<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 5TH STREET, N.W.
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to Commission File No.
0-24664
FIRST OZAUKEE CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1781744
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
W61 N526 Washington Avenue, Cedarburg, Wisconsin 53012
Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (414) 377-0750
Not applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding July 31, 1996
Common Stock, par value $1.00 per share 627,478 Shares
<PAGE>
FIRST OZAUKEE CAPITAL CORP.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
<TABLE>
<S>
<C>
PART I - Financial Information (Unaudited)
Consolidated Statements of Financial Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - Other Information 9
</TABLE>
<PAGE> 1
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Financial Condition
(Dollars in Thousands)
<CAPTION>
June 30, September 30,
1996 1995
Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 1,714 870
Securities:
Available for sale, at market value (amortized
cost of $12,033 and $4,490, respectively) 12,042 4,506
Held to maturity at amortized cost (market
value of $1,990 and $13,662, respectively) 1,998 13,587
Stock in Federal Home Loan Bank, at cost 152 168
Mortgage-backed securities held to maturity,
at amortized cost (market value of $3,683
and $4,147, respectively) 3,831 4,248
Loans receivable, net 16,306 13,747
Premises and equipment, net 583 606
Accrued interest receivable:
Securities and certificates of deposit 267 291
Mortgage-backed securities 19 21
Loans receivable 50 57
Other assets, including prepaid income
taxes of $31 in 1995 49 81
Total assets $ 37,011 38,182
Liabilities and Stockholders' Equity
Deposits $ 28,214 29,349
Advances from borrowers for taxes and insurance 253 396
Other liabilities 237 242
Income taxes payable 49 -
Total liabilities 28,753 29,987
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000
shares authorized; shares issued - none - -
Common stock, $1.00 par value; 4,000,000
shares authorized; 627,478 and 603,345
shares issued, respectively 627 603
Additional paid-in capital 4,028 3,735
Unearned ESOP compensation (223) (241)
Unearned BIP compensation (152) -
Unrealized gain (loss) on securities available
for sale, net 5 10
Retained earnings - substantially restricted 3,973 4,088
Total stockholders' equity 8,258 8,195
Total liabilities and stockholders' equity $ 37,011 38,182
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 2
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Income
(Dollars in Thousands)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
<C> <C> <C> <C>
<S>
Interest income:
Loans receivable $ 324 277 929 791
Mortgage-backed securities 60 70 185 215
Securities and other interest-
earning assets 263 291 796 798
Total interest income 647 638 1,910 1,804
Interest expense:
Deposits 351 354 1,044 911
Escrows and borrowed funds 1 1 4 4
Total interest expense 352 355 1,048 915
Net interest income 295 283 862 889
Provision for loan losses 5 5 14 14
Net interest income after
provision for loan losses 290 278 848 875
Noninterest income:
Service charges on deposit accounts 3 3 8 7
Gain (loss) on sale of securities
available for sale 4 - 46 -
Gain (loss) on sale of loans
receivable 2 - 3 -
Gain (loss) on sale of premises
and equipment - - - 36
Rental income 3 2 7 9
Other 3 1 7 4
Total noninterest income 15 6 71 56
Noninterest expense:
Compensation and benefits 160 128 555 361
Occupancy expense 37 39 123 130
Data processing expense 24 25 76 70
Deposit insurance premium 17 17 51 52
Directors' fees 6 6 19 18
Professional services 23 66 156 94
Advertising - 4 7 28
Other 28 19 89 73
Total noninterest expense 295 304 1,076 826
Earnings (loss) before
income taxes 10 (20) (157) 105
Income taxes (3) (8) (42) 41
Net earnings (loss) $ 13 (12) (115) 64
Net earnings (loss) per share $ .02 (.02) (.20) .11
Weighted-average shares outstanding 593,669 573,178 585,226 573,178
Dividends per share $ .00 .00 .00 .00
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
This section will contain the Statement of Stockholders' Equity
located at the begining of this document.
<PAGE> 4
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1996 1995
(Unaudited)
<C> <C>
<S>
Cash flows from operating activities:
Net earnings (loss) $ (115) 64
Adjustments to reconcile net earnings (loss)
to net cash provided by (used for) operating
activities:
Depreciation expense 34 38
Provision for loan losses 14 14
Gain on sale of securities available for sale (46) -
Gain on sale of loans receivable (3) -
FHLB stock dividends - (3)
ESOP expense 32 -
BIP expense 151 -
Amortization of premiums (discounts), net
on securities and MBS (71) 24
Loss (gain) on sale of premises and equipment - (36)
Loans originated for sale (285) -
Proceeds from sale of loans 288 -
Decrease (increase) in:
Accrued interest receivable 33 (98)
Other assets 36 182
Increase (decrease) in:
Other liabilities (5) 45
Income taxes payable 49 (18)
Net cash provided by (used for) operating
activities 112 212
Cash flows from investing activities:
Loans originated, net of principal collections
on loans (2,573) (775)
Principal collections on mortgage-backed
securities held to maturity 417 396
Securities:
Available for sale:
Purchased (4,597) (6,482)
Proceeds from sale 1,500 -
Proceeds from maturity or call 6,000 2,550
Held to maturity:
Proceeds from maturity or call 2,258 -
Purchased (1,000) -
Proceeds from sale (purchases) of premises
and equipment, net (11) 115
Proceeds from redemption of FHLB stock 16 -
Net cash provided by (used for)
investing activities 2,010 (4,196)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (1,135) (2,749)
Advances from borrowers for taxes and insurance (143) (138)
Proceeds from advance from FHLB 500 300
Repayment of advance from FHLB (500) (300)
Net proceeds from sale of common stock - 4,097
Net cash provided by (used for)
financing activities (1,278) 1,210
Net increase (decrease) in cash and
cash equivalents 844 (2,774)
Cash and cash equivalents at beginning of period 870 4,575
Cash and cash equivalents at end of period $ 1,714 1,801
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $ 1,056 911
Interest on escrows and borrowed funds 4 4
Income taxes - 105
Real estate acquired in settlement of loans - -
Noncash investing activity - transfer of
securities from held to maturity to
available for sale $ 10,430 -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1)The information contained in the accompanying consolidated
financial statements is unaudited. In the opinion of management, the
consolidated financial statements contain all adjustments (none of
which were other than normal recurring entries) necessary for a fair
statement of the results of operations for the interim periods.
The results of operations for the interim periods are not
necessarily indicative of the results which may be expected for
the entire fiscal year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements of the Company for the year ended September 30, 1995
contained in the 1995 Annual Report to Stockholders which is filed as
an exhibit to the Company's Annual Report on Form 10-KSB.
(2) Proposals have been introduced in the U.S. Congress which, if
adopted, would overhaul the savings association industry. The most
significant of these proposals would recapitalized the SAIF through a
one-time special assessment of approximately 85 basis points on the
amount of deposits held by the institution. Should the Bank be
required to pay such special assessment, the Bank's capital will be
reduced by approximately $152,000, based on deposits of $28.3 million
at June 30, 1996 and a tax rate of 37%. In the event the assessment
is not deductible for tax purposes, capital would be reduced by
approximately $240,000. Management cannot predict whether the special
assessment proposal will be enacted, or, if enacted, the amount of any
one-time fee or the date to be used for determining deposits on which
the assessment will be based.
(3)On November 7, 1995, the stockholders of First Ozaukee Capital
Corp. ratified the 1995 Stock Option Plan. Of the 60,334 shares
reserved for issuance under the Stock Option Plan, 36,202 shares were
awarded to the President and CEO of the Company and the remaining
shares were awarded to non-employee directors of the Company. The
stock options were awarded at $12.44 per share which was equal to the
market value of the Company's common stock at the date of grant. At
June 30, 1996 there were 20,111 shares exercisable.
On November 7, 1995, the stockholders ratified the Bank Incentive Plan
(BIP). Of the 24,133 shares reserved for issuance under the BIP,
awards of 21,117 shares in November, 1995 and 3,016 shares in January
1996 were made to key officers of the Bank. One-third of the
compensation expense (amount of the fair market value of the common
stock at the date of grants) was recognized on the award dates and the
balance will be recognized on a pro rata basis through November 7,
1997.
(4)The Company reclassified marketable debt securities of $10.4
million from held to maturity to available for sale in December 1995.
The unrealized gains on these securities at the date of transfer
amounted to $107,000. Stockholders' equity is expected to increase or
decrease in the future to the extent (net of income tax effect) that
the market value of securities increase or decrease.
(5)Earnings per share are based upon the weighted-average shares
outstanding. Earnings per share for the nine months ended June 30,
1995 are stated on a pro forma basis as if the shares were outstanding
for the entire period. ESOP shares which have been committed to be
released are considered outstanding.
<PAGE> 6
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
First Ozaukee Capital Corp. (Company) has no significant assets other
than common stock of First Ozaukee Savings Bank (Bank), cash and cash
equivalents, securities and the loan to the ESOP. The Company's
principal business is the business of the Bank. Therefore, the
information in the Management's Discussion and Analysis of Financial
Condition and Results of Operations relates to the Bank and its
operations.
Certain statements in this report which relate to the Company's plans,
objectives or future performance may be deemed to be forward-looking
statements within the meaning of Private Securities Litigation Act of
1996. Such statements are based on management's current expectations.
Actual strategies and results in future periods may differ materially
from those currently expected because of various risks and
uncertainties. Additional discussion of factors affecting the
Company's business and prospects is contained in periodic filings with
the Securities and Exchange Commission.
Liquidity and Capital Resources
The Bank's principal sources of funds are cash receipts from deposits,
principal collections on loans and mortgage-backed securities,
proceeds from maturities of securities, and net earnings. The Bank
has an agreement with the Federal Home Loan Bank to provide cash
advances, should the need for additional funds be required. The
financial institution industry historically has accepted interest rate
risk as a part of its operating philosophy. In recent years, the Bank
has originated primarily mortgage loans which permit adjustment of the
interest rate annually after an initial fixed-rate term of three years
in order to reduce inherent interest rate risk.
The Bank is required to maintain minimum amounts of capital to total
"risk-weighted" assets, as defined by the banking regulators. At June
30, 1996, the Bank is required to have a minimum 3% Tier 1 capital to
total assets, a minimum 4% Tier 1 capital to risk-weighted assets
ratio and a minimum 8% of qualifying total capital to risk-weighted
assets ratio. The Bank's actual ratios at that date were 16.29%,
32.17% and 32.88%, respectively. Wisconsin-chartered savings banks
are also required to maintain a minimum capital to assets ratio of 6%.
The Bank's capital exceeded all minimum standards required by federal
and state regulations.
For regulatory purposes, liquidity is measured as a ratio of cash and
certain investments to withdrawable deposits and short-term
borrowings. The minimum level of liquidity required by regulation is
presently 5%. The Bank's liquidity ratio was over 50% at June 30,
1996.
Commitments to originate adjustable-rate mortgage loans (including
loans in process) at June 30, 1996 were approximately $873,000.
Commitments on behalf of borrowers for unused lines of credit on home
equity loans and unused credit card lines were $898,000 and $117,000,
respectively.
<PAGE>
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Financial Condition
Proceeds from sale and maturity of securities were used to fund loans
and purchase securities. During December 1995, the Bank reclassified
approximately $10.4 million of debt securities as available for sale
under a recent interpretation of Statement of Financial Accounting
Standards (SFAS) No. 115. An unrealized gain on securities available
for sale, net of tax effect, of $5,000 has been recognized as a
component of stockholders' equity as of June 30, 1996. Debt
securities of the Company remain in the held to maturity
classification. Stockholders' equity is expected to increase or
decrease in the future to the extent, net of income tax effect, that
the market value of securities held for sale increase or decrease.
Accrued interest on securities and certificates of deposit and accrued
interest on loans decreased Other assets and income taxes fluctuated
due to timing of corporate income tax payments. Advances from
borrowers for taxes and insurance decreased as a result of seasonal
factors. Real estate taxes are paid on behalf of customers in
December of each year.
Results of Operations
Net Earnings
The Company incurred a net loss of $12,000 for the three months ended
June 30, 1995 compared to net earnings of $13,000 for the three months
ended June 30, 1996. The primary reason for the improvement in net
earnings was due to reduced professional services, offset by higher
compensation related to stock benefit plans. The Bank established an
Employee Stock Ownership Plan (ESOP) in connection with the conversion
from mutual to stock form, and a Bank Incentive Plan (BIP) effective
November 7, 1995. Net earnings for the 1996 period was also affected
by a slight improvement in net interest income and higher noninterest
income.
Net earnings decreased from $64,000 for the nine months ended June 30,
1995 to a net loss of $115,000 for the nine months ended June 30,
1996. The decrease was due primarily to substantially higher
compensation related to stock benefit plans, and substantially higher
professional services.
Compensation and benefits includes BIP expense in the three and nine
month periods ended June 30, 1996, with no expense in the comparable
1995 periods.
Net Interest Income
Net interest income increased from $283,000 for the three months ended
June 30, 1995 to $295,000 for the three months ended June 30, 1996.
Net interest income decreased from $889,000 for the nine months ended
June 30, 1995 to $862,000 for the nine months ended June 30, 1996.
The increase in interest income was due to higher interest income on
loans. Interest income on loans increased as a result of a higher
portfolio yield and average balance. Interest expense on deposits
increased for the nine months ended June 30, 1996 as compared to the
same period in 1995 as a result of a higher weighted-average rate.
Interest expense on deposits decreased for the three months ended June
30, 1996 as compared to the same period in 1995 due to a lower average
balance, which offset a higher weighted-average rate.
<PAGE>
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Provision for Loan Losses
Provision for loan losses is based upon management's consideration of
economic conditions which may affect the ability of borrowers to repay
the loans. Management also reviews individual loans for which full
collectibility may not be reasonably assured and considers, among
other matters, the risks inherent in the Bank's portfolio and the
estimated fair value of the underlying collateral. This evaluation is
ongoing and results in variations in the Bank's provision for loan
losses. Nonperforming loans amounted to $168,000 and $88,000 at June
30, 1996 and September 30, 1995, respectively. As a result of this
evaluation, the Bank's provision for loan losses for the nine and
three months ended June 30, 1995 amounted to $14,000 and $5,000,
respectively. A provision of $14,000 and $5,000 was recorded for the
nine and three months ended June 30, 1996, respectively.
Noninterest Income
Noninterest income increased from $6,000 for the three months ended
June 30, 1995 to $15,000 for the three months ended June 30, 1996 due
to an increase in gain on sale of securities available for sale, gain
on sale of loans, and higher other noninterest income. Gain on sale
of securities available for sale is not a stable source of income and
no assurance can be given that the Bank will generate such gains in
the future.
Noninterest income increased from $56,000 for the nine months ended
June 30, 1995 to $71,000 for the nine months ended June 30, 1996. The
1996 period included a gain on sale of securities available for sale
of $46,000. The 1995 period included a $36,000 gain on sale of
premises and equipment. Other nonoperating income also increased in
the 1996 period.
Noninterest Expense
Noninterest expense decreased from $304,000 for the three months ended
June 30, 1995 to $295,000 for the three months ended June 30, 1996.
Professional services were reduced substantially from $66,000 in 1995
to $23,000 in 1996. The 1995 professional fees include initial
services for stock benefit plans and assistance with periodic
securities filings. Management expects ongoing professional fees to
be reduced from the 1995 level. Compensation and benefits increased
from $128,000 for the three months ended June 30, 1995 to $160,000 for
the three months ended June 30, 1996 due to implementation of the BIP
effective November 7, 1995.
Noninterest expense increased from $826,000 for the nine months ended
June 30, 1995 to $1,076,000 for the nine months ended June 30, 1996.
The increase was due to higher compensation and benefits and
professional services. Compensation and benefits increased from
$361,000 for the nine months ended June 30, 1995 to $555,000 for the
nine months ended June 30, 1996 as a result of implementation of the
BIP and the hiring of one additional employee. Professional services
increased due to legal and other fees associated with operating as a
public company. Other noninterest expense increased due to other
costs associated with operating as a public company. Advertising
decreased as a result of loan promotions in the 1995 periods.
Income Taxes
Income taxes fluctuated due to the level of pre-tax earnings.
<PAGE> 9
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
PART II - Other Information
Item 1 - Legal Proceeding
There are no material legal proceedings to which the Holding Company
or the Bank is a party or of which any of their property is subject.
From time to time, the Bank is a party to various legal proceedings
incident to its business.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K.
(a)Exhibits: none
(b)Reports on Form 8-K: No reports on Form 8-K have been filed during
the quarter for which this report is filed.
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 OZAUKEE CAPITAL CORP.
(Registrant)
DATE: August 13, 1996 BY: Russell S. Jones
Russell S. Jones, Chairman of the
Board and President (Principal
Executive Officer and Principal
Financial and Accounting Officer)
