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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, 1997
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 Identification No.)
incorporation or organization)
W61 N526 Washington Avenue, Cedarburg, Wisconsin 53012
(Address of principal executive office) (ZipCode)
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, 1997
Common Stock, par value $1.00 per share 627,477 Shares
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FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
PAGE NO.
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PART I - Financial Information
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 8
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FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
<CAPTION>
June 30, September 30,
1997 1996
Assets (Unaudited)
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Cash and cash equivalents $ 1,395 725
Securities:
Available for sale, at market value
(amortized cost of $5,985 and $9,850,
respectively) 5,982 9,857
Held to maturity at amortized cost
(market value of $1,992 and
$1,992, respectively) 1,997 1,997
Stock in Federal Home Loan Bank, at cost 207 152
Mortgage-backed securities held to
maturity, at amortized cost
(market value of $3,300 and $3,582,
respectively) 3,387 3,721
Loans receivable, net 21,311 16,341
Foreclosed real estate held for sale, net 7 -
Premises and equipment, net 552 572
Accrued interest receivable:
Securities, certificates of deposit and
mortgage-backed securities 120 308
Loans receivable 103 75
Other assets 276 300
Total assets $ 35,337 34,048
Liabilities and Stockholders' Equity
Deposits $ 26,573 24,962
Advances from borrowers for
taxes and insurance 220 373
Other liabilities 312 559
Income taxes payable (42) (32)
Total liabilities 27,063 25,862
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;
627,477 shares issued and outstanding 627 627
Additional paid-in capital 4,045 4,032
Unearned ESOP compensation (199) (217)
Unearned BIP compensation (33) (111)
Unrealized gain (loss) on securities
available for sale, net (2) 4
Retained earnings - substantially
restricted 3,836 3,851
Total stockholders' equity 8,274 8,186
Total liabilities and stockholders' equity $ 35,337 34,048
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 1
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FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Consolidated Statements of Income
(Dollars in Thousands)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
(Unaudited)
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Interest income:
Loans receivable $ 423 324 1,237 929
Mortgage-backed securities 53 60 163 185
Securities 148 263 434 796
Total interest income 624 647 1,834 1,910
Interest expense:
Deposits 324 351 907 1,044
Escrows and borrowed funds 1 1 3 4
Total interest expense 325 352 910 1,048
Net interest income 299 295 924 862
Provision for loan losses 5 5 14 14
Net interest income after provision
for loan losses 294 290 910 848
Noninterest income:
Other fees and service charges 1 2 7 4
Deposit account fees and service charges 2 3 6 8
Gain (loss) on sale of securities available
for sale - 4 5 46
Gain (loss) on sale of loans receivable - 2 - 3
Rental income 2 3 7 7
Other - 1 1 3
Total noninterest income 5 15 26 71
General and administrative expenses:
Compensation and benefits 149 160 452 555
Occupancy and insurance expense 46 37 129 123
Data processing expense 24 24 75 76
Deposit insurance premiums 4 17 8 51
Directors' fees 6 6 20 19
Legal, auditing, examination and
accounting fees 96 23 179 156
Advertising and promotion 5 - 13 7
Stationery, communications and other
operating expenses 26 28 84 89
Total general and
administrative expenses 356 295 960 1,076
Income (loss) before income taxes (57) 10 (24) (157)
Income taxes (14) (3) (9) (42)
Net income (loss) $ (43) 13 (15) (115)
Net income (loss) per share $ (.07) .02 (.03) (.20)
Weighted-average shares outstanding 603,735 593,669 598,535 585,226
Dividends per share $ .00 .00 .00 .00
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See accompanying notes to consolidated financial statements.
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FIRST OZUAKEE CAPITAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<CAPTION>
Nine Months Ended
June 30,
1997 1996
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Cash flows from operating activities: (Unaudited)
Net earnings (loss) $ (15) (115)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used for)
operating activities:
Depreciation expense 34 34
Provision for loan losses 14 14
(Gain) loss on sale of securities available for sale (5) (46)
Gain on sale of loans receivable - (3)
ESOP expense 31 32
BIP expense 78 151
Amortization of premiums (discounts), net on
securities and MBS (1) (71)
Loans originated for sale - (285)
Proceeds from sale of loans - 288
Decrease (increase) in:
Accrued interest receivable 160 33
Other assets 24 36
Increase (decrease) in:
Other liabilities (247) (5)
Income taxes payable (7) 49
Net cash provided by (used for)
operating activities 66 112
Cash flows from investing activities:
Loans originated, net of principal
collections on loans (4,984) (2,573)
Principal collections on mortgage-backed
securities held to maturity 334 417
Securities:
Available for sale:
Purchased (5,486) (4,597)
Proceeds from sale 2,747 1,500
Proceeds from maturity or call 6,610 6,000
Held to maturity:
Proceeds from maturity or call 1,500 2,258
Purchased (1,499) (1,000)
Purchase of FHLB stock (55) -
Purchase of premises and equipment, net (14) (11)
Additions to foreclosed real estate, net (7) -
Proceeds from redemption of FHLB stock - 16
Net cash provided by (used for)
investing activities (854) 2,010
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 1,611 (1,135)
Advances from borrowers for
taxes and insurance (153) (143)
Proceeds from advance from FHLB - 500
Repayment of advance from FHLB - (500)
Net cash provided by (used for)
financing activities 1,458 (1,278)
Net increase (decrease) in cash and
cash equivalents 670 844
Cash and cash equivalents at beginning of period 725 870
Cash and cash equivalents at end of period $ 1,395 1,714
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $ 907 1,056
Interest on escrows and borrowed funds 3 4
Income taxes 7 -
Real estate acquired in settlement of loans 7 -
Noncash investing activity - transfer of securities
from held to maturity to available for sale $ - 10,430
</TABLE>
See accompanying notes to consolidated financial statements.
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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 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, 1996
contained in the 1996 Annual Report to Stockholders which is filed as an exhibit to the
Company's Annual Report on Form 10-KSB.
(2) Merger Agreement
On April 25, 1997, Central Illinois Bancorp, Inc., Sidney, Illinois and First Ozaukee Capital
Corp., Cedarburg, Wisconsin, announced that they had executed a definitive merger
agreement under which Central Illinois Bancorp, Inc. would acquire First Ozaukee Capital
Corp. in a transaction valued at approximately $9.6 million.
First Ozaukee shareholders will receive $15.10 in cash, subject to upward or downward
adjustment under certain conditions, for each share of First Ozaukee common stock. The
merger was approved on August 6, 1997 at a special meeting of the shareholders of First
Ozaukee Capital Corp. The merger is subject to various other conditions.
Central Illinois Bancorp, Inc. is the bank holding company for Central Illinois Bank,
Champaign, Illinois, Central Illinois Bank, MC, Normal Illinois and CIB, Hillside, Illinois. The
merger is expected to be completed in the fourth quarter of 1997.
<PAGE> 4
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, 1997, 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 17.4%, 35.3% and 36.1%, respectively. Wisconsin-chartered savings banks are
also required to maintain a minimum capital to assets ratio of 6%. The Bank's capital exceeds 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 8%. The Bank's liquidity ratio exceeded the regulatory requirement at June
30, 1997.
Commitments to originate adjustable-rate mortgage loans (including loans in process) at June 30,
1997 were approximately $583,000. Commitments on behalf of borrowers for unused lines of
credit on home equity loans and unused credit card lines were $1,064,000 and $142,000,
respectively.
<PAGE> 5
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Financial Condition
Proceeds from maturing, and sale of, securities available for sale were used to fund loans and
increase cash and cash equivalents. Loans increased from $16.3 million at September 30, 1996
to $21.3 million at June 30, 1997 due to the purchase of fixed-rate, single-family loans. Accrued
interest receivable on securities, certificates of deposit and mortgage-backed securities decreased
due to lower portfolio balances. Accrued interest receivable on loans increased due to timing of
interest receipts. 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.
Other liabilities decreased as a result of the payment of the SAIF special assessment and certain
other accrual items.
Results of Operations
Net Income
The Company had net income of $13,000 for the three months ended June 30, 1996 compared
to a net loss of $43,000 for the three months ended June 30, 1997. The primary reason for the
decrease in net income was due to substantially higher legal, auditing, examination and accounting
fees (professional services) related to the proposed merger of the Company, lower noninterest
income, higher occupancy and insurance expense, offset by lower expense related to stock benefit
plans. The Company's net loss of $115,000 for the nine months ended June 30, 1996 decreased
to $15,000 for the nine months ended June 30, 1997. The primary reasons for the improvement
in net income were due to higher net interest income, lower compensation expense related to the
Bank Incentive Plan (BIP) and lower deposit insurance premiums, offset by higher professional
expenses, lower noninterest income and higher income taxes.
Net Interest Income
Net interest income increased from $295,000 for the three months ended June 30, 1996 to
$299,000 for the three months ended June 30, 1997. Net interest income increased from
$862,000 for the nine months ended June 30, 1996 to $924,000 for the nine months ended June
30, 1997. Net interest margin improved in the nine months ended June 30, 1997 compared to
the 1996 period as the Bank increased loan originations, which carried higher yields than securities
and cash equivalents which funded the loans.
The increase in interest income on loans was due to a higher average portfolio balance. Interest
on mortgage-backed securities and securities decreased to primarily to lower average balances.
Components of interest income change from time to time based on market conditions and terms
of competing financial instruments. Interest expense on deposits decreased for both the three and
nine months ended June 30, 1997 as compared to the same periods in 1996 as a result of a lower
weighted-average rate, offset by a higher average balance. The Bank was more aggressive in
deposit pricing in the 1996 periods.
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 $220,000 and $100,000 at June 30, 1997 and September 30,
1996. As a result of this evaluation, the Bank's provision for loan losses for the three and nine
months ended June 30, 1996 amounted to $5,000 and $14,000, respectively. Provisions of
$5,000 and $14,000 were recorded for the three and nine months ended June 30, 1997,
respectively.
<PAGE> 6
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Noninterest Income
Noninterest income decreased from $15,000 for the three months ended June 30, 1996 to $5,000
for the three months ended June 30, 1997 due to a decrease in gain on sale of securities available
for sale, gain on sale of loans, and 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 decreased from $71,000 for the nine months ended June 30, 1996 to
$26,000 for the nine months ended June 30, 1997. The 1996 period included a gain on sale of
securities available for sale of $46,000, compared to $5,000 for the 1997 period.
General and Administrative Expenses
General and administrative expenses increased from $295,000 for the three months ended June
30, 1996 to $356,000 for the three months ended June 30, 1997. Professional services
increased due to services related to the proposed merger with Central Illinois Bancorp, Inc.
Compensation and benefits decreased from $160,000 for the three months ended June 30, 1996
to $149,000 for the three months ended June 30, 1997 due to the termination of the ESOP
effective May 1, 1997. The Bank has filed an application with the Internal Revenue Service to
terminate the Plan on that date. Advertising and promotion expense increased due to promotion
of loan products.
General and administrative expenses decreased from $1,076,000 for the nine months ended June
30, 1996 to $960,000 for the nine months ended June 30, 1997. The decrease was due to lower
compensation and benefits and deposit insurance premiums, offset by higher professional services.
Compensation and benefits decreased from $555,000 for the nine months ended June 30, 1996
to $452,000 for the nine months ended June 30, 1997 since the 1996 period includes the
immediate vesting upon the ratification of the plan. Professional services increased due to the
proposed merger, offset by a substantial decline in recurring services. Advertising and promotion
expense increased due to promotion of loan products.
Income Taxes
Income taxes fluctuated due to the level of pre-tax income.
<PAGE> 7
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, 1997 BY: Russell S. Jones
Russell S. Jones, Chairman of the Board and
President (Principal Executive Officer and
Principal Financial and Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 13950
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5982
<INVESTMENTS-CARRYING> 5884
<INVESTMENTS-MARKET> 0
<LOANS> 21311
<ALLOWANCE> 0
<TOTAL-ASSETS> 35337
<DEPOSITS> 26573
<SHORT-TERM> 0
<LIABILITIES-OTHER> 490
<LONG-TERM> 0
0
0
<COMMON> 627
<OTHER-SE> 7647
<TOTAL-LIABILITIES-AND-EQUITY> 35337
<INTEREST-LOAN> 1237
<INTEREST-INVEST> 597
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1834
<INTEREST-DEPOSIT> 907
<INTEREST-EXPENSE> 910
<INTEREST-INCOME-NET> 924
<LOAN-LOSSES> 14
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 960
<INCOME-PRETAX> (24)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
