<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
- --------- THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended December 31,
1996
OR
- ------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-22772
-------
WESTERFED FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in this charter)
DELAWARE 81-0487794
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer ID #)
incorporation or organization)
110 East Broadway, Missoula, Montana 59802
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code
406-721-5254
------------
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 subjected to such
filing requirements for the past 90 days.
Yes __X__ No _____
The number of shares outstanding of each of the Issuer's
Classes of Common Stock, as of the latest date is:
Class: Common Stock, Par Value $0.01 per share; Outstanding at February 10, 1997
-- 4,397,156 shares (including restricted shares)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I -- FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1 FINANCIAL STATEMENTS.......................................................................... - 3 -
Consolidated Balance Sheets - December 31, 1996 (Unaudited) and June 30, 1996 ......................... - 3 -
Consolidated Statements of Income - Three and Six Month Period Ended
December 31, 1996 and December 31, 1995 (Unaudited).............................................. - 4 -
Consolidated Statement of Stockholders' Equity for the Six Month Period Ended
December 31, 1996 (Unaudited)..................................................................... - 5 -
Consolidated Statements of Cash Flows for the Six Month Period Ended
December 31, 1996 and December 31, 1995 (Unaudited) .............................................. - 6 -
Notes to Consolidated Financial Statements............................................................. - 7 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................................... - 10 -
PART II -- OTHER INFORMATION................................................................................... - 23 -
ITEM 1 LEGAL PROCEEDINGS............................................................................ - 23 -
ITEM 2 CHANGE IN SECURITIES......................................................................... - 23 -
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.............................................................. - 23 -
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS............................................ - 23 -
ITEM 5 OTHER INFORMATION............................................................................ - 23 -
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................................................. - 23 -
SIGNATURES..................................................................................................... - 24 -
</TABLE>
- 2 -
<PAGE>
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets - December 31, 1996 (Unaudited) and June 30, 1996
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1996 1996
---------- -----------
ASSETS
<S> <C> <C>
Cash and due from banks $ 8,300 $ 7,829
Interest-bearing due from banks 16,108 5,470
---------- -----------
Cash and cash equivalents 24,408 13,299
Interest-bearing deposits 190 3,000
Investment securities available-for-sale 47,892 35,637
Investment securities, at amortized cost (estimated market value of
$1,854 at December 31, 1996 and $9,399 at June 30, 1996) 1,852 9,347
Stock in Federal Home Loan Bank of Seattle, at cost 7,775 7,471
Mortgage-backed securities available-for-sale 35,475 44,909
Mortgage-backed securities, at amortized cost (estimated market
value of $56,594 at December 31, 1996 and $59,278 at June 30, 1996) 56,129 60,038
Loans available-for-sale 1,156 3,967
Loans receivable, net 365,309 364,226
Accrued interest receivable 3,691 3,695
Premises and equipment, net 14,411 13,758
Cash surrender value of life insurance policies 3,258 3,183
Other assets 2,071 1,401
---------- -----------
Total assets $563,617 $ 563,931
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $343,842 $ 350,212
Borrowed funds 130,712 125,838
Advances from borrowers for taxes and insurance 2,848 3,255
Income taxes 2,719 1,961
Accrued interest payable 1,217 1,219
Accrued expenses and other liabilities 2,773 2,839
---------- -----------
Total liabilities 484,111 485,324
---------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none outstanding --- ---
Common stock, $.01 par value, 10,000,000 shares authorized;
4,397,156 shares outstanding at December 31, 1996 and
4,395,204 outstanding at June 30, 1996 46 46
Additional paid-in capital 45,499 45,451
Common stock acquired by ESOP/RRP (3,155) (3,558)
Treasury stock, at cost (3,080) (3,079)
Net unrealized gain on securities available-for-sale (144) (226)
Retained earnings, substantially restricted 40,340 39,973
---------- -----------
Total stockholders' equity 79,506 78,607
---------- -----------
Total liabilities and stockholders' equity $563,617 $ 563,931
========== ===========
Book value per share $ 18.08 $ 17.88
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
Consolidated Statements of Income - Three and Six Month Period Ended December
31, 1996 and December 31, 1995 (Unaudited).
<TABLE>
<CAPTION>
(Dollars in thousands, except share and per share data) (Unaudited) (Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 7,834 $ 7,051 $ 15,544 $ 13,674
Mortgage-backed securities available-for-sale 668 1,160 1,396 2,175
Mortgage-backed securities 1,001 1,265 2,038 2,633
Investment securities available-for-sale 757 759 1,448 1,618
Investment securities 61 255 214 487
Interest-bearing deposits 261 144 489 409
Other 46 46 92 90
-------------- ------------- ----------- -------------
Total interest income 10,628 10,680 21,221 21,086
-------------- ------------- ----------- -------------
Interest expense:
NOW and money market demand 367 442 749 888
Savings 465 491 939 985
Certificates of deposit 2,994 3,055 6,003 6,030
Advances from FHLB-Seattle and other borrowed funds 2,079 2,274 4,164 4,517
-------------- ------------- ----------- -------------
Total interest expense 5,905 6,262 11,855 12,420
-------------- ------------- ----------- -------------
Net interest income 4,723 4,418 9,366 8,666
Provision for loan losses 27 --- 42 ---
-------------- ------------- ----------- -------------
Net interest income after provision for loan losses 4,696 4,418 9,324 8,666
-------------- ------------- ----------- -------------
Non-interest income:
Loan origination fees 98 70 223 203
Service fees 565 538 1,131 1,047
Net gain on sale of loans and securities available-for-sale 205 38 314 449
Other 35 42 70 78
-------------- ------------- ----------- -------------
Total non-interest income 903 688 1,738 1,777
-------------- ------------- ----------- -------------
Non-interest expenses:
Compensation and employee benefits 1,706 1,745 3,593 3,630
Net occupancy expense of premises 256 214 478 427
Equipment and furnishings expense 173 145 364 283
Data processing expenses 168 158 333 308
Federal insurance premium 155 199 366 400
SAIF special assessment --- --- 2,297 ---
Marketing and advertising 196 179 232 324
Net expense (income) from operation of real estate owned 2 --- 2 ---
Other 795 604 1,517 1,471
-------------- ------------- ----------- -------------
Total non-interest expense 3,451 3,244 9,182 6,843
-------------- ------------- ----------- -------------
(Loss) income before income taxes 2,148 1,862 1,880 3,600
Income taxes (796) (717) (707) (1,388)
-------------- ------------- ----------- -------------
Net (loss) income $ 1,352 $ 1,145 $ 1,173 $ 2,212
============= ============= ============ ============
Net (loss) income per share $ 0.31 $ 0.27 $ 0.27 $ 0.52
============= ============= ============ ============
Dividends per share $ 0.100 $ 0.080 $ 0.195 $ 0.155
============= ============= ============ ============
Dividend payout ratio before SAIF assessment 32.26% 29.63% 72.22% 29.81%
============= ============= ============ ============
Weighted average common shares outstanding for
earnings per share
4,309,470 4,265,158 4,278,233 4,259,582
============= ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
Consolidated Statement of Stockholders' Equity for the Six Month Period Ended
December 31, 1996 (Unaudited).
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Net
Unrealized
Loss on
Additional Securities
Common Paid-In ESOP/ Treasury Retained Available
Stock Capital RRP Stock Earnings for Sale Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 $ 46 45,451 (3,558) (3,079) 39,973 (226) 78,607
Net income -- -- -- -- 1,173 -- 1,173
Change in net unrealized loss on
securities available-for-sale -- -- -- -- -- 82 82
Principal payment made
by ESOP -- 48 165 -- -- -- 213
Amortization of award of
RRP stock -- -- 237 -- -- -- 237
Shares forfeited by RRP
participants (166 shares) -- -- 1 (1) -- -- --
Cash dividends declared
($0.195 per share) -- -- -- -- (806) -- (806)
- --------------------------------------------- -------- -------- -------------------------------------------------------------------
Balance at December 31, 1996 $ 46 45,499 (3,155) (3,080) 40,340 (144) 79,506
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
Consolidated Statements of Cash Flows for the Six Month Period Ended December
31, 1996 and December 31, 1995 (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
December 31,
1996 1995
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 11,162 $ 11,312
------------- -------------
Cash flows from investing activities:
Net change in interest-bearing deposits 2,810 2,102
Purchases of mortgage-backed securities (983) (14,917)
Proceeds from sales of mortgage-backed securities 3,207 3,517
Principal payments on mortgage-backed securities 11,179 12,691
Purchases of investment securities (42,723) (10,669)
Dividends paid to stockholders (392) (307)
Proceeds from maturities of investment securities 38,165 16,490
Principal payments on investment securities 109 577
Net change in loans receivable (831) (36,245)
Purchases of premises and equipment (1,076) (1,272)
------------- -------------
Net cash used by investing activities 9,465 (28,033)
------------- -------------
Cash flows from financing activities:
Net change in deposits excluding interest credited (13,950) (18)
Proceeds from borrowings 10,320 57,300
Payments on borrowings (5,480) (45,240)
Net change in advances from borrowers for taxes and insurance (408) (527)
Proceeds from sales of investment securities --- 3,840
------------- -------------
Net cash provided (used) by financing activities (9,518) 15,355
------------- -------------
Net increase (decrease) in cash and cash equivalents 11,109 (1,366)
Cash and cash equivalents at beginning of period 13,299 15,374
------------- -------------
Cash and cash equivalents at end of period $ 24,408 $ 14,008
============= =============
Supplemental disclosure of cash flow information:
Payments during the period for:
Interest
Income taxes, net
$ 4,288 $ 4,387
11 1,063
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
WESTERFED FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, the information contained herein reflects
all adjustments necessary to make the results of operations for the
interim periods a fair statement of such operations. All such
adjustments are of a normal recurring nature. Operating results for the
six months ended December 31, 1996 are not necessarily indicative of
the results anticipated for the year ending June 30, 1997. For
additional information, refer to the consolidated financial statements
and footnotes thereto included in WesterFed Financial Corporation's
(the "Company") annual report for the year ended June 30, 1996.
2. CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, the
Company considers all cash, daily interest demand deposits,
non-interest bearing deposits with banks, and interest bearing deposits
having original maturities of three months or less to be cash
equivalents.
3. COMPUTATION OF NET INCOME PER SHARE
Net income per common share is based on the weighted average
number of shares outstanding during the period applying the treasury
stock method to common stock equivalents. The weighted average number
of common and common stock equivalents for the six month period ended
December 31, 1996 were 4,278,233. Stock options have been granted,
under the Company's stock option and incentive plan, to purchase
434,784 shares. In addition 191,904 shares of restricted stock have
been issued in accordance with the recognition and retention plan
established by the Company. These stock options and restricted stock
awards are reflected in the income per share computations in the
accompanying financial statements. In addition, there have been 354,933
shares of common stock issued to the Employee Stock Ownership Plan
(ESOP) trust for the benefit of the employees of the Company and its
subsidiaries. ESOP shares that have been committed to be released are
considered outstanding and ESOP shares that have not been committed to
be released are not considered outstanding. At December 31, 1996,
94,288 ESOP shares were committed to be released and were considered in
the earnings per share computations.
4. DIVIDENDS DECLARED
On December 17, 1996 the Board of Directors of the Company
declared a quarterly cash dividend of $0.100 per share, payable on
February 21, 1997 to stockholders of record on February 7, 1997.
- 7 -
<PAGE>
5. A COMPARISON OF THE AMORTIZED COST AND ESTIMATED FAIR VALUE OF
INVESTMENT AND MORTGAGE-BACKED SECURITIES AT THE DATES INDICATED IS AS
FOLLOWS:
<TABLE>
<CAPTION>
HELD-TO-MATURITY
(Dollars in Thousands)
(Unaudited)
December 31, 1996 June 30, 1996
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Agency obligations $ 1,003 1 --- 1,004 $ 4,010 2 (7) 4,005
Corporate obligations 849 1 --- 850 5,333 22 --- 5,355
Other investments --- --- --- --- 4 35 --- 39
-------------------------------------------- ---------------------------------------------
Total investment securities 1,852 2 --- 1,854 9,347 59 (7) 9,399
Mortgage-backed securities 56,129 565 (100) 56,594 60,038 212 (972) 59,278
-------------------------------------------- ---------------------------------------------
$ 57,981 567 (100) 58,448 $ 69,385 271 (979) 68,677
============================================ =============================================
AVAILABLE-FOR-SALE
(Dollars in Thousands)
(Unaudited)
December 31, 1996 June 30, 1996
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------------------------------------------- ---------------------------------------------
Federal Agency obligations $ 45,596 50 (277) 45,369 $ 32,841 21 (232) 32,630
Corporate obligations 2,485 1 (2) 2,484 3,000 --- (20) 2,980
Other investments 3 36 --- 39 28 --- (1) 27
---------------------------------------------- -------------------------------------------
Total investment securities 48,084 87 (279) 47,892 35,869 21 (253) 35,637
Mortgage-backed securities 35,496 175 (196) 35,475 45,035 154 (280) 44,909
---------------------------------------------- -------------------------------------------
$ 83,580 262 (475) 83,367 $ 80,904 175 (533) 80,546
============================================== ===========================================
</TABLE>
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<PAGE>
A comparison of the amortized cost and estimated fair value of investment
securities by contractual maturities at December 31, 1996 is as follows:
HELD-TO-MATURITY
(Dollars in Thousands)
(Unaudited)
December 31, 1996
Amortized Estimated
Cost Fair Value
----------------------------------
Due in one year or less $ 1,852 $ 1,854
Due after one year through 5 years --- ---
Due after 5 years through 10 years --- ---
Due after 10 years --- ---
Other --- ---
-------------- -------------
$ 1,852 $ 1,854
============== =============
AVAILABLE-FOR-SALE
(Dollars in Thousands)
(Unaudited)
December 31, 1996
Amortized Estimated
Cost Fair Value
-------------------------------------
Due in one year or less $ 32,536 $ 32,514
Due after one year through 5 years 10,925 10,899
Other 3 39
SBA loans contractually due after
5 years 4,620 4,440
-------------- ----------
$ 48,084 $ 47,892
============= ==========
Expected maturities of mortgage-backed securities will differ from contractual
maturities because borrowers may have the right to prepay obligations with or
without penalties.
- 9 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1. CHANGES IN FINANCIAL CONDITION. COMPARISON OF THE SIX MONTH PERIOD FROM
JUNE 30, 1996 TO DECEMBER 31, 1996
General -- Total assets decreased slightly to $563.6 million at
December 31, 1996 from $563.9 million at June 30, 1996. Loans
receivable decreased $1.7 million, mortgage-backed securities decreased
$13.3 million while investment securities, Federal Home Loan Bank of
Seattle (FHLB) stock and other interest earning assets increased $13.0
million. Deposits decreased $6.4 million while borrowed funds increased
$4.9 million.
Loans Receivable -- Loans receivable and loans available-for-sale
decreased $1.7 million to $366.5 million at December 31, 1996 from
$368.2 million at June 30, 1996. Real Estate mortgage loans decreased
$16.8 million while consumer loans increased $15.1 million. The $1.7
million decrease was primarily the result of $74.8 million in new loan
originations and $1.1 million in purchases of real estate loans, which
were partially offset by principal repayments of $48.4 million and the
sale of whole loans of $30.7 million. Real estate loan originations
declined to $45.0 million during the six month period ended December
31, 1996 from $74.6 million for the same period last year, primarily
due to a decline in refinancing activity, a slow-down in new
construction and home sales and increased mortgage lending competition.
The $30.7 million in loan sales were primarily long term fixed rate
mortgages sold on the secondary market in an effort to reduce interest
rate risk. Consumer loan originations increased to $29.8 million for
the six month period ended December 31, 1996 from $13.1 million for the
same period last year due primarily to the increase in loans originated
directly through local auto and recreational dealers.
Mortgage-Backed Securities -- Mortgage-backed securities decreased
$13.3 million to $91.6 million at December 31, 1996 from $104.9 million
at June 30, 1996. The $13.3 million decrease was primarily the result
of principal repayments of $10.9 million and the sale of $3.5 million
of adjustable rate securities, partially offset by the purchase of $1.0
million of adjustable rate securities.
Investment Securities, FHLB Stock and Other Interest Earning
Assets -- Investment securities, FHLB stock and other interest earning
assets increased $13.0 million to $77.1 million at December 31, 1996
from $64.1 million at June 30, 1996. The increase was primarily the
result of the purchase of $42.7 million in investment securities, an
increase in FHLB stock of $303,000 and a $10.6 million net increase in
interest-bearing due from banks, partially offset by a $2.8 million net
decrease in interest-bearing deposits and maturities and principal
payments of $38.2 million. Investment securities purchased during the
six month period ended December 31, 1996 included $40.7 million of U.S.
Agency securities with maturities of three years or less and $2.0
million of U.S. Agency securities with maturities of three to five
years. These investments were purchased in an attempt to earn interest
rates in excess of over-night funds rates while minimizing the effects
of potential interest rate increases. These purchases were funded
primarily from the proceeds of maturing investments and the proceeds of
principal repayments and the sale of mortgage-backed securities.
From time to time, Western Federal Savings Bank (the "Bank"), the
regulated thrift institution subsidiary of the Company, may, in order
to reduce interest rate risk, purchase financial instruments that lock
in a spread between interest-earning assets and interest-bearing
liabilities. While these types of financial instruments limit risk,
they also reduce the Bank's ability to maximize profits during periods
of favorable interest rate trends. At December 31, 1996 the Bank had
three structured notes totaling $4.7 million wherein
- 10 -
<PAGE>
their interest rate is based upon a fraction of the increase or
decrease in a specified index. These securities have variable interest
rates and were purchased to enable the Bank to increase its interest
income when interest rates increase. The market value of these
securities at December 31, 1996 was $4.7 million and they will mature
in 1998.
The Bank may be a party to financial instruments with
off-balance-sheet risk in the normal course of business to reduce its
own exposure to fluctuations in interest rates. These financial
instruments may include interest rate cap and interest rate swap
agreements. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of amounts recognized in the
consolidated balance sheets. The contract or notional amounts of these
instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments. For interest rate cap and
interest rate swap agreements, the contract or notional amounts do not
represent exposure to credit loss. The Bank controls the credit risk of
those instruments through credit approval, limits and monitoring
procedures.
Interest Rate Caps -- Interest rate caps entitle the Bank to
receive various interest payments in exchange for payment of a premium,
provided the three-month LIBOR exceeds an agreed upon interest rate.
Transaction fees paid in connection with interest rate cap agreements
are amortized to interest expense as an adjustment of the interest cost
of liabilities. Interest rate cap agreements are used to manage
interest rate risk by synthetically extending the life of
interest-bearing liabilities.
The following summarizes interest rate cap agreements at December 31,
1996:
Notional principal Agreement
amount termination Cap
------------------ ------------ ------------
(in thousands)
$25,000 March, 1997 6.5% - 10.0%
5,000 July, 1999 6.5%
5,000 July, 1999 7.0%
---------
$35,000
=========
Interest Rate Swaps -- Interest rate swap agreements involve the
exchange of fixed and floating rate payments without the exchange of
the underlying principal amounts. Estimated amounts to be received or
paid on the swap settlement dates are accrued when realized. The net
swap settlements are reflected in interest expense. Interest rate swap
agreements are used to manage interest rate risk by synthetically
extending the life of interest-bearing liabilities. At December 31,
1996 the Bank did not have any interest rate swap agreements in place.
The counter party to the cap agreements is the FHLB of Seattle and
the agreements are not collateralized. Interest rate swaps would be
collateralized by stock in FHLB, certificates of deposit issued by the
FHLB, securities issued by the U.S. Government or agency thereof,
mortgage-backed securities, or qualifying first mortgage loans not
otherwise pledged.
Deposits -- Deposits decreased $6.4 million to $343.8 million at
December 31, 1996 from $350.2 million at June 30, 1996. NOW and Money
Market accounts decreased $1.8 million while Passbook accounts and
Certificates of Deposit each decreased $2.3 million. The decrease in
deposits is primarily the result of increased competition in the Bank's
market areas. While the Bank pays competitive interest rates,
- 11 -
<PAGE>
management believes it is not prudent to pay deposit rates beyond
normal treasury spreads while the Bank's regulatory liquidity remains
strong at 13.6%.
Borrowed Funds -- Borrowed funds increased $4.9 million to $130.7
million, at December 31, 1996 from $125.8 million at June 30, 1996.
There was $10.0 million of new fixed rate advances with maturities of
one to four years and a $320,000 note to a third party to purchase real
estate to be used in the Bank's operations. Principal repayments on
FHLB advances were $4.7 million and repayments on collateralized
mortgage obligations were $203,000 during the six month period ended
December 31, 1996. One advance of $500,000 matured during the period.
Stockholders' Equity -- Stockholders' equity increased $899,000 to
$79.5 million at December 31, 1996 from $78.6 million at June 30, 1996.
This increase was due to net income for the six month period of $1.2
million, $450,000 related to contributions to the Employee Stock
Ownership Plan and shares earned under the Recognition and Retention
Plan and $82,000 related to the change in unrealized gains associated
with assets classified as available-for-sale being adjusted to market
value in accordance with Statement of Financial Accounting Standards
No. 115. Stockholders' equity was reduced $806,000 for dividends
declared during the six month period.
- 12 -
<PAGE>
2. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIOD ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
December 31,
(Unaudited)
1996 Change 1995
Amount Change Amount
------------- --------------- ------------
(In Thousands)
<S> <C> <C> <C>
Total interest income $ 10,628 $ (52) $ 10,680
Total interest expense 5,905 (357) 6,262
------------- --------------- ------------
Net interest income 4,723 305 4,418
Provision for loan losses 27 27 ---
------------- --------------- ------------
Net interest income after provision for loan losses 4,696 278 4,418
------------- --------------- ------------
Fees and service charges 663 55 608
Gain on sale of loans, mortgage-backed securities and
investment securities 205 167 38
Other non-interest income 35 (7) 42
------------- --------------- ------------
Total non-interest income 903 215 688
------------- --------------- ------------
Income before non-interest expense 5,599 493 5,106
Total non-interest expense 3,451 207 3,244
------------- --------------- ------------
Income before income taxes 2,148 286 1,862
Income taxes (796) (79) (717)
------------- --------------- ------------
Net income $ 1,352 $ 207 $ 1,145
============= ============= ============
</TABLE>
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<PAGE>
Net Interest Income Analysis -- The following table presents for the
periods indicated the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
rates. No tax equivalent adjustments were made. Non-accruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Three Month Period Ended
(Unaudited)
December 31, 1996 December 31, 1995
------------------------------------- ---------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance (5) Paid Rate Balance (5) Paid Rate
------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans receivable (1) (2) $ 370,753 $ 7,834 8.45% $ 341,667 $ 7,050 8.25%
Mortgage-backed securities (2) 95,124 1,669 7.02 142,691 2,425 6.80
Investments (2) 51,815 818 6.31 54,187 1,015 7.49
Other interest-earning assets (3) 18,861 261 5.54 13,642 144 4.22
Cash surrender value of life insurance 3,245 46 5.67 3,012 46 6.11
--------- -------- ------ ----------- --------- ------
Total Interest-Earning Assets $ 539,798 $ 10,628 7.88% $ 555,199 $ 10,680 7.69%
========= ======== ====== =========== ========= ======
INTEREST-BEARING LIABILITIES:
Certificates of deposits $ 208,193 $ 2,993 5.75% $ 211,818 $ 3,138 5.93%
Passbook deposits 62,949 466 2.96 64,547 491 3.04
Demand and NOW accounts 47,681 166 1.39 47,196 229 1.94
Money market accounts 23,389 201 3.44 24,604 213 3.46
--------- -------- ------ ----------- --------- ------
Total deposits 342,212 3,826 4.47 348,165 4,071 4.68
FHLB advances and notes payable 128,760 2,038 6.33 138,359 2,140 6.19
Collateralized mortgage obligations 1,004 41 16.33 1,450 51 14.07
--------- -------- ------ ----------- --------- ------
Total Interest-Bearing Liabilities $ 471,976 $ 5,905 5.00% $ 487,974 $ 6,262 5.13%
========= ======== ====== =========== ========= ======
Net interest income $ 4,723 $ 4,418
======== =========
Net interest rate spread 2.88% 2.56%
==== ====
Net interest earning assets $ 67,822 $ 67,225
========== ===========
Net interest margin (4) 3.50% 3.18%
==== ====
Average interest-earning assets to average
interest-bearing liabilities 114.37% 113.78%
====== ======
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves
(2) Includes held and available-for-sale categories
(3) Includes primarily short-term liquid assets
(4) Net interest income divided by average interest earning assets
(5) Based on average monthly balances
- 14 -
<PAGE>
General -- Net income increased $207,000, or 18.1%, to $1,352,000 for
the three month period ended December 31, 1996 from $1,145,000 for the same
period last year. Net interest income after provision for loan losses
increased $278,000 and non-interest income increased $215,000 while
non-interest expense and income tax expense increased $207,000 and $79,000
respectively. The net interest margin (net interest income divided by
average interest-earning assets) increased to 3.50% during the quarter
ended December 31, 1996 from 3.18% during the same period last year. The
interest rate spread at December 31, 1996 was 2.65% as compared to 2.45% at
December 31, 1995. During the quarter ended December 31, 1996 the Company
re-invested maturing long-term securities into shorter term investment
securities in order to fund the pending acquisition of Security Bancorp.
Interest Income -- Interest income decreased $52,000 to $10.6 million
for the three month period ended December 31, 1996 from $10.7 million for
the same period last year. The slight decrease was the result of a $15.4
million decrease in average total interest-earning assets to $539.8 million
during the three month period ended December 31, 1996 from $555.2 million
during the same period last year. The effects on interest income of the
decrease in average interest-earning assets was partially offset by an
increase in the average yield on interest-earning assets to 7.88% during
the quarter ended December 31, 1996 from 7.69% during the same period last
year.
Interest earned on loans receivable increased $784,000 due primarily to
a $29.1 million increase in the average balance of loans receivable to
$370.8 million during the three month period ended December 31, 1996 from
$341.7 million for the same period last year. In addition, the average
yield on loans increased to 8.45% during the three month period ended
December 31, 1996 from 8.25% for the same period last year. The increase in
the average balance of loans receivable was the result of continued loan
production in excess of principal repayments and the sale and
securitization of loans. The increase in yield was the result of new loans
being originated at rates greater than the average rate of loans being
repaid, primarily on consumer loans.
Interest earned on mortgage-backed securities decreased $756,000 due
primarily to a $47.6 million decrease in the average balance of
mortgage-backed securities outstanding to $95.1 million for the three month
period ended December 31, 1996 from $142.7 million during the same period
last year. The decrease in average balance was the result of management's
decision during the fiscal year to use a portion of the mortgage-backed
securities portfolio to partially fund the growth in loans receivable in an
attempt to earn yields greater than those available on mortgage-backed
securities.
Interest earned on investment securities, FHLB stock and other interest
earning assets decreased $80,000 primarily due to a decrease in the average
yield to 6.09% during the quarter ended December 31, 1996 from 6.80% for
the same period last year. The effects of the decrease in yield were
partially offset by an increase in the average balance of these securities
of $3.1 million to $73.9 million during the quarter ended December 31, 1996
from $70.8 million during the same period last year. The decrease in yield
was primarily the result of the re-investing of maturing securities into
securities with shorter terms and lower yields than those securities
maturing or called during the period. These short term, lower yielding
securities are generally to be used to partially fund the pending
acquisition of Security Bancorp.
Interest Expense -- Total interest expense decreased $357,000 to $5.9
million for the three month period ended December 31, 1996 from $6.3
million for the same period last year. Interest expense on deposits
decreased $245,000 due to both a decrease in the average rate paid on
deposits to 4.47% during the three month period ended December 31, 1996
from 4.68% during the same period last year and a decrease in the average
balance of deposits of $245,000 to $342.2 million during the three month
period ended December 31, 1996 from
- 15 -
<PAGE>
$348.2 million during the same period last year. Certificates of deposit,
passbook deposits, and money market accounts all decreased in both average
balances and average rate paid. A new non-interest bearing checking program
was implemented during the current fiscal year. The average balance of
demand and NOW accounts increased $485,000 during the quarter ended
December 31, 1996 to $47.7 million as compared to $47.2 million during the
same period last year. The average rate paid on demand and NOW accounts
decreased to 1.39% during the quarter ended December 31, 1996 from 1.94%
for the same period last year. Interest expense on borrowed funds also
decreased $112,000 due primarily to a decrease in average balances of $10.0
million to $129.8 million during the three month period ended December 31,
1996 from $139.8 million for the same period last year.
Provisions for Loan Losses -- The provision for loan losses increased
to $27,000 for the three month period ended December 31, 1996 as compared
to no provision for the same period last year. The Company has begun adding
to the provision for loan losses due to the increase in consumer loans and
commercial real estate loans held in the loan portfolio.
The provision for loan losses is determined by management as the amount
to be added to the allowance for loan losses after net charge-offs have
been deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio in accordance with
generally accepted accounting principles. At December 31, 1996 the Company
had $1.4 million of non-performing assets (representing 0.25% of total
assets) compared to $715,000 at June 30, 1996 (representing 0.13% of total
assets). The increase in non-performing assets was primarily the result of
a $357,000 increase in non-performing consumer loans and a $199,000
increase in non-performing commercial real estate loans. The $357,000
increase in non-performing loans includes $309,000 of real estate secured
loans. At December 31, 1996 the Company had allowance for loan losses to
non-performing assets of 139.9% as compared to 280.4% at June 30, 1996.
Future additions to the Company's allowance for loan losses and any change
in the related ratio of the allowance for loan losses to non-performing
loans are dependent upon the performance and composition of the Company's
loan portfolio, the economy, inflation, changes in real estate values and
interest rates and the view of the regulatory authorities toward adequate
reserve levels.
Non-Interest Income -- Non-interest income increased $215,000 to
$903,000 for the quarter ended December 31, 1996 from $688,000 for the same
quarter last year. This was primarily the result of a $167,000 increase in
gain on sale of loans, mortgage-backed securities and investment
securities. There was an increase of $180,000 related to gains on sale of
loans into the secondary market while a $13,000 loss was related to the
sale of mortgage-backed securities.
Non-Interest Expense -- Non-interest expense increased $207,000 to $3.4
million for the quarter ended December 31, 1996 from $3.2 million for the
same quarter last year. The increase was primarily due to other expenses
related to the expansion of customer service programs. The efficiency ratio
(total non-interest expense divided by total income) improved to 61.6% for
the quarter ended December 31, 1996 from 63.5% for the same quarter last
year.
Income Taxes -- Income tax expense increased $79,000 due to the
$286,000 increase in income before income taxes.
- 16 -
<PAGE>
3. COMPARISON OF OPERATING RESULTS FOR THE SIX MONTH PERIOD ENDED DECEMBER 31,
1996 AND DECEMBER 31, 1995.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
December 31,
(Unaudited)
1996 1995
Amount Change Amount
------------- -------------- ------------
(In Thousands)
<S> <C> <C> <C>
Total interest income $ 21,221 $ 135 $ 21,086
Total interest expense 11,855 (565) 12,420
------------- -------------- ------------
Net interest income 9,366 700 8,666
Provision for loan losses 42 42 ---
------------- -------------- ------------
Net interest income after provision for loan losses 9,324 658 8,666
------------- -------------- ------------
Fees and service charges 1,354 104 1,250
Gain on sale of loans, mortgage-backed securities and
investment securities 314 (135) 449
Other non-interest income 70 (8) 78
------------- -------------- ------------
Total non-interest income 1,738 (39) 1,777
------------- -------------- ------------
Income before non-interest expense 11,062 619 10,443
Total non-interest expense 9,182 2,339 6,843
------------- -------------- ------------
Income before income taxes 1,880 (1,720) 3,600
Income taxes (707) 680 (1,387)
------------- -------------- ------------
Net income $ 1,173 $ (1,040) $ 2,213
============= ============= ============
</TABLE>
- 17 -
<PAGE>
Net Interest Income Analysis -- The following table presents for the
periods indicated the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
rates. No tax equivalent adjustments were made. Non-accruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Six Month Period Ended
(Unaudited)
December 31, 1996 December 31, 1995
------------------------------------- ---------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance (5) Paid Rate Balance (5) Paid Rate
------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans receivable (1) (2) $ 370,847 $ 15,544 8.38% $ 331,848 $ 13,674 8.24%
Mortgage-backed securities (2) 98,651 3,435 6.96 140,298 4,808 6.85
Investments (2) 53,155 1,661 6.25 57,856 2,105 7.28
Other interest-earning assets (3) 14,722 489 6.64 16,636 409 4.92
Cash surrender value of life insurance 3,227 92 5.70 2,994 90 6.01
---------- -------- ----- ----------- --------- ------
Total Interest-Earning Assets $ 540,601 $ 21,221 7.85% $ 549,631 $ 21,086 7.67%
========== ======== ===== =========== ========= ======
INTEREST-BEARING LIABILITIES:
Certificates of deposits $ 208,967 $ 6,002 5.74% $ 210,535 $ 6,199 5.89%
Passbook deposits 63,332 940 2.97 64,915 985 3.03
Demand and NOW accounts 48,292 343 1.42 47,107 456 1.94
Money market accounts 23,583 406 3.44 24,901 432 3.47
---------- -------- ----- ----------- --------- ------
Total deposits 344,173 7,691 4.47 347,457 8,072 4.65
FHLB advances and notes payable 128,592 4,077 6.34 134,858 4,242 6.29
Collateralized mortgage obligations 1,051 87 16.56 1,494 106 14.19
---------- -------- ----- ----------- --------- ------
Total Interest-Bearing Liabilities $ 473,815 $ 11,855 5.00% $ 483,808 $ 12,420 5.13%
========== ======== ===== =========== ========= ======
Net interest income $ 9,366 $ 8,666
========== =========
Net interest rate spread 2.85% 2.54%
==== ====
Net interest earning assets $ 66,786 $ 65,823
========== ===========
Net interest margin (4) 3.47% 3.15%
==== ====
Average interest-earning assets to average
interest-bearing liabilities 114.10% 113.61%
====== ======
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves
(2) Includes held and available-for-sale categories
(3) Includes primarily short-term liquid assets
(4) Net interest income divided by average interest earning assets
(5) Based on average monthly balances
- 18 -
<PAGE>
General -- Net income decreased $1.0 million to $1.2 million for the
six month period ended December 31, 1996 from $2.2 million for the same
period last year. The $1.0 million decrease in net income resulted from a
$1.4 million after tax one-time special assessment to recapitalize the
Savings Association Insurance Fund (the "SAIF"). Net income was decreased
by increases in non-interest expense of $2.3 million and a decrease in
non-interest income of $39,000 while increases in net interest income after
provisions for loan losses of $658,000 and a reduction in income tax
expense of $680,000 partially offset the decreases to net income.
Interest Income -- Interest income increased $135,000 to $21.2 million
for the six month period ended December 31, 1996 from $21.1 million for the
same period last year. The increase resulted from an increase in the
average yield on interest-earning assets to 7.85% during the six month
period ended December 31, 1996 from 7.67% during the same period last year,
which offset the effects of a $9.0 million decrease in the average balance
of interest-earning assets to $540.6 million during the six month period
ended December 31, 1996 from $549.6 million during the same period last
year.
Interest earned on loans receivable increased $1.8 million, or 13.1%,
to $15.5 million for the six month period ended December 31, 1996 from
$13.7 million for the same period last year, due primarily to a $39.0
million increase in the average balance of loans receivable to $370.8
million during the six month period ended December 31, 1996 from $331.8
million for the same period last year. In addition, the average yield on
loans increased to 8.38% during the six month period ended December 31,
1996 from 8.24% for the same period last year. The increase in the average
balance of loans receivable was the result of continued loan production in
excess of principal repayments and the sale and securitization of loans.
The increase in yield was the result of new loans being originated at rates
greater than the average rate of loans being repaid, primarily on consumer
loans.
Interest earned on mortgage-backed securities decreased $1.4 million
due primarily to a $41.6 million decrease in the average balance of
mortgage-backed securities outstanding to $98.7 million for the six month
period ended December 31, 1996 from $140.3 million during the same period
last year. The decrease in average balance was the result of management's
decision during the fiscal year to use a portion of the mortgage-backed
securities portfolio to partially fund the growth in loans receivable in an
attempt to earn yields greater than those available on mortgage-backed
securities.
Interest earned on investment securities, FHLB stock and other interest
earning assets decreased $362,000 due primarily to a decrease of $6.4
million in average balances to $71.1 million during the six month period
ended December 31, 1996 from $77.5 million during the same period last
year. This decrease was the result of investing the proceeds of maturing
investments into higher yielding new production mortgage and consumer
loans.
Interest Expense -- Total interest expense decreased $565,000 to $11.8
million for the six month period ended December 31, 1996 from $12.4 million
for the same period last year. Interest expense on deposits decreased
$381,000 due to both a decrease in the average rate paid on deposits to
4.47% during the six month period ended December 31, 1996 from 4.65% during
the same period last year and a decrease in the average balance of deposits
of $3.3 million to $344.2 million during the six month period ended
December 31, 1996 from $347.5 million during the same period last year.
Certificates of deposit, passbook deposits, and money market accounts all
decreased in both average balances and average rate paid. A new
non-interest bearing checking program was implemented during the quarter
ended September 30, 1996 resulting in an increase in the average balance
outstanding and a decrease in the average rate paid on demand and NOW
accounts. Interest expense on borrowed funds also decreased $184,000 due to
both a decrease in average balances of $6.8 million to $129.6 million
during the six month period ended December 31, 1996 from $136.4 million for
the same
- 19 -
<PAGE>
period last year while the average rate paid on FHLB advances increased
slightly to 6.34% for the six months ended December 31, 1996 from 6.29% for
the same period last year.
Provisions for Loan Losses -- The provision for loan losses increased
to $42,000 for the six month period ended December 31, 1996 as compared to
no provision for the same period last year. The Company has begun adding to
the provision for loan losses due to the increase in consumer loans and
commercial real estate loans held in the loan portfolio.
Non-Interest Income -- Non-interest income decreased $39,000 to $1.7
million for the six month period ended December 31, 1996 from $1.8 million
for the same period last year. Gain on sale of loans, mortgage-backed
securities, and investment securities decreased $135,000 while fees and
service charges increased $104,000. The $104,000 increase in service fees
was primarily the result of increases in checking fees and ATM transaction
fees.
Non-Interest Expense -- Non-interest expense increased $2.4 million to
$9.2 million for the six month period ended December 31, 1996 from $6.8
million for the same period last year. The primary reason for the increase
was a $2.3 million one-time special assessment to recapitalize the SAIF.
The deposits of savings associations, such as Western Federal Savings
Bank, are presently insured by the SAIF, which together with the Bank
Insurance Fund (the "BIF") are the two insurance funds administered by the
Federal Deposit Insurance Corporation (the "FDIC"). Financial institutions
which are members of the BIF are experiencing substantially lower deposit
insurance premiums because the BIF has achieved its required level of
reserves while the SAIF has not yet achieved its required reserves. In
order to help eliminate this disparity and any competitive disadvantage due
to disparate deposit insurance premium schedules, legislation to
recapitalize the SAIF was enacted in September, 1996.
The legislation required a special one-time assessment of approximately
65.7 cents per $100 of SAIF insured deposits held by the Bank at March 31,
1995. The one-time special assessment resulted in a tax affected charge to
earnings of approximately $1.4 million during the quarter ended September
30, 1996. The legislation is intended to fully recapitalize the SAIF fund
so that commercial bank and thrift deposits will be charged the same FDIC
premiums beginning October 1, 1996. As of such date deposit insurance
premiums for highly rated institutions, such as the Bank, have been
eliminated.
The Bank, however, will continue to be subject to an assessment to fund
repayment of the FICO obligations. The FICO assessment for the SAIF insured
institutions will be 6.48 cents per $100 of deposits while BIF insured
institutions will pay 1.30 cents per $100 of deposits until the year 2000
when the assessment will be imposed at the same rate on all FDIC insured
institutions. Accordingly, as a result of the reduction of the SAIF
assessment, and the resulting FICO assessment, the annual after tax
decrease in assessment costs is expected to be approximately $375,000 based
upon the Bank's September 30, 1996 assessment base.
Without the $2.3 million SAIF assessment, non-interest expense
increased $39,000 to $6.9 million for the six month period ended December
31, 1996 from the $6.8 million for the same period last year. Excluding the
$2.3 million special SAIF assessment, the efficiency ratio improved to
62.2% for the six month period ended December 31, 1996 from 65.5% for the
same period last year.
Income Taxes -- Income tax expense decreased $680,000 due to a
reduction in income before income taxes of $1.7 million.
- 20 -
<PAGE>
Loan Quality -- The following table sets forth the amounts and
categories on non-performing assets in the Company's loan portfolio. For
all periods presented, the Company did not have any troubled debt
restructuring which involved forgiving a portion of interest or principal
on any loans or making loans at a rate materially less than market rates.
Foreclosed assets include assets acquired in settlement of loans, and are
recorded at the lower of the related loan balance, less any specific
allowance for loss, or fair value at the date of foreclosure.
(Unaudited)
December 31, June 30,
1996 1996
--------- ---------
Non-accruing loans: (In Thousands)
Real Estate:
One-to-four family $ 91 $ 21
Multi-family --- ---
Commercial --- ---
Construction --- ---
Consumer 462 383
--------- ---------
Total 553 404
--------- ---------
Accruing loans delinquent 90 days or more:
Real Estate:
One-to-four family 377 288
Multi-family --- ---
Commercial 199 ---
Construction --- ---
Consumer 272 23
--------- ---------
Total 848 311
--------- ---------
Foreclosed Assets:
Real Estate: --- ---
One-to-four family --- ---
Multi-family --- ---
Commercial --- ---
Construction --- ---
Consumer 29 ---
--------- ---------
Total 29 ---
--------- ---------
Total non-performing assets $ 1,430 $ 715
========= =========
Non-Performing Assets -- Total non-performing assets increased $715,000
to $1.4 million at December 31, 1996 from $715,000 at fiscal year end June
30, 1996. The increase was primarily the result of a $357,000 increase in
non-performing consumer loans and a $199,000 increase in non-performing
commercial real estate loans. The $357,000 increase in non-performing
consumer loans includes $309,000 of real estate secured loans. In addition,
the $1.4 million of non-performing assets at December 31, 1996 includes
$251,000 of non-accruing consumer loans 100% secured by loans on savings
accounts. Total non-performing assets as a percentage of total assets was
0.25% at December 31, 1996. In addition to the non-performing loans and
foreclosed assets set forth in the preceding table, as of December 31,
1996, there were $379,000 of loans identified by the Company with respect
to which information known about the possible credit problems of the
borrowers or of the cash flows of the security properties have caused
management to have some concerns as to the ability of the borrowers to
comply with present loan repayment terms and which may result in the future
inclusion of such items in the non-performing asset categories.
- 21 -
<PAGE>
At December 31, 1996 the recorded investment in impaired loans was
$553,000, all of which were on non-accrual status. The Company has not
established an impairment allowance for these loans. The amount of interest
income recognized on impaired loans during this period was immaterial.
Regulatory Capital -- At December 31, 1996 Western Federal Savings Bank
(the "Bank"), the regulated thrift institution subsidiary of the Company,
met all applicable regulatory capital requirements, including the fully
phased-in risk based capital requirements. The following table provides
information on an unconsolidated basis indicating the extent to which the
Bank exceeds the minimum capital requirements under federal regulations as
of December 31, 1996.
Approximate
(Dollars in Thousands) Actual Requirement Excess
--------- ------------ -------
Tangible Capital:
Dollar Amount $ 63,318 $ 8,217 $ 55,101
Percent of tangible assets 11.56% 1.50% 10.06%
Core Capital:
Dollar Amount $ 63,318 $ 16,435 $ 46,883
Percent of adjusted tangible assets 11.56% 3.00% 8.56%
Risk-based Capital:
Dollar Amount $ 65,249 $ 24,360 $ 40,889
Percent of risk-weighted assets 21.43% 8.00% 13.43%
The OTS has adopted, but temporarily postponed implementation until
further notice, a final rule that requires every savings association with
more than normal interest rate risk to deduct from its total capital an
amount equal to 50% of its interest-rate risk exposure multiplied by the
present value of its assets when calculating and determining compliance
with risk-based capital requirements. This exposure is a measure of the
potential decline in the net portfolio value of a savings association,
greater than 2% of the present value of its assets, based upon a
hypothetical 200 basis point increase or decrease in interest rates
(whichever results in a greater decline). Net portfolio value is the
present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule provides for a two quarter lag
between calculating interest rate risk and recognizing any deduction from
capital. The amount to be deducted from capital is the lowest interest rate
risk component reported in an institution's exposure reports to the OTS for
the three most recent quarters. Based upon interest-rate risk exposure
calculations as provided by the OTS for the period ended September 30,
1996, the most recent date such information is available from the OTS, the
deduction from the Bank's total capital would be $1.7 million under this
rule. Based on the Bank's excess risk-based capital of $40.9 million at
December 31, 1996 not withstanding this $1.7 million deduction from
capital, the Bank would continue to exceed its risk-based capital
requirement.
The OTS has amended its regulatory capital regulations to exclude from
regulatory capital the unrealized gains and losses, net of income taxes, as
required by FASB accounting standard SFAS No. 115 , "Accounting for Certain
Investments in Debt and Equity Securities". At December 31, 1996 the Bank
had $139,000 of unrealized losses, net of income taxes, that were added to
capital for purposes of determining regulatory capital.
- 22 -
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Neither the registrant or its subsidiaries are part to any legal
proceedings, other than routine litigation arising in the normal
course of its business. While the ultimate outcome of these
various legal proceedings cannot be predicted with certainty, it
is the opinion of management that the resolution of these legal
actions should not have a material effect on the Company's
consolidated financial position or results of operations.
ITEM 2 CHANGE IN SECURITIES -- None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES -- None
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS -- None
ITEM 5 OTHER INFORMATION -- None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits -- None
Form 8-K
1. The registrant filed current reports on Form 8-K on January
23, 1997 to report the quarterly earnings released and a
dividend declaration of $0.10 per share.
- 23 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
WESTERFED FINANCIAL CORPORATION
/s/ Lyle R. Grimes
-----------------------------------------
Lyle R. Grimes
Chairman of the Board/President and
Date: February 13, 1997 Chief Executive Officer
(Duly Authorized Officer)
/s/ James A. Salisbury
------------------------------------------
James A. Salisbury
Date: February 13, 1997 Treasurer and Chief Financial Officer
(Principal Finance and Accounting Officer)
- 24 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,300
<INT-BEARING-DEPOSITS> 16,298
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 83,367
<INVESTMENTS-CARRYING> 65,756
<INVESTMENTS-MARKET> 66,223
<LOANS> 366,465
<ALLOWANCE> 2,001
<TOTAL-ASSETS> 563,617
<DEPOSITS> 343,842
<SHORT-TERM> 35,500
<LIABILITIES-OTHER> 9,557
<LONG-TERM> 95,212
46
0
<COMMON> 0
<OTHER-SE> 79,460
<TOTAL-LIABILITIES-AND-EQUITY> 563,617
<INTEREST-LOAN> 15,544
<INTEREST-INVEST> 5,585
<INTEREST-OTHER> 92
<INTEREST-TOTAL> 21,221
<INTEREST-DEPOSIT> 7,691
<INTEREST-EXPENSE> 11,855
<INTEREST-INCOME-NET> 9,366
<LOAN-LOSSES> 42
<SECURITIES-GAINS> (13)
<EXPENSE-OTHER> 1,517
<INCOME-PRETAX> 1,880
<INCOME-PRE-EXTRAORDINARY> 1,173
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,173
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 0
<LOANS-NON> 533
<LOANS-PAST> 848
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 379
<ALLOWANCE-OPEN> 2,005
<CHARGE-OFFS> 48
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 2,001
<ALLOWANCE-DOMESTIC> 2,001
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 904
</TABLE>
