U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-QSB
(Mark One)
[XX] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
---------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from to
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Commission File Number 0-23352
MARSHALLTOWN FINANCIAL CORPORATION
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(Exact name of small business issuer as specified in its charter)
DELAWARE 42-1413971
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
303 WEST MAIN STREET, MARSHALLTOWN, IOWA 50158
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(Address of principal executive offices)
(515 754-6000
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,411,475
Transitional Small Business Disclosure Format (check one): Yes / / No /x/
<PAGE>
MARSHALLTOWN FINANCIAL CORPORATION
INDEX
Page
Part I. Consolidated Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 1997
and September 30, 1996 1
Consolidated Statements of Operations for the
three months and nine months ended June 30, 1997
and 1996 2
Consolidated Statements of Cash Flows for the
nine months ended June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
Part II. Other information 9
Signatures 10
Exhibits 11
<PAGE>
MARSHALLTOWN FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
(unaudited)
ASSETS
- ------
<S> <C> <C>
Cash $ 5,896,103 $ 2,286,064
Investment securities held to maturity 10,992,712 9,484,506
Investment securities available for sale 2,407,313 2,314,172
Investment in limited partnerships 447,153 482,283
Mortgage-backed securities held to maturity 42,680,765 47,513,070
Loans receivable, net 63,406,893 60,284,275
Accrued interest receivable 809,295 747,918
Office properties and equipment, net 393,702 435,536
Income tax refund receivable 36,463 57,741
Real estate acquired for investment 396,691 406,187
Other assets 60,699 171,340
----------- -----------
TOTAL ASSETS $127,527,789 $124,183,092
=========== ===========
LIABILITIES
- -----------
Deposits $106,405,931 $103,039,698
Advances from borrowers for taxes
and insurance 259,982 22,870
Accrued interest payable 385,754 886,528
Accounts payable and accrued expenses 148,555 847,015
Income taxes:
Current 0 48,972
Deferred 253,855 0
----------- -----------
TOTAL LIABILITIES $107,454,077 $104,845,083
----------- -----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock $ 14,115 $ 14,115
Additional paid-in capital 10,599,090 10,599,090
Retained earnings, substantially restricted 9,568,694 8,902,114
Less deferred Recognition and
Retention Plan (132,716) (189,694)
Unrealized gain on securities available
for sale, net 24,529 12,384
----------- -----------
TOTAL STOCKHOLDERS' EQUITY $ 20,073,712 $ 19,338,009
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $127,527,789 $124,183,092
=========== ===========
</TABLE>
<PAGE>
MARSHALLTOWN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
ended June 30, ended June 30,
1997 1996 1997 1996
---------------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 1,224,190 $ 1,099,732 $ 3,620,531 $ 3,230,034
Mortgage-backed
securities 718,260 833,163 2,226,946 2,581,181
Investment securities 214,549 179,036 608,998 512,973
Other 51,601 69,380 157,439 246,750
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME $ 2,208,600 $ 2,181,311 $ 6,613,914 $ 6,570,938
Interest expense:
Deposits $ 1,361,923 $ 1,380,266 $ 4,094,964 $ 4,200,153
---------- ---------- ---------- ----------
NET INTEREST INCOME $ 846,677 $ 801,045 $ 2,518,950 $ 2,370,785
Provision for losses on
loans
2,500 2,500 7,500 7,500
---------- ---------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOSSES ON LOANS $ 844,177 $ 798,545 $ 2,511,450 $ 2,363,285
Noninterest income:
Fees and service charges 12,515 17,429 41,710 46,805
Other, net 18,584 50,567 130,358 75,696
---------- ---------- ---------- ----------
TOTAL NONINTEREST
INCOME $ 31,099 $ 67,996 $ 172,068 $ 122,501
Noninterest expense:
Compensation and benefits$ 331,286 $ 328,975 $ 1,025,942 $ 999,668
Occupancy and equipment 46,802 47,776 145,237 148,466
SAIF deposit insurance
premiums 17,130 60,201 74,080 178,713
Data processing services 24,250 24,857 76,190 78,704
Other 125,497 120,776 449,740 533,662
---------- ---------- ---------- ----------
TOTAL NONINTEREST
EXPENSE $ 544,965 $ 582,585 $ 1,771,189 $ 1,939,213
INCOME BEFORE INCOME
TAXES $ 330,311 $ 283,956 $ 912,329 $ 546,573
Income tax expense 126,600 82,153 245,749 225,928
---------- ---------- ---------- ----------
NET INCOME $ 203,711 $ 201,803 $ 666,580 $ 320,645
========== ========== ========== ==========
Earnings per common share $ 0.14 $ 0.14 $ 0.45 $ 0.22
</TABLE>
<PAGE>
MARSHALLTOWN FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 666,580 $ 320,645
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 63,674 67,710
Provision for loan losses 7,500 7,500
Net amortization of premiums and discounts (40,184) (44,726)
Deferred income taxes 22,500 48,000
Amortization of loan fees (20,062) (25,749)
Amortization of RRPs 56,979 56,979
FHLB Stock dividend 0 (23,600)
Gain on sale of FHLMC stock (2,237) 0
Loss on limited partnership 0 16,052
Change in assets and liabilities
(Increase) decrease in accrued
interest receivable (61,377) 2,619
Decrease in Limited Partnership 25,530 0
Decrease in other assets 110,610 71,289
Increase (decrease) in income
taxes payable 181,780 (12,059)
(Decrease) in accrued expenses
and other liabilities (1,199,234) (782,241)
(Increase) decrease in income tax
refund claim receivable 21,278 (6,768)
---------- ----------
Net cash (used in) operating
activities $ (166,663) $ (304,349)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities on investments $ 1,378,737 $ 6,500,000
Purchase of investment securities & stock (2,569,358) (5,977,500)
Purchase of FHLMC & FNMA stock (375,000) (499,700)
Net (increase) in loans receivable (3,120,654) (6,948,198)
Principal collected on mortgage-backed
securities 6,390,826 7,844,289
Purchase of mortgage-backed securities (1,528,422) (2,474,076)
Purchase of premises and equipment (12,467) (1,003)
Proceeds from sale of premises and equipment 694 0
Purchase of real estate acquired for investment (599) (5,320)
Cash distribution on limited partnership 9,600 0
---------- ----------
Net cash provided by (used in)
investing activities $ 173,357 $(1,561,508)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 3,366,233 $ 1,922,325
Increase (decrease) in advances from
borrowers for taxes and insurance 237,112 85,792
---------- ----------
Net cash provided by financing
activities $ 3,603,345 $ 2,008,117
---------- ----------
Increase in cash $ 3,610,039 $ 142,260
CASH
Beginning 2,286,064 4,396,941
---------- ----------
Ending $ 5,896,103 $ 4,539,201
========== ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 4,095,849 $ 4,190,412
Income taxes 38,900 188,129
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES 0 0
</TABLE>
3
<PAGE>
MARSHALLTOWN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The consolidated financial statements for the three and nine months ended
June 30, 1997 are unaudited. In the opinion of management of Marshalltown
Financial Corporation (the Company) these consolidated financial statements
reflect all adjustments, consisting only of normally recurring accruals,
necessary to present fairly these consolidated financial statements. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted.
Operating results for the three- and nine-month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ended September 30, 1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
Marshalltown Savings Bank, FSB (the Bank) and the Bank's wholly owned
subsidiary, MSL Financial. All significant intercompany balances and
transactions have been eliminated in consolidation.
REGULATORY CAPITAL REQUIREMENTS
Pursuant to the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), savings institutions must meet three separate minimum
capital-to-asset requirements. The following table summarizes, as of June
30, 1997 the capital requirements of the Bank under FIRREA and its actual
capital ratios. As of June 30, 1997, the Bank substantially exceeded all
current regulatory capital standards.
4
<PAGE>
<TABLE>
<CAPTION>
At June 30, 1997
--------------------
Amount Percent
-------- -------
(Dollars in Thousands)
(unaudited)
<S> <C> <C>
Tangible Capital:
Capital level $14,829 12.12%
Requirement 1,835 1.50
------ -----
Excess $12,994 10.62%
------ -----
Core Capital:
Capital level $14,829 12.12%
Requirement 3,670 3.00
------ -----
Excess $11,159 9.12%
------ -----
Fully Phased-In Risk-Based Capital:
Capital level $14,832 33.14%
Requirement 3,581 8.00
------ -----
Excess $11,251 25.14%
------ -----
</TABLE>
EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of shares
of common stock outstanding for the three- and nine-month periods ended June
30, 1997 and June 30, 1996.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Marshalltown Financial Corporation (the "Company") was formed on December 9,
1993 by Marshalltown Savings Bank, FSB (the "Bank") to become the holding
company of the Bank. The acquisition of the Bank by the Company was
completed on March 30, 1994 in connection with the Bank's conversion from
mutual to stock form (the "Conversion"). All references to the Company prior
to March 30, 1994, except where otherwise indicated, are to the Bank and its
subsidiaries on a consolidated basis.
The principal business of the Company has historically consisted of
attracting deposits from the general public and making loans secured by
residential real estate and, to a lesser extent, other kinds of real estate.
The Company also invests in mortgage-backed securities and investment grade
securities. The operations of the Bank are significantly affected by
prevailing economic conditions as well as by government policies and
regulations relating to monetary and fiscal affairs and financial
institutions.
The Company's results of operations are primarily dependent on the difference
or "spread" between the average yield earned on loans, mortgage-backed
securities and investments, and the average rate paid on deposits and
borrowings. The interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. The Company, like other thrift institutions, is subject to interest
rate risk to the degree that its interest-earning assets mature or reprice at
different times, or on a different basis, than its interest-bearing
liabilities.
The Company's net income is also affected by, among other things, fee income
received and provisions for possible loan losses. The Company's operating
expenses principally consist of employee compensation and benefits, occupancy
expenses, service bureau expense, federal deposit insurance premiums and
other general and administrative expenses.
On July 1, 1997, Marshalltown Financial Corporation entered into a definitive
agreement to merge with HMN Financial, Inc. (NASDAQ:HMNF). Under the
agreement, HMN will acquire in a cash transaction valued at $25.9 million, or
$17.51 per share, all outstanding shares of Marshalltown Financial's common
stock. The agreement is subject to regulatory approval by the Office of
Thrift Supervision, as well as approval of Marshalltown Financial's
shareholders, a process that is expected to be completed by the end of the
year.
6
<PAGE>
FINANCIAL CONDITION
Total assets increased by $3.3 million for the nine months ended June 30,
1997 to $127.5 million due to an increase in cash, investments and loans
receivable partially offset by an decrease in mortgage-backed securities. As
loans and mortgage-backed securities prepaid, some of the cash was used for
loan originations and the purchase of participations and investments.
Total liabilities increased $2.6 million for the nine months ended June 30,
1997. The increase was primarily a result of a $3.4 million increase in
deposit accounts offset by a $501,000 reduction in accrued interest payable
and a $698,000 reduction in accounts payable which related to the payment of
the special assessment imposed by the Federal Deposit Insurance Corporation
(FDIC) to recapitalize the Savings Association Insurance Fund.
RESULTS OF OPERATIONS
Recently released earnings statements show earnings improved from one year
ago. The increase for the three months ended June 30, 1997 is the result of
an increase in net interest income and a decrease in noninterest expense, due
mainly to lower FDIC insurance premiums. For the nine months ended June 30,
1997, the increase is a result of an increase in net interest income and a
decrease in noninterest expense, due mainly to lower FDIC insurance premiums
and legal fees.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED JUNE 30,
1997 AND 1996.
Net interest income increased by $46,000 and $148,000 for the three and nine
months ended June 30, 1997 compared to the three and nine months ended June
30, 1996. The Company's average spread increased to 1.95% and 1.93%
respectively for the three- and nine-month periods ended June 30, 1997 from
1.82% and 1.78% for the same period a year ago. The Company's net interest
margin increased to 2.73% and 2.71% for the three- and nine-month period
ended June 30, 1997 from 2.60% and 2.57% for the three- and nine-month period
ended June 30, 1996. These increases were primarily the result of a decrease
in the Company's cost of funds.
Noninterest income, which is generated primarily from prepayment charges on
loans, fee income from NOW accounts and rent from real estate decreased to
$31,000 from $68,000 for the three months ended June 30, 1997 compared to the
three months ended June 30, 1996. In the 1996 period, a gain from the sale
of the Company's interest in a regional service bureau was realized. For the
nine-month period ended June 30, 1997 noninterest income increased to
$172,000 from $123,000 for the nine months ended June 30, 1996. This
increase was mainly due to a payment from
7
<PAGE>
BancSecurity Corporation ("BancSecurity")of $75,000 associated with the
termination by the Company of the Agreement to Merge and Plan of
Reorganization between the Company and BancSecurity. The termination was a
result of the denial of the merger contemplated by such agreement by the
Board of Governors of the Federal Reserve System.
Noninterest expense showed a decrease of $38,000 and $168,000 for the three
and nine months ended June 30, 1997 in comparison to the same periods in
fiscal 1996. This decrease was due primarily to a reduction in the rate of
the FDIC insurance premium and legal fees.
At June 30, 1997 the Company had no nonperforming assets. Total allowance
for losses on loans was $120,000. The Bank will continue to monitor and
adjust its allowance for losses on loans as management's analysis of its loan
portfolio and economic conditions dictate.
LIQUIDITY
The Bank's liquidity ratio at June 30, 1997 was 36.64%. This excess of
31.64% over the 5% liquidity ratio requirement imposed on all federal savings
associations is a result of having $24.4 million in mortgage-backed
securities which mature within five years.
8
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
None
ITEM 2. CHANGES IN SECURITIES
---------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibit 11. Statement re: Computation of Per Share Earnings
(b) Exhibit 27. Financial Data Schedule
(c) Reports on Form 8-K
On July 10, 1997 a current report on Form 8-K was filed to report that a
press release had been issued on July 1, 1997 announcing that Marshalltown
Financial Corporation had entered into a definitive agreement to merge with
HMN Financial, Inc.
On July 23, 1997 a current report on Form 8-K was filed to report that a
press release had been issued on July 23, 1997 announcing the quarterly
earnings of Marshalltown Financial Corporation.
9
<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.
MARSHALLTOWN FINANCIAL CORPORATION
August 5, 1997 /s/ William C. Gross
- -------------- ---------------------------
Date William C. Gross
Executive Vice President and
Chief Financial Officer
August 5, 1997 /s/ Judy L. Roberts
- -------------- ---------------------------
Date Judy L. Roberts
Vice President and Treasurer
10
<PAGE>
(a) Exhibit 11. Statement re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
June 30, June 30,
1997 1997
----------- -----------
<S> <C> <C>
Primary:
Net income applicable to common stock and
common stock equivalents $ 203,711 $ 666,580
========= ========
Average number of common stock shares
outstanding 1,411,475 1,411,475
Common stock equivalents on stock
options 58,557 57,773
--------- --------
Total 1,470,032 1,469,248
========= =========
Earnings per share $ 0.14 $ .45
========= ========
Fully dilutive:
Net income applicable to common stock
and common stock equivalents $ 203,711 $ 666,580
========= ========
Average number of common stock
shares outstanding 1,411,475 1,411,475
Common stock equivalents on stock
options 59,385 59,385
--------- --------
Total 1,470,860 1,470,860
========= =========
Earnings per share $ 0.14 $ 0.45
========= ========
</TABLE>
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1997 AND SEPTEMBER 30, 1996 AND
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED JUNE 30,
1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000916395
<NAME> MARSHALLTOWN FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 169
<INT-BEARING-DEPOSITS> 5,727
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,407
<INVESTMENTS-CARRYING> 54,120
<INVESTMENTS-MARKET> 0
<LOANS> 63,527
<ALLOWANCE> 120
<TOTAL-ASSETS> 127,528
<DEPOSITS> 106,406
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,048
<LONG-TERM> 0
0
0
<COMMON> 14
<OTHER-SE> 20,060
<TOTAL-LIABILITIES-AND-EQUITY> 127,528
<INTEREST-LOAN> 3,621
<INTEREST-INVEST> 2,836
<INTEREST-OTHER> 157
<INTEREST-TOTAL> 6,614
<INTEREST-DEPOSIT> 4,095
<INTEREST-EXPENSE> 4,095
<INTEREST-INCOME-NET> 2,519
<LOAN-LOSSES> 8
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,771
<INCOME-PRETAX> 912
<INCOME-PRE-EXTRAORDINARY> 912
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 667
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
<YIELD-ACTUAL> 7.12
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 118
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 120
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 120
</TABLE>
