<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 quarter ended June 30, 1998
Commission File Number 0-21298
ST. FRANCIS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1747461
- ------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13400 BISHOPS LANE, SUITE 350
BROOKFIELD, WISCONSIN 53005-6203
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(414) 486-8700
-------------------------------
(Registrant's telephone number)
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.
(1) Yes x No
---- ------
(2) Yes x No
---- ------
The number of shares outstanding of the issuer's common stock, $.01 par value
per share, was 5,105,683 at July 31, 1998.
Page 1 of 35 pages
<PAGE> 2
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Statements of Financial Condition................ 3
Consolidated Statements of Income............................. 4
Consolidated Statements of Changes in Shareholders' Equity.... 5
Consolidated Statements of Cash Flows......................... 6
Notes to Consolidated Financial Statements.................... 8
ITEM 2. Management's Discussion and Analysis.......................... 18
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.... 32
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................. 33
ITEM 2. Changes In Securities and Use of Proceeds..................... 33
ITEM 3. Defaults Upon Senior Securities............................... 33
ITEM 4. Submission of Matters to a Vote of Security Holders........... 33
ITEM 5. Other Information............................................. 33
ITEM 6. Exhibits and Reports on Form 8-K.............................. 34
SIGNATURES.............................................................. 35
2
<PAGE> 3
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
June 30, September 30,
1998 1997
----------------- -----------------
(In thousands)
ASSETS
<S> <C> <C>
Cash and due from banks....................................................... $ 22,228 $ 22,899
Federal funds sold and overnight deposits..................................... 28,287 19,959
--------------- ---------------
Cash and cash equivalents..................................................... 50,515 42,858
--------------- ---------------
Trading account securities, at fair value..................................... -- --
Assets available for sale, at fair value:
Debt and equity securities................................................ 87,475 56,247
Mortgage-backed and related securities.................................... 569,156 620,716
Mortgage loans held for sale, at lower of cost or market...................... 19,923 24,630
Securities held to maturity, at amortized cost:
Debt securities (market values of $1,882 and $3,908,
respectively)............................................................. 1,821 3,833
Mortgage-backed and related securities (market values of $65,440
and $66,219, respectively)................................................ 65,274 66,849
Loans receivable, net......................................................... 809,436 712,875
Federal Home Loan Bank stock, at cost......................................... 22,353 20,843
Accrued interest receivable................................................... 9,871 9,250
Foreclosed properties......................................................... 130 416
Real estate held for investment............................................... 51,429 51,476
Premises and equipment, net................................................... 30,479 24,711
Other assets.................................................................. 36,941 25,945
--------------- ---------------
Total assets.................................................................. $ 1,754,803 $ 1,660,649
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits...................................................................... $ 1,129,445 $ 1,087,136
Short term borrowings......................................................... 385,111 129,381
Long term borrowings.......................................................... 92,009 290,847
Advances from borrowers for taxes and insurance............................... 5,942 9,563
Accrued interest payable and other liabilities................................ 11,330 15,192
--------------- ---------------
Total liabilities............................................................. 1,623,837 1,532,119
--------------- ---------------
Commitments and contingencies................................................. -- --
Shareholders' equity:
Preferred stock $.01 par value: Authorized, 6,000,000 shares;
None issued............................................................... -- --
Common stock $.01 par value: Authorized 12,000,000 shares;
Issued, 7,289,620 shares;
Outstanding, 5,110,683 and 5,226,998 shares, respectively................. 73 73
Additional paid-in-capital.................................................... 75,046 73,541
Unrealized gain on securities available for sale, net of tax.................. 693 1,046
Unearned ESOP compensation.................................................... (2,781) (3,088)
Treasury stock at cost (2,178,937 and 2,062,622 shares, respectively)......... (51,276) (44,511)
Retained earnings, substantially restricted................................... 109,211 101,469
--------------- ---------------
Total shareholders' equity.................................................... 130,966 128,530
--------------- ---------------
Total liabilities and shareholders' equity.................................... $ 1,754,803 $ 1,660,649
=============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
June 30, June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- ------------
(In thousands, except per share data)
INTEREST AND DIVIDEND INCOME:
<S> <C> <C> <C> <C>
Loans................................................. $ 49,551 $ 41,945 $ 17,207 $ 15,043
Mortgage-backed and related securities................ 32,451 31,592 10,611 11,444
Debt and equity securities............................ 2,754 3,226 1,174 1,213
Federal funds sold and overnight deposits ............ 847 872 230 228
Federal Home Loan Bank stock ......................... 1,049 1,024 328 329
Trading account securities............................ 57 170 19 47
--------- ---------- --------- ----------
Total interest and dividend income........................ 86,709 78,829 29,569 28,304
--------- ---------- --------- ----------
INTEREST EXPENSE:
Deposits.............................................. 38,584 34,149 12,976 12,400
Advances and other borrowings......................... 17,323 16,105 6,005 5,658
--------- ---------- --------- ----------
Total interest expense.................................... 55,907 50,254 18,981 18,058
--------- ---------- --------- ----------
Net interest income before provision for loan losses...... 30,802 28,575 10,588 10,246
Provision for loan losses................................. 2,000 501 300 129
--------- ---------- --------- ----------
Net interest income....................................... 28,802 28,074 10,288 10,117
--------- ---------- --------- ----------
OTHER OPERATING INCOME (EXPENSE), NET:
Loan servicing and loan related fees.................. 1,564 1,421 450 452
Depository fees and service charges................... 2,564 1,397 997 551
Trading securities gains (losses) and commitment
fees, net....................................... (152) 607 (303) 100
Impairment loss on mortgage-backed securities - (2,050) - (2,050)
Gain on debt and equity and mortgage-backed
and related securities, net........................ 1,108 1,038 767 411
Gain on sales of mortgage loans held for sale, net.... 3,238 834 894 464
Insurance and annuity commissions..................... 917 299 386 81
Gain (loss) on foreclosed properties.................. 2 (1) 23 6
Income from affordable housing........................ 3,743 2,454 1,308 964
Other income.......................................... 1,287 447 159 160
--------- ---------- --------- ----------
Total other operating income, net......................... 14,271 6,446 4,681 1,139
--------- ---------- --------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and employee benefits.................... 14,569 11,324 4,998 4,005
Office building, including depreciation............... 2,348 1,876 818 695
Furniture and equipment, including depreciation ...... 2,357 1,704 840 599
Federal deposit insurance premiums.................... 479 601 163 138
Real estate held for investment....................... 4,009 2,870 1,288 1,039
Other general and administrative expenses............. 7,314 6,214 2,636 2,364
--------- ---------- --------- ----------
Total general and administrative expenses................. 31,076 24,589 10,743 8,840
--------- ---------- --------- ----------
Income before income tax expense.......................... 11,997 9,931 4,226 2,416
Income tax expense........................................ 1,062 1,322 672 (60)
--------- ---------- --------- ----------
Net income................................................ $ 10,935 $ 8,609 $ 3,554 $ 2,476
========= ========== ========= ==========
Basic earnings per share.................................. $ 2.22 $ 1.71 $ 0.72 $ 0.49
========= ========== ========= ==========
Diluted earnings per share................................ $ 2.09 $ 1.61 $ 0.69 $ 0.46
========= ========== ========= ==========
</TABLE>
See accompying Notes to Consolidated Financial Statements
4
<PAGE> 5
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Unrealized
Shares of Losses on
Common Additional Securities
Stock Common Paid-In Available
Outstanding Stock Capital For Sale
--------------------------------------------------------
(In thousands, except shares of common stock outstanding)
Nine months ended June 30, 1997
- ------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1996............... 5,475,509 73 $ 72,243 $ (1,765)
Net income.................................. - - - -
Cash dividend - $0.36 per share............. - - - -
Purchase of treasury stock.................. (255,622) - - -
Exercise of stock options................... 88,090 - 380 -
Amortization of unearned compensation....... - - 719 -
Unrealized gain on securities available
for sale, net of tax................... - - - 2,131
--------- -------- -------- ----------
Balance at June 30, 1997.................... 5,307,977 $ 73 $ 73,342 $ 366
========= ======== ======== ==========
Nine months ended June 30, 1998
Balance at September 30, 1997............... 5,226,998 $ 73 $ 73,541 $ 1,046
Net income.................................. - - - -
Cash dividend - $0.42 per share............. - - - -
Purchase of treasury stock.................. (199,988) - - -
Exercise of stock options................... 83,673 - 296 -
Amortization of unearned compensation....... - - 1,209 -
Unrealized loss on securities available
for sale, net of tax................... - - - (353)
--------- -------- -------- ----------
Balance at June 30, 1998.................... 5,110,683 $ 73 $ 75,046 $ 693
========= ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Unearned
ESOP Treasury Retained
Compensation Stock Earnings Total
-----------------------------------------------------------
(In thousands, except shares of common stock outstanding)
Nine months ended June 30, 1997
- ------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1996............... $ (3,488) $ (35,529) $ 93,645 $ 125,179
Net income.................................. - - 8,609 8,609
Cash dividend - $0.36 per share............. - - (1,809) (1,809)
Purchase of treasury stock.................. - (7,270) - (7,270)
Exercise of stock options................... - 1,779 (897) 1,262
Amortization of unearned compensation....... 293 - - 1,012
Unrealized gain on securities available
for sale, net of tax................... - - - 2,131
-------- --------- -------- ---------
Balance at June 30, 1997.................... $ (3,195) $ (41,020) $ 99,548 $ 129,114
======== ========= ======== =========
Nine months ended June 30, 1998
Balance at September 30, 1997............... $ (3,088) $(44,511) $101,469 $ 128,530
Net income.................................. - - 10,935 10,935
Cash dividend - $0.42 per share............. - - (2,201) (2,201)
Purchase of treasury stock.................. - (8,533) - (8,533)
Exercise of stock options................... - 1,768 (992) 1,072
Amortization of unearned compensation....... 307 - - 1,516
Unrealized loss on securities available
for sale, net of tax................... - - - (353)
-------- --------- -------- ---------
Balance at June 30, 1998.................... $ (2,781) $ (51,276) $109,211 $ 130,966
======== ========= ======== =========
</TABLE>
See accompaying Notes to Consolidated Financial Statements
5
<PAGE> 6
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Nine months ended
June 30,
---------------------------------------
1998 1997
----------------- -----------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income........................................................................ $ 10,935 $ 8,609
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses.................................................... 2,000 501
Depreciation, accretion and amortization..................................... 3,853 2,308
Deferred income taxes........................................................ (3,021) 1,062
Gain on debt and equity, mortgage-backed and related
securities and trading account securities, net............................ (956) (1,645)
Gains on the sales of mortgage loans held for sale, net...................... (3,238) (834)
Stock-based compensation expense............................................. 1,516 1,012
Impairment loss on mortgage-backed securities................................ - 2,050
(Increase) decrease in loans held for sale................................... 4,707 (3,502)
Other, net................................................................... (12,152) 8,746
------------ -----------
Total adjustments................................................................. (7,291) 9,698
------------ -----------
Net cash provided by operating activities......................................... 3,644 18,307
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of debt securities held to maturity.................... 2,012 2,011
Purchases of debt securities held to maturity................................... - (459)
Principal repayments on mortgage-backed and related securities
held to maturity............................................................ 1,575 1,051
Purchases of mortgage-backed securities available for sale...................... (388,209) (262,720)
Proceeds from sales of mortgage-backed securities available
for sale..................................................................... 187,304 105,549
Principal repayments on mortgage-backed securities available
for sale..................................................................... 252,465 57,949
Purchase of debt and equity securities available for sale....................... (82,326) (42,199)
Proceeds from sales of debt and equity securities available for sale............ 38,511 24,899
Principal repayments on debt and equity securities available for sale........... 12,587 13,112
Net cash used for acquisitions.................................................. - (7,118)
Purchases of Federal Home Loan Bank stock....................................... (3,350) (2,580)
Redemption of Federal Home Loan Bank stock...................................... 1,840 -
Purchase of loans............................................................... (50,993) (13,687)
(Increase) in loans, net of loans held for sale................................. (45,568) (10,324)
(Increase) decrease in real estate held for investment.......................... 47 (7,659)
Purchases of premises and equipment, net........................................ (7,800) (8,578)
------------ -----------
Net cash (used in) investing activities........................................... (81,905) (150,753)
------------ -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE> 7
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flow, cont.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
June 30,
------------------------------------
1998 1997
---------------- ----------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits........................................................ 42,309 109,118
Proceeds from advances and other borrowings..................................... 427,066 143,720
Repayments on advances and other borrowings..................................... (370,174) (85,451)
Decrease in advances from borrowers for taxes and insurance..................... (3,621) (4,578)
Dividends paid.................................................................. (2,201) (1,809)
Stock option transactions....................................................... 1,072 1,262
Purchase of treasury stock...................................................... (8,533) (7,270)
------------- ---------------
Net cash provided by financing activities........................................... 85,918 154,992
------------- ---------------
Increase in cash and cash equivalents............................................... 7,657 22,546
Cash and cash equivalents:
Beginning of period........................................................... 42,858 22,459
------------- ---------------
End of period................................................................. $ 50,515 $ 45,005
============= ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest...................................................................... $ 57,002 $ 50,706
Income taxes.................................................................. 3,207 127
Supplemental schedule of noncash investing and financing activities:
The following summarizes significant noncash investing and financing
activities:
Mortgage loans secured as mortgage-backed securities.......................... $ 14,634 $ 44,945
Transfer from loans to foreclosed properties.................................. 470 -
Transfer of mortgage loans to mortgage loans held for sale.................... 50,928 28,433
Acquisitions:
Assets acquired........................................................... - 93,044
Cash paid for purchase of stock........................................... - (25,283)
Cash acquired............................................................. - 18,165
============= ===============
Net cash used for acquisitions............................................ - $ (7,118)
============= ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
7
<PAGE> 8
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
(1) Principles of Consolidation
The consolidated financial statements include the accounts and balances
of St. Francis Capital Corporation (the "Company"), its wholly-owned
subsidiary, St. Francis Bank, F.S.B. (the "Bank"), and the Bank's
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(2) Basis of Presentation
The accompanying interim consolidated financial statements are
unaudited and do not include information or footnotes necessary for a
complete presentation of financial condition, results of operations or
cash flows in accordance with generally accepted accounting principles.
However, in the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the
consolidated financial statements have been included. Operating results
for the three-month and nine-month periods ended June 30, 1998 are not
necessarily indicative of the results which may be expected for the
entire year ending September 30, 1998. The September 30, 1997
Consolidated Statement of Financial Condition presented with the
interim financial statements was audited and the auditors' report
thereon was unqualified.
Certain previously reported balances have been reclassified to conform
with the 1998 presentation.
(3) Commitments and Contingencies
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit and involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the
consolidated financial statements. The contractual or notional amounts
of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for the commitments to
extend credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for instruments that
are reflected in the consolidated financial statements.
8
<PAGE> 9
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
The contractual or notional amounts of off-balance sheet financial
instruments are as follows:
<TABLE>
<CAPTION>
Contractual or Notional Amount(s)
June 30, September 30,
1998 1997
----------------- ------------------
(In thousands)
<S> <C> <C>
Commitments to extend credit:
Fixed-rate loans..................................... $ 10,652 $ 10,890
Variable-rate loans.................................. 30,724 16,792
Mortgage loans sold with recourse........................ 34,087 39,763
Guarantees under letters of credit....................... 18,301 11,220
Interest rate swap agreements (notional amount).......... 205,000 163,000
Interest rate corridors (notional amount)................ 10,000 30,000
Commitments to:
Purchase mortgage-backed securities.................... 29,390 1,930
Sell mortgage-backed securities........................ 5,580 1,930
Unused and open-ended lines of credit:
Consumer............................................... 159,719 122,970
Commercial............................................. 22,686 14,075
Open option contracts written:
Short-put options...................................... - -
Short-call options..................................... 47,500 2,000
Long-put options....................................... 25,000 -
Commitments to fund equity investments................... - 2,903
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates of 45 days
or less or other termination clauses and may require a fee. Fixed rate
loan commitments as of June 30, 1998 have interest rates ranging from
6.88% to 7.88%. Because some commitments expire without being drawn
upon, the total commitment amounts do not necessarily represent cash
requirements. The Company evaluates the creditworthiness of each
customer on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty. The Company
generally extends credit on a secured basis. Collateral obtained
consists primarily of one- to four-family residences and other
residential and commercial real estate.
Loans sold with recourse represent one- to four-family mortgage loans
that are sold to secondary market agencies, primarily FNMA, with the
servicing of these loans being retained by the Company. The Company's
exposure on loans sold with recourse is the same as if the loans
remained in the Company's loan portfolio. The Company receives a larger
servicing spread on those loans being serviced than it would if the
loans had been sold without recourse.
The Company has entered into agreements whereby, for an initial and
annual fee, it will guarantee payment on letters of credit backing
industrial revenue bond issues ("IRB"). The IRBs are issued by
municipalities to finance real estate owned by a third party. Potential
losses on the letters of credit are the notional amount of the
guarantees less the value of the real estate collateral. At June 30,
1998, appraised values of the real estate collateral exceeded the
amount of the guarantees.
9
<PAGE> 10
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
Interest rate swap agreements generally involve the exchange of fixed
and variable rate interest rate payments without the exchange of the
underlying notional amount on which the interest rate payments are
calculated. The notional amounts of these agreements represent the
amounts on which interest payments are exchanged between the
counterparties. The notional amounts do not represent direct credit
exposures. The Company is exposed to credit-related losses in the event
of nonperformance by the counterparties on interest rate payments but
does not expect any counterparty to fail to meet their obligations. The
fixed pay-floating receive agreements were entered into as hedges of
the interest rates on Federal Home Loan Bank (the "FHLB") advances. The
fixed receive-floating pay agreements were entered into as hedges of
the interest rates on fixed rate certificates. Interest receivable or
payable on interest rate swaps is recognized using the accrual method.
The use of interest rate swaps enables the Company to synthetically
alter the repricing characteristics of designated interest-bearing
liabilities.
The agreements at June 30, 1998 consist of the following:
<TABLE>
<CAPTION>
Notional
Amount Maturity Call Fixed Variable
(000s) Type Date Date Rate Rate
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10,000 Fixed Pay-Floating Receive 1998 not applicable 5.04% 5.69%
10,000 Fixed Pay-Floating Receive 1998 not applicable 4.93% 5.70%
15,000 Fixed Pay-Floating Receive 1998 not applicable 5.25% 5.69%
10,000 Fixed Pay-Floating Receive 1998 not applicable 5.23% 5.70%
10,000 Fixed Pay-Floating Receive 1998 not applicable 5.43% 5.69%
10,000 Fixed Receive-Floating Pay 1998 not applicable 6.10% 5.69%
15,000 Fixed Receive-Floating Pay 2003 1999 6.00% 5.51%
15,000 Fixed Receive-Floating Pay 2005 1999 6.10% 5.52%
15,000 Fixed Receive-Floating Pay 2005 1999 6.25% 5.55%
10,000 Fixed Receive-Floating Pay 2003 1999 6.58% 5.69%
5,000 Fixed Receive-Floating Pay 2003 1999 6.47% 5.69%
10,000 Fixed Receive-Floating Pay 2003 1999 6.53% 5.69%
5,000 Fixed Receive-Floating Pay 2003 1999 6.49% 5.69%
10,000 Fixed Receive-Floating Pay 2007 1998 6.90% 5.50%
15,000 Fixed Receive-Floating Pay 2007 1999 7.15% 5.54%
15,000 Fixed Receive-Floating Pay 2007 1999 7.05% 5.54%
10,000 Fixed Receive-Floating Pay 2007 1999 7.13% 5.54%
15,000 Fixed Receive-Floating Pay 2007 1999 6.90% 5.54%
</TABLE>
The fair value of interest rate swaps, which is based on the present
value of the swap using dealer quotes, represent the estimated amount
the Company would receive or pay to terminate the agreements taking
into account current interest rates and market volatility. The interest
rate swaps are off-balance sheet items; therefore, at June 30, 1998,
the gross unrealized gains and losses of $1.4 million and $547,000,
respectively, equals the fair value of the interest rate swaps of
$898,000.
The Company uses interest rate corridors to help protect its net
interest margin in various interest rate environments. The corridors
pay the Company a percent per annum of the notional amount over its
life only when the three-month LIBOR rate is between the corridor
strike rates (inclusive of the strike rate). There are no payments due
to the Company when the three-month LIBOR rate is outside the corridor
strike rates.
10
<PAGE> 11
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
The interest rate corridors consist of the following:
<TABLE>
<CAPTION>
Notional
Amount Maturity
(000s) Payment Type Date Strike Rates
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5,000 1.0% when three-month LIBOR within corridor 2000 7.00% - 8.00%
5,000 1.0% when three-month LIBOR within corridor 2000 7.50% - 8.50%
</TABLE>
These instruments do not qualify as hedges and are accounted for in the
trading portfolio, and therefore, are valued at fair value. The fair
value of the interest rate corridors is $5,000 at June 30, 1998.
Commitments to purchase and sell mortgage-backed securities are
contracts which represent notional amounts to purchase and sell
mortgage-backed securities at a future date and specified price. Such
commitments generally have fixed settlement dates.
The unused and open consumer lines of credit are conditional
commitments issued by the Company for extensions of credit such as home
equity, auto, credit card, or other similar consumer type financing.
Furthermore, the unused and open commercial lines of credit are also
conditional commitments issued by the Company for extensions of credit
such as working capital, agricultural production, equipment or other
similar commercial type financing. The credit risk involved in
extending lines of credit is essentially the same as that involved in
extending loan facilities to customers. Collateral held for these
commitments may include, but may not be limited to, real estate,
investment securities, equipment, accounts receivable, inventory, and
Company deposits.
The open option contracts purchased and sold represent the notional
amounts to buy or sell mortgage-backed securities or futures on U.S.
treasury securities. The Company receives a premium/fee for sold put
and call options which give the purchaser the right, but not the
obligation to buy or sell these securities or futures respectively,
within a specified time period for a contracted price. The Company pays
a premium/fee for purchased put and call options which gives the
Company the right, but not the obligation to sell or buy these
securities or futures respectively, within a specified time period for
a contracted price. The Company has been utilizing these options to
manage the interest rate and market value risk relating to
mortgage-backed securities that result from the MBS loan swap program,
mortgage pipeline, and for the securities portfolios.
The commitments to fund equity investments represent amounts St.
Francis Equity Properties ("SFEP"), a subsidiary of the Bank, is
committed to invest in low-income housing projects, which would qualify
for tax credits under Section 42 of the Internal Revenue Code (the
"Code"). The investment in the low-income housing projects is included
in the Company's balance sheet as real estate held for investment.
11
<PAGE> 12
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(4) Securities
The Company's securities available for sale and held to maturity at
June 30, 1998 were as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
----------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
(In thousands)
DEBT AND EQUITY SECURITIES:
U. S. Treasury obligations and obligations of
U.S. Government Agencies................ $ 69,021 $ 133 $ 83 $ 69,071
Corporate notes and bonds................... 1,000 8 - 1,008
Marketable equity securities................ 17,396 - - 17,396
--------- ---------- ----------- ------------
TOTAL DEBT AND EQUITY SECURITIES............. $ 87,417 $ 141 $ 83 $ 87,475
========= ========== =========== ============
MORTGAGE-BACKED & RELATED SECURITIES:
Participation certificates:
FHLMC..................................... $ 2,533 $ 136 $ - $ 2,669
FNMA...................................... 5,317 - 78 5,239
Private issue............................. 137,366 937 1,647 136,656
REMICs:
FHLMC..................................... 49,629 425 230 49,824
FNMA...................................... 38,009 146 43 38,112
GNMA...................................... 3,458 14 - 3,472
Private issue............................. 331,810 1,535 312 333,033
CMO residual................................ 36 115 - 151
--------- ---------- ----------- ------------
TOTAL MORTGAGE-BACKED AND RELATED
SECURITIES............................. $ 568,158 $ 3,308 $ 2,310 $ 569,156
========= ========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY
----------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
------------ ------------ ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
DEBT SECURITIES:
U. S. Treasury obligations and obligations of
U.S. Government Agencies................ $ 1,011 $ 17 $ - $ 1,028
State and municipal obligations............. 810 44 - 854
--------- ---------- ----------- ------------
TOTAL DEBT SECURITIES....................... $ 1,821 $ 61 $ - $ 1,882
========= ========== =========== ============
MORTGAGE-BACKED & RELATED SECURITIES:
REMICs:
FHLMC..................................... $ 1,084 $ 9 $ - $ 1,093
FNMA...................................... 1,981 6 4 1,983
Private issue............................. 62,209 230 75 62,364
--------- ---------- ----------- ------------
TOTAL MORTGAGE-BACKED AND RELATED
SECURITIES............................. $ 65,274 $ 245 $ 79 $ 65,440
========= ========== =========== ============
</TABLE>
12
<PAGE> 13
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
During the nine months ended June 30, 1998 and 1997, gross proceeds
from the sale of securities available for sale totaled approximately
$225.8 million and $130.4 million, respectively. The gross realized
gains on such sales totaled approximately $3.2 million and $1.1 million
for the nine months ended June 30, 1998 and 1997, respectively. The
gross realized losses on such sales totaled approximately $2.1 million
and $37,000 for the nine months ended June 30, 1998 and 1997,
respectively. During the three months ended June 30, 1998 and 1997,
gross proceeds from the sale of securities available for sale totaled
approximately $56.6 million and $54.1 million, respectively. The gross
realized gains on such sales totaled approximately $952,000 and
$414,000 for the three months ended June 30, 1998 and 1997,
respectively. The gross realized losses on such sales totaled
approximately $185,000 and $3,000 for the three months ended June 30,
1998 and 1997, respectively.
During the year ended September 30, 1997, the Company recorded an
impairment loss of $3.4 million to reflect other than temporary
impairment of the carrying value of certain private issue
mortgage-backed securities. The securities, carried at $12.5 million
prior to the writedown, were adjusted to fair value of $9.1 million at
September 30, 1997. The cost basis of impaired securities is $601,000
at June 30, 1998. The decline in the cost basis during the year is due
to repayments and the sale of one issue of the mortgage-backed
securities which was determined to be impaired at September 30, 1997.
The security sold had an adjusted cost basis of $7.2 million and a
$151,000 gain was recorded on the sale.
At June 30, 1998 and 1997, $280.4 million and $279.6 million,
respectively, of mortgage-related securities were pledged as collateral
for FHLB advances.
(5) Loans
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30,
(In thousands) 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage - one- to four-family................................ $ 245,754 $ 240,522
First mortgage - residential construction........................... 63,606 46,340
First mortgage - multi-family....................................... 98,424 101,289
Commercial real estate.............................................. 129,575 87,950
Home equity......................................................... 140,798 115,293
Commercial and agriculture.......................................... 90,990 72,144
Consumer secured by real estate..................................... 83,086 89,627
Interim financing and consumer loans................................ 13,719 15,255
Indirect auto....................................................... 27,357 15,423
Education........................................................... 1,975 948
------------- ------------
Total gross loans................................................ 895,284 784,791
------------- ------------
Less:
Loans in process................................................. 56,600 38,200
Unearned insurance premiums...................................... 361 552
Deferred loan and guarantee fees................................. 888 1,290
Purchased loan discount.......................................... 698 1,042
Allowance for loan losses........................................ 7,378 6,202
------------- ------------
Total deductions................................................. 65,925 47,286
------------- ------------
Total loans receivable.............................................. 829,359 737,505
Less: First mortgage loans held for sale........................... 19,923 24,630
------------- ------------
Loans receivable, net............................................... $ 809,436 $ 712,875
============= ============
</TABLE>
13
<PAGE> 14
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(6) Allowance For Loan Losses
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------- -------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Beginning Balance.................................. $ 6,202 $ 5,217 $ 7,482 $ 6,122
Charge-offs:
Real estate - mortgage........................... (175) (15) (175) (15)
Commercial real estate........................... - - - -
Commercial loans................................. (12) - (12) -
Home equity loans................................ (23) - - -
Consumer......................................... (638) (1,680) (224) (461)
---------- ----------- ----------- -----------
Total charge-offs.................................. (848) (1,695) (411) (476)
---------- ----------- ----------- -----------
Recoveries:
Real estate - mortgage........................... - - - -
Commercial real estate........................... - - - -
Commercial loans................................. - - - -
Home equity loans................................ - - - -
Consumer......................................... 24 77 7 3
---------- ----------- ----------- -----------
Total recoveries................................... 24 77 7 3
---------- ----------- ----------- -----------
Net charge-offs.................................... (824) (1,618) (404) (473)
---------- ----------- ----------- -----------
Acquired bank's allowance.......................... - 1,678 - -
Provision.......................................... 2,000 501 300 129
---------- ----------- ----------- -----------
Ending balance..................................... $ 7,378 $ 5,778 $ 7,378 $ 5,778
========== =========== =========== ===========
</TABLE>
(7) Earnings Per Share
Basic earnings per share of common stock for the nine and three months
ended June 30, 1998 and 1997, have been determined by dividing net
income for the period by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share
of common stock for the nine and three months ended June 30, 1998 and
1997, have been determined by dividing net income for the period by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Book value per share of
common stock at June 30, 1998 and September 30, 1997 have been
determined by dividing total shareholders' equity by the number of
shares of common stock and common stock equivalents considered
outstanding at the respective dates. Stock options are regarded as
common stock equivalents and are, therefore, considered in per share
calculations. Common stock equivalents are computed using the treasury
stock method. Total shares outstanding for earnings per share
calculation purposes have been reduced by the ESOP shares that have not
been committed to be released.
14
<PAGE> 15
ST.FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
The computation of earnings per common share is as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
June 30, June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net income for the period......................... $ 10,935,000 $ 8,609,000 $ 3,554,000 $ 2,476,000
============ ============ ============ ==============
Common shares issued.............................. 7,289,620 7,289,620 7,289,620 7,289,620
Net Treasury shares............................... 2,065,545 1,917,871 2,106,442 1,941,588
Unallocated ESOP shares........................... 287,677 326,321 277,697 314,472
------------ ------------ ------------ --------------
Weighted average common shares
outstanding during the period................. 4,936,398 5,045,428 4,905,481 5,033,560
Common stock equivalents based on the
treasury stock method......................... 303,391 302,367 271,588 305,829
------------ ------------ ------------ --------------
Total weighted average common shares and
equivalents outstanding....................... 5,239,789 5,347,795 5,177,069 5,339,389
============ ============ ============ ==============
Basic earnings per share.......................... $ 2.22 $ 1.71 $ 0.72 $ 0.49
Diluted earnings per share........................ $ 2.09 $ 1.61 $ 0.69 $ 0.46
</TABLE>
The computation of book value per common share is as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
-------------- --------------
<S> <C> <C>
Common shares outstanding at the end
of the period........................................... 4,832,987 4,918,891
Incremental shares relating to dilutive stock
options outstanding at the end of the period............ 246,387 319,567
------------- -------------
5,079,374 5,238,458
============= =============
Total shareholders' equity at the end of
the period.............................................. $ 130,966,000 $ 128,530,000
Book value per common share............................... $ 25.78 $ 24.54
</TABLE>
(8) Stock Option Plans
The Company has adopted stock option plans for the benefit of directors
and officers of the Company. The option exercise price cannot be less
than the fair value of the underlying common stock as of the date of
the option grant, and the maximum term cannot exceed ten years. Stock
options awarded to directors may be exercised at any time or on a
cumulative basis over varying time periods, provided the grantee
remains a director of the Company. The stock options awarded to
officers are exercisable on a cumulative basis over varying time
periods, depending on the individual option grant terms which may
include provisions for acceleration of vesting periods.
At June 30, 1998, 84,607 shares were reserved for future grants.
Further information concerning the options is as follows:
15
<PAGE> 16
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Financial Statements, continued
<TABLE>
<CAPTION>
Nine months ended June 30,
--------------------------------------------------------------
1998 1997
--------------------------------------------------------------
Average Average
Exercise Exercise
Options Price Options Price
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period................ 656,566 $ 19.37 476,402 $ 10.12
Granted........................................... 36,667 38.38 336,200 28.49
Canceled.......................................... (24,750) 28.23 (2,246) 26.53
Exercised......................................... (86,673) 10.15 (88,090) 10.00
-------- --------
Outstanding at end of period...................... 581,810 $ 22.34 722,266 $ 18.91
======== ========
Options exercisable............................... 293,767 377,566
======== ========
</TABLE>
(9) Income Taxes
Actual income tax expense differs from the "expected" income tax
expense computed by applying the statutory Federal corporate tax rate
to income before income tax expense, as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Nine months ended June 30,
(In thousands) 1998 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal income tax expense at statutory rate of 35%.................. $ 4,199 $ 3,476
State income taxes, net of Federal income tax benefit................ (305) 20
Tax exempt interest.................................................. (101) (108)
Non-deductible compensation.......................................... 332 97
Acquisition intangible amortization.................................. 185 105
Affordable housing credits........................................... (3,117) (2,123)
Other, net........................................................... (131) (145)
----------- ---------
$ 1,062 $ 1,322
=========== =========
</TABLE>
Included in other assets is a deferred tax asset of $3.1 million and
$2.6 million at June 30, 1998 and September 30, 1997.
(10) Acquisitions
On June 30, 1998, the Company announced the proposed acquisition of
Reliance Bancshares, Inc. of Milwaukee. The transaction will be a stock
and cash transaction which, based on the Company's stock price on that
day, valued Reliance at $10.00 per share. The actual price will depend
on the Company's stock price during a pricing period prior to the
closing of the transaction. The proposed acquisition, which will be
treated as a purchase transaction for accounting purposes, is expected
to be completed in the last quarter of 1998, subject to Reliance
shareholder and regulatory approvals. Reliance has approximately $45
million in assets and operates with one office in Milwaukee, WI.
16
<PAGE> 17
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(11) Changes in Accounting Policy
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December
15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial
statements. This statement requires that all items that are required to
be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal
years beginning after December 15, 1997. This statement establishes
standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products
and services, geographic areas, and major customers.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for years
beginning after June 15, 1999, although earlier adoption is permitted.
This standard establishes new rules for the recognition and measurement
of derivatives and hedging activities. It requires all derivatives to
be recorded on the balance sheet at fair value, although the timing of
recognition in earnings will depend on the classification of the hedge
according to criteria established by SFAS 133. Changes in the fair
value of derivatives that do not meet these criteria are required to be
included in earnings in the period of the change. The Company has not
determined the impact that Statement 133 will have on its financial
statements and believes that such determination will not be meaningful
until closer to the date of initial adoption.
17
<PAGE> 18
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-Q or future filings by the Company
with the Securities and Exchange Commission, in quarterly reports or press
releases or other public or shareholder communications, or in oral statements
made with the approval of an authorized executive officer, various words or
phrases are intended to identify "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include words and phrases such as "will likely result," "are expected
to," "will continue," "is anticipated," "estimate," "project," or similar
expressions and various other statements indicated herein with an asterisk after
such statements. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made, and to advise readers that various factors could affect the Company's
financial performance and could cause actual results for future periods to
differ materially from those anticipated or projected. Such factors include, but
are not limited to: (i) general market rates, (ii) general economic conditions,
(iii) legislative/regulatory changes, (iv) monetary and fiscal policies of the
U.S. Treasury and Federal Reserve, (v) changes in the quality or composition of
the Company's loan and investment portfolios, (vi) demand for loan products,
(vii) deposit flows, (viii) competition, (ix) demand for financial services in
the Company's markets, and (x) changes in accounting principles, policies or
guidelines.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
FINANCIAL CONDITION
The Company's total assets increased $94.2 million or 5.7% to $1.755 billion at
June 30, 1998 from $1.661 billion at September 30, 1997. The primary area of
growth was an increase of $91.9 million in loans receivable, including loans
held for sale. Mortgage-backed and related securities available for sale
declined by $51.6 million for the year to $569.2 million. Debt and equity
securities available for sale increased $31.2 million to $87.5 million at June
30, 1998. The Company invested some funds that had been in mortgage-backed
securities in shorter and medium term investment assets. Funding the increase in
assets were increases in deposits of $42.3 million and increases in borrowings
of $56.9 million. The Company's ratio of shareholders' equity to total assets
was 7.46% at June 30, 1998, compared to 7.74% at September 30, 1997. The
Company's book value per share was $25.78 at June 30, 1998, compared to $24.54
at September 30, 1997.
Loans receivable, including mortgage loans held for sale, increased $91.9
million to $829.4 million at June 30, 1998 from $737.5 million at September 30,
1997. The increase was due primarily to the increase in loans originated for
retention in the Company's loan portfolio, including commercial, consumer and
multi-family lending. The Company's traditional mortgage lending includes loans
originated to be retained in the Company's loan portfolio and loans sold in the
secondary market. This type of lending occurs during low interest rate
environments. Additionally, the Company has increased its emphasis on commercial
and consumer lending, which are primarily retained in the Company's loan
portfolio. Commercial real estate loans have increased to $129.6 million at June
30, 1998 from $88.0 million at September 30, 1997. For the nine months ended
June 30, 1998, the Company originated approximately $479.3 million in loans, as
compared to $264.5 million for the same period in the prior year. Of the $479.3
million in loans originated, $65.8 million were in commercial loans, $150.1
million were in consumer and interim financing loans and $263.4 million were in
first mortgage loans. Loan repayments and sales of mortgage loans partially
offset the increases in loan originations. Consumer and
18
<PAGE> 19
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
commercial lending represent a different level of risk than mortgage lending
which is primarily collateral based lending. Consumer and commercial loans are
primarily based on the assessment of the cash flow and repayment ability of
the customer or business to which funds have been lent.
Mortgage-backed and related securities, including mortgage-backed and related
securities available for sale, decreased $53.1 million to $634.4 million at
June 30, 1998 from $687.6 million at September 30, 1997. This decrease is due
primarily to the sale of mortgage-backed and related securities of $187.3
million as well as repayments of $254.0 million, partially offset by purchases
of $388.2 million during the nine months ended June 30, 1998. At June 30, 1998,
private-issue mortgage-backed and related securities totaled $531.9 million
compared to $441.4 million at September 30, 1997. Private-issue mortgage-backed
and related securities represent a significant portion of the Company's
portfolio due to the Company's view of the benefit of higher interest rates
generally available on private-issue mortgage-backed and related securities
outweighing the additional credit risk associated with such securities in
comparison with agency securities. Mortgage-backed securities issued by
government sponsored enterprises generally increase the quality of the
Company's assets by virtue of the guarantees that back them. When the
intermediary is a private entity, neither the principal or interest on such
securities is guaranteed. In addition, loans that back private mortgage-backed
securities generally are non-conforming loans and consequently have a greater
amount of credit risk and generally will have a higher yield. The Company has
been an active purchaser of adjustable rate mortgage-backed securities as well
as short-term mortgage-related securities because of their lower level of
interest rate risk and low credit risk in relation to the interest earned on
such securities.
During 1997, the Company recorded declines in fair value judged to be other
than temporary on four of its private issue mortgage-backed securities. The
Company believed that these four securities, two of which were rated "A" and
the other two of which were rated "BBB", were impaired at June 30, 1997.
Therefore, in accordance with generally accepted accounting principles,
these securities were written down to fair value and the impairment loss was
recorded in the Company's income statement. Prior to the adjustment, the
Company's cost basis in these securities was $12.5 million. The impairment loss
resulted in a new cost basis of $9.1 million for these four issues. The four
issues under impairment were private issue mortgage-backed securities backed by
single-family loans relating to properties located primarily in California. The
underlying loans have experienced significant delinquencies and foreclosures
and the Company learned that recoveries on these loans were less than
previously realized and that the various subordinate and cash positions within
the mortgage-backed structures may no longer protect the Company's position in
the securities. The Company wrote these securities down to fair value which is
a level where the remaining cash flows should provide a return at a market rate
of interest income on the remaining cost basis.
During the nine months ended June 30, 1998, the Company sold securities
totaling $225.8 million at a net gain of $1.1 million. The net gain consisted
of gross gains of $3.2 million and gross losses of $2.1 million. However, the
Company does not consider gains on the sales of securities as a predictable
source of earnings as such sales are primarily based on the Company's ongoing
review of the individual securities within the Company's available for
sale portfolio whereby securities may be sold and replaced with ones that offer
a better combination of interest income, interest rate risk or credit risk than
the security sold. Included in the sale of securities for the nine months ended
June 30, 1998 is the sale of one issue of the mortgage-backed securities which
were determined to be impaired at June 30, 1997. The security sold had an
adjusted cost basis of $7.2 million and a $151,000 gain was recorded on the
sale. At June 30, 1998, the cost basis and market value of the remaining
impaired securities is $601,000 and $706,000, respectively, compared to $9.1
million and $9.1 million, respectively, at September 30, 1997.
Deposits increased $42.3 million to $1.129 billion at June 30, 1998 from $1.087
billion at September 30, 1997. The increase in deposits was primarily due
to increases of $14.2 million in brokered certificates of deposit and $31.5
million in money market demand deposits. However, slight decreases in other
types of deposit products have partially offset the increases. The Company has
continued to offer new deposit
19
<PAGE> 20
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
products in an effort to attract new deposits and maintain current
relationships with customers. At June 30, 1998, the Company had approximately
$155.0 million in brokered certificates of deposit compared with $140.8 million
at September 30, 1997. The brokered deposits generally are of terms from three
months to eight years in maturity with interest rates that approximate the
Company's retail certificate rates. At June 30, 1998, $109.9 million of the
brokered deposits having longer maturities are callable within one year. The
Company cannot assure that there will be an increase in deposits in the future,
nor can there be any assurance the Company will retain the deposits it now
has.* The level of deposit flows during any given period is heavily influenced
by factors such as the general level of interest rates as well as alternative
yields that investors may obtain on competing instruments, such as money market
mutual funds. The Company believes that the likelihood for retention of
brokered certificates of deposit is more a function of the rate paid on such
accounts as compared to retail deposits which may be established due to branch
location or other intangible reasons.
Advances and other borrowings increased by $56.9 million to $477.1 million at
June 30, 1998 from $420.2 million at September 30, 1997. The increase is
primarily due to borrowings from the Federal Home Loan Bank. Short term
borrowings increased $255.7 million to $385.1 million at June 30, 1998,
compared to $129.4 million at September 30, 1997. Long term borrowings
decreased $198.8 million to $92.0 million at June 30, 1998, compared to $290.8
million at September 30, 1997. The change in short term and long term
borrowings is due to adjustable rate borrowings moving from the greater than
one year maturity to the less than one year maturity category. At June 30,
1998, $75.0 million of the short term borrowings are callable FHLB advances
with maturities from seven to ten years and are callable by the FHLB after
three to six months. At June 30, 1998, the Company had a borrowing capacity
available of $140.4 million from the FHLB; however, additional securities may
have to be pledged as collateral.
At June 30, 1998, the Company had $205.0 million in interest rate swaps
outstanding compared with $163.0 million at September 30, 1997. The swaps are
designed to offset the changing interest payments of some of the Company's
borrowings and brokered certificates. Fixed pay-floating receive swaps totaled
$55.0 million at June 30, 1998 and were entered into to hedge interest rates
on borrowings from the FHLB used to fund purchases of fixed rate securities.
Fixed pay-floating receive swaps will provide for a lower interest expense (or
interest income) in a rising rate environment while adding to interest expense
in a falling rate environment. Fixed receive-floating pay swaps totaled $150.0
million at June 30, 1998 and were entered into to hedge interest rates on
brokered deposits used to fund the purchase of floating rate securities. Fixed
receive-floating pay swaps will provide for a lower interest expense (or
interest income) in a falling rate environment while adding to interest expense
in a rising rate environment. During the nine months ended June 30, 1998, the
Company recorded a net reduction of interest expense of $1.4 million as a
result of the Company's interest rate swap agreements.
At June 30, 1998, the Company had $10.0 million in interest rate corridors
outstanding compared with $30.0 million at September 30, 1997. The Company
uses interest rate corridors to help protect its net interest margin in various
interest rate environments. The interest rate corridors pay the Company the
range difference or a full 1.0% when the three-month Libor rate is in the
corridor strike rates. There are no payments due to the Company when
three-month Libor rates are outside of the corridor strike rates.
There are certain risks associated with swaps and corridors, including the
risk that the counterparty may default and that there may not be an exact
correlation between the indices on which the swap agreements are based and the
terms of the hedged liabilities. In order to offset these risks, the Company
generally enters into swap and corridor agreements only with nationally
recognized securities firms and monitors the credit status of counterparties,
the level of collateral for such swaps and corridors and the correlation
between the hedged liabilities and indices utilized.
20
<PAGE> 21
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, Continued
During the year ended September 30, 1997, the Company's Board of Directors
adopted a shareholders' rights plan (the "Rights Plan"). Under the terms of the
Rights Plan, the Board of Directors declared a dividend of one preferred share
purchase right for each outstanding share of common stock. If the rights
become exercisable, holders of each right, other than the acquirer, upon
payment of the exercise price, will have the right to purchase the Company's
common stock (in lieu of preferred shares) having a value equal to two times
the exercise price. Rights are redeemable by the Company at any time until they
are excercisable at the exchange rate of $.01 per right. Issuance of the rights
has no immediate dilutive effect, does not currently affect reported earnings
per share, is not taxable to the Company or its shareholders, and will not
change the way in which the Company's shares are traded. The rights expire in
ten years.
Advances and changes in available technology can significantly impact the
business and operations of the Company. The Company is in the process of
conducting a review of its computer systems and its third-party systems to
identify those that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Company anticipates
substantially completing their review of Year 2000 issues and making any
modifications, if necessary, by the end of December 1998.* The Year 2000
problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's programs
or programs of third-party providers that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. If not
corrected, Year 2000 issues could result in a major system failure or
miscalculations and material costs to the Company. The Company presently
believes that, with modifications to existing software and converting to new
software, the Year 2000 problem will not pose significant operational problems
for the Company's computer systems as so modified and converted. However, if
such modifications and conversions are not completed timely, the Year 2000
problem may have a material impact on the operations of the Company. The
Company expects to incur costs associated with the Year 2000 issue of
approximately $200,000 to $500,000 on an annual basis in each of its fiscal
years ending September 30, 1998, 1999 and 2000.*
RESULTS OF OPERATIONS
NET INCOME. Net income for the nine months ended June 30, 1998 was $10.9
million compared to $8.6 million for the nine months ended June 30, 1997. Net
income for the three months ended June 30, 1998 was $3.6 million compared to
$2.5 million for the three months ended June 30, 1997. The increase for
the nine month period was primarily the result of a $728,000 increase in net
interest income and a $7.8 million increase in other operating income,
partially offset by a $6.5 million increase in general and administrative
expenses. The increase for the three month period was primarily the result of a
$3.5 million increase in other operating income, partially offset by a $1.9
million increase in general and administrative expenses and a $732,000 increase
in income tax expense.
The following table shows the return on average assets and return on average
equity ratios for each period:
<TABLE>
<CAPTION>
Nine months ended Three months ended
June 30, June 30,
------------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Return on average assets............. 0.88% 0.78% 0.83% 0.64%
Return on average equity............. 11.07% 9.05% 10.78% 7.76%
</TABLE>
21
<PAGE> 22
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, Continued
NET INTEREST INCOME. Net interest income before provision for loan losses
increased $2.2 million or 7.8% and $342,000 or 3.3% for the nine and three
months ended June 30, 1998, respectively, compared to the same periods in the
prior year. The increase was due primarily to an increase of $142.9 million and
$126.8 million in average earning assets for the nine and three months ended
June 30, 1998, respectively. In addition, the net interest margin was 2.70% and
2.77% for the nine months ended June 30, 1998 and 1997, respectively, and 2.69%
and 2.84% for the three months ended June 30, 1998 and 1997, respectively. Over
the last several years, the margin has been affected by decreasing interest
rate spreads that the Company has been experiencing in its asset and liability
base and a changing asset mix which includes a higher level of non-interest
earning assets. Over the last year, the net interest margin has been relatively
constant, fluctuating by only a few basis points between each quarter. The
Company increased its investment in affordable housing units to $51.4 million
at June 30, 1998 compared with $44.5 million at June 30, 1997. At June 30,
1998, the Company has not committed to any additional equity investments. This
investment strategy provides returns primarily through income tax credits but
is not an interest earning asset and thus has the effect of decreasing the
Company's net interest margin.
Total interest income increased $7.9 million or 10.0% to $86.7 million for the
nine months ended June 30, 1998, compared to $78.8 million for the nine months
ended June 30, 1997, and increased $1.3 million or 4.5% to $29.6 million for
the three months ended June 30, 1998, compared to $28.3 million for the three
months ended June 30, 1997. The increase in interest income was primarily the
result of increases in interest on loans and securities for the nine month
period and increases in interest on loans for the three month period. The
increase in interest on loans was primarily the result of an increase in the
average balance of loans to $779.8 million from $658.4 million for the nine
months ended June 30, 1998 and 1997, respectively, partially offset by a slight
decrease in the average yield on loans to 8.50% from 8.52% for the same period
in the prior year. The increase in net interest income on loans for the three
months ended June 30, 1998 compared with the three months ended June 30, 1997
was the result of an increase in the average balance of loans to $817.2 million
from $683.7 million, partially offset by decreases in the average yield on
loans to 8.45% from 8.82% for the same period in the prior year. The increase
in the average balance of loans is due primarily to the Company's recent
efforts to emphasize commercial, consumer and home equity lending. However,
such loans, while potentially resulting ultimately in higher yields for the
Company, may result in a higher level of credit risk than conventional mortgage
loans. The increase in interest income on mortgage-backed and related
securities was due to an increase in the average balance of such securities to
$638.2 million from $607.6 million for the nine months ended June 30, 1998 and
1997, respectively, partially offset by decreases in the average yield on such
securities to 6.80% from 6.95% for the same periods. The decrease in interest
income on mortgage-backed and related securities for the three months ended
June 30, 1998 compared with the three months ended June 30, 1997 was due to a
decrease in the average balance of such securities to $643.3 million from
$654.7 million, and due to decreases in the average yield on such securities to
6.62% from 7.01% for the same periods. The Company has been active during the
past quarter repositioning its available for sale mortgage-backed and related
securities portfolio by selling significant amounts of securities and replacing
them with securities with more favorable maturity positions and characteristics
which reflect the Company's overall asset/liability management strategies.
Total interest expense increased $5.7 million or 11.3% to $55.9 million for the
nine months ended June 30, 1998, compared to $50.2 million for the nine months
ended June 30, 1997. For the three months ended June 30, 1997, total interest
expense increased $923,000, or 5.1%, to $19.0 million compared to $18.1 million
for the three months ended June 30, 1997. The increase in interest expense was
the result of increases in the average balances of deposits and advances and
other borrowings. The average balances of deposits were $1.04 billion and $1.07
billion for the nine and three months ended June 30, 1998, respectively, as
compared to $900.6 million and $953.8 million for the same periods in the prior
year. The increases in the balances of deposits are due to the Company's
offering of additional deposit products and the use of brokers to sell
certificates of deposit. The average cost of deposits decreased to 4.96%
and 4.88% for the nine and three months ended June 30, 1998, respectively, from
5.07% and 5.21% for the same periods in the prior year. As
22
<PAGE> 23
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, Continued
part of a continuing strategy, the Company continues to offer deposit products
that compete more effectively with money market funds and other non-financial
deposit products. Such accounts have generally changed the Company's
traditional mix of deposit accounts to one that is more adjustable to current
interest rates such as the money market demand account. This has resulted in
passbook and certificate of deposit accounts representing a lower percentage of
the Company's total deposit portfolio. The average balance of advances and
other borrowings were $412.6 million and $442.6 million for the nine and three
months ended June 30, 1998, respectively, as compared to $394.7 million and
$417.6 million for the same periods in the prior year. The average cost of
advances and other borrowings increased to 5.61% and 5.44% for the nine and
three months ended June 30, 1998, respectively, from 5.45% and 5.43% for the
same periods in the prior year. The borrowings are primarily adjustable-rate
FHLB advances which have repriced to reflect the changes in rate levels
associated with the respective borrowing rate indexes from the same period in
the prior year.
The following table sets forth information regarding: (1) average assets and
liabilities, (2) average yield on assets and average cost on liabilities, (3)
net interest margin, (4) net interest rate spread, and (5) the ratio of
earning assets to interest-bearing liabilities for the nine and three month
periods ended June 30, 1998 and 1997, respectively.
23
<PAGE> 24
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, Continued
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
-------------------------------------------------------------------
(Dollars in thousands)
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and overnight deposits $ 20,774 $ 847 5.45% $ 21,044 $ 872 5.54%
Trading account securities.............. 1,110 57 6.87 3,252 170 6.99
Debt and equity securities.............. 63,053 2,754 5.84 70,628 3,226 6.11
Mortgage-backed and related securities.. 638,191 32,451 6.80 607,606 31,592 6.95
Loans:
First mortgage....................... 455,120 27,944 8.21 418,640 25,648 8.19
Home equity........................... 129,328 8,736 9.03 99,833 7,115 9.53
Consumer ............................. 114,608 7,642 8.92 102,120 7,147 9.36
Commercial and agricultural........... 80,785 5,229 8.65 37,838 2,035 7.19
-------------------- -------------------
Total loans....................... 779,841 49,551 8.50 658,431 41,945 8.52
Federal Home Loan Bank stock............ 20,852 1,049 6.73 19,940 1,024 6.87
-------------------- -------------------
Total earning assets.............. 1,523,821 86,709 7.61 1,380,901 78,829 7.63
------ --------
Valuation allowances.................... (7,490) (7,755)
Cash and due from banks................. 29,270 20,920
Other assets............................ 116,389 83,436
----------- ----------
Total assets...................... $ 1,661,990 1,477,502
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts ......................... $ 63,371 648 1.37 $ 47,791 602 1.68
Money market demand accounts.......... 272,975 10,067 4.93 206,925 7,337 4.74
Passbook.............................. 125,972 3,075 3.26 84,699 1,857 2.93
Certificates of deposit.............. 578,485 24,794 5.73 561,219 24,353 5.80
-------------------- -------------------
Total interest-bearing deposits.......... 1,040,803 38,584 4.96 900,634 34,149 5.07
Advances and other borrowings............ 412,585 17,305 5.61 394,703 16,084 5.45
Advances from borrowers for taxes and
insurance................................ 4,935 18 0.49 5,239 21 0.54
--------------------- -------------------
Total interest-bearing liabilities 1,458,323 55,907 5.13 1,300,576 50,254 5.16
Non interest-bearing deposits............ 58,111 38,845
Other liabilities........................ 13,530 11,278
Shareholders' equity..................... 132,026 126,803
----------- ----------
Total liabilities and shareholders' equity $ 1,661,990 $1,477,502
=========== ==========
Net interest income...................... $30,802 $28,575
======= =======
Net yield on interest-earning assets..... 2.70 2.77
Interest rate spread..................... 2.48 2.47
Ratio of earning assets to
interest-bearing liabilities 104.49 106.18
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
1998 1997
----------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------------------------------- ----------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and overnight deposits $ 17,094 $ 230 5.40% $ 13,930 $ 228 6.57%
Trading account securities.............. 1,134 19 6.72 2,696 47 6.99
Debt and equity securities.............. 76,657 1,174 6.14 73,858 1,213 6.59
Mortgage-backed and related securities.. 643,315 10,611 6.62 654,676 11,444 7.01
Loans:
First mortgage....................... 469,832 9,560 8.16 421,958 8,893 8.45
Home equity........................... 137,198 3,026 8.85 108,449 2,665 9.86
Consumer ............................. 120,972 2,720 9.02 105,476 2,718 10.34
Commercial and agricultural........... 89,151 1,901 8.55 47,860 767 6.43
-------------------- -----------------------
Total loans....................... 817,153 17,207 8.45 683,743 15,043 8.82
Federal Home Loan Bank stock............ 20,870 328 6.30 20,504 329 6.44
-------------------- -----------------------
Total earning assets.............. 1,576,223 29,569 7.52 1,449,407 28,304 7.83
------ ------
Valuation allowances.................... (8,802) (8,821)
Cash and due from banks................. 29,402 25,954
Other assets............................ 123,899 88,510
----------- ------------
Total assets...................... $ 1,720,722 $ 1,555,050
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts ......................... $ 65,975 210 1.28 $ 52,291 237 1.82
Money market demand accounts.......... 288,351 3,501 4.87 227,541 2,802 4.94
Passbook.............................. 135,480 1,115 3.30 93,591 722 3.09
Certificates of deposit.............. 577,777 8,150 5.66 580,415 8,639 5.97
-------------------- -----------------------
Total interest-bearing deposits.......... 1,067,583 12,976 4.88 953,838 12,400 5.21
Advances and other borrowings............ 442,621 5,999 5.44 417,601 5,651 5.43
Advances from borrowers for taxes and
insurance................................ 4,763 6 0.51 5,109 7 0.55
-------------------- -----------------------
Total interest-bearing liabilities 1,514,967 18,981 5.03 1,376,548 18,058 5.26
Non interest-bearing deposits............ 61,501 45,385
Other liabilities........................ 12,058 5,492
Shareholders' equity..................... 132,196 127,625
----------- ------------
Total liabilities and shareholders' equity $ 1,720,722 $ 1,555,050
=========== ============
Net interest income...................... $10,588 $ 10,246
======= ==========
Net yield on interest-earning assets..... 2.69 2.84
Interest rate spread..................... 2.50 2.57
Ratio of earning assets to
interest-bearing liabilities 104.04 105.29
</TABLE>
24
<PAGE> 25
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
PROVISION FOR LOAN LOSSES. The following table summarizes the allowance for
loan losses for each period:
<TABLE>
<CAPTION>
Nine months ended Three months ended
June 30, June 30,
------------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Beginning balance......................... $ 6,202 $ 5,217 $ 7,482 $ 6,122
Provision for loan losses................. 2,000 501 300 129
Recoveries................................ 24 77 7 3
Charge-offs............................... (848) (1,695) (411) (476)
Acquired bank's allowance................. - 1,678 - -
------------ ------------ ----------- -----------
Ending balance............................ $ 7,378 $ 5,778 $ 7,378 $ 5,778
============ ============ =========== ===========
Ratio of allowance for loan losses to
gross loans receivable at the end
of the period........................ 0.82% 0.76% 0.82% 0.76%
Ratio of allowance for loan losses to
total non-performing loans at the
end of the period.................... 243.10% 236.32% 243.10% 236.32%
Ratio of net charge-offs to average
gross loans (annualized)............. 0.16% 0.33% 0.20% 0.20%
</TABLE>
Management believes that the allowance for loan losses is adequate to provide
for potential losses as of June 30, 1998, based upon its current evaluation of
loan delinquencies, non-performing loans, charge-off trends, economic conditions
and other factors. Such evaluation, which includes a review of all loans on
which full collectibility may not be reasonably assured, considers, among other
matters, the estimated net realizable value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an accurate provision for loan losses. For
the nine months ended June 30, 1998, the provision for loan losses was $2.0
million compared to $501,000 for the same period in the prior year. Although
non-performing assets have been trending downward, the Company's loan portfolio
is significantly more diversified than in previous years. The Company has and
continues to expect to increase its commercial, consumer and commercial real
estate loan portfolios which are generally presumed to have more risk than
standard single-family mortgage loans.* Loan types other than single-family
loans constitute a larger percentage of total loans than in previous years and
the trend is expected to continue.* Charge-offs for the nine and three months
ended June 30, 1998 were $848,000 and $411,000, respectively, compared to $1.7
million and $476,000 for the same periods in the prior year. The current year
amounts included $230,000 of charge-offs related to a lawsuit brought in
connection with a contractor that went out of business before completing home
improvement work on which the Bank was the lender. Repossessed autos sold during
the nine and three months ended June 30, 1998 resulted in charge-offs of
$317,000 and zero, respectively, compared to $1.5 million and $432,000 for the
same periods in the prior year. The balance of the repossessed auto loans was
$143,000 as of June 30, 1998. While additional charge-offs may be incurred, it
is expected they will happen at lower levels than in the previous year (See
"Asset Quality").* The Company believes that the allowance for loan losses is
adequate to provide for potential anticipated losses based upon current known
conditions.
OTHER OPERATING INCOME. Other operating income increased by $7.8 million and
$3.5 million for the nine and three months ended June 30, 1998, compared to the
same periods in the prior year. The prior year-to-date and quarterly results
include the effect of an impairment loss of $2.1 million on four private issue
mortgage-backed
25
<PAGE> 26
ST.FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
securities. The underlying loans had experienced significant delinquencies and
foreclosures and the various subordinate and cash positions were not adequate to
protect the Company's position in the securities. The securities were then
written down to fair value as of that time. The following table shows the
percentage of other operating income to average assets for each period:
<TABLE>
<CAPTION>
Nine months ended Three months ended
June 30, June 30,
------------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Other operating income.................... $ 14,271 $ 6,446 $ 4,681 $ 1,139
Percent of average assets (annualized).... 1.15% 0.58% 1.09% 0.29%
</TABLE>
The increases were due primarily to increases in gains on sales of mortgage
loans, increases in depository fees and service charges, increases in other
income and income from the Company's affordable housing subsidiary. Gains on the
sale of mortgage loans increased $2.4 million to $3.2 million, and $430,000 to
$894,000 for the nine and three months ended June 30, 1998, respectively,
compared to gains of $834,000 and $464,000 for the same periods in the prior
year. The Company's volume of mortgage loan sales was $160.4 million and $57.4
million for the nine and three months ended June 30, 1998, respectively,
compared to $78.9 million and $27.1 million for the same periods in the prior
year. The decreasing interest rate environment has increased the level of the
Company's fixed rate loan production which is sold into the secondary market. In
addition to the increased loan production, the falling interest rates have led
to a greater gain level on loans than in the prior year. For the nine months
ended June 30, 1998, securities gains totaled $1.1 million compared to $1.0
million in the prior year. During the three months ended June 30, 1998, the
Company realized gains on the sale of securities of $767,000 compared with gains
of $411,000 for the three months ended June 30, 1997. The Company does not
consider gains on the sale of securities as a predictable source of earnings as
such sales are based on the Company's ongoing review of the individual
securities within the Company's available for sale portfolio whereby securities
may be sold and replaced with ones that offer a better combination of interest
income, interest rate risk or credit risk than the security sold. Income from
depository fees and service charges increased to $2.6 million from $1.4 million,
and $997,000 from $551,000, for the nine and three months ended June 30, 1998
and 1997, respectively. The results for the nine months ended June 30, 1998
included the refund of state income taxes related to a prior year's tax audit.
The interest portion of the refund ($795,000) is included in other income while
the portion that is a refund of previous taxes paid ($780,000) reduces income
tax expense. Income from the operations of the Company's affordable housing
subsidiary (which represents primarily rental income) increased to $3.7 million
from $2.4 million, and $1.3 million from $964,000 for the nine and three months
ended June 30, 1998 and 1997, respectively. The Company currently has 25
properties fully in operation compared to 20 in the prior year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $6.5 million or 26.4% and $1.9 million or 21.5% for the nine and
three months ended June 30, 1998, compared to the same periods in the prior
year. The following table shows the percentage of general and administrative
expenses to average assets for each period:
26
<PAGE> 27
ST.FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
<TABLE>
<CAPTION>
Nine months ended Three months ended
June 30, June 30,
------------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
General and administrative expenses....... $ 31,076 $ 24,589 $ 10,743 $ 8,840
Percent of average assets (annualized).... 2.50% 2.23% 2.50% 2.28%
</TABLE>
The current three and nine month periods include the expenses of Kilbourn State
Bank which was purchased in February, 1997, and thus is only partially included
in the prior nine month period and also includes increased levels of
compensation and other costs associated with the opening of new branches and
other activity connected with the Company's higher level of earning assets. In
addition, the affordable housing subsidiary showed an increase in operating
expenses of $1.1 million and $249,000 for the nine and three months ended June
30, 1998, as compared to the same period in the prior year, primarily as a
result of the Company currently having 25 properties fully in operation compared
to 20 in the prior year. Included in other general and administrative expenses
for the three and nine months ended June 30, 1998 is the effect of a settlement
reached on July 9, 1998 regarding a lawsuit brought in connection with a
contractor that went out of business before completing home improvement work on
which the Bank was the lender. The settlement resulted in an expense of $630,000
and $480,000 during the nine and three months ended June 30, 1998, respectively.
INCOME TAX EXPENSE. Income tax expense decreased to $1.1 million from $1.4
million for the nine months ended June 30, 1998 and 1997, respectively. Income
tax expense increased to $672,000 from a benefit of $60,000 for the three months
ended June 30, 1998 and 1997, respectively. The effective tax rate for the nine
and three months ended June 30, 1998 was 8.85% and 15.90%, respectively,
compared to 13.31% and negative 2.48% for the nine and three months ended June
30, 1997. The decrease in the effective tax rate for the nine month period is
due to the aforementioned refund of state income taxes of $780,000 related to a
prior year's tax audit as well as the effect of the tax credits earned by the
Company's affordable housing subsidiary. Income tax credits increased to $3.1
million and $1.1 million for the nine and three months ended June 30, 1998,
compared to $2.1 million and $730,000 for the nine and three months ended June
30, 1997.
ASSET QUALITY
Total non-performing assets were $3.2 million or 0.18% of total assets at June
30, 1998 compared with $3.4 million or 0.21% of total assets at September 30,
1997. Non-performing assets include loans which have been placed on nonaccrual
status and property upon which a judgment of foreclosure has been entered but
prior to the foreclosure sale, as well as property acquired as a result of
foreclosure.
Non-performing assets as of June 30, 1998 included $143,000 of purchased auto
loans which are past due or in default. These auto loans were purchased in 1995
and 1996 under a warehouse financing arrangement the Company had with the
originator of the sub-prime automobile loans. The intent of the financing was to
warehouse the loans until the originator could originate sufficient quantities
to securitize the loans and sell to institutional investors. At that time, the
loans would be sold back to the originator. The loans were serviced by an
independent third party servicer and the loans had various levels of insurance
and in addition were guaranteed as to principal and interest payments by the
originator of the loans. The maximum amount that the Company had outstanding at
any point in time was a balance of $14.6 million during February, 1996. The
Company has not funded any loans since that time and as of June 30, 1998, the
balance of the sub-prime auto loans was $143,000 compared to $1.1 million at
September 30, 1997. The decrease in the loan balance since September 30, 1997 is
due to cash payments received of $601,000 and charge-offs of $317,000. Actions
have been taken to repossess
27
<PAGE> 28
ST.FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
the collateral on the delinquent loans and to enforce the guarantee of the
originator of these loans; however, it is anticipated that some portion of these
loans will ultimately result in a charge-off due to the possible inability of
the originator to perform under its guaranty.* In addition, the level of
insurance collected on policies paying for credit losses on the loans has been
lower than anticipated. Non-performing assets also includes a single $837,000
commercial real estate loan on a shopping center.
Non-performing assets are summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
------------------ ----------------
(Dollars in thousands)
<S> <C> <C>
Non-performing loans.............................. $ 3,035 $ 2,995
Foreclosed properties............................. 130 416
-------------- ------------
Non-performing assets............................. $ 3,165 $ 3,411
============== ============
Non-performing loans to gross loans............... 0.34% 0.38%
Non-performing assets to gross assets............. 0.18% 0.21%
</TABLE>
There are no material loans about which management is aware that there exists
serious doubts as to the ability of the borrower to comply with the loan terms,
except as disclosed above.
Impaired loans totaled $980,000 at June 30, 1998 compared to $1.9 million at
September 30, 1997. These loans had associated impairment reserves of $433,000
and $782,000 at June 30, 1998 and September 30, 1997, respectively. The average
balance of impaired loans was $1.5 million and $4.1 million at June 30, 1998 and
September 30, 1997, respectively. Interest income on impaired loans for the
three months ended June 30, 1998 was $47,000, compared to zero at September 30,
1997.
ASSET/LIABILITY MANAGEMENT
Asset and liability management is an ongoing process of managing asset and
liability maturities to control the interest rate risk of the Company.
Management controls this risk through pricing of assets and liabilities and
maintaining specific levels of maturities. In recent periods, management's
strategy has been to (1) sell substantially all new originations of long-term,
fixed-rate, single-family mortgage loans in the secondary market, (2) invest in
various adjustable-rate and short-term mortgage-backed and related securities,
(3) invest in adjustable-rate, single-family mortgage loans, and (4) increase
its investments in consumer and commercial loans with generally shorter interest
rate characteristics. Although management believes that its asset/liability
management strategies have reduced the potential effects of changes in interest
rates on its operations, increases in interest rates may adversely affect the
Company's results of operations because interest-bearing liabilities will
reprice more quickly than interest-earning assets.
At June 30, 1998, the Company's estimated cumulative one-year gap between assets
and liabilities was a negative 14.99% of total assets. A negative gap occurs
when a greater dollar amount of interest-bearing liabilities are repricing or
maturing than interest earning assets. The Company's three-year cumulative gap
as of June 30, 1998 was a negative 9.38% of total assets. With a negative gap
position, during periods of rising interest rates it is expected that the cost
of the Company's interest-bearing liabilities will rise more quickly than the
yield on its interest-earning assets, which will have a negative effect on its
net interest income.* Although the opposite effect on net interest income would
occur in periods of falling interest rates, the Company could experience
28
<PAGE> 29
ST.FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
substantial prepayments of its fixed-rate mortgage loans and mortgage-backed and
related securities in periods of falling interest rates, which would result in
the reinvestment of such proceeds at market rates which are lower than current
rates.*
29
<PAGE> 30
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
The following table summarizes the Company's gap position as of June 30, 1998.
<TABLE>
<CAPTION>
More than More than
Within Four to One Year Three
Three Twelve to Three Years to Over Five
Months Months Years Five Years Years Total
----------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS: (1)
Loans: (2)
Fixed........................... $ 23,550 $ 26,106 $ 45,398 $ 34,520 $ 67,219 $ 196,793
Variable........................ 110,162 82,693 61,180 69,022 22,650 345,707
Consumer loans (2)................... 128,916 66,600 12,232 24,443 34,745 266,936
Mortgage-backed and related securities 8,003 24,015 24,851 6,876 1,529 65,274
Assets available for sale:
Mortgage loans.................. 19,923 - - - - 19,923
Fixed rate mortgage related..... 39,793 117,881 92,026 38,214 7,885 295,799
Variable rate mortgage related.. 161,479 111,878 - - - 273,357
Other........................... 51,650 - - - 811 52,461
Trading account securities........... - - - - - -
Investment securities and other assets 56,457 25,968 5,050 - - 87,475
-------------------------------------------------------------------------------
Total........................... $ 599,933 $ 455,141 $ 240,737 $ 173,075 $ 134,839 $ 1,603,725
===============================================================================
INTEREST-BEARING LIABILITIES:
Deposits: (3)
NOW accounts.................... $ 5,311 $ 17,067 $ 23,368 $ 9,275 $ 6,104 $ 35,758
Passbook savings accounts....... 3,937 11,809 23,917 16,477 36,486 92,626
Money market deposit accounts... 76,451 229,353 24,907 6,227 2,076 339,014
Certificates of deposit......... 171,973 290,587 104,511 8,148 35 575,254
Borrowings (4)....................... 446,604 25,000 5,516 - - 477,120
Impact of interest rate swap ........ 95,000 (55,000) (40,000) - - -
-------------------------------------------------------------------------------
Total........................... $ 799,276 $ 518,816 $ 142,219 $ 40,127 $ 44,701 $ 1,545,139
===============================================================================
Excess (deficiency) of
interest-earning assets over interest
-bearing liabilities................. $ (199,343) $(63,675) $ 98,518 $ 132,948 $ 90,138 $ 58,586
===============================================================================
Cumulative excess (deficiency) of
interest-earning assets over
interest- bearing liabilities........ $ (199,343) $(263,018) $ (164,500) $ (31,552) $ 58,586
=================================================================
Cumulative excess (deficiency) of
interest-earning assets over
interest- bearing liabilities as a
percent of total assets.............. (11.36%) (14.99%) (9.38%) (1.80%) 3.34%
=================================================================
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjustable and floating rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed rate assets are included in the periods in
which they are scheduled to be repaid based on scheduled amortization, in
each case adjusted to take into account estimated prepayments utilizing the
Company's historical prepayment statistics, modified for forecasted
statistics using the Public Securities Association model of prepayments.*
For fixed rate mortgage loans and mortgage-backed and related securities,
annual prepayment rates ranging from 8% to 30%, based on the loan coupon
rate, were used.
(2) Balances have been reduced for undisbursed loan proceeds, unearned
insurance premiums, deferred loan fees, purchased loan discounts and
allowances for loan losses, which aggregated $65.9 million at June 30,
1998.
(3) Although the Company's negotiable order of withdrawal ("NOW") accounts,
passbook savings accounts and money market deposit accounts generally are
subject to immediate withdrawal, management considers a certain portion of
such accounts to be core deposits having significantly longer effective
maturities based on the Company's retention of such deposits in changing
interest rate environments. NOW accounts, passbook savings accounts and
money market deposit accounts are assumed to be withdrawn at annual rates
of 37%, 17% and 88%, respectively, of the declining balance of such
accounts during the period shown. The withdrawal rates used are higher than
the Company's historical rates but are considered by management to be more
indicative of expected withdrawal rates in a rising interest rate
environment. If all the Company's NOW accounts, passbook savings accounts
and money market deposit accounts had been assumed to be repricing within
one year, the one-year cumulative deficiency of interest-earning assets to
interest-bearing liabilities would have been $411.9 million or 23.5% of
total assets.
(4) Adjustable and floating rate borrowings are included in the period in
which their interest rates are next scheduled to adjust rather than in the
period in which they are due.
30
<PAGE> 31
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
Assumptions regarding the withdrawal and prepayment are based on historical
experience, and management believes such assumptions reasonable, although the
actual withdrawal and repayment of assets and liabilities may vary
substantially.* Certain shortcomings are inherent in the method of analysis
presented in the gap table. For example, although certain assets and liabilities
may have similar maturities to repricing, they may react in different degrees to
changes in market interest rates.* Also, the interest rates on other types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates.* Additionally, certain assets, such as adjustable-rate loans and
mortgage-backed and related securities, have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Further, in
the event of a change in interest rates, prepayment and early withdrawal levels
could deviate significantly from those assumed in calculating the data in the
table.*
LIQUIDITY AND CAPITAL RESOURCES
The Company's most liquid assets are cash and cash equivalents, which include
investments in highly-liquid, short-term investments. The level of these assets
is dependent on the Company's operating, financing and investing activities
during any given period. Cash and cash equivalents totaled $50.5 million and
$42.9 million as of June 30, 1998 and September 30, 1997, respectively.
The Company's primary sources of funds are deposits, including brokered
certificates of deposit, borrowings from the FHLB and proceeds from principal
and interest payments on loans and mortgage-backed and related securities.
Although maturities and scheduled amortization of loans are predictable sources
of funds, deposit flows, prepayments on mortgage loans and mortgage-backed and
related securities are influenced significantly by general interest rates,
economic conditions and competition. Additionally, the Bank is limited by the
FHLB to borrowing up to 35% of its assets. At June 30, 1998, the Company had a
borrowing capacity available of $140.4 million from the FHLB; however,
additional securities may have to be pledged as collateral.
Under federal and state laws and regulations, the Company and its wholly-owned
subsidiary are required to meet certain tangible, core and risk-based capital
requirements. Tangible capital generally consists of shareholders' equity minus
certain intangible assets. Core capital generally consists of tangible capital
plus qualifying intangible assets. The risk-based capital requirements presently
address credit risk related to both recorded and off-balance sheet commitments
and obligations.
The Bank is required to follow OTS capital regulations which require savings
institutions to meet three capital standards: (i) "tangible capital" in an
amount not less than 1.5% of adjusted total assets; (ii) "core capital" in an
amount not less than 3% of adjusted total assets; and (iii) "risk-based
capital" of at least 8% of risk-weighted assets. Savings institutions must meet
all of the standards in order to comply with the capital requirements.
The following table summarizes the Bank's capital ratios at the dates indicated:
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
------------------------ ------------------------
Capital Capital
------------------------ ------------------------
Capital Standard Amount Percent Amount Percent
- ------------------------------------ ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible capital 118,893 6.84% 117,337 7.14%
Core capital 118,893 6.84% 117,337 7.14%
Risk-based capital 126,171 12.21% 122,856 12.21%
</TABLE>
As evidenced by the foregoing, the capital of the Company's financial
institution subsidiary exceeded all capital requirements as mandated by the
requirements of the OTS.
31
<PAGE> 32
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The following table sets forth the amounts of estimated cash flows for the
various interest-earning assets and interest-bearing liabilities outstanding at
June 30, 1998.
<TABLE>
<CAPTION>
More than More than More than More than
Within One Year Two Years Three Years Four Years
One Year to Two Years to Three Years To Four Years to Five Years
------------------ ----------------- ------------------ ------------------- ------------------
Interest Earning Assets (Dollars in millions)
<S> <C> <C> <C> <C> <C>
Mortgage and
commercial loans:
Fixed rate $ 49.7 8.12% $ 22.7 8.06% $ 22.7 8.08% $ 17.3 8.08% $ 17.3 8.05%
Adjustable rate 93.3 8.20% 48.4 8.27% 41.5 8.23% 31.1 8.20% 22.5 8.10%
Consumer loans:
Fixed rate 11.4 8.30% 18.9 8.50% 11.4 8.51% 15.1 8.51% 16.3 8.50%
Adjustable rate 31.0 8.63% 22.5 8.70% 52.1 8.73% 26.8 8.80% 8.5 9.00%
Mortgage-backed
Securities:
fixed rate 189.7 6.44% 58.4 6.53% 58.4 6.69% 22.5 6.60% 22.5 6.81%
adjustable rate 52.8 6.40% 41.4 6.40% 37.3 6.59% 31.8 6.70% 28.3 6.80%
Debt and equity
securities 82.4 5.95% 5.1 6.90% - - - - - -
Other 51.6 5.45% - - - - - - - -
Total interest
-------- -------- -------- --------- ---------
earning assets $ 561.9 6.87% $ 217.4 7.46% $ 223.4 7.67% $ 144.6 7.75% $ 115.4 7.64%
======== ======== ======== ========= =========
Interest Bearing Liabilities
Deposits:
NOW accounts 22.4 1.42% 11.7 1.42% 11.7 1.42% 4.6 1.42% 4.6 1.42%
Passbooks 15.7 1.89% 12.0 1.89% 12.0 1.89% 8.2 1.89% 8.2 1.89%
Money market 306.0 4.57% 12.5 4.57% 12.5 4.57% 3.1 4.57% 3.1 4.57%
Certificates 462.6 5.87% 52.2 5.87% 52.3 5.79% 4.1 5.88% 4.1 6.65%
Borrowings
fixed rate 101.3 5.01% 0.1 6.95% - - - - - -
adjustable rate 307.3 5.55% 68.4 5.68% - - - - - -
Total interest
-------- -------- -------- --------- ---------
bearing liabilities $1,215.3 5.25% $ 156.9 5.05% $ 88.5 4.51% $ 20.0 3.01% $ 20.0 3.16%
======== ======== ======== ========= =========
<CAPTION>
Fair
Over Market
Five Years Total Value
------------------ ------------------ ---------
Interest Earning Assets
<S> <C> <C> <C>
Mortgage and
commercial loans:
Fixed rate $ 67.1 8.20% $ 196.8 8.13% $ 203.4
Adjustable rate 128.8 8.19% 365.6 8.20% 372.3
Consumer loans:
Fixed rate 53.0 8.50% 126.1 8.48% 129.4
Adjustable rate - - 140.8 8.73% 145.4
Mortgage-backed
Securities:
fixed rate 9.5 6.83% 361.0 6.54% 361.3
adjustable rate 81.8 6.90% 273.4 6.65% 273.9
Debt and equity
securities - - 87.5 6.00% 87.4
Other 0.8 5.15% 52.5 5.45% 52.5
Total interest
------ -------- --------
earning assets $341.0 7.89% $1,603.7 7.41% $1,625.6
====== ======== ========
Interest Bearing Liabili
Deposits:
NOW accounts $ 6.1 1.42% 61.1 1.42% 61.1
Passbooks 36.5 1.89% 92.6 1.89% 92.6
Money market 1.8 4.57% 339.0 4.57% 339.2
Certificates - - 575.3 5.87% 625.5
Borrowings
fixed rate - - 101.4 5.01% 101.4
adjustable rate - - 375.7 5.57% 366.8
Total interest
------ -------- --------
bearing liabilities $ 44.4 1.94% $1,545.1 5.04% $1,586.6
====== ======== ========
</TABLE>
32
<PAGE> 33
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor the Bank is involved in any pending
legal proceedings involving amounts in the aggregate which
management believes are material to the financial condition and
results of operations of the Registrant and the Bank.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On July 24, 1998, the Company announced the declaration of a
dividend of $0.14 per share on the Company's common stock for the
quarter ended June 30, 1998. The dividend is payable on August 21,
1998 to shareholders of record as of August 10, 1998. This will be
the twelfth cash dividend payment since the Company became a
publicly-held company in June 1993.
Shareholder Proposals
Proposals of shareholders intended to be presented at the
Company's 1999 annual meeting of shareholders must be received at
the Company's principal executive offices at 13400 Bishops Lane,
Suite 350, Brookfield, Wisconsin 53005-6203, Attention: William R.
Hotz, Secretary, no later than August 18, 1998 in order to be
included in the Company's proxy statement and form of proxy
relating to the 1999 annual meeting. Such proposals also must
comply with all of the requirements of Rule 14a-8 of the Rules and
Regulations under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act").
Effective June 29, 1998, the Securities and Exchange Commission
amended Rule 14a-4(c) under the Exchange Act which governs a
company's use of discretionary proxy voting authority with respect
to shareholder proposals that are not being included in a
company's proxy solicitation materials pursuant to Rule 14a-8 of
the Exchange Act. New Rule 14a-4(c)(1) provides that if a
shareholder fails to notify the Company of such proposal at least
45 days prior to the month and day of mailing of the prior year's
proxy statement, then the management proxies named in the form of
proxy distributed in connection with the Company's proxy statement
would be allowed to use their discretionary voting authority to
address the proposal submitted by the shareholder, without
discussion of the proposal in the proxy statement. Accordingly, if
a shareholder who intends to present a proposal at the 1999 annual
meeting of shareholders does not notify the Company of such
proposal on or prior to November 14, 1998, then management proxies
would be allowed to use their discretionary voting authority to
vote on the proposal when the proposal is raised at the annual
meeting, even though there is no discussion of the proposal in the
1999 proxy statement.
33
<PAGE> 34
PART II. OTHER INFORMATION
Pursuant to the Company's articles of incorporation, proposals of
shareholders intended to be presented at the Company's 1999 annual
meeting of shareholders must be received by the Secretary of the
Company not later than the close of business on the tenth day
following the day on which notice of the 1999 annual meeting was
mailed to shareholders; provided, however, as stated above, the
proposal must be received no later than August 18, 1998 in order
to be included in the proxy statement relating to the 1999 annual
meeting. The Company currently believes that the 1999 annual
meeting of shareholders will be held during the fourth full week
in January 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Agreement and Plan of Reorganization Between St. Francis
Capital Corporation and Reliance Bancshares, Inc. dated
as of June 30, 1998.
11.1 Statement Regarding Computation of Earnings Per Share
(See Footnote 7 in "Notes to Unaudited Consolidated
Financial Statements")
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report was filed.
34
<PAGE> 35
SIGNATURE
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.
ST. FRANCIS CAPITAL CORPORATION
Dated: August 13, 1998 By: /s/ Jon D. Sorenson
------------------------ ---------------------
Jon D. Sorenson
Chief Financial Officer
35
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANYS UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 22,228
<INT-BEARING-DEPOSITS> 28,287
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 656,631
<INVESTMENTS-CARRYING> 67,095
<INVESTMENTS-MARKET> 67,322
<LOANS> 829,359
<ALLOWANCE> 7,378
<TOTAL-ASSETS> 1,754,803
<DEPOSITS> 1,129,445
<SHORT-TERM> 385,111
<LIABILITIES-OTHER> 17,272
<LONG-TERM> 92,009
0
0
<COMMON> 73
<OTHER-SE> 130,893
<TOTAL-LIABILITIES-AND-EQUITY> 1,754,803
<INTEREST-LOAN> 49,551
<INTEREST-INVEST> 35,205
<INTEREST-OTHER> 1,953
<INTEREST-TOTAL> 86,709
<INTEREST-DEPOSIT> 38,584
<INTEREST-EXPENSE> 55,907
<INTEREST-INCOME-NET> 30,802
<LOAN-LOSSES> 2,000
<SECURITIES-GAINS> 1,108
<EXPENSE-OTHER> 7,314
<INCOME-PRETAX> 11,997
<INCOME-PRE-EXTRAORDINARY> 11,997
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,935
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.09
<YIELD-ACTUAL> 2.70
<LOANS-NON> 3,035
<LOANS-PAST> 201
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,202
<CHARGE-OFFS> (848)
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 7,378
<ALLOWANCE-DOMESTIC> 7,378
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
