<PAGE> 1
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number 1-12212
DRUMMOND FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-4426690
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1250, 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6
(Address of principal executive offices)
(604) 683-5312
(Registrant's telephone number)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the Registrant's classes of
common equity, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding at May 8, 1997
----- --------------------------
<C> <S>
Common Stock, $0.01 2,718,600
par value
</TABLE>
Transitional Small Business Disclosure Format: Yes No X
------- -------
=============================================================================
<PAGE> 2
FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent that they are not based on
historical events, constitute forward-looking statements. Forward-looking
statements include, without limitation, statements regarding the outlook for
future operations, forecasts of future costs and expenditures, evaluation of
market conditions, the outcome of legal proceedings, the adequacy of
reserves, or other business plans. Investors are cautioned that forward-
looking statements are subject to an inherent risk that actual results may
vary materially from those described herein. Factors that may result in such
variance, in addition to those accompanying the forward-looking statements,
include changes in interest rates, prices, and other economic conditions;
actions by competitors; natural phenomena; actions by government authorities;
uncertainties associated with legal proceedings; technological development;
future decisions by management in response to changing conditions; and
misjudgments in the course of preparing forward-looking statements.
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
DRUMMOND FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<PAGE> 3
DRUMMOND FINANCIAL CORPORATION
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
-------------- -------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,729 $ 14,478
Finance receivables, net of
allowance for credit losses 8,622 12,137
Other receivables 414 371
Investments 29,606 19,283
Deferred debt issuance costs,
net of accumulated amortization 2,150 2,037
Other assets 4 4
-------------- -------------
$ 44,525 $ 48,310
============== =============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
LIABILITIES
Bonds payable, net of principal amount
of bonds held in treasury of $2,953 $ 42,047 $ 42,047
Interest payable 858 1,787
Accounts payable and accrued liabilities 276 835
-------------- -------------
43,181 44,669
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value,
5,000,000 shares authorized, 3,000,000
shares issued and outstanding 30 30
Common stock, $0.01 par value, 10,000,000
shares authorized, 4,264,000 shares
issued and outstanding 43 43
Additional paid-in capital 23,737 23,737
Accumulated deficit (19,410) (17,113)
-------------- -------------
4,400 6,697
Less: 1,545,400 common shares held as
treasury stock (3,056) (3,056)
-------------- -------------
Total shareholders' equity 1,344 3,641
-------------- -------------
$ 44,525 $ 48,310
============== =============
</TABLE>
<PAGE> 4
DRUMMOND FINANCIAL CORPORATION
Consolidated Statements of Operations and Deficit
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues
Interest and loan fee income $ 1,095 $ 2,021
(Loss) gain on securities (559) 4,500
Other 707 2
-------------- --------------
1,243 6,523
Costs and expenses
Interest 2,776 2,945
Recovery of credit losses (673) (1,328)
General and administrative 1,436 2,170
-------------- --------------
3,539 3,787
-------------- --------------
Operating (loss) income (2,296) 2,736
Income tax expense 1 1
-------------- --------------
(Loss) income before extraordinary item (2,297) 2,735
Extraordinary item, extinguishment of debt - 113
-------------- --------------
Net (loss) income (2,297) 2,848
Accumulated deficit, beginning of period (17,113) (18,904)
-------------- --------------
Accumulated deficit, end of period $ (19,410) $ (16,056)
============== ==============
(Loss) income per share:
(Loss) income before extraordinary item $ (0.94) $ 1.01
Extraordinary item - 0.04
-------------- --------------
$ (0.94) $ 1.05
============== ==============
Weighted average number of shares outstanding 2,718,600 2,718,600
============== =============
</TABLE>
<PAGE> 5
DRUMMOND FINANCIAL CORPORATION
Consolidated Statements of Operations and Deficit
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues
Interest and loan fee income $ 235 $ 517
Gain on securities 5 2,721
Other 100 2
-------------- --------------
340 3,240
Costs and expenses
Interest 916 949
Provision for credit losses 1,031 200
General and administrative 596 528
-------------- --------------
2,543 1,677
-------------- --------------
Operating (loss) income (2,203) 1,563
Income tax expenses - -
-------------- --------------
(Loss) income before extraordinary item (2,203) 1,563
Extraordinary item, extinguishment of debt - (5)
-------------- --------------
Net (loss) income (2,203) 1,558
Accumulated deficit, beginning of period (17,207) (17,614)
-------------- --------------
Accumulated deficit, end of period $ (19,410) $ (16,056)
============== ==============
(Loss) income per share:
(Loss) income before extraordinary item $ (0.84) $ 0.57
Extraordinary item - -
-------------- --------------
$ (0.84) $ 0.57
============== ==============
Weighted average number of shares outstanding 2,718,600 2,718,600
============== ==============
</TABLE>
<PAGE> 6
DRUMMOND FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Operating activities:
Net (loss) income $ (2,297) $ 2,848
Adjustments to reconcile net (loss) income
to net cash used by operating activities:
Extraordinary gain on extinguishment
of debt - (113)
Provision for credit losses (673) (1,328)
Loss (gains) on investments 559 (4,501)
Other (107) 154
------------- --------------
(2,518) (2,940)
Changes in non-cash working capital:
Accounts receivable (88) (940)
Interest receivable 114 126
Commitment fees (111) (71)
Other assets - 25
Interest payable (929) (1,062)
Accounts payable and accrued liabilities (560) 356
------------- --------------
(4,092) (4,506)
Purchase of trading securities (22,028) (10,502)
Proceeds from sales of trading securities 13,210 6,889
------------- --------------
(12,910) (8,119)
Investing activities:
Advances on loan receivables (1,100) (228)
Payments received on loan receivables 3,261 10,803
------------- --------------
2,161 10,575
Financing activities:
Purchase of treasury bonds - (121)
------------- --------------
Net change in cash and cash equivalent (10,749) 2,335
Cash and cash equivalent, beginning of period 14,478 12,145
------------- --------------
Cash and cash equivalent, end of period $ 3,729 $ 14,480
============= ==============
Cash paid during the period for:
Interest expenses $ 3,557 $ 3,851
Income taxes $ 1 $ 1
</TABLE>
<PAGE> 7
DRUMMOND FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
Note 1. Basis of Presentation
---------------------
In accordance with Item 310 of Regulation S-B promulgated by the Securities
and Exchange Commission, the consolidated financial statements and
accompanying notes thereto have been condensed and therefore do not contain
all disclosures required by generally accepted accounting principles. These
consolidated financial statements and accompanying notes thereto should be
read in conjunction with Drummond Financial Corporation's (the "Corporation")
audited consolidated financial statements and notes thereto contained in the
Corporation's Form 10-KSB Annual Report for the fiscal year ended June 30,
1996. In October 1996, the Corporation changed its name from CVD Financial
Corporation to Drummond Financial Corporation. All dollar amounts are
rounded to the nearest thousands.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly its
financial position as of March 31, 1997, and the results of its operations
and changes in its financial position for the periods ended March 31, 1996
and 1997. All adjustments were of a normal recurring nature. Results for
interim periods are not necessarily indicative of those to be expected for
the full year.
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period's presentation.
While the Corporation reported net income in fiscal 1996 principally as a
result of realizing gains on sales of investments, the Corporation had an
accumulated deficit of $17.1 million as at June 30, 1996. The Corporation now
focuses on investment and merchant banking activities while de-emphasizing
asset-based commercial lending. However, there is no assurance that such
business strategies will improve future cash flow.
Note 2. Bonds Payable
-------------
In October 1996, the Corporation's Bond indenture was amended to, among other
things, delete the requirement to maintain a ratio of consolidated
liabilities to consolidated tangible net worth of not more than 15:1.
The Corporation did not make its semi-annual Bond interest payment due on
January 25, 1997 until February 21, 1997, which was made within the 30 day
cure period provided under the terms of the Bond indenture, and thus, did not
result in an event of default.
<PAGE> 8
Note 3. Adoption of Accounting Standard Regarding Impaired Loans
--------------------------------------------------------
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement No. 114, "Accounting by Creditors for Impairment of a Loan." The
statement is effective for fiscal years beginning after December 15, 1994,
and thus, is effective for the Corporation beginning on July 1, 1995.
However, if the Corporation had elected to adopt the statement for its fiscal
year ended June 30, 1995, the computational provisions of this statement
would not have had a material impact on the Corporation's June 30, 1995
allowance for credit losses.
Under the provisions of the statement, when a loan is impaired as defined in
the statement, impairment is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, or as a
practical expedient, on a loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. The effective rate is
either the rate of return implicit in the loan for a loan with fixed interest
and principal repayment terms or the interest rate in effect when the loan
first becomes impaired for a loan with a variable interest rate. The
Corporation has adopted a measurement method on a loan-by-loan basis. Since
the present value of an impaired loan's expected future cash flows will
change from one reporting period to the next because of the passage of time
and also may change because of revised estimates in the amount or timing of
those cash flows, the Corporation has established a policy of recognizing
these present value changes as either an increase or decrease in its
provision for credit losses as applicable for each reporting period.
The Corporation continued to apply FASB Statement No. 5, "Accounting for
Contingencies" to provide an allowance on a pool of unimpaired loans.
As of March 31, 1997, the Corporation had identified impaired finance
receivables with a recorded investment totaling $5.1 million and had
established a specific allowance for credit losses totaling $3.2 million in
connection therewith. Finance receivables, which are also referred to as
recorded investment in loans, include the outstanding loan balance (net of
any charge-offs), any accrued interest, deferred loan fees and reimbursable
costs. The activity with regard to the allowance for credit losses during
the nine months ended March 31, 1997 is as follows:
<TABLE>
<CAPTION> Nine Months
--------------
(in thousands)
<S> <C>
Balance, beginning of period $ 7,202
Decrease in provision (673)
Charge-offs, net of charge-back (3,224)
--------------
Balance, end of period $ 3,305
==============
Consisted of:
Specific allowance under FASB Statement No. 114 $ 3,235
General allowance under FASB Statement No. 5 70
--------------
$ 3,305
==============
</TABLE>
<PAGE> 9
The following table summarizes the calculation of net finance receivables as
at March 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Finance receivables, gross $ 11,927
Less allowance for credit losses (3,305)
--------------
Finance receivables, net $ 8,622
==============
</TABLE>
<PAGE> 10
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of Drummond Financial Corporation (the "Corporation") for the
nine months and quarter ended March 31, 1997 should be read in conjunction
with the consolidated financial statements and related notes included
elsewhere herein.
Results of Operations - Nine Months Ended March 31, 1997
- --------------------------------------------------------
Revenues for the nine months ended March 31, 1997 decreased to $1.2 million
from $6.5 million in the comparative period of 1996. In the current period,
the Corporation recognized a $0.6 million loss on securities, compared to a
gain on securities of $4.5 million in the comparative period of 1996.
Interest and loan fee income decreased to $1.1 million for the nine months
ended March 31, 1997 from $2.0 million for the comparative period of 1996,
primarily due to a reduction in the dollar amount of outstanding performing
loans. The Corporation's loans generally earn interest at the prime rate
charged by a major U.S. bank (the "Bank") plus 2% to 7%. The Bank's prime
rate increased to 8.50% from 8.25% in late March 1997, compared to a decrease
to 8.25% from 9.00% during the nine months ended March 31, 1996. In the nine
months ended March 31, 1997, the Corporation had other revenue of $0.7
million, of which $0.6 million resulted from a consent dismissal of a court
action for which the Corporation had made a provision.
Costs and expenses for the nine months ended March 31, 1997 decreased to $3.5
million from $3.8 million in the comparative period of 1996. General and
administrative expenses decreased to $1.4 million for the nine months ended
March 31, 1997 from $2.2 million for the comparative period of 1996,
primarily as the result of reduced legal fees and loan collection costs. In
the nine months ended March 31, 1997, the Corporation reported a recovery of
credit losses of $0.7 million, compared to $1.3 million for the comparative
period of 1996.
Interest expense decreased to $2.8 million for the nine months ended March
31, 1997 from $2.9 million for the comparative period of 1996, primarily as a
result of a lower minimum interest rate accrued on the Corporation's 15 Year
Variable Rate Bonds (the "Bonds"). For the nine months ended March 31, 1997,
interest was accrued at the rate of approximately 8.25% per annum, compared
to approximately 8.50% per annum for the nine months ended March 31, 1996.
No income tax provision was recognized for the nine months ended March 31,
1997 and 1996, except for the payment of a minimum tax of $1,000. The
Corporation has deferred tax benefits with respect to net operating loss
carry-forwards which have not been recognized as there is no assurance that
they will be realized.
For the nine months ended March 31, 1997, the Corporation reported a net loss
of $2.3 million, compared to net income of $2.8 million in the comparative
period of 1996, which included $0.1
<PAGE> 11
million of extraordinary gains on the early extinguishment of debt. The net
loss in the current period was primarily attributable to the loss on
securities, the reduction in interest and loan fee income and a decrease in
the recovery for credit losses, which was partially offset by other income
and lower general and administrative expenses. Results for the
comparative period of 1996 included a gain on securities of $4.5 million.
Results of Operations - Three Months Ended March 31, 1997
- ---------------------------------------------------------
Revenues for the three months ended March 31, 1997 decreased to $0.3 million
from $3.2 million in the comparative period of 1996. The Corporation
recognized $5,000 in gains on securities for the three months ended March 31,
1997, compared to $2.7 million for the comparative period of 1996. Interest
and loan fee income decreased to $0.2 million for the quarter ended March 31,
1997 from $0.5 million for the comparative period of 1996, primarily due to a
reduction in the dollar amount of outstanding performing loans. The
Corporation's loans generally earn interest at the prime rate charged by the
Bank plus 2% to 7%. The Bank's prime rate increased to 8.50% from 8.25% in
late March 1997, compared to a decrease to 8.25% from 8.50% during the
three months ended March 31, 1996. In the quarter ended March 31, 1997, the
Corporation had other revenues of $0.1 million, compared to $2,000 in the
three months ended March 31, 1996.
Costs and expenses for the three months ended March 31, 1997 increased to
$2.5 million from $1.7 million in the comparative period of 1996, primarily
as a result of an increase in provisions for credit losses. In the
quarter ended March 31, 1997, the Corporation reported an increase in
provisions for credit losses of $1.0 million, compared to $0.2 million in the
comparative period of 1996. General and administrative expenses increased to
$0.6 million for the quarter ended March 31, 1997 from $0.5 million
for the comparative period of 1996.
Interest expense was $0.9 million for the quarters ended March 31, 1997 and
1996. Interest was accrued at the rate of approximately 8.25% and 8.50% per
annum for the three months ended March 31, 1997 and March 31, 1996,
respectively.
For the three months ended March 31, 1997, the Corporation reported a net
loss of $2.2 million, compared to net income of $1.6 million in the
comparative period of 1996. Results for the current period of 1997 included
a gain on securities of $5,000, compared to $2.7 million in the comparative
period of 1996. The Corporation reported an increase in provisions for credit
losses of $1.0 million in the current period.
Liquidity and Capital Resources
- -------------------------------
The Corporation's cash and cash equivalents at March 31, 1997 were $3.7
million, which represent a decrease of $10.7 million from June 30, 1996.
Net cash used by operations for the nine months ended March 31, 1997 was
$12.9 million, compared to $8.1 million for the comparative period of 1996.
The Corporation used $4.1 million in operating activities before any
activities in trading securities in the nine months ended March 31, 1997,
<PAGE> 12
compared to $4.5 million in the comparative period of 1996.
Accounts receivable used cash of $88,000 in the current period, compared to
$0.9 million in the comparative period of 1996. Accounts payable and accrued
liabilities used cash of $0.6 million in the nine months ended March 31,
1997, compared to providing cash of $0.4 million in the nine months ended March
31, 1996.
Net purchases of trading securities were $8.8 million in the nine months
ended March 31, 1997, compared to $3.6 million in the nine months ended March
31, 1996.
Cash provided by investing activities was $2.2 million during the current
period, compared to $10.6 million during the comparative period of 1996,
primarily due to a decrease in collections on loan receivables resulting from
a smaller loan portfolio, and a loan advanced during the nine months ended
March 31, 1997 of $1.1 million. The Corporation's net finance receivables at
March 31, 1997 were $8.6 million, compared to $15.0 million at March 31,
1996.
The Corporation did not make its semi-annual interest payment on the Bonds
due January 25, 1997 until February 21, 1997, which was within the 30 day
cure period provided for under the terms of the indenture governing the
Corporation's Bonds (the "Bond Indenture"). As at the date hereof, no
defaults exist under the Bond Indenture. The next regularly scheduled
interest payment date is July 25, 1997.
As at March 31, 1997, the Corporation had $3.7 million in cash and cash
equivalents. No new loans were advanced during the three months ended March
31, 1997, and the Corporation proceeded to collect and/or settle and
restructure the non-performing loans in its portfolio. The Corporation
anticipates that its cash and investments on hand, and its expected loan
interest and principal collections, will be sufficient to service the
Corporation's debt costs and cover the day-to-day general and administrative
expenses during the short-term.
Finance Receivables
- -------------------
The Corporation's loan portfolio at March 31, 1997 aggregated $11.9 million
in finance receivables (principal plus interest and reimbursable costs less
unamortized commitment fees) due from seven borrowers, compared to an
aggregate of $22.3 million in finance receivables due from 11 borrowers at
March 31, 1996.
Non-performing Loans at March 31, 1997
At March 31, 1997, loans to two borrowers, who had finance receivables
totaling $5.1 million, representing approximately 42.5% of the outstanding
portfolio, had been classified as non-performing. The Corporation designates
finance receivables as non-performing when interest and/or principal payments
are contractually delinquent for more than 90 days, or earlier, if the
Corporation has material evidence of the borrower's inability to meet its
commitments under the loan agreement (e.g., the borrower files for bankruptcy
protection). Non-performing loans have a significant negative effect on the
Corporation's interest margin, as the Corporation does not realize income on
these loans, but does incur holding costs (primarily interest expense).
<PAGE> 13
The following table compares the finance receivables of the non-performing
loans as at March 31, 1997 with the finance receivables of such loans as at
March 31, 1996:
<TABLE>
<CAPTION>
Outstanding Finance Receivables
---------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
(dollars in thousands)
<S> <C> <C>
Clean-Up Technology, Inc. ("CUT")
and subsidiaries $ 2,971 $ 3,538
Heartland, Inc. ("Heartland") 2,100 2,110
-------------- -------------
$ 5,071 $ 5,648
============== =============
</TABLE>
As at March 31, 1997, Heartland and one subsidiary of CUT, who had non-
performing finance receivables totaling $2.2 million, representing 18.5% of
the outstanding portfolio, had filed voluntary petitions for bankruptcy
protection. The Corporation also had additional non-performing finance
receivables totaling $2.8 million, being 23.5% of the Corporation's
portfolio, due from CUT. CUT had distinct operations from its subsidiary in
an unrelated business, but, in February 1995, effectively ceased its
operations.
Allowance for Credit Losses
The Corporation maintains an allowance for credit losses at an amount
estimated to cover potential losses on finance receivables which have
experienced an event of impairment or for which collection of outstanding
principal, interest and reimbursable expenses has become doubtful. Amounts
deemed to be uncollectible are charged off against the allowance and
subsequent recoveries, if any, are credited to the allowance. The amount of
the allowance is based on the Corporation's evaluation of numerous factors,
including the adequacy of the collateral securing the loans, the operating
environments of the various borrowers and the historical experience of the
various borrowers' management, and reflects the Corporation's best estimate
of the necessary level of the allowance for credit losses. The activity with
regards to the allowance for credit losses during the nine months and
quarters ended March 31, 1997 and 1996, respectively, is as follows:
<PAGE> 14
<TABLE>
<CAPTION>
March 31,
------------------------------------------
1997 1996
-------------------------------- -------
(dollars in thousands)
Specific General Total Total
Changes in Allowance Reserve Reserve Reserve Reserve
- -------------------- -------- ------- ------- -------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED
Balance, beginning of period $ 6,702 $ 500 $ 7,202 $14,716
Provision (recovery) for the period 40 (713) (673) (1,328)
Charge-offs for the period,
net of charge-back (3,507) 283 (3,224) (6,085)
-------- ------- ------- -------
Balance, end of period $ 3,235 $ 70 $ 3,305 $ 7,303
======== ======= ======= =======
QUARTER ENDED
Balance, beginning of period $ 2,204 $ 70 $ 2,274 $ 7,103
Provision for the period 1,031 - 1,031 200
Charge-offs for the period,
net of charge-back - - - -
-------- ------- ------- -------
Balance, end of period $ 3,235 $ 70 $ 3,305 $ 7,303
======== ======= ======= =======
</TABLE>
On July 1, 1996, the Corporation adopted the Financial Accounting Standards
Board Statement ("FASB") No. 114, "Accounting by Creditors for Impairment of
a Loan." If the Corporation had elected to adopt FASB No. 114 for its fiscal
year ended June 30, 1995, the computational provisions of this statement
would not have had a material impact on the Corporation's June 30, 1995
allowance for credit losses.
Under the provisions of FASB No. 114, when a loan is impaired as defined in
the statement, a lender shall measure impairment based on the present value
of expected future cash flows discounted at the loan's effective interest
rate, or as a practical expedient, based on a loan's observable market price
or the fair value of the collateral if the loan is collateral dependent. The
Corporation has adopted a measurement method on a loan-by-loan basis. By
definition, the Corporation's non-performing loans are impaired. A specific
reserve is established for each impaired loan equal to the amount by which
the Corporation's recorded investment in the loan exceeds the net present
value of the loan determined in accordance with FASB No. 114.
<PAGE> 15
The following tables summarize the Corporation's specific reserves for credit
losses prepared in accordance with FASB No. 114 as at March 31, 1997 and
March 31, 1996:
<TABLE>
<CAPTION>
MARCH 31, 1997
(dollars in thousands)
Total future Total related Specific
expected cash costs Net reserve
# of Recorded collections, net expected to present under FASB
loans investment of related costs(1) be incurred(1)(2) value No. 114
----- ---------- ---------------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
IMPAIRED LOANS
Future cash flows:
Bankruptcy or
ceased to operate 2 $ 5,071 $ 2,915 $ 275 $ 1,836 $ 3,235
UNIMPAIRED LOANS 5 6,856 70(4)
--- -------- ----------
Grand total 7 $ 11,927 $ 3,305
=== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
(dollars in thousands)
Total future Total related Specific
expected cash costs Net reserve
# of Recorded collections, net expected to present under FASB
loans investment of related costs(1) be incurred(1)(2) value No. 114
----- ---------- ---------------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
IMPAIRED LOANS
Collateral
dependant(3):
Bankruptcy or
ceased to operate 1 $ 2,349 $ 708 $ 125 $ 632 $ 1,717
Continuing to
operate 2 7,289 6,482 400 5,170 2,119
Future cash flows:
Bankruptcy or
ceased to operate 2 5,648 5,145 405 2,903 2,745
--- -------- -------- --------- ------- ----------
Subtotal 5 15,286 $ 12,335 $ 930 $ 8,705 6,581
UNIMPAIRED LOANS 6 6,993 ======== ========= ======= 722(4)
--- -------- ----------
Grand total 11 $ 22,279 $ 7,303
=== ======== ==========
</TABLE>
- ------------------
Notes:
1. The estimate of expected cash flows represents the Corporation's best
estimate based on reasonable and supportable assumptions and projections.
The period over which future expected net cash collections will occur is 3.5
years for loans which may generate future cash flows and the borrower is
bankrupt or has ceased to operate.
<PAGE> 16
2. These amounts represent future costs to be incurred in connection with
the sale of collateral and/or the collection of the loans, and have been
subtracted from the net future expected cash collections.
3. The fair market value of the collateral represents the amount that the
Corporation reasonably expects to receive in an arm's length sale between a
willing buyer and a willing seller. For marketable securities, the current
quoted price is used. For receivables, inventory and equipment, relevant
market sources are used when reliable information is provided. A normal
price adjustment is provided if a forced or liquidation sale is probable. No
appraisals have been used for the valuation of collateral.
4. The general reserve is determined in accordance with FASB No. 5 on a pool
of unimpaired loans.
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Corporation's annual report on Form 10-KSB for the
year ended June 30, 1996 and quarterly report on Form 10-QSB for the
quarterly period ended December 31, 1996 for information concerning certain
legal proceedings.
ITEMS 2 to 5.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------- -----------
27 Article 5 - Financial Data Schedule for 3rd Quarter
1996 Form 10-QSB.
(b) Reports on Form 8-K
None.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 9, 1997
DRUMMOND FINANCIAL CORPORATION
By: /s/ Michael J. Smith
----------------------------------
Michael J. Smith, President, Chief
Executive Officer and Chief Financial Officer
<PAGE> 18
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Article 5 - Financial Data Schedule for 3rd Quarter 1996 Form
10-QSB.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES INCLUDED IN THIS FORM 10-QSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,729
<SECURITIES> 29,606
<RECEIVABLES> 11,927
<ALLOWANCES> 3,305
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,525
<CURRENT-LIABILITIES> 0
<BONDS> 42,047
0
30
<COMMON> 43
<OTHER-SE> 1,271
<TOTAL-LIABILITY-AND-EQUITY> 44,525
<SALES> 0
<TOTAL-REVENUES> 1,243
<CGS> 0
<TOTAL-COSTS> 3,539
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (673)
<INTEREST-EXPENSE> 2,776
<INCOME-PRETAX> (2,296)
<INCOME-TAX> 1
<INCOME-CONTINUING> (2,297)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,297)
<EPS-PRIMARY> (0.94)
<EPS-DILUTED> (0.94)
</TABLE>
