<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-24694
ENTERPRISE FEDERAL BANCORP, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1396726
- ---------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7810 Tylersville Square Drive
West Chester, Ohio 45069
- ---------------------------------------- ---------------------------
(Address or principal executive office) (Zip Code)
(513) 755-4600
---------------------------------------------------
(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 report), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of February 1,
1997, there were issued and outstanding 2,025,828 shares of the Registrant's
Common Stock, par value $.01 per share.
<PAGE> 2
ENTERPRISE FEDERAL BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information Page
------- --------------------- ----
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition 1
(as of December 31, 1996 (unaudited) and September 30, 1996)
Consolidated Statements of Earnings for the three months 2
ended December 31, 1996 (unaudited) and 1995 (unaudited)
Consolidated Statements of Cash Flows for the three months 3
ended December 31, 1996 (unaudited) and 1995 (unaudited)
Notes to unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 9
Operations
Part II. Other Information
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Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Securities Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
i
<PAGE> 3
Enterprise Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996
--------------------- --------------------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 697 $ 736
Federal Funds sold 2,725 7,225
Interest-bearing deposits in other financial institutions 2,560 4,977
----- -----
Cash and cash equivalents 5,982 12,938
Mortgage-backed securities available for sale at market 70,287 65,482
Loans receivable - net 161,690 149,050
Office premises and equipment-at depreciated cost 3,570 3,603
Federal Home Loan Bank stock - at cost 3,500 3,000
Accrued interest receivable on loans 456 360
Accrued interest receivable on mortgage-backed securities 479 371
Accrued interest receivable on interest-bearing deposits 53 44
Goodwill and other intangible assets 43 50
Prepaid expenses and other assets 337 256
Deferred federal income tax asset --- 37
--------------------- --------------------
Total assets $246,397 $235,191
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $143,047 $139,447
Advances from Federal Home Loan Bank 70,000 60,000
Escrow deposits 392 208
Accrued interest payable 520 488
Other liabilities 743 1,703
Accrued federal income taxes 308 289
Deferred federal income taxes 172 ---
--------------------- --------------------
Total liabilities $215,182 $202,135
Commitments --- ---
Stockholders' equity
Preferred stock, no par value, 1,000,000 shares
authorized, none issued and outstanding --- ---
Common stock, $.01 par value, 4,000,000 shares authorized,
2,268,596 issued 23 23
Additional paid-in capital 22,772 22,713
Less 242,768 and 194,268 shares of treasury stock - at cost (3,707) (3,058)
Less shares acquired by employee stock benefit plans (2,274) (2,593)
Retained earnings - restricted 14,401 15,736
Unrealized gain on securities designated as available
for sale, net of related tax effects --- 235
--------------------- --------------------
Total stockholders' equity 31,215 33,056
--------------------- --------------------
Total liabilities and stockholders' equity $246,397 $235,191
===================== ====================
</TABLE>
The accompanying narrative is an integral part of these statements.
1
<PAGE> 4
Enterprise Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------------
1996 1995
----------- --------------
<S> <C> <C>
Interest income:
Loans $3,275 $2,341
Mortgage-backed securities 998 1,185
Interest-bearing deposits and other 189 208
----------- --------------
Total interest income 4,462 3,734
Interest expense:
Deposits 1,771 1,694
Borrowings 879 589
----------- --------------
Total interest expense 2,650 2,283
----------- --------------
Net interest income 1,812 1,451
Provision for losses on loans 30 ---
Net interest income after provision for losses on loans 1,782 1,451
----------- --------------
Other operating income:
Gain on sale of securities 299 626
Other operating income 28 31
----------- --------------
Total other income 327 657
----------- --------------
Operating expenses:
Employee compensation and benefits 657 659
Occupancy and equipment 96 68
Federal deposit insurance premiums 71 69
Franchise taxes 113 118
Data processing 22 33
Amortization of intangible assets 8 8
Other 104 158
------------ --------------
Total operating expenses 1,071 1,113
------------ --------------
Earnings before income taxes 1,038 995
Federal income taxes 348 370
----------- --------------
Net earnings $ 690 $ 625
=========== ==============
Earnings per share $.36 $.31
=========== ==============
</TABLE>
The accompanying narrative is an integral part of these statements.
2
<PAGE> 5
Enterprise Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------------
1996 1995
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 690 $ 625
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities - net 12 18
Amortization of deferred loan origination fees (84) (77)
Depreciation and amortization 41 29
Provision for losses on loans 30 ---
Federal Home Loan Bank Stock dividends (53) (32)
Gains on sales of securities (299) (626)
Amortization of expense related to stock benefit plans 377 105
Increase (decrease) in cash due to change in:
Accrued interest receivable (213) (94)
Prepaid expenses and other assets (81) (37)
Accrued interest payable 32 57
Other liabilities (960) 63
Federal income taxes
Current 19 8
Deferred 209 (171)
------------ ----------
Net cash provided by operating activities (280) (132)
Cash flows provided by (used in) investing activities:
Purchase of mortgage-backed securities (26,276) (36,396)
Principal repayments of mortgage-backed securities 1,216 1,037
Sale of mortgage-backed securities 20,307 33,840
Purchase of FHLB Stock (447) (423)
Loan principal repayments 4,054 4,606
Loan disbursements (16,640) (15,413)
Purchase of office premises and equipment --- (443)
------------ ----------
Net cash used in investing activities (17,786) (13,202)
------------ ----------
Net cash used in operating and investing
activities (subtotal carried forward) $(18,066) $(13,334)
------------ ----------
</TABLE>
3
<PAGE> 6
Enterprise Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
----------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Net cash used in operating and investing
activities (subtotal carried forward) $(18,066) $(13,334)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 3,600 5,713
Escrow deposits 184 168
Proceeds from Federal Home Loan Bank advances 20,000 10,000
Repayment of Federal Home Loan Bank advances (10,000) ---
Distribution to stockholders (2,025) (6,535)
Purchase of Treasury shares (649) ---
------------- ------------
Net cash provided by (used in) financing activities 11,110 9,346
------------- ------------
Net decrease in cash and cash equivalents (6,956) (3,988)
Cash and cash equivalents at beginning of period 12,938 10,670
------------- ------------
Cash and equivalents at end of period $ 5,982 $ 6,682
============= ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ --- $ 361
============= ============
Interest on deposits and borrowings $ 2,618 $ 2,226
============= ============
</TABLE>
The accompanying narrative is an integral part of these statements.
4
<PAGE> 7
ENTERPRISE FEDERAL BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation
Enterprise Federal Bancorp, Inc. (the "Corporation") was incorporated
under Ohio law in April 1994 by Enterprise Federal Savings and Loan Association
(the "Association") in connection with the conversion of the Association from a
federally chartered mutual savings and loan association to a federally
chartered stock savings bank, to be known as Enterprise Federal Savings Bank
(the "Savings Bank"), the issuance of the Association's stock to the
Corporation and the offer and sale of the Corporation's common stock by the
Corporation (the "Conversion"). Upon consummation of the Conversion on October
14, 1994, the Corporation became the unitary holding company for the Savings
Bank.
The accompanying unaudited consolidated financial statements of the Corporation
have been prepared in accordance with instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three months ended December 31, 1996 are not
necessarily indicative of the results to be expected for the year ending
September 30, 1997. The unaudited consolidated financial statements and notes
hereto should be read in conjunction with the audited financial statements and
notes thereto for the year ending September 30, 1996, contained in the
Corporation's 1996 Annual Report.
Note 2 - Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Corporation and the Savings Bank. All significant intercompany
items have been eliminated.
Note 3 - Earnings Per Share
Earnings per share for the three months ended December 31, 1996 were
calculated assuming 2,014,901 shares were issued and outstanding during the
period. Earnings per share for the three month period ended December 31, 1996
were calculated assuming 1,943,000 shares were issued and outstanding during
the period.
5
<PAGE> 8
Note 4 - Effects of Recent Accounting Pronouncements
In December 1991, the Financial Accounting Standards Board ("FASB")
adopted Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures About Fair Value of Financial Instruments," which became effective
for fiscal years ending after December 15, 1992, for institutions with assets
of more than $150 million. For institutions with less than $150 million in
assets, SFAS No. 107 became effective for fiscal years ending after December
15, 1995. SFAS No. 107 requires disclosure of the fair value of financial
instruments, both assets and liabilities, recognized and not recognized in the
statement of financial condition, for which it is practical to estimate fair
value. SFAS No. 107 only requires disclosure of fair values and has no impact
on the Company's consolidated net earnings or financial condition.
In May 1993, FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," SFAS No. 114, which is effective for fiscal years
beginning after December 15, 1994, requires that impaired loans be measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as an alternative, at the loan's observable
market price or fair value of the collateral. The Bank's loans which might be
affected by SFAS No. 114 are generally collateral dependent, and the Bank's
current procedures for evaluating impaired loans result in carrying such loans
at the lower of cost or fair value. The Company adopted SFAS No. 114 on
October 1, 1995, as required, without material effect on consolidated financial
condition or results of operations.
In October 1994, the FASB issued SFAS No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments."
SFAS No. 119 requires financial statement disclosure of certain derivative
financial instruments, defined as futures, forwards, swaps, option contracts,
or other financial instruments with similar characteristics. In the opinion of
management, SFAS No. 119 will have no material effect on the Company's
consolidated financial condition or results of operations, as the Company does
not invest in derivative financial instruments, as defined. As a result, the
applicability of SFAS No. 119 relates solely to disclosure requirements
pertaining to fixed-rate and adjustable-rate loan commitments.
In June 1994, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights," which requires that the Company recognize as separate
assets, rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. An institution that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells
those loans with servicing rights retained would allocate some of the cost of
the loans to the mortgage servicing rights.
SFAS No. 122 requires that securitizations of mortgage loans be
accounted for as sales of mortgage loans and acquisitions of mortgage-backed
securities. Additionally, SFAS No. 122 requires that capitalized mortgage
servicing rights and capitalized excess
6
<PAGE> 9
servicing receivables be assessed for impairment. Impairment is measured based
on fair value.
SFAS No. 122 would be applied prospectively to fiscal years beginning
after December 15, 1995, (October 1, 1996, as to the Company) to transactions
in which an entity acquires mortgage servicing rights and to impairment
evaluations of all capitalized mortgage servicing rights and capitalized excess
servicing receivables whenever acquired. Retroactive application is
prohibited. The Company's management believes that SFAS No. 122 will not have
a material effect on the Company's consolidated financial position or results
of operations.
In October 1995, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based Compensation," establishing financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
all entities to adopt a new method of accounting to measure compensation cost
of all employee stock compensation plans based on the estimated fair value of
the award at the date it is granted. Companies are, however, allowed to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting, which generally does not result in compensation
expense recognition for most plans. Companies that elect to remain with the
existing accounting are required to disclose in a footnote to the financial
statements pro forma net earnings, and, if presented, earnings per share, as if
SFAS No. 123 has been adopted. The accounting requirements of SFAS No. 123 are
effective for transactions entered into during fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
Management has determined that the Company will continue to account for
stock-based compensation pursuant to Accounting Principles Board Opinion No.
25, and therefore SFAS No. 123 will have no effect on its consolidated
financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
of Financial Assets, Servicing Rights, and Extinguishment of Liabilities," that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces
an approach to accounting for transfers of financial assets that provides a
means of dealing with more complex transactions in which the seller disposes of
only a partial interest in the assets, retains rights or obligations, makes use
of special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, referred
to as the financial components approach, provides that the carrying amount of
the financial assets transferred be allocated to components of the transaction
based on their relative fair values. SFAS No. 125 provides criteria for
determining whether control of assets has been relinquished and whether a sale
has occurred. If the transfer does not qualify as a sale, it is accounted for
as a secured borrowing. Transactions subject to the provisions of SFAS No. 125
include among others, transfers involving repurchase agreements,
securitizations of financial assets, loan participations, factoring
arrangements and transfers of receivables with recourse.
7
<PAGE> 10
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing contract
(unless related to a securitization of assets, and all the securitized assets
are retained and classified as held-to-maturity). A servicing asset or
liability that is purchased or assumed is initially recognized at its fair
value. Servicing assets and liabilities are amortized in proportion to and
over the period of estimated net servicing income or net servicing loss and are
subject to subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance
sheet only if the debtor either pays the creditor and is relieved of its
obligation for the liability or is legally released from being the primary
obligor.
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. Management does not believe that adoption of SFAS No. 125 will
have a material adverse effect on the Company's consolidated financial position
or results of operation.
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Corporation's assets totaled $246.4 million at December 31, 1996
compared to $235.2 million at September 30, 1996. This $11.2 million or 4.8%
increase was primarily due to a $12.6 million or 8.5% increase in loans
receivable, net and a $4.8 million or 7.3% increase in mortgage-backed
securities which were partially offset by a $7.0 million or 53.8% decrease in
cash and cash equivalents. Total liabilities amounted to $215.2 million at
December 31, 1996 compared to $202.1 million at September 30, 1996. This
increase was primarily due to a $3.6 million or 2.6% increase in deposits and a
$10.0 million or 16.7% increase in advances from the Federal Home Loan Bank
("FHLB") of Cincinnati. Total stockholders' equity decreased $1.8 million or
5.6% to $31.2 million at December 31, 1996 compared to $33.1 million at
September 30, 1996. The funds from the increase in deposits and FHLB advances
were used to fund loan originations and purchase mortgage-backed securities.
The decrease in stockholders' equity was primarily due to the payment of a
$1.00 per share dividend on December 26, 1996 to stockholders of record on
December 14, 1996 and the repurchase of 43,500 shares of common stock. The
dividend distribution amounted to $2.0 million, while the total cost of the
stock repurchase was $649,000 which were partially offset by net income of
$690,000 during the three months ended December 31, 1996.
RESULTS OF OPERATIONS
NET INCOME. The Corporation's net income amounted to $690,000 for the
three months ended December 31, 1996 compared to $625,000 for the comparable
period in 1995. The $65,000 or 10.4% increase was due primarily to an increase
in interest income, partially offset by a decrease in other income.
NET INTEREST INCOME. Net interest income before provision for loan
losses increased $361,000 or 24.9% to $1.8 million for the three months ended
December 31, 1996 compared to the same period in 1995. Net interest income is
determined by the Corporation's interest rate spread (i.e., the difference
between the yields earned on its interest-earning assets and the rates paid on
its interest-bearing liabilities) and the relative amounts of interest-earning
assets and interest-bearing liabilities. The increase in net interest income
was due to the increase in the interest-earning assets for the 1996 period
compared to the 1995 period. The increase in interest-earning assets was
primarily due to the leveraging of the Corporation's capital and the increased
origination of loans.
9
<PAGE> 12
INTEREST INCOME. Interest income amounted to $4.5 million for the
three months ended December 31, 1996 compared to $3.7 million for the same
period in 1995. The increase of $728,000 or 19.5% was primarily due to an
increase of $934,000 in interest income on loans. Such increase was primarily
due to an increase in the average balance of such assets due to increased loan
demand.
INTEREST EXPENSE. Interest expense increased $367,000 or 25.3% to
$2.7 million for the three months ended December 31, 1996 compared to the same
period in 1995 as a result of an increase in interest expense on both deposits
and borrowed money. Interest expense on deposits increased $77,000 or 4.5% due
to an increase in the average balance of deposits while interest expense on
borrowed money increased $290,000 or 49.2% due to an increase in the average
balance of borrowed money.
OTHER INCOME. Other income amounted to $327,000 and $657,000 during
the three months ended December 31, 1996 and 1995, respectively. The $330,000
decrease from the 1995 period to the 1996 period was primarily due to a
$327,000 decrease in gains on sales of securities as a result of decreased
sales activity.
OPERATING EXPENSES. Operating expenses decreased $42,000 or 3.8% to
$1.1 million for the three months ended December 31, 1996 compared to $1.1
million for the three months ended December 31, 1995. Such decrease was
primarily due to a $54,000 or 34.2% decrease in other expenses which was
partially offset by a $28,000 or 41.2% increase in occupancy and equipment
expense which increased due to the opening of the new corporate headquarters
and relocation of an existing branch.
FEDERAL INCOME TAXES. Federal income taxes amounted to $348,000 and
$370,000 for the three months ended December 31, 1996 and 1995, respectively,
resulting in effective tax rates of 33.5% and 37.2%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds are deposits, repayments,
prepayments and maturities of outstanding loans and mortgage-backed securities
and funds provided from operations. While scheduled loan and mortgage-backed
securities repayments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by the movement of interest
rates in general, economic conditions and competition. The Corporation manages
the pricing of its deposits to maintain a deposit balance deemed appropriate
and desirable. In addition, the Corporation invests excess funds in FHLB
overnight deposits and other short-term interest-earning assets which provide
liquidity to meet lending requirements. As an additional source of funds, the
Corporation has borrowed funds from the FHLB of Cincinnati and has access to
the Federal Reserve Bank discount window. At December 31, 1996, the
Corporation had $70.0 million of FHLB advances outstanding.
10
<PAGE> 13
Liquidity management is both a daily and long term function. Excess
liquidity is generally invested in short-term investments such as FHLB of
Cincinnati overnight deposits. On a longer-term basis, the Corporation
maintains a strategy of investing in various mortgage-backed securities and
lending products. During the three month periods ended December 31, 1996 and
1995, the Corporation used its sources of funds primarily to meet its ongoing
commitments to pay maturing savings certificates and savings withdrawals, fund
loan commitments and maintain its portfolio of mortgage-backed securities. At
December 31, 1996, the total approved loan commitments outstanding amounted to
$540,000. At the same time, the Corporation had $7.1 million of commitments
under unused lines and letters of credit and the unadvanced portion of
construction loans approximated $10.7 million. Certificates of deposit
scheduled to mature in one year or less at December 31, 1996 totaled $51.4
million. Management of the Corporation believes that the Corporation has
adequate resources, including principal prepayments and repayments of loans and
mortgage-backed securities, to fund all of its commitments to the extent
required. In addition, although the Corporation has extended commitments to
fund loans or lines and letters of credit, historically, the Corporation has
not been required to fund all of its outstanding commitments. Management
believes that a significant portion of maturing deposits will remain with the
Corporation.
The Savings Bank is required by the Office of Thrift Supervision
("OTS") to maintain average daily balances of liquid assets and short-term
liquid assets (as defined) in amounts equal to 5% and 1% respectively, of net
withdrawal deposits and borrowings payable in one year or less to assure its
ability to meet demand for withdrawals and repayments of short-term borrowings.
The liquidity requirements may vary from time to time at the direction of the
OTS depending upon economic conditions and deposit flows. The Savings Bank
generally maintains a liquidity ratio of between 5% and 10% of its net
withdrawable deposits and borrowings payable in one year or less. The Savings
Bank's average monthly liquidity ratio and short-term liquid assets ratio for
December 1996 was 6.1%. As of December 31, 1996, the Savings Bank's regulatory
capital substantially exceeded all regulatory capital requirements as
demonstrated in the table below.
<TABLE>
<CAPTION>
Regulatory Capital
----------------------------------------------------------------------------------------------
Tangible Core Risk-based
Capital Percent Capital Percent Capital Percent
---------- ----------- ------------ ---------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital under generally accepted
accounting principles $28,543 $28,543 $28,543
Goodwill (43) (43) (43)
General valuation allowances ---- ---- 440
---------- ------------ ----------
Regulatory capital computed 28,500 11.6 28,500 11.6 28,940 21.9
Minimum capital requirement 3,691 1.5 7,382 3.0 10,572 8.0
---------- ----------- ------------ ---------- ---------- -----------
Regulatory capital - excess $24,809 10.1 $21,118 8.6 $18,368 13.9
========== =========== ============ ========== ========== ===========
</TABLE>
11
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IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements of the Corporation and related
notes represented herein have been prepared in accordance with generally
accepted accounting principles which require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of financial institutions are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates. In the current interest rate environment,
liquidity and the maturity structure of the Corporation's assets and
liabilities are critical to the maintenance of acceptable performance levels.
RECENT LEGISLATION
The deposits of the Savings Bank are currently insured by the Savings
Association Insurance Fund ("SAIF"). Both the SAIF and the Bank Insurance Fund
("BIF"), the federal deposit insurance fund that covers commercial bank
deposits, are required by law to attain and thereafter maintain a reserve ratio
of 1.25% of insured deposits. The BIF had achieved a fully funded status in
contrast to the SAIF and, therefore, the Federal Deposit Insurance Corporation
("FDIC") substantially reduced the average deposit insurance premium paid by
commercial banks to a level approximately 75% below the average premium paid by
insured institutions.
The underfunded status of the SAIF resulted in the introduction of
federal legislation intended to, among other things, recapitalize the SAIF and
address the resulting premium disparity. On September 30, 1996, The Omnibus
Appropriations Act was signed into law. The legislation authorized a one-time
charge on SAIF insured deposits at a rate of $.657 per $100.00 of March 31,
1995 deposits. As a result, the Savings Bank's assessment amounted to $770,000
($508,000 net of tax). Additional provisions of the Act include new BIF and
SAIF premiums and the merger of BIF and SAIF. The new BIF and SAIF premiums
will include a premium for repayment of the Financing Corporation ("FICO")
bonds plus any regular insurance assessment, currently nothing for the lowest
risk category institutions. Until full pro-rata FICO sharing is in effect, the
FICO premiums for BIF and SAIF will be 1.3 and 6.4 basis points, respectively,
beginning January 1, 1997. Full pro-rata FICO sharing is to begin no later
than January 1, 2000. BIF and SAIF are to be merged on January 1, 1999,
provided the bank and savings association charters are merged by that date.
While the one-time assessment had a significant impact on fiscal 1996 earnings,
the resulting lower annual premiums will benefit future earnings.
12
<PAGE> 15
ENTERPRISE FEDERAL BANCORP, INC. AND SUBSIDIARY
PART II
Item 1. Legal Proceedings
Neither the Corporation nor the Savings Bank is involved in any
pending legal proceedings other than non-material legal proceedings
occurring in the ordinary course of business.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not required.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
13
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SIGNATURE
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.
ENTERPRISE FEDERAL BANCORP, INC.
Date: February 7, 1997 By: /s/ Otto L. Keeton
------------------------------------
Otto L. Keeton
President & Chief Executive Officer
Date: February 7, 1997 By: /s/ Thomas J. Noe
------------------------------------
Thomas J. Noe
Vice President and Chief Financial Officer
14
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