SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the Quarterly period ended
September 30, 1999.
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
_______to ______.
No. 001-15351
(Commission File Number)
JADE FINANCIAL CORP.
(Exact Name OF Registrant as Specified in its Charter)
Pennsylvania 23-3002586
(State of Incorporation) (IRS Employer ID Number)
213 W. Street Road
Feasterville, PA 19053
(Address of principal executive offices)
(215) 322-9000
(Registrant's telephone number)
Indicate by check mark whether the registrant (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 shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of Shares Outstanding as of October 31, 1999:
COMMON STOCK ($.01 PAR VALUE) 1,872,923
(Title of Class) (Outstanding Shares)
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Financial Statements (Unaudited)
Consolidated Statement of Financial Condition
as of September 30, 1999 and December 31, 1998
Consolidated Statement of Income for the Three
and Nine Months Ended September 30, 1999 and 1998.
Consolidated Statement of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998.
Notes to Consolidated Financial Statements
Management's discussion and Analysis of Financial
Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market
Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Defaults Upon Senior 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
PART III. SIGNATURES
PART 1. FINANCIAL STATEMENTS
JADE FINANCIAL CORP.
Consolidated Statement of Financial Condition
September 30, December 31,
1999 1998
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 8,914 $ 8,388
Interest bearing deposit in other
financial institutions 194 1,237
Federal Funds 8,259 8,726
Restricted cash 0 0
Total cash and cash equivalents $ 17,367 $ 18,351
Investment securities, available-
for-sale 37,911 28,726
Mortgage-backed securities
available-for-sale 13,108 10,176
Investment securities held-to-maturity 0 0
Mortgage-backed securities held-to-
maturity (fair value of $4,519
and $6,541) 4,709 6,635
Loans receivable, net 110,968 102,900
Property, equipment and leasehold
improvements, net of accumulated
depreciation 1,799 1,962
Federal Home Loan Bank stock, at cost 834 834
Accrued interest receivable 1,072 646
Share insurance fund 0 29
Reorganization costs, net 185 195
Deferred tax asset, net 76 44
Prepaid expenses and other assets 1,621 593
TOTAL ASSETS $189,650 $171,091
LIABILITIES AND EQUITY
LIABILITIES:
Deposits $168,364 $154,888
Advances from FHLBank 6,000 0
Advances from borrowers for taxes 391 521
Accounts payable and accrued expenses 784 406
Total liabilities $175,539 $155,815
EQUITY:
Commitments and contingencies
(Note 16) 0 0
Retained Earnings, (See Notes 11
and 12) 16,109 15,560
Accumulated other comprehensive
income (1,998) (284)
Total Equity $ 14,111 $ 15,276
TOTAL LIABILITIES AND EQUITY $189,650 $171,091
JADE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
(In thousands) (In thousands)
INTEREST INCOME:
Interest on loans $2,253 $2,175 $6,570 $6,391
Investment and mortgage-
backed securities 854 630 2,286 1,687
Interest -earning
deposits 3 19 211 63
Federal Funds 27 99 31 378
Total interest income $3,137 $2,923 $9,098 $8,519
INTEREST EXPENSE:
Interest on deposits $1,308 $1,387 $3,948 $4,057
Interest on borrowed
funds 56 0 59 0
Total interest expense $1,364 $1,387 $4,007 $4,057
Net Interest Income $1,773 $1,536 $5,091 $4,462
PROVISION FOR POSSIBLE
LOAN LOSSES 135 160 405 801
Net interest income
after provision for
possible loan losses $1,638 $1,376 $4,686 $3,661
NON INTEREST INCOME:
Loan fees $ 10 $ 16 $ 69 $ 61
Service charges 133 111 353 315
Other Income 142 97 387 347
Security gains or losses 0 29 0 29
Total noninterest
income $ 285 $ 253 $ 809 $ 752
NONINTEREST EXPENSES:
Compensation and employee
benefits $ 732 $ 670 $2,186 $1,964
Office and occupancy
costs 626 477 1,777 1,436
Loan servicing 44 42 125 134
Professional fees 30 23 91 82
Bank and MAC charges 131 139 382 374
Advertising, marketing
and promotions 36 20 111 72
Other 0 0 0 0
Total noninterest
expenses $1,599 $1,371 $4,672 $4,062
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 324 $ 258 $ 823 $ 351
Provision for federal
and state income taxes
Current 145 100 308 100
Deferred (32) 0 (32) 0
Total income tax
provision $ 113 $ 100 $ 276 $ 100
NET INCOME $ 211 $ 158 $ 547 $ 251
IGA FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Nine months ended
September September
1999 1998
Unaudited Unaudited
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 547 $ 251
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Amortization of premium/discount on
investments and mortgage-backed
securities 117 170
Depreciation and amortization 294 280
(Gain) loss on sale of investment
securities 0 (29)
(Premium) discount on first mortgage
sales 0 (1)
(Gain) loss on sale/disposal of asset 0 9
Provision for losses on loans 405 801
Change in assets and liabilities:
(Increase) decrease in deferred tax
asset (32) 0
(Increase) decrease in accrued
interest receivable (426) (39)
(Increase) decrease in prepaid
expenses and other assets (1,028) (322)
Increase (decrease) in accounts
payable and accrued expenses 378 270
Net cash provided by operating
activities 255 1,390
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of FHLB Stock 0 (834)
Purchase of investment securities,
available-for-sale (14,400) (24,106)
Sales of investment securities,
available-for-sale 0 11,000
Mortgage-backed security purchases,
available for sale (7,670) (9,335)
Mortgage-backed security sales 0 0
Mortgage-backed security maturities and
principal repayments 6,547 9,528
Maturities and principal repayments of
investment securities, available-for-
sale 3,500 6,500
(Increase) decrease in total loans
receivable, net (8,473) (3,161)
Proceeds from sale of real estate owned
net of expenses 0 68
Proceeds from sale of loans 0 298
Proceeds from sale of equipment 0 51
Capital expenditures (118) (533)
Increase(decrease) in Reorganization
costs 0 (201)
Increase(decrease) in Share Insurance
Fund 29 656
Net cash provided by (used in)
investing activities (20,585) (10,069)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net $ 13,476 $ 7,651
Net increase(decrease) in advances FHLB 6,000 0
Net increase(decrease) in advances for
borrowers' (130) (40)
Net cash provided by (used in)
financing activities 19,346 7,611
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (984) (1,068)
Cash and cash equivalents, beginning
of year 18,351 18,941
CASH AND CASH EQUIVALENTS, END OF YEAR $ 17,367 $ 17,873
DIFFERENCE 0 0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest on deposits $ 3,948 $ 4,057
JADE FINANCIAL CORP.
Notes To Consolidated Financial Statements
(UNAUDITED)
1. BASIS OF PRESENTATION:
JADE Financial Corp. (the "Holding Company") was
incorporated under Pennsylvania law in July 1998 by IGA Federal
Savings in connection with the conversion of the Company from a
savings institution to a federally chartered capital stock
savings bank, the issuance of the Company's stock to the Holding
Company and the offer and sale of the Holding Company's common
stock by the Holding Company (the "Conversion"). Upon
consummation of the Conversion on October 4, 1999, the Holding
Company became the holding company for the Company. See Note 2
for a more detailed description of the mutual to stock
conversion. No pro forma effect has been given to the sale of
the Holding Company's common stock in the Conversion.
The accompanying consolidated financial statements of the
Holding Company have been prepared in accordance with
instructions to Form 10-Q. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
However, such information reflects all adjustments (consisting
solely of normally recurring adjustments) which are, in the
opinion of management, necessary for fair statement of results
for the interim periods.
The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results
to be expected for the year ending December 31, 1999. The
consolidated financial statements and notes thereto should be
read in conjunction with the audited financial statements and
notes thereto for the year ended December 31, 1998, contained in
the Holding Company's prospectus dated August 12, 1999.
2. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP:
On May 26, 1999, the Board of Directors of the Company
adopted a Plan of Conversion to convert from a federal mutual
savings bank to a federal capital stock savings bank. The
conversion was accomplished through the formation of the Holding
Company in July, 1998, the adoption of a federal stock charter,
and the sale of all of the Company's stock to the Holding
Company on October 4, 1999.
A subscription offering ("offering") of the shares of
common stock of the Holding Company was conducted whereby the
shares were offered initially to eligible account holders, the
Company's Employee Stock Ownership Plan ("ESOP"), supplemental
eligible account holders and other members of the Company
(collectively "subscribers"). During the offering, subscribers
submitted orders for common stock along with full payment for
the order in either cash, by an authorization to withdraw funds
for payment from an existing deposit account at the Company upon
issuance of stock, or a combination of cash and account
withdrawal. Subscription funds received in connection with the
offering were placed in segregated savings accounts in the
Company. For these orders that were to be funded through
account withdrawals, the Company placed "holds" on those
accounts, restricting withdrawal of any amount which would
reduce the account balance below the amount of the order. At
September 30, 1999, the Company held $12.0 million in
subscription segregated savings accounts and had restricted
withdrawals from deposit accounts in the amount of $2.0 million.
The Holding Company issued 1,872,923 shares in connection
with the Conversion. Gross proceeds from the offering were
$14,500,024, which includes the $8 value of the 145,000 shares
issued to the IGA Employee Stock Ownership Plan and 60,420
shares sold to the Company for transfer to the IGA Charitable
Foundation.
As of September 30, 1999, prepaid conversion costs were
approximately $430,000 and were included in the balance sheet
caption Other Assets. Conversion costs are estimated to be
$835,000.
The Company issued all its outstanding capital stock to the
Holding Company in exchange for approximately one-half of the
net proceeds. The Holding Company accounted for the purchase in
a manner similar to a pooling of interests whereby assets and
liabilities of the Company maintain their historical cost basis
in the consolidated company.
3. EARNINGS PER COMMON SHARE:
Earnings per common share have not been presented in the
Consolidated Statements of Income as JADE Financial Corp. was
currently in the process of completing the Conversion as of
September 30, 1999 (as noted in footnote 1, above). Earnings
per common share will be presented from the effective date of
the Conversion.
4. COMPREHENSIVE INCOME:
Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, will be effective for the Bank
for the year beginning July 1, 1998, and establishes reporting
and display of comprehensive income in the financial statements.
Comprehensive income represents net earnings and certain amounts
reported directly in stockholders' equity, such as the net
unrealized gain or loss on available-for-sale securities. The
Bank adopted SFAS No. 130 effective June 30, 1998.
The Company's comprehensive income for the three and nine
months ended September 30, 1999 and 1998 are as follows:
Three Months Ended
September 30
1999 1998
(Dollars in Thousands)
Net income $ 211 $ 158
Unrealized holding gains (losses) arising
during the period net of tax effect (248) 92
COMPREHENSIVE INCOME $ (37) $ 250
Nine Months Ended
September 30:
1999 1998
(Dollars in Thousands)
Net income $ 547 $ 251
Unrealized holding gains (losses)
arising during the period net of tax
effect (1,714) 89
COMPREHENSIVE INCOME $(1,167) $ 340
5. NEW ACCOUNTING STANDARDS:
Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, is effective for the Bank for
the period beginning July 1, 1998, and establishes reporting and
display of comprehensive income in the financial statements.
Comprehensive income represents net earnings and certain amounts
reported directly in stockholders' equity, such as the net
unrealized gain or loss on available-for-sale securities. The
Bank adopted SFAS No. 130 effective June 30, 1998.
SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, will be effective for the Bank for years
beginning July 1, 1999. The Bank currently has no activity
subject to SFAS 133.
In October 1998, the FASB issued SFAS No. 134, Accounting
for Mortgage-Backed Securities Retained after the Securitization
of Mortgage Loans Held-for-Sale by a Mortgage Banking
Enterprise. SFAS No. 134 changes the way mortgage banking firms
account for certain securities and other interests they retain
after securitizing mortgage loans that were held-for-sale.
Under current practice, a bank that securitizes credit card
receivables has a choice in how it classifies any retained
securities based on its intent and ability to hold or sell those
investments. SFAS No. 134 gives the mortgage banking firms the
opportunity to apply the same intent-based accounting that is
applied by other companies. SFAS No. 134 will be effective for
the fiscal quarter beginning after December 15, 1998.
Management of the Bank anticipates that the implementation of
SFAS No. 134 will not have a material impact on the Bank's
financial condition or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain selected financial
ratios for the Company at or for the period ended, September 30,
1999:
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
At or For the At or For the
Three months ended Nine Months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Performance Ratios: (1)
Return on assets (ratio of net income to average total assets) 0.47% 0.40% 0.41% 0.21%
Return on equity (ratio of net income to average equity) 5.95% 4.55% 4.94% 2.18%
Interest rate spread (2) 4.05% 3.86% 3.94% 3.70%
Net interest margin (3) 4.18% 4.04% 4.08% 3.93%
Operating expenses to average total assets 3.58% 3.44% 3.54% 3.42%
Average interest-earning assets to average
interest-bearing liabilities 104.19% 104.91% 104.24% 106.52%
Quality Ratios:
Non-performing assets to total assets at end of period 0.09% 0.20% 0.09% 0.20%
Allowance for loan losses to non-performing assets 722.22% 316.19% 722.22% 316.19%
Allowance for loan losses to gross loans receivable 1.10% 0.98% 1.10% 0.98%
Capital Ratios:
Equity to total assets at end of period 7.44% 9.52% 7.44% 9.52%
Average equity to average assets 7.94% 8.71% 8.40% 9.68%
Other Data:
Number of full service offices 5 5 5 5
</TABLE>
(1) Ratios for the three and nine month periods are annualized
where appropriate.
(2) Difference between weighted average yield on interest-
earning assets and weighted average cost of interest-
bearing liabilities
3) Net Interest as a percentage of average interest-earning
assets
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999
AND DECEMBER 31, 1998
Our total assets increased $18.6 million from $171.1
million to $189.7 million, or 10.87%, from December 31, 1998 to
September 30, 1999. Our total liabilities increased $19.7
million from $155.8 million to $175.5 million or 12.64% from
December 31, 1998 to September 30, 1999. As of September 30,
1999, we had borrowed $6.0 million from the Federal Home Loan
Bank. The increase in both assets and liabilities at September
30, 1999 compared to December 31, 1998 is primarily attributable
to $12 million in funds held in special subscription savings
accounts in connection with the conversion discussed below as
well as the limited amount of balance sheet leverage we have
added.
The Board of Directors of the Company adopted a Plan of
Conversion on May 26, 1999 to convert IGA Federal Savings from a
federally chartered mutual savings bank to a federally chartered
stock savings bank and become a wholly owned subsidiary of the
Holding Company. The conversion was completed on October 4,
1999. In connection with the conversion, the Holding Company
sold 1,667,503 shares for $13.3 million.
Our total equity decreased from $15.3 million to $14.1
million or 7.84% from December 31, 1998 to September 30, 1999
due to a decrease in the market valuation on available-for-sale
securities. As a result of the completion of the conversion on
October 4, 1999, the consolidated capital of the Holding Company
increased by approximately $13.5 million.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
JADE FINANCIAL CORP.
AVERAGE BALANCE SHEET
The following table presents the average balance sheet for
the three month periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
3 months ended 3 months ended
September 30, 1999 September 30, 1998
Average Interest (Annualized) Average Interest (Annualized)
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $109,191 $2,253 8.25% $ 99,893 $2,175 8.71%
Investments 60,350 884 5.86% 52,029 748 5.75%
Total earning assets 169,541 3,137 7.40% 151,922 2,923 7.70%
Non-interest earning assets 9,168 7,633
Total assets $178,709 $159,555
Interest-bearing liabilities:
Savings deposits $ 72,985 373 2.04% $ 67,180 442 2.63%
NOW accounts 9,961 0 0.00% 8,802 0 0.00%
Money market accounts 10,463 85 3.25% 8,755 84 3.84%
Certificates of deposit 65,307 850 5.21% 60,069 861 5.73%
Other notes payable - FHLB 4,000 56 5.60%
Total interest-bearing
liabilities 162,716 1,364 3.35% 144,806 1,387 3.83%
Non-interest bearing
liabilities 1,797 847
Total liabilities 164,513 145,653
Equity 14,196 13,902
Total liabilities and equity $178,709 $159,555
Net interest-earning assets $ 6,825 $ 7,116
Net interest spread $ 1,773 4.05% $1,536 3.86%
Net interest margin 4.18% 4.04%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 104.19% 104.91%
</TABLE>
Net Income:
Net income for the three months ended September 30, 1999
was $211,000. Net income for the comparable period in 1998 was
$158,000. The increase in the current period when compared to
the prior period was due to a significant increase in lending
from the prior period as average loans increased from $9.3
million or 9.31% from $99.9 million for the three months ended
September 30, 1998 to $109.2 million for the three months ended
September 30, 1999. We also experienced an increase of 14 basis
points in our net interest margin because the cost of our
deposits fell more rapidly than the rates we earned on our loans
and investments.
Core earnings, defined as pretax earnings adjusted for
securities sales transactions and unusual or non-recurring
expense or income items, were $324,000 for the three months
ended September 30, 1999, compared to $229,000 in the prior year
period.
The following table summarizes the components of adjusted
pretax core earnings:
Three Months Ended
September 30,
1999 1998
(Dollars in Thousands)
Net interest income $1,773 $1,536
Provision for loan losses 135 160
Noninterest income excluding gains and
losses 285 224
Noninterest expense 1,599 1,371
ADJUSTED PRETAX CORE EARNINGS $ 324 $ 229
INTEREST INCOME. Total interest income increased $200,000, or
6.9%, from $2.9 million for the third quarter of 1998 compared
to $3.1 million for the third quarter of 1999. This increase
resulted from an increase in average earning assets of $19.1
million, or 11.97%, from $159.6 million for the three months
ended September 30, 1998 to $178.7 million for the three months
ended September 30, 1999. This increase in interest-earning
assets was partially offset by a 30 basis point decline in the
average yield on these assets.
INTEREST EXPENSE. Interest expense was relatively unchanged for
the third quarter of 1999 compared to the third quarter of 1998.
Increased deposit balances of $17.9 million, or 12.36%, were
offset by lower interest rates paid on those deposits which
declined 48 basis points over these comparable periods.
NET INTEREST INCOME. Net interest income increased $237,000 or
15.43% for the third quarter of 1999 compared to the third
quarter of 1998. This increase is attributable to a higher
volume of earning assets and a higher net interest margin.
PROVISION FOR LOAN LOSSES. The provision for loan losses
decreased by $25,000 or 15.63% for the third quarter of 1999
compared to the third quarter of 1998. During the three months
ended September 30, 1999, the Company had charge-offs of
$101,000 and recoveries of $36,000. At September 30, 1999, the
Company's allowance for loan losses totaled $1.2 million which
was 1.10% of total loans.
NONINTEREST INCOME. Noninterest income increased $32,000, or
12.65%, to $285,000 for the three months ended September 30,
1999 from $253,000 for the three months ended September 30,
1998. The increase was due primarily to service charges on
deposit accounts and increased fees from debit card
transactions.
NONINTEREST EXPENSE. Total noninterest expense increased
$200,000, or 14.29%, to $1.6 million for the three months ended
September 30, 1999 from $1.4 million for the three months ended
September 30, 1998. This increase resulted primarily from debit
and credit card transaction fees as well as in increase in
computer expenses.
FEDERAL INCOME TAXES. The provision for federal income taxes
increased relative to the increase in taxable income for the
period.
COMPARISON OF OPERATING RESULTS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
JADE FINANCIAL CORP.
AVERAGE BALANCE SHEET
The following table presents the average balance sheet for the
nine month periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
9 months ended 9 months ended
September 30, 1999 September 30, 1998
Average Interest (Annualized) Average Interest (Annualized)
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $106,810 $6,570 8.20% $ 97,892 $6,391 8.70%
Investments 59,568 2,528 5.66% 53,373 2,128 5.32%
Total earning assets 166,378 9,098 7.29% 151,265 8,519 7.51%
Non-interest earning assets 9,405 6,984
Total assets $175,783 $158,249
Interest-bearing liabilities:
Savings deposits $ 71,839 1,120 2.08% $ 66,788 1,327 2.65%
Checking accounts 10,186 0 0.00% 8,885 0 0.00%
Money market accounts 10,297 241 3.12% 8,544 243 3.79%
Certificates of deposit 65,867 2,587 5.24% 57,794 2,487 5.74%
Other notes payable - FHLB 1,422 59 5.53% 0 0
Total interest-bearing
liabilities 159,611 4,007 3.35% 142,011 4,057 3.81%
Non-interest bearing liabilities 1,403 913
Total liabilities 161,014 142,924
Equity 14,769 15,325
Total liabilities and equity $175,783 $158,249
======== ========
Net interest-earning assets $ 6,767 $ 9,254
Net interest spread $5,091 3.94% $4,462 3.70%
Net interest margin 4.08% 3.93%
Ratio of average interest
-earning assets to average
interest-bearing liabilities 104.24% 106.52%
</TABLE>
Net Income:
Net income for the nine months ended September 30, 1999 was
$547,000. Net income for the comparable period in 1998 was
$251,000. This increase is attributable to increased levels of
interest-earning assets, an improvement in net interest margin
and a reduction in the provision for loan losses during the nine
month period.
Core earnings, defined as pretax earnings adjusted for
securities sales transactions and unusual or non-recurring
expense or income items, were $823,000 for the nine months ended
September 30, 1999, compared to $322,000 in the prior year
period.
The following table summarizes the components of adjusted
pretax core earnings:
Nine Months Ended
September 30,
1999 1998
(Dollars in Thousands)
Net interest income $5,091 $4,462
Provision for loan losses 405 801
Noninterest income excluding gains and
losses 809 723
Noninterest expense 4,672 4,062
ADJUSTED PRETAX CORE EARNINGS $ 823 $ 322
INTEREST INCOME. Total interest income increased $600,000 or
7.06% from $8.5 million for the nine months ended September 30,
1998 compared to $9.1 million for the nine months ended
September 30, 1999. This increase resulted from an increase in
average earning assets of $17.6 million, or 11.13%, from $158.2
million to $175.8 million for the comparable periods. This
increase in earning assets was offset, in part, by a decline in
the average yield on interest-earning assets of 22 basis points
over the comparable periods.
INTEREST EXPENSE. Interest expense decreased approximately
$50,000 even though average interest-bearing liabilities
increased by $17.6 million, or 12.39%, from $142.0 million for
the nine months ended September 30, 1998 to $159.6 million for
the nine months ended September 30,1999. This is because of a
46 basis point reduction the average rate paid on interest
bearing liabilities over the comparable periods. This reduction
in rates reflects a general decline in interest rates.
NET INTEREST INCOME. Net interest income increased $629,000 or
14.10% for the nine month period ended September 30, 1999
compared to the nine month period ended September 30, 1998.
This increase is attributable to a higher volume of earning
assets and a higher net interest margin.
PROVISION FOR LOAN LOSSES. The provision for loan losses
decreased by $396,000 or 49.44% for the nine month period ended
September 30, 1999 compared to the nine month period ended
September 30, 1998. This decrease resulted from a reduction in
the number of bankruptcy filings in 1998 and additional charge
offs related to the charter conversion of IGA Federal Savings
from a federal credit union to a federal savings bank. In
connection with that charter conversion, we substantially
increased our allowance for loan loss reserves to conform our
practices to the practices of most thrifts. During the nine
months ended September 30, 1999, the Company had charge-offs of
$346,000 and recoveries of $102,000.
NONINTEREST INCOME. Noninterest income increased $57,000, or
7.58%, to $809,000 for the nine month period ended September 30,
1999 from $752,000 for the nine month period ended September 30,
1998. The increase was due primarily to service charges on
deposit accounts and increased fees from debit card
transactions.
NONINTEREST EXPENSE. Total noninterest expense increased
$610,000, or 24.62%, to $4.7 million for the nine
month period ended September 30, 1999 from $4.1 million for the
nine month period ended September 30, 1998. This increase
resulted primarily from debit and credit card transaction fees
as well as in increase in computer expenses.
FEDERAL INCOME TAXES. The provision for federal income taxes
increased relative to the increase in taxable income for the
nine month period ended September 30 1999 compared to the nine
month period ended September 30, 1998.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
A comprehensive qualitative and quantitative analysis
regarding market risk was disclosed in the Company's Conversion
Prospectus. No material changes in the assumptions used or
results obtained from the model have occurred.
Part II. OTHER INFORMATION
Item 1. Legal proceedings - None
Item 2. Change 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 - Year 2000 Computer issues
Year 2000 issues result from the inability of many computer
programs or computerized equipment to accurately calculate,
store or use a date after December 31, 1999 (the "Y2K Issue").
The erroneous date can be interpreted in a number of different
ways; typically the year 2000 is interpreted as the year 1900.
Correctly identifying the year 2000 as a leap year may be an
issue. These misidentifications could result in a system
failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process
transactions, track important customer account information,
provide convenient access to this information or engage in
normal business operations.
The Bank's Board of Directors and management have addressed
the Y2K Issue by developing a Y2K Compliance Plan. This plan
involves four separate phases: awareness, assessment, validation
and implementation.
During 1997, the Bank completed the systems assessment
phase, identifying each internal and external system that could
potentially be affected by the Y2K Issue. Those systems include
alarms, etc., that may contain microprocessors. For each such
system, a determination was made whether or not the system is
Y2K compliant. Those determinations involved obtaining Y2K
compliant certification from third-party processors and outside
vendors.
As of December 31, 1998, the Bank completed its
"awareness", "assessment", and "validation" phases.
On November 11-13, 1998 the Bank conducted in-house testing
of their present Aftech data processing system. The Bank
performed various banking transactions on customers' accounts
using the dates September 30, 1998, January 1, 2000, January 30,
2000, January 31, 2000, February 29, 2000, and September 9,
1999. All transactions were completed successfully. Aftech
representatives have completed much of its Y2K testing but will
continue testing throughout 1999. The Bank will be obligated to
incur only the hardware costs associated with implementing the
changes required by Aftech; however, hardware costs are not
expected to be material.
The Year 2000 issue also affects certain of the Bank's
customers, particularly in the areas of access to funds and
additional expenditures to achieve compliance. The Bank has
engaged in a program of sending out a survey of its commercial
customers regarding their awareness of the Year 2000 Issue.
Based upon the results received to date it appears that our more
sophisticated customers are aware of the Year 2000 Issue and are
taking steps to address it while our smaller customers appear to
have fewer issues with the Year 2000.
The Bank expects that all other outside vendors will be Y2K
compliant by March 31, 1999. If any vendor is not compliant by
this date the Bank will consider contracting with alternative
vendors.
In certain cases, however, such as the potential loss of
electrical power or telecommunications services due to Y2K
problems, testing by the Bank is either not practical or not
possible. In those cases, contingency plans are being designed
that specify how the Bank will deal with each such potential
situation. The Bank has developed a contingency plan which will
address failure of the data processing bureau system. The Bank
has determined that if the service bureau system were to fail,
the Bank would implement manual systems until such systems could
be reestablished. The Bank does not anticipate the potential use
of short-term manual systems would have a material impact upon
the operations of the Bank. Aftech also has developed their own
contingency plan.
To the extent the Bank systems are not fully Year 2000
compliant, there can be no assurance that potential system
interruptions would not have a materially adverse effect on the
Bank's business, financial condition, results of operations and
business prospects. Further, any Year 2000 failure on part of
the Bank customers could result in additional expense or loss to
the Bank.
The information above contains forward-looking statements
including, without limitation, statements relating to the Bank's
plans, strategies, objectives, expectations, intentions, and
adequate resources that are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that such forward-looking
statements involve risks and uncertainties. The actual impact
on the Bank of the Year 2000 Issue could materially differ from
that which is anticipated in the forward-looking statements as a
result of certain factors identified above.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See attached exhibit index
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
JADE FINANCIAL CORP.
(Registrant)
November 15, 1999 By:/s/ Dorothy M. Bourlier
Dorothy M. Bourlier
Chief Financial Officer
EXHIBIT INDEX
3.1 Articles of JADE FINANCIAL CORP (incorporated by
reference to registration statement 333-80183 on
Form SB-2)
3.2 Bylaws of JADE FINANCIAL CORP (incorporated by
reference to registration statement 333-80183 on
Form SB-2)
10.1 JADE FINANCIAL CORP Management Recognition Plan
(incorporated by reference to registration statement
333-80183 on Form SB-2)
10.2 JADE FINANCIAL CORP Stock Compensation Plan (incorporated
by reference to registration statement 333-80183 on
Form SB-2)
10.3 JADE FINANCIAL CORP - Employee Stock Ownership Plan
(incorporated by reference to registration statement
333-80183 on Form SB-2)
27 Financial Data Schedule
28
11/15/99/SL1 20881v1/30270.002
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