<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 JUNE 30, 1998
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 August 7, 1998, the Company has 3,145,361 shares of $0.01 par value common
stock outstanding.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 - FINANCIAL STATEMENTS PAGE NO.
--------
<S> <C> <C>
Consolidated Statements of Financial Condition
as of June 30, 1998 and December 31, 1997 3
Consolidated Statements of Income
for the three months ended June 30, 1998 and 1997
and for the six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997 5
Consolidated Statements of Stockholders' Equity
and Other Comprehensive Income
for the six months ended June 30, 1998 and 1997 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 15
ITEM 2 - CHANGES IN SECURITIES 15
ITEM 3 - DEFAULT UPON SENIOR SECURITIES 15
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5 - OTHER INFORMATION 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURE PAGE 16
</TABLE>
2
<PAGE> 3
CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS:
Cash $ 3,173 $ 2,932
Interest bearing deposits 21,519 5,351
--------- ---------
CASH AND CASH EQUIVALENTS 24,692 8,283
Securities available-for-sale 44,677 46,967
Securities held-to-maturity
(fair value: $16,205 (1998); $18,606 (1997)) 16,350 18,768
Loans receivable, net 374,256 376,988
Investment in limited partnerships 21,027 24,645
Real estate held for sale acquired
through foreclosure 2,227 2,491
Office properties and equipment, net 4,652 4,468
Accrued interest receivable and other assets 4,080 4,016
--------- ---------
TOTAL ASSETS $ 491,961 $ 486,626
========= =========
LIABILITIES:
Deposits $ 349,095 $ 348,461
Federal Home Loan Bank advances 45,060 45,060
Advance payments by borrowers for
taxes and insurance 2,510 3,237
Income taxes 1,935 1,229
Accrued interest payable and other liabilities 6,111 7,025
--------- ---------
TOTAL LIABILITIES 404,711 405,012
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized -- --
Common stock, $.01 par value, 8,400,000 shares authorized,
3,619,454 shares issued 36 36
Additional paid-in capital 35,247 35,217
Retained earnings - substantially restricted 62,185 56,786
Accumulated other comprehensive income, net of tax 1,227 1,303
Unearned ESOP shares -- (283)
Treasury stock (474,593 shares) (11,445) (11,445)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 87,250 81,614
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 491,961 $ 486,626
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans $ 8,229 $ 8,443 $16,651 $16,839
Securities and deposits 1,120 1,333 2,232 2,693
------- ------- ------- -------
Total interest and dividend income 9,349 9,776 18,883 19,532
INTEREST EXPENSE:
Deposits 4,233 4,379 8,511 8,732
Federal Home Loan Bank advances 685 900 1,393 1,778
------- ------- ------- -------
Total interest expense 4,918 5,279 9,904 10,510
------- ------- ------- -------
NET INTEREST INCOME 4,431 4,497 8,979 9,022
Provision for losses on loans 118 200 224 400
------- ------- ------- -------
Net interest income after provision for losses 4,313 4,297 8,755 8,622
OTHER INCOME:
Gain on loans sold 54 53 92 71
Gain on sales of real estate 148 80 148 38
Gains on sales of securities -- 69 25 100
Income from limited partnerships (373) 649 3,752 1,530
Insurance and brokerage commissions 99 46 162 84
Other 192 123 473 212
------- ------- ------- -------
Total other income 120 1,020 4,652 2,035
OTHER EXPENSES:
Compensation and benefits 1,197 1,238 2,875 3,012
Office occupancy and equipment 333 307 652 614
Federal insurance premiums 55 59 110 119
Advertising and promotion 86 78 143 136
Data processing 128 128 267 253
Other 445 375 941 799
------- ------- ------- -------
Total other expenses 2,244 2,185 4,988 4,933
------- ------- ------- -------
Income before income taxes 2,189 3,132 8,419 5,724
Income taxes 784 1,067 3,020 1,888
------- ------- ------- -------
NET INCOME $ 1,405 $ 2,065 $ 5,399 $ 3,836
======= ======= ======= =======
BASIC EARNINGS PER SHARE $ 0.45 $ 0.64 $ 1.72 $ 1.15
======= ======= ======= =======
DILUTED EARNINGS PER SHARE $ 0.41 $ 0.60 $ 1.59 $ 1.08
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,399 $ 3,836
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans 224 400
Provision for depreciation 185 172
Amortization of deferred loan and commitment fees (394) (350)
Amortization and accretion of premiums and discounts 103 97
Amortization and allocation of stock based benefits 283 351
Gain on sales of securities available-for-sale (25) (100)
Equity in income from limited partnerships (3,752) (1,530)
Net gain on sale of real estate (148) (38)
Originations of loans held for sale (6,011) (3,111)
Gain on loans sold (92) (71)
Proceeds from loans sold 6,103 3,183
Change in operating assets and liabilities:
Increase in accrued interest receivable and other assets (64) (958)
Increase in income taxes 845 880
Decrease in accrued interest payable and other liabilities (914) (975)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,742 1,786
INVESTING ACTIVITIES:
Securities available-for-sale:
Purchases (16,560) (29,085)
Proceeds from sale 9,062 35,232
Repayments and maturities 9,606 1,826
Securities held-to-maturity:
Purchases -- --
Repayments and maturities 2,312 1,797
Principal and fees collected on loans 61,251 44,478
Loans originated (58,112) (35,740)
Loans purchased (260) (593)
Investments in limited partnerships (2,742) (3,732)
Return of investment in limited partnerships 10,112 2,230
Proceeds from sales of real estate 435 251
Purchases of office property and equipment (369) (140)
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 14,735 16,524
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in demand and passbook accounts $ 4,690 $ 2,305
Net decrease in certificates of deposit (4,056) (5,517)
Proceeds of Federal Home Loan Bank advances 17,000 32,440
Repayment of Federal Home Loan Bank advances (17,000) (37,340)
Net decrease in advance payments by
borrowers for taxes and insurance (727) (710)
Net proceeds from exercise of stock options 25 15
Purchase of treasury stock -- (9,236)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (68) (18,043)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 16,409 267
Cash and cash equivalents at beginning of year 8,283 9,175
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 24,692 $ 9,442
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest on deposits $ 8,932 $ 8,609
Cash paid during the year for interest on notes payable 1,400 1,788
-------- --------
$ 10,332 $ 10,397
======== ========
Cash paid during the year for income taxes $ 2,169 $ 1,685
======== ========
Noncash transactions:
Loans transferred to real estate owned $ 1,873 $ 803
Loans to facilitate sale of real estate owned 1,850 88
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND OTHER COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
COMPREHENSIVE INCOME STOCKHOLDERS' EQUITY
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
1998 1997 1998 1997
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Common stock:
Beginning and end of period $ 36 $ 36
-------- --------
Additional paid-in capital:
Beginning of period 35,217 35,090
Proceeds of option stock exercised 25 15
Tax benefits of MRP and option deductions 5 55
-------- --------
End of period 35,247 35,160
-------- --------
Retained earnings:
Beginning of period 56,786 73,817
NET INCOME $ 5,399 $ 3,836 5,399 3,836
-------- --------
End of period 62,185 77,653
-------- --------
Accumulated other comprehensive income:
Beginning of period unrealized gains on securities,
net of income taxes 1,303 239
Unrealized holding gains (losses) on securities arising
during period, net of income taxes (119) 253
Reclassification adjustment for gains on securities
included in net income, net of income taxes (16) (67)
Effect of tax rate adjustment on unrealized gains 59 -
------- -------
Other comprehensive income (76) 186 (76) 186
------- ------- -------- --------
End of period accumulated other comprehensive income 1,227 425
-------- --------
COMPREHENSIVE INCOME $ 5,323 $ 4,022
======= =======
Less unearned ESOP shares:
Beginning of period (283) (849)
Shares to be released 283 283
-------- --------
End of period - (566)
-------- --------
Less stock held for MRP:
Beginning of period - (137)
Amortization - 69
-------- --------
End of period - (68)
-------- --------
Less treasury stock:
Beginning of period (11,445) (26,432)
Purchases - (9,236)
-------- --------
End of period (11,445) (35,668)
-------- --------
Total stockholders' equity $ 87,250 $ 76,972
======== ========
</TABLE>
See notes to consolidated financial statements.
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 for the six months ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. Certain 1997
amounts have been reclassified to conform to 1998 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, 1997.
NOTE B - EARNINGS PER SHARE
In 1997, the FASB issued SFAS No. 128, Earnings per Share. SFAS No. 128 is
effective for the quarter ending December 31, 1997, and all prior earnings per
share amounts have been restated to be comparable. All earnings per share data
prior to the Company's November 17, 1997 three-for-two stock split have been
restated to be comparable. Basic earnings per share of common stock has been
determined by dividing net income for each period by the weighted average number
of shares of common stock outstanding. Diluted earnings per share has been
determined by dividing net income for the period by the weighted average number
of shares of common stock outstanding and additional shares issuable under stock
options. Common stock issuable under stock options assumes the exercise of stock
options and the use of proceeds to purchase treasury stock at the average market
price for the period. Shares of common stock purchased by the Company's Employee
Stock Ownership Plan ("ESOP") prior to December 31, 1992, are included in shares
outstanding for purposes of calculating earnings per share. Shares committed to
be released to the ESOP during the year are expensed during the year based on
original cost. The ESOP did not purchase any shares subsequent to December 31,
1992, which would be subject to AICPA Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans." 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 the
three months ended June 30, 1998 and 1997 were 10,609 and 95,480, respectively,
and for the six months then ended were 21,218 and 106,088, respectively.
The following table presents a reconciliation of the denominators used to
compute basic earnings per share and diluted earnings per share for the three
months and the six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------
(Dollars in thousands, except per share data) 1998 1997 1998 1997
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares of common stock outstanding 3,142,387 3,216,752 3,141,492 3,326,321
Dilutive effects of assumed stock option exercises 256,506 236,649 258,042 233,252
---------- ---------- ---------- ----------
Weighted average shares of common stock and
common stock equivalents 3,398,893 3,453,401 3,399,534 3,559,573
========== ========== ========== ==========
EARNINGS PER SHARE:
Net income available to common shareholders $ 1,405 $ 2,065 $ 5,399 $ 3,836
Basic earnings per share $ 0.45 $ 0.64 $ 1.72 $ 1.15
EARNINGS PER SHARE ASSUMING DILUTION:
Net income available to common shareholders $ 1,405 $ 2,065 $ 5,399 $ 3,836
Diluted earnings per share $ 0.41 $ 0.60 $ 1.59 $ 1.08
</TABLE>
8
<PAGE> 9
NOTE C - COMPREHENSIVE INCOME
During the first quarter of 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. Specifically,
the Company has reported the change in unrealized gains and losses on securities
as an addition to (deduction from) net income to arrive at comprehensive income
of $5.3 million for the first half of 1998, compared to $4.0 million for the
first half of 1997.
NOTE D - COMMITMENTS AND CONTINGENCIES
At June 30, 1998, the Company had approved loan commitments totalling $11.9
million to originate loans, $0.7 million to sell loans, $5.8 million in
undisbursed loans-in-process, $14.4 million in unused lines of credit, and $9.4
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.
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 Financial Corporation, both wholly owned.
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 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 deposit insurance premiums, advertising, data processing, 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.
FINANCIAL CONDITION
Total assets increased $5.3 million, or 1.1%, to $492.0 million at June 30,
1998, from $486.6 million at December 31, 1997. Net loans receivable decreased
$2.7 million, or 0.7%, to $374.3 million at June 30, 1998, from $377.0 million
at December 31, 1997, with originations and purchases of $58.4 million, and
repayments of $61.3 million, during the first six months of 1998.
9
<PAGE> 10
The Company's lending activities have been concentrated primarily in residential
real estate secured by first liens. At June 30, 1998, approximately 60.1% of the
Company's mortgage loans were secured by one-to-four family residential
properties, 11.9% by multifamily income producing properties, and 28.0% by
commercial properties and land. At December 31, 1997, these concentrations were
58.7%, 12.4%, and 28.9%, respectively. At June 30, 1998, the Company's mortgage
loan portfolio was geographically distributed primarily in Illinois (33.6%),
Colorado (19.6%), Idaho (21.1%), and New Mexico (16.8%). At December 31, 1997,
these distributions were 33.1%, 24.1%, 20.6%, and 14.9%, respectively.
Deposits increased $634,000, or 0.2%, to $349.1 million at June 30, 1998, from
$348.5 million at December 31, 1997. Federal Home Loan Bank advances remained at
$45.1 million at June 30, 1998, the same as at December 31, 1997.
Stockholders' equity increased $5.6 million, or 6.9%, to $87.3 million at June
30, 1998, from $81.6 million at December 31, 1997, primarily as the result of
$5.4 million in net income. The Company has 3,144,861 shares of common stock
outstanding on June 30, 1998, with a book value of $27.74 per share.
ASSET QUALITY
The allowance for losses on loans decreased to 1.52% of loans receivable at June
30, 1998, from 1.54% of loans receivable at December 31, 1997, primarily due to
the chargeoff of a $350,000 loan which had been previously fully reserved.
Nonperforming loans to loans receivable decreased to 0.95% at June 30, 1998,
from 1.39% at December 31, 1997, primarily due to the foreclosure of three large
related loans, including the $350,000 loan referenced above. Nonperforming
assets to total assets decreased to 1.21% at June 30, 1998, from 1.64% at
December 31, 1997, primarily due to the subsequent sale of property acquired
through the three foreclosures. The allowance for losses on loans amounted to
160% of nonperforming loans at June 30, 1998, increased from 111% at December
31, 1997.
RESULTS OF OPERATIONS
The Company reported net income of $1.4 million for the second quarter of 1998,
compared to $2.1 million net income for the second quarter of 1997. Basic
earnings per share decreased to $0.45 for the second quarter of 1998, compared
to $0.64 per share in the second quarter of 1997. Diluted earnings per share
decreased to $0.41 for the second quarter of 1998, compared to $0.60 for the
second quarter of 1997. The primary reason for the decrease was a $1.0 million
decrease in income from limited partnerships, which includes a $1.4 million
write down of mortgage loan servicing rights resulting from falling interest
rates and increased prepayments. (See Other Income.)
Net income for the six months ended June 30, 1998, increased to $5.4 million,
compared to $3.8 million for the six months ended June 30, 1997. Basic earnings
per share increased to $1.72 for the first half of 1998, compared to $1.15 for
the first half of 1997. Diluted earnings per share for the first half of 1998
was $1.59, compared to $1.08 for the first half of 1997. The primary reason for
the increase was the sale of a limited partnership investment property during
the first quarter of 1998, at a gain of $3.6 million, which resulted in after
tax net income of $2.3 million, or diluted earnings per share of $0.69. This
gain was partially offset by the $1.4 million write down of servicing rights,
which was $898,000 after tax, and a reduction of diluted earnings per share of
$0.26.
Operating expenses as a percent of average assets increased to 1.83% in the
second quarter of 1998, from 1.76% in the second quarter of 1997. The Company's
efficiency ratio decreased to 50.6% during the second quarter of 1998, from
41.1% during the second quarter of 1997, primarily due to the write down of
servicing rights. Return on average assets for the second quarter of 1998
decreased to 1.15%, compared to 1.67% for the second quarter last year. Return
on average stockholders' equity for the second quarter of 1998 decreased to
6.56%, compared to 10.81% for the second quarter last year.
Operating expenses as a percent of average assets increased to 2.04% in the
first half of 1998, from 1.97% in the first half of 1997. The Company's
efficiency ratio improved to 37.2% during the first half of 1998, from 46.3%
10
<PAGE> 11
during the first half of 1997. Return on average assets for the first half of
1998 was 2.21%, compared to 1.53% for the same period last year. Return on
average stockholders' equity for the first half of 1998 was 12.87%, compared to
9.84% for the same period last year.
NET INTEREST INCOME
Net interest income decreased to $4.4 million for the second quarter of 1998,
compared to $4.5 million for the second quarter of 1997. The average yield on
interest earning assets decreased to 8.22% during the second quarter of 1998,
from 8.52% during the second quarter of 1997, while the average cost of funds
decreased to 5.06%, from 5.21% for these same periods, resulting in a decrease
in the rate spread to 3.16% in 1998, from 3.31% in 1997. The net interest margin
decreased to 3.89% for the second quarter of 1998, compared to 3.92% for the
second quarter of 1997.
Net interest income remained at $9.0 million for the first half of 1998, $43,000
less than for the first half of 1997. The average yield on interest earning
assets decreased to 8.34% during the first half of 1998, from 8.43% during the
first half of 1997, while the average cost of funds decreased to 5.10%, from
5.16% for these same periods, resulting in a decrease in the rate spread to
3.24% in 1998, from 3.27% in 1997. The net interest margin increased to 3.97%
for the first half of 1998, compared to 3.89% for the first half of 1997.
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 Company's provision for losses on loans was reduced to $224,000 for
the first six months of 1998, from $400,000 for the first six months of 1997.
Nonperforming loans to loans receivable decreased to 0.95% at June 30, 1998,
from 1.39% at December 31, 1997. Nonperforming assets to total assets decreased
to 1.21% at June 30, 1998, from 1.64% at December 31, 1997. The allowance for
losses on loans amounted to 160% of nonperforming loans at June 30, 1998,
increased from 111% at December 31, 1997.
OTHER INCOME
Other income decreased $900,000, to $120,000 during the second quarter of 1998,
from $1.0 million in the second quarter of 1997, primarily due to the $1.4
million write down for impairment of purchased mortgage loan servicing rights
held by limited partnerships, which was partially offset by a $378,000 increase
in income from other limited partnerships, resulting from increased sales of
single family homes being developed by the Company's Illinois limited
partnerships.
Purchased mortgage loan servicing rights represent the right to collect
servicing fees and ancillary income from a portfolios of mortgage loans owned by
third party investors. The value of this right to receive future income is
periodically reevaluated based on changes in the the characteristics of the
underlying loan portfolios, including weighted average coupons, weighted average
maturities, scheduled loan payments, and unscheduled loan payments (or
prepayments). During the first six months of 1998, prepayments significantly
exceeded expectations, resulting in an estimated $1.4 million impairment of the
asset at June 30, 1998. The Company, through its partnerships, actively manages
for retention of mortgages that would have otherwise paid off, significantly
improving the value of the servicing asset. However, further reductions in
mortgage loan interest rates could result in continued high levels of
prepayments, and would result in additional impairment to the servicing asset.
Other income increased $2.6 million, to $4.6 million during the first half of
1998, from $2.0 million in the first half of 1997, primarily due to a $2.2
million increase in income from limited partnerships. In addition to the
increased sales of single family homes and the write down of mortgage loan
servicing rights during the second quarter, during the first quarter the Company
closed out a partnership investment in a 288 unit apartment complex located in
Fort
11
<PAGE> 12
Lauderdale, Florida, with the sale of the property, realizing a gain of
$3.6 million, and offsetting $1.9 million in losses recognized in prior periods.
The following table presents additional detail on miscellaneous other income for
the periods indicated.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------------
1998 1997 1998 1997
---------------------- ------------------------
<S> <C> <C> <C> <C>
Miscellaneous other income:
Rental income $ 36 $ 42 $ 69 $ 82
Income from real estate owned, net (56) (86) (57) (190)
Checking account fees 109 92 194 174
ATM/debit card fees 58 50 110 92
Credit enhancement fees 32 10 62 19
Other miscellaneous 13 15 95 35
----- ----- ----- -----
Total miscellaneous other income $ 192 $ 123 $ 473 $ 212
===== ===== ===== =====
</TABLE>
OPERATING EXPENSES
Operating expenses remained at $2.2 million for the second quarter of 1998,
$59,000 more than the second quarter of 1997. Compensation expense decreased
$41,000, or 3.3%, to $1.2 million in 1998, partially offsetting various other
expenses which increased $100,000, including a $67,000 increase in professional
fees paid.
Operating expenses increased to $5.0 million for the first half of 1998,
compared to $4.9 million for the first half of 1997. Compensation expense
decreased $137,000, or 4.6%, to $2.9 million in 1998, from $3.0 million in 1997,
partially offsetting an increase of $192,000 in various other expenses,
including a $100,000 increase in professional fees paid. The following table
presents additional detail on miscellaneous other expenses for the periods
indicated.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------
<S> <C> <C> <C> <C>
Miscellaneous other expense:
Stationery and supplies $ 39 $ 21 $116 $116
Telephone and postage 61 65 135 133
Loan expense 8 30 15 64
Insurance 20 24 46 56
Security 25 20 52 43
Audit and examination fees 47 51 101 99
Legal fees 71 8 110 26
Consulting fees 8 -- 40 11
Benefit plan administration fees 9 12 17 30
Dues and subscriptions 8 12 27 18
Checking account expenses 5 5 13 10
ATM/debit card expenses 52 31 90 60
Minority interest 13 8 24 16
Other 79 88 155 117
---- ---- ---- ----
Total miscellaneous other expense $445 $375 $941 $799
==== ==== ==== ====
</TABLE>
INCOME TAXES
The Company's effective income tax rate for the first half of 1998 was 35.9%
compared to 33.0% for the first half of 1997. The effective tax rate for the
first half of 1997 was reduced by the dividends received deduction and by low
12
<PAGE> 13
income housing tax credits. During the first half of 1998, the $2.7 million
increase in pretax income, compared to the first half of 1997, made the 1998
dividends received deduction and low income housing tax credits less effective.
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 half of 1998 and
1997, the Company originated and purchased mortgage loans in the amounts of
$58.4 million and $36.3 million, respectively. Loan repayments for these same
two periods were $61.3 million and $44.5 million, respectively. Much of the
increase in lending activity during the first half of 1998 was due to
refinances, and is reflected in the significant increase in payoffs for the same
period.
During the first half of 1998 the Company's deposits increased by $634,000.
Short term borrowings from the FHLB of $17.0 million during the first half of
1998 were repaid during the period.
Federal regulations require a savings institution to maintain an average daily
balance of liquid assets equal to at least 4% of the average daily balance of
its 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 six months of 1998 and 1997
were 12.2% and 8.1%, respectively.
The Association is also required to maintain specific amounts of capital
pursuant to federal regulations. As of June 30, 1998, the Association was in
compliance with all regulatory capital requirements, with tangible and core
capital of 11.52%, risk-based capital of 19.07%, and tier one capital of 17.81%,
well above the requirements for capital adequacy of 1.5%, 3.0%, 8.0%, and 4.0%,
respectively. The minimum requirement for well capitalized institutions under
the prompt corrective action regulations are 10.0% risk-based capital and 6.0%
tier one capital.
DISCLOSURES ABOUT MARKET RISK
The business of the Company and the composition of its balance sheet consists of
investments in interest-earning assets (primarily loans, mortgage-backed
securities, and other securities) which are primarily funded by interest-bearing
liabilities (deposits and borrowings). Such financial instruments have varying
levels of sensitivity to changes in market interest rates resulting in market
risk. All of the financial instruments of the Company are for other than trading
purposes. Approximately 95% of the Company's financial assets and 100% of its
financial liabilities are held and managed by the Association. The following
discussion pertains primarily to the financial instruments held by the
Association.
In order to measure the market risk inherent in the Association's financial
assets and liabilities, management utilizes a quarterly report ("model")
prepared for the Association by the Office of Thrift Supervision ("OTS") based
on information provided by the Association which measures the Association's
exposure to interest rate risk. The model calculates the present value of
assets, liabilities, off-balance sheet financial instruments, and equity at
current interest rates, and at hypothetical higher and lower interest rates at
one percent intervals. The present value of each major category of financial
instrument is calculated by the model using estimated cash flows based on
weighted average contractual rates and terms at discount rates representing the
estimated current market interest rate for similar financial instruments. The
resulting present value of longer term fixed-rate financial instruments are more
sensitive to change in a higher or lower market interest rate scenario, while
adjustable-rate financial instruments largely reflect only a change in present
value representing the difference between the contractual and discounted rates
until the next interest rate repricing date. For further information regarding
the underlying assumptions of the model, as well as its
13
<PAGE> 14
shortcomings, refer to management's discussion and analysis included in the
Calumet Bancorp, Inc. Annual Report on Form 10-K for the year ended December 31,
1997.
The following table reflects the estimated present value of interest-earning
assets, interest-bearing liabilities, and off-balance sheet financial
instruments as calculated by the OTS for the Association as of March 31, 1997,
at then current interest rates and at hypothetical higher and lower interest
rates of one and two percent. (Because of the time needed by OTS to prepare
their reports, June 30, 1998 values are not yet available.)
<TABLE>
<CAPTION>
Present Value at March 31, 1998
----------------------------------------------------------------------------------
Down 2% Down 1% Current Up 1% Up 2%
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage loans, including mortgage-
backed securities:
Adjustable rate $ 217,267 $ 214,846 $ 212,405 $ 209,718 $ 206,533
Fixed rate 181,431 178,202 172,798 165,685 158,174
Commercial and consumer loans 12,601 12,547 12,498 12,448 12,399
Securities 47,101 45,806 44,477 42,973 41,248
--------- --------- --------- --------- ---------
TOTAL INTEREST-EARNING ASSETS 458,400 451,401 442,178 430,824 418,354
Other assets 24,091 24,270 24,485 24,671 24,825
--------- --------- --------- --------- ---------
Total assets $ 482,491 $ 475,671 $ 466,663 $ 455,495 $ 443,179
========= ========= ========= ========= =========
INTEREST BEARING LIABILITIES:
Passbook accounts $ 60,988 $ 60,787 $ 59,477 $ 57,376 $ 55,420
NOW accounts 25,281 24,796 24,118 23,473 22,872
Money market accounts 8,504 8,406 8,297 8,190 8,086
Certificates of deposit 258,445 256,555 254,700 252,870 251,119
--------- --------- --------- --------- ---------
TOTAL DEPOSITS 353,218 350,544 346,592 341,909 337,497
Borrowings 46,260 45,638 45,029 44,433 43,850
--------- --------- --------- --------- ---------
TOTAL INTEREST-BEARING LIABILITIES 399,478 396,182 391,621 386,342 381,347
Other liabilities 8,470 8,467 8,464 8,462 8,459
--------- --------- --------- --------- ---------
Total liabilities $ 407,948 $ 404,649 $ 400,085 $ 394,804 $ 389,806
========= ========= ========= ========= =========
Loan commitments $ 391 $ 298 $ 137 $ (52) $ (249)
========= ========= ========= ========= =========
NET PORTFOLIO VALUE (NPV) $ 74,934 $ 71,320 $ 66,715 $ 60,639 $ 53,124
========= ========= ========= ========= =========
RATIO OF NPV TO PV OF TOTAL ASSETS 15.53% 14.99% 14.30% 13.31% 11.99%
========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 15
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
At the annual meeting of shareholders on April 29, 1998, the
shareholders approved an Amendment to the Certificate of Incorporation
of the Company increasing the authorized common shares, par value
$0.01, from 4,200,000 to 8,400,000.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its annual meeting of shareholders on April 29,
1998.
(b) The names of each director elected at the annual meeting are
as follows:
Thaddeus Walczak Dr. Henry J. Urban
The names of each director whose term of office continued after the
annual meeting are as follows:
William A. McCann Darryl Erlandson Carole J. Lewis
Tytus Bulicz Louise Czarobski
(c) The following matters were voted upon at the annual meeting and
the number of votes cast with respect to the matter follows:
(i) Ratification of the appointment of Crowe, Chizek &
Company LLP as the Company's independent auditors for
the fiscal year ending December 31, 1998.
For Against Abstain
2,734,761 14,307 9,922
(ii) Approval of an Amendment to Certificate of
Incorporation of the Company increasing the authorized
common shares, par value $0.01, from 4,200,000 to
8,400,000.
For Against Abstain
2,647,330 80,423 31,237
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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.
CALUMET BANCORP, INC.
DATE: AUGUST 7, 1998 /S/THADDEUS WALCZAK
-----------------------------------
THADDEUS WALCZAK,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
DATE: AUGUST 7, 1998 /S/JOHN GARLANGER
-----------------------------------
JOHN GARLANGER,
CHIEF FINANCIAL OFFICER
16
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,173
<INT-BEARING-DEPOSITS> 21,519
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,677
<INVESTMENTS-CARRYING> 16,350
<INVESTMENTS-MARKET> 16,205
<LOANS> 382,071
<ALLOWANCE> 5,913
<TOTAL-ASSETS> 491,961
<DEPOSITS> 349,095
<SHORT-TERM> 30,000
<LIABILITIES-OTHER> 10,556
<LONG-TERM> 15,060
0
0
<COMMON> 36
<OTHER-SE> 87,214
<TOTAL-LIABILITIES-AND-EQUITY> 491,961
<INTEREST-LOAN> 8,229
<INTEREST-INVEST> 1,120
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9,349
<INTEREST-DEPOSIT> 4,233
<INTEREST-EXPENSE> 4,918
<INTEREST-INCOME-NET> 4,431
<LOAN-LOSSES> 118
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,244
<INCOME-PRETAX> 2,189
<INCOME-PRE-EXTRAORDINARY> 1,405
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,405
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.41
<YIELD-ACTUAL> 3.89
<LOANS-NON> 3,703
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,828
<CHARGE-OFFS> 53
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 5,913
<ALLOWANCE-DOMESTIC> 5,913
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
