<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - --------------------------------------------------------------------------------
FORM 10-Q
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 0-24148
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S><C>
WISCONSIN 39-1782733
------------------------------------------- ----------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
319 EAST GRAND AVENUE
EAU CLAIRE, WISCONSIN 54701
--------------------------------------- -------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(715) 833-7700
----------------------------------------------------
(Registrant's telephone number, including area code)
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.
(1) Yes X No
--- ---
(2) Yes X No
--- ---
The number of shares outstanding of the issuer's common stock, $.01
par value per share, was 6,855,379 at July 31, 1996.
<PAGE> 2
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
------- ---------------------
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Statements of Financial Condition at June 30, 1996 and December
31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income for the Three and Six Months Ended June 30,
1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Shareholders' Equity for the Year Ended December
31, 1995 and the Six Months Ended June 30, 1996 (unaudited) . . . . . . . . 3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996
and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II. OTHER INFORMATION
-------- -----------------
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . 29
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 29
SIGNATURES
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,628 $ 9,706
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . 5,285 3,761
--------- --------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 15,913 13,467
Longer-term interest-bearing deposits . . . . . . . . . . . . . . 185 270
Securities available-for-sale (at fair value):
Investment securities . . . . . . . . . . . . . . . . . . . . . 6,897 7,007
Mortgage-related securities . . . . . . . . . . . . . . . . . . 146,881 116,277
Loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . 22,007 3,276
Loans receivable . . . . . . . . . . . . . . . . . . . . . . . . 485,519 457,278
Foreclosed properties and repossessed assets . . . . . . . . . . 147 322
Office properties and equipment . . . . . . . . . . . . . . . . . 8,629 7,835
Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . 11,228 7,668
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 9,266 8,190
--------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 706,672 $621,590
========= ========
LIABILITIES
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 377,988 $368,472
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . 224,550 150,950
Advance payments by borrowers for taxes and insurance . . . . . . 1,145 2,063
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 5,532 4,743
--------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 609,215 526,228
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 4,000,000 shares;
none outstanding . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $.01 par value; authorized 12,000,000 shares;
outstanding 6,855,379 shares . . . . . . . . . . . . . . . . . 72 72
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 70,740 70,652
Unearned ESOP compensation . . . . . . . . . . . . . . . . . . . (3,305) (3,680)
Unearned BIP compensation . . . . . . . . . . . . . . . . . . . . (2,130) (2,691)
Treasury stock, at cost - 360,809 shares . . . . . . . . . . . . (4,691) (4,691)
Net unrealized holding gain (loss) on securities
available-for-sale . . . . . . . . . . . . . . . . . . . . . . (15) 1,028
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 36,786 34,672
--------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 97,457 95,362
--------- --------
Total liabilities and shareholders' equity . . . . . . . . . . $ 706,672 $621,590
========= ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
-1-
<PAGE> 4
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ----------------------
1996 1995 1996 1995
-------- --------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans . . . . . . . . . . . . . . . . . . . . . . . . $ 9,812 $ 7,895 $ 19,094 $ 14,933
Mortgage-related securities . . . . . . . . . . . . . 2,517 1,390 4,851 2,577
Investment securities . . . . . . . . . . . . . . . . 282 317 526 612
Interest-bearing deposits . . . . . . . . . . . . . . 25 14 63 29
-------- --------- --------- ---------
Total interest income . . . . . . . . . . . . . . . 12,636 9,616 24,534 18,151
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . . 4,360 3,470 8,722 6,758
Borrowings . . . . . . . . . . . . . . . . . . . . . 2,927 1,729 5,421 2,816
-------- --------- --------- --------
Total interest expense . . . . . . . . . . . . . . 7,287 5,199 14,143 9,574
-------- --------- --------- --------
Net interest income . . . . . . . . . . . . . . . . . . 5,349 4,417 10,391 8,577
Provision for loan losses . . . . . . . . . . . . . . . (34) (83) 98 21
-------- --------- --------- ---------
Net interest income after provision
for loan losses . . . . . . . . . . . . . . . . . . 5,383 4,500 10,293 8,556
NON-INTEREST INCOME:
Service charges on deposits . . . . . . . . . . . . . 184 149 359 290
Service fees on loans sold . . . . . . . . . . . . . 163 181 334 364
Net gain (loss) on loans held-for-sale . . . . . . . (162) 173 (431) 486
Net gain on mortgage-related securities . . . . . . . -- 211 -- 301
Net gain on investment securities . . . . . . . . . . -- -- 11 --
Brokerage commission income . . . . . . . . . . . . . 87 70 179 146
Other . . . . . . . . . . . . . . . . . . . . . . . . 80 248 180 336
-------- --------- --------- --------
Total non-interest income . . . . . . . . . . . . . 352 1,032 632 1,923
NON-INTEREST EXPENSE:
Compensation and other employee benefits . . . . . . 1,805 1,517 3,722 2,861
Federal insurance premiums . . . . . . . . . . . . . 212 173 418 346
Data processing . . . . . . . . . . . . . . . . . . . 179 123 364 247
Occupancy . . . . . . . . . . . . . . . . . . . . . . 178 136 395 282
Furniture and equipment . . . . . . . . . . . . . . . 154 111 343 212
Other . . . . . . . . . . . . . . . . . . . . . . . . 848 674 1,647 1,355
-------- --------- --------- --------
Total non-interest expense . . . . . . . . . . . . 3,376 2,734 6,889 5,303
-------- --------- --------- --------
Income before income taxes . . . . . . . . . . . . . . 2,359 2,798 4,036 5,176
Income taxes . . . . . . . . . . . . . . . . . . . . . 819 1,100 1,375 2,051
-------- --------- --------- --------
Net income . . . . . . . . . . . . . . . . . . . . . $ 1,540 $ 1,698 $ 2,661 $ 3,125
======== ========= ========= ========
Primary earnings per share . . . . . . . . . . . . . . $ 0.24 $ 0.25 $ 0.41 $ 0.46
Fully-diluted earnings per share . . . . . . . . . . . 0.24 0.25 0.41 0.46
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
-2-
<PAGE> 5
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL UNEARNED UNEARNED TREASURY NET
COMMON PAID-IN ESOP BIP STOCK, UNREALIZED
STOCK CAPITAL COMPENSATION COMPENSATION AT COST GAINS/LOSSES
----- ------- ------------ ------------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 . . . . . . . . . . $ 72 $70,531 $ (4,412) $ -- $ -- $ (814)
Net income . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
Cash dividends . . . . . . . . . . . . . . . . . -- -- -- -- -- --
Amortization of unearned ESOP compensation . . . -- 121 732 -- -- --
Purchase of common stock for the BIP, net of
deferred income tax benefit of $207 . . . . . -- -- -- (3,568) -- --
Amortization of unearned BIP compensation . . . . -- -- -- 877 -- --
Purchase of treasury stock . . . . . . . . . . . -- -- -- -- (4,691) --
Net change in unrealized holding gain
on securities available-for-sale,
net of deferred income taxes of $1,060 . . . . -- -- -- -- -- 1,842
----- ------- -------- -------- -------- --------
Balances at December 31, 1995 . . . . . . . . . . 72 70,652 (3,680) (2,691) (4,691) 1,028
Net income . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
Cash dividends . . . . . . . . . . . . . . . . . -- -- -- -- -- --
Amortization of unearned ESOP compensation . . . -- 88 375 -- -- --
Amortization of unearned BIP compensation . . . . -- -- -- 561 -- --
Net change in unrealized holding loss on
securities available-for-sale, net of
deferred income tax benefit of $550 -- -- -- -- -- (1,043)
------ ------- -------- --------
Balances at June 30, 1996 . . . . . . . . . . . . $ 72 $70,740 $ (3,305) $ (2,130) $ (4,691) $ (15)
====== ======= ======== ======== ======== ========
<CAPTION>
RETAINED
EARNINGS TOTAL
--------- ---------
<S> <C> <C>
Balances at December 31, 1994 . . . . . . . . . . $ 29,358 $ 94,735
Net income . . . . . . . . . . . . . . . . . . . 5,944 5,944
Cash dividends . . . . . . . . . . . . . . . . . (319) (319)
Amortization of unearned ESOP compensation . . . -- 853
Purchase of common stock for the BIP, net of
deferred income tax benefit of $207 . . . . . (311) (3,879)
Amortization of unearned BIP compensation . . . . -- 877
Purchase of treasury stock . . . . . . . . . . . -- (4,691)
Net change in unrealized holding gain
on securities available-for-sale,
net of deferred income taxes of $1,060 . . . . -- 1,842
--------- ---------
Balances at December 31, 1995 . . . . . . . . . . 34,672 95,362
Net income . . . . . . . . . . . . . . . . . . . 2,661 2,661
Cash dividends . . . . . . . . . . . . . . . . . (768) (768)
Amortization of unearned ESOP compensation . . . 221 684
Amortization of unearned BIP compensation . . . . -- 561
Net change in unrealized holding loss on
securities available-for-sale, net of
deferred income tax benefit of $550 -- (1,043)
--------- ---------
Balances at June 30, 1996 . . . . . . . . . . . . $ 36,786 $ 97,457
========= =========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
-3-
<PAGE> 6
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,661 $ 3,125
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provisions for loan losses . . . . . . . . . . . . . . . . . . 98 21
Net gain on sales of foreclosed properties . . . . . . . . . . (7) (5)
Net loss (gain) on loans held-for-sale . . . . . . . . . . . . 431 (486)
Net gain on securities . . . . . . . . . . . . . . . . . . . . (11) (301)
Provisions for depreciation . . . . . . . . . . . . . . . . . . 295 180
Net amortization of premiums (discounts) on investment
and mortgage-related securities . . . . . . . . . . . . . . . 12 (7)
Amortization of intangibles . . . . . . . . . . . . . . . . . . 174 --
Loans originated for sale . . . . . . . . . . . . . . . . . . . (21,385) (3,713)
Proceeds from sales of loans . . . . . . . . . . . . . . . . . 2,223 5,829
Amortization of unearned ESOP compensation . . . . . . . . . . 684 394
Amortization of unearned BIP compensation . . . . . . . . . . . 561 --
Increase (decrease) in current and deferred income taxes . . . 44 (989)
Increase in interest receivable . . . . . . . . . . . . . . . . (534) (887)
Increase in interest payable . . . . . . . . . . . . . . . . . 401 587
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 1,675
--------- --------
Net cash provided (used) by operating activities . . . . . . (14,180) 5,423
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities
held to maturity . . . . . . . . . . . . . . . . . . . . . . . 92 305
Proceeds from calls of investment securities
available-for-sale . . . . . . . . . . . . . . . . . . . . . . 2,000 --
Purchases of investment securities available-for-sale . . . . . . (1,990) --
Purchases of mortgage-related securities available-for-sale . . . (40,262) (44,585)
Proceeds from sales of mortgage-related securities
available-for-sale . . . . . . . . . . . . . . . . . . . . . . -- 11,026
Principal repayments on mortgage-related securities . . . . . . . 8,162 2,648
Purchase of Federal Home Loan Bank stock . . . . . . . . . . . . (3,560) (3,257)
Increase in loans receivable . . . . . . . . . . . . . . . . . . (27,789) (40,334)
Purchases of loans . . . . . . . . . . . . . . . . . . . . . . . (692) (17,407)
Proceeds from sales of foreclosed properties . . . . . . . . . . 324 173
Net purchases of office properties and equipment . . . . . . . . (1,089) (800)
--------- ---------
Net cash used by investing activities . . . . . . . . . . . . (64,804) (92,231)
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
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<PAGE> 7
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------------------------
1996 1995
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in deposits . . . . . . . . . . . . . . . . . . . . $ 9,516 $ 951
Net increase in short-term Federal Home Loan Bank advances . . . 73,600 51,700
Borrowings under long-term Federal Home Loan Bank advances . . . -- 37,000
Decrease in advance payments by
borrowers for taxes and insurance . . . . . . . . . . . . . . . (918) (747)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . (768) --
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . -- (2,764)
-------- --------
Net cash provided by financing activities . . . . . . . . . . . . 81,430 86,140
-------- --------
Increase (decrease) in cash and cash equivalents . . . . . . . . 2,446 (668)
Cash and cash equivalents at beginning of period . . . . . . . . 13,467 8,546
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 15,913 $ 7,878
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid or credited to accounts during the period for:
Interest paid on deposits . . . . . . . . . . . . . . . . . . . $ 8,595 $ 6,624
Interest paid on borrowings . . . . . . . . . . . . . . . . . . 5,147 2,363
Income taxes paid, net of refunds . . . . . . . . . . . . . . . 1,170 3,062
Non-cash investing activities:
Loans receivable transferred to foreclosed properties
and repossessed assets . . . . . . . . . . . . . . . . . . . 142 345
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
-5-
<PAGE> 8
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements include the accounts
of First Federal Bancshares of Eau Claire, Inc. (the "Company"), and its
wholly-owned subsidiary, First Federal Bank of Eau Claire, F.S.B. (the "Bank")
and the Bank's wholly-owned subsidiaries, First Eau Claire Investments, Inc.
("FECI") and First Service Corporation of Eau Claire, Inc. ("FSC"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
and six-month periods ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
3. PER SHARE DATA
Earnings per share of common stock for the three months and six months
ended June 30, 1996 and June 30, 1995 have been determined by dividing net
income for the period by the weighted average number of shares of common stock
and common stock equivalents outstanding during the period. Book value per
share of common stock at June 30, 1996 and December 31, 1995 has been
determined by dividing total shareholders' equity by the number of shares of
common stock outstanding at the respective dates. Stock options and First
Federal Bank of Eau Claire, F.S.B. Incentive Plan and Trust (the "BIP") shares
are regarded as common stock equivalents and are, therefore, considered in the
computation of earnings per share using the treasury stock method.
The computation of earnings per common share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ----------------------
1996 1995 1996 1995
-------- ---------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income for the period . . . . . . . . . . . . . . . $ 1,540 $ 1,698 $ 2,661 $ 3,125
========= ========= ========= =========
Primary earnings per common share:
Weighted average common shares
outstanding during period . . . . . . . . . . . . 6,250,682 6,782,871 6,229,504 6,783,157
Net effect of dilutive stock
options and BIP shares . . . . . . . . . . . . . . 195,990 9,036 187,144 4,574
-------- --------- --------- --------
6,446,672 6,791,907 6,416,648 6,787,731
========= ========= ========= =========
Primary earnings per common shares . . . . . . . . . . $ 0.24 $ 0.25 $ 0.41 $ 0.46
Fully-diluted earnings per common share:
Weighted average common shares
outstanding during period . . . . . . . . . . . . 6,250,682 6,782,871 6,229,504 6,783,157
Net effect of dilutive stock
options and BIP shares . . . . . . . . . . . . . . 223,051 18,977 234,925 9,611
-------- --------- --------- --------
6,473,733 6,801,848 6,464,429 6,792,768
========= ========= ========= =========
Fully-diluted earnings per common share . . . . . . . . $ 0.24 $ 0.25 $ 0.41 $ 0.46
</TABLE>
-6-
<PAGE> 9
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The computation of book value per common share is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Common shares outstanding at
the end of the period (1) . . . . . . . . . . . . . . 6,855,379 6,855,379
Total shareholders' equity at the end of the period . . . $ 97,457 $ 95,362
Book value per common share . . . . . . . . . . . . . . . $ 14.22 $ 13.91
- - -------------------------------------
</TABLE>
(1) Includes as outstanding all shares owned by the First Federal Bank of
Eau Claire, F.S.B. Employee Stock Ownership Plan (the "ESOP") and the
BIP.
4. ACCOUNTING CHANGES
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- - - Income Recognition and Disclosures." SFAS No. 114 and No. 118 require that
impaired loans be measured at the present value of expected future cash flows
discounted at the loan's initial effective interest rate, or as a practical
expedient, at the loan's observative market price or the fair value of the
collateral if the loan is collateral dependent. Homogeneous loans, such as
one- to four-family residential loans and one- to four-family construction
loans and most categories of consumer loans, are excluded from this
requirement. SFAS No. 118 eliminates the provisions in SFAS No. 114 that
describe how a creditor should report interest income on an impaired loan and
allows a creditor to use existing methods to recognize, measure and display
interest income on an impaired loan. The effect of the adoption of SFAS No.
114 and No. 118 as of January 1, 1995, was not material to the financial
statements and, as such, has not been separately disclosed. The evaluation of
collateral values and expected cash flows is inherently subjective as it
requires material estimates involving the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
Effective January 1, 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets
To Be Disposed of." SFAS No. 121 addresses the accounting for the impairment
of long-lived assets, identifiable intangibles and goodwill related to those
assets. The effect of the adoption of SFAS No. 121 as of January 1, 1996 was
not material to the financial statements and, as such, has not been separately
disclosed.
Effective January 1, 1996, the Company adopted SFAS No. 122,
"Accounting For Mortgage Servicing Rights, an Amendment of SFAS No. 65." SFAS
No. 122 requires the cost of originating mortgage servicing rights to be
capitalized separately from the cost of originating a loan when a definitive
plan to sell or securitize loans and retain the mortgage servicing rights
exists. Once recorded, mortgage servicing rights are amortized in proportion to
expected net servicing income. As a result of the adoption of SFAS No. 122,
during the three months and six months ended June 30, 1996, the Company
capitalized mortgage servicing rights of $40,000 and $164,000, respectively,
upon the sale or securitization of mortgage loans with mortgage servicing
rights retained.
-7-
<PAGE> 10
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting For Stock-Based Compensation." The statement encourages, but does
not require, companies to recognize compensation cost related to stock
compensation such as stock options and awards based on the fair value of the
award at the date of grant and amortize this amount to expense over the service
period, which is usually the vesting period. The Company currently recognizes
compensation expense under the intrinsic value method, whereby compensation
expense is determined as the excess, if any, of the quoted market price of the
stock at the grant date or other measurement date over the amount an employee
must pay to acquire the stock. The statement requires that the financial
statements include certain disclosures about stock-based employee compensation
arrangements. The Company chose not to adopt the fair value method of expense
recognition for stock-based compensation awards. As such, SFAS No. 123 will
have no effect on current or future reported earnings of the Company. Rather,
the effects of the fair value method on the Company's earnings will be
disclosed on a pro forma basis, as permitted by SFAS No. 123.
5. SECURITIES
The amortized cost and estimated fair values of the Company's
available-for-sale securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED ----------------------- FAIR
COST GAINS LOSSES VALUE
------------ --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT JUNE 30, 1996:
Investment securities:
U.S. Government and agency securities . . . . . . . $ 5,814 $ 78 $ 5 $ 5,887
FHLMC preferred stock . . . . . . . . . . . . . . . 1,000 10 -- 1,010
------- ----- ----- --------
Total investment securities . . . . . . . . . . . 6,814 88 5 6,897
Mortgage-related securities:
Mortgage-backed securities . . . . . . . . . . . . 15,963 252 84 16,131
Adjustable rate mortgage loan mutual fund . . . . . 11,838 -- 331 11,507
Collateralized mortgage obligations and REMICs . . 119,156 1,144 1,112 119,188
Collateralized mortgage obligation
residual interest . . . . . . . . . . . . . . . . 55 -- -- 55
-------- ------ ----- --------
Total mortgage-related securities . . . . . . . 147,012 1,396 1,527 146,881
------- ----- ------ -------
$153,826 $1,484 $1,532 $153,778
======== ====== ====== ========
AT DECEMBER 31, 1995:
Investment securities:
U.S. Government and agency securities . . . . . . . $ 5,826 $ 146 $ -- $ 5,972
FHLMC preferred stock . . . . . . . . . . . . . . . 1,000 35 -- 1,035
------ ----- ----- --------
Total investment securities . . . . . . . . . . . 6,826 181 -- 7,007
Mortgage-related securities:
Mortgage-backed securities . . . . . . . . . . . 16,614 459 37 17,036
Adjustable rate mortgage loan mutual fund . . . . 11,506 -- 273 11,233
Collateralized mortgage obligations and REMICs . 86,732 1,362 147 87,947
Collateralized mortgage obligation
residual interest . . . . . . . . . . . . . . . 61 -- -- 61
-------- ------ ----- --------
Total mortgage-related securities . . . . . . . 114,913 1,821 457 116,277
------- ----- ---- -------
$121,739 $2,002 $ 457 $123,284
======== ====== ===== ========
</TABLE>
-8-
<PAGE> 11
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
RESIDENTIAL REAL ESTATE LOANS:
One- to four-family . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 385,758 $ 360,169
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,459 21,784
---------- ----------
Total residential real estate loans . . . . . . . . . . . . . . . . . 408,217 381,953
NON-RESIDENTIAL AND OTHER REAL ESTATE LOANS:
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,082 5,937
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,838 3,654
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,974 2,388
Construction and development . . . . . . . . . . . . . . . . . . . . . . 7,057 7,263
---------- ----------
Total non-residential and other real estate loans . . . . . . . . . . 18,951 19,242
CONSUMER LOANS:
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,289 28,321
Education 19,252 19,014
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,631 15,855
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,704 5,105
---------- ----------
Total consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . 72,876 68,295
---------- ----------
Gross loans receivable . . . . . . . . . . . . . . . . . . . . . . . . 500,044 469,490
LESS:
Undisbursed loan proceeds . . . . . . . . . . . . . . . . . . . . . . . . 12,302 9,731
Deferred loan fees and discounts . . . . . . . . . . . . . . . . . . . . 1,367 1,699
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . 856 782
---------- ----------
14,525 12,212
---------- ----------
$ 485,519 $ 457,278
========== ==========
</TABLE>
-9-
<PAGE> 12
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY
Under federal law and regulations, the Bank is required to meet
certain tangible, core and risk-based capital requirements. Tangible capital
generally consists of shareholders' equity minus certain intangible assets.
Core capital generally consists of tangible capital plus qualifying intangible
assets. The risk-based capital requirements presently address credit risk
related to both recorded and off-balance sheet commitments and obligations and
are a ratio of shareholder's equity plus general allowances for losses as
compared to risk-weighted assets.
The following table summarizes the Bank's capital and ratios and the
capital and ratios required by the Office of Thrift Supervision ("OTS"):
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AT JUNE 30, 1996:
Bank capital . . . . . . . . . . . . . . . . . . . . . $69,531 $69,531 $69,531
Add: Net unrealized holding loss on securities
available-for-sale . . . . . . . . . . . . . 15 15 15
Less: Non-qualifying intangibles . . . . . . . . . . . (3,825) (3,825) (3,825)
Add: General allowance for losses . . . . . . . . . . -- -- 816
-------- -------- ------
65,721 65,721 66,537
Required regulatory capital . . . . . . . . . . . . . 10,536 21,072 26,200
------- ------- -------
Excess . . . . . . . . . . . . . . . . . . . . . . . $55,185 $44,649 $40,337
======= ======= =======
Bank capital ratios . . . . . . . . . . . . . . . . . 9.36% 9.36% 20.32%
Required regulatory ratios . . . . . . . . . . . . . . 1.50 3.00 8.00
----- ----- -----
Excess . . . . . . . . . . . . . . . . . . . . . . . 7.86% 6.36% 12.32%
===== ===== =====
AT DECEMBER 31, 1995:
Bank capital . . . . . . . . . . . . . . . . . . . . . $67,663 $67,663 $67,663
Less: Net unrealized holding gain on securities
available-for-sale . . . . . . . . . . . . . (1,028) (1,028) (1,028)
Non-qualifying intangibles . . . . . . . . . . (3,999) (3,999) (3,999)
Add: General allowance for losses . . . . . . . . . . -- -- 767
------- ------- ------
62,636 62,636 63,403
Required regulatory capital . . . . . . . . . . . . . 9,249 18,498 23,475
------- ------- -------
Excess . . . . . . . . . . . . . . . . . . . . . . . $53,387 $44,138 $39,928
======= ======= =======
Bank capital ratios . . . . . . . . . . . . . . . . . 10.16% 10.16% 21.61%
Required regulatory ratios . . . . . . . . . . . . . . 1.50 3.00 8.00
----- ----- -----
Excess . . . . . . . . . . . . . . . . . . . . . . . 8.66% 7.16% 13.61%
===== ===== =====
</TABLE>
Under amendments to the risk-based capital requirement adopted by the
OTS in August 1993, the effective date of which still has not yet been
determined, the Bank will be required to deduct from its risk-based capital an
amount equal to 50% of its interest-rate risk exposure, as defined, multiplied
by the market value of its assets. Management believes that even though it
would be classified as an institution with a greater than "normal" level of
interest rate risk under OTS regulations, it presently has sufficient capital
to meet the additional capital requirement.
-10-
<PAGE> 13
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ACQUISITION
In July 1995, the Company acquired certain assets and assumed $55.5
million of deposits of five banking offices (one of which was subsequently
closed) located in west central Wisconsin (the "Branch Acquisitions"). The
assets acquired included the branch real estate, if owned, or the assignment of
the lease, if leased, furniture, fixtures and equipment, cash and a minimal
amount of loans. The fair value of the deposits assumed exceed the fair value
of the assets acquired by $4.2 million. This acquisition has been accounted
for as a purchase and, accordingly, the results of operations of the acquired
branches have been included in the Company's financial statements since the
acquisition date.
-11-
<PAGE> 14
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
First Federal Bancshares of Eau Claire, Inc. (the "Company"), a
Wisconsin corporation, is a holding company which owns all of the issued and
outstanding stock of First Federal Bank of Eau Claire, F.S.B. (the "Bank"), a
federally chartered stock savings bank. In this discussion and analysis,
reference to the operations and financial condition of the Company includes the
operations and financial condition of the Bank.
The Company's business currently consists principally of the business
of the Bank. The Bank's principal business consists of attracting deposits
from the general public, originating mortgage loans principally to finance the
purchase and/or construction of residential dwellings and originating various
types of consumer loans. Through its wholly-owned subsidiary, First Service
Corporation of Eau Claire, Inc. ("FSC"), the Bank offers a wide range of
credit-related life, accident and disability insurance, and also provides
commissioned brokerage services for the sale of stocks, bonds, tax-deferred
annuities, mutual funds and other securities. The Bank derives its income
primarily from interest earned on loans and mortgage-backed and related
securities (collectively, "mortgage-related securities"), and to a lesser
extent, from interest earned on investments, gains on loans held-for-sale and
securities, fees received in connection with the origination of loans, loan
servicing and service charges on deposits, mortgage loans and other services.
Expenses consist primarily of interest paid on deposits and borrowed funds and
non-interest expenses. The Bank is regulated by the Office of Thrift
Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC") and
its deposits are issued up to applicable limits under the Savings Association
Insurance Fund ("SAIF") of the FDIC. The Bank also is a member of the Federal
Home Loan Bank system.
The earnings of the Company depend primarily on net interest income,
which is the difference between interest earned on interest- earning assets,
consisting primarily of mortgage and consumer loans, mortgage-related
securities and other investment securities, and the interest paid on
interest-bearing liabilities, consisting primarily of deposits and advances
from the Federal Home Loan Bank of Chicago ("FHLB- Chicago"). Net interest
income is a function of the Company's "interest rate spread," which is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities, as well as a function of the
average balance of interest- earning assets as compared to the average balance
of interest-bearing liabilities. The Company's operating results also are
affected by the amount of its non-interest income, including loan servicing and
loan related fees, gains and losses on loans held-for-sale, mortgage-related
securities and other investment securities, as well as transactional and other
fee income. The Company's non-interest expense consists principally of
employee compensation, occupancy expenses and federal deposit insurance
premiums. The Company's operating results are significantly affected by
general economic and competitive conditions, most particularly the changes in
market interest rates, government policies and actions by regulatory
authorities.
REGULATORY DEVELOPMENTS RELATED TO DEPOSIT INSURANCE
Deposits of the Bank currently are insured by the FDIC under the SAIF,
which is significantly underfunded for a number of reasons. In November, 1995,
the FDIC modified the assessment rate schedule for all commercial banks and
state-chartered savings banks whose deposits are insured under the Bank
Insurance Fund ("BIF"), approving a premium schedule ranging from 0% (i.e.,
whereby such institutions will be subject only to a $2,000 statutory minimum
premium) to 0.27% of deposits, depending on the institution's risk-based
premium category. Based on these assessment rate modifications, effective
January 1996, BIF member institutions pay, on the average, 0.29 cents per $100
of deposits, while the average SAIF member pays 23.4 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.
-12-
<PAGE> 15
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Congress is currently evaluating various proposals and bills
concerning the premium differential between the FDIC's BIF and SAIF funds and
related matters. One of the elements present in the current proposal calls for
a one-time assessment of approximately 85 to 90 cents per $100 of SAIF deposits
as of March 31, 1995 in order to recapitalize the SAIF. If this should become
law, the Bank would incur a one-time charge of approximately $2.5 million, with
a net after tax impact of $1.5 million. It is anticipated that 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 (with the requirement that
savings associations convert to bank charters); and (iii) repealing the bad
debt reserve accounting method currently available to thrift savings
associations such as the Bank, with provisions for avoidance of recapture for
certain bad debt reserves and deferred recapture for other such reserves. 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
current legislative proposals, if enacted, would have a material impact on the
Company's financial condition in future periods.
CHANGES IN FINANCIAL CONDITION
General. The Company's total assets increased $85.1 million, or
13.7%, to $706.7 million at June 30, 1996, compared to $621.6 million at
December 31, 1995. The funds were primarily invested in mortgage-related
securities which increased by $30.6 million and loans, including loans
held-for-sale, which increased by $47.0 million during the six months ended
June 30, 1996. The increase was primarily funded by an increase in
FHLB-Chicago advances of $73.6 million to $224.6 million at June 30, 1996, from
$151.0 million at December 31, 1995.
Cash. Cash increased by $922,000 to $10.6 million at June 30, 1996
compared to $9.7 million at December 31, 1995. The increase was due to
fluctuations in cash balances experienced in conducting ordinary banking
activities.
Investment Securities. Investment securities, including securities
available-for-sale, federal funds sold, longer-term interest- bearing deposits
and Federal Home Loan Bank stock, increased $4.9 million to $23.6 million at
June 30, 1996 compared to $18.7 million at December 31, 1995. The increase was
primarily due to the increased level of federal funds sold of $1.5 million, and
the purchase of additional FHLB-Chicago stock of $3.6 million. The
FHLB-Chicago requires members to own FHLB-Chicago stock in an amount at least
equal to 5% of the amount borrowed.
Mortgage-Related Securities. Mortgage-related securities, all of
which were available-for-sale at June 30, 1996 and December 31, 1995, increased
$30.6 million to $146.9 million, or 20.8% of total assets, at June 30, 1996
compared to $116.3 million, or 18.7% of total assets at December 31, 1995. The
increase in the Company's mortgage-related securities portfolio was primarily
the result of the Company's leveraging strategy whereby proceeds from
additional FHLB-Chicago advances were used to purchase additional
mortgage-related securities. The Company purchased $40.3 million of
mortgage-related securities during the six months ended June 30, 1996, which
consisted primarily of collateralized mortgage obligations ("CMOs") and REMICs.
These purchases included $12.8, million of short-to-medium term fixed rate
mortgage-related securities, all of which were private issue securities and
$27.5 million of such securities with periodic interest rate adjustment
features, of which $24.0 million were private issue securities. When purchased
by the Company, private issue securities have credit ratings of AA or better
and meet the Federal Financial Institution's Examination Council definition of
low-risk securities. At June 30, 1996, none of the credit ratings of any of
the private issue securities in the Company's portfolio had been downgraded
since the date of purchase. These purchases were partially offset by $8.2
million of principal repayments. The increase in mortgage-related securities
was funded by additional short-term FHLB-Chicago advances.
-13-
<PAGE> 16
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Loans Receivable and Loans Held-For-Sale. Total loans, including
loans held-for-sale, increased $47.0 million to $507.5 million at June 30, 1996
compared to $460.5 million at December 31, 1995. One- to four-family
residential real estate loans, which is the Company's primary lending activity,
increased by $44.3 million to $407.8 million at June 30, 1996. Most of the
increase consisted of loan originations, which continued to be strong during
the six months ended June 30, 1996. This increase reflects the Company's
continued emphasis on this type of lending and an effort to increase its share
of the market. The Company retains in its loan portfolio all adjustable rate
mortgage loans and certain fixed rate mortgage loans. The Company generally
sells longer term fixed rate residential mortgage loans as part of its overall
interest rate risk management strategy.
Deposits. Deposits increased by $9.5 million to $378.0 million at
June 30, 1996 compared to $368.5 million at December 31, 1995. Deposits are
the Company's primary source of funds for lending and other investment
purposes. The level of deposits is heavily influenced by factors such as the
general level of short and long-term interest rates as well as alternative
yields that investors may obtain on competing investment securities, such as
money market mutual funds. The weighted average nominal interest rate on
deposits decreased by ten basis points during the six months ended June 30,
1996 to 4.65% at June 30, 1996, compared to 4.75% at December 31, 1995 as a
result of the acquisition of certificates of deposit in 1996 at rates lower
than those maturing in 1996. The Company currently does not solicit brokered
deposits as a source of funds; however, management of the Company may evaluate
opportunities to acquire brokered deposits in the future.
Borrowed Funds. FHLB-Chicago advances increased by $73.6 million to
$224.6 million at June 30, 1996 compared to $151.0 million at December 31,
1995. The increase in the Company's FHLB-Chicago advances was primarily the
result of the Company's strategy to leverage its capital base by using the
proceeds from additional FHLB-Chicago advances to originate and purchase
additional loans and mortgage-related securities. The proceeds from these
short-term advances were used to purchase longer term fixed and adjustable rate
CMOs and REMICs and originate and purchase additional loans. In a rising rate
environment, such short term borrowings present the risk that upon maturity
dates, the interest rate on these borrowings may increase. The weighted
average interest rate on borrowed funds decreased by 19 basis points to 5.63%
at June 30, 1996, compared to 5.82% at December 31, 1995, as a result of the
decrease in market interest rates on short-term advances. In future periods,
the Company intends to continue to leverage its increased capital base by using
the proceeds from additional FHLB-Chicago advances to originate and purchase
additional loans and mortgage-related securities.
The Bank is required to maintain unencumbered one- to four-family
first mortgage loans, mortgage-related securities or U.S. Treasury and agency
obligations in its portfolio based on a borrowing to collateral ratio that
ranges from 60% of amortized cost to 90% of fair market value. In addition,
these advances are collateralized by all FHLB stock owned by the Bank. At June
30, 1996, the Bank's total line of credit available with the FHLB-Chicago,
which is limited to approximately 35% of total assets less borrowings from
other sources, was approximately $247 million.
Shareholders' Equity. Shareholders' equity increased by $2.1 million
during the six months ended June 30, 1996 to $97.5 million at June 30, 1996,
compared to $95.4 million at December 31, 1995. The increase in shareholders'
equity was due to the combined effects of $2.7 million of net income, $684,000
for the amortization of unearned ESOP compensation and $561,000 for the
amortization of unearned BIP compensation, partially offset by payment of cash
dividends of $768,000 and a $1.0 million increase of net unrealized holding
losses on securities available-for-sale, net of deferred income tax benefits.
-14-
<PAGE> 17
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
Performance Summary. Net income for the three months ended June 30,
1996 decreased $158,000 to $1.5 million compared to $1.7 million for the three
months ended June 30, 1995, and net income for the six months ended June 30,
1996 decreased $464,000 to $2.7 million compared to $3.1 million for the six
months ended June 30, 1995. The decrease for the three month period was due to
the combined effects of a $932,000 increase in net interest income, a $680,000
decrease in non-interest income, a $642,000 increase in non-interest expense, a
$49,000 increase in provision for loan losses and a $281,000 decrease in income
taxes. The decrease for the six month period was due to the combined effects
of a $1.8 million increase in net interest income, a $1.3 million decrease in
non-interest income, a $1.6 million increase in non-interest expense, a $77,000
increase in provision for loan losses and a $676,000 decrease in income taxes.
The following table sets forth the return on average assets and return
on average equity for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ----------------------
1996 1995 1996 1995
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Return on average assets (annualized) . . . . . . . . . . 0.89% 1.31% 0.80% 1.26%
Return on average equity (annualized) . . . . . . . . . . 6.38 6.97 5.53 6.46
</TABLE>
Net Interest Income. Net interest income, which is the excess of
interest earned on loans and other interest-earning assets over interest
expense on deposits and borrowed funds, is the major component of earnings for
the Company. The following table sets forth certain information related to net
interest income.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ----------------------
1996 1995 1996 1995
-------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total interest income . . . . . . . . . . . . . . . . . $ 12,636 $ 9,616 $ 24,534 $ 18,151
Average interest-earning assets . . . . . . . . . . . . 662,690 501,577 642,628 479,367
Average yield on interest-earning assets(1) . . . . . . 7.63% 7.67% 7.64% 7.57%
Total interest expense . . . . . . . . . . . . . . . . $ 7,287 $ 5,199 $ 14,143 $ 9,574
Average interest-bearing liabilities . . . . . . . . . 579,948 411,324 560,047 389,593
Average rate on interest-bearing liabilities(1) . . . . 5.03% 5.06% 5.05% 4.91%
Net interest income . . . . . . . . . . . . . . . . . . $ 5,349 $ 4,417 $ 10,391 $ 8,577
Average net earning assets . . . . . . . . . . . . . . 82,742 90,253 82,581 89,774
Interest rate spread during period(1)(2) . . . . . . . 2.60% 2.61% 2.59% 2.66%
Net interest margin(1)(3) . . . . . . . . . . . . . . . 3.23 3.52 3.23 3.58
- - -----------------------------
</TABLE>
(1) Annualized.
(2) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest- bearing
liabilities.
(3) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
-15-
<PAGE> 18
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net interest income increased by $932,000 or 21.1% to $5.3 million for
the three months ended June 30, 1996 compared to $4.4 million for the three
months ended June 30, 1995, and increased $1.8 million, or 21.1% to $10.4
million for the six months ended June 30, 1996 compared to $8.6 million for the
six months ended June 30, 1995. The increase in net interest income was
primarily due to an increase in total average interest-earning assets. Total
average interest-earning assets increased by $161.1 million to $662.7 million
for the three months ended June 30, 1996 compared to $501.6 million for the
three months ended June 30, 1995, and increased $163.2 million to $642.6
million for the six months ended June 30, 1996 compared to $479.4 million for
the six months ended June 30, 1995. The increase in total average
interest-earning assets was primarily the result of (i) the $51.4 million of
deposits, net of the premium paid, assumed in connection with the Branch
Acquisitions and the reinvestment of these net deposits in interest-earning
assets; and (ii) the Company's strategy to leverage its capital base by using
the proceeds from additional FHLB-Chicago advances to originate and purchase
additional loans and mortgage-related securities. The increase in average
interest-earning assets during both the three and six-month periods in 1996 was
only modestly offset by a slight decrease in the Company's interest rate spread
during the periods.
Interest Income. Total interest income increased $3.0 million or
31.4% to $12.6 million for the three months ended June 30, 1996, compared to
$9.6 million for the three months ended June 30, 1995, and increased $6.3
million or 35.2% to $24.5 million for the six months ended June 30, 1996
compared to $18.2 million for the six months ended June 30, 1995. The increase
in interest income was primarily the result of (i) a $1.9 million and a $4.2
million increase in interest on loans, respectively; and (ii) a $1.1 million
and a $2.3 million increase in interest on mortgage-related securities,
respectively. The increase in interest income on loans for the three months
ended June 30, 1996 compared to the three months ended June 30, 1995 was due to
a $91.5 million increase in the average balance on loans, combined with an
eleven basis point increase in the average yield on the loan portfolio. The
increase in interest income on loans for the six months ended June 30, 1996,
compared to the six months ended June 30, 1995 was due to a $93.8 million
increase in the average balance on loans, combined with a 24 basis point
increase in the average yield on the loan portfolio. The increase in the
average yield on loans was attributable to the origination and purchase of
loans in 1996 at rates greater than the portfolio average and the upward
adjustment on adjustable rate mortgage loans. The increase in interest income
on mortgage-related securities was the result of a $70.7 million and a $69.8
million increase in the average balance of such securities, respectively,
partially offset by a 45 basis point and a 40 basis point decrease in the
average yield, respectively. The decrease in the average yield on
mortgage-related securities was attributable to the purchase of
mortgage-related securities in the most recent four quarters at rates lower
than the portfolio average.
Interest Expense. Total interest expense increased by $2.1 million to
$7.3 million for the three months ended June 30, 1996 compared to $5.2 million
for the three months ended June 30, 1995, and increased $4.5 million to $14.1
million for the six months ended June 30, 1996 compared to $9.6 million for the
six months ended June 30, 1995. The increase in interest expense for the three
months ended June 30, 1996 was the result of (i) an increase in average
interest-bearing liabilities of $168.6 million or 41.0%, to $579.9 million for
the three months ended June 30, 1996 compared to $411.3 million for the three
months ended June 30, 1995; and (ii) a three basis point decrease in the rate
paid on average interest-bearing liabilities to 5.03% for the three months
ended June 30, 1996, compared to 5.06% for the three months ended June 30,
1995. The increase in interest expense for the six months ended June 30, 1996
compared to the six months ended June 30, 1995 was the result of (i) an
increase in average interest-bearing liabilities of $170.4 million, or 43.8%,
to $560.0 million for the six months ended June 30, 1996 compared to $389.6
million for the six months ended June 30, 1995; and (ii) a 14 basis point
increase in the rate paid on average interest- bearing liabilities to 5.05% for
the six months ended June 30, 1996, compared to 4.91% for the six months ended
June 30, 1995. The increases in average interest-bearing liabilities were
primarily attributable to (i) the increase in average interest-bearing
deposits, which increased $69.5 million to $369.0 for the three months ended
June 30, 1996 and $68.6 million to $366.4 million for the six months ended June
30, 1996; and
-16-
<PAGE> 19
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(ii) the increase in average total borrowings, which increased $99.2 million to
$210.9 million for the three months ended June 30, 1996 and $101.9 million to
$193.7 for the six months ended June 30, 1996. The increase in average
interest-bearing deposits was primarily the result of the $55.5 million of
deposits assumed in connection with the Branch Acquisitions consummated in July
1995. The increase in average total borrowings was primarily the result of the
Company's strategy to leverage its capital base by using proceeds from
additional FHLB-Chicago advances to originate and purchase additional loans and
mortgage-related securities. The decrease in rates paid on average
interest-bearing liabilities for the three months ended June 30, 1996 compared
to the three months ended June 30, 1995 resulted from (i) an increase in the
average rates paid on deposits from 4.63% for the three months ended June 30,
1995, to 4.73% for the three months ended June 30, 1996; and (ii) a decrease in
the average rates paid on total borrowings from 6.19% for the three months
ended June 30, 1995, to 5.55% for the three months ended June 30, 1996. The
increase in rates paid on average interest-bearing liabilities for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995
resulted from (i) an increase in the average rates paid on deposits from 4.54%
for the six months ended June 30, 1995 to 4.76% for the six months ended June
30, 1996; and (ii) a decrease in the average rates paid on total borrowings
from 6.14% for the six months ended June 30, 1995 to 5.60% for the six months
ended June 30, 1996. The increases in the average rates paid on deposits
during the three and six months ended June 30, 1996 compared to the three and
six months ended June 30, 1995 resulted primarily from a decrease in the
percentage of lower cost core deposits. The decreases in the average rates
paid on total borrowings for these same periods resulted from a decrease in the
level of short-term market interest rates.
The following table sets forth certain information relating to the
Company's average unaudited consolidated statements of financial condition and
consolidated statements of income, and reflects the average yield on
interest-earning assets and average cost of interest-bearing liabilities at or
for the periods indicated. Such yields and costs are derived by dividing
income and interest expense by the average monthly balance of such assets or
liabilities, respectively, for the periods presented. The Company's management
does not believe that the use of month-end balances instead of daily balances
has caused a material difference in the information presented. The average
yields include amortization of net deferred loan fees which are considered
adjustments to yield. Interest income on non-accrual loans is reflected in the
period when collected and not in the period when earned.
-17-
<PAGE> 20
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------------------------------
1996 1995
------------------------ -------------------------
INTEREST AVG. INTEREST AVE.
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- -------- ------ ------- -------- ------
ASSETS: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-related securities (1) . . . . . . $146,734 $2,517 6.86% $76,045 $1,390 7.31%
-------- ------ ------- ------
Loans receivable:
First mortgage loans (2)(3) . . . . . . . 426,647 8,287 7.77 345,562 6,594 7.63
Consumer loans (3) . . . . . . . . . . . 70,879 1,525 8.61 60,478 1,301 8.60
------- ------ ------- ------
Total loans receivable . . . . . . . . 497,526 9,812 7.89 406,040 7,895 7.78
------- ------ ------- ------
Investments:
Interest-bearing deposits with banks . . 260 2 3.08 662 9 5.44
Federal funds sold . . . . . . . . . . . 1,779 23 5.17 350 5 5.71
U.S. Government and other
marketable securities (4) . . . . . . 5,820 106 7.29 12,839 226 7.04
FHLB stock . . . . . . . . . . . . . . . 10,571 176 6.66 5,641 91 6.45
------- ------ ------- ------
Total investments . . . . . . . . . . . 18,430 307 6.66 19,492 331 6.79
------- ----- ------- -----
Total interest-earning assets . . . . . . . 662,690 12,636 7.63 501,577 9,616 7.67
Non-interest earning assets . . . . . . . . 26,701 16,915
-------- --------
Total assets . . . . . . . . . . . . . $689,391 $518,492
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits:
NOW accounts . . . . . . . . . . . . . . $ 40,968 203 1.98 $ 34,587 173 2.00
Money market accounts . . . . . . . . . . 39,822 408 4.10 34,358 339 3.95
Passbook and statement accounts . . . . . 42,708 274 2.57 38,849 244 2.51
Certificates of deposit . . . . . . . . . 245,550 3,475 5.66 191,780 2,714 5.66
-------- ------ -------- ------
Total interest-bearing deposits . . . . 369,048 4,360 4.73 299,574 3,470 4.63
FHLB advances . . . . . . . . . . . . . . . 210,900 2,927 5.55 111,750 1,729 6.19
-------- ------ -------- ------
Total interest-bearing liabilities . . 579,948 7,287 5.03 411,324 5,199 5.06
Non-interest-bearing deposits . . . . . . . 5,169 2,352
Other non-interest bearing liabilities . . 7,685 7,323
------- -------
Total liabilities . . . . . . . . . . . 592,802 420,999
Shareholders' equity . . . . . . . . . . . 96,589 97,493
-------- --------
Total liabilities and shareholders' equity $689,391 $518,492
======== ========
Net interest income/interest
rate spread (5) . . . . . . . . . . . . $5,349 2.60% $4,417 2.61%
====== ==== ====== ====
Net interest-earning assets/net
interest margin (6) . . . . . . . . . . $ 82,742 3.23% $ 90,253 3.52%
======== ==== ======== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities . . 114.27% 121.94%
====== ======
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------
1996 1995
------------------------ -------------------------
INTEREST AVG. INTEREST AVE.
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- -------- ------ ------- -------- ------
ASSETS: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-related securities (1) . . . . . . $140,355 $ 4,851 6.91% $ 70,537 $ 2,577 7.31%
-------- ------- -------- -------
Loans receivable:
First mortgage loans (2)(3) . . . . . . . 414,264 16,107 7.78 332,255 12,556 7.56
Consumer loans (3) . . . . . . . . . . . 69,679 2,987 8.57 57,933 2,377 8.21
-------- ------- -------- -------
Total loans receivable . . . . . . . . 483,943 19,094 7.89 390,188 14,933 7.65
-------- ------- -------- -------
Investments:
Interest-bearing deposits with banks . . 266 6 4.51 753 20 5.31
Federal funds sold . . . . . . . . . . . 2,202 57 5.18 321 9 5.61
U.S. Government and other
marketable securities (4) . . . . . . 6,154 208 6.76 12,845 462 7.19
FHLB stock . . . . . . . . . . . . . . . 9,708 318 6.55 4,723 150 6.35
-------- ------- -------- -------
Total investments . . . . . . . . . . . 18,330 589 6.43 18,642 641 6.88
-------- ------- -------- -------
Total interest-earning assets . . . . . . . 642,628 24,534 7.64 479,367 18,151 7.57
Non-interest earning assets . . . . . . . . 25,952 ------- ---- 15,933 ------- ----
-------- --------
Total assets . . . . . . . . . . . . . $668,580 $495,300
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits:
NOW accounts . . . . . . . . . . . . . . $ 40,141 398 1.98 $ 34,350 344 2.00
Money market accounts . . . . . . . . . . 39,293 780 3.97 35,262 684 3.88
Passbook and statement accounts . . . . . 41,450 524 2.53 38,659 483 2.50
Certificates of deposit . . . . . . . . . 245,513 7,020 5.72 189,564 5,247 5.54
-------- ------- -------- -------
Total interest-bearing deposits . . . . 366,397 8,722 4.76 297,835 6,758 4.54
FHLB advances . . . . . . . . . . . . . . . 193,650 5,421 5.60 91,758 2,816 6.14
-------- ------- -------- -------
Total interest-bearing liabilities . . 560,047 14,143 5.05 389,593 9,574 4.91
Non-interest-bearing deposits . . . . . . . 4,771 ------- 2,055 -------
Other non-interest bearing liabilities . . 7,545 6,884
-------- --------
Total liabilities . . . . . . . . . . . 572,363 398,532
Shareholders' equity . . . . . . . . . . . 96,217 96,768
-------- --------
Total liabilities and shareholders' equity $668,580 $495,300
======== ========
Net interest income/interest
rate spread (5) . . . . . . . . . . . . $10,391 2.59% $ 8,577 2.66%
======= ==== ======= ====
Net interest-earning assets/net
interest margin (6) . . . . . . . . . . $ 82,581 3.23% $ 89,774 3.58%
======== ==== ======== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities . . 114.75% 123.04%
======== ========
</TABLE>
(1) Includes mortgage-related securities available-for-sale, excluding
fair value adjustments.
(2) Includes loans held-for-sale, excluding lower of cost or market value
adjustment.
(3) Includes non-accrual loans, excluding allowance for loan losses.
(4) Includes U.S. Government securities and other marketable securities
available-for-sale, excluding fair value adjustments.
(5) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
-18-
<PAGE> 21
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Provision for Loan Losses. Provisions for loan losses are charged to
operations to adjust the total allowance for loan losses to a level considered
appropriate by management. For loans that meet the definition of impaired
under SFAS No. 114, which the Company defines as multi-family residential,
commercial and commercial construction loans for which management does not
anticipate receiving all principal and interest payments when due, an allowance
for loan losses is established primarily based on the difference between the
carrying value of the loans and the fair value of the collateral. Generally,
the Company considers a loan to be impaired when the borrower is 90 days or
more delinquent with respect to principal or interest or management obtains
information which indicates that it is probable that the Company will not
collect principal and interest payments when due. For non-impaired and
homogeneous loan portfolios, which include one-to four family residential,
one-to four family construction, land and consumer loans, management
established loan loss percentages for each component of the Company's asset
classification categories, which consist of non-classified, substandard,
doubtful and loss. These allowance for loan loss percentages have been
established in accordance with management's judgment regarding historical loss
experience, the condition and composition of the Company's loan portfolio,
including the volume and type of lending being conducted, existing and
anticipated economic conditions, findings and evaluations during federal
regulatory examinations, federal regulatory guidelines and general industry
practice. Management periodically reviews the percentages and make adjustments
in accordance with their best judgement as a result of changes in any of the
above- mentioned factors. At the end of each period, management applies the
loan loss percentages to the various categories, in addition to the allowance
estimated on impaired loans, and arrives at the appropriate level of the
allowance for loan losses to be recorded in the Company's statement of
financial condition. Any adjustment to the allowance for loan losses is
accomplished through the provision for loan losses for the period, and
therefore the provision may be a charge or a credit. The Company's allowance
for loan losses was $856,000 or 0.17% of gross loan balances, excluding loans
held-for-sale, at June 30, 1996, compared to $748,000 or 0.17% at June 30,
1995. To obtain these allowance levels, during the three months ended June 30,
1996 and 1995, the Company credited $34,000 and $83,000, respectively, to
earnings as a provision for loan losses, and during the six months ended June
30, 1996 and 1995, the Company charged $98,000 and $21,000, respectively,
against earnings as a provision for loan losses. The Company charges off a
loan when the collection of the amount due is considered unlikely. While the
Company's management believes that the allowance for loan losses was adequate
at June 30, 1996, future additions to the allowance may be necessary.
Non-Interest Income. Non-interest income, including gains and losses
on loans held-for-sale and mortgage-related securities and investment
securities, decreased $680,000 to $352,000 for the three months ended June 30,
1996 compared to $1.0 million for the three months ended June 30, 1995, and
decreased $1.3 million to $632,000 for the six months ended June 30, 1996
compared to $1.9 million for the six months ended June 30, 1995. The decreases
in non-interest income were primarily attributable to the effect of changes in
interest rates on mortgage loans held-for-sale and mortgage-related securities
available-for-sale. Loans held-for-sale and commitments to make future loans
are recorded at the lower of aggregate cost or market value. Unrealized gains
and losses to adjust the carrying value of loans held-for-sale to the lower of
their cost or market value and realized gains and losses on the sales of these
loans are reported as net gain or loss on loans held-for- sale.
Mortgage-related securities available-for-sale are recorded at fair value with
unrealized gains and losses credited or charged directly to equity net of
deferred income taxes. Realized gains and losses on the sale of these
securities are reported as net gain or loss on mortgage-related securities.
For the three and six months ended June 30, 1996, the Company reported losses
of $162,000 and $431,000 on the loans held-for-sale and mortgage-related
securities portfolios, respectively, and for the three and six months ended
June 30, 1995, the Company reported gains on these portfolios of $384,000 and
$787,000, respectively. These portfolios tend to perform well in stable or
decreasing interest rate environments, such as that experienced during the
three and six months ended June 30, 1995, but can experience losses during
periods of increasing interest rates such as that experienced during most of
1996.
-19-
<PAGE> 22
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company faces interest rate risk in its mortgage loans
held-for-sale portfolio to the extent that market interest rates may increase
between the time a loan commitment is issued and the time the resulting loan is
sold. The Company's mortgage loans held-for-sale typically are either sold to
the Federal Home Loan Mortgage Corporation ("FHLMC") or exchanged for
mortgage-related securities (in the form of participation certificates issued
by the FHLMC) and then sold into the secondary market. Gains or losses on
loans held-for-sale and mortgage- related securities classified as trading may
fluctuate significantly from period to period due to changes in interest rates
and the volume of loan originations, and thus the results in any period
relating to those transactions may not be indicative of results which may be
obtained in future periods.
For the three and six months ended June 30, 1996 the Company
recognized losses of $162,000 and $431,000, respectively, on loans held-
for-sale and commitments to make future loans. These loans are recorded at the
lower of cost or market value and at June 30, 1996, had a carrying value of
$22.0 million, or 3.1% of total assets. The losses occurred as interest rates
generally increased during the period, causing the market value of the loans
held-for-sale and commitments to originate loans to decrease below the
historical cost of the loans held-for-sale portfolio. For the three and six
months ended June 30, 1996, $1.2 million and $2.2 million of mortgage loans
held-for-sale were sold at par. For the three and six months ended June 30,
1995, the Company recognized gains of $173,000 and $486,000, respectively, on
loans held-for-sale and commitments to make future loans comprising part of the
pipeline. These loans are recorded at the lower of cost or market. These
gains occurred as interest rates generally decreased during the period, causing
the market value of the loans held-for-sale and commitments to originate loans
to increase above the market value of this portfolio at December 31, 1994, but
remain below the historical cost of the loans held-for-sale portfolio. During
the three and six months ended June 30, 1995, $4.9 million and $5.8 million of
mortgage loans held-for-sale were sold at gains of $45,000 and $45,000,
respectively.
During the three and six months ended June 30, 1995, the Company
realized gains of $211,000 and $301,000, respectively, on the sale of $7.3
million and $10.7 million of mortgage-related securities available-for-sale,
respectively. These securities were formed from mortgage loans originated by
the Company and subsequently transferred from the mortgage-related securities
classified as trading portfolio to the mortgage-related securities
available-for-sale portfolio during 1994. During the three and six months
ended June 30, 1996, there were no sales of mortgage-related securities. At
June 30, 1996 and 1995, the Company did not have any securities in its
mortgage-related securities classified as trading portfolio.
The following table sets forth the percentage of non-interest income,
exclusive of net gains or losses on loans held-for-sale, mortgage-related
securities and investment securities, to average assets.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ----------------------
1996 1995 1996 1995
-------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Other non-interest income . . . . . . . . . . . . . . . . $ 514 $ 648 $1,052 $1,136
Other non-interest income to average assets (annualized) 0.30% 0.50% 0.31% 0.46%
</TABLE>
The decreases in other non-interest income are primarily attributable
to $186,000 of interest received in the three months ended June 30, 1995 in
connection with a Federal income tax refund.
-20-
<PAGE> 23
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Non-Interest Expense. Non-interest expense increased $642,000 to $3.4
million for the three months ended June 30, 1996 compared to $2.7 million for
the three months ended June 30, 1995, and increased $1.4 million to $6.9
million for the six months ended June 30, 1996 compared to $5.3 million for the
six months ended June 30, 1995. The following table sets forth the percentage
of non-interest expense to average assets.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
1996 1995 1996 1995
----- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-interest expense . . . . . . . . . . . . . . . . . . $3,376 $2,734 $6,889 $5,503
Non-interest expense to average assets (annualized) . . . 1.96% 2.11% 2.06% 2.14%
</TABLE>
The increase in non-interest expense in both periods was primarily
attributable to (i) a $288,000 and a $861,000 increase in compensation and
other employee benefits to $1.8 million and $3.7 million for the three and six
months ended June 30, 1996, respectively, compared to $1.5 million and $2.9
million for the three and six months ended June 30, 1995, respectively; and
(ii) a $174,000 and a $292,000 increase in other non-interest expense to
$848,000 and $1.6 million for the three and six months ended June 30, 1996,
respectively, compared to $674,000 and $1.4 million for the three and six
months ended June 30, 1995, respectively. The increases in compensation and
other employee benefits for the three and six months ended June 30, 1996 were
due to normal salary increases, additional retirement plan expenses of $58,000
and $128,000, respectively, associated with the ESOP and the Deferred
Compensation Plan, increases of $14,000 and $343,000, respectively, associated
with the adoption of the BIP, and additional salary and employee benefit
expense required to operate the offices acquired in the Branch Acquisitions
consummated in July 1995. The increases in other non-interest expense included
$87,000 and $174,000 for the amortization of intangibles related to the Branch
Acquisitions, respectively.
Income Taxes. Income taxes decreased $281,000 to $819,000 for the
three months ended June 30, 1996, from $1.1 million for the three months ended
June 30, 1995, and decreased $676,000 to $1.4 million for the six months ended
June 30, 1996, from $2.1 million for the six months ended June 30, 1995. These
decreases were primarily due to a decrease in income before income taxes along
with a decrease in the effective income tax rate. The effective income tax
rates for the three months ended June 30, 1996 and 1995 were 34.7% and 39.3%,
respectively, and for the six months ended June 30, 1996 and 1995 were 34.1%
and 39.6%, respectively. The decrease in the effective income tax rates was
due primarily to a greater portion of interest income not being subject to
state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, repayments on and
sales of loans and mortgage-related securities, interest income and
FHLB-Chicago advances. Although maturity and scheduled amortization of loans
are predictable sources of funds, deposit flows and prepayments on loans and
mortgage-related securities are influenced significantly by general interest
rates, economic conditions and competition.
The Bank is required to maintain minimum levels of liquid assets under
the OTS regulations. Savings institutions are required to maintain an average
daily balance of liquid assets (including cash, certain time deposits, certain
bankers' acceptances, certain corporate debt securities and highly rated
commercial paper, securities of certain mutual funds and specified United
States government, state or federal agency obligations) of not less than 5.00%
of its average daily balance of net withdrawal accounts plus short-term
borrowings. It is the Bank's policy to maintain its liquidity portfolio in
excess of regulatory requirements. The Bank's liquidity ratios were 7.41% and
7.00% at June 30, 1996 and December 31, 1995, respectively.
-21-
<PAGE> 24
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company's most liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-term investments. The levels of
these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period. At June 30, 1996 and December
31, 1995, cash and cash equivalents were $15.9 million and $13.5 million,
respectively.
Liquidity management for the Company is both an ongoing and long-term
function of the Company's asset/liability management strategy. Excess funds
generally are invested in short-term investments such as federal funds or
overnight deposits at the FHLB-Chicago. Whenever the Company requires funds
beyond its ability to generate them internally, additional sources of funds are
available through FHLB-Chicago advances whereby the Company pledges its
FHLB-Chicago stock and certain other assets, as well as through reverse
repurchase agreements wherein the Company pledges mortgage-related securities.
The Company utilizes its borrowing capabilities on a regular basis. At June
30, 1996, FHLB- Chicago advances were $224.6 million or 31.8% of total assets
compared to $151.0 million or 24.3% of total assets at December 31, 1995. The
$73.6 million increase in FHLB-Chicago advances during the six months ended
June 30, 1996 was primarily the result of the Company's leveraging strategy
whereby proceeds from the additional FHLB advances were used to originate and
purchase additional loans and mortgage-related securities. The borrowings from
the FHLB-Chicago are generally short-term, with maturities of less than 90 days
or have adjustable interest rate provisions. In a rising interest rate
environment, such borrowings present the risk that upon adjustment or at their
maturity dates, the interest rates on these borrowings may increase. The
Company intends to continue to leverage its capital base by using the proceeds
from additional FHLB-Chicago advances to originate and purchase additional
loans and mortgage-related securities. At June 30, 1996, the Company's
remaining line of credit available with the FHLB-Chicago, which is limited to
approximately 35% of total assets, was approximately $23 million. During the
third quarter of 1996, the Company intends to submit an application to the
FHLB-Chicago to request an increase in the line of credit to approximately 45%
of total assets. No assurances can be made, however, that the FHLB-Chicago
will grant such request.
The major sources of cash from financing activities during the six
months ended June 30, 1996 and 1995 were the increases in FHLB-Chicago advances
of $73.6 million and $88.7 million, respectively. Deposits provided a net
source of cash during the six months ended June 30, 1996 and 1995, of $9.5
million and $951,000, respectively. The primary use of cash for financing
activities for the six months ended June 30, 1995, was to fund the purchase of
$2.8 million of the Company's outstanding shares of common stock.
Operating activities resulted in net cash outflows during the six
months ended June 30, 1996, of $14.2 million and inflows of $5.4 million for
the six months ended June 30, 1995. Operating cash inflows included net income
of $2.7 million and $3.1 million for the six months ended June 30, 1996 and
1995, respectively, and proceeds from sales of loans of $2.2 million and $5.8
million for the six months ended June 30, 1996 and 1995, respectively. The
primary use of operating cash was loans originated for sale of $21.4 million
and $3.7 million for the six months ended June 30, 1996 and 1995, respectively.
The primary investing activity of the Company was the origination and
purchases of loans to be held-to-maturity and the purchase of mortgage-related
securities. For the six months ended June 30, 1996 and 1995, the Company
originated loans to be held-to-maturity in the amount of $86.3 million and
$89.7 million, respectively. Purchases of loans and mortgage-related
securities totaled $41.0 million and $62.0 million for the six months ended
June 30, 1996 and 1995, respectively. Purchases of investment securities
available-for-sale and Federal Home Loan Bank Stock totaled $5.6 million and
$3.3 million for the six months ended June 30, 1996 and 1995, respectively.
For the six months ended June 30, 1996 and 1995, these activities were funded
primarily by principal repayments and other reductions on loans and
mortgage-related securities of $64.4 million and $43.5 million, respectively.
Proceeds from calls of investment securities provided $2.0 million of cash
inflows during the six months ended June 30, 1996 and the sales of
mortgage-related securities provided $11.0 million of cash inflows during the
six months ended June 30, 1995.
-22-
<PAGE> 25
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
At June 30, 1996, the Company had outstanding commitments to originate
loans of $27.7 million, unused equity lines of credit of $3.8 million and $3.6
million of overdraft lines of credit, credit card lines and irrevocable letters
of credit. The Company anticipates it will have sufficient funds available to
meet its current loan origination and purchase commitments, including loan
applications received and in process prior to the issuance of firm commitments.
Certificates of deposit which are scheduled to mature in one year or less at
June 30, 1996 were $169.1 million. Management believes that a significant
portion of such deposits will remain with the Company.
Shareholders' equity increased $2.1 million or 2.2% during the six
months ended June 30, 1996 to $97.5 million at June 30, 1996 due to the
combined effects of $2.7 million of net income, $684,000 for the amortization
of unearned ESOP compensation, $561,000 for the amortization of unearned BIP
compensation, partially offset by payment of cash dividends of $768,000 and a
$1.0 million increase of net unrealized holding losses on securities available
for sale, net of deferred income tax benefits. The ratio of total equity to
assets was 13.79% and 15.34% at June 30, 1996 and December 31, 1995,
respectively.
The Board of Directors of the Company declared and paid a cash
dividend of $0.05 per share, or a total of $318,000, to shareholders of record
on February 7, 1996 and $0.07 per share, or a total of $450,000, to
shareholders of record on May 3, 1996. This resulted in a dividend payout
ratio of 28.86% for the six months ended June 30, 1996. Future payments of
dividends will be subject to determination and declaration by the Company's
Board of Directors, which will take into account the Company's financial
condition, results of operations, tax considerations, industry standards,
economic conditions and other factors, including the regulatory restrictions
which affect the payment of dividends by the Bank to the Company. There can be
no assurance that dividends will in fact be paid on the Common Stock or that,
if paid, such dividends will not be reduced or eliminated in future periods.
ASSET QUALITY
Non-Performing Assets. Non-performing assets, which consist of
non-accrual loans, foreclosed properties and repossessed assets, decreased
$496,000 during the six months ended June 30, 1996 to $275,000 at June 30,
1996, compared to $771,000 at December 31, 1995. The following table sets
forth information with respect to the Company's non-performing assets for the
periods indicated.
-23-
<PAGE> 26
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
AT AT AT AT AT
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1996 1996 1995 1995 1995
-------- ---------- ------------ -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate . . . . . . . . $ 89 $ 396 $ 372 $ 767 $ 614
Non-residential and
other real estate . . . . . . . . . . -- -- -- -- --
Consumer . . . . . . . . . . . . . . . . 39 86 77 74 39
------ ------ ------ ------- -------
Total non-accrual loans . . . . . . . 128 482 449 841 653
Foreclosed property and
repossessed assets . . . . . . . . . . . 147 380 322 499 426
------ ------ ------ ------- -------
Total non-performing assets . . . . . $ 275 $ 862 $ 771 $ 1,340 $ 1,079
====== ====== ====== ======= =======
Impaired loans . . . . . . . . . . . . . . $ -- $ -- $ -- $ -- $ --
====== ====== ====== ======= =======
Non-accrual loans as a percentage of
gross loans receivable (1) . . . . . . . 0.03% 0.10% 0.10% 0.18% 0.15%
Non-performing assets as a
percentage of total assets . . . . . . . 0.04 0.13 0.12 0.23 0.20
- - -------------------
</TABLE>
(1) Excludes loans held-for-sale.
-24-
<PAGE> 27
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Allowance for Loan Losses. Management evaluates the Company's loan
portfolio on a periodic basis to determine the adequacy of the allowance for
loan losses. These evaluations consider several factors including, but not
limited to, prevailing economic conditions, actual loss experience, loan
portfolio composition, findings and evaluations during federal regulatory
examinations and management's estimation of future potential losses. The
evaluation of the allowance for loan losses includes a review of both known
loan problems and a review of potential problems based upon historical trends
and ratios. The following table sets forth an analysis of the Company's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ----------------------
1996 1995 1996 1995
-------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period . . . . . . . . . . . . $ 900 $ 839 $ 782 $ 751
Charge-offs:
Residential real estate . . . . . . . . . . . . . . (3) (5) (3) (5)
Non-residential and other real estate . . . . . . . -- -- -- --
Consumer . . . . . . . . . . . . . . . . . . . . . . (9) (9) (24) (26)
------ ------- ------- ------
Total charge-offs . . . . . . . . . . . . . . . (12) (14) (27) (31)
Recoveries:
Residential real estate . . . . . . . . . . . . . . -- 3 -- 3
Non-residential and other real estate . . . . . . . -- -- -- --
Consumer . . . . . . . . . . . . . . . . . . . . . . 2 3 3 4
------ ------- ------- ------
Total recoveries . . . . . . . . . . . . . . . . 2 6 3 7
------ ------- ------- ------
Net charge-offs . . . . . . . . . . . . . . . (10) (8) (24) (24)
Provision charged (credited) to operations . . . . . . (34) (83) 98 21
------ ------- ------- ------
Balance at end of period . . . . . . . . . . . . . . . $ 856 $ 748 $ 856 $ 748
====== ======= ======= ======
Period-end allowance as a percentage
of period-end gross loan balance(1) . . . . . . . . 0.17% 0.17% 0.17% 0.17%
Ratio of allowance to non-accrual loans . . . . . . . . 668.75 114.55 668.75 114.55
Ratio of net charge-offs to average
loans outstanding(1)(2) . . . . . . . . . . . . . . 0.01 0.01 0.01 0.01
- - -----------------------------------
</TABLE>
(1) Excludes loans held-for-sale.
(2) Annualized.
-25-
<PAGE> 28
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ASSET/LIABILITY MANAGEMENT
INTEREST RATE SENSITIVITY
The Company's profitability, like that of most financial institutions,
depends to a large extent upon its net interest income, which is the difference
between its interest earned on interest-earning assets, such as loans and
securities, and its interest expense paid on interest- bearing liabilities,
such as deposits and borrowings. Generally, the Company's net interest income
improves during periods of relatively stable and declining interest rates and
deteriorates during periods of increasing interest rates.
The interest sensitivity gap represents the difference between
interest-earning assets and interest-bearing liabilities which mature and/or
reprice within specified intervals of time. The gap is considered to be
positive when repriceable assets exceed repriceable liabilities and negative
when the opposite situation exists. A relative measure of sensitivity is
provided by the cumulative difference between interest- sensitive assets to
interest-sensitive liabilities for a given time interval expressed as a
percentage of total assets. Generally, sensitivity is measured for various
intervals up to a period of ten years.
Having interest-bearing liabilities that mature or reprice more
frequently on average than interest-earning assets may be beneficial in times
of declining interest rates, although such an asset/liability structure may
result in declining net earnings during periods of rising interest rates.
Conversely, having interest-earning assets that mature or reprice more
frequently on average than interest-bearing liabilities may be beneficial in
times of rising interest rates, although this asset/liability structure may
result in declining net earnings during periods of falling interest rates.
In managing its asset/liability mix, the Company has placed somewhat
greater emphasis on maximizing its net interest margin than on matching the
periods to maturity or repricing of its assets and liabilities. The Company
believes that the increased net interest income resulting from a mismatch in
the maturities of its asset and liability portfolios in declining or stable
interest rate environments can provide returns sufficient to justify the
increased exposure to decreased net interest income resulting from such a
mismatch in the event of sudden and significant increases in interest rates.
The Company has adopted an interest rate risk policy statement to
manage its exposure to interest rate risk and to ensure that such exposure is
kept within pre-determined limits. At June 30, 1996, the Company's cumulative
amount of interest-sensitive assets less interest- sensitive liabilities was a
negative 18.70% of total assets for the one-year interval and a negative 7.53%
of total assets for the three-year interval, compared to a negative gap
position of 12.84% and 1.84%, respectively, at December 31, 1995. The Company
recognizes the inherent risk in its interest-sensitive gap position,
particularly in periods of fluctuating interest rates. The Company has
implemented certain asset/liability maturity matching strategies, which include
(i) the origination of mortgage loans with adjustable rate features, (ii)
increased emphasis on short-term consumer loans and equity lines of credit, and
(iii) emphasis on lengthening the maturity of its deposits. In addition,
during the six months ended June 30, 1996, as part of its leveraging strategy,
the Company purchased $27.5 million of mortgage-related securities with
periodic interest rate adjustment features and funded these purchases with
short term FHLB-Chicago advances. During the six months ended June 30, 1996,
the negative gap increased primarily as a result of the increase in loans
held-for-sale and adjustable rate mortgage loans with periods to the initial
adjustment date of greater than three years funded primarily with short-term
FHLB-Chicago advances. The Company does not presently, but may in the future,
utilize financial futures, options, interest rate exchange agreements or
similar agreements.
-26-
<PAGE> 29
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table sets forth at June 30, 1996 the amount of
interest-earning assets and interest-bearing liabilities maturing or repricing
within the time periods indicated, based on the information and assumptions set
forth in the notes thereto.
<TABLE>
<CAPTION>
AMOUNT MATURING OR REPRICING
--------------------------------------------------------------
MORE THAN
WITHIN ONE YEAR MORE THAN
ONE YEAR TO THREE YEARS THREE YEARS TOTAL
------------ ---------------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage-related securities (1)(2) . . $ 99,643 $ 19,603 $ 27,766 $ 147,012
First mortgage loans, excluding
loans held-for-sale (1)(3) . . . . . 158,390 134,263 122,213 414,866
Loans held-for-sale (1)(4) . . . . . . 2,373 4,180 15,900 22,453
Other loans (1) . . . . . . . . . . . 44,645 22,559 5,672 72,876
Investment securities(2) . . . . . . . 7,274 2,020 14,218 23,512
-------- -------- -------- ---------
Total . . . . . . . . . . . . . 312,325 182,625 185,769 680,719
INTEREST-BEARING LIABILITIES:
Deposits (3) . . . . . . . . . . . . . 235,380 88,686 53,922 377,988
FHLB advances . . . . . . . . . . . . 209,100 15,000 450 224,550
-------- -------- -------- ---------
Total . . . . . . . . . . . . . 444,480 103,686 54,372 602,538
-------- -------- -------- ---------
Interest-earning assets over (under)
interest-bearing liabilities . . . . . $ (132,155) $ 78,939 $ 131,397 $ 78,181
========== ========= ========= =========
Cumulative gap . . . . . . . . . . . . . $ (132,155) $ (53,216) $ 78,181
========== ========= =========
Cumulative gap as a percentage of
total assets . . . . . . . . . . . . . (18.70)% (7.53)% 11.06%
======== ======== =========
- - ---------------------------------------------
</TABLE>
(1) Based upon contractual maturity, repricing date, if applicable, scheduled
repayments of principal and projected prepayments of principal based upon
historical experience.
(2) Balance excludes fair value adjustments.
(3) Balance has been reduced for undisbursed loan proceeds, which aggregated
$12.3 million at June 30, 1996.
(4) Balance excludes lower of cost or market adjustment of $446,000.
(5) Includes non-interest bearing deposits. The "Within One Year" category
includes 37% of Negotiable Order of Withdrawals, 17% of passbook and
statement accounts and 79% of variable rate insured money market
accounts. The "One Year to Three Years" category includes 35% of
Negotiable Order of Withdrawals, 26% of passbook and statement accounts
and 11% of variable rate insured money market accounts. All remaining
Negotiable Order of Withdrawals, passbook and statement accounts and
variable rate insured money market accounts are assumed to mature in the
"More Than Three Years" category. While management of the Company
believes these assumptions are well based, no assurance can be given that
amounts of deposits in these accounts will not significantly decrease or
be repriced in the event of a general rise in interest rates.
-27-
<PAGE> 30
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Certain shortcomings are inherent in the method of analysis presented
above. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable rate loans and
mortgage-related securities, have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. In addition, the
proportion of adjustable rate loans and mortgage-related securities in the
Company's portfolios could decrease in future periods if market interest rates
decrease below current levels due to refinance activity. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in the table. Finally, the
ability of many borrowers to service their adjustable- rate debt may decrease
in the event of an interest rate increase.
FORWARD COMMITMENTS AND CERTAIN ASPECTS OF FIXED RATE MORTGAGE LOAN ORIGINATION
PIPELINE
The Company engages in certain activities to facilitate the sale of
its originated mortgage loans held-for-sale. These activities are generally
forward commitments to sell at a specified future date, fixed rate
mortgage-related securities which are or will be formed from mortgage loans
originated by the Company. Specifically, the Company originates mortgage loans
which are subsequently delivered to the FHLMC and exchanged for FHLMC
mortgage-related securities representing the mortgage loans which were
delivered, and these securities then generally are used to satisfy the forward
commitments. The use of such forward commitments presents a risk that if the
Company is not able to deliver the mortgage-related securities on the specified
delivery date, it may be required to repurchase the forward commitment at the
then-current market price, which may be at an unfavorable price resulting in a
possible loss. Management has attempted to address this risk by limiting the
aggregate amount of forward commitments utilized at any given time, and
generally limiting the length of time that such forward commitments remain
outstanding to one month or less. Because the securities are formed from
mortgage loans originated by the Company, the Company historically has been
able to deliver mortgage-backed securities pursuant to the forward commitments
and the parties with which the Company contracts have been able to fulfill the
terms of the agreements. Additional risk exists between the time the
mortgage-backed securities are formed and the time they are committed to be
sold, as gains or losses may result during the period the securities are
classified as trading and ultimately from selling the mortgage-backed
securities at favorable or unfavorable prices, depending upon how interest
rates moved during the time between when loans were committed and the time they
were sold. The Company did not have any forward commitments to sell
mortgage-related securities at June 30, 1996 or December 31, 1995, nor did the
Company incur any losses during the six months ended June 30, 1996 or 1995 as a
result of the Company not being able to fulfill any forward commitments.
-28-
<PAGE> 31
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
The Annual Meeting of Shareholders was held on May 15, 1996. Only
shareholders of record at the close of business on March 29, 1996 (the "Voting
Record Date") were entitled to vote at the Annual Meeting. On the Voting
Record Date, there were 6,855,379 shares of Common Stock outstanding and
entitled to vote, and 5,932,588 shares present at the meeting either in person
or by proxy, which constituted a quorum. The following is a summary of the
result of the votes.
<TABLE>
<CAPTION>
NUMBER OF VOTES
--------------------------------------------------------
FOR WITHHELD AGAINST ABSTENTIONS
--------------- -------- ------- -----------
<S> <C> <C> <C> <C>
Nominees for Director for Three-Year
Term Expiring in 1999:
Donald T. Tietz . . . . . . . . . . . . . . . 5,781,827 149,861 N/A N/A
Douglas R. Trembath . . . . . . . . . . . . . 5,756,222 169,401 N/A N/A
Bonnie M. Menard . . . . . . . . . . . . . . . 23,105 0 N/A N/A
Ratification of the Appointment
of Ernst & Young LLP
as Independent Auditors . . . . . . . . . . . . . 5,847,401 N/A 20,325 42,567
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
-29-
<PAGE> 32
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.
FIRST FEDERAL BANCSHARES
OF EAU CLAIRE, INC.
Dated: August 12, 1996 By: /s/ Donald T. Tietz
-----------------------------------
Donald T. Tietz, President
(Chief Executive Officer)
Dated: August 12, 1996 By: /s/ Jerome A. Reinecke
-----------------------------------
Jerome A. Reinecke, Vice President
(Principal Financial and Accounting
Officer)
-30-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,628
<INT-BEARING-DEPOSITS> 185
<FED-FUNDS-SOLD> 5,285
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 153,778
<INVESTMENTS-CARRYING> 153,778
<INVESTMENTS-MARKET> 153,778
<LOANS> 507,526
<ALLOWANCE> 856
<TOTAL-ASSETS> 706,672
<DEPOSITS> 377,988
<SHORT-TERM> 0
<LIABILITIES-OTHER> 6,677
<LONG-TERM> 0
0
0
<COMMON> 72
<OTHER-SE> 97,385
<TOTAL-LIABILITIES-AND-EQUITY> 706,672
<INTEREST-LOAN> 19,094
<INTEREST-INVEST> 5,377
<INTEREST-OTHER> 63
<INTEREST-TOTAL> 24,534
<INTEREST-DEPOSIT> 8,722
<INTEREST-EXPENSE> 14,143
<INTEREST-INCOME-NET> 10,391
<LOAN-LOSSES> 98
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 1,647
<INCOME-PRETAX> 4,036
<INCOME-PRE-EXTRAORDINARY> 2,661
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,661
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
<YIELD-ACTUAL> 7.63
<LOANS-NON> 128
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 782
<CHARGE-OFFS> 27
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 856
<ALLOWANCE-DOMESTIC> 856
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
