<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended....................................MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period
from....................................to......................................
Commission file number...................................................0-18046
FIRST FEDERAL CAPITAL CORP
(Exact name of Registrant as specified in its charter)
WISCONSIN 39-1651288
(State or other jurisdiction (IRS employer
of incorporation or organization) identification)
605 STATE STREET
LA CROSSE, WISCONSIN 54601
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (608) 784-8000
NOT APPLICABLE
(Former name, former address, and former fiscal year,
if changed since last report)
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 such shorter period as the Registrant has
been subject to such requirements), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: COMMON STOCK--$.10 PAR VALUE Outstanding as of May 1, 1998: 9,255,657
(EXCLUDES 715,158 SHARES HELD AS TREASURY STOCK)
<PAGE> 2
FORM 10-Q TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION Page
Item 1--Financial Statements .......................................2
Item 2--Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................7
PART II--OTHER INFORMATION
Item 1--Legal Proceedings..........................................16
Item 2--Changes in Securities......................................16
Item 3--Defaults Upon Senior Securites.............................16
Item 4--Submission of Matters to Vote of Security Holders..........16
Item 5--Other Information..........................................16
Item 6--Exhibits and Reports on Form 8-K...........................16
SIGNATURES.................................................................17
1
<PAGE> 3
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1998, and December 31, 1997
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
ASSETS (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 28,126,691 $ 29,939,484
Interest-bearing deposits with banks 59,108,383 7,113,756
Investment securities available for sale, at fair value 10,464,263 21,376,678
Mortgage-backed and related securities:
Available for sale, at fair value 45,000,572 47,895,297
Held for investment, at cost (fair value of $117,315,067 and $123,613,629, 117,734,484 124,335,969
respectively)
Loans held for sale 77,142,548 45,576,945
Loans held for investment, net 1,163,827,764 1,193,893,087
Federal Home Loan Bank stock 16,350,700 13,811,300
Accrued interest receivable, net 11,941,961 11,547,757
Office properties and equipment 24,593,648 24,243,132
Mortgage servicing rights, net 18,293,527 16,290,903
Intangible assets 5,800,701 5,921,443
Other assets 1,910,145 2,348,647
- -----------------------------------------------------------------------------------------------------------------
Total assets $1,580,295,387 $1,544,294,398
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
Deposit liabilities $1,206,965,157 $1,146,533,896
Federal Home Loan Bank advances and other borrowings 241,896,867 275,778,770
Advance payments by borrowers for taxes and insurance 5,232,991 3,872,764
Accrued interest payable 2,063,114 2,030,153
Other liabilities 10,820,537 6,717,469
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 1,466,978,666 1,434,933,052
- ------------------------------------------------------------------------------------------------------------------
Preferred stock, $.10 par value, 5,000,000 shares authorized, none outstanding - -
Common stock, $.10 par value, 20,000,000 shares authorized, 9,970,815 and
9,970,815 shares issued and outstanding, respectively, including 713,185
and 780,285 shares of treasury stock, respectively 997,082 997,082
Additional paid-in capital 35,537,146 35,537,146
Retained earnings 88,100,961 84,548,291
Treasury stock, at cost (9,745,333) (10,845,168)
Unearned restricted stock (1,051,113) (211,006)
Non-owner asjustments to equity, net (522,022) (664,999)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 113,316,721 109,361,346
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,580,295,387 $1,544,294,398
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------------
1998 1997
(UNAUDITED) (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest on loans $ 25,783,220 $ 23,301,502
Interest on mortgage-backed and related securities 2,616,810 3,214,940
Interest and dividends on investments 1,249,826 1,439,878
- -----------------------------------------------------------------------------------------------------------------
Total interest income 29,649,856 27,956,320
- -----------------------------------------------------------------------------------------------------------------
Interest on deposit liabilities 13,768,513 11,978,361
Interest on FHLB advances and other borrowings 3,949,700 5,172,125
- -----------------------------------------------------------------------------------------------------------------
Total interest expense 17,718,213 17,150,486
- -----------------------------------------------------------------------------------------------------------------
Net interest income 11,931,643 10,805,834
Provision for loan losses 53,188 120,840
- -----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 11,878,455 10,684,994
- -----------------------------------------------------------------------------------------------------------------
Retail banking fees and service charges 3,252,340 2,806,212
Commissions on annuity and insurance sales 353,216 615,870
Loan servicing fees (1,165,502) 578,764
Gain on sales of loans 3,820,023 789,030
Loss on sales of investment securities - (54,555)
Other income 537,403 417,392
- -----------------------------------------------------------------------------------------------------------------
Total non-interest income 6,797,480 5,152,713
- -----------------------------------------------------------------------------------------------------------------
Compensation and employee benefits 5,689,498 5,150,388
Occupancy and equipment 1,704,119 1,817,690
Advertising and marketing 489,339 485,614
Federal deposit insurance premiums 176,673 162,094
Other expenses 2,842,536 2,096,709
- -----------------------------------------------------------------------------------------------------------------
Total non-interest expense 10,902,165 9,712,495
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 7,773,770 6,125,212
Income tax expense 2,974,877 2,367,446
- -----------------------------------------------------------------------------------------------------------------
Net income $ 4,798,893 $ 3,757,766
- -----------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION
- -----------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.48 $ 0.38
Basic earnings per share 0.52 0.41
Dividends paid per share 0.12 0.107
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
COMMON
STOCK AND
ADDITIONAL UNEARNED NON-OWNER
PAID-IN RETAINED TREASURY RESTRICTED ADJUSTMENTS
UNAUDITED CAPITAL EARNINGS STOCK STOCK TO EQUITY TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $36,244,047 $72,569,092 ($10,533,625) ($414,392) ($2,450,764) $ 95,414,358
------------
Net income 3,757,766 3,757,766
Securities valuation
adjustment,
net of income taxes (36,640) (36,640)
------------
Net income and non-owner
adjustments to equity 3,721,126
------------
Dividends paid (979,527) (979,527)
Exercise of stock options 215,589 215,589
Purchase of treasury stock (1,206,438) (1,206,438)
Amortization of restricted stock 93,343 93,343
- -----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $36,459,636 $75,347,331 ($11,740,063) ($321,049) ($2,487,404) $ 97,258,451
- -----------------------------------------------------------------------------------------------------------------
UNAUDITED
- -----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $36,534,228 $84,548,291 ($10,845,168) ($211,006) ($664,999) $109,361,346
------------
Net income 4,798,893 4,798,893
Securities valuation
adjustment,
net of income taxes 142,977 142,977
------------
Net income and non-owner
adjustments to equity 4,941,870
------------
Dividends paid (1,108,072) (1,108,072)
Exercise of stock options (523,187) 633,371 110,184
Restricted stock award 385,036 626,464 (1,011,500) -
Purchase of treasury stock (160,000) (160,000)
Amortization of restricted stock 171,393 171,393
- -----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 $36,534,228 $88,100,961 ($9,745,333) ($1,051,113) ($522,022) 113,316,721
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-------------------------------
1998 1997
(UNAUDITED) (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,798,893 $ 3,757,766
Adjustments to reconcile net income to net cash provided (used) by
operations:
Provision for loan and real estate losses, net 252,441 119,394
Net loan costs deferred (347,978) (203,883)
Depreciation and amortization 3,420,456 1,582,313
Gains on sales of loans, and other investments (3,820,023) (734,475)
Increase in accrued interest receivable (394,204) (702,215)
Increase in accrued interest payable 32,961 90,137
Increase in current and deferred income taxes 2,520,755 1,971,946
Other accruals and prepaids, net (546,934) (433,020)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operations before loan originations and sales 5,916,367 5,447,963
Loans originated for sale (215,030,683) (40,632,469)
Sales of loans originated for sale 174,592,789 43,320,971
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used) by operations (34,521,527) 8,136,465
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Increase in interest-bearing deposits with banks (51,994,627) (4,504,068)
Sales of investment securities - 3,001,571
Maturities of investment securities 10,864,439 3,488,882
Principal payments on mortgage-backed and related securities held for 6,594,945 4,462,985
investment
Principal payments on mortgage-backed and related securities available 3,134,716 3,690,564
for sale
Loans originated for investment (112,678,168) (93,387,284)
Loan principal repayments 105,408,005 65,101,850
Sales of loans originated for investment 43,057,590 3,270,298
Sales of real estate 3,024,983 55,200
Additions to office properties and equipment (974,519) (912,777)
Purchases of mortgage servicing rights (454,774) (145,564)
Other, net (2,113,450) (214,889)
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 3,869,140 (16,093,232)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposit liabilities 60,431,261 29,630,355
Long-term advances from Federal Home Loan Bank 75,000,000 25,000,000
Repayment of long-term Federal Home Loan Bank advances (16,580,000) (127,776,000)
Net increase (decrease) in short-term Federal Home Loan Bank borrowings (81,300,000) 84,333,000
Decrease in other borrowings (11,001,903) (1,686)
Increase in advance payments by borrowers for taxes and insurance 1,360,227 1,189,544
Proceeds from sale of common stock 110,184 56,829
Purchase of treasury stock (160,000) (1,206,438)
Dividends paid (1,108,072) (979,527)
Other, net 2,087,897 (670,738)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 28,839,594 9,575,339
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks (1,812,793) 1,618,572
Cash and due from banks at beginning of period 29,939,484 24,644,254
- ----------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 28,126,691 $ 26,262,826
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest and dividends received on loans and investments $ 29,255,653 $ 27,254,105
Interest paid on deposits and borrowings 17,685,252 17,060,349
Income taxes paid 425,000 398,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Refer to accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and balances
of First Federal Capital Corp (the "Corporation"), First Federal Savings Bank La
Crosse-Madison (the "Bank"), and the Bank's wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
NOTE 2--BASIS OF PRESENTATION
The accompanying interim consolidated financial statements are
unaudited and do not include information or footnotes necessary for a complete
presentation of financial condition, results of operations, or cash flows in
accordance with generally accepted accounting principles. However, in the
opinion of management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the consolidated financial statements have
been included. Operating results for the three month period ended March 31,
1998, may not necessarily be indicative of the results which may be expected for
the entire year ending December 31, 1998.
Certain 1997 balances have been reclassified to conform with the 1998
presentation.
NOTE 3--CONTINGENCIES
First Enterprises, Inc. ("FEI"), a wholly-owned subsidiary of the Bank
that was formerly involved in the acquisition and development of hotels,
received a favorable judgement in a United States District Court in 1996
awarding it $1.1 million in compensatory damages, plus post-judgement interest
on the damages, as well as filing fees and other court costs. The defendant in
the action is a well-capitalized money-center bank that provided certain trust
services relating to one of FEI's hotel joint ventures in the 1980s.
In addition to this judgement, FEI also has a pending claim against the
defendant for punitive damages, which could substantially increase the final
award, if any. A hearing on this claim was conducted in 1997; the Corporation
does not know at this time when it will be informed of the court's decision with
respect to this hearing. The defendant may appeal the initial judgement and
oppose any award of punitive damages. As a result, management of the Corporation
is unable to determine the likelihood of a favorable outcome or reliably
estimate the amount of the final award, if any. Accordingly, the Corporation has
not recognized any portion of the current judgement or possible future punitive
damages in its results of operations.
The Corporation and its subsidiaries are also engaged in various
routine legal proceedings occurring in the ordinary course of business which in
the aggregate are believed by management to be immaterial to the consolidated
financial condition of the Corporation.
6
<PAGE> 8
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The discussion in this report includes certain forward-looking
statements based on current management's expectations. Examples of factors which
could cause future results to differ from management's expectations include, but
are not limited to, the following: general economic and competitive conditions;
legislative and regulatory initiatives; monetary and fiscal policies of the
federal government; general market rates of interest; interest rates on
competing investments; interest rates on funding sources; consumer demand for
deposit and loan products and services; consumer demand for other financial
services; changes in accounting policies or guidelines; and changes in the
quality or composition of the Corporation's loan and investment portfolios.
Readers are cautioned that forward-looking statements are not guarantees of
future performance and that actual results may differ materially from
management's current expectations.
RESULTS OF OPERATIONS
OVERVIEW The Corporation's net income for the three months ended March
31, 1998 and 1997, was $4.8 million or $0.48 per diluted share and $3.8 million
or $0.38 per diluted share, respectively. These amounts represented a return on
average assets of 1.21% and 0.99%, respectively, and a return on average equity
of 17.15% and 15.73%, respectively.
The improvement in net income from 1997 to 1998 was primarily
attributable to a $3.0 million increase in gain on sales of loans. Also
contributing, however, were a $1.1 million increase in net interest income and a
$446,000 increase in retail banking fees. These favorable developments were
partially offset by a $1.7 million decline in loan servicing fees and a $263,000
decline in commissions on annuity and insurance sales. Also, compensation and
employee benefits increased by $539,000 and other non-interest expense increased
by $746,000.
The following paragraphs discuss the aforementioned changes in greater
detail along with other changes in the components of net income during the three
month periods ended March 31, 1998 and 1997.
NET INTEREST INCOME Net interest income increased by $1.1 million or
10.4% during the three months ended March 31, 1998, as compared to the same
period in the previous year. Net income was favorably impacted by a $69.5
million or 4.8% increase in the Corporation's average interest-earning assets.
The principal source of this growth was in consumer loans and commercial and
residential real estate loans. This growth was primarily funded by increases in
deposit liabilities, including non-interest-bearing deposits.
Also contributing to the increase in net interest income in 1998 was a
modest increase in the Corporation's average interest rate spread. Management
attributes this increase to a higher percentage of interest-earning assets
invested in mortgage and consumer loans, which generally earn higher yields than
the Corporation's other interest-earning assets. These developments were
partially offset by an increase in the average cost of the Corporation's
interest-bearing liabilities, due to more competitive rate offerings on deposit
liabilities.
The table on the following page sets forth information regarding the
average balances of the Corporation's assets, liabilities, and equity, as well
as the interest earned or paid and the average yield or cost of each. The
information is based on daily average balances during the three months ended
March 31, 1998 and 1997.
7
<PAGE> 9
<TABLE>
<CAPTION>
Dollars in thousands THREE MONTHS ENDED MARCH 31, 1998 THREE MONTHS ENDED MARCH 31, 1997
- -------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Single-family mortgage loans $ 607,374 $ 11,946 7.87% $ 582,616 $ 11,575 7.95%
Commercial real estate loans 272,881 6,071 8.90 241,402 5,164 8.56
Consumer loans 368,326 7,766 8.43 308,713 6,563 8.50
- -------------------------------------------------------------------------------------------------------------------
Total loans 1,248,581 25,783 8.26 1,132,731 23,302 8.23
Mortgage-backed and related 168,952 2,617 6.20 206,724 3,215 6.22
securities
Investment securities 13,259 216 6.52 69,755 1,038 5.95
Interest-bearing deposits with 57,350 773 5.39 6,135 82 5.32
banks
Other earning assets 15,968 261 6.53 19,278 320 6.64
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,504,110 29,650 7.89 1,434,623 27,956 7.79
Non-interest-earning assets:
Office properties and equipment 24,386 26,339
Other assets 61,466 53,789
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 1,589,962 $1,514,751
- -------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Regular savings accounts $ 89,454 $ 445 1.99% $ 86,864 $ 433 2.00%
Checking accounts 53,806 130 0.97 51,844 127 0.98
Money market accounts 143,821 1,551 4.31 139,897 1,517 4.34
Certificates of deposit 779,476 11,643 5.97 675,755 9,901 5.86
- -------------------------------------------------------------------------------------------------------------------
Total deposits 1,066,557 13,769 5.16 954,360 11,978 5.02
FHLB advances 284,032 3,877 5.46 364,466 5,011 5.50
Other borrowings 7,703 72 3.74 13,638 161 4.72
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing 1,358,292 17,718 5.22 1,332,464 17,150 5.15
liabilities
Non-interest-bearing liabilities:
Non-interest-bearing deposits 106,167 77,144
Other liabilities 13,606 9,587
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 1,478,065 1,419,195
Stockholders' equity 111,898 95,556
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and $ 1,589,962 $1,514,751
stockholders' equity
- -------------------------------------------------------------------------------------------------------------------
Net interest income $ 11,932 $ 10,806
- -------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.67% 2.65%
- -------------------------------------------------------------------------------------------------------------------
Net interest income as a percent of
average earning assets 3.17% 3.01%
- -------------------------------------------------------------------------------------------------------------------
Average interest-earning assets to
average interest-bearing liabilities 110.74% 107.67%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION FOR LOAN LOSSES Due to growth in the Corporation's loan
portfolio in recent years, management of the Corporation elected to record
provisions for loan losses during the three-month periods ended March 31, 1998
and 1997. In general, the provisions recorded during both periods approximated
the Corporation's actual charge-off activity during the periods. Management of
the Corporation expects the provision for the remainder of 1998 to also
approximate actual charge-off activity, although there can be no assurances.
As of March 31, 1998 and December 31, 1997, the Corporation's allowance
for loan losses was $7.6 million or 0.66% and 0.64% of loans held for
investment, respectively. Although management believes that the Corporation's
present level of allowance for loan losses is adequate, there can be no
assurance that future adjustments to the allowance will not be necessary, which
could adversely affect the Corporation's results of operations. For additional
discussion, refer to "Financial Condition--Non-Performing Assets".
NON-INTEREST INCOME Non-interest income for the three months ended
March 31, 1998 and 1997, was $6.8 million and $5.2 million, respectively. The
following paragraphs discuss the principal components of non-interest income and
the primary reasons for their changes from 1997 to 1998.
Retail banking fees and service charges increased by $446,000 or 15.9%
during the three months ended March 31, 1998, as compared to the same period in
the previous year. The increase in both periods was due in part to 10.4% growth
since December 31, 1996, in the number of checking accounts serviced by the
Corporation.
8
<PAGE> 10
Approximately 20% of this growth came from retail banking offices opened in 1997
and 1998 (refer to "Results of Operations--Non-Interest Expense" for additional
discussion). Also contributing to the growth in retail banking fees in the most
recent period was a $113,000 or approximately 60% increase in fee income from
customers' use of debit cards and a $121,000 or approximately 25% increase in
fees from customers' use of ATMs. The Corporation introduced debit cards to its
checking account customers during the last quarter of 1996. The Corporation
increased the number of ATMs it operates in 1997 and 1998 as a result of changes
in the rules governing ATM surcharges, which permitted the Corporation to
increase fee revenue from ATMs. The Corporation intends to increase the number
of ATMs it operates by approximately 10 to 15% in 1998, although there can be no
assurances.
Commissions on annuity and insurance sales decreased by $263,000 or
approximately 45% during the three months ended March 31, 1998, as compared to
the same period in the previous year. The Corporation's current sources of
commission revenues are primarily from sales of tax-deferred annuity contracts,
credit life insurance policies, and mortgage loan insurance policies. The
decline in 1998 was primarily attributable to the receipt in the first quarter
of 1997 of a large annual bonus on the sale of credit life insurance polices; a
similar bonus was not received in 1998. Also contributing to the decline in 1998
were decreased commissions on sales of tax-deferred annuities--primarily as a
result of a generally lower interest rate environment, which tends to make
tax-deferred annuities less attractive to customers.
Loan servicing fees declined by $1.7 million from $579,000 during the
three months ended March 31, 1997, to $(1.2) million during the same period in
1998. The decrease in 1998 was caused by a significant decline in the carrying
value of the Corporation's mortgage servicing rights. A declining interest rate
environment in late 1997 and early 1998 resulted in an increase in mortgage
refinance activity, which translated into increased loan prepayments during the
first quarter of 1998. As a result of such prepayments, the Corporation recorded
a $2.0 million decline in the estimated carrying value of its mortgage servicing
rights during the first quarter of 1998. This compared to a decline of only
$150,000 in the first quarter of 1997. Subsequent to March 31, 1998, interest
rates have remained at low levels. If this environment continues, or if interest
rates decline further, the Corporation may be required to record additional
losses on the carrying value of its mortgage servicing rights.
Excluding the effects of the aforementioned declines in carrying value
of mortgage servicing rights, loan servicing fees would have increased by
$106,000 or 14.5% during the three months ended March 31, 1998, as compared to
the same period in the previous year. This increase was attributable to a $298.6
million or 24.9% increase in mortgage loans serviced for others since March 31,
1997.
Gains on sales of mortgage loans increased by $3.0 million from
$789,000 during the three months ended March 31, 1997, to $3.8 million during
the same period in 1998. This improvement was primarily attributable to a $171.1
million or approximately 350% increase in the Corporation's mortgage loan sales.
This increase was due to a declining interest rate environment that resulted in
increased originations of fixed-rate mortgage loans, as well as increased
conversions of adjustable-rate loans to fixed-rate, both of which are generally
sold in the secondary market. Subsequent to March 31, 1998, interest rates have
remained at low levels. If this environment continues, or if interest rates
decline further, the Corporation is likely to continue to experience high levels
of refinance activity, as well as increased conversions by borrowers of their
adjustable-rate loans into fixed-rate loans. Such activity is expected to result
in high levels of gains on sales of mortgage loans, although there can be no
assurances. To a certain extent, such gains are expected to be offset by
declines in the carrying value of the Corporation's mortgage servicing rights,
as previously described.
Other income increased by $120,000 or approximately 30% during the
three months ended March 31, 1998, as compared to the same period in the
previous year. This increase was due in part to an increase in fees received on
loans originated as agent for the Wisconsin State Veterans Administration
("State VA") and the Wisconsin Housing and Economic Development Authority
("WHEDA"). Also contributing was increased fee income from customers that
converted their adjustable-rate mortgage loans to fixed rate loans, as
previously described.
NON-INTEREST EXPENSE Non-interest expense for the three-month periods
ended March 31, 1998 and 1997, was $10.9 million and $9.7 million, respectively.
Non-interest expense as a percent of average assets during these
9
<PAGE> 11
periods was 2.69% and 2.57%, respectively. The following paragraphs discuss the
principal components of non-interest expense and the primary reasons for their
changes from 1997 to 1998.
Compensation and employee benefits increased by $539,000 or 10.5%
during the three months ended March 31, 1998, as compared to the same period in
the previous year. In general, this increase was due to normal annual merit
increases and to general growth in the number of banking facilities operated by
the Corporation. Since December 31, 1996, the Corporation has opened eight
retail banking facilities and one loan production facility. The Corporation also
closed one retail banking facility in 1997. During the remainder of 1998, the
Corporation intends to open or acquire up to six additional retail banking
facilities, although there can be no assurances.
Also contributing to the increase in compensation and employee
benefits, was an increase in commissions paid in the Corporation's Residential
Lending Division, due primarily to increased originations of mortgage loans, as
previously described.
As of March 31, 1998, the Corporation had 718 full-time equivalent
employees. This compares to 690 and 651 as of December 31, 1997, and March 31,
1996, respectively.
Occupancy and equipment expense decreased by $114,000 or 6.2% during
the three months ended March 31, 1998, as compared to the same period in the
previous year. This increase was principally due to lower real estate and
personal property taxes due to reassessments initiated by the Corporation. Also
contributing was a mild winter, which resulted in lower utility and general
maintenance expenditures.
Other non-interest expenses increased by $746,000 or approximately 35%
during the three months ended March 31, 1998, as compared to the same period in
the previous year. This increase was caused by a variety of factors, the most
significant of which were a $200,000 increase in provision for real estate
losses and a $237,000 increase in real estate operating expenses. These
increases were caused by the foreclosure and subsequent resale of a 248-unit
apartment complex located in Indianapolis, Indiana, which had originally secured
a $3.0 million mortgage loan. The Corporation agreed to lend $2.8 million to the
new borrower to finance the sale of the property and also committed an
additional $2.0 million in funding for purposes of refurbishing the property.
The new borrower was also required to contribute $1.1 million towards the
refurbishing. In addition to the loss on the sale, the Corporation incurred
significant operating expenses during the short time it owned the property,
which was the primary reason for the significant increase in real estate
operating expenses during the quarter.
Also contributing to the increase in other non-interest expense during
the three months ended March 31, 1998, were increased costs related to ATMs and
debit cards, increased office supply costs, and increased communication costs.
All of these increases are related to growth in the Corporation's customer base
and its office network, as previously described.
INCOME TAX EXPENSE Income tax expense for the three months ended March
31, 1998 and 1997, was $3.0 million and $2.4 million, respectively, or 38.3% and
38.7% of pretax income, respectively.
FINANCIAL CONDITION
OVERVIEW The Corporation's total assets increased by $36.0 million or
2.3% during the three months ended March 31, 1998. This increase was primarily
the result of a $52.0 increase in overnight investments and a $31.6 million
increase in loans held for sale. These increases were funded by a $60.4 million
or 5.3% increase in deposit liabilities, as well as the cash flows from a $30.1
million or 2.5% decline in loans held for investment and a $20.4 million or
10.5% aggregate decline in mortgage-backed and investment securities. These
funding sources were also used to pay down $33.9 million in advances from the
Federal Home Loan Bank of Chicago (the "FHLB").
OVERNIGHT INVESTMENTS Interest-bearing deposits with banks, which
consist of overnight investments at the FHLB and fed funds sold, increased by
$52.0 million from $7.1 million at December 31, 1997, to $59.1 million at March
31, 1998. This increase was caused by the temporary investment of cash flows
from deposit liabilities, loans held for investment, and mortgage-backed and
investment securities, as described in the previous paragraph. The
10
<PAGE> 12
Corporation fully expects to use its overnight investments to repay short-term
FHLB advances as they mature in coming months. However, overnight investments
may also be used to invest in longer-term, higher-yielding assets if such
opportunities present themselves.
INVESTMENT SECURITIES The Corporation's investment securities available
for sale decreased by $10.9 million or approximately 50% during the three months
ended March 31, 1998. This decrease was due to the maturity of a number of
investment securities during the period. The proceeds from such maturities were
generally reinvested in overnight investments, as previously described.
Historically, the primary purpose of the Corporation's investment
securities portfolio has been to meet liquidity requirements imposed on the Bank
by the Office of Thrift Supervision ("OTS"). During the fourth quarter of 1997,
however, the OTS modified its regulatory liquidity requirements for thrift
institutions. As a result of such modifications, the investment securities the
Bank is required to hold for regulatory liquidity purposes were substantially
reduced. Accordingly, the Bank anticipates that it will not need to maintain a
portfolio of investment securities in the future that is as large as it has been
in the past, although there can be no assurances.
MORTGAGE-BACKED AND RELATED SECURITIES The Corporation's aggregate
investment in its mortgage-backed and related securities portfolios decreased by
$9.5 million or 5.5% during the three months ended March 31, 1998. This decrease
was principally due to the normal periodic amortization of the mortgage loans
that support these types of securities. The proceeds from such amortization were
generally reinvested in overnight investments as previously described. There
were no purchases of mortgage-backed and related securities during the period.
LOANS HELD FOR SALE The Corporation's loans held for sale increased by
$31.6 million or approximately 70% during the three months ended March 31, 1998.
This increase was due to a declining interest rate environment during late 1997
and early 1998 that increased consumer demand for fixed-rate mortgage loans and
resulted in increased conversions of adjustable-rate loans into fixed-rate
loans, as previously described. Both of these categories of loans are classified
as "held for sale" until the date of sale, which typically occurs within 30 to
60 days of origination and/or conversion.
LOANS HELD FOR INVESTMENT The Corporation's loans held for investment
decreased by $30.0 million or 2.5% during the three months ended March 31, 1998.
This decrease occurred principally in the Corporation's single-family
residential loan portfolio, which declined as the result of increased
conversions of adjustable-rate loans into fixed-rate loans, as previously
described. Subsequent to March 31, 1998, interest rates have remained at low
levels. If this environment continues, or if interest rates decline further, the
Corporation may experience additional declines in its single-family residential
loans held for investment.
DEPOSIT LIABILITIES The Corporation's deposit liabilities increased by
$60.4 million or 5.3% during the three months ended March 31, 1998. This growth
was due in part to a popular CD program that was offered to customers during the
period. Management also attributes the growth in deposit liabilities to the
combined effects of the Corporation's competitive interest rate offerings, its
expansion efforts in recent years, its convenient banking locations, and the
strong local economies in its market areas. Management expects these trends to
continue in the immediate future, resulting in continued modest growth in the
Corporation's deposit liabilities, although there can be no assurances.
Also contributing to the increase in deposit liabilities was a $21.9
million increase in the amount the Corporation holds as custodian for
third-party investors in loans serviced by the Corporation. These deposits
increased as a result of significant loan prepayment activity, which was brought
about by a low interest rate environment, as previously described. Management
expects these deposits to return to more reasonable levels as prepayment
activity slows in the future. However, there can be no assurances.
FHLB ADVANCES AND OTHER BORROWINGS The Corporation's FHLB advances and
other borrowings decreased by $33.9 million or 12.3% during the three months
ended March 31, 1998. This decrease was funded by growth in deposit liabilities,
as described in the previous paragraph. Management expects FHLB advances to
11
<PAGE> 13
continue to decline in the immediate future as overnight investments are used to
repay maturing advances. However, there can be no assurances.
NON-PERFORMING ASSETS The Corporation's non-performing assets
(consisting of non-accrual loans, real estate acquired through foreclosure or
deed-in-lieu thereof, and real estate in judgement) amounted to $3.3 million or
0.21% of total assets at March 31, 1998, compared to $4.9 million or 0.32% of
total assets at December 31, 1997. The decrease in non-performing assets during
the period was principally due to the aforementioned apartment complex in
Indianapolis, Indiana. The loan on this property was classified as
non-performing as of December 31, 1997. However, it was classified as performing
as of March 31, 1998, as a result of the Corporation's acceptance of a
deed-in-lieu of foreclosure and subsequent sale to a new borrower, as previously
described.
In addition to non-performing assets, at March 31, 1998, management was
closely monitoring $6.5 million in assets which it had classified as doubtful,
substandard, or special mention, but which were performing in accordance with
their terms. This compares to $7.2 million in such assets at December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required under applicable federal regulations to maintain
specified levels of qualifying types of U.S government, federal agency, and
other mortgage-related and investment securities of not less than 4% of net
withdrawable accounts and short-term borrowings. The Bank was in full compliance
with these regulations during the three months ended March 31, 1998.
The Bank is also required to maintain specified amounts of capital
pursuant to regulations promulgated by the OTS and the FDIC. The Bank's
objective is to maintain its regulatory capital in an amount sufficient to be
classified in the highest regulatory capital category (i.e., as a "well
capitalized" institution). At March 31, 1998, the Bank's regulatory capital
exceeded all regulatory minimum requirements as well as the minimum amount
required to be classified as a "well capitalized" institution.
The Corporation's stockholder's equity ratio as of March 31, 1998, was
7.17% of total assets. The Corporation's objective is to maintain its
stockholders' equity ratio in a range of approximately 6.5% to 7.0%, which is
consistent with return on asset and return on equity goals of at least 1% and
15%, respectively. The Corporation's equity ratio is above its target range as
of March 31, 1998, primarily as a result of the Corporation's sale in 1997 of
certain loans and investment securities. Also contributing was the conversion of
adjustable-rate mortgage loans to fixed-rate loans in 1997 and 1998, and their
subsequent sale in the secondary market. These transactions had the effect of
reducing the Corporation's asset base relative to the growth that has occurred
in stockholders' equity in recent periods. In light of the current interest rate
environment and the effects such may have on the Corporation's single-family
residential loan portfolio, as described elsewhere in this report, management
expects the Corporation to operate with a higher than normal equity ratio in the
immediate future, although there can be no assurances.
The Corporation paid cash dividends of $1.1 million and $980,000 during
the three months ended March 31, 1998 and 1997, respectively. These amounts
equated to dividend payout ratios of 23.1% and 26.1% of the net income in such
periods, respectively. It is the Corporation's objective to maintain its
dividend payout ratio in a range of 25% to 35% of net income. However, the
Corporation's dividend policy and/or dividend payout ratio will be impacted by
considerations such as the level of stockholders' equity in relation to the
Corporation's stated goal, as previously described, regulatory capital
requirements for the Bank, as previously described, and certain dividend
restrictions in effect for the Bank. Furthermore, unanticipated or non-recurring
fluctuations in earnings may impact the Corporation's ability to pay dividends
and/or maintain a given dividend payout ratio.
On April 21, 1998, the Corporation's Board of Directors approved a
regular quarterly dividend of $0.14 per share payable on June 4, 1998, to
shareholders of record on May 14, 1998. The Corporation also approved a
two-for-one stock split in the form of a stock dividend, payable on June 11,
1998, to shareholders of record on May 14, 1998.
12
<PAGE> 14
During the three months ended March 31, 1998, the Corporation
repurchased 5,000 shares of common stock at a cost of $160,000 under its 1996
stock repurchase plan (the "1996 Plan"). As of March 31, 1997, 18,550 shares
remained to be purchased under the 1996 Plan. In addition, 459,526 shares remain
to be purchased under the 1997 stock repurchase plan (the "1997 Plan").
During the three months ended March 31, 1998, the Corporation reissued
72,100 shares of common stock out of its inventory of treasury stock with a cost
basis of $1.3 million. In general, these shares were issued upon the exercise of
stock options by, or the issuance of restricted stock to, employees and
directors of the Corporation.
ASSET/LIABILITY MANAGEMENT
The Corporation manages the exposure of its operations to changes in
interest rates ("interest rate risk") by monitoring its ratios of
interest-earning assets to interest-bearing liabilities within one- and
three-year maturities and/or repricing dates (i.e., its one- and three-year
"funding gaps"). Management has sought to control the Corporation's funding
gaps, thereby limiting the affects of changes in interest rates on its future
earnings, by selling substantially all of its long-term, fixed-rate,
single-family mortgage loan production, investing in adjustable-rate
single-family mortgage loans, investing in consumer and education loans, which
generally have shorter terms to maturity and/or floating rates of interest, and
investing in multi-family residential and commercial real estate loans, which
also tend to have shorter terms to maturity and/or floating rates of interest.
The Corporation also invests from time-to-time in short- and medium-term
fixed-rate CMOs and MBSs, as well as medium-term, fixed-rate, single-family
mortgage loans--although the Corporation has not invested significant amounts in
these asset types in recent years. As a result of this strategy, the
Corporation's exposure to interest rate risk is significantly impacted by its
funding of the aforementioned asset groups with deposit liabilities and FHLB
advances that tend to have average terms to maturity of less than one year or
carry floating rates of interest.
In general, it is management's goal to maintain the Corporation's
one-year funding gap in a range between 0% and -25% and its three-year funding
gap in a range between +5% and -5%. Management believes this strategy takes
advantage of the fact that market yield curves tend to be upward sloping, which
increases the spread between the Corporation's earning assets and
interest-bearing liabilities. Furthermore, management of the Corporation does
not believe that this strategy exposes the Corporation to unacceptable levels of
interest rate risk as evidenced by the fact that the Corporation's three-year
funding gap is generally maintained in a narrow band around zero, which implies
that the Corporation is exposed to little interest rate risk over a three-year
horizon.
Although management believes that its asset/liability management
strategies reduce the potential effects of changes in interest rates on the
Corporation's operations, material and prolonged increases in interest rates may
adversely affect the Corporation's operations because the Corporation's
interest-bearing liabilities which mature or reprice within one year are greater
than the Corporation's interest-earning assets which mature or reprice within
the same period. Alternatively, material and prolonged decreases in interest
rates may benefit the Corporation's operations.
As of March 31, 1998, the Corporation was in compliance with its
internal management polices with respect to exposure to interest rate risk.
Furthermore, there was no material change in its interest rate risk exposure
since December 31, 1997.
OTHER MATTERS
SECURITIZATION OF ADJUSTABLE-RATE MORTGAGE LOANS The Corporation is in
the process of completing the securitization of up to $240 million of its
adjustable-rate residential loans into FHLMC MBSs. Conversion of such loans into
MBSs will improve the liquidity of the asset and will increase the Corporation's
borrowing capacity by making such loans acceptable as collateral for
reverse-repurchase agreements. MBSs also receive more favorable treatment under
the FHLB's current collateralization guidelines. If the Corporation is
successful in completing the securitization, it will transfer the related assets
from "loans held for investment" to "mortgage-backed and related securities" on
its statement of financial condition. The Corporation has not yet determined
whether or to what extent
13
<PAGE> 15
such securities will be classified as "available for sale" or "held for
investment", although the Corporation has no intent at this time to sell any of
the MBSs.
Management also anticipates that it will transfer the securities to the
Bank's wholly-owned investment subsidiary in Nevada. In addition to being more
efficient from an accounting and safekeeping standpoint, this action will result
in a lower effective tax rate on earnings from the securities due to the fact
that Nevada does not currently impose a corporate income tax. Management
estimates that the after tax savings, net of the initial and on-going costs of
securitization, could range between 30 and 40 basis points per year on the
principal balance transferred to Nevada. The Corporation intends to take steps
to minimize the costs of securitization, the most significant of which is the
payment of a monthly "guarantee fee" to FHLMC, by retaining the credit risk
associated with the underlying loans. This should have the effect of reducing
the guarantee fee that is normally paid to FHLMC. This is not expected to have
any impact on the marketability of the securities, although there can be no
assurances. Furthermore, this action does not change the credit risk profile of
the Corporation's assets, as it is currently exposed to credit risk on the
loans.
FORMATION OF AN INSURANCE SUBSIDIARY The Corporation has sold credit
insurance policies (life and disability) to its consumer loan customers for a
number of years. The Corporation has earned commission revenue from the
third-party insurer in connection with such sales, but has not underwritten or
reinsured any of the associated risk. However, in the second or third quarter of
1998 management expects to complete the formation of a wholly-owned subsidiary
of the Bank, the purpose of which will be to reinsure credit insurance policies
sold in connection with its consumer loans. The third-party insurer will carry
the first level of risk and will be responsible for performing most of the
administrative tasks of the subsidiary on a contract basis. Based on the
Corporation's past claims experience, management does not believe this decision
will expose the Corporation to significant risk of loss, although there can be
no assurances.
The Corporation will continue to earn commission revenue from the
third-party insurer. However, it will also earn reinsurance premiums, which net
of administrative costs and required insurance reserves, are expected to
increase revenue from this source by 15% to 20% from what would otherwise be
received (although there can be no assurances). During the three months ended
March 31, 1998 and 1997, the Corporation earned commission revenue from sales of
credit insurance policies of $116,000 and $283,000, respectively. The decline in
1998 was primarily attributable to the receipt in the prior year of a larger
than normal annual commission bonus, as previously described.
As a result of forming this subsidiary and assuming reinsurance risk on
all policies sold since October 1, 1995, the Corporation expects to receive a
"warehousing bonus" from the third-party insurer. This bonus is expected to
amount to $200,000 to $300,000 and will be recorded as income during the period
in which the subsidiary is formed. However, there can be no assurances with
respect to this bonus. Furthermore, there can be no assurance that the
Corporation will complete the formation of the subsidiary or that it will be
able to meet the timeline specified herein.
LEGISLATION AFFECTING EDUCATION LOANS The Student Loan Reform Act of
1993 ("the Act") contains a provision that will change the rate received on
education loans originated after July 1, 1998, from the three-month U.S.
Treasury bill plus 310 basis points to the ten-year U.S. Treasury note plus 100
basis points. This provision is expected to substantially reduce the
profitability of education loans, which may have an adverse impact on the
Corporation's willingness to originate and/or hold these types of loans. It
should be noted, however, that management does not expect the profitability of
the Corporation's existing portfolio of education loans to be adversely impacted
by the Act. During the three months ended March 31, 1998 and 1997, the
Corporation originated $11.5 million and $10.7 million in education loans,
respectively.
The banking and thrift industries, as well as other interested parties,
have been working with federal legislators to eliminate or modify this provision
of the Act. As a result, recent legislation approved by the U.S. House of
Representatives is expected to reduce the profitability of education loans by
approximately 30 basis points. Although an improvement over the existing
legislation, the Corporation has not determined the impact this modification
would have on its willingness to originate and/or hold education loans.
Furthermore, there can be no
14
<PAGE> 16
assurances that the proposed legislation will be approved by the U.S. Senate,
that it will be signed into law by the President of the United States, or that
additional compromises will not be necessary, which may have a further adverse
impact on the profitability of education loans.
15
<PAGE> 17
PART II--OTHER INFORMATION
ITEM 1--LEGAL PROCEEDINGS
Refer to Note 3 of the Corporation's Consolidated Financial Statements.
ITEM 2--CHANGES IN SECURITIES
None.
ITEM 3--DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4--SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Corporation held its Annual Meeting of Shareholders on April 22,
1998. The following matters were voted upon at that meeting:
1. The election of three nominees for the Board of Directors, who will
serve for a three-year term, was voted upon by the Corporation's shareholders.
The nominees, all of whom were elected, are set forth in the table below. The
Inspector of Election certified the following vote tabulations:
Nominee Votes For Votes Withheld
------- --------- --------------
Henry C. Funk 7,887,427 35,071
Patrick J. Luby 7,884,942 37,556
Don P. Rundle 7,882,550 39,948
2. Ratification of the appointment by the Board of Directors of Ernst
and Young LLP as the Corporation's independent auditors for the year ending
December 31, 1998:
Votes For Votes Against Abstain Non-Vote
--------- ------------- ------- --------
7,856,207 24,178 32,691 9,422
ITEM 5--OTHER INFORMATION
None.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
None.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST FEDERAL CAPITAL CORP
/s/ Thomas W. Schini May 1, 1998
Thomas W. Schini
President, Chairman of the
Board and Chief Executive Officer
(duly authorized officer)
/s/ Jack C. Rusch May 1, 1998
Jack C. Rusch
Executive Vice President and
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE 3-MONTH PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 28,126,691
<INT-BEARING-DEPOSITS> 59,108,383
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,464,835
<INVESTMENTS-CARRYING> 117,734,484
<INVESTMENTS-MARKET> 117,315,067
<LOANS> 1,163,827,764
<ALLOWANCE> 7,623,526
<TOTAL-ASSETS> 1,580,295,387
<DEPOSITS> 1,206,965,157
<SHORT-TERM> 138,696,867
<LIABILITIES-OTHER> 18,116,642
<LONG-TERM> 103,200,000
0
0
<COMMON> 36,534,220
<OTHER-SE> 76,782,501
<TOTAL-LIABILITIES-AND-EQUITY> 1,544,294,398
<INTEREST-LOAN> 25,783,220
<INTEREST-INVEST> 3,866,636
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 29,649,856
<INTEREST-DEPOSIT> 13,768,513
<INTEREST-EXPENSE> 17,718,213
<INTEREST-INCOME-NET> 11,931,643
<LOAN-LOSSES> 53,188
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<EXPENSE-OTHER> 10,902,165
<INCOME-PRETAX> 7,773,770
<INCOME-PRE-EXTRAORDINARY> 7,773,770
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<NET-INCOME> 4,798,893
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