<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File No. 0-23368
PERPETUAL MIDWEST FINANCIAL, INC.
A Delaware Corporation I.R.S. Employer Identification
No. 42-1415490
Address Telephone Number
------- ----------------
700 1st Avenue NE (319) 366-1851
Cedar Rapids, Iowa 52401
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
--- ---
There were 1,872,925 shares of Common Stock ($0.01 par value) outstanding as
of November 3, 1997.
1 of 21
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PERPETUAL MIDWEST FINANCIAL, INC.
INDEX
PART I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997 3
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 1997
and September 30, 1996 4
Consolidated Statement of Changes in Stockholders'
Equity - September 30, 1997 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1997
and September 30, 1996 6-7
Notes to Condensed Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-20
PART II. Other Information
-----------------
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
2 of 21
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PERPETUAL MIDWEST FINANCIAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, 1997 June 30, 1997
------------------ ---------------
(Unaudited)
<S> <C> <C>
Cash and due from financial institutions $ 7,116,490 $ 6,066,803
Interest-earning deposits in other financial institutions-short term 12,905,476 20,933,322
------------ -------------
Cash and cash equivalents 20,021,966 27,000,125
Trading securities 617,050 756,625
Securities available for sale 33,482,920 41,143,033
Loans receivable, net of allowance for loan losses of $2,873,154
and $2,973,457 at September 30, 1997 and June 30, 1997 330,608,876 310,522,161
Federal Home Loan Bank stock at cost 4,640,900 4,640,900
Loans held for sale 512,487 889,367
Accrued interest and dividends receivable 2,644,926 2,589,365
Premises and equipment, net 7,148,315 7,203,686
Other assets 1,987,133 2,484,211
------------ ------------
Total assets $401,664,573 $397,229,473
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 9,526,913 $ 9,943,176
Savings and NOW deposits 103,696,377 98,882,369
Certificates of deposit 196,916,599 196,339,722
------------ ------------
Total deposits 310,139,889 305,165,267
Borrowed funds 51,202,151 52,203,351
Advances from borrowers for taxes and insurance 306,500 828,198
Accrued interest payable 3,511,399 3,021,590
Other liabilities 2,342,798 2,121,405
------------ ------------
Total liabilities 367,502,737 363,339,811
Stockholders' equity
Common stock, $.01 par value, authorized: 6,000,000
shares; issued: 2,123,984 shares; shares outstanding: 1,873,075
and 1,882,575 at September 30, 1997 and June 30, 1997 21,240 21,240
Additional paid-in capital 20,636,833 20,712,302
Retained earnings (substantially restricted) 18,780,424 18,367,609
Net unrealized depreciation on securities available for sale
(net of tax of $21,683 and $76,863 for September 30, 1997 and
June 30, 1997 respectively) (36,449) (129,204)
Less: Treasury stock (250,909 and 241,409 shares at cost at
September 30, 1997 and June 30, 1997) (4,257,781) (4,039,766)
Unearned ESOP shares (597,684) (610,542)
Unearned compensation (384,747) (431,977)
------------ ------------
Total stockholders' equity 34,161,836 33,889,662
------------ ------------
Total liabilities and stockholders' equity $401,664,573 $397,229,473
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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PERPETUAL MIDWEST FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Interest and dividend income
Loans receivable, including fees $ 6,962,317 $ 6,263,757
Trading securities 7,773 18,507
Securities available for sale 474,730 778,309
Securities held to maturity -- --
Other 255,523 282,268
------------ -----------
7,700,343 7,342,841
Interest expense
Deposits 4,069,499 3,534,427
Borrowed funds 741,493 1,224,052
------------ -----------
4,810,992 4,758,479
------------ -----------
Net interest income 2,889,351 2,584,362
Provision for loan losses 225,000 225,000
------------ -----------
Net interest income after provision
for loan losses 2,664,351 2,359,362
Noninterest income
Loan servicing fees, net 82,159 97,600
Net realized gains (losses) on sales
of securities available for sale 945 (14,354)
Net gains from sale of loans held for sale 86,325 85,004
Net trading securities gains 20,044 45,655
Other 270,888 204,174
------------ -----------
460,361 418,079
Noninterest expense
Salaries and employee benefits 901,351 899,539
Occupancy and equipment 387,013 387,332
SAIF deposit insurance premium 45,794 1,628,074
Net losses on foreclosed assets 2,020 4,075
Other 884,473 771,415
------------ -----------
2,220,651 3,690,435
------------ -----------
Income (loss) before income taxes 904,061 (912,994)
Income tax expense (benefit) 349,565 (360,000)
------------ -----------
Net income $ 554,496 $ (552,994)
============ ===========
Earnings per common and common equivalent
share - primary $ 0.29 $ (0.29)
Earnings per share - fully diluted $ 0.29 $ (0.29)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4 of 21
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PERPETUAL MIDWEST FINANCIAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Net Unrealized
Depreciation on
Additional Securities
Common Paid-in Retained Available Treasury
Stock Capital Earnings for-Sale Stock
----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $ 21,240 $ 20,712,302 $ 18,367,609 $ (129,204) $ (4,039,766)
Effect of contribution to fund ESOP -- -- -- -- --
Amortization of RRP contribution -- -- -- -- --
Tax effect of stock plans -- 6,854 -- -- --
Purchase of 9,500 shares of treasury stock -- -- -- -- (200,864)
Effect of exercise of 9,147 stock options -- (82,323) -- -- (17,151)
Net changes in unrealized depreciation on
securities available-for-sale -- -- -- 92,755 --
Cash dividends paid -- -- (141,681) -- --
Net income -- -- 554,496 -- --
----------- -------------- ------------- ------------- --------------
Balance at September 30, 1997 $ 21,240 $ 20,636,833 $ 18,780,424 $ (36,449) $ (4,257,781)
=========== ============== ============= ============= ==============
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Unearned Total
ESOP Unearned Stockholders'
Shares Compensation Equity
------ ------------ ------
<S> <C> <C> <C>
Balance at June 30, 1997 $ (610,542) $ (431,977) $ 33,889,662
Effect of contribution to fund ESOP 12,858 -- 12,858
Amortization of RRP contribution -- 47,230 47,230
Tax effect of stock plans -- -- 6,854
Purchase of 9,500 shares of treasury stock -- -- (200,864)
Effect of exercise of 9,147 stock options -- -- (99,474)
Net changes in unrealized depreciation on
securities available-for-sale -- -- 92,755
Cash dividends paid -- -- (141,681)
Net income -- -- 554,496
------------- ------------- -------------
Balance at September 30, 1997 $ (597,684) $ (384,747) $ 34,161,836
============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5 of 21
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PERPETUAL MIDWEST FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 554,496 $ (552,994)
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 172,726 194,549
Amortization of:
Unearned compensation 47,230 12,150
Premiums and discounts on securities, net 60,303 109,908
Provision for loan losses 225,000 225,000
Net (gains) losses on sales of:
Securities available for sale (945) 14,354
Loans held for sale (86,325) (85,004)
Foreclosed assets, net 2,020 4,075
Purchase of:
Trading securities -- --
Net trading securities (gains) losses (20,044) (45,655)
Proceeds from sales of:
Trading securities 159,619 11,902
Loans originated for sale 6,273,916 7,771,485
Origination of loans held for sale (5,810,711) (7,428,864)
Market adjustment of ESOP shares 32,747 67,200
ESOP expense 12,858 42,019
Change in:
Accrued interest and dividends receivable (55,561) 83,776
Accrued expenses and other liabilities 678,455 2,122,341
Other assets 111,142 (432,403)
------------- ------------
Total adjustments 1,802,430 2,666,833
------------- -----------
Net cash from operating activities 2,356,926 2,113,839
Cash flows from investing activities
Proceeds from:
Sales of securities available for sale 4,997,265 5,496,577
Maturities and principal payments of
securities available for sale 2,751,425 2,374,353
Sales of foreclosed assets 309,219 145,266
Purchase of:
Securities available for sale -- (6,126,083)
Loans receivable (11,175,070) --
Premises and equipment, net (117,355) (430,241)
Net change in loans (9,110,274) (3,975,719)
-------------- ------------
Net cash from investing activities (12,344,790) (2,515,847)
</TABLE>
(Continued)
6 of 21
<PAGE>
PERPETUAL MIDWEST FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from financing activities
Purchase of shares of treasury stock $ (200,864) $ (1,333,289)
Cash dividends paid (141,681) (151,281)
Effect of treasury stock issued for stock plans -- 50,000
Effect of exercise of stock options (99,474) --
Repayment of Federal Home Loan
Bank advances (4,500,000) (2,500,000)
Net change in:
Deposits 4,974,622 14,823,363
Federal Home Loan Bank line of credit 3,500,000 --
Other borrowed funds (1,200) 115,542
Advance payments by borrowers for
taxes and insurance (521,698) (496,304)
------------- -------------
Net cash from financing activities 3,009,705 10,508,031
------------ ------------
Net change in cash and cash equivalents (6,978,159) 10,106,023
Cash and cash equivalents at beginning of period 27,000,125 10,924,499
------------ ------------
Cash and cash equivalents at end of period $ 20,021,966 $ 21,030,522
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest 4,321,187 4,057,088
Income taxes -- --
Supplemental schedule of noncash investing activities
Assets acquired in settlement of loans 188,141 149,341
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7 of 21
<PAGE>
Item 1.
-------
Financial Statements, Continued
-------------------------------
PERPETUAL MIDWEST FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-----------
1. BASIS OF PRESENTATION:
----------------------
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and,
therefore, do not include all disclosures required by generally
accepted accounting principals for complete presentation of financial
statements. The unaudited information for the three months ended
September 30, 1996 and September 30, 1997 includes the consolidated
results of operations of Perpetual Midwest Financial, Inc. (the
"Company") and its wholly-owned subsidiaries, Perpetual Savings Bank,
FSB (the "Bank"), and Greatland Financial Services, Inc. To prepare
consolidated financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions based on available information. The estimates and
assumptions affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. In the opinion of management, the
information reflects all adjustments (consisting only of normal
recurring adjustments) which were necessary for a fair presentation
of the results of operations for such periods but should not be
considered as indicative of results for a full year.
2. BORROWINGS FROM THE FEDERAL HOME LOAN BANK
------------------------------------------
Borrowings at September 30, 1997 primarily consisted of advances from
the Federal Home Loan Bank of Des Moines (the "FHLB") bearing rates
from 5.46% to 6.59%. The advances are collateralized by the Company's
single-family and multi-family whole loans and mortgage-backed
securities. Adjustable rate advances included $6.0 million indexed to
the 1 month LIBOR rate which adjusts monthly. The Company also
maintains a $20.0 million line of credit with the FHLB which adjusts
daily to the FHLB's posted rate for these borrowings. The line of
credit had a balance of $3.5 million at September 30, 1997. The
remaining balance of $41.5 million of advances are fixed rate, fixed
term, with maturities from 1.5 months to 5.75 years.
3. EARNINGS PER COMMON SHARE:
--------------------------
Earnings per common and common equivalent share (primary and fully
diluted) for the three months ended September 30, 1997 were computed
by dividing net income by the weighted average number of shares of
common and common stock equivalents outstanding. The weighted average
number of common and common equivalent shares outstanding exclude
ESOP unallocated shares and treasury stock. The number of shares used
to calculate primary and fully diluted earnings per share at
September 30, 1997 were 1,896,361 and 1,902,389.
8 of 21
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Item 1.
-------
Financial Statements, Continued
-------------------------------
PERPETUAL MIDWEST FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-----------
4. ALLOWANCE FOR LOAN LOSSES:
--------------------------
The allowance for loan losses is increased by charges to income and
decreased by charge-offs, net of recoveries. Estimating the risk of
loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level
considered adequate to cover losses that are currently anticipated.
Management's periodic evaluation of the adequacy of the allowance is
based on the Company's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral, and the current economic conditions. In addition, various
regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for losses on
loans and foreclosed real estate. Such agencies may require the
Company to recognize additions to the allowances based on their
judgments of information available to them at the time of their
examinations.
Loans are considered impaired if full principal or interest payments
are not anticipated in accordance with the contractual loan terms.
Impaired loans are carried at the present value of expected future
cash flows discounted at the loan's effective interest rate or at the
fair value of the collateral if the loan is collateral dependent. A
portion of the allowance for loan losses is allocated to impaired
loans. If these allocations cause the allowance for loan losses to
require increase, such increase is reported as a component of the
provision for loan losses.
Smaller-balance homogeneous loans are evaluated for impairment in
total. Such loans include: residential first mortgage loans secured
by one-to-four family residences, residential construction loans, and
automobile, home equity and second mortgage loans. Commercial loans
and mortgage loans secured by other properties are evaluated
individually for impairment. When analysis of borrower operating
results and financial condition indicates that underlying cash flows
of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Often this is
associated with a delay or shortfall in payments of 60 days or more.
Loans are moved to nonaccrual status when 90 days or more past due.
These loans are often considered impaired. Impaired loans, or
portions thereof, are charged off when deemed uncollectible by
management review.
Activity in the allowance for loan losses was as follows for the
three months ended September 30, 1997.
Balance at July 1, 1997 $ 2,973,457
Provision for loan losses 225,000
Losses charged to the allowance (345,402)
Recoveries credited to the allowance 20,099
-----------
Balance at September 30, 1997 $ 2,873,154
===========
9 of 21
<PAGE>
Item 1.
-------
Financial Statements, Continued
-------------------------------
PERPETUAL MIDWEST FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-----------
4. ALLOWANCE FOR LOAN LOSSES (Continued):
--------------------------------------
Information regarding impaired loans is as follows for the three
months ending September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Average investment in impaired loans $ 2,721,708 $ 2,923,354
Interest income recognized on impaired loans
including interest income recognized on a cash basis 89,059 46,421
Interest income recognized on impaired loans on cash basis 97,993 48,174
</TABLE>
Information regarding impaired loans at September 30, 1997 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Balance of impaired loans $ 2,337,873
Less portion for which no allowance for loan losses is allocated 897,386
-----------
Portion of impaired loan balance for which an
allowance for loan losses is allocated $ 1,440,487
===========
Portion of allowance for loan losses allocated to impaired loan balance $ 350,000
===========
</TABLE>
5. IMPACT OF NEW ACCOUNTING STANDARDS:
-----------------------------------
Statement of Financial Accounting Standards (SFAS) No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," was issued in 1996. It revises the
accounting for transfers of financial assets, such as loans and
securities, and for distinguishing between sales and secured
borrowings. It became effective for some transactions occurring after
December 31, 1996 and will be effective for others in 1998. The
impact of partial adoption in 1997 was not material to the June 30,
1997 consolidated financial statements and the impact of the complete
adoption in 1998 is also not expected to be material to the
consolidated financial statements.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
which revised the accounting requirements for calculating earnings
per share. Basic earnings per share for the quarter ended December
31, 1997 and later will be calculated solely on average common shares
outstanding. Diluted earnings per share will reflect the potential
dilution of stock options and other common stock equivalents. All
prior calculations will be restated to be comparable to the new
methods. As the Company has dilution from stock options, the new
calculation methods will increase basic earnings per share over what
otherwise would have been reported as primary earnings per share,
while there will be little effect on fully diluted earnings per
share.
10 of 21
<PAGE>
Item 1.
-------
Financial Statements, Continued
-------------------------------
PERPETUAL MIDWEST FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-----------
5. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS (Continued):
----------------------------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and
display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose
financial statements. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Income tax effects must also be shown. This Statement is effective
for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 130 is not expected to have a material impact on the results
of operations or financial condition of the Company.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. This Statement is effective for financial statements for
periods beginning after December 15, 1997. The adoption of SFAS No.
131 is not expected to have a material impact on the results of
operations or financial condition of the Company.
Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
GENERAL:
- --------
The Company was incorporated under the laws of the State of Delaware to become
the holding company for the Bank. The Company was incorporated at the
direction of the Board of Directors of the Bank, and on March 30, 1994
acquired all of the capital stock of the Bank upon its Conversion from mutual
to stock form (the "Conversion"). All references to the Company, unless
otherwise indicated, at or before March 28, 1994, refer to the Bank and its
subsidiary on a consolidated basis.
The Company is principally engaged in the business of attracting retail
savings deposits from the general public and investing those deposits,
together with borrowings and other funds, primarily in one- to four-family
residential mortgage loans, in commercial and multi-family real estate, in
consumer and commercial business loans and, to a lesser extent, in
construction or development. The Company also invests in U.S. Government and
agency obligations and other permissible investments.
11 of 21
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Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
Continued
GENERAL (Continued):
- --------------------
The Company is focusing on activities related to developing its retail banking
business within its market place by increasing consumer and mortgage loan
originations, while offering new deposit products. In addition, the Company's
strategy calls for a gradual growth that would leverage its capital to asset
ratio. This strategy emphasizes an aggressive program of origination and
acquisition of retail consumer loans, including vehicle loans, home equity
(second mortgage) loans, credit card loans and recreational vehicle loans. In
addition, this strategy calls for a growth in the Company's commercial real
estate loans and business loans within the Company's market areas. This growth
of the company may be financed by either increases in deposits or from
borrowed funds. The source of funds for the Company's growth depends on
several factors, including cost, availability, interest rate risk, and
reinvestment alternatives.
The Company is selling substantially all of its originations of long-term,
fixed rate one-to four-family loans. With a "locked-in" rate at the time of
commitment, the Company sells these one-to four-family loans, servicing
released, to a private mortgage banker, generally for a 1.00% to 1.25%
premium. This program has allowed the Company to offer competitive one-to
four-family rates and products in its market area. To a lesser extent, the
Company sells one-to four-family loans to the Federal National Mortgage
Association, servicing retained. Although the loan rates in this program are
generally less competitive, some customers of the Company prefer that the
servicing of their loan remain with the Company.
The most significant outside factors influencing the operations of the Company
include general economic conditions, competition in the local market place,
and the related monetary and fiscal policies of agencies that regulate and/or
affect financial institutions. More specifically, the cost of funds primarily
consisting of deposits, is influenced by interest rates on competing
investments and general market rates of interest, while lending activities are
influenced by the demand for real estate financing and other types of loans,
which in turn is affected by the interest rates at which such loans may be
offered and other factors affecting loan demand and funds availability,
including posted rates by the Federal National Mortgage Association ("Fannie
Mae").
FINANCIAL CONDITION:
- --------------------
Total assets increased $4.5 million to $401.7 million at September 30, 1997
from $397.2 million at June 30, 1997. This increase was primarily attributable
to a $20.1 million increase in loans receivable, net, partially offset by a
$7.0 million decrease in cash and cash equivalents and a $7.6 million decrease
in securities available for sale.
Loans receivable, net, increased $20.1 million to $330.6 million at September
30, 1997 from $310.5 million at June 30, 1997. The increase in loans
receivable, net, was funded primarily by sales, repayments and maturities of
securities and net deposit increases.
12 of 21
<PAGE>
Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
Continued
FINANCIAL CONDITION (Continued):
- --------------------------------
There are no significant changes to the geographic concentrations of the
Company's out-of-territory loans. The Company had no foreign loans outstanding
at September 30, 1997.
Total Deposits increased $4.9 million to $310.1 million at September 30, 1997.
Management attributes this increase to the Company's expanded marketing
efforts and competitive array of deposit products.
Borrowed funds at September 30, 1997 totaled $51.2 million as compared to
$52.2 million at June 30, 1997. Borrowed funds consisted of $20.0 million of
long-term advances and $31.0 million of short term advances (due in 12 months
or less) primarily from the Federal Home Loan Bank of Des Moines.
At September 30, 1997 stockholders' equity totaled $34.2 million as compared
to $33.9 million at June 30, 1997 or an increase of $272,000. Stockholders'
equity increased primarily due to a net income of $554,000 for the three
months ended September 30, 1997, a net of tax reduction of $93,000 from June
30, 1997 for net unrealized depreciation in securities available for sale, and
a reduction of the contra-equity accounts for Employee Stock Ownership Plan
and Unearned Compensation in the amount of $60,000, primarily offset by a
reduction of equity in the amount of $218,000 for the increased holdings of
Company Treasury Stock, $142,000 paid out for cash dividends and an $82,000
reduction in additional paid-in capital related to the Company's stock option
program.
RESULTS OF OPERATIONS
- ---------------------
Comparison of Three Months Ended September 30, 1997 and 1996
The Company had net income after tax of $554,000 or $0.29 per share of common
stock for the three months ended September 30, 1997. This compares to $346,000
or $0.18 per share of common stock for the three months ended September 30,
1996 before the impact of a one-time, after-tax charge of $900,000 or $0.47
per share to recapitalize the Savings Association Insurance Fund (SAIF).
Net interest income, before provision for loan losses, increased $305,000 to
$2.9 million for the three months ended September 30, 1997 compared to $2.6
million for the same period in 1996. Interest income increased $357,000,
primarily due to an increase of 0.29% in the average rate earned on
interest-earning assets, and an increase of $5.0 million in the average
balance. Interest expense increased $53,000 and primarily reflected 6.8
million increase in the average rate sensitive liability balance, offset by a
decrease of 0.07% in the average rate paid on interest-bearing liabilities.
Noninterest income for the three months ended September 30, 1997, was $460,000
compared to $418,000 for the same period in 1996. Loan servicing fees
decreased $16,000 to $82,000 for the three months ended September 30, 1997
compared to $98,000 for the same period in 1996, primarily due to a declining
average balance of loans serviced for others. The average balance of loans
serviced for others was $108.8 million during the three months
13 of 21
<PAGE>
Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
Continued
RESULTS OF OPERATIONS: Comparison of Three Months Ended
September 30, 1997 and 1996
(Continued)
ended September 30, 1997 compared to $129.6 million during the same period
last year. Gain or loss on the sales of available for sale securities and
loans held for sale reflected a net gain of $87,000 for the three months ended
September 30, 1997 compared to a net gain of $71,000 for same period last
year. Net trading securities gains were $20,000 for the three months ended
September 30, 1997, compared to a $46,000 net trading gain for the same period
last year.
Other noninterest income increased $67,000 for the three months ended
September 30, 1997 to $271,000 as compared to $204,000 for the three months
ended September 30, 1996, primarily due to a $10,000 increase in mortgage loan
fees, a $40,000 increase in savings fees, and a $17,000 increase in
non-mortgage fees.
Noninterest expense was primarily flat at $2.2 million for the three months
ended September 30, 1997 compared to $2.2 million for the same period in 1996,
before the $1.5 million SAIF special assessment. Compensation and benefits
increased $1,000 to $901,000 compared to $900,000 for the same period last
year. Occupancy and equipment expense was primarily flat at $387,000 for the
three months ended September 30, 1997 compared to the same period last year.
The regular SAIF deposit insurance premium expense decreased $97,000 to
$46,000 for the three months ended September 30, 1997. The decrease in the
regular SAIF deposit insurance premium was primarily due to a reduction in the
SAIF premium rates after the Company was assessed a one-time charge of $1.5
million by the FDIC to recapitalize the Savings Association Insurance Fund.
The Company's regular annualized SAIF Federal insurance premium rates for the
three months ended September 30, 1997 and 1996 were 0.063% and 0.23%,
respectively (See "--Insurance of Accounts and SAIF Deposit Premium"). Gain or
loss on foreclosed real estate reflected a loss of $2,000 for the three months
ended September 30, 1997 compared to a loss of $4,000 for the same period in
1996. Other noninterest expense increased $113,000 to $884,000 for the three
months ended September 30, 1997 compared to $771,000 for the same period last
year. Data processing expense and professional fee expense are the largest
categorical increases in other noninterest expense for the three months ended
September 30, 1997 as compared to the same period last year. Data processing
expense increased $23,000 primarily due to an increase in the number of
accounts serviced. Professional fee expense increased $79,0000 primarily due
to additional professional services requested by the Company during the three
months ending September 30, 1997 as compared to the prior year.
Income tax provision increased $710,000 to $350,000 for the three months ended
September 30, 1997 compared to a benefit of $360,000 for the same period in
1996. The increase primarily reflected tax provision on the greater amount of
income before tax.
Insurance of Accounts and SAIF Deposit Premium:
- -----------------------------------------------
On September 30, 1996, federal legislation was enacted that required the
Savings Association Insurance Fund ("SAIF") to be recapitalized with a
14 of 21
<PAGE>
Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
Continued
RESULTS OF OPERATIONS: Comparison of Three Months Ended
September 30, 1997 and 1996
(Continued)
one-time assessment on virtually all SAIF-insured institutions, such as the
Bank, equal to 65.7 basis points on SAIF-insured deposits maintained by those
institutions as of March 31, 1995. The SAIF assessment in that period was
approximately $1.5 million before tax or $900,000 after tax.
As a result of the SAIF recapitalization, the FDIC amended its regulation
concerning the insurance premiums payable by SAIF-insured institutions. For
the period October 1, 1996 through December 31, 1996, the SAIF insurance
premium for all SAIF-insured institutions that are required to pay the
Financing Corporation (FICO) obligation, such as the Bank, was reduced to a
range of 18 to 27 basis points from 23 to 31 basis points per $100 of domestic
deposits. The FDIC further reduced the SAIF insurance premium to a range of 0
to 27 basis points per $100 of domestic deposits, effective January 1, 1997.
The Bank qualifies for the minimum SAIF insurance premium. Additionally, the
FDIC had imposed a FICO assessment on SAIF-assessable deposits for the first
semi-annual period of 1997 equal to 6.48 basis points per $100 of domestic
deposits, as compared to a FICO assessment on BIF-assessable deposits for that
same period equal to 1.30 basis points per $100 of domestic deposits.
Recovery of Bad-Debt Deduction:
- -------------------------------
In August 1996, legislation was enacted that repeals the reserve method of
accounting used by many thrifts to calculate their bad debt reserve for
federal income tax purposes. As a result, small thrifts such as the Bank must
recapture that portion of the reserve that exceeds the amount that could have
been taken under the experience method for post-1987 tax years. The
legislation also requires thrifts to account for bad debts for federal income
tax purposes on the same basis as commercial banks for tax years beginning
after December 31, 1995. The recapture will occur over a six-year period, the
commencement of which will be delayed until the first taxable year beginning
after December 31, 1997, provided the institution meets certain residential
lending requirements. The management of the Company does not believe that the
legislation will have a material impact on the Company or the Bank.
NON-PERFORMING ASSETS AND LOAN LOSS PROVISIONS:
- -----------------------------------------------
The allowance for loan losses is established through a provision for loan
losses based on management's quarterly asset classification review and
evaluation of the risk inherent in its loan portfolio and changes in the
nature and volume of its loan activity. Such evaluation, which includes a
review of all loans of which full collectibility may not be reasonably
assured, considers among other matters, the estimated value of the underlying
collateral, economic conditions, cash flow analysis, historical loan loss
experience, discussions held with delinquent borrowers and other factors that
warrant recognition in providing for an adequate allowance for loan loss.
Provisions for loan losses in the amount of $225,000 were recorded for the
three months ended September 30, 1997 compared to the same level of $225,000
for the three months ended September 30, 1996. The Company's allowance for
15 of 21
<PAGE>
Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
Continued
NON-PERFORMING ASSETS AND LOAN LOSS PROVISIONS (Continued):
- ----------------------------------------------------------
loan loss was $2.9 million or 0.87% of net loans receivable at September 30,
1997 as compared to $3.0 million or 0.96% at June 30, 1997. While management
believes that the current allowance for loan loss is adequate to absorb loan
losses in the existing loan portfolio, there is no assurance that the
subsequent evaluations of the loan portfolio may not require additional
provisions for loan loss.
The non-performing assets to total assets is one indicator of the Company's
exposure to credit risk. Non-performing assets of the Company consist of
non-accruing loans and real estate owned which has been acquired as a result
of foreclosure. The volume of non-performing assets was unchanged from $1.2
million or .30% of assets at June 30, 1997 and $1.2 million or .30% of assets
at September 30, 1997, exclusive of troubled debt restructured loans. The
ratio of the loss allowance to non-performing assets decreased slightly from
2.5 times at June 30, 1997 to 2.4 times at September 30, 1997.
Troubled Debt Restructures. The Company does not consider troubled debt
restructurings to be "non-performing loans". At June 30, 1997, the Company
held one restructured loan secured by a property located in Newport Beach,
California. This loan was secured by an office/warehouse building on leased
ground with an outstanding book balance of $424,000. This loan was paid off
during the three months ending September 30, 1997 and the Company does not
have any loans classified as troubled debt restructures as of September 30,
1997.
Foreclosed Assets. As of September 30, 1997, the Company had $60,000 of
foreclosed and repossessed assets which represented nine automobiles totaling
$54,000 and a repossessed motorcycle with a book value of $6,000. Management
may initiate foreclosure on any specific impaired loan described below if a
further review of that specific loan indicates a further deterioration of the
collateral or cash flow. Based on a review of the Company's assets at
September 30, 1997 and the current economic environment, management does not
expect to initiate any significant foreclosures or repossessions of assets,
other than impaired assets with the conditions described previously, during
the quarter following that review date, and they continue to monitor other
loans of concern.
Impaired Loans. The Company had three loans classified as impaired at
September 30, 1997 totaling $2.3 million, offset by an allocated allowance for
loan losses in the amount of $350,000.
The largest loan included in impaired loans is a $1.4 million business loan of
which approximately 53% is secured by real estate and improvements and the
remainder of the loan is secured by business assets. The loan was granted to
an existing trucking and freight company in the Company's market area for the
purpose of expanding the trucking operation, including relocation of their
trucking terminal. A significant portion of the trucking company's revenue was
dependent upon a single contract which expired and was not renewed, resulting
in a deterioration of cash flows from the trucking operation. A collateral
analysis was performed by the Company in September 1997, which estimated a
loss exposure of $350,000 at September 30, 1997. Based on its review, the
Company allocated an allowance for loan losses in the amount of $350,000 for
this loan. The loan was current at September 30, 1977 and management will
continue to monitor this loan closely.
16 of 21
<PAGE>
Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
Continued
NON-PERFORMING ASSETS AND LOAN LOSS PROVISIONS: (Continued)
- -----------------------------------------------------------
The second largest loan included in impaired loans is a $591,000 business
loan originated in 1995 for the development, production and marketing of a
software-based legal reference system. The loan is secured by a commercial
office building and business assets located in the Company's market area and
marketable securities. Although the loan was current at September 30, 1977,
the borrower incurred eight delinquencies over the past twelve months.
The third loan included in impaired loans is a $298,000 business loan which
was originated in 1996 for $600,000 to floor plan a dealer in the Company's
local market area. The dealer is primarily a seller of new and used lawn and
garden equipment and small farm implements. This loan continues to be
monitored by management and management continues to work with the dealer to
further reduce the debt as sales occur. Although the loan has been reduced by
$302,000 over the past six months, $74,000 is owed and delinquent on principal
curtailments according to the loan agreement.
At June 30, 1997 a large loan included in impaired loans was a $632,000 loan
secured by an office/warehouse mortgage loan in Newport Beach, California.
This loan is discussed above under Troubled Debt Restructures and was paid off
during the quarter ending September 30, 1997.
A $324,000 loan secured by a multi-tenant retail/office building located in
the central business district of Marion, Iowa was classified as impaired at
June 30, 1997 and paid off during the quarter ended September 30, 1977 without
loss.
Other Loans of Concern. As of September 30, 1997 there were $5.0 million of
other loans of concern not discussed above where known information about the
possible credit problems of borrowers or the cash flows of the collateral
properties have caused management to have concerns as to the ability of the
borrower to comply with present loan repayment terms and which may result in
the future inclusion of such loans as non-performing or impaired asset
categories. Other loans of concern have been considered by management in
conjunction with the analysis of the adequacy of the allowance for loan
losses. Set forth below is a description of the larger components of other
loans of concern.
The Company is monitoring a combination of fourteen real estate loans to one
borrower aggregating $748,000 and secured by a laundromat, a commercial/retail
building, six separate apartment complexes and five single-family rental
properties, all of which are located in the Company's market area. These loans
were originated during 1995 and 1996, however, recent analysis indicates that
the aggregate loan to value has increased. The loans were current at September
30, 1977, however, several delinquencies were incurred over the past twelve
months. Based on the recent analysis, an allowance for loan losses has been
allocated for these loans in the amount of $34,000.
17 of 21
<PAGE>
Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
Continued
NON-PERFORMING ASSETS AND LOAN LOSS PROVISIONS: (Continued)
- -----------------------------------------------------------
The Company is monitoring a second large commercial real estate loan of
concern in the amount of $2.4 million and secured by a commercial/office
building complex in Cedar Rapids, Iowa. This loan was originated in January,
1995 at a loan to value ratio of 80% for the purpose of remodeling and
converting a commercial warehouse facility to a commercial/office building
complex for rental purposes. Although the loan was current at September 30,
1996, a recent analysis indicates a shortage of cash flows from the security
to cover the debt, primarily due to a current high vacancy rate. Management
will continue to monitor this loan closely.
A third large loan of concern is a 43 unit multi-family complex in Ft. Worth,
Texas. This loan was originated in 1986 for $600,000 at a loan to value ratio
of 55% and the Company purchased a 75% participation interest at origination.
The balance of the loan at September 30, 1997 was $463,000 and the Company's
75% participation interest amounted to $347,000. Although the loan was current
at September 30, 1997, a recent analysis indicated a shortage of cash flows
from the collateral to cover the debt, and the related note on this loan
ballooned December 1, 1996. The property is listed for sale, and management
granted the borrower's request for an extension of the balloon date to allow
more time for selling the property.
The Company is monitoring a commercial real estate loan in the amount of
$581,000 secured by a two-story building with multi-tenant office suites
located in Van Nuys, California. This loan was originated in 1986 at a 67%
loan to value ratio with a balloon date in February, 1996, however, the
borrower was not able to refinance the loan in the local market of the
security. The Company granted a five-year extension on the loan to balloon in
February 2001. The Company continues to monitor this loan based upon the
California real estate market indicating that the borrower could not refinance
in the local market. An allowance for loan loss has been allocated for this
loan in the amount of $300,000. The loan was current at September 30, 1997,
with no delinquencies over the past twelve months, and at that date the
borrower had the property listed for sale in the amount of $775,000.
Another large loan of concern is secured by a communications building located
in Denver, Colorado in the amount of $560,000. The contractual rent on this
property for the existing tenant is in excess of current market rent for
similar properties in the Denver area. This loan was originated in 1987 at a
75% loan to value ratio. Based on a September 1977 credit analysis, an
allowance for loan loss in the amount of $150,000 has been allocated for this
loan. This loan was current at September 30, 1997 with no delinquencies over
the past twelve months.
A large loan of concern is secured by a restaurant in the Company's market
area. This loan was originated in 1994 at a 64% loan to value ratio in the
amount of $450,000. At September 30, 1997, the balance of the loan was
$401,000 and although the loan was current at that date, the borrower had four
delinquencies over the past twelve months. A recent credit analysis indicated
a decreasing sales volume and net operating margin for the restaurant. The
obligor feels that the declining sales volume is due to lack of marketing and
working capital and has listed the property for sale. Management continues to
monitor the credit status of this loan and the interest, if any, for
purchasing the restaurant.
18 of 21
<PAGE>
Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
Continued
NON-PERFORMING ASSETS AND LOAN LOSS PROVISIONS: (Continued)
- -----------------------------------------------------------
There were no other loans of concern in excess of $500,000 being monitored by
the Company. The balance of other loans of concern consists of one- to
four-family loans totaling $738,000, commercial and multi-family real estate
loans totaling $450,000, consumer loans totaling $171,000 and commercial
business loans totaling $117,000. These loans have been considered by
management in conjunction with the analysis of the adequacy of the allowance
for loan losses.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
The Company's principal sources of funds are deposits, amortization and
prepayment of loan principal (including mortgage-backed securities),
maturities of investment securities and interest-earning deposits with other
financial institutions, sales of loans and mortgage-backed and related
securities available for sale, and operations. While scheduled loan
repayments, mortgage-backed securities amortization, and maturing investments
are relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, general economic conditions and competition. The
Company has been selective with regard to deposit rates on certain savings
products and, when necessary, has supplemented deposits with longer term or
less expensive alternative sources of funds.
Current OTS regulations require the Bank to maintain cash and eligible
investments in an amount equal to at least 5% of net withdrawable savings
deposits and borrowings payable on demand or in five years or less during the
preceding calendar month. Liquid assets for purposes of this ratio include
cash, certain time deposits, U.S. Government, government agency and other
securities and obligations generally having remaining maturities of less than
five years. The Bank has maintained its liquidity ratio at a level in excess
of those required. At September 30, 1997, the Bank's liquidity ratio was
12.06%, which was in excess of the minimum regulatory requirements.
The Company uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity and meet operating expenses. At September 30, 1997, the
Company had outstanding commitments to extend credit which amounted to $52.0
million, of which $38.9 million is available lines of credit, $8.0 million for
one-to four-family residential, $500,000 for multifamily residential, $1.4
million for commercial real estate, and the remaining $3.2 million for
consumer/business loans. Management believes loan repayments and other sources
of funds will be adequate to meet the Company's foreseeable liquidity needs.
During the three month period ended September 30, 1997, there was a net
decrease of $7.0 million in cash and cash equivalents. This decrease was a
result of reinvestment of excess cash into other interest-earning assets with
a higher yield. The major source of cash during the period was a $5.0 million
increase in deposits, and $7.7 million from sales and repayments of securities
available for sale. Major uses of funds included purchase of loans receivable
of $11.2 million and a net increase in loans receivable of $9.1 million.
19 of 21
<PAGE>
Item 2.
-------
PERPETUAL MIDWEST FINANCIAL, INC.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
-------------------------
Continued
LIQUIDITY AND CAPITAL RESOURCES: (Continued)
- --------------------------------------------
At September 30, 1997, the Bank's tangible and core capital was $31.8 million
or 7.95% of adjusted total assets, which was in excess of the 1.5% tangible
capital requirement by $25.8 million, and in excess of the 3.0% core capital
requirement by $19.8 million. The Bank also had risk-based capital of $34.4
million at September 30, 1997, or 12.24% of total risk-weighted assets, which
exceeded the 8.0% risk-based capital requirement by $11.9 million. The OTS has
adopted a regulation which requires that, for purposes of calculating
regulatory capital, unrealized gains or losses related to accounting for
certain investments in debt and equity securities classified as "available for
sale" under SFAS No. 115 are not included in the Bank's regulatory capital.
PERPETUAL MIDWEST FINANCIAL, INC.
PART II - OTHER INFORMATION
---------------------------
Item 1. - LEGAL PROCEEDING
- --------------------------
There are no material legal proceedings to which the Company or the
Bank is a party or of which any of their property is subject. From
time-to-time, the Bank is a party to various legal proceedings
incident to its business.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
1. The Company filed a form 8-K dated October 16, 1997,
concerning the press release of earnings for the three months
ended September 30, 1997.
2. The Company filed a form 8-K dated October 16, 1997,
concerning the press release announcing that the Company
would pay a cash dividend of $0.075 (seven and one-half
cents) per share of outstanding common stock on November 12,
1997 to stockholders of record as of October 31, 1997.
20 of 21
<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.
PERPETUAL MIDWEST FINANCIAL, INC.
Registrant
Date: November 7, 1997 /s/ James L. Roberts
------------------------- ------------------------------------
James L. Roberts, President and Chief
Executive Officer
Date: November 7, 1997 /s/ Rick L. Brown
------------------------- ------------------------------------
Rick L. Brown, Executive Vice
President and Chief Financial Officer
21 of 21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,116,490
<INT-BEARING-DEPOSITS> 12,905,476
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 617,050
<INVESTMENTS-HELD-FOR-SALE> 33,482,920
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 330,608,876
<ALLOWANCE> (2,873,154)
<TOTAL-ASSETS> 401,664,573
<DEPOSITS> 310,139,889
<SHORT-TERM> 31,202,151
<LIABILITIES-OTHER> 6,160,697
<LONG-TERM> 20,000,000
0
0
<COMMON> 21,240
<OTHER-SE> 34,140,596
<TOTAL-LIABILITIES-AND-EQUITY> 401,664,573
<INTEREST-LOAN> 6,962,317
<INTEREST-INVEST> 482,503
<INTEREST-OTHER> 255,523
<INTEREST-TOTAL> 7,700,343
<INTEREST-DEPOSIT> 4,069,499
<INTEREST-EXPENSE> 4,810,992
<INTEREST-INCOME-NET> 2,889,351
<LOAN-LOSSES> 225,000
<SECURITIES-GAINS> 20,044
<EXPENSE-OTHER> 2,220,651
<INCOME-PRETAX> 904,061
<INCOME-PRE-EXTRAORDINARY> 554,496
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 554,496
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 8.06
<LOANS-NON> 1,107,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,765,000
<ALLOWANCE-OPEN> (2,973,457)
<CHARGE-OFFS> 345,402
<RECOVERIES> (20,099)
<ALLOWANCE-CLOSE> (2,873,154)
<ALLOWANCE-DOMESTIC> (2,873,154)
<ALLOWANCE-FOREIGN> 0
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</TABLE>
