as an indicator of value of the
Association.
11
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
- -------------------- ----------------- ------------------------------------ ------------------------------------
At December 31, 1999 At December 31, 1998
- -------------------- ----------------- ------------------------------------ ------------------------------------
Assumed Board
Limit
Change in % Change $ Change % Change $ Change % Change
Interest Rates in NPV in NPV in NPV in NPV in NPV
(Basis Points)
- ----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
+300 -60 -7,311 -39 -4,644 -24
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
+200 -50 -4,774 -25 -2,637 -14
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
+100 -30 -2,254 -12 -1,026 -5
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
0 0 0 0 0 0
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
-100 -30 +1,571 +8 +633 +3
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
-200 -50 +2,678 +14 +1,286 +7
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
-300 -60 +3,630 +19 +2,157 +11
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
</TABLE>
In the event of a 300 basis point change in interest rates based upon
estimates as of December 31, 1999, the Association would experience a 19%
increase in NPV in a declining rate environment and a 39% decrease in NPV in a
rising environment. During periods of rising rates, the value of monetary assets
and liabilities declines. Conversely, during periods of falling rates, the value
of monetary assets and liabilities increases. 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 maturities of
interest-bearing assets increasing more than the maturities on interest-bearing
liabilities due to the increase in fixed-rate residential mortgage loans and
non-residential loans.
Results of Operations. Montgomery's net income for the three months
ended March 31, 2000 was $171,000 compared to $251,000 for the three months
ended March 31, 1999, a decrease of $80,000, or 31.8 percent. Net interest
income decreased $10,000, or 1.0 percent. Average interest-earning assets were
$130.0 million for the three months ended March 31, 2000 compared to $118.6
million for the 1999 three-month period, an increase of $11.4 million, or 9.6
percent. Average interest-bearing liabilities increased $13.3 million, or 13.1
percent, from $101.3 million to $114.6 million during the comparable three-month
<PAGE>
periods. Interest rate spread decreased from 2.64 percent for the three months
ended March 31, 1999 to 2.43 percent for the three months ended March 31, 2000.
Net interest margin decreased to 3.06 percent for the three months ended March
31, 2000 from 3.38 percent for the three months ended March 31, 1999.
Non-interest income was $19,000 for the 2000 three-month period compared to
$15,000 for the 1999 period. Non-interest expense was $747,000 for the three
months ended March 31, 2000 compared to $607,000 for the 1999 three-month
period, an increase of $140,000, or 23.2 percent, primarily due to expenses
associated with the operation of the Lafayette, Indiana opened in April, 1999.
Income before income tax was $265,000 for the three months ended March 31, 2000
compared to $396,000 for the 1999 period, a decrease of $132,000, or 33.2
percent. Income tax expense decreased from $146,000 to $94,000 for the
comparable periods.
12
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
For the nine months ended March 31, 2000, net income was $558,000
compared to $742,000 for the nine months ended March 31, 1999, a decrease of
$184,000, or 24.8 percent. Net interest income increased from $33,000 for the
comparable periods. Average interest-earning assets increased from $114.5
million for the nine months ended March 31, 1999 to $127.1 million for the 2000
nine-month period while average interest bearing liabilities increased $14.5
during the comparable periods. Non-interest income increased $85,000 primarily
due to a gain on the sale of available for sale investment securities.
Non-interest expense increased $424,000, or 23.9 percent. This increase was
primarily due to an increase in personnel and operational costs in connection
with the Lafayette, Indiana office. Growth in other offices also contributed to
the increase in expense. Income tax expense was $364,000 for the nine months
ended March 31, 2000, compared to $446,000 for the nine months ended March 31,
1999.
Interest Income. Montgomery's total interest income for the three
months ended March 31, 2000, was $2.5 million, an increase of $214,000, or 9.3
percent, compared to interest income for the three months ended March 31, 1999.
This increase was primarily caused by an increase in average interest-earning
assets from $118.6 million for the three months ended March 31, 1999, to $130.0
million for the three months ended March 31, 2000, an increase of $11.4 million,
or 9.6 percent principally due to loan growth. Average loans increased from
$105.9 million for the 1999 three month period to $118.0 million for the 2000
three month period and average interest-earning deposits decreased from $10.8
million to $9.6 million for the respective periods. The average yield on
interest-earning assets was 7.74 percent for the three months ended March 31,
2000, compared to 7.76 percent for the three months ended March 31, 1999.
Interest income for the nine months ended March 31, 2000 was $7.4
million, an increase of $537,000, or 7.9 percent, from interest income for the
same period in 1999. Average interest-earning assets for the nine months ended
March 31, 2000, was $127.1 million compared to $114.5 million for the 1999 nine
month period, an increase of $12.6 million, or 11.0 percent, principally due to
loan growth. The average yield for the 2000 period was 7.71 percent compared to
7.94 percent for the 1999 period.
Interest Expense. Interest expense for the three months ended March
31, 2000 was $1.5 million, which was an increase of $225,000, or 17.3 percent,
from the three months ended March 31, 1999. Average interest-bearing liabilities
increased $13.3 million, or 13.1 percent, from $101.3 million for the three
months ended March 31, 1999, to $114.6 million for the three months ended March
31, 2000. The average cost of funds increased from 5.12 percent to 5.31 percent
for the comparable periods. The average cost of deposits increased from 5.00
percent to 5.18 percent for the comparable three-month periods. The average cost
of borrowings increased from 5.62 percent to 5.73 percent for the comparable
periods.
Interest expense for the nine months ended March 31, 2000, was $4.4
million, an increase of $504,000, or 13.1 percent, from the nine months ended
March 31, 1999. The average cost of funds for the 2000 period was 5.25 percent
compared to 5.34 percent for the 1999 period. Average interest-bearing
liabilities increased from $96.3 million for the nine months ended March 31,
1999 to $110.8 million for the 2000 nine month period.
13
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Provision for Losses on Loans. There was no provision on loans for the
three months ended March 31, 2000 compared to $15,000 for the three months ended
March 31, 1999. During the nine months ended March 31, 1999, a $40,000 provision
was made compared to no provision being made in the comparable 2000 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 $1,072,000 at March 31, 2000, compared to
$547,000 at June 30, 1999. Non-performing loans to total loans at March 31, 2000
were 0.91 percent compared to 0.49 percent at June 30, 1999. The allowance for
losses to non-performing loans was 21.1 percent at March 31, 2000 compared to
41.3 percent at June 30, 1999. The allowance to total loans was 0.19 percent at
March 31, 2000 and 0.20 percent at June 30, 1999. Montgomery is continually
re-evaluating the level of the allowance for loan losses as the amount of
non-residential mortgage loans and other new loan products are offered.
Non-Interest Income. Montgomery's other income for the three months
ended March 31, 2000, totaled $19,000 compared to $15,000 for the three months
ended March 31, 1999, an increase of $4,000, or 28.0 percent. This increase was
due to an increase in service charges on deposit accounts in the amount of
$3,000, a decrease in net appraisal income of $4,000 and an increase in other
income of $5,000.
Other income for the nine months ended March 31, 2000, was $123,000, an
increase of $85,000 from the comparable 1999 nine-month period. This increase
was primarily due to a gain on the sale of available for sale securities in the
amount of $56,000 in the 2000 period compared to no gain during the 1999 period.
During the nine months ended March 31, 2000, service charges on deposit accounts
increased $8,000, appraisal income increased $5,000 and other income increased
$16,000. The increase in other income was primarily due to increased usage of
debit cards and related ATM transactions.
Non-Interest Expense. Montgomery's other expenses for the three months
ended March 31, 2000, totaled $747,000, an increase of $141,000, or 23.2
percent, from the three months ended March 31, 1999. Salaries and employee
benefits increased $91,000 primarily due to an increase in personnel to
accommodate growth and to staff the Lafayette, Indiana office which opened in
April 1999. Net occupancy expense increased $16,000 and equipment expense
increased $15,000 primarily due to the increase in expenses associated with the
operation of the Lafayette, Indiana office. Advertising expense increased $9,000
and other expenses increased $15,000 primarily due to Montgomery's growth and
expansion.
Non-interest expense for the nine months ended March 31, 2000 was $2.2
million compared to $1.8 million, an increase of $424,000, or 23.9 percent, from
the nine months ended March 31, 1999. Salary and employee benefits increased
$237,000, or 24.2 percent. An increase in personnel due to branch office growth
and the operation of the new Lafayette, Indiana office was the primary factor
for the increase in salary and employee benefits. Net occupancy expense
increased $44,000, equipment expense increased $41,000 and data processing
expense increased $11,000. These increases were primarily due to Montgomery's
growth and expansion. Advertising expense increased $32,000 primarily due to the
advertising increase to promote the Lafayette, Indiana office. Other expenses
for the nine months ended March 31, 2000 were $461,000 compared to $393,000 for
<PAGE>
the nine months ended March 31, 1999, an increase of $68,000, or 17.3 percent.
Included in other expenses is approximately $6,000 in expense related to
customer awareness of the Y2K issue with the balance of the increase being
generally reflective of Montgomery's growth.
14
<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
27. Financial Data Schedule
(b) Reports on Form 8-K
Montgomery filed no reports on form 8-K during the quarter ended
March 31, 2000.
15
<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 11, 2000 By: /s/ Earl F. Elliott
---------------------
Earl F. Elliott, President and Chief
Executive Officer
Date: May 11, 2000 By: /s/ J. Lee Walden
-------------------
J. Lee Walden, Vice President and Chief
Financial Officer
16
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
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0
0
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<LOANS-NON> 896,697
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