U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 2000
__ Transition report under Section 13 or 15(d) of the Exchange Act for the
transition period from ___________ to ___________
Commission File No. 0-30483
DUTCHFORK BANCSHARES, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
Delaware 57-1094236
(State of Incorporation) I.R.S. Employer Identification No.
1735 Wilson Road, Newberry, South Carolina 29108
(Address of Principal Executive Offices)
(803) 321-3200
(Issuer's Telephone Number, Including Area Core)
_______________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
1,560,550 shares of common stock, par value $1.00 per share, were issued and
outstanding as of July 31, 2000.
Traditional Small Business Disclosure Format (check one): Yes ___ No _ X _
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet at June 30, 2000 and September 30, 1999
Consolidated Statements of Income for the Three Months Ended June 30, 2000 and
1999 and the Nine Months Ended June 30, 2000 and 1999
Consolidated Statement of Changes in Equity for the Nine Months Ended June 30,
2000
Consolidated Statements of Comprehensive Income for the Three Months Ended
June 30, 2000 and 1999 and the Nine Months Ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2000
and 1999
Notes to Consolidated Financial Statements
Pro Forma Consolidated Balance Sheet at June 30, 2000
Pro Forma Consolidated Statement of Income for the Nine Months Ended June 30,
2000
Item 2: Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
Item 2: Changes in Securities and Use of Proceeds
Item 3: Defaults upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements of Newberry Federal Savings Bank ("Newberry
Federal" or the "Bank"} the sole subsidiary of DutchFork Bancshares, Inc. (the
"Company" or "DutchFork Bancshares" are set forth in the following pages.
<PAGE>
<TABLE>
<CAPTION>
Newberry Federal Savings Bank
Consolidated Balance Sheets
June 30, 2000 September 30, 1999
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 17,369,693 $ 3,256,053
Investments and mortgage-backed securities
Available-for-sale:
Investments (cost of $25,557,852 and
$24,577,854 at June 30, 2000 and
September 30, 2000 respectively 22,716,210 22,067,828
Mortgage-backed securities (cost of
$109,832,653 and $100,578,925 at
June 30, 2000 and September 30, 1999
respectively 105,129,598 96,884,504
Held for investment:
Investments (fair value of $1,141,000 and
$1,141,000 at June 30, 2000 and
September 30, 1999 respectively 1,141,000 1,141,000
Mortgage-backed securities (fair value
of $3,878,469 and $4,339,759 at
June 30, 2000 and September 30, 1999
respectively 4,056,108 4,465,704
Loans receivable 77,431,291 75,324,278
Repossessed assets 22,246 14,271
Premises, furniture and equipment, net 3,603,992 3,656,352
Accrued interest receivable:
Loans and mortgage-backed securities 518,681 489,453
Investments and other property 878,018 778,828
Prepaid Assets 854,048 255,218
Prepaid income tax and tax refunds receivable 96,849 1,440,936
Deferred tax asset 448,830 461,406
Other 815,953 914,991
Total Assets $235,082,517 $211,150,822
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Newberry Federal Savings Bank
Consolidated Balance Sheets
June 30, 2000 September 30, 1999
(Unaudited)
Liabilities and retained earnings
<S> <C> <C>
Liabilities:
Deposit accounts $151,521,460 $137,537,411
Conversion Escrow 11,740,968 ----
Conversion Escrow to be refunded 7,582,657 ----
Federal Home Loan Bank advances 35,000,000 39,240,000
Other borrowings ---- 7,370,000
Advances from borrowers for taxes and insurance 36,491 59,983
Accrued income taxes payable 287,862 ----
Accounts payable - securities 10,398,438 8,893,350
Accounts payable ---- 50,713
Accrued expenses 958,528 698,873
Accrued interest payable 715,969 523,227
Other 10,419 76,461
Total Liabilities 218,252,792 194,450,018
Commitments and contingencies
Retained earnings, substantially restricted 21,511,975 20,551,275
Net accumulated unrealized gains (losses)
on investments and mortgage backed
securities available for sale (4,682,250) (3,850,471)
16,829,725 16,700,804
Total liabilities and retained earnings $235,082,517 $211,150,822
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Newberry Federal Savings Bank
Consolidated Statements of Income
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 1,574,193 $ 1,440,817 $ 4,571,243 $ 4,326,072
Investments 267,758 238,374 888,024 208,123
Mortgage-backed securities 1,981,300 1,392,873 5,798,964 4,330,425
Other ____50,688 57,893 161,381 162,546
Total interest income 3,873,939 3,129,957 11,419,612 9,027,166
Interest expense:
Deposits 1,733,700 1,457,553 5,032,350 4,548,272
Federal Home Loan Bank
advances 548,581 312,763 1,574,819 916,513
Other 51,257 9,888 143,586 23,095
Total interest expense 2,333,538 1,780,204 6,750,755 5,487,880
Net interest income 1,540,401 1,349,753 4,668,857 3,539,286
Provision for loan losses 30,000 40,000 295,000 120,000
Total interest income after
Provision for loan losses 1,510,401 1,309,753 4,373,857 3,419,286
Non-interest income:
Loan servicing fees 42,214 45,370 133,638 171,689\
Bank service charges 179,291 144,359 516,152 426,122
Gain on sales of securities 12,686 68,525 21,686 186,219
Other 21,129 40,886 109,551 120,424
Total non-interest income 255,320 299,140 781,027 904,454
Non-interest expense:
Salaries and employee benefits 517,170 530,490 1,591,293 1,488,062
Occupancy 69,000 72,832 219,511 210,910
Equipment 106,037 96,850 311,948 282,277
Marketing 52,245 43,316 131,369 130,885
Other 446,541 300,803 1,299,593 826,133
Total non-interest expense 1,190,993 1,044,291 3,553,714 2,938,267
Income before income taxes 574,728 564,602 1,601,170 1,385,473
Income taxes 229,893 225,531 640,470 553,460
Net Income $ 344,835 $ 339,071 $ 960,700 $ 832,013
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Newberry Federal Savings Bank
Statement of Changes in Equity
Nine Months Ended June 30, 2000
Accumulated
Retained Other Comprehensive
Earnings Income Total
_________________________________________
<S> <C> <C> <C>
Balance, September 30, 1999 $20,551,275 ($3,850,471) $16,700,804
Net income 960,700 960,700
Unrealized gain (loss) on securities
available for sale ---- (831,779) (831,779)
___________________________________________
Balance, June 30, 2000 (unaudited) $21,511,975 ($4,682,250) $16,829,725
========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Newberry Federal Savings Bank
Consolidated Statements of Comprehensive Income
Three Months Ended Nine Months Ended
June 30 June 30,
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Income $344,835 $339,071 $960,700 $832,013
Other Comprehensive Income
(loss) net of tax
Unrealized gains (losses)
arising during the period,
net of tax effect of
$147,107, $1,398,243,
$508,468, and $1,375,590
for the three months ended
June 30, 2000 and 1999
and nine months ended
June 30, 2000 and 1999,
respectively (240,655) (2,287,163) (831,779) (2,250,409)
Comprehensive income
(loss) $104,180 ($1,948,092) $128,921 ($1,418,396)
======= ======== ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Newberry Federal Savings Bank
Consolidated Statements of Cash Flow
Nine Months Ended June 30,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Operating Activities
Net income $ 960,701 $ 832,013
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 175,598 178,201
Provisions for losses 295,000 120,000
(Gain) loss on sales of investments and mortgage-
backed securities (21,686) (186,219)
Net (gain) loss on sales on loans (482) ----
Net (gain) on sales of foreclosed real estate --- 9,032
Increase (decrease) in deferred loan origination fees 3,189 3,365
Amortization of premiums (discounts) on investments,
Mortgage-backed securities and loans (629,652) (66,044)
Decrease (increase) in accrued interest receivable and
other assets 1,314,707 (1,306,237)
Decrease (increase) in prepaid assets (598,830) 31,698
Decrease (increase) in deferred tax asset (3,120) 11,899
Increase (decrease) in accrued interest payable 192,742 (36,991)
Increase (decrease) in accounts payable and
accrued expenses 2,452,151 1,031,768
Increase (decrease) in other liabilities 17,880 (191,462)
Origination of loans held for sale (920,850) (380,350)
Proceeds from sales of loans held for sale _____147,132 ----
Net cash provided (used) by operating activities 3,384,480 50,673
Investing Activities
Principle payments on mortgage-backed securities 8,520,115 25,292,281
Purchases of held to maturity securities --- (56,000)
Proceeds from maturities of securities --- 1,351,781
Purchases of available for sale securities (27,295,841) (84,490,672)
Proceeds from sales of available for sale securities 9,602,919 51,459,573
Net (increase) decrease in loans receivable (1,638,977) (3,120,530)
Proceeds from sales of foreclosed real estate --- 18,082
Purchases of premises, furniture and equipment (123,238) (204,724)
Net cash provided (used) by investing activities (10,935,022) (9,750,209)
Financing Activities
Net increase (decrease) in deposit accounts 33,307,674 (1,884,037)
Proceeds from Federal Home Loan Bank advances 33,500,000 4,235,000
Payments on Federal Home Loan Bank advances (37,740,000) ----
Proceeds from Federal funds borrowed 30,825,000 24,665,000
Payments on Federal funds borrowed (38,205,000) (18,165,000)
Increase (decrease) in advances from borrowers for
taxes and insurance (23,492) (27,993)
Net cash provided by financing activities 21,664,182 8,822,970
Net increase (decrease) in cash and cash equivalents 14,113,640 (876,566)
Cash and cash equivalents at beginning of year 3,256,053 4,963,719
Cash and cash equivalents at end of year $17,369,693 $4,087,153
========= ========
Supplemental Disclosures of Cash flow Information:
Cash paid (received) during the year for:
Interest $6,558,013 $5,524,871
Taxes ($1,514,659) $484,097
</TABLE>
<PAGE>
Newberry Federal Savings Bank
Notes to Financial Statements
June 30, 2000
Note 1 - Organization
DutchFork Bancshares, Inc. was incorporated under the laws of Delaware
in February 2000 for the purpose of serving as the holding company of
Newberry Federal Savings Bank as part of the Bank's conversion from
the mutual to stock form of organization. The conversion, completed on
July 5, 2000, resulted in the Company issuing an aggregate of 1,560,550
shares of its common stock, par value $.01 per share, at a price of $10 per
share. Prior to the conversion, the Company had not engaged in any
material operations and had no assets or income. The Company is a
savings and loan holding company and subject to regulation by the Office
of Thrift Supervision and the Securities and Exchange Commission. The
accompanying unaudited financial statements at and for the three and
nine months ended June 30, 2000, including the "Management's
Discussion and Analysis of Results of Operation and Financial
Conditions" in Item 2 of this Form 10-QSB, reflect such information for
the Bank and its subsidiary only. Net proceeds after expenses of the
offering was $14,634,064. Of this amount, $1,248,440 was loaned to the
Company's ESOP and $13,229,000 was added to the capital of the Bank.
Note 2 - Accounting Principles
The accompanying unaudited financial statements of the Bank have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB and
of Regulation S-B. Accordingly, the financial statements do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of a normal recurring nature)
considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the
current fiscal year.
Note 3 - Earnings Per Share
No earnings per share amounts have been presented since no shares were
outstanding during the periods presented.
Note 4 -Regulatory Capital Requirements
The Office of Thrift Supervision capital regulations require savings
institutions to meet minimum capital standards. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
As of December 31, 1998, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, core
and tangible ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
<PAGE>
The Bank's actual capital amounts and ratios are presented in the
following table:
<TABLE>
<CAPTION>
To be Well
Capitalized
Minimum For Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
Ratio Amount Ratio Amount Ratio Amount
<S> <C> <C> <C> <C> <C> <C>
June 30, 2000:
Tangible capital 8.66% $20,742 2.00% $4,789 N/A N/A
Core capital 8.66% $20,742 4.00% $9,577 5.00% $11,971
Risk-based capital 18.41% $21,144 8.00% $9,014 10.00% $11,267
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of capital under generally accepted accounting principles
(GAAP) to tangible core and risk-based capital as of June 30, 2000 is as
follows:
<S> <C>
GAAP Capital $ 16,830
Investment in subsidiary (770)
Unrealized losses (gains) on available-for-sale securities 4,682
Core and tangible capital 20,742
Unrealized gains on available-for-sale equity securities 70
Allowance for loan losses 416
Equity investments (84)
Risk-based capital $ 21,144
=======
</TABLE>
<PAGE>
DutchFork Bancshares, Inc.
Pro Forma Consolidated Balance Sheet
June 30, 2000
The June 30, 2000 condensed balance sheet is presented on a pro forma
basis and has been calculated assuming Newberry Federal Savings Bank's
conversion and DutchFork Bancshares, Incorporated's acquisition of Newberry
Federal Savings Bank was completed on June 30, 2000.
<TABLE>
<CAPTION> Condensed
Unaudited Adjustment to
Balance Sheet Reflect
Before Issuance of Pro Forma
Adjustment Stock June 30, 2000
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $17,369,693 $(5,938,001) $11,431,692
Investments and mortgage-backed
securities available-for-sale 127,845,808 127,845,808
Investments and mortgage-backed
securities held for investment 5,197,108 5,197,108
Loans receivable 77,431,291 77,431,291
Property and equipment 3,603,992 3,603,992
Other assets 3,634,625 3,634,625
_____________ _____________
$235,082,517 $229,144,516
========== ==========
LIABILITIES:
Deposits $170,845,085 (19,323,625) $151,521,460
Borrowed money 35,000,000 35,000,000
Other liabilities 12,407,707 12,407,707
218,252,792 198,929,167
STOCKHOLDERS' EQUITY:
Common stock 15,606 15,606
Additional paid-in capital 14,618,458 14,618,458
Retained earnings 21,511,975 21,511,975
Net accumulated unrealized losses on
securities available-for-sale (4,682,250) (4,682,250)
Less:
Stock held by ESOP (1,248,440) (1,248,440)
16,829,725 30,215,349
$235,082,517 $229,144,516
========== ==========
</TABLE>
<PAGE>
Newberry Federal Savings Bank
Pro Forma Consolidated Statement of Income
Nine Months Ended June 30, 2000
The pro forma condensed consolidated statement of income has
been computed assuming the conversion was completed at the beginning
of the fiscal year (i.e. October 1, 1999), and pro forma income has been
calculated as if the net proceeds had been invested at 5.71% beginning
on that date, which represents the one-year U.S. Treasury Bill yield as of
October 1, 1999. Income taxes have been calculated on the additional
income using the tax rate that would have been in effect if the proceeds
had been invested in U.S. Treasury Bills.
<TABLE>
<CAPTION>
Condensed
Unaudited Adjustment to
Income Statement Reflect Pro Forma
Of Income Before Income from Nine Months ended
Adjustment Stock Investment June 30, 2000
<S> <C> <C> <C>
Interest income:
Loans receivable $ 4,571,243 $ $ 4,571,243
Investments 888,024 573,239 1,461,263
Mortgage-backed securities 5,798,964 5,798,964
Other 161,381 161,381
Total interest Income 11,419,612 11,992,851
Interest expense:
Deposits 5,032,350 5,032,350
Federal Home Loan Bank Advances 1,574,819 1,574,819
Other 143,586 143,586
Total interest expense 6,750,755 6,750,755
Net interest income 4,668,857 573,239 5,242,096
Provision for loan losses 295,000 295,000
Total interest income after
provision for loan losses 4,373,857 573,239 4,947,096
Non-interest income:
Bank service charges 516,152 516,152
Other 264,875 264,875
Total non-interest income 781,027 781,027
Non-interest expense:
Salaries and employee benefits 1,591,293 1,591,293
Occupancy 219,511 219,511
Equipment 311,948 311,948
Other 1,430,962 1,430,962
Total non-interest expense 3,553,714 3,553,714
Income before income taxes 1,601,170 573,239 2,174,409
Income taxes 640,470 194,901 835,371
Net Income $ 960,700 $ 378,338 $ 1,339,038
======== ============= ===============
</TABLE>
<PAGE>
Item 2.
Forward Looking Statements
This prospectus contains forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of
Newberry Federal and DutchFork Bancshares. These forward looking
statements are generally identified by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions.
Newberry Federal's and DutchFork Bancshares' ability to predict results or
the actual effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on the operations of
Newberry Federal and DutchFork Bancshares and their subsidiaries include,
but are not limited to, changes in interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal policies of
the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality and composition of the loan or
investment portfolios, demand for loan products, deposit flow, competition,
demand for financial services in Newberry Federal's and DutchFork
Bancshares' market area and accounting principles. These risks and
uncertainties should be considered in evaluating forward looking statements
and undue reliance should not be placed on such statements.
Operating Strategy
Newberry Federal is an independent, community oriented savings bank,
delivering quality customer service and offering a wide range of deposit and
loan products to its customers. Because of weak loan demand in Newberry
Federal's primary market area, management has maintained a substantial
investment in investment securities and mortgage backed securities
classified as available-for-sale. Management's objective in managing the
securities portfolio is to maintain a portfolio of high quality, highly liquid
investments with competitive returns in order to maximize current income
without compromising credit quality.
Comparison of Financial Condition at June 30, 2000 and September 30,
1999:
Total assets increased by $23.9 million from $211.2 million at
September 30, 1999 to $235.1 million at June 30, 2000, primarily as a result
of an $8.9 million increase in mortgage-backed securities and a $14.1 million
increase in cash and cash equivalents. The increase in cash and cash
equivalents was primarily due to amounts received and on deposit for the
purchase of stock in the conversion that was completed on July 5, 2000.
Loans receivable increased $2.1 million during the same period. Deposit
accounts increased $33.3 million from $137.5 at September 30, 1999 to
$170.8 million at June 30, 2000. An increase of $19.3 million in deposit
accounts represented deposits held in escrow for the purchase of stock in the
stock conversion. Management attributes the remaining $14.0 million growth
to competitive pricing and the closing of branches of other banks in its
primary market area.
At June 30, 2000, total equity was $16.8 million, which consisted of
retained earnings of $21.5 million reduced by a $4.7 million unrealized loss,
net of taxes, on the investment securities and mortgage-backed securities
portfolios classified as available for sale.
Non-performing assets and troubled debt restructuring decreased from
$243,000 at September 30, 1999 to $69,000 at June 30, 2000, primarily due to
an improvement in delinquencies.
<PAGE>
Comparison of Operating Results for the Three Months Ended June 30,
2000 and September 30, 1999:
Net Income
Net income for the three months ended June 30, 2000 remained
relatively constant when compared with the same period for the prior year.
Net interest income increased by $191,000 but was offset by a decrease in
non-interest income of $44,000 and a $147,000 increase in non-interest
expense.
Net Interest Income
Net interest income increased from $1.3 million for the three months
ended June 30, 1999 to $1.5 million for the same period in 2000. The
average interest rate spread declined slightly, but overall average balances
of interest earnings assets increased by $38.4 million with a $42.3 million
increase in interest bearing liabilities. The interest rate spread on the
greater volume of assets resulted in an increase in net interest income.
Non-Interest Income
Non-interest income decreased by $55,000 due to fewer gains on the
sale of securities. Increase in bank service charges was offset by decreases
in other income, including loan servicing fees and miscellaneous.
Provision for Loan Loses and Non-Interest Income
Non-interest income decreased by $44,000 due to fewer gains on the
sale of securities. Increase in bank service charges was offset by decreases
in other income including loan servicing fees and miscellaneous.
Non-Interest Expense
Non-interest expense increased from $1.0 million for the three
months ended June 30, 1999 to $1.2 million for the three months ended
June 30, 2000 primarily as a result of increase in contributions of
$58,000, data processing expense of $45,000, professional fees of $7,000
and costs of $40,000 related to an interest rate cap. Increase in
contributions was due to board decisions for community support and data
processing expense increased due to system revisions. The cost of the
interest rate cap is due to efforts to limit exposure to increasing interest
rates.
Provisions for Income Taxes
Income tax expense increased by only $4,000 due to the moderate
increase in income before taxes.
Comparison of Operating Results for the Nine Months Ended June 30,
2000 and 1999
Net Income
Net income increased $129,000 from $832,000 to $961,000 for the same
period in 2000 primarily as a result of a $1.1 million increase in net interest
income, partially offset by $175,000 increase in the provision for loan losses,
a $123,000 decrease in non-interest income and a $615,000 increase in non-
interest expense.
<PAGE>
Net Interest Income
Net interest income increased from $3.5 million for the nine months
ended June 30, 1999 to $4.7 million for the nine months ended June 30,
2000 due to an increase of .39% in the net interest rate spread and an overall
increase in balances. Interest income increased by $2.4 million due to a
$33.6 million increase in average interest earning assets and a .43% increase
in average yield. Interest expense increased $1.3 million due to a $35.7
million increase in average interest bearing liabilities and a .04% increase in
average cost of funds.
Provision for Loan Losses
Provisions for loan losses are charged to operations to bring the
total allowance for loan losses to a level that management considers
adequate to provide for estimated losses based on management's
evaluation of the collectibility of the loan portfolio, including the nature
of the portfolio, credit concentrations, trends in historical loss experience,
any specified impaired loans, and economic conditions. The provision
for loan losses increased from $120,000 for the nine months ended June
30, 1999 to $295,000 for the nine months ended June 30, 2000.
Management deemed the increase in the provision for loan losses
warranted based upon its evaluation of current economic conditions,
particularly the recent rise in interest rates and gasoline prices, and their
adverse effect on the ability of Newberry Federal's consumer loan
borrowers to repay their loans. The majority of Newberry Federal's
consumer loan borrowers are low-income or middle-income individuals
who have to commute above average distances to work because they live
in rural areas. The recent rise on gasoline prices adversely affects their
ability to meet their consumer loan obligations because the higher prices
divert available funds away from consumer debt service. Furthermore, if
they have adjustable rate mortgage loans, the recent rise in interest rates
leads to higher mortgage debt service obligations and, based on historical
experience, these individuals tend to default on their consumer loan
obligations in order to satisfy their mortgage loan obligations. Although
management uses the best information available, future adjustments to the
allowance may be necessary due to changes in economic, operating,
regulatory and other conditions that may be beyond Newberry Federal's
control. While Newberry Federal maintains its allowance for loan losses
at a level which it considers adequate to provide for estimated losses,
there can be no assurance that further additions will not be made to the
allowance for loan losses and that actual losses will not exceed estimated
losses.
Non-Interest Income
Non-interest income decreased $123,000 from $904,000 for the nine
months ended June 30, 2000 to $781,000 for the same period in 2000
primarily due to fewer sales of securities because of the interest rate
environment which resulted in fewer opportunities for restructuring the
investment portfolio.
Non-Interest Expense
Non-interest expense increased $615,000 from $2.9 million for the
nine months ended June 30, 1999 to $3.6 million for the nine months
ended June 30, 2000 primarily as result of a $300,000 increase in
charitable contributions, a $103,000 increase in compensation and
benefits associated with the hiring of new employees and annual
incentive pay accruals, a $100,000 increase in data processing expense
associated with computer hardware and software upgrades, a $60,000
increase in professional fees associated with computer system revisions
<PAGE>
and costs of $50,000 associated with an interest rate cap. The cost of the
interest rate cap is due to efforts to limit exposure to increasing interest
rates.
Provision for Income Taxes
Provision for income taxes increased $87,000 from $553,000 for the
nine months ended June 30, 1999 to $640,000 for the nine months ended June
30, 2000 as result of increased income before income taxes.
Liquidity and Capital Resources
On July 5, 2000, the Company closed its conversion whereby 1,560,550
shares of stock were issued at a price of $10.00 per share. The net proceeds
to the Company after expenses and stock acquired by the employee stock
ownership plan (through a loan from the company) were approximately
$13.5 million. The majority of the proceeds were used to provide additional
capital to Bank.
Management believes that the Company's liquidity remains adequate to
meet operating, investment and loan funding requirements. Cash and cash
equivalents, along with investments and mortgage backed securities available
for sale represented 61.8% of assets at June 30, 2000.
Liquidity management is both a daily and long-term responsibility of
management the company adjusts its investments in liquid assets based
upon management's assessment of expected loan demand, expected deposit
flows, yields available on interest-earning deposits and investment
securities, and the objectives of its asset/liability management program.
Excess liquid assets are invested generally in interest-earning overnight
deposits and short- and intermediate-term U.S. Government and agency
obligations and mortgage-backed securities. If the company requires funds
beyond its ability to generate them internally, it has additional borrowing
capacity with the Federal Home Loan Bank of Atlanta.
The desired level of liquidity for the Company is determined by
management in conjunction with the Asset/Liability Committees of Newberry
Federal. The level of liquidity is based on management's strategic direction
for the Company's commitments to make loans and the Committees'
assessment of the bank's ability to generate funds. Historically, sources of
liquidity have included net deposits to savings accounts, amortization and
prepayments of loans, Federal Home Loan Bank advances, reverse repurchase
agreements and sales of securities and loans held for sale.
The Bank is subject to various regulatory capital requirements imposed
by the Office of Thrift Supervision. At June 30, 2000 Newberry Federal was
in compliance with all applicable capital requirements.
Interest Rate Risk
A large percentage of Newberry Federal's interest-earning assets have
longer maturities than the maturities of Newberry Federal's interest-bearing
liabilities, which reduces Newberry Federal's income as interest rates rise.
Due to Newberry Federal's above average interest rate risk, the Office of
Thrift Supervision imposed certain interest rate sensitivity measures as a
condition to the conversion to a stock form. With the additional capital
from the conversion, the Bank will comply with the interest rate sensitivity
measure.
<PAGE>
At June 30, 2000, the Bank had entered into contracts that limit its
exposure in the event of rising interest rates. The cost of the contract is
being amortized over the term of the agreement. The contracts provide
for payments to be made to the Bank to cover the one-month libor rate in
excess of the contract rate on the principal amount of the contract as
follows:
<TABLE>
<CAPTION>
Principal Amount Contract Rate Expiration Date
<C> <C> <C>
25,000,000 7.00% February 2001
25,000,000 7.25% March 2001
100,000,000 7.50% May 2001
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Newberry Federal Savings Bank
Yields on Average Earning Assets and Rates
On Average Interest Bearing Liabilities
(In Thousands)
Three Months ended June 30, Three months ended June 30,
2000 1999
Average Yield/ Average Yield/
Balance Interest /Rate Balance Interest /Rate
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loan receivable (1) $ 76,776 $ 1,574 8.20% $73,973 $ 1,440 7.79%
Interest-bearing deposits 1,076 14 5.30% 1,559 29 7.44%
Investment securities 23,748 286 4.82% 15,140 231 6.10%
Mortgage-backed
securities 108,601 1,981 7.30% 85,903 1,392 6.48%
Federal funds sold 4,757 18 1.51% 70 35 (2)
Other 137 1 2.92% 95 3 12.63%
Total interest earning assets 215,095 3,874 7.20% 176,740 3,130 7.08%
Non-interest earning assets 9,552 6,756
Total assets $ 224,647 $ 183,496
======= =======
Interest bearing liabilities:
Deposits:
Passbook accounts $ 17,401 $ 17,632
NOW and money market
accounts 38,229 27,034
Certificates of deposit 101,949 94,506
Total deposits 157,579 1,734 4.40% 139,172 1,458 4.19%
Federal Home Loan Bank
Advances 35,000 549 6.27% 22,012 312 5.67%
Other borrowings 13,171 51 1.55% 2,228 10 1.80%
Total interest bearing
Liabilities 205,750 2,334 4.54% 163,412 1,780 4.36%
Non-interest bearing liabilities 2,439 1,375
Total liabilities 208,189 164,787
Total retained earnings 16,458 18,709
Total liabilities and
Retained earnings $ 224,647 $ 183,496
======== ========
Net interest income/interest
rate spread $ 1,540 2.67% $ 1,350 2.73%
Net interest margin as a percentage
of interest-earning assets 2.85% 3.05%
_______________________________________________________________________________
(1) Balances are net of deferred loan origination costs, undisbursed proceeds of construction loans in
process, and include nonaccrual loans.
(2) Percentage not meaningful due to usage of month end balances to calculate average.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Newberry Federal Savings Bank
Yields on Average Earning Assets and Rates
On Average Interest Bearing Liabilities
(In Thousands)
Nine Months ended June 30, Nine months ended June 30,
2000 1999
Average Yield/ Average Yield/
Balance Interest /Rate Balance Interest /Rate
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loan receivable $ 75,863 $ 4,571 8.03% $73,117 $ 4,326 7.89%
Interest-bearing deposits 1,556 57 4.88% 1,940 72 4.95%
Investment securities 23,353 971 5.54% 8,099 195 3.21%
Mortgage-backed
Securities 106,778 5,799 7.24% 89,738 4,330 6.43%
Federal funds sold 1,586 18 1.51% 2,745 99 4.81%
Other 135 3 2.96% 81 5 8.23%
Total interest earning assets 209,271 11,419 7.28% 175,720 9,027 6.85%
Non-interest earning assets 11,011 ____7,108
Total assets $ 220,282 $ 182,828
======== ========
Interest bearing liabilities:
Deposits:
Passbook accounts $ 17,448 $ 17,550
NOW and money market
Accounts 31,841 26,329
Certificates of deposit 102,977 96,141
Total deposits 152,266 5,032 4.41% 140,020 4,548 4.33%
Federal Home Loan Bank
Advances 35,389 1,575 5.93% 21,071 916 5.80%
Other borrowings 10,456 144 1.84% 1,286 24 2.49%
Total interest bearing
Liabilities 198,111 6,751 4.55% 162,377 5,488 4.51%
Non-interest bearing liabilities 5,619 1,189
Total liabilities 203,730 163,566
Total retained earnings 16,552 19,262
Total liabilities and
Retained earnings $ 220,282 $ 182,828
======== ========
Net interest income/interest
rate spread $4,668 2.73% $3,539 2.34%
Net interest margin as a percentage
Of interest-earning assets 2.97% 2.69%
</TABLE>
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party or of which any of their property is the
subject.
Item 2. Changes in Securities and Use of Proceeds
Change in Securities: Not applicable
Use of Proceeds. On July 5, 2000, the Company completed an offering
of securities registered pursuant to the Securities Act of 193, as amended.
In connection therewith:
1. The effective date of the registration statement on Form SB-2, as
amended (File No. 333-31986) was May 12, 2000.
2. The offering of securities was not underwritten. Trident Securities,
A Division of McDonald Investments, Inc. acted as marketing agent.
3. The class of securities registered was common stock, $0.01 par value
per share. The amount of such securities registered was 1,560,550
shares at an offering price of $10.00 per share.
4. The total offering expenses incurred by the Company were $971,436,
none of which were paid directly or indirectly to directors or officers
of the Company or their associates.
5. The net proceeds of the offering were $14.6 million of which $13.2
million was invested in the Bank, $1.2 million was loaned to the
Bank's employee stock ownership plan to purchase stock in the
offering and the remaining was invested in short-term securities.
These uses of proceeds do not represent a material change in the use
of proceeds described in the Company's prospectus dated May 12,
2000.
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
3.1 Certificate of Incorporation of DutchFork Bancshares, Inc. (1)
3.2 Bylaws of DutchFork Bancshares, Inc. (1)
4.0 Specimen Stock Certificate of DutchFork Bancshares, Inc. (1)
27.0 Financial Data Schedule
(1) Incorporated herein by reference from the Exhibits to Form SB-2,
Registration Statement and amendments thereto, initially filed on March 8,
2000, Registration No. 333-31986.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DUTCHFORK BANCSHARES, INC.
(Registrant)
Date: August 11, 1000 By:/s/ J. Thomas Johnson
________________________________
J. Thomas Johnson
President and Chief Executive Officer
By:/s/ Steve P. Sligh
_____________________________________
Steve P. Sligh
Executive Vice President and Chief Financial Officer
<PAGE>
FINANCIAL DATA SCHEDULE
ARTICLE: 9
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JUNE 30, 2000,
CONTAINED IN FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-QSB.
<TABLE>
<S> <C>
CASH 2,930,853
INT-BEARING-DEPOSITS 168,810
FED-FUNDS-SOLD 14,270,000
TRADING-ASSETS 0
INVESTMENTS-HELD-FOR-SALE 127,845,808
INVESTMENTS-CARRYING 5,197,108
INVESTMENTS-MARKET 5,019,469
LOANS 77,847,124
ALLOWANCE 415,833
TOTAL-ASSETS 235,082,517
DEPOSITS 151,521,460
SHORT-TERM 25,000,000
LIABILITIES-OTHER 31,731,332
LONG-TERM 10,000,000
COMMON 0
PREFERRED-MANDATORY -----
PREFERRED -----
OTHER-SE 0
TOTAL-LIABILITY-AND-EQUITY 235,082,517
INTEREST-LOAN 4,571,243
INTEREST-INVEST 6,686,988
INTEREST-OTHER 161,381
INTEREST-TOTAL 11,419,612
INTEREST-DEPOSIT 5,032,350
INTEREST-EXPENSE 6,750,755
INTEREST-INCOME-NET 4,668,857
LOAN-LOSSES 295,000
SECURITIES-GAINS 21,686
EXPENSE-OTHER 3,553,714
INCOME-PRETAX 1,601,170
INCOME-PRE-EXTRAORDINARY 0
EXTRAORDINARY 0
CHANGE 0
NET-INCOME 960,700
EPS-PRIMARY 0
EPS-DILUTED 0
YIELD-ACTUAL 2.97%
LOANS-NON 0
LOANS-PAST 0
LOANS-TROUBLED 46,922
LOANS-PROBLEM 555,947
ALLOWANCE-OPEN 184,170
CHARGE-OFF 145,486
RECOVERIES 82,149
ALLOWANCE-CLOSE 415,833
ALLOWANCE-DOMESTIC 415,833
ALLOWANCE-FOREIGN ----
ALLOWANCE-UNALLOCIATED 415,833
</TABLE>
<PAGE>
