<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-19829
CALUMET BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3785272
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1350 EAST SIBLEY BOULEVARD, DOLTON, ILLINOIS 60419
(Address of principal executive offices) (Zip Code)
(708) 841-9010
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of November 8, 1996, the Company has 2,377,078 shares of $0.01 par value
common stock issued and outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS PAGE NO.
Consolidated Statements of Financial Condition
as of September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income
for the three months ended September 30, 1996 and 1995,
and for the nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and 1995 5
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 14
ITEM 2 - CHANGES IN SECURITIES 14
ITEM 3 - DEFAULT UPON SENIOR SECURITIES 14
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5 - OTHER INFORMATION 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURE PAGE 16
2
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CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------- --------
<S> <C> <C>
Assets:
Cash $ 3,156 $ 2,616
Interest-bearing deposits 7,412 6,041
-------- --------
CASH AND CASH EQUIVALENTS 10,568 8,657
Investment securities available-for-sale 57,746 68,153
Investment securities held-to-maturity 28,304 32,620
Loans receivable, net 370,861 375,467
Investment in limited partnerships 17,110 16,226
Real estate held for sale,
acquired through foreclosure 1,890 2,483
Office properties and equipment, net 4,291 4,267
Other assets 2,009 1,655
-------- --------
TOTAL ASSETS $492,779 $509,528
======== ========
Liabilities:
Deposits $368,332 $362,922
Federal Home Loan Bank advances 36,850 55,140
Advance payments by borrowers for
taxes and insurance 1,834 3,058
Income taxes -- 529
Miscellaneous liabilities 6,180 3,769
-------- --------
TOTAL LIABILITIES 413,196 425,418
Stockholders' Equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized -- --
Common stock, $.01 par value,
4,200,000 shares authorized
3,614,341 and 3,599,372 shares issued and outstanding 36 36
Additional paid-in-capital 35,071 34,665
Retained earnings - substantially restricted 72,128 68,418
Net unrealized gains (losses) on securities available-for-sale,
net of income tax (expense) benefit of $26 and $(217) (59) 423
Less: Unearned ESOP shares (990) (1,414)
Stock held for management recognition plan (171) (273)
Treasury stock (1,237,313 and 926,494 shares) (26,432) (17,745)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 79,583 84,110
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $492,779 $509,528
======== ========
</TABLE>
3
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CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
-------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans $8,076 $7,877 $24,552 $23,858
Investment securities 1,540 1,761 4,698 5,148
-------------------- ------------------- -------------------- -------------------
Total interest income 9,616 9,638 29,250 29,006
Interest Expense:
Deposits 4,606 4,533 13,749 12,385
Federal Home Loan Bank advances 621 718 1,955 2,416
-------------------- ------------------- -------------------- -------------------
Total interest expense 5,227 5,251 15,704 14,801
-------------------- ------------------- -------------------- -------------------
Net interest income 4,389 4,387 13,546 14,205
Provision for losses on loans 200 200 600 600
-------------------- ------------------- -------------------- -------------------
Net interest income after
provision for losses on loans 4,189 4,187 12,946 13,605
Other Income:
Fees on loans sold 77 58 182 297
Loss on sale of real estate (62) (27) (4) (183)
Gain (loss) on sale of securities (15) (4) 5 (83)
Income from limited partnerships 174 147 1,228 185
Insurance commissions 29 60 139 190
Other 438 165 741 530
-------------------- ------------------- -------------------- -------------------
Total other income 641 399 2,291 936
Other Expenses:
Compensation 1,179 1,199 4,065 4,033
Occupancy 319 305 966 949
Federal insurance premiums 2,528 203 2,951 608
Other general and administrative 646 622 1,895 2,075
-------------------- ------------------- -------------------- -------------------
Total other expenses 4,672 2,329 9,877 7,665
-------------------- ------------------- -------------------- -------------------
Income before income taxes 158 2,257 5,360 6,876
Income taxes (49) 404 1,650 2,133
-------------------- ------------------- -------------------- -------------------
Net income $207 $1,853 $3,710 $4,743
==================== =================== ==================== ===================
Earnings per share $0.08 $0.63 $1.39 $1.62
==================== =================== ==================== ===================
</TABLE>
4
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CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
1996 1995
------------------- -------------------
<S> <C> <C>
Operating Activities:
Net income $3,710 $4,743
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for losses on loans 600 600
Provision for depreciation 241 245
Amortization of deferred loan and commitment fees (769) (701)
Amortization and accretion of premiums and discounts 180 149
Amortization and allocation of stock based benefits 526 526
Loss (gain) on sales of securities (5) 83
Equity loss (income) from limited partnerships (1,228) (185)
Loss (gain) on sales of real estate 4 183
Change in operating assets and liabilities:
Decrease (increase) in interest receivable 184 140
Decrease (increase) in other assets 364 3,981
(Decrease) increase in interest payable (45) (99)
(Decrease) increase in income taxes payable (373) (999)
(Decrease) increase in miscellaneous liabilities 3,145 (131)
------------------- -------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,534 8,535
Investing Activities:
Investment securities available-for-sale:
Purchases (26,600) (24,080)
Proceeds from sales 32,888 11,810
Maturities 2,000 13,700
Repayments 1,397 2,439
Investment securities held-to-maturity:
Purchases -- (5,005)
Proceeds from sales -- --
Maturities -- --
Repayments 4,138 2,384
Principal and fees collected on loans 67,180 44,613
Loans originated (58,516) (46,452)
Loans purchased (3,567) (4,082)
Originations of loans held for sale (5,108) (7,885)
Cost of loans sold 5,108 7,885
Investments in limited partnerships (3,387) (3,100)
Return of investment in limited partnerships 2,387 3,276
Proceeds from sales of real estate 289 681
Sales of office property and equipment -- 109
Purchases of office property and equipment (265) (204)
------------------- -------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 17,944 (3,911)
</TABLE>
5
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CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
1996 1995
------------------- -------------------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in demand and passbook accounts 1,145 (4,814)
Net increase (decrease) in certificates of deposit 4,238 22,943
Proceeds from Federal Home Loan Bank advances 41,675 36,990
Repayments of Federal Home Loan Bank advances (59,965) (60,185)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance (1,224) 580
Purchase of treasury stock (8,687) (269)
Net proceeds from exercise of stock options 251 31
------------------- -------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (22,567) (4,724)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,911 (100)
Cash and cash equivalents at beginning of period 8,657 9,350
------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,568 $9,250
=================== ===================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $13,722 $11,375
Interest on Federal Home Loan Bank advances 2,027 2,505
------------------- -------------------
Total interest paid $15,749 $13,880
=================== ===================
Income taxes $2,375 $3,132
=================== ===================
Non-cash transactions:
Loans transferred to real estate owned $436 $1,165
Loans and non-cash transfers to facilitate
sales of real estate owned 685 359
</TABLE>
6
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CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
1996 1995
------------------- -------------------
<S> <C> <C>
Common stock:
Beginning of period $36 $36
Proceeds of option stock issued -- --
------------------- -------------------
End of period 36 36
------------------- -------------------
Additional paid-in-capital:
Beginning of period 34,665 34,494
Tax benefit of MRP deduction 155 --
Proceeds of stock options exercised 251 31
------------------- -------------------
End of period 35,071 34,525
------------------- -------------------
Retained earnings:
Beginning of period 68,418 62,453
Net income 3,710 4,743
------------------- -------------------
End of period 72,128 67,196
------------------- -------------------
Unrealized gains and (losses) on securities
available for sale:
Beginning of period, net of income tax
(expense) benefit of ($217) and $1,269 423 (1,953)
Change in unrealized gains and (losses), net of
income tax (expense) benefit of $243 and ($1,295) (482) 2,064
------------------- -------------------
End of period, net of income tax
(expense) benefit of $26 and ($26) (59) 111
------------------- -------------------
Less unearned ESOP shares:
Beginning of period (1,414) (1,980)
Shares released 424 424
------------------- -------------------
End of period (990) (1,556)
------------------- -------------------
Less stock held for MRP:
Beginning of period (273) (410)
Amortization 102 102
------------------- -------------------
End of period (171) (308)
------------------- -------------------
Less Treasury stock:
Beginning of period (17,745) (14,354)
Purchases (8,687) (269)
------------------- -------------------
End of period (26,432) (14,623)
------------------- -------------------
Total stockholders' equity $79,583 $85,381
=================== ===================
</TABLE>
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. The results of
operations for the three months and the nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. Certain 1995 amounts have been reclassified to
conform to 1996 presentation. For further information, refer to the
consolidated financial statements and notes thereto included in the Calumet
Bancorp, Inc. (the "Company") Annual Report on Form 10-K for the year ended
December 31, 1995.
NOTE B - EARNINGS PER SHARE
Earnings per share of Common Stock outstanding for the three months and
the nine months ended September 30, 1996 and 1995, respectively, have been
determined by dividing net income for the period by the weighted average number
of shares of common stock and common stock equivalents outstanding. Common
stock equivalents assume the exercise of stock options and use of proceeds to
purchase Treasury Stock at the average market price for the period. The
weighted average number of shares of common stock and common stock equivalents
outstanding used for this calculation were 2,518,744 and 2,925,141 for the
three months ended September 30, 1996 and 1995, and 2,676,777 and 2,924,529 for
the nine months ended September 30, 1996 and 1995, respectively. The average
number of uncommitted (unearned) shares held for the Company's Employee Stock
Ownership Plan ("ESOP") and included in the weighted average shares outstanding
for these same periods were 106,088, 162,667, 120,233 and 179,170,
respectively. Shares committed to be released to the ESOP are expensed during
the period based on original cost.
NOTE C - COMMITMENTS AND CONTINGENCIES
At September 30, 1996, the Company had approved loan commitments totalling
$9.7 million to originate loans, $6.7 million to sell loans, $10.2 million in
undisbursed loans-in-process, $23.4 million in unused lines of credit, and $5.8
million in credit enhancement arrangements. Commitments to fund loans and
those under credit enhancement arrangements have credit risk essentially the
same as that involved in extending loans to customers and are subject to the
Company's normal credit policies.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Calumet Bancorp, Inc. (the "Company") completed its initial public
offering of Common Stock on February 20, 1992. It owns all of the outstanding
Common Stock of Calumet Federal Savings and Loan Association of Chicago (the
"Association"), a federally chartered stock savings and loan association which
operates five financial services offices in the Chicago area -- in Dolton,
Lansing, Sauk Village, and two in southeastern Chicago. The Association owns
two first tier subsidiaries, Calumet Savings Service Corporation and Calumet
Residential Corporation, both wholly owned. Calumet Residential Corporation
owns 51% of a second tier subsidiary, Calumet United Limited Liability Company.
Calumet Savings Service Corporation owns two second tier subsidiaries, Calumet
Mortgage Corporation of Idaho and Calumet Mortgage Corporation of New Mexico,
both wholly owned. Calumet Mortgage Corporation of New Mexico was liquidated
as of August 1, 1996.
The Company's business activities currently consist of investment in
equity securities, participation as a limited partner in real estate investment
and loan servicing partnerships, and operation of the Association. The
Association's principal business consists of attracting deposits from the
public and investing these deposits, together with funds generated from
operations and borrowings, primarily in residential mortgage loans. The
Association's deposit accounts are insured to the maximum allowable by the
FDIC.
The Association's results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
its loan and investment securities portfolios and its cost of funds, consisting
of interest paid on its deposits and borrowings. The Association's operating
results are also affected by the sale of insurance, annuities and real estate
through its second tier subsidiaries, and to a lesser extent, loan commitment
fees, customer service charges and other income. Operating expenses of the
Association are primarily employee compensation and benefits, equipment and
occupancy costs, federal insurance of accounts premiums and other
administrative expenses. The Association's results of operations are further
affected by economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory authorities.
On September 30, 1996, President Clinton signed into law legislation for
the recapitalization of SAIF. As a result of this legislation the Association
will incur a special, one-time assessment by the FDIC in the amount of $2.3
million, which was accrued at September 30, 1996 and will be paid during the
fourth quarter. The special assessment reduces the Company's 1996 earnings by
approximately $0.60 per share after taxes. Management expects that a reduction
in the FDIC assessment rate from 23 cents per $100 of deposits in 1996 to
approximately 6.5 cents per $100 of deposits in 1997 will significantly improve
future earnings.
9
<PAGE> 10
FINANCIAL CONDITION
Total assets decreased $16.7 million, or 3.28%, to $492.8 million at
September 30, 1996, from $509.5 million at December 31, 1995. Net loans
receivable decreased $4.6 million, or 1.2%, to $370.9 million at September 30,
1996, from $375.5 million at December 31, 1995, with originations and purchases
of $62.1 million during the first nine months of 1996.
The Company's lending activities have been concentrated primarily in
residential real estate secured by first liens. At September 30, 1996,
approximately 57.2% of the Company's mortgage loans were secured by one-to-four
family residential properties, 15.5% by multifamily income producing
properties, and 27.3% by commercial properties and land. At December 31, 1995,
these concentrations were 57.6%, 16.3%, and 26.1%, respectively. At September
30, 1996, the Company's mortgage loan portfolio was geographically distributed
primarily in Illinois (34.5%), Colorado (26.6%), Idaho (18.5%), and New Mexico
(13.9%). At December 31, 1995, these distributions were 37.2%, 28.0%, 16.7%,
and 11.5%, respectively.
Deposits increased $5.4 million, or 1.5%, to $368.3 million at September
30, 1996, from $362.9 million at December 31, 1995. These funds, together with
funds generated from operations and asset reductions, were used to pay down
Federal Home Loan Bank advances as they became due, reducing advances by $18.3
million, or 33.2%, to $36.9 million at September 30, 1996, from $55.1 million
at December 31, 1995.
Stockholders' equity decreased $4.5 million, or 5.4%, to $79.6 million at
September 30, 1996, from $84.1 million at December 31, 1995. The decrease came
primarily from treasury stock purchases of $8.7 million, offset by earnings of
$3.7 million, $932,000 in credits from employee benefit plans, and reduced by
$482,000 in net unrealized losses on securities. During the first nine months
of 1996 the Company repurchased 310,819 shares of its stock at an average price
of $27.95 per share. The Company has 2,377,028 shares of common stock
(including 99,015 unearned ESOP shares) outstanding on September 30, 1996, with
a book value of $33.48 per share.
ASSET QUALITY
Non-performing loans decreased to $4.5 million, or 1.20% of total loans at
September 30, 1996, from $5.8 million, or 1.53% of total loans at December 31,
1995. Non-performing assets decreased to $6.4 million, or 1.29% of total
assets at September 30, 1996, from $8.2 million, or 1.62% of total assets at
December 31, 1995. The allowance for losses on loans increased to $5.5
million, or 122.43% of non-performing loans at September 30, 1996, from $4.9
million, or 84.58% of non-performing loans at December 31, 1995. The allowance
for losses on loans increased to 1.47% of total loans at September 30, 1996,
from 1.30% of total loans at December 31, 1995.
10
<PAGE> 11
RESULTS OF OPERATIONS
The Company reported net income of $207,000 for the third quarter of 1996,
compared to $1.9 million net income for the third quarter of 1995. The primary
reason for the decreased earnings for 1996 was the provision of $2.3 million to
pay the FDIC special assessment to recapitalize the SAIF. Pretax earnings for
the third quarter of 1996 would have been $2.5 million without the special
assessment, an increase of $217,000 from pretax earnings of $2.3 million in
1995. Earnings per share of common stock for the third quarter of 1996
decreased to $0.08, from $0.63 for the third quarter of 1995. Net income for
the nine months ended September 30, 1996 was $3.7 million, compared to
$4.7 million for the nine months ended September 30, 1995, while earnings per
share decreased to $1.39 for the first nine months of 1996, from $1.62 for the
first nine months of 1995. The FDIC special assessment reduced earnings per
share by $0.60 for 1996. Management expects that a reduction of the FDIC
assessment rate from 23 cents per $100 of deposits in 1996 to approximately 6.5
cents per $100 of deposits in 1997, would reduce deposit insurance premiums by
approximately $600,000 per year based on current levels of insured deposits.
Return on average assets decreased to 0.17% for the third quarter of 1996,
from 1.48% for the same quarter last year. Return on average assets before
the FDIC special assessment would have been 1.38% for the third quarter of
1996. Return on average stockholders' equity for the third quarter of 1996 was
1.04%, compared to 8.76% for the same quarter last year. ROE would have been
8.55% without the special assessment. Return on average assets decreased to
0.99% for the first nine months of 1996, from 1.27% in the first nine months of
1995. ROA would have been 1.41% without the special assessment. Return on
average stockholders' equity for the first nine months of 1996 was 5.99%,
compared to 7.68% in 1995. ROE would have been 8.55% without the special
assessment.
NET INTEREST INCOME
Net interest income for the third quarter of both 1996 and 1995 was $4.4
million. The average yield on interest earning assets increased to 8.24%
during the third quarter of 1996, from 8.15% in 1995, while the average cost of
funds increased to 5.24%, from 5.23% for these same periods, resulting in an
increase in the rate spread to 3.00% in 1996, from 2.92% in 1995. Net interest
income decreased by $659,000, to $13.5 million during the first nine months of
1996, compared to $14.2 million during the first nine months of 1995. The
average yield on interest earning assets increased to 8.29% during the first
nine months of 1996, compared to 8.23% for the first nine months of 1995, while
the average cost of funds increased to 5.21% in 1996, from 4.91% in 1995,
resulting in a decrease in the rate spread to 3.08%, compared to 3.32% last
year.
11
<PAGE> 12
PROVISION FOR LOAN LOSSES
The allowance for losses on loans is established through a provision for
losses on loans based on management's evaluation of the risk inherent in its
loan portfolio and general economic conditions. Management's evaluation
includes a review of all loans on which full collectibility may not be
reasonably assured, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience and the Company's internal
credit review process. The provision for losses on loans has been maintained at
$200,000 per quarter for 1996, the same as for 1995. Charges to the allowance
for losses on loans of $73,000 were offset by recoveries of $73,000 during the
first nine months of 1996. Net charges to the allowance for losses on loans
were $179,000 during the first nine months of 1995. The allowance for losses
on loans increased to 1.47% of total loans at September 30, 1996, from 1.30% of
total loans at December 31, 1995.
OTHER INCOME
Other income increased to $641,000 during the third quarter of 1996, from
$399,000 in the third quarter of 1995, primarily due to a $250,000 release fee
credited to miscellaneous income. Other income increased to $2.3 million
during the first nine months of 1996, from $936,000 during the first nine
months of 1995, primarily due to a $1.0 million increase in income from limited
partnerships, a $179,000 decrease in losses on sales of real estate acquired
through foreclosure, and an $88,000 swing from losses to gains on sales of
securities. The significant improvement in income from limited partnerships
comes primarily from the Company's investments in single family development
projects located in Illinois, although there has also been an improvement in
the performance of its Colorado investments. Fees on loans sold decreased
$115,000, or 38.7%, to $182,000 in the first nine months of 1996, from $297,000
in the first nine months of 1995, primarily due to a $2.8 million, or 35.4%
decrease in loans sold in the secondary market.
OPERATING EXPENSES
Operating expenses increased during the third quarter of 1996 to $4.7
million, from $2.3 million during the third quarter of 1995, primarily as the
result of the $2.3 million FDIC special assessment. Operating expenses as a
percent of average assets increased to 3.78% (1.90% without the FDIC special
assessment) in the third quarter of 1996, from 1.86% in 1995. During 1995 the
Company incurred significant legal expenses related to litigation involving
Florida loans, foreclosures and limited partnership investments which has not
been repeated in 1996. Net non-interest expense as a percent of average assets
improved to 1.39% (before the FDIC special assessment) for the third quarter of
1996, from 1.54% for the third quarter of 1995. The Company's efficiency ratio
(adjusted) was 48.8% for the third quarter of 1996, compared to 50.8% in 1995.
12
<PAGE> 13
Operating expenses increased during the first nine months of 1996 to $9.9
million, from $7.7 million in the first nine months of 1995, primarily due to
the $2.3 million FDIC special assessment. Operating expenses as a percent of
average assets increased to 2.64% in the first nine months of 1996, but
decreased to 2.02% before the special assessment, from 2.05% in the first nine
months of 1995, primarily as the result of a $126,000 decrease in legal costs
and an $85,000 decrease in audit and exam expense. Net non-interest expense as
a percent of average assets improved to 1.41% (before the FDIC special
assessment) for the first nine months of 1996, from 1.80% in the first nine
months of 1995, due to the increase in income from limited partnerships and the
decrease in legal, audit and exam expense. The Company's efficiency ratio was
49.6% for the first nine months of 1996, compared to 52.7% in 1995.
INCOME TAXES
During the third quarter of 1996 the Company accrued low income housing
tax credits in the amount of $62,000, and a dividends received deduction in the
amount of $136,000, which resulted in a net income tax benefit for the quarter.
During the third quarter of 1995 the Company revised its estimates of current
and deferred income tax liabilities, which resulted in a $367,000 credit to
income tax expense and reduced the effective tax rate from 34.2% to 17.9%. For
the first nine months of 1996 and 1995 the effective income tax rates of 30.8%
and 31.0%, respectively, reflect the benefits of both low income housing tax
credits and the dividends received deduction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds include deposits and Federal Home
Loan Bank advances, principal and interest payments on loans and securities,
maturing investment securities, and sales of securities from the
available-for-sale portfolio. While maturities and scheduled amortization of
loans and mortgage-backed securities are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by interest rates,
general economic conditions, and competition.
The primary investing activity of the Company is the origination and
purchase of mortgage loans and the purchase of securities. During the first
nine months of 1996 the Company originated and purchased mortgage loans in the
amount of $62.1 million, compared to $50.5 million during the first nine months
of 1995. During the first nine months of 1996 the Company purchased securities
in the amount of $26.6 million, compared to $29.1 million during the first nine
months of 1995.
During the first nine months of 1996 and 1995, the Company increased its
deposit base by $5.4 million and $18.1 million, respectively, through a
combination of more aggressive rates and new products. These funds, together
with funds from operations, loan repayments, and securities sales and
maturities, were used to repay maturing Federal Home Loan Bank advances a net
$18.3 million in 1996 and $23.2 million in 1995.
13
<PAGE> 14
Federal regulations require a savings institution to maintain an average
daily balance of liquid assets equal to at least 5% of the average daily
balance of its net withdrawable deposits and short term borrowings. In
addition, short term liquid assets must constitute 1% of net withdrawable
deposits and short term borrowings. Management has consistently maintained
levels in excess of the regulatory requirement. The Association's average
liquidity ratios for the first nine months of 1996 and 1995 were 7.9% and 8.5%,
respectively. The Association's average short term liquidity ratios for these
same periods were 2.1% and 2.9%, respectively.
The Association is also required to maintain specific amounts of capital
pursuant to federal regulations. As of September 30, 1996, the Association was
in compliance with all regulatory capital requirements, with tangible and core
capital of 10.5%, and risk-based capital of 17.6%, well above the requirements
of 1.5%, 3.0%, and 8.0%, respectively.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Holding Company and the Association are not engaged in any legal
proceedings of a material nature at the present time.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
At the September 24, 1996, Board of Directors meeting of the Registrant,
the Board of Directors terminated the service of Ernst & Young LLP as the
Registrant's independent certified public accountants. There were no
disagreements between the Registrant and Ernst & Young LLP on any matter of
accounting principles or practice, financial statement disclosure, or auditing
scope or procedure. On September 25, 1996,
14
<PAGE> 15
the Registrant engaged the firm of Crowe, Chizek and Company LLP as independent
certified public accountants for the Registrant. Form 8-K was filed on October
1, 1996 with the United States Securities and Exchange Commission. Amendment
No. 1 to Form 8-K was filed on October 11, 1996.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Date: November 8, 1996 CALUMET BANCORP, INC.
/s/Thaddeus Walczak
-------------------------
Thaddeus Walczak,
Chairman of the Board and
Chief Executive Officer
Date: November 8, 1996 /s/John Garlanger
-------------------------
John Garlanger,
Chief Financial Officer
16
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