UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON , D.C. 20549
---------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
Commission file number 0-24606
NORTHWEST EQUITY CORP.
(exact name of small business issuer as specified in its charter)
Wisconsin 39-1772981
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
234 Keller Avenue South 54001
Amery, Wisconsin (Zip code)
(Address of principal executive offices)
(715) 268-7105
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
report(s), and (2) has been subject to such filing requirements for the past 90
days.
(1) Yes __x__ No_____
(2) Yes __x__ No_____
The number of shares outstanding of the issuer's common stock, $1.00 par
value per share, was 945,392 at June 30, 1996.
SIGNATURES
In accordance with 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.
NORTHWEST EQUITY CORP.
Dated:___7/24/96_____________ By: __/s/_Brian L. Beadle___________
(Brian L. Beadle, President
Principal Executive Officer and
Principal Financial and
Accounting Officer)
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis or Plan of Operation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Registrant nor the Bank is involved in any pending legal
proceedings involving amounts in the aggregate which management believes are
material to the financial condition and results of operations of the Registrant
and the Bank.
Item 2. Changes in Securities.
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. No reports on Form 8-K were filed during the quarter for which this
report was filed.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30,
1996 March 31,
ASSETS (unaudited) 1996
--------- ---------
Cash - including interest bearing deposits of $1,977
at June 30, 1996 and $2,465 at March 31, 1996 $2,979 $3,412
Securities available- for- sale - fair value 3,120 2,859
Mortgage backed securities - market value of $7,757
at June 30, 1996 and $5,386 at March 31, 1996 7,950 5,373
Loans held for sale - at market 1,039 717
Loans receivable - net 72,490 69,963
Foreclosed properties and properties subject to
foreclosure 143 127
Investment in Federal Home Loan Bank stock at
cost - which approximates fair value 803 803
Premises and equipment 2,415 2,199
Accrued interest receivable 590 602
Prepaid expenses and other assets 275 300
------- -------
TOTAL ASSETS $91,804 $86,355
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings accounts $59,835 $57,256
Advances from Federal Home Loan Bank 15,756 12,556
Other borrowed money 3,998 4,356
Accounts payable and accrued expenses 344 308
Accrued income taxes 151 15
------ ------
Total liabilities 80,084 74,491
------ ------
Stockholders' Equity
Preferred stock - $1 par value; 2,000,000 shares
authorized; none issued - - - -
Common stock - $1 par value: 4,000,000 shares
authorized; 1,032,517 shares issued and outstanding 1,033 1,033
Additional paid-in capital 6,584 6,584
Net unrealized loss on securities available for sale (44) (34)
Less unearned restricted stock plan award (249) (319)
Less unearned Employee Stock Ownership
Plan compensation (665) (699)
Less treasury stock - at cost - 87,125 shares (934) (561)
Retained earnings - substantially restricted 5,995 5,860
------- ------
Total stockholders' equity 11,720 11,864
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $91,804 $86,355
======= =======
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In Thousands except for per share amounts)
Three Months Ended
June 30,
----------------------
1996 1995
-------- -------
Interest income:
Interest and fees on loans $1,598 $1,353
Interest on mortgage-backed and related securities 140 62
Interest and dividends on investments 64 54
----- -----
Total interest income 1,802 1,469
----- -----
Interest expense:
Interest on savings 695 594
Interest on borrowings 277 113
---- ----
Total interest expense 972 707
---- ----
Net interest income 830 762
Provision for loan losses 6 6
---- ----
Net interest income after provision for loan losses 824 756
---- ----
Other income:
Mortgage servicing fees 19 18
Service charges on deposits 58 60
Gain on sale of mortgage loans 15 8
Other 48 26
---- ----
Total other income 140 112
---- ----
General and administrative expenses:
Salaries and employee benefits 307 231
Net occupancy expense 67 60
Data processing 37 34
Federal insurance premiums 35 31
Other 131 124
---- ----
Total general and administrative expense 577 480
---- ----
Income before income taxes 387 388
`
Income taxes 164 154
---- ----
Net income $223 $234
==== ====
Earnings per share: $0.25 $0.25
----- -----
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
(In Thousands)
<CAPTION>
Unrealized
Gain(Loss) Unearned
Additional On Securities Unearned ESOP
Common Paid-in Available Restricted Compen- Treasury Retained
Stock Capital For Sale Stock sation Stock Earnings Total
------ ------- -------- ----- --- ---------------- ------------
Three Months Ended June 30, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1995 $1,033 $6,584 (107) - - (826) - - 5354 12,038
Net income - - - - - - - - - - - - 234 234
Adjustment of carrying value of securities available
for sale, net of deferred taxes of $39 - - - - 61 - - - - - - - - 61
Amortization of unearned ESOP and restricted
stock award - - - - - - - - 23 - - - - 23
Purchase of Treasury Stock - - - - - - - - - - - - - - - -
Cash dividends - $.10 per share - - - - - - - - - - - - (72) (72)
Balance - June 30, 1995 $1,033 $6,584 ($46) - - ($803) - - $5,516 $12,284
====== ====== === ==== ==== ==== ====== =======
Three Months Ended June 30, 1996
Balance - March 31, 1996 $1,033 $6,584 ($34) ($319) ($699) ($561) 5860 11,864
Net income - - - - - - $223 - - - - - - 223
Adjustment of carrying value of securities available
for sale, net of deferred taxes of $xx - - - - (10) - - - - - - - - (10)
Amortization of unearned ESOP and restricted
stock award - - - - - - 70 34 - - - - 104
Purchase of Treasury Stock - - - - - - - - - - (373) - - (373)
Cash dividends - $.10 per share - - - - - - - - - - - - (88) (88)
Balance - June 30, 1996 $1,033 $6,584 ($44) ($249) ($665) ($934) $5,995 $11,720
====== ====== === ==== ==== ==== ===== =======
See accompanying Notes to Consolidated Financial Statements
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
June 30,
------------------
1996 1995
---- ----
Cash provided by operating activities:
Net income $223 $234
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 24 25
Provision for loan losses 6 6
Amortization of ESOP and restricted stock awards 104 - -
Proceeds from sales of mortgage loans 1,501 898
Loans originated for sale (1,486) (890)
Decrease (increase) accrued interest receivable 16 11
Decrease(increase) prepaid expenses and other assets 21 (166)
Increase (decrease) accrued interest payable (19) (11)
Increase(decrease) accrued income taxes payable 136 28
Increase(decrease) other accrued liabilities 55 51
---- ----
Net cash provided by operating activities 581 186
---- ----
Cash provided by investing activities:
Principal collected on long-term loans 9,486 4,400
Long-term loans originated or acquired (12,425) (7,872)
Purchases of mortgage-backed securities (2,766) (1,933)
Principal collected on mortgage-backed securities 189 206
Proceeds from sale of foreclosed property 43 - -
Purchase of office properties and equipment (240) (29)
Purchase of investments (261) (304)
----- -----
Net cash provided by (used in) investing activities (5,974) (5,532)
----- -----
Cash provided by financing activities:
Net increase (decrease) in savings accounts $2,579 2430
Net increase(decrease) in short term borrowings (378) 2545
Repayments of long-term financing (13) - -
Proceeds from long-term financing 3,233 - -
Purchases of treasury stock (373) - -
Dividends paid (88) - -
----- -----
Net cash provided by (used in) financing activities 4,960 4,975
----- -----
Increase (decrease) in cash and equivalents (433) (371)
Cash and equivalents - beginning 3,412 3,086
------ ------
Cash and equivalents - ending $2,979 $2,715
====== ======
Supplemental disclosures of cash flow information:
Loans receivable transferred to foreclosed properties
and properties subject to foreclosure $ 59 $ 42
Properties subject to foreclosure transferred to
loans receivable $ - - $ - -
See accompanying Notes to Consolidated Financial Statements
6
<PAGE>
NORTHWEST EQUITY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies:
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with the accounting policies
described in the Bank's audited financial statements for the year ended
March 31, 1996 and should be read in conjunction with the financial
statements and notes which appear in that report. These statements do
not include all the information and disclosures required by generally
accepted accounting principles. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered for
a fair presentation have been included.
Note 2. Subsequent Events: none
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
NORTHWEST EQUITY CORP.
Comparison of Operating Results for the Three Months Ended June 30, 1995
and June 30, 1996
Net Income
Net income for the three months ended June 30, 1996, decreased $11,000 or
4.7% to $223,000 compared to $234,000 for the three months ended June 30, 1995.
The decrease in net income was primarily due to an increase in salaries and
employee benefits of $76,000 from $231,000 for the three months ended June 30,
1995 to $307,000 for the three months ended June 30, 1996. The increase reflects
$70,000 for the three months ended June 30, 1996, in expense from accounting for
the Company's stock incentive plan that requires under applicable accounting
standards that 61.1% of the three-year cost be amortized in the first year. The
accounting for this expense did not begin until the approval of the Company's
stock incentive plan in October 1995; and therefore no expense was taken for the
three months ended June 30, 1995. This increase in expense was partially offset
by an increase of $68,000 in net interest income from $762,000 for the three
months ended June 30, 1995, to $830,000 for the three months ended June 30,
1996, and an increase of $28,000 in total other income from $112,000 for the
three months ended June 30, 1995, to $140,000 for the three months ended June
30, 1996
Net Interest Income
Net interest income increased by $68,000 from $762,000 for the three months
ended June 30, 1995, to $830,000 for the three months ended June 30, 1996.
Interest income increased $333,000 to $1.8 million for the three months ended
June 30, 1996, compared to $1.5 million for the three months ended June 30,
1995, while interest expense increased only $265,000 to $972,000 for the three
months ended June 30, 1996, from $707,000 for the three months ended June 30,
1995. The improvement in net interest income primarily reflects an increase in
average interest-earning assets of 17.2 million from 67.8 million for the three
months ended June 30, 1995 compared to $85.0 million for the three months ended
June 30, 1996.
Interest Income
Interest income increased $333,000 or 22.7% to $1.8 million for the three
months ended June 30, 1996, compared to $1.5 million for the three months ended
June 30, 1995. The increase was due to the increase in average net loans
receivable to $72.7 million for the three months ended June 30, 1996, compared
to $60.2 million for the three months ended June 30, 1995. The increase in loans
receivable was the result of the general increase in mortgage interest rates
over the comparable periods which encouraged the bank's customers to seek
adjustable rate loans which are held in house as opposed to fixed-rate loans
which are sold on the secondary market. Interest on mortgage-backed and related
securities increased $78,000 to $140,000 for the three months ended June 30,
1996, from $62,000 for the three months ended June 30, 1995, due primarily to an
increase in the average balance of mortgage backed and related securities from
$3.5 million for the three months ended June 30, 1995, to an average balance of
$7.7 million for the three months ended June 30, 1996, that was the result of
the purchase of $2.8 million of additional securities.
Interest on investments increased $10,000 to $64,000 for the three months
ended June 30, 1996, compared to $54,000 for the three months ended June 30,
1995, as a result of an increase in the average outstanding balance of such
investments from $4.0 million for the three months ended June 30, l995, to $4.6
million for the three months ended June 30, 1996.
8
<PAGE>
MANAGEMENT'S DISCUSSION(CONT.)
Interest Expense
Interest expense increased $265,000 or 37.5% to $972,000 for the three
months ended June 30, 1996, compared to $707,000 for the three months ended June
30, 1995. Interest on savings increased $101,000 or 17.0% from $594,000 for the
three months ended June 30, 1995 to $695,000 for the three months ended June 30,
1996. The increase reflects an increase in the average interest earning deposits
to $59.1 million for the three months ended June 30, 1996, from an average
balance of $51.3 million for the three months ended June 30, 1995, and an
increase in rates paid. Interest on borrowings increased $164,000 or 145.1% from
$113,000 for the three months ended June 30, 1995, to $277,000 for the three
months ended June 30, 1996. The increase reflects an increase in average
advances and other borrowings from $7.2 million for the three months ended June
30, 1995, to $19.0 million for the three months ended June 30, 1996. The
increase in advances and other borrowings was used to fund the increase in
assets between the periods.
Provision for Loan Losses
The provision for loan losses remained at $6,000 for the three months ended
June 30, 1996, compared to $6,000 for the three months ended June 30, 1995. The
allowance for loan losses totalled $435,000 at June 30, 1996, compared to
$439,000 at June 30, 1995, and represented .59% and .71% of gross loans and
62.59% and 106.30% of non-performing loans, respectively. Management currently
believes the allowance for loan losses is at an adequate level to provide for
potential loan losses and that future provisions for loan losses will be at
levels necessary to cover only charge-offs and general increases in gross loans.
The non-performing assets to total assets ratio was .92% at June 30, 1996,
compared to .61% at June 30, 1995.
Other Income
Total other income increased 25.0% or $28,000 to $140,000 for the three
months ended June 30, 1996, compared to $112,000 for the three months ended June
30, 1995. The increase includes a $7,000 increase in gain on sale of mortgage
loans to $15,000 for the three months ended June 30, 1996 compared, to $8,000
for the three months ended June 30, 1995. Other income increased $22,000 from
$26,000 for the three months ended June 30. 1995 to $48,000 for the three months
ended June 30, 1996, and reflects real estate lot sales in the bank's subsidiary
of $20,000 for the three months ended June 30, 1996, compared to none for the
three months ended June 30, 1995.
General and Administrative Expenses
General and administrative expenses increased $97,000 or 20.2% to $577,000
for the three months ended June 30, 1996, compared to $480,000 for the three
months ended June 30, 1995. Salaries and employee benefits increased $76,000
from $231,000 for the three months ended June 30, 1995, to $307,000 for the
three months ended June 30, 1996. The increase reflects $70,000 for the three
months ended June 30, 1996, in expense from accounting for the Company's stock
incentive plan that requires under applicable accounting standards that 61.1% of
the three-year cost be amortized in the first year. The accounting for this
expense did not begin until the approval of the Company's stock incentive plan
in October 1995; and therefore no expense was taken for the three months ended
June 30, 1995. Net occupany expense increased $7,000 from $60,000 for the three
months ended June 30, 1995, to $67,000 for the three months ended June 30, 1996.
Other expenses increased $7,000 from $124,000 for the three months ended June
30, 1995, to $131,000 for the three months ended June 30, 1996.
9
<PAGE>
MANAGEMENT'S DISCUSSION(CONT.)
Income Tax Expense
Income tax expense increased $10,000 or 6.5% from $154,000 for the three months
ended June 30, 1995, to $164,000 for the three months ended June 30, 1996. The
effective tax rate for the three months ended June 30, 1996, was 42.4% compared
to 39.7% for the three months ended June 30, 1995. The increase in income tax
expense is the direct result of an increase in the effective rate, as income
before taxes decreased $1,000 from $388,000 for the three months ended June 30,
1995, to $387,000 for the three months ended June 30, 1996. The increase in
effective rate is the result on an accounting change to accomodate a slight
underaccrual of taxes for the previous fiscal year.
Financial Condition
Total assets increased $5.4 million or 6.3% to $91.8 million at June 30,
1996, compared to $86.4 million at March 31, 1996. The increase is a result of a
$2.5 million or 3.6% increase in net loans receivable to $72.5 million at June
30, 1996, compared to $70.0 million at March 31, 1996. The increase in net loans
receivable was the result of the expected seasonal increase of loan activity
during the spring and summer months. Cash decreased $433,000 from $3.4 million
at March 31, 1996, to $3.0 million at June 30, 1996, and was used to partially
fund the increase in net loans receivable. Securities available for sale
increased $261,000 from $2.9 million at March 31, 1996, to $3.1 million at June
30, 1996, as the result of the purchase of an additional money market mutual
funds. Mortgage backed and related securities increased $2.6 million from $5.4
million on March 31, 1996, to $8.0 million at June 30, 1996, as the net result
of the purchase of an $2.8 million of additional securities and principle
repayments. The additional securities were purchased to meet an increase in the
liquity requirement imposed by the Offfice of the Commissioner of Savings and
Loan from 5% to 8% of selected liabilities.
Savings accounts increased $2.5 million from $57.3 million at March 31,
1996, to $59.8 million at June 30, 1996. Outstanding advances from the Federal
Home Loan Bank increased $3.2 million from $12.6 million at March 31, 1996 to
$15.8 million at June 30, 1996. The increase in advances were used to fund the
purchase the additional mortgage backed and related securities required by the
increase in the Office of Savings and Loan's liquity requirement
Shareholders Equity decreased $144,000 from $11.9 million at March 31, 1996, to
$11.7 million at June 30, 1996, as a result of net income for the three months
ended June 30, 1996, and the amortization of the common stock purchased by the
employee stock ownership plan of $34,000 from ($699,000) on March 31, 1996 to
($665,000) on June 30, 1996; the amortization of the unearned restricted stock
plan award of $70,000 from ($319,000) at March 31, 1996, to ($249,000) at June
30, 1996; a decrease in the fair value of securities held for sale, net of
related deferred taxes, of $10,000; and the purchase of an additional $373,000
in treasury stock that changed the treasury stock balance from ($561000) at
March 31, 1996, to ($934,000) at June 30, 1996.
Current Developments
Deposits of the Bank currently are insured to applicable limits by the
FDIC under the Savings Association Insurance Fund ("SAIF"). The FDIC also
insures commercial bank deposits under the Bank Insurance Fund ("BIF"). Premium
levels are set for each fund to facilitate the fund achieving its designated
reserve ratio. As the funds reach their designated rations, the FDIC has
authority to lower fund premium assessments to rates sufficient to maintain the
designated reserve ration. In May 1995, the BIF achieved its designated ration
and the FDIC lowered BIF premium rates for most BIF-insured institutions. In
November 1995, the FDIC reduced assessment rates by four cents per $100 of
deposits for all institutions, producing a premium rate schedule ranging from 0%
(i.e. whereby such institutions will be subject only to a $2,000 minimum annual
premium) to 0.27% of deposits depending on the institution's risk-based premium
category.
10
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Based on these assessment rate modifications, the majority of BIF members now
pay only a $2,000 minimum annual premium and, therefore, BIF-insured
institutions pay, on average, 0.43 cents per $100 of deposits. The SAIF has not
achieved its designated reserve ration and is not anticipated to do so prior to
the year 2001. Therefore, SAIF premium rates for SAIF-insured members continue
to be set at an average of 23.7 cents per $100 of deposits. As a result of the
new assessment rate provisions, SAIF member institutions have been placed at a
competitive disadvantage based on higher deposit insurance premium obligations.
Congress is currently evaluating various proposals and bills concerning
the premium differential between the FDIC's BIF and SAIF funds and related
matters. The current proposal calls for a one-time assessment of approximately
85 to 90 basis points per $100 of SAIF deposits as of March 31, 1995. Both funds
would then, going forward, have the same lower deposit premiums. If the special
assessment were imposed at 85 basis points per $100 of insurable deposits, the
amount of the assessment to the Bank would be approximately $430,000. The
special assessment will have the effect of reducing the Bank's earnings and
capital by the after-tax amount of the assessment as of the date of enactment,
which is estimated to be $252,000 or $0.26 per share. FDIC premium expense would
then be reduced in future periods. Proposals under consideration also address
related issues, including (i) providing that certain bond obligations be borne
by all insured depository institutions (rather than solely by the SAIF); (ii)
the merger of the SAIF and BIF by January 1, 1998 (provided no FDIC-insured
depository institution is a savings association on that date); and (iii)
repealing the bad debt reserve accounting method currently available to thrift
savings associations such as the Bank, with certain provisions for deferred
recapture. The Bank is unable to predict when or whether any of the foregoing
legislation will be enacted, the amount or applicable retroactive date of any
one-time assessment, or the rates that might subsequently apply to assessable
SAIF deposits; however, management anticipates that the Bank, after
consideration of the one-time assessment, would continue to exceed all
regulatory minimum capital levels. Further, management does not anticipate that
any of the legislative proposals, if enacted, would have a material impact on
the Company's financial condition in future periods.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition operations or has violated any applicable
law, regulation, rule, order or condition imposed by the FDIC or the
Commissioner. Management of the Bank does not know of any practice, condition or
violation that might lead to the termination of deposit insurance.
On October 5, 1994, the FDIC issued an "Advanced Notice of Proposed
Rulemaking" pursuant to which the FDIC is soliciting comments on whether the
deposit-insurance assessment base currently provided for in the FDIC's
assessment regulations should be redefined. As a result of the recent transition
to a risk-based deposit insurance system, effective January 1, 1994, the
assessment base, which had been determined by statute pursuant to the FDI Act,
is now determined by the FDIC by regulation. At present, however, the FDIC's
assessment base regulations continue to be based on the statutory provisions
under the FDI Act. Under current law, insurance premiums paid to the FDIC are
calculated by multiplying the institution's assessment base (which equals total
domestic deposits, as adjusted for certain elements) by its assessment rate.
Based on the change to the new deposit insurance system, developments in
the financial services industry, changes in the activities of depository
institutions and other factors, the FDIC seeks comments on whether the
assessment base should be redefined.The FDIC has stated that review of the
definition of "assessment base" does not signal any intent to enhance the total
dollar amount of assessments collected, but that such redefinition may impact
the assessments paid on an institution-by-institution basis. Until final
regulations are adopted affecting the definition of an institution's assessment
base, the Bank cannot predict what impact such regulation may have on Bank
operations.
11
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Asset/Liability Management
Asset/liability management is an ongoing process of matching asset and liability
maturities to reduce interest rate risk. Management attempts to control this
risk through pricing of assets and liabilities and maintaining specific levels
of maturities. In recent periods, management's strategy has been to (1) sell
substantially all new originations of long-term, fixed-rate single family
mortgage loans in the secondary market, (2) invest in various adjustable-rate
and short-term mortgage-backed and related securities, (3) invest in
adjustable-rate, single family mortgage loans, and (4) encourage medium and
longer-term certificates of deposit. The Company's estimated cumulative one-year
gap between assets and liabilities was a negative 4.26% of total assets, at the
latest available reporting date of March 31, 1996. A negative gap occurs when a
greater dollar amount of interest-earning liabilities than interest-bearing
assets are repricing or maturing during a given time period. The Bank's
three-year cumulative gap as of March 31, 1996, was a negative 1.82%. During
periods of rising interest rates, a negative interest rate sensitivity gap will
tend to negatively affect net interest income. During periods of falling
interest rates, a negative interest rate sensitivity gap will tend to postively
affect the net interest income.
Management believes that its asset/liability management strategies have reduced
the potential effects of changes in interest rates on its operations. Increases
in interest rates may increase net interest income because interest-earning
assets will reprice more quickly than interest-bearing liabilities. The
Company's analysis of the maturity and repricing of assets and liabilities
incorporates certain assumptions concerning the amortization and prepayment of
such assets and liabilities.
Management believes that these assumptions approximate actual experience and
considers them reasonable, although the actual amortization and repayment of
assets and liabilities may vary substantially.
Management Strategy
Asset Quality
Total non-performing assets increased to $845,000 at June 30, 1996 from $455,000
at June 30, 1995. As a percentage of assets, non-performing assets increased to
.92% at June 30, 1996, compared to .61% at June 30, 1995.
Selected Financial Ratios and Other Data: At or For the
Three months ended June 30,
Performance Ratios 1996 1995
---- ----
Return on average assets 0.99% 1.31%
Return on average equity 7.56% 7.69%
12
<PAGE>
MANAGEMENT' S DISCUSSION(CONT.)
<TABLE>
Three Months Ended June 30,
--------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------
<CAPTION>
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
Assets
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $60,988 $1,300 8.53% $51,398 $1,120 8.72%
Commerical loans 4,401 120 10.92 3,895 112 11.50
Consumer loans 7,293 178 9.74 4,908 121 9.86
------ ----- ----- ------ ----- -----
Total loans 72,682 1,598 8.79 60,201 1,353 8.99
Mortgage-backed and related securities 7,741 140 7.25 3,546 62 6.99
Interest bearing deposits in other
financial institutions 804 11 5.41 730 10 5.48
Investment securities 2,974 39 5.29 2,855 38 5.32
Federal Home Loan Bank stock 803 14 6.72 442 6 5.43
------ ----- ----- ------ ------ ----
Total interest-earning assets 85,004 $1,802 8.48% 67,774 $1,469 8.67%
------ ------
Non-interest earning assets 5,020 3,654
------ ------
Total assets $90,024 $71,428
======== =======
Liabilities and retained earnings:
Deposits:
NOW accounts $ 8,918 $ 39 1.75% $ 8,743 $ 38 1.74%
Money market deposit accounts 2,941 35 4.76% 97 1 4.12
Passbook 7,230 41 2.26% 6,924 43 2.48
Certificates of deposit 40,038 580 5.80% 35,577 512 5.76
------ --- ----- ------ --- ----
Total deposits 59,127 695 4.70% 51,341 594 4.63
Advances and other borrowings 19,004 277 5.83% 7,232 113 6.25
------ --- ----- ------ --- ----
Total interest-bearing liabilities 78,131 972 4.98% 58,573 707 4.83%
Non-interest bearing liabilities 101 690
Equity 11,792 12,165
------- ------
Total liabilities and retained earnings $90,024 $71,428
======= =======
Net interest income/interest rate spread $ 830 3.50% $ 762 3.84%
====== ==== ======= ====
Net earning assets/net interest margin $ 6,873 3.90% $ 9,201 4.50%
======= ==== ======= ====
Average interest-earning assets to
average interest-bearing liabilities 1.09x 1.16x
==== ====
________________________
<FN>
(1) Includes non-interest bearing NOW accounts.
(2) Interest rate spread represents the difference between the average yield on interest-earning assets
and the average rate on interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average interest-earning assets.
</FN>
</TABLE>
13
<PAGE>
