<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File Number
June 30, 1996 0-20160
-----------------------------
FIRSTFED BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3820609
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
organization)
749 Lee Street, Des Plaines, Illinois 60016
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (847) 294-6500
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes --X-- No -----
As of August 12, 1996, there were 3,364,616 outstanding shares of the
registrant's Common Stock, par value $.01 per share. In addition,
42,000 shares were being held as treasury stock.
<PAGE> 2
FIRSTFED BANCSHARES, INC.
Table of Contents
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE NO.
Item 1. Financial Statements....................3
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations..................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................26
Item 2. Changes in Securities..................26
Item 3. Defaults upon Senior Securities........26
Item 4. Submission of Matters to a Vote
of Security Holders....................26
Item 5. Other Information......................27
Item 6. Exhibits and Reports of Form 8-K.......27
Form 10-Q Signatures.............................28
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
see notes to condensed consolidated financial statements
(unaudited)
FIRSTFED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited) JUN. 30, DEC. 31,
(Dollars in thousands except 1996 1995
per share amounts) --------- ---------
ASSETS
- ------
CASH AND CASH EQUIVALENTS
Cash and Amounts Due from
Depository Institutions $ 9,763 $ 19,198
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 9,763 19,198
INVESTMENTS:
Securities Available-for-Sale 74,042 46,414
Mortgage-Backed and Related
Securities Available-for-Sale 189,051 204,169
Federal Home Loan Bank Stock 4,644 4,835
--------- ---------
TOTAL INVESTMENTS 267,737 255,418
LOANS RECEIVABLE:
Mortgage Loans 282,615 276,288
Commercial Real Estate Loans 4,989 2,200
Consumer Loans 52,997 53,908
--------- ---------
TOTAL LOANS RECEIVABLE 340,601 332,396
Less Allowance for Possible Loan Loss ( 1,254) ( 1,379)
--------- ---------
LOANS RECEIVABLE, NET 339,347 331,017
ACCRUED INTEREST RECEIVABLE 4,593 3,461
PREMISES AND EQUIPMENT 10,046 10,260
OTHER ASSETS 3,610 3,146
--------- ---------
TOTAL ASSETS $635,096 $622,500
========= =========
<PAGE> 4
JUNE 30, DEC. 31,
1996 1995
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits $459,403 $454,656
Short-Term Borrowings and Securities
Sold under Agreement to Repurchase 83,332 70,435
Long-Term Advances from Federal
Home Loan Bank 27,400 27,400
Advances from Borrowers for
Taxes and Insurance 3,957 5,496
Accrued Expenses and Other Liabilities 6,194 6,836
--------- ---------
TOTAL LIABILITIES 580,286 564,823
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
5,000,000 authorized shares; 3,406,616
and 4,214,427 shares issued at
6/30/96 and 12/31/95 respectively 34 28
Additional Paid-in Capital 21,850 27,229
Retained Earnings 35,317 39,373
Treasury Stock, at cost, 7,500 and
729,485 shares held at 6/30/96
and 12/31/95 respectively ( 126) ( 9,397)
ESOP Loan ( 1,033) ( 1,198)
Unearned Stock Award ( 95) ( 97)
Unrealized Gain (Loss) on Securities
Available-for-Sale ( 1,137) 1,739
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 54,810 57,677
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $635,096 $622,500
========= =========
BOOK VALUE PER COMMON SHARE $16.12 $16.55
====== ======
BOOK VALUE PER COMMON SHARE (without
effect of unrealized gain (loss) on
securities.) $16.46 $16.05
====== ======
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FIRSTFED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SIX MONTHS ENDED
(Unaudited) JUNE 30, JUNE 30, JUNE 30, JUNE 30,
(Dollars in thousands except 1996 1995 1996 1995
per share amounts) --------- --------- ---------------------
INTEREST INCOME
Loans Receivable $ 6,470 $ 7,331 $12,918 $14,287
Mortgage-Backed and Related Securities 2,868 1,173 5,965 2,323
Securities 1,011 1,362 1,803 2,486
Other Interest and Dividend Income 153 346 499 485
--------- --------- --------- ---------
10,502 10,212 21,185 19,581
INTEREST EXPENSE
Deposits 6,033 6,197 12,152 11,132
Advances from Federal Home Loan Bank 1,156 503 2,516 1,206
Other Borrowed Money 311 3 416 3
--------- --------- --------- ---------
7,500 6,703 15,084 12,341
NET INTEREST INCOME 3,002 3,509 6,101 7,240
Provision for Possible Loan Losses 342 150 532 300
NET INTEREST INCOME AFTER PROVISION --------- --------- --------- ---------
FOR POSSIBLE LOAN LOSSES 2,660 3,359 5,569 6,940
NON-INTEREST INCOME
Loan Charges and Servicing Fees 180 96 385 234
Deposit Related Charges and Fees 141 115 259 220
Gain (Loss) on Sale of Securities -0- 11 2,507 ( 52)
Gain on Sale of Loans -0- -0- -0- 1
Insurance and Annuity Commissions 42 16 82 49
Other 16 24 32 37
--------- --------- --------- ---------
TOTAL NON-INTEREST INCOME 379 262 3,265 489
NON-INTEREST EXPENSE
Compensation and Benefits 1,251 1,498 2,369 2,656
Occupancy and Equipment 357 313 727 654
Federal Deposit Insurance Premium 264 233 530 465
Data Processing 192 179 405 354
Advertising 77 121 125 306
Other 550 582 1,251 1,033
--------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSE 2,691 2,926 5,407 5,468
INCOME BEFORE TAXES 348 695 3,427 1,961
Income Tax Provision 65 189 1,186 624
--------- --------- --------- ---------
NET INCOME $ 283 $ 506 $ 2,241 $ 1,337
========= ========= ========= =========
EARNINGS PER COMMON SHARE
Primary $0.08 $0.13 $0.63 $0.33
Fully Diluted $0.08 $0.13 $0.62 $0.33
WEIGHTED AVG. PRIMARY SHARES OUTSTANDING 3,582,212 3,961,160 3,563,785 4,019,109
WGHTD. AVG. FULLY DILUTED SHARES OUTSTANDING 3,633,783 3,981,150 3,633,440 4,034,916
See notes to condensed consolidated financial statements (unaudited)
<PAGE> 6
FIRSTFED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED
(Unaudited) JUNE 30, JUNE 30,
(Dollars in thousands) 1996 1995
--------- ---------
OPERATING ACTIVITIES
Net Income $ 2,241 $ 1,337
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities
Depreciation and Amortization of
Premises and Equipment 285 268
Deferred Loan Origination Fees 58 ( 61)
Amortization of Premiums and Discounts
on Mortgage-Backed and Investment
Securities, Net 786 78
Proceeds from Sale of Loans -0- 76
Provision for Possible Loan Losses 532 300
Net (Gain) Loss on Sale of Securities ( 2,507) 63
Stock Award Earned 2 18
Change In:
Prepaid Expenses and Other Assets ( 464) 907
Accrued Interest Receivable ( 1,132) ( 736)
Accrued Expenses and Other Liabilities( 642) 590
--------- ---------
NET CASH FROM OPERATING ACTIVITIES ( 841) 2,840
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations, Net of Principal
Payments ( 8,920) ( 46,931)
Principal Payments on Mortgage-Backed
and Related Securities 27,060 6,867
Purchases of Mortgage-Backed and
Related Securities (107,893) ( 10,995)
Purchases of Securities ( 47,161) ( 17,473)
Proceeds from Sales and Maturities
of Securities 114,329 25,165
Change in Federal Home Loan Bank Stock 191 -0-
Purchase of Office Properties and
Equipment ( 71) ( 927)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES ( 22,465) ( 44,294)
<PAGE> 7
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits 4,747 56,015
Repayments of Federal Home Loan Bank
Advances ( 31,900) ( 23,400)
Proceeds from Federal Home Loan Bank
Advances 24,500 31,000
Proceeds from Other Borrowings 20,297 759
Net Change in Mortgage Escrow Funds ( 1,539) 886
Purchase of Common Stock for Treasury ( 2,307) -0-
Proceeds from Exercise of Stock Options,
Net of Treasury Shares issued 475 161
Payment Received on Loan to ESOP 165 255
Dividend Paid, Net of Dividend
Reinvestment Program ( 567) ( 433)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES 13,871 65,243
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ( 9,435) 23,789
CASH AND CASH EQUIVALENTS, BEGINNING 19,198 6,776
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 9,763 $30,565
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid $12,287 $11,034
Income Taxes Paid 600 740
See notes to condensed consolidated financial statements (unaudited)
<PAGE> 8
</TABLE>
<TABLE>
<CAPTION>
FIRSTFED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Six months ended June 30, 1996 and 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNREALIZED
GAIN (LOSS)
ADDITIONAL UNEARNED ON ASSETS
COMMON PAID-IN RETAINED TREASURY ESOP STOCK AVAILABLE
STOCK CAPITAL EARNINGS STOCK LOAN AWARD FOR SALE TOTAL
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $28 $26,851 $38,051 ($5,197) ($1,630) ($129) ($1,127) $56,847
Net Income 1,337 1,337
Cash Dividends ($.067 per share) ( 509) ( 509)
Treasury Stock Reissued as Part of
Dividend Reinvestment Program 3 73 76
Principal Payment on ESOP Loan 255 255
Proceeds from Stock Option Exercises 161 161
Treasury Stock reissued in conjunction
with stock option exercises ( 2) ( 241) 533 290
Amortization of Stock Award 18 18
Change in Unrealized Gain/Loss on Securities
Available-for-Sale 823 823
- -----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 $28 $27,013 $38,638 ($4,591) ($1,375) ($111) ($ 304) $59,298
=======================================================================================================================
Balance at December 31, 1995 $28 $27,229 $39,373 ($9,397) ($1,198) ($ 97) $1,739 $57,677
Net Income 2,241 2,241
Cash Dividends ($.084 per share) ( 567) ( 567)
Purchase of Treasury Stock ( 2,307) ( 2,307)
Principal Payment on ESOP Loan 165 165
Shares issued in conjunction with
three-for-two stock split, and
cash paid on fractional shares 11 ( 5,379) ( 12) ( 5,380)
Treasury Stock reissued in conjunction
with stock option exercises ( 521) 996 475
Retirement of 538,503 shares
of common stock ( 5) ( 5,197) 10,582 5,380
Amortization of Stock Award 2 2
Change in Unrealized Gain/Loss on Securities
Available-for-Sale ( 2,876) ( 2,876)
- -----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 $34 $21,850 $35,317 ($ 126) ($1,033) ($ 95) ($ 1,137) $54,810
=======================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
<PAGE> 9
<TABLE>
<CAPTION>
FIRSTFED BANCSHARES, INC.
AVERAGE BALANCE SHEET
(Dollars in thousands)
See notes to condensed consolidated financial statements (unaudited)
The following table sets forth certain information related to the Company's
average balance sheet. It reflects the average yield on assets and average
cost of liabilities for the periods indicated, as derived by dividing income
or expense by the average daily balance of assets or liabilities,
respectively, for the periods indicated.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995
----------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
INTEREST-EARNING ASSETS: ----------------------------------------- ---------------------------------------
Mortgage Loans $277,997 $ 5,135 7.39% $316,429 $ 6,060 7.59%
Commercial Real Estate Loans 3,739 85 9.06 -0- -0- -0-
Consumer Loans 52,700 1,250 9.49 52,817 1,271 9.63
Mortgage-Backed and
Related Securities 193,697 2,868 5.92 70,930 1,173 6.61
Investment Securities 64,279 1,036 6.45 91,228 1,506 6.60
Other Investments 8,186 128 6.29 13,324 202 6.17
----------------------------------------- ---------------------------------------
Total Interest-Earning Assets $600,598 $10,502 7.01% $544,728 $10,212 7.43%
Non-Interest Earning Assets 27,446 30,070
----------------------------------------- ---------------------------------------
TOTAL ASSETS $628,044 $574,798
======== ========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 22,044 $ 98 1.79% $ 23,825 $ 100 1.68%
Money Market Accounts 11,236 92 3.28 10,972 80 2.92
Savings 70,171 436 2.50 70,344 439 2.50
Certificates of Deposit 342,139 5,407 6.32 354,728 5,578 6.31
FHLB Advances 77,320 1,156 5.92 31,543 503 6.31
Other Borrowed Funds 23,714 311 5.25 229 3 5.24
----------------------------------------- ---------------------------------------
Total Interest-Bearing
Liabilities $546,624 $ 7,500 5.50% $491,641 $ 6,703 5.46%
Non-Interest Bearing
Deposits 9,430 4,233
Other Liabilities 16,445 20,292
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES $572,499 $516,166
----------------------------------------- ---------------------------------------
Stockholders' Equity 55,545 58,632
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $628,044 $574,798
======== ========
NET INTEREST INCOME $ 3,002 $ 3,509
----------------------------------------- ---------------------------------------
NET INTEREST RATE SPREAD (1) 1.51% 1.97%
----------------------------------------- ---------------------------------------
NET INTEREST MARGIN (2) 1.99% 2.56%
----------------------------------------- ---------------------------------------
AVERAGE INTEREST-EARNINGS ASSETS TO AVERAGE
INTEREST-BEARING LIABILITIES 1.10 x 1.10 x
----------------------------------------- ---------------------------------------
</TABLE>
(1) Interest Rate Spread is calculated by subtracting the average cost of
interest-bearing liabilities from the average rate on interest-earning
assets.
(2) Net Interest Margin is calculated by dividing net interest income by
average interest-earning assets.
<PAGE> 10
<TABLE>
<CAPTION>
FIRSTFED BANCSHARES, INC.
AVERAGE BALANCE SHEET
(Dollars in thousands)
See notes to condensed consolidated financial statements (unaudited)
The following table sets forth certain information related to the Company's
average balance sheet. It reflects theaverage yield on assets and average
cost of liabilities for the periods indicated, as derived by dividing income
orexpense by the average daily balance of assets or liabilities,
respectively, for the periods indicated.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
----------------------------------------------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995
----------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
INTEREST-EARNING ASSETS: ----------------------------------------- ---------------------------------------
Mortgage Loans $277,041 $10,259 7.41% $308,915 $11,794 7.60%
Commercial Real Estate Loans 3,035 134 8.76 -0- -0- -0-
Consumer Loans 52,963 2,525 9.53 52,441 2,493 9.51
Mortgage-Backed and
Related Securities 197,017 5,965 6.05 71,703 2,323 6.48
Investment Securities 63,230 2,036 6.44 86,047 2,678 6.22
Other Investments 8,567 266 6.24 9,875 293 5.95
----------------------------------------- ---------------------------------------
Total Interest-Earning Assets $601,853 $21,185 7.04% $528,981 $19,581 7.35%
Non-Interest Earning Assets 25,343 28,738
----------------------------------------- ---------------------------------------
TOTAL ASSETS $627,196 $557,719
======== ========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 22,219 $ 198 1.79% $ 25,502 $ 213 1.68%
Money Market Accounts 11,209 179 3.22 11,169 157 2.83
Savings 69,495 864 2.50 71,702 889 2.50
Certificates of Deposit 344,182 10,911 6.34 330,723 9,872 6.02
FHLB Advances 83,856 2,516 5.94 38,284 1,207 6.27
Other Borrowed Funds 15,915 416 5.23 202 3 5.24
----------------------------------------- ---------------------------------------
Total Interest-Bearing
Liabilities $546,876 $15,084 5.53% $477,582 $12,341 5.15%
Non-Interest Bearing
Deposits 8,633 3,247
Other Liabilities 15,432 18,871
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES $570,941 $499,700
----------------------------------------- ---------------------------------------
Stockholders' Equity 56,255 58,019
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $627,196 $557,719
======== ========
NET INTEREST INCOME $ 6,101 $ 7,240
----------------------------------------- ---------------------------------------
NET INTEREST RATE SPREAD (1) 1.51% 2.20%
----------------------------------------- ---------------------------------------
NET INTEREST MARGIN (2) 2.02% 2.73%
----------------------------------------- ---------------------------------------
AVERAGE INTEREST-EARNINGS ASSETS TO AVERAGE
INTEREST-BEARING LIABILITIES 1.10 x 1.10 x
----------------------------------------- ---------------------------------------
</TABLE>
(1) Interest Rate Spread is calculated by subtracting the average cost of
interest-bearing liabilities from the average rate on interest-earning
assets.
(2) Net Interest Margin is calculated by dividing net interest income by
average interest-earning assets.
<PAGE> 11
FIRSTFED BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Regulation S-X. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The results of operations and other data for the quarter and six months
ended June 30, 1996 are not necessarily indicative of results that
may be expected for the entire year ended December 31, 1996.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
financial condition of FirstFed Bancshares, Inc. (the "Company"),
including its wholly owned subsidiary, First Federal Bank, Des Plaines,
Illinois (the "Bank"), as of June 30, 1996 and December 31, 1995; the
results of the Company's operations for the three months ended June 30,
1996 and 1995 and the six months ended June 30, 1996 and 1995; its cash
flows for the six months ended June 30, 1996 and 1995; its changes in
stockholders' equity for the six months ended June 30, 1996 and 1995;
and its average balance sheet for the three months ended June 30, 1996
and 1995, and the six months ended June 30, 1996 and 1995.
All references to number of shares issued, outstanding (primary and
fully-diluted) and held in treasury, earnings per share, and book value
per share, for periods prior to the second quarter of 1996, have been
restated as if the three-for-two stock split which occurred on May 15,
1996 had actually occurred on January 1, 1995.
Certain amounts in prior condensed consolidated financial statements
have been reclassified to conform with the June, 1996 presentation.
(2) Regulatory Capital Requirements
Pursuant to the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), as implemented by regulations
promulgated by the Office of Thrift Supervision (the "OTS"), savings
institutions must meet three separate minimum capital requirements.
The following table summarizes, as of June 30, 1996, the Bank's
capital requirements under FIRREA and its actual capital ratios. As
of June 30, 1996, the Bank exceeded all current minimum regulatory
capital requirements.
<PAGE> 12
BANK ONLY
----------------------------------------------------
Actual Regulatory Excess Above
Capital Capital Req. Capital Req.
Amount % Amount % Amount %
------- ------ ------- ----- ------- ------
(Dollars in Thousands)
Risk-Based $49,227 17.80% $22,129 8.00% $27,098 9.80
Core Capital 47,973 7.58 18,994 3.00 28,979 4.58
Tang. Capital 47,973 7.58 9,497 1.50 38,476 6.08
(3) Conversion and Earnings Per Share of Common Stock
On June 30, 1992, the Bank converted from a federally chartered mutual
savings bank to a federally chartered stock savings bank. The Bank
issued all of its Common Stock to the Company and at the same time the
Company issued 3,220,000 shares of Common Stock at $10 per share, all
pursuant to a plan of conversion.
Primary and fully diluted earnings per share for the quarter were
computed by dividing net income by 3,582,212 and 3,633,783, and for the
six months ended June 30, 1996 by 3,563,785 and 3,633,440 respectively,
the weighted average number of shares of common stock and common stock
equivalents outstanding during the quarter. Stock options are regarded
as common stock equivalents and are computed using the treasury stock
method.
(4) Stock Repurchase Program
On October 24, 1995, the Company announced its intention to repurchase
225,000 shares of its outstanding Common Stock in the open market. As
of August 12, 1996, 191,500 shares had been repurchased at an average
price of $15.07.
(5) Stock Dividend
On May 15, 1996, the Company effectuated a three-for-two stock split
payable in the form of a one-for-two stock dividend. The regular
quarterly dividend rate remained at $.10 per share post-split,
representing a 50% increase in the dividend rate as a result of the
split.
(6) Balance Sheet Restructure
On January 2, 1996, the Company announced that it had accomplished the
first step in its restructuring of the balance sheet of the Bank, to
become more like that of a full service community bank. The Bank, at
that time, had 73% of its balance sheet in fixed rate assets, and
management believes that in time of interest rate volatility, a greater
portion of the balance sheet should be in adjustable rate instruments.
It is management's goal to have no more than 50% of total assets in
fixed rate instruments, with no more than 15% repricing in greater than
five years by December 31, 1997. As of June 30, 1996, the Bank had 65%
<PAGE> 13
of its assets in fixed rate instruments, with 34% having a maturity of
greater than five years. In January and February of 1996, the Company
sold over $93 million in 15 and 30-year fixed rate mortgage-backed
securities, generating net gains of over $2.5 million, or approximately
$1.5 million after related taxes. The proceeds were invested in
adjustable rate mortgage-backed and related securities, and management
intends that over time, these funds will be reinvested in higher
yielding business and commercial real estate loans. In the short-term,
the Company may experience a decline in net interest margin until the
proceeds are converted from securities to higher yielding loans.
(6) New Director
On June 24, 1996, the number of directors on the Company's board was
increased from eight to nine. David Michael Miller was elected as a
Class I director with a term expiring in 1999. Mr. Miller is Vice-
President at Comdisco, Inc., a locally headquartered publicly-traded
company which sells and leases new and used IBM computer equipment,
including central processing units, printers, point-of-sale devices and
satellite terminals.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
The Company's business activities currently consist of ownership of the
Bank, and investments in other equity securities. The Bank's principal
business consists of attracting deposits from the public and investing
these deposits, together with funds generated from operations, primarily
in loans secured by mortgages on one-to-four family residences, consumer
loans, commercial real estate loans and commercial loans. The Bank has
recently established a new Commercial Lending Department, and it is
management's intention that commercial loans will become an increasingly
larger portion of the total loan portfolio as the balance sheet is
restructured to become more like that of a community bank. The Bank's
deposit accounts are insured to the maximum allowable by the Federal
Deposit Insurance Corporation (the "FDIC").
The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the interest earned on its
loans, mortgage-backed securities and investment securities portfolios,
and the interest paid on deposits and borrowed funds. The Bank's
operating results are also affected, to a lesser extent, by loan
commitment and servicing fees, customer service charges, fees from
annuity and insurance products, and other income. Operating expenses of
the Bank include employee compensation and benefits, equipment and
occupancy costs, federal deposit insurance premiums and other
administrative expenses.
The Bank's results of operations are further affected by economic
and competitive conditions, particularly changes in market interest
rates. Results are also affected by monetary and fiscal policies of
federal agencies, and actions of regulatory authorities. Since June 30,
<PAGE> 14
1995, the Treasury yield curve, (from maturities of 3 months to 30
years), has risen slightly, and the slope has increased from 104 basis
points at June 30, 1995 to 153 basis points at June 30, 1996. Should
this trend continue, it would help improve the Bank's net interest
margin which has been decreased somewhat in the short-term by the
balance sheet restructure. Also, as approximately $69 million in
certificates of deposit opened in March of 1995 (during a special Grand
Opening promotion) which carry a rate of 7.8%, mature in September of
1996, the Bank's net interest margin should improve.
FINANCIAL CONDITION
- -------------------
Total consolidated assets of the Company increased by $12.6 million, or
2.02% from $622.5 million at December 31, 1995, to $635.1 million at
June 30, 1996. This is primarily the result of a one-year arbitrage
transaction that the Bank entered into in May, 1996 for the purposes of
improving net interest income and deploying excess capital.
Total loans receivable increased $8.2 million, or 2.47% from $332.4
million at December 31, 1995, to $340.6 million at June 30, 1996. Loans
originated during the six month period ended June 30, 1996 were $51.9
million, of which 57% were mortgages, 6% were commercial real estate
loans, and 37% were consumer loans. Loans originated for the six months
ended June 30, 1995 were $78.3 million, of which 72% were mortgages and
28% were consumer loans.
Mortgage-backed and other mortgage-related securities decreased $15.1
million or 7.40% from December 31, 1995. During this six month period,
proceeds from the sales of fixed rate mortgage-backed securities of
$97.2 million, as well as principal payments and other securities
maturities of $25.8, were used to purchase $107.9 million in adjustable
rate mortgage-backed securities. Non mortgage-backed securities
increased $27.6 million or 59.5% from December 31, 1995. At June 30,
1996, mortgage-backed and non mortgage-backed securities comprised 42%
of total assets.
Deposits increased to $459.4 million at June 30, 1996, from $454.7
million at December 31, 1995, an increase of $4.7 million or 1.04%.
Most of this growth was in non-interest bearing checking accounts and
short-term certificates of deposit.
Short-term borrowings (due within one year) increased $12.9 million from
the December 31, 1995 balance of $70.4 million to $83.3 million at June
30, 1996. $12.5 million of this increase was directly attributable to
the arbitrage transaction. The balance of this increase was in the two
new funding sources the Bank obtained during 1995. One is a Treasury
Tax and Loan Account, which enables the U.S. Treasury to retain tax
dollars with the Company at a floating rate of interest, and the other
is a Retail Repurchase Agreement, under which a customer can lend money
to the Company which is then collateralized by a security the Company
owns. Long-term borrowings, all of which are Federal Home Loan Bank
advances, have not changed since December 31, 1995.
Book value per common share decreased to $16.12 at June 30, 1996 from
<PAGE> 15
$16.55 at December 31, 1995. This was due to the change in the
unrealized gain (loss) on securities available-for-sale from a gain of
$1.7 million at December 31, 1995, to a loss of $1.1 million at June 30,
1996. Without the effect of the unrealized gain (loss), book value per
common share increased from $16.05 at December 31, 1995 to $16.46 at
June 30, 1996.
Total non-performing loans as of June 30, 1996 increased to $769,600
or 0.12% of total assets. At December 31, 1995, non-performing loans
were $681,000 or 0.11% of total assets. However, the June 30th balance
represents a decrease from March 31, 1996 when non-performing loans were
$859,600, or 0.14% of total assets. Historically this number has ranged
between .04% and .14% of total assets, which is below the rate
experienced by the Bank's peer group. Management believes the reserves
for possible loan losses to be adequate. Furthermore, 64.3% of non-
performing loans were single family mortgages, and the Bank has not
incurred a loss on single family mortgages within the last five years.
The following table sets forth the amounts and categories of non-
performing loans.
June 30, 1996 Dec. 31, 1995
------------- -------------
(Dollars in Thousands)
Non-performing loans:
One-to-four family $ 495 $ 531
Consumer 275 150
------------- -------------
Total non-performing loans $ 770 $ 681
Total non-performing loans as
percentage of net loans .23% .21%
Total non-performing loans as
percentage of total assets .12% .11%
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, and funds
provided by other operations. While scheduled loan and mortgage-backed
securities repayments and maturities of short-term investments are a
relatively predictable source of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions, competition and the restructuring occurring in the banking
industry.
Current OTS regulations require the Bank to maintain cash and eligible
investments in an amount equal to at least 5% of customers' accounts and
short term borrowings to assure its ability to meet demands for
withdrawals and repayments of short term borrowings. As of June 30,
1996 and December 31, 1995, the Bank's liquidity ratio was 9% and 5%,
respectively.
<PAGE> 16
The Company's cash flows are a result of three principal activities:
operating activities, investing activities and financing activities.
Net cash used in operating activities, primarily interest paid on
deposits and borrowed money less interest and dividends received, was
$.8 million for the six months ended June 30, 1996. Net cash used in
investing activities was $22.5 million for the six months ended June 30,
1996. Purchases of investment securities and mortgage-backed securities
amounted to $155.1 million, and security sales and maturities were
$114.3 million. Principal payments on mortgage-backed and related
securities were $27.1 million. In addition, loan originations, net of
principal payments, were $8.9 million for the six month period. Net
cash provided by financing activities amounted to $13.9 million for the
six months ended June 30, 1996.
The Company uses its liquidity to meet its ongoing commitments to fund
maturing certificates of deposit and deposit withdrawals, repay
borrowings, fund existing and continuing loan commitments, and pay
operating expenses. At June 30, 1996, the Company had commitments to
originate loans totaling $7.0 million, and its customers had approved
but unused lines of credit totaling $64.2 million. The Company
considers its liquidity and capital resources to be adequate to meet its
foreseeable short and long-term needs. The Company expects to be able
to fund or refinance, on a timely basis, its material commitments and
long-term liabilities.
At June 30, 1996, the Bank had core and tangible capital of $48.0
million or 7.6% of adjusted total assets, which was approximately $29.0
million and $38.5 million above the minimum capital requirements in
effect on that date of 3.0% and 1.5%, respectively, of adjusted total
assets. On June 30, 1996, the Bank had total risk-based capital of
$49.2 million (including $48.0 million in core capital), or 17.8% of
risk-weighted assets of $276.6 million. This amount was approximately
$27.1 million above the 8.0% total risk-based capital requirement in
effect on that date.
<PAGE> 17
SELECTED RATIOS
- ---------------
(unaudited) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
--------------------------------------
Annualized Return on Average Equity 2.04% 3.44% 7.97% 4.61%
Annualized Return on Average Assets 0.20% 0.36% 0.72% 0.48%
Book Value per Share $16.12 $15.42 $16.12 $15.42
Tangible Book Value per Share $15.73 $14.80 $15.73 $14.80
Closing Market Price per Share $17.625 $12.92 $17.625 $12.92
Earnings per Primary Share $ .08 $ .13 $ .63 $ .33
Net Interest Margin 1.99% 2.56% 2.02% 2.73%
Non-Performing Assets to Total
Assets at End of Period 0.12% 0.06% 0.12% 0.06%
Ratio of Operating Expense to
Average Total Assets,
Annualized 1.72% 2.08% 1.72% 1.98%
Ratio of Net Interest Income to
Non-Interest Expense,
Annualized 1.12x 1.18x 1.03x 1.26x
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
- ------------------------------------------------------------------------
GENERAL. Net income for the three months ended June 30, 1996 was
$283,000 compared to $506,000 for the three months ended June 30, 1995,
a decrease of $223,000 or 44.1%. During the second quarter of 1996, a
non-recurring expense was recorded for $148,331, less related taxes.
This amount represented the final unfunded liability as a result of the
termination of the Defined Benefit Plan. In the second quarter of 1995,
there were two non-recurring items recorded. They were $271,174 for the
then most recent estimate of the unfunded liability of the Defined
Benefit Plan, and $123,540 for compensation to former officers, both
less related taxes. The amount recorded in 1996 for the Defined Benefit
Plan was significantly higher than anticipated due to a decrease in
interest rates between the termination announcement date of January 5,
1995, and the date the final distribution was made on May 29, 1996.
Without the effect of these non-recurring items, net income for the
three months ended June 30, 1996 would be $375,000, compared to $763,000
for the same quarter of 1995, a decrease of $388,000, or 51%. This is
primarily the result of a decrease in net interest income after
provision for possible loan losses of $699,000, partially offset by an
<PAGE> 18
increase in non-interest income of $117,000, and a decrease in taxes of
$206,000 (prior to the tax effect on the non-recurring items). Earnings
for the period were reduced as a result of the restructuring of the
balance sheet, which resulted in a yield reduction as 15 and 30-year
fixed rate investments were replaced by adjustable rate securities.
Management intends to move into higher yielding loan products over time,
thereby increasing net interest margin. The average net interest rate
spread for the three month period ended June 30, 1996 was 1.51% compared
to 1.97% for the same period in 1995.
INTEREST INCOME. Interest income increased by $.3 million or 2.8% to
$10,502,000 for the three month period ended June 30, 1996 as compared
to $10,212,000 for the same period in 1995, even though the yield on
average earning assets decreased 42 basis points to 7.01% for the
quarter ended June 30, 1996 as compared to a 7.43% yield for the same
period in 1995. Contributing to the decrease in yield was the
restructuring of the balance sheet, which resulted in a greater amount
of adjustable rate mortgage-backed securities as compared to last year.
These securities will gradually be converted to higher yielding loans.
As discussed above, the Bank has started a new Commercial Lending
Department, and it is expected that these types of loans will become an
increasing portion of the total loan portfolio.
INTEREST EXPENSE. Interest expense increased by $.8 million or 11.9% to
$7,500,000 for the three month period ended June 30, 1996 as compared to
$6,703,000 for the same period in 1995. This was primarily the result
of an increase in the average amount of FHLB advances and borrowed
funds, from $31.8 million for the second quarter of 1995, to $101.0 for
the second quarter of 1996. The cost of total interest-bearing
liabilities for the three months ended June 30, 1996 was 5.50% compared
to 5.46% for the three months ended June 30, 1995, an increase of 4
basis points.
Interest on deposits decreased $.2 million, from $6.2 million for the
second quarter of 1995, to $6.0 million for the same quarter of 1996.
Most of this decrease in cost resulted from a lower average deposit
balance, particularly in long-term certificates of deposit.
Interest expense on FHLB advances and borrowed funds was $506,000 for
the second quarter of 1995, compared to $1.5 million for the second
quarter of 1996, an increase of $961,000 or 190%. While the rates paid
on borrowed funds have declined since last year, average balances were
higher. Management expects continued reliance on non-deposit borrowings
until the BIF-SAIF insurance fund issues are resolved by Congress.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses totaled $342,000 for the three months ended June 30, 1996
compared to $150,000 for the three months ended June 30, 1995. Of this
$192,000, or 128.0% increase, $42,000 was related to new commercial real
estate loans, for which the Company establishes a provision for possible
losses at the time the loans are recorded. The balance of this increase
resulted from a decision by management to increase possible loan loss
allowances in light of higher write-off experiences, particularly on
credit cards. The Company, and the banking industry as a whole, is
beginning to see more credit card charge-offs resulting from personal
<PAGE> 19
bankruptcies. For the quarter ended June 30, 1996, 36% of all of the
Company's charge-offs were for personal bankruptcy reasons. Management
regularly conducts a review of its loan portfolio, write-off experiences
and adequacy of allowance.
LOAN LOSS ALLOWANCE ANALYSIS. The following table sets forth an
analysis of the Company's allowance for possible loan losses for the
periods indicated.
Three Months Ended
June 30, June 30,
1996 1995
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $ 1,252 $ 1,410
Charge-offs:
One-to-four family -0- -0-
Consumer 364 227
--------- ---------
Total 364 227
--------- ---------
Recoveries:
One-to-four family -0- -0-
Consumer 24 21
--------- ---------
Total 24 21
--------- ---------
Net charge-offs 340 206
Additions charged to
operations 342 150
--------- ---------
Balance at end of period $ 1,254 $ 1,354
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.10% 0.06%
Ratio of allowance to non-
performing loans 1.63x 3.73x
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses decreased
by $699,000 or 20.8% to $2,660,000 for the three month period ended
June 30, 1996 as compared to $3,359,000 for the three month period
ended June 30, 1995.
NON-INTEREST INCOME. Non-interest income increased by $117,000 or 44.7%
to $379,000 for the three month period ended June 30, 1996 as compared
to $262,000 for the same period in 1995. Most of this increase can be
attributed to recognition of loan related charges and servicing fees,
<PAGE> 20
which increased $84,000 or 87.5%, from $96,000 for the three months
ended June 30, 1995, to $180,000 for the three month period ended June
30, 1996.
Deposit related fees and charges increased, from $115,000 for the second
quarter of 1995 to $141,000 for the second quarter of 1996, an increase
of $26,000 or 22.6%, as there has been a general increase in fees
charged for various Bank services. Insurance and annuity commissions
also increased a total of $26,000 or 162.5% from $16,000 in the second
quarter of 1995 to $42,000 in the second quarter of 1996.
In addition, the second quarter of 1995 produced a gain on the sale of
securities of $11,000.
NON-INTEREST EXPENSE. Non-interest expense was $2,691,000 for the
quarter ended June 30, 1996, compared to $2,926,000 for the same period
in 1995, a decrease of $235,000 or 8.03%. In the second quarter of
1995, there were two non-recurring items recorded. They were $271,174
for the then most recent estimate of the unfunded liability of the
Defined Benefit Plan, and $123,540 for compensation to former officers,
less related taxes. During the second quarter of 1996, a non-recurring
expense was recorded for $148,331, representing the final unfunded
liability as a result of the termination of the Defined Benefit Plan.
The final determination was significantly higher than anticipated due to
a decrease in interest rates between the termination announcement date
of January 5, 1995, and the date the final distribution was made on May
29, 1996. Without giving consideration to these items, non-interest
expense increased slightly, from $2,531,300 for the second quarter of
1995, to $2,542,700 for the second quarter of 1996.
Most of this increase can be attributed to Data Processing and Federal
Deposit Insurance Premium, both due to an increase in the number of
accounts and size of insurable balances. Occupancy also increased
slightly, as portions of the capital assets billings on the Schaumburg
office were not expensed until second and third quarters of 1995.
Advertising and other expenses were also both higher in 1995 due to the
start-up costs associated with the Schaumburg location.
INCOME TAX EXPENSE. Income tax expense decreased $124,000 or 65.6%, to
$65,000 for the quarter ended June 30, 1996, compared to $189,000 for
the same period in 1995, due to the decrease in income.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- ------------------------------------------------------------------------
GENERAL. Net income for the six months ended June 30, 1996 was
$2,241,000 compared to $1,337,000 for the six months ended June 30,
1995, an increase of $904,000 or 67.6%. This increase included net
gains on the sales of securities of approximately $2.5 million, or $1.5
million after related taxes, recorded during the first quarter of 1996.
During the second quarter of 1996, a non-recurring expense was recorded
for $148,331, less related taxes. This amount represented the final
unfunded liability as a result of the termination of the Defined Benefit
<PAGE> 21
Plan. In the second quarter of 1995, there were two non-recurring items
recorded. They were $271,174 for the then most recent estimate of the
unfunded liability of the Defined Benefit Plan, and $123,540 for
compensation to former officers, less related taxes. The amount
recorded in 1996 for the Defined Benefit Plan was significantly higher
than anticipated due to a decrease in interest rates between the
termination announcement date of January 5, 1995, and the date the final
distribution was made on May 29, 1996. Without the effect of these non-
recurring items, and the securities gains, net income for the six months
ended June 30, 1996 would be $821,000, compared to $1,594,000 for the
same period of 1995, a decrease of $773,000, or 48.5%. This is
primarily the result of a decrease in net interest income after
provision for possible loan losses of $1,371,000, offset by an increase
in non-interest income of $276,000 (without the effect of the securities
gains), a decrease in non-interest expenses of $61,000 (prior to the
non-recurring items in both years as discussed above), and a decrease in
taxes of $261,000 (prior to the tax effect on the non-recurring items).
Earnings for the period were reduced as a result of the restructuring of
the balance sheet, which resulted in a yield reduction as 15 and 30-year
fixed rate investments were replaced by adjustable rate products.
Management intends to move into higher yielding loan products over time,
thereby increasing net interest margin.
INTEREST INCOME. Interest income increased by $1.6 million or 8.2% to
$21,185,000 for the six month period ended June 30, 1996 as compared to
$19,581,000 for the same period in 1995, even though the yield on
average earning assets decreased 31 basis points to 7.04% for the first
six months of 1996, as compared to a 7.35% yield for the same period in
1995. Contributing to the decrease in yield was the restructuring of
the balance sheet, which resulted in a greater amount of adjustable rate
mortgage-backed securities as compared to last year. These securities
will gradually be converted to higher yielding loans. As discussed
previously, the Bank has started a new Commercial Lending Department,
and it is expected that these types of loans will become an increasing
portion of the total loan portfolio.
INTEREST EXPENSE. Interest expense increased by $2.7 million or 22.2%
to $15,084,000 for the six month period ended June 30, 1996 as compared
to $12,341,000 for the same period in 1995. This increase can be
attributed to two factors. The first factor is the special 7.8%
Certificate of Deposit promotion, which was held in March of 1995 and,
therefore affected the second quarter of 1995 but only a small portion
of the first quarter of 1995. The other factor was an increase in the
average amount of borrowed money, from $38.5 million for the first six
months of 1995, to $99.8 for the same period of 1996. The cost of total
interest-bearing liabilities for the six months ended June 30, 1996 was
5.53% compared to 5.15% for the six months ended June 30, 1995, an
increase of 38 basis points.
Interest on deposits increased $1.0 million, from $11.1 million for the
first six months of 1995, to $12.2 million for the first six months of
1996. This increase was primarily the result of the March of 1995
certificate of deposit promotion.
Interest expense on FHLB advances and borrowed funds was $1.2 million
<PAGE> 22
for the second quarter of 1995, compared to $2.9 million for the second
quarter of 1996, an increase of $1,723,000 or 142.6%. While the rates
paid on borrowed funds have declined since last year, the volume of
borrowed money increased as the Company obtained two new funding
sources, both non-FDIC insured sources. They are the Treasury Tax and
Loan Account, which enables the U.S. Treasury to retain tax dollars with
the Bank at a floating rate of interest, and the Retail Repurchase
Agreement, whereby a customer lends money to the Bank which is
collateralized by a security the Bank owns.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses totaled $532,000 for the six months ended June 30, 1996 compared
to $300,000 for the six months ended June 30, 1995. Of this $232,000,
or 77.3% increase, $52,000 was related to new commercial real estate
loans, for which the Company establishes a provision for possible losses
at the time the loans are recorded. The balance of this increase
resulted from a decision by management to increase possible loan loss
allowances in light of higher write-off experiences, particularly on
credit cards. The Bank, and the banking industry as a whole, is
beginning to see more credit card charge-offs resulting from personal
bankruptcies. For the six months ended June 30, 1996, 37% of all of the
charge-offs experienced by the Company were for personal bankruptcy
reasons. Management regularly conducts a review of its loan portfolio,
write-off experiences and adequacy of allowance.
LOAN LOSS ALLOWANCE ANALYSIS. The following table sets forth an
analysis of the Company's allowance for possible loan losses for the
periods indicated.
<PAGE> 23
Six Months Ended
June 30, June 30,
1996 1995
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $ 1,379 $ 1,520
Charge-offs:
One-to-four family -0- -0-
Consumer 720 511
--------- ---------
Total 720 511
--------- ---------
Recoveries:
One-to-four family -0- -0-
Consumer 63 45
--------- ---------
Total 63 45
--------- ---------
Net charge-offs 657 466
Additions charged to
operations 532 300
--------- ---------
Balance at end of period $ 1,254 $ 1,354
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.20% 0.13%
Ratio of allowance to non-
performing loans 1.63x 3.73x
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses decreased by
$1,371,000 or 19.8% to $5,569,000 for the six month period ended June
30, 1996 as compared to $6,940,000 for the six month period ended June
30, 1995. The average net interest rate spread for the six months ended
June 30, 1996 was 1.58% compared to 2.20% for the same period in 1995.
NON-INTEREST INCOME. Non-interest income increased by $269,000 or 55.0%
to $758,000 for the six month period ended June 30, 1996 as compared to
$489,000 for the same period in 1995, prior to net gains on the sale of
securities of $2,507,000 for 1996. The six months ended June 30, 1995
produced a net loss on the sale of securities of $52,000. Most of the
balance of the increase in non-interest income can be attributed to
recognition of loan related charges and servicing fees, which increased
$151,000 or 64.5%, from $234,000 for the six months ended June 30, 1995,
to $385,000 for the six month period ended June 30, 1996.
Deposit related fees and charges increased $39,000 or 17.7%, from
$220,000 for the first six months of 1995 to $259,000 for the same
period in 1996, as there has been a general increase in fees charged for
<PAGE> 24
various Bank services. Insurance and annuity commissions also increased
a total of $33,000 or 67.4% from $49,000 for the first six months of
1995 to $82,000 for the first six months of 1996.
NON-INTEREST EXPENSE. Non-interest expense was $5,407,000 for the six
months ended June 30, 1996, compared to $5,468,000 for the same period
in 1995, a decrease of $61,000 or 1.1%. In the second quarter of 1995,
there were two non-recurring items recorded. They were $271,174 for the
then most recent estimate of the unfunded liability of the Defined
Benefit Plan, and $123,540 for compensation to former officers, less
related taxes. During the second quarter of 1996, a non-recurring
expense was recorded for $148,331, representing the final unfunded
liability as a result of the termination of the Defined Benefit Plan.
The final determination was significantly higher than anticipated due to
a decrease in interest rates between the termination announcement date
of January 5, 1995, and the date the final distribution was made on May
29, 1996. Without giving consideration to these items, non-interest
expense increased $185,383 or 3.7%, from $5,073,300 for the first six
months of 1995, to $5,258,700 for the same period of 1996.
Most of this increase can be attributed to the operation of the
Schaumburg location, (which was not opened until March, 1995),consultant
fees related to the balance sheet restructuring (which occurred during
the first quarter of 1996), and actuarial services regarding the 1996
termination of the Company's Defined Benefit Plan. Advertising was
higher in 1995 due to the start-up costs associated with the Schaumburg
location.
INCOME TAX EXPENSE. Income tax expense increased $562,000 or 90.1%, to
$1,186,000 for the six months ended June 30, 1996, compared to $624,000
for the same period in 1995, due to the increase in income as a result
of the net gains on sales of securities.
<PAGE> 25
CHANGE IN ACCOUNTING PRINCIPLES and OTHER REGULATORY ISSUES
- -----------------------------------------------------------
SFAS No. 122
On May 12, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 122 ("SFAS 122"),
"Accounting for Mortgage Servicing Rights." This statement provides
for capitalization of Mortgage Servicing Rights ("MSRs") when mortgage
loans (whether originated or purchased) are subsequently sold with
the MSRs retained. The statement applies to MSRs resulting from
mortgage loans only, and is effective for fiscal years which began
after December 15, 1995. This statement will not have a material
impact on the Company's earnings or financial condition.
SFAS No. 123
In October of 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 123 (SFAS 123)
"Accounting for Stock Based Compensation." SFAS 123 encourages
entities to use a fair value based method to account for stock based
compensation plans. If such a fair value method is not adopted,
entities must disclose the proforma effect on net income and on
earnings per share had the accounting been adopted. The statement
applies to years beginning after December 15, 1995, and will not
have a material effect on the Company.
SFAS No. 125
In June of 1996, the Financial Accounting Standards Board released
Statements of Financial Accounting Standard No. 125 (SFAS 125)
"Accounting for Transfers and Extinguishments of Liabilities." SFAS 125
provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishmment of liabilities. SFAS applies
after December 31, 1996 and early or retroactive application is not
permitted. Management does not believe that this statement will have a
material effect on the Company.
<PAGE> 26
PART II - OTHER INFORMATION
FIRSTFED BANCSHARES, INC.
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Company or any of its subsidiaries is a party other
than ordinary routine litigation incidental to their
respective businesses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 23, 1996, the annual meeting of stockholders was held.
At the meeting, George T. Drost and David E. Spiegler were
elected to serve as Class I directors with terms expiring in
1999. Continuing as Class II directors, with terms expiring in
1997, are John A. Flink, Larry G. Gillie and Frank A. Svoboda,
Jr. Continuing as Class III directors, with terms expiring in
1998, are Donald J. Cameron, Gerald T. Niedert and Thomas
TenHoeve. The stockholders also ratified the appointment of
Crowe Chizek & Company, L.L.P. as the Company's independent
public accountants for the year ending December 31, 1996.
There were 2,258,235 pre-split issued and outstanding shares of
Common Stock at the time of the annual meeting. 1,878,340
shares were voted at the meeting. The voting on each item
presented at the annual meeting was as follows:
ELECTION OF DIRECTORS FOR WITHHELD
--------------------- --------- --------
George T. Drost 1,852,339 26,001
David E. Spiegler 1,849,851 28,489
RATIFICATION OF ACCOUNTANTS
---------------------------
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--------- ------- ------- ---------
1,868,803 2,364 7,173 -0-
<PAGE> 27
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
None
REPORTS ON FORM 8-K
(a) A report on Form 10-C was filed on May 15, 1996 to
report a change in the number of shares outstanding as
a result of a three-for-two stock split effectuated on
May 15, 1996.
(b) A report on Form 8-K was filed on May 29, 1996, to
report under Item 5 that the Company announced a regular
quarterly dividend to the stockholders of FirstFed
Bancshares, Inc. Common Stock.
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FIRSTFED BANCSHARES, INC.
Date: August 6, 1996 By: /s/ Larry G. Gillie
----------------- ---------------------------
Larry G. Gillie
President and
Chief Executive Officer
Date: August 6, 1996 By: /s/ Paul A. Larsen
----------------- ---------------------------
Paul A. Larsen
Senior Vice President,
Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Financial Statements at June 30, 1996 (unaudited)
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000885694
<NAME> FIRSTFED BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 9,763
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 267,737
<INVESTMENTS-CARRYING> 267,737
<INVESTMENTS-MARKET> 267,737
<LOANS> 340,601
<ALLOWANCE> 1,254
<TOTAL-ASSETS> 635,096
<DEPOSITS> 459,403
<SHORT-TERM> 83,332
<LIABILITIES-OTHER> 10,151
<LONG-TERM> 27,400
0
0
<COMMON> 34
<OTHER-SE> 54,776
<TOTAL-LIABILITIES-AND-EQUITY> 635,096
<INTEREST-LOAN> 12,918
<INTEREST-INVEST> 7,768
<INTEREST-OTHER> 499
<INTEREST-TOTAL> 21,185
<INTEREST-DEPOSIT> 12,152
<INTEREST-EXPENSE> 2,932
<INTEREST-INCOME-NET> 6,101
<LOAN-LOSSES> 532
<SECURITIES-GAINS> 2,507
<EXPENSE-OTHER> 5,407
<INCOME-PRETAX> 3,427
<INCOME-PRE-EXTRAORDINARY> 3,427
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,241
<EPS-PRIMARY> .63
<EPS-DILUTED> .62
<YIELD-ACTUAL> 7.04
<LOANS-NON> 495
<LOANS-PAST> 275
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,379
<CHARGE-OFFS> 720
<RECOVERIES> 63
<ALLOWANCE-CLOSE> 1,254
<ALLOWANCE-DOMESTIC> 1,254
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
