FORM 10-QS
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20552
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-25300
HARVEST HOME FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-1402988
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3621 Harrison Avenue
Cheviot, Ohio 45211
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (513) 661-6612
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 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
As of May 11, 1998, the latest practicable date, 891,357 shares of the
registrant's common stock, without par value, were issued and outstanding.
Harvest Home Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
Consolidated Statements of Earnings
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
SIGNATURES
<TABLE>
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<CAPTION>
March 31, September 30,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 565 $ 558
Federal funds sold 1,100 2,600
Interest-bearing deposits in other financial
institutions 1,280 2,106
Cash and cash equivalents 2,945 5,264
Investment securities designated as available
for sale - at market 6 ,019 8,039
Mortgage-backed securities designated as
available for sale - at market 33,535 32,466
Loans receivable - net 45,112 45,229
Office premises and equipment - at
depreciated cost 1,131 981
Federal Home Loan Bank stock - at cost 1,550 1,219
Accrued interest receivable on loans 224 245
Accrued interest receivable on mortgage-
backed securities 135 139
Accrued interest receivable on investments and
interest-bearing deposits 67 126
Prepaid expenses and other assets 143 73
Prepaid federal income taxes 20 51
Total assets $90,881 $93,832
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $59,948 $58,786
Advances from the Federal Home Loan Bank 19,975 24,000
Advances by borrowers for taxes and insurance 97 107
Accrued interest payable 119 89
Other liabilities 11 253
Deferred federal income taxes 321 253
Total liabilities 80,571 83,488
Stockholders' equity
Common stock - 2,000,000 shares of no par
value authorized - 991,875 shares issued 0 0
Additional paid-in capital 6,903 6,884
Retained earnings - restricted 5,096 5,043
Shares acquired by Employee Stock Ownership
Plan (301) (378)
Shares acquired by Recognition and Retention
Plan (292) (389)
Unrealized gains on securities designated as
available for sale, net of related tax effects 96 40
Less 100,518 and 77,018 shares of treasury
stock - at cost (1,192) (856)
Total stockholders' equity 10,310 10,344
Total liabilities and stockholders' equity $90,881 $93,832
</TABLE>
<TABLE>
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<CAPTION>
Six months ended Three months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $1,781 $1,687 $ 889 $ 831
Mortgage-backed securities 1,038 722 511 423
Investment securities 229 363 100 170
Interest-bearing deposits and
other 198 92 105 48
Total interest income 3,246 2,864 1,605 1,472
Interest expense
Deposits 1,473 1,369 728 678
Borrowings 649 356 308 205
Total interest expense 2,122 1,725 1,036 883
Net interest income 1,124 1,139 569 589
Provision for losses on loans 6 3 3 3
Net interest income after
Provision for losses
on loans 1,118 1,136 566 586
Other income
Gain on sale of investment and
mortgage-backed securities
designated as available for sale 6 6 0 0
Other operating 31 30 15 13
Total other income 37 36 15 13
General, administrative and other expense
Employee compensation and benefits 455 379 238 200
Occupancy and equipment 147 130 76 69
Federal deposit insurance premiums 18 9 9 9
Franchise taxes 61 63 32 29
Other operating 108 106 48 45
Total general, administrative
and other expense 789 687 403 352
Earnings before income taxes 366 485 178 247
Federal income taxes
Current 76 9 21 86
Deferred 39 156 30 (2)
Total federal income taxes 115 165 51 84
NET EARNINGS $ 251 $ 320 $ 127 $ 163
EARNINGS PER SHARE
Basic $.29 $.36 $.15 $.18
Diluted $.28 $.35 $.14 $.18
</TABLE>
<TABLE>
The Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(In thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows provided by (used in) operating
activities:
Net earnings for the period $ 251 $ 320
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (34) (17)
Depreciation and amortization 27 26
Amortization of premiums on mortgage-backed securities 21 5
Amortization of premiums and discounts on investment
securities net (17) 16
Gain on sale of investment and mortgage-backed
securities (6) (6)
Amortization expense of stock benefit plans 193 236
Provision for losses on loans 6 3
Federal Home Loan Bank stock dividends (45) (24)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 21 (13)
Accrued interest receivable on mortgage-backed
securities 4 4
Accrued interest receivable on investments and
Interest bearing deposits 59 44
Prepaid expenses and other assets (70) (56)
Accounts payable on mortgage loans serviced for
others (1) (1)
Accrued interest payable 30 20
Other liabilities (141) (343)
Federal income taxes
Current 31 (78)
Deferred 39 156
Net cash provided by operating activities 368 292
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 2,000 0
Proceeds from sale of investment securities 0 2,004
Proceeds from sale of mortgage-backed securities 343 135
Principal repayments on mortgage-backed securities 11,066 925
Purchase of mortgage-backed securities (12,371) (5,000)
Principal repayments on loans 5,333 2,236
Loan disbursements (5,188) (3,865)
Purchase of office premises and equipment (177) (32)
Purchase of Federal Home Loan Bank stock (286) (162)
Net cash provided by (used in) investing
Activities 720 (3,759)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits 1,162 (395)
Proceeds from Federal Home Loan Bank advances 14,500 5,000
Repayment of Federal Home Loan Bank advances (18,525) (300)
Advances by borrowers for taxes and insurance (10) 3
Dividends paid on common stock (198) (187)
Purchase of treasury stock (336) 0
Net cash provided by (used in) financing
activities (3,407) 4,121
Net increase (decrease) in cash and cash equivalents (2,319) 654
Cash and cash equivalents at beginning of period 5,264 1,708
Cash and cash equivalents at end of period $2,945 $2,362
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 138 $ 179
Interest on deposits and borrowings $2,152 $1,715
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated
as available for sale, net of related tax effects $ 56 $ (82)
</TABLE>
Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six month periods ended March 31, 1998 and 1997
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of
consolidated financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. Accordingly, these
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto of Harvest Home Financial Corporation
(the "Corporation") included in the Annual Report on Form 10-KSB for the year
ended September 30, 1997. However, in the opinion of management, all
adjustments (consisting of only normal recurring accruals) which are
necessary for a fair presentation of the consolidated financial statements
have been included. The results of operations for the six and three month
periods ended March 31, 1998 are not necessarily indicative of the results
which may be expected for an entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Corporation and Harvest Home Savings Bank (the "Savings Bank"). All
significant intercompany items have been eliminated.
3. Earnings Per Share
Basic earnings per share is computed based upon the weightedaverage shares
outstanding during the period, less shares in the ESOP that are unallocated
and not committed to be released. Weighted-average common shares
outstanding, which gives effect to 30,054 unallocated ESOP shares, totaled
861,101 and 861,303 for the six and three month periods ended March 31, 1998.
Weighted average common shares outstanding, which gives effect to 37,826
unallocated ESOP shares, totaled 897,031 for the six and three month periods
ended March 31, 1997. Diluted earnings per share is computed taking into
consideration common shares outstanding and dilutive potential common shares to
be issued under the Corporation's stock option plan. Weighted-
average common shares deemed outstanding for purposes of computing diluted
earnings per share totaled 895,351 and 897,342 for the six and three month
periods ended March 31, 1998, respectively and 902,832 and 906,830 for the six
and three month periods ended March 31, 1997, respectively.
4. Effects of Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", that provides accounting guidance on transfers of financial
assets, servicing of financial assets, and extinguishment of liabilities. SFAS
No. 125 introduces an approach to accounting for transfers of financial assets
that provides a means of dealing with more complex transactions in which the
seller disposes of only a partial interest in the assets, retains rights or
obligations, makes use of special purpose entities in transaction, or otherwise
has continuing involvement with the transferred assets. The new accounting
method, the financial components approach, provides that the carrying amount
of the financial assets transferred be allocated to components of the
transaction based on their relative fair values. SFAS No. 125 provides
criteria for determining whether control of assets has been relinquished and
whether a sale has occurred. If the transfer does not qualify as a sale,
it is accounted for as a secured borrowing. Transactions subject to the
provisions of SFAS No. 125 include, among others, transfers involving
repurchase agreements, securitizations of financial assets, loan participations,
factoring arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing contract
(unless related to a securitization of assets, and all the securitized
assets are retained and classified as held-to-maturity). A servicing asset or
liability that is purchased or assumed is initially recognized at its fair
value. Servicing assets and liabilities are amortized in proportion to
and over the period of estimated net servicing income or net servicing loss
and are subject to subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet
only if the debtor either pays the creditor and is relieved of its obligation
for the liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31,
1997, and is to be applied prospectively. Earlier or retroactive application is
not permitted. Management adopted SFAS No. 125 effective January 1, 1998, as
required, without material effect on the Corporation's consolidated
financial position or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS No. 130 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. It does not require a specific format for that financial
statement but requires that an enterprise display an amount representing
total comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of a statement of financial position. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. SFAS No. 130 is not expected to have a material impact on the
Corporation's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about reportable segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 uses a "management approach" to disclose financial
and descriptive information about the way that management organizes the
segments within the enterprise for making operating decisions and
assessing performance. For many enterprises, the management approach will
likely result in more segments being reported. In addition, SFAS No. 131
requires significantly more information to be disclosed for each reportable
segment than is presently being reported in annual financial statements and
also requires that selected information be reported in interim financial
statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 is not expected to have a material impact on
the Corporation's financial statements.
Forward-Looking Statements
In addition to historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the Corporation's operations and the
Corporation's actual results could differ significantly from those discussed
in the forwardlooking statements. Some of the factors that could cause or
contribute to such differences are discussed herein but also include
changes in the economy and interest rates in the nation and the Corporation's
market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, the effect of the year 2000 on certain information
technology systems and the effect of certain recent accounting pronouncements
on results of operations and financial position.
Discussion of Financial Condition Changes from September 30, 1997 to March 31,
1998
At March 31, 1998, the Corporation had total assets of $90.9 million, a
decrease of $3.0 million, or 3.1%, from September 30, 1997. The decrease in
assets resulted primarily from a $4.0 million decrease in advances from the
Federal Home Loan Bank, which was partially offset by a $1.2 million
increase in deposits. Cash and due from banks, federal funds sold,
interest-bearing deposits in other financial institutions and
investment securities decreased by $4.3 million, to a total of $9.0 million at
March 31, 1998. The decline in liquid assets was the result of $2.0 million in
maturities of investment securities and use of excess funds to purchase
higher yielding mortgage-backed securities.
Mortgage-backed securities increased by $1.1 million, or 3.3%, to a total of
$33.5 million at March 31, 1998, as compared to $32.5 million at September 30,
1997. Purchases of $12.4 million during the fiscal 1998 six month period
exceeded principal repayments and sales of $11.1 million and $343,000,
respectively. During the most recent quarter, management purchased $5.0
million of long term adjustable rate mortgage-backed securities with a yield of
6.43%. Such purchases were funded with proceeds from Federal Home Loan Bank
advances. Proceeds from repayments of mortgagebacked securities were
utilized to repay advances from the Federal Home Loan Bank, as such
securities were matched with these advances in leveraged purchase
transactions during fiscal 1998 and 1997. The other $7.4 million of
securities purchased during the six month period reflects management's
decision to redeploy excess liquidity into higher-yielding investments.
Loans receivable decreased by $117,000, or .3%, as loan disbursements
of $5.2 million were exceeded by principal repayments of $5.3 million.
Loan origination volume during the 1998 period exceeded that of the 1997 period
by $1.3 million, or 34.2%. Growth in loan originations year to year
consisted primarily of loans secured by one- to four-family residential real
estate.
The Savings Bank's allowance for loan losses totaled $121,000 at March 31,
1998, and $115,000 at September 30, 1997. The allowance for loan losses
is evaluated by management based upon an assessment of current and
anticipated economic conditions applied to the loan portfolio, as well as,
evaluating the quality of the portfolio. At March 31, 1998, the
Corporation had $213,000 in nonperforming loans, as compared to $95,000
in nonperforming loans at September 30, 1997. Although management believes
that its allowance for loan losses at March 31, 1998, was adequate based on
the available facts and circumstances, there can be no assurance that
additions to such allowance will not be necessary in future periods, which
could adversely affect Harvest Home's results of operations.
Deposits totaled $59.9 million at March 31, 1998, an increase of $1.2 million,
or 2.0%, over the $58.8 million of deposits outstanding at September
30, 1997. The increase reflects managements continuing efforts to
maintain a moderate rate of growth through marketing and pricing strategies.
Advances from the Federal Home Loan Bank decreased by $4.0 million, or
16.8%, during the current period as repayments totaling $18.5 million were
partially offset by $14.5 million in new borrowings. The net repayments
resulted from prepayments received on mortgage-backed securities which had
been matched with such advances at inception. During the current quarter,
management elected to refinance $11.5 million in advances at a rate of 5.15%
in an effort to reduce costs of funds.
The Savings Bank is subject to risk-based capital ratio guidelines
implemented by the Federal Deposit Insurance Corporation ("FDIC"). The
guidelines establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among
banking organizations. Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet commitments to four risk-
weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk.
These guidelines divide the Savings Bank's capital into two tiers. The
first tier ("Tier 1") includes common equity, certain non-cumulative perpetual
preferred stock (excluding auction rate issues) and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit
card relationships, subject to certain limitations). Supplementary ("Tier
II") capital includes, among other items, cumulative perpetual and long-
term limited-life preferred stock, mandatory convertible securities, certain
hybrid capital instruments, term subordinated debt and the allowance for loan
losses, subject to certain limitations, less required deductions. Savings
banks are required to maintain a total risk-based capital ratio of 8%, of
which 4% must be Tier 1 capital. The FDIC may, however, set higher
capital requirements when particular circumstances warrant. Savings
banks experiencing or anticipating significant growth are expected to
maintain capital ratios, including tangible capital positions, well above the
minimum levels.
In addition, the FDIC established guidelines prescribing a minimum Tier
1 leverage ratio (Tier 1 capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of
3% for savings banks that meet certain specified criteria, including that they
have the highest regulatory rating and are not experiencing or
anticipating significant growth. All other savings banks are required to
maintain a Tier 1 leverage ratio of 3% plus an additional cushion of at
least 100 to 200 basis points.
As of March 31, 1998, the Savings Bank's regulatory capital substantially
exceeded all minimum capital requirements.
Comparison of Operating Results for the Six Month Periods Ended March 31, 1998
and 1997
General
Net earnings for the six months ended March 31, 1998 totaled $251,000, a
decrease of $69,000, or 21.6%, from the $320,000 of net earnings recorded for
the six months ended March 31, 1997. The decrease in earnings resulted
primarily from a $102,000 increase in general, administrative and other
expense and a $15,000 decrease in net interest income, which were
partially offset by a $50,000 decrease in the federal income tax provision.
Net Interest Income
Interest income on loans for the six months ended March 31, 1998 increased by
$94,000, or 5.6%. The increase was primarily due to a $1.9 million increase
in the average portfolio balance outstanding, coupled with an
increase in the yield of approximately 8 basis points year to year, to
7.93% for the six month period ended March 31, 1998. Interest income on
mortgagebacked securities increased by $316,000, or 43.8%, due primarily to a
$9.3 million increase in average portfolio balance outstanding year to
year. Interest income on investment securities and other interest-earning
assets decreased by $28,000, or 6.2%. This decrease was primarily the result
of a decrease in average yields available on short term deposits year to year.
Interest expense on deposits increased by $104,000, or 7.6%, during the
six months ended March 31, 1998. This increase was due primarily to a $1.9
million increase in the average balance outstanding, coupled with a 20 basis
point increase in the average cost of deposits, from 4.74% in fiscal 1997 to
4.94% in fiscal 1998.
Interest expense on borrowings increased by $293,000, or 82.3%, as a result of
the increase in the average outstanding balance of advances from the Federal
As a result of the foregoing changes in interest income and interest
expense, net interest income decreased by $15,000, or 1.3%, during the six
months ended March 31, 1998, as compared to the six months ended March 31,
1997.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by
management based on historical experience, the volume and type of lending
conducted by the Savings Bank, the status of past due principal and
interest payments, general economic conditions, particularly as such
conditions relate to the Savings Bank's market area, and other factors
related to the collectibility of the Savings Bank's loan portfolio. As a result
of such analysis management recorded a $6,000 and $3,000 provision for
losses on loans during the six month periods ended March 31, 1998 and 1997,
respectively. There can be no assurance that the allowance for loan losses of
the Savings Bank will be adequate to cover losses on nonperforming assets in
the future.
Other Income
Other income totaled $37,000 for the six months ended March 31,
1998, an increase of $1,000, or 2.8%, over the comparable six month period
in fiscal 1997. This increase reflects a marginal change in service charges
and other fees year to year.
General, Administrative and Other Expense
General, administrative and other expense increased by $102,000, or 14.8%,
during the six months ended March 31, 1998, to a total of $789,000, as compared
to the $687,000 total reported for the same period in 1997. This increase was
primarily the result of a $76,000, or 20.1%, increase in employee compensation
and benefits, a $17,000, or 13.1%, increase in occupancy and equipment, and a
$9,000 increase in federal deposit insurance premiums. The increase in
employee compensation and benefits resulted primarily from increased costs
related to stock benefit plans and normal merit increases year to year. The
increase in occupancy and equipment was due primarily to an increase in
data processing costs. The increase in federal deposit insurance premiums
resulted from the realization of a premium credit which offset expense in
the fiscal 1997 period, following the Savings
Association Insurance Fund recapitalization assessment.
Federal Income Taxes
The provision for federal income taxes decreased by $50,000, or 30.3%, during
the six months ended March 31, 1998, due primarily to a decrease in earnings
before income taxes of $119,000, or 24.5%. The Corporation's effective tax
rates amounted to 31.4% and 34.0% for the six months ended March 31, 1998
and 1997, respectively.
General
Net earnings for the three months ended March 31, 1998, totaled $127,000, a
decrease of $36,000, or 22.1%, from the comparable quarter in fiscal 1997. The
decrease in net earnings resulted primarily from a $20,000 decrease in net
interest income and a $51,000 increase in general, administrative and other
expense, which were partially offset by a $2,000 increase in other income and a
$33,000 decrease in the federal income tax provision.
Net Interest Income
Interest income on loans totaled $889,000 for the three months ended March
31, 1998, an increase of $58,000, or 7.0%, due primarily to a $1.6
million increase in the weighted-average portfolio balance outstanding, coupled
with an increase in yield of approximately 28 basis points, to 7.95% for the
quarter ended March 31, 1998. Interest income on mortgage-backed securities
increased by $88,000, or 20.8%, due to an increase in the weighted
average portfolio balance outstanding year to year. Interest income on
investment securities and other interestearning assets decreased by $13,000,
or 6.0%. This decrease was primarily the result of a decrease in yields
available on short term deposits year to year, coupled with a decrease
in the weighted-average portfolio balance outstanding year to year.
Interest expense on deposits and borrowings increased by $153,000, or 17.3%,
during the three months ended March 31, 1998.
This increase was primarily the result of a $2.5 million increase in the
weighted-average balance of deposits outstanding and an increase in cost of
deposits of approximately 14 basis points, to 4.84% in the quarter ended
March 31, 1998, coupled with an increase in the weighted average portfolio
balance of Federal Home Loan Bank advances outstanding year to year.
As a result of the foregoing changes in interest income and interest
expense, net interest income decreased by $20,000, or 3.4%, during the three
months ended March 31, 1998, as compared to the three months ended March 31,
1997.
Other Income
Other income totaled $15,000 for the three months ended March 31, 1998, an
increase of $2,000 over the comparable 1997 quarter. This increase was due
primarily to an increase in service charges and other fees year to year.
General, Administrative and Other Expense
General, administrative and other expense increased by approximately $51,000,
or 14.5%, during the three months ended March 31, 1998, as compared to 1997.
This increase was primarily the result of a $38,000, or 19.0%, increase in
employee compensation and benefits and a $7,000, or 10.1%, increase in
occupancy and equipment expense. The increase in employee compensation
and benefits resulted primarily and increased costs associated with stock
benefit plans year to year.
Federal Income Taxes
The provision for federal income taxes decreased by $33,000, or 39.3%, during
the three months ended March 31, 1998, due primarily to a decrease in
earnings before income taxes of $69,000, or 27.9%. The Corporation's
effective tax rates amounted to 28.7% and 34.0% during the three months
ended March 31, 1998 and 1997, respectively.
Other Matters
As with all providers of financial services, the Corporation's operations
are heavily dependent on information technology systems. The
Corporation is addressing the potential problems associated with the
possibility that the computers that control or operate the Corporation's
information technology system and infrastructure may not be programmed to
read four-digit date codes and, upon arrival of the year 2000, may recognize
the two-digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous data. The Corporation is working with
the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
As of the date of this Form 10-QSB, the Corporation has not identified any
specific expenses that are reasonably likely to be incurred by the Corporation
in connection with this issue and does not expect to incur significant
expense to implement the necessary corrective measures. No assurance can
be given, however, that significant expense will not be incurred in future
periods. In the event that the Corporation is ultimately required to
purchase replacement computer systems, programs and equipment, or incur
substantial expense to make the Corporation's current systems, programs and
equipment year 2000 compliant, the Corporation's net earnings and financial
condition could be adversely affected.
In addition to possible expense related to its own systems, the Corporation
could incur losses if loan payments are delayed due to year 2000 problems
affecting any major borrowers in the Corporation's primary market area.
Because the Corporation's loan portfolio is highly diversified with regard
to individual borrowers and types of businesses and the Corporation's primary
market area is not significantly dependent upon one employer or industry, the
Corporation does not expect any significant or prolonged difficulties that
will affect net earnings or cash flow.
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
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
Reports on Form 8-K: None.
Exhibits:
27.1 Financial Data Schedule for the six month
period ended March 31, 1998.
27.2 Restated Financial Data Schedule for the
six month period ended March 31, 1997.
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.
Date: May 11, 1998 By:
John E. Rathkamp President, Chief
Executive Officer
and Secretary
Date: May 11, 1998 By:
Dennis J. Slattery Executive Vice
President, Treasurer
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.
Date: May 11, 1998 By: /s/John E. Rathkamp
John E. Rathkamp President,
Chief Executive Officer
and Secretary
Date: May 11, 1998 By: /s/Dennis J. Slattery
Dennis J. Slattery
Executive Vice President,Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-QSB and is qualified in its entirety by referenced to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 565
<INT-BEARING-DEPOSITS> 1280
<FED-FUNDS-SOLD> 1100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,554
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 45,112
<ALLOWANCE> 121
<TOTAL-ASSETS> 90,881
<DEPOSITS> 59,948
<SHORT-TERM> 0
<LIABILITIES-OTHER> 648
<LONG-TERM> 19,975
0
0
<COMMON> 0
<OTHER-SE> 10,310
<TOTAL-LIABILITIES-AND-EQUITY> 90,881
<INTEREST-LOAN> 1,781
<INTEREST-INVEST> 1,267
<INTEREST-OTHER> 198
<INTEREST-TOTAL> 3,246
<INTEREST-DEPOSIT> 1,473
<INTEREST-EXPENSE> 2,122
<INTEREST-INCOME-NET> 1,124
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 789
<INCOME-PRETAX> 366
<INCOME-PRE-EXTRAORDINARY> 251
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 251
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
<YIELD-ACTUAL> 2.53
<LOANS-NON> 82
<LOANS-PAST> 131
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 115
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 121
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 121
</TABLE>
