SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10-Q
(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, 2000
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 number 0-24648
FSF FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Minnesota 41-1783064
--------- ----------
(State or other jurisdiction of incorporation (IRS employer identification no.)
or organization)
201 Main Street South, Hutchinson, Minnesota 55350-2573
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (320) 234-4500
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check 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. Yes X No
----- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicated the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date August 9, 2000.
--------------
Class Outstanding shares
----- ------------------
$.10 par value common stock 2,429,455 shares
<PAGE>
FSF FINANCIAL CORP. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Materially Important Events 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999 *
-------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 16,060 $ 19,265
Securities available for sale, at fair value:
Equity securities 19,209 19,284
Mortgage-backed and related securities 15,926 15,979
Debt securities 12,588 12,794
Securities held to maturity, at amortized cost:
Debt securities (fair value of $17,918 and $18,999) 19,386 19,937
Mortgage-backed and related securities (fair value of $25,945 and $26,338) 27,095 27,587
Loans held for sale 4,919 5,334
Loans receivable, net 320,596 278,290
Foreclosed real estate 73 323
Accrued interest receivable 3,930 3,328
Premises and equipment 5,446 5,314
Other assets 10,861 10,659
--------- ---------
Total assets $ 456,089 $ 418,094
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Demand deposits $ 35,144 $ 32,952
Savings accounts 77,104 65,554
Certificates of deposit 160,340 133,145
--------- ---------
Total deposits 272,588 231,651
Federal Home Loan Bank borrowings 140,000 140,967
Advances from borrowers for taxes and insurance 414 669
Other liabilities 3,454 2,482
--------- ---------
Total liabilities 416,456 375,769
--------- ---------
Stockholders' equity:
Serial preferred stock, no par value 5,000,000 shares
authorized, no shares issued - -
Common stock, $.10 par value 10,000,000 shares authorized,
4,501,277 and 4,501,277 shares issued 450 450
Additional paid in capital 43,369 43,292
Retained earnings, substantially restricted 28,332 26,627
Treasury stock at cost (2,066,822 and 1,695,390 shares) (29,153) (24,575)
Unearned ESOP shares at cost (136,088 and 162,798 shares) (1,361) (1,628)
Unearned MSP stock grants at cost (42,964 and 49,825 shares) (455) (528)
Accumulated comprehensive loss (1,549) (1,313)
--------- ---------
Total stockholders' equity 39,633 42,325
--------- ---------
Total liabilities and stockholders' equity $ 456,089 $ 418,094
========= =========
</TABLE>
--------------------------------------------------------------------------------
* The consolidated statements of financial condition at September 30, 1999 have
been taken from the audited statements of financial condition of and for that
date.
See Notes to Unaudited Consolidated Financial Statements
1
<PAGE>
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For Three Months For Nine Months
Ended June 30, Ended June 30,
------------------------------------------
2000 1999 2000 1999
------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 7,073 $ 5,586 $19,505 $17,079
Mortgage-backed and related securities 598 576 1,943 1,706
Investment securities 751 1,105 2,305 3,227
------- ------- ------- -------
Total interest income 8,422 7,267 23,753 22,012
Interest expense:
Deposits 2,945 2,540 7,938 7,748
Borrowed funds 2,109 1,986 6,128 6,004
------- ------- ------- -------
Total interest expense 5,054 4,526 14,066 13,752
------- ------- ------- -------
Net interest income 3,368 2,741 9,687 8,260
Provision for loan losses 54 114 162 342
------- ------- ------- -------
Net interest income after provision for loan losses 3,314 2,627 9,525 7,918
Non-interest income:
Gain on sale of loans, net 246 624 838 1,897
Other service charges and fees 168 217 605 600
Service charges on deposit accounts 315 264 923 692
Commission income 294 226 828 672
Other 97 45 378 72
------- ------- ------- -------
Total non-interest income 1,120 1,376 3,572 3,933
------- ------- ------- -------
Non-interest expense:
Compensation and benefits 1,637 1,834 5,215 5,087
Occupancy and equipment 356 423 1,028 970
Deposit insurance premiums 13 34 59 100
Data processing 179 160 510 424
Professional fees 112 78 279 233
Other 573 591 1,692 1,550
------- ------- ------- -------
Total non-interest expense 2,870 3,120 8,783 8,364
------- ------- ------- -------
Income before provision for income taxes 1,564 883 4,314 3,487
Income tax expense 610 358 1,682 1,427
------- ------- ------- -------
Net income $ 954 $ 525 $ 2,632 $ 2,060
======= ======= ======= =======
Basic earnings per share $ 0.41 $ 0.20 $ 1.08 $ 0.77
Diluted earnings per share $ 0.40 $ 0.19 $ 1.05 $ 0.74
Cash dividend declared per common share $ 0.125 $ 0.125 $ 0.375 $ 0.375
Comprehensive income $ 868 $ 444 $ 2,396 $ 1,475
======= ======= ======= =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
2
<PAGE>
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
June 30, June 30,
------------------------- --------------------------
2000 1999 2000 1999
------------------------- --------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 955 $ 525 $ 2,632 $ 2,060
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 145 131 429 336
Net amortization of discounts and premiums on securities
held to maturity (7) (13) (32) (32)
Provision for loan losses 54 114 162 342
Net market value adjustment on ESOP shares 17 14 52 80
Amortization of ESOP and MSP stock compensation 93 194 358 506
Amortization of intangibles 32 30 88 76
Net gain on sale of assets (17) - (139) (11)
Net loan fees deferred and amortized (88) 45 (113) (61)
Loans originated for sale (12,630) (30,904) (41,131) (116,450)
Loans sold 11,823 31,758 41,546 117,804
(Increase) decrease in:
Accrued interest receivable (596) (62) (602) 71
Other assets (137) 54 (259) 179
Increase (decrease) in other liabilities 575 221 1,251 (1,745)
--------- --------- --------- ---------
Net cash provided by operating activities 219 2,107 4,242 3,155
--------- --------- --------- ---------
Cash flows from investing activities:
Loan originations and principal payments on loans, net (7,146) 12,853 (19,993) 41,006
Purchase of loans (11,710) (16,355) (23,271) (25,605)
Sale of loan participations 295 - 851 -
Principal payments on mortgage-related securities held to maturity 132 2,184 494 9,097
Purchase of securities available for sale - (2,993) - (10,993)
Proceeds from maturities of securities available for sale - - - 3,000
Proceeds from maturities of securities held to maturity - 200 570 4,000
Investments in foreclosed real estate - - (7) (39)
Proceeds from sales of fixed assets - - 157 -
Purchase paid up life insurance policies - (5,495) - (5,495)
Proceeds from sale of REO 127 - 367 500
Purchases of equipment and property improvements (216) (751) (633) (1,443)
Acquisition of HMC, net of cash acquired - - - (1,245)
--------- --------- --------- ---------
Net cash provided by (used in) investing activities $ (18,518) $ (10,357) $ (41,465) $ 12,783
--------- --------- --------- ---------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Three Months Nine Months Nine Months
Ended Ended
June 30, June 30,
------------------------ -----------------------
2000 1999 2000 1999
------------------------ -----------------------
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 27,546 $ (1,148) $ 40,937 $ 8,475
FHLB advances - - 87,000 -
Payments on FHLB advances (872) (51) (87,967) (160)
Net short term borrowings - (3,000) - (3,000)
Net decrease in mortgage escrow funds (292) (361) (255) (433)
Decrease in short-term notes payable - (2,100) - (2,575)
Treasury stock purchased (1,368) (1,762) (4,595) (2,415)
Proceeds from exercise of stock options - 27 23 336
Dividends on common stock (291) (334) (1,125) (1,008)
-------- -------- -------- --------
Net cash provided by (used in) financing activities 24,723 (8,729) 34,018 (780)
-------- -------- -------- --------
Net (decrease) increase in cash and cash equivalents 6,424 (16,979) (3,205) 15,158
Cash and cash equivalents
Beginning of period 9,636 54,734 19,265 22,597
-------- -------- -------- --------
End of period $ 16,060 $ 37,755 $ 16,060 $ 37,755
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash payments for:
Interest on advances and other borrowed money $ 1,991 $ 1,971 $ 5,960 $ 5,985
Interest on deposits 2,677 2,369 7,856 7,333
Income taxes 713 758 1,432 1,411
Supplemental schedule of non-cash investing and
financing activities:
Reinvested amounts of capital gains and dividends
from mutual fund investments 18 20 40 76
Acquisition of Homeowners Mortgage Corporation non-cash
assets, net of assumed liabilities - - - 1,037
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
FSF FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1- PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements as of and for the three
months ended June 30, 2000, include the accounts of FSF Financial Corp.
(the "Corporation") and its wholly-owned subsidiaries, Insurance
Planners of Hutchinson, Inc. (the "Agency") and First Federal fsb (the
"Bank") with its wholly-owned subsidiaries, Firstate Services and
Homeowners Mortgage Corporation ("HMC"). All significant inter-company
accounts and transactions have been eliminated in consolidation.
NOTE 2- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and therefore,
do not include information or footnotes necessary for a compete
presentation of consolidated financial condition, results of operations
and cash flows in conformity with Generally Accepted Accounting
Principles. However, all adjustments, consisting of normal recurring
accruals, which, in the opinion of management, are necessary for fair
presentation of the consolidated financial statements, have been
included. The results of operations for the three and nine month
periods ended June 30, 2000, are not necessarily indicative of the
results which may be expected for the entire fiscal year or any other
future period. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Annual Report of Form 10-K for the year ended September 30, 1999.
NOTE 3- BUSINESS SEGMENTS
The Corporation's reportable business segments are business units that
offer different products and services which are marketed through
various channels. The Corporation has identified its wholly-owned
subsidiaries, the Bank and HMC, as reportable business segments.
Firstate Services, the Agency and FSF Financial Corp. (the Holding
Company) did not meet the quantitative thresholds for determining
reportable segments and therefore are included in the "other" category.
<TABLE>
<CAPTION>
Bank HMC Consolidated
Stand-alone Stand-alone Other Eliminations Total
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of and for the three months ended June 30, 2000
From operations:
Interest income from external sources $ 8,320 $ 55 $ 47 $ - $ 8,422
Non-interest income from external sources 673 210 237 - 1,120
Inter-segment interest income 38 - 2,908 (2,946) -
Interest expense 5,057 29 - (32) 5,054
Provisions for loan losses 54 - - - 54
Depreciation and amortization 161 30 10 - 201
Other non-interest expense 2,280 533 78 (21) 2,870
Income tax expense (benefit) 630 (21) 1 - 610
Net income $ 1,008 $ (53) $ 2,999 $(3,000) $ 954
=====================================================
As of and for the three months ended June 30, 1999
From operations:
Interest income from external sources $ 7,194 $ 27 $ 46 $ - $ 7,267
Non-interest income from external sources 737 622 17 - 1,376
Inter-segment interest income 36 - 36 (72) -
Interest expense 4,493 67 - (34) 4,526
Provisions for loan losses 114 - - - 114
Depreciation and amortization 129 18 33 - 180
Other non-interest expense 2,479 543 137 (39) 3,120
Income tax expense (benefit) 342 25 (9) - 358
Net income $ 509 $ 14 $ 2 $ - $ 525
=====================================================
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Bank HMC Consolidated
Stand-alone Stand-alone Other Eliminations Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of and for the nine months ended June 30, 2000
From operations:
Interest income from external sources $ 23,501 $ 142 $ 110 $ - $ 23,753
Non-interest income from external sources 1,986 844 742 - 3,572
Inter-segment interest income 123 - 5,982 (6,105) -
Interest expense 14,070 119 - (123) 14,066
Provisions for loan losses 162 - - - 162
Depreciation and amortization 394 91 32 - 517
Other non-interest expense 6,752 1,645 673 (287) 8,783
Income tax expense (benefit) 1,770 (115) 27 - 1,682
Net income $ 2,855 $ (240) $ 6,017 $ (6,000) $ 2,632
======================================================
Total Assets $453,728 $ 6,148 $ 40,049 $(43,836) $456,089
======================================================
As of and for the nine months ended June 30, 1999
From operations:
Interest income from external sources $ 21,710 $ 148 $ 154 $ - $ 22,012
Non-interest income from external sources 1,813 1,690 430 - 3,933
Inter-segment interest income 132 - 3,119 (3,251) -
Interest expense 13,638 247 - (133) 13,752
Provisions for loan losses 342 - - - 342
Depreciation and amortization 314 57 41 - 412
Other non-interest expense 6,489 1,270 724 (119) 8,364
Income tax expense (benefit) 1,268 153 6 - 1,427
Net income $ 1,888 $ 168 $ 3,004 $ (3,000) $ 2,060
======================================================
Total Assets $415,662 $ 7,436 $ 43,605 $(44,117) $422,586
======================================================
</TABLE>
NOTE 4- EARNINGS PER SHARE
The earnings per share amounts were computed using the weighted number
of shares outstanding during the periods presented. For the three month
periods ended June 30, 1999 and 2000, the weighted average number of
shares outstanding for basic and diluted earnings per share
computations were 2,876,708 and 2,308,202, respectively. For the nine
month periods ended June 30, 1999 and 2000, the weighted average number
of shares outstanding were 2,684,532 and 2,442,713, respectively. The
difference between the basic and diluted earnings per share denominator
is the effect of stock based compensation plans.
NOTE 5- SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
For the Quarter Ended
----------------------------------------------------------
December 31, March 31, June 30,
1999 2000 2000
----------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 7,534 $ 7,797 $ 8,422
Interest expense 4,386 4,626 5,054
----------------------------------------------------------
Net interest income 3,148 3,171 3,368
Provision for loan losses 54 54 54
Gain on sale of assets 346 246 246
Net income $ 821 $ 856 $ 954
Basic earnings per share 0.32 0.35 0.41
Diluted earnings per share 0.31 0.35 0.40
Cash dividends declared per share $ 0.125 $ 0.125 $ 0.125
Market range:
High bid (1) $ 12.50 $ 12.38 $ 13.00
Low bid (1) $ 11.81 $ 10.50 $ 10.14
</TABLE>
-----------------------------------------------------------
(1) As reported by the Nasdaq Stock Market. Such over-the-counter quotations do
not reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
6
<PAGE>
<TABLE>
<CAPTION>
For the Quarter Ended
----------------------------------------------------------
December 31, March 31, June 30,
1998 1999 1999
----------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 7,364 $ 7,242 $ 7,267
Interest expense 4,548 4,522 4,526
----------------------------------------------------------
Net interest income 2,816 2,720 2,741
Provision for loan losses 45 114 114
Gain on sale of assets 15 573 624
Net income $ 746 $ 693 $ 525
Basic earnings per share 0.28 0.26 0.20
Diluted earnings per share 0.26 0.25 0.19
Cash dividends declared per share $ 0.125 $ 0.125 $ 0.125
Market range:
High bid (1) $ 20.94 $ 15.50 $ 14.44
Low bid (1) $ 19.00 $ 13.56 $ 13.50
</TABLE>
-----------------------------------------------------------
(1) As reported by the Nasdaq Stock Market. Such over-the-counter quotations do
not reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
FSF FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Corporation's total assets at June 30, 2000 and September 30, 1999, totaled
$456.1 million and $418.1 million. This increase of $38.0 million was a result
of an increase in loans receivable.
Cash and cash equivalents decreased $3.2 million from $19.3 million at September
30, 1999, to $16.1 million at June 30, 2000. The Corporation utilized excess
liquidity to fund the purchase of treasury shares and loan originations;
however, the decrease was mainly a result of new loan originations.
Securities available for sale decreased $334,000 between June 30, 2000 and
September 30, 1999, as a result of market value changes.
Securities held to maturity decreased from $47.5 million at September 30, 1999,
to $46.5 million at June 30, 2000. The proceeds were used to help fund the
purchase of treasury shares and pay dividends. This decrease was primarily due
to $570,000 of securities maturing during the period and principal payments from
mortgage-backed and related securities.
Loans held for sale decreased $415,000 to $4.9 million at June 30, 2000, from
$5.3 million at September 30, 1999. As of June 30, 2000, the Bank and HMC had
forward commitments to sell all of their loans held for sale in the secondary
market. Payments usually occur within fourteen days of funding.
Loans receivable increased $42.3 million or 15.2% to $320.6 million at June 30,
2000, from $278.3 million at September 30, 1999. Total residential real estate
and construction loan originations decreased by $42.2 million, and when combined
with the sale and prepayments of residential mortgages, resulted in a decrease
in one-to-four family residential mortgages and construction loans of $9.6
million. Agricultural and commercial business loans increased by $10.2 million
and $5.4 million, respectively. To supplement originations, the Bank purchased
$23.3 million of commercial business loans. The commercial loans purchased that
meet the risk profile established by the Bank generally have interest rates that
are based on the "Prime" rate as published in The Wall Street Journal and
provide the Bank with the opportunity to continue to diversify the composition
of and shorten the length of maturity of the loan portfolio.
7
<PAGE>
The following table sets forth information on loans originated and purchased for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
--------------------------------- ---------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Loans originated:
1-4 family residential mortgages $ 13,542 $ 47,382 $ 42,825 $ 127,047
1-4 family construction loans 29,060 12,859 65,331 23,295
Land 5,622 407 6,142 2,782
Agriculture 5,886 7,941 33,616 23,450
Commercial business & real estate 5,396 2,795 14,873 9,463
Consumer 18,712 7,910 38,951 19,893
--------------------------------- ---------------------------------
Total loans originated 78,218 79,294 201,738 205,930
--------------------------------- ---------------------------------
Loans purchased:
Construction - - - 3,400
Commercial business 11,709 16,355 23,271 22,205
--------------------------------- ---------------------------------
Total loans purchased 11,709 16,355 23,271 25,605
--------------------------------- ---------------------------------
Total new loans $ 89,927 $ 95,649 $ 225,009 $ 231,535
================================= =================================
Total loans sold $ 11,823 $ 31,758 $ 41,546 $ 117,804
================================= =================================
</TABLE>
The following table sets forth the composition of the Bank's loan portfolio in
dollars and in percentages of total loans at the dates indicated:
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
--------------------------------------------------------------------
Amount % Amount %
--------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Residential real estate:
One-to-four family (1) $ 107,579 29.5 $ 120,884 38.8
Residential construction 65,863 18.1 42,937 13.8
Multi-family 4,835 1.3 5,635 1.8
--------------------------------------------------------------------
178,277 48.9 169,456 54.4
Agricultural loans 43,520 11.9 33,384 10.7
Land and commercial real estate 50,521 13.9 41,295 13.2
Commercial business 27,187 7.5 24,901 8.0
--------------------------------------------------------------------
299,505 82.2 269,036 86.3
Consumer loans:
Home equity and second mortgages 27,142 7.5 24,312 7.8
Automobile loans 12,193 3.3 7,428 2.4
Other 25,403 7.0 10,898 3.5
--------------------------------------------------------------------
Total loans 364,243 100.0 311,674 100.0
===== =====
Less:
Loans in process (36,594) (26,156)
Deferred fees (619) (507)
Allowance for loan losses (1,515) (1,387)
-------------------- --------------------
Total loans, net $ 325,515 $ 283,624
==================== ====================
</TABLE>
--------------------------------------------------
1. Includes loans held for sale in the amount of $4.9 million and $5.3 million
as of June 30, 2000 and September 30, 1999, respectively.
8
<PAGE>
Real estate owned at June 30, 2000, totaled $73,000, which consisted of a single
family residential property. No loss is expected in the disposition of this
property.
Deposits, after interest credited, increased from $231.7 million at September
30, 1999, to $272.6 million at June 30, 2000, an increase of $40.9 million or
17.7%. Overall cost of funds on deposits during the period increased 6 basis
points as the Bank attempted to maintain deposit rates consistent with market
place competitors. Demand deposits increased $2.1 million or 6.4% from September
30, 1999 when compared to June 30, 2000, and is a result of the continued
diversification of the Bank's loan portfolio. Savings accounts increased 14.9%
during the same periods due to increasing balances in the Bank's First Prime
Savings account. Certificates of deposit increased $27.2 million. The Bank
utilized the deposit growth to fund the continued loan growth.
Federal Home Loan Bank ("FHLB") borrowing decreased $1.0 million from $141.0
million at September 30, 1999, to $140.0 million at June 30, 2000, due to
principal amortization.
The Corporation completed the repurchase of 371,432 shares of common stock which
increased the number of treasury shares to 2,066,822 at June 30, 2000. Treasury
shares are to be used for general corporate purposes, including the issuance of
shares in connection with the exercise of stock options. Total stockholders'
equity has decreased $2.7 million since September 30, 1999, mainly due to the
stock repurchased. Book value per share increased from $16.32 at September 30,
1999, to $17.57 at June 30, 2000.
Loans are reviewed on a regular basis and are placed on non-accrual status when,
in the opinion of management, the collection of additional interest is doubtful.
Loans are generally placed on non-accrual status when either principal or
interest is 90 days or more past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
The following table sets forth information with respect to the Bank's
non-performing assets for the periods indicated:
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
----------------------------------------
(in thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Residential construction loans $ 582 $ -
Permanent loans secured by one-to-four family units 55 205
Permanent loans secured by non-residential real estate - -
Other - -
Non-mortgage loans:
Commercial and agricultural 519 -
Consumer 21 22
----------------------------------------
Total non-accrual loans 1,177 227
Foreclosed real estate 73 323
----------------------------------------
Total non-performing assets $ 1,250 $ 550
========================================
Total non-performing loans to net loans 0.38% 0.08%
========================================
Total non-performing loans to total assets 0.26% 0.05%
========================================
Total non-performing assets to total assets 0.27% 0.13%
========================================
</TABLE>
During the nine months ended June 30, 2000 and 1999, approximately $57,243 and
$24,000 would have been recorded on loans accounted for on a non-accrual basis
if such loans had been current according to the original loan agreements for the
entire period. These amounts were not included in the Bank's interest income and
no interest income on loans accounted for on a non-accrual basis was included in
income during any of these periods either. During the periods indicated, the
Bank held no foreign loans.
9
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
The following table sets forth information with respect to the Corporation's
average balance sheet, interest and dividends earned or paid and related yields
and rates (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------
Interest Interest
Average Yields & Average Yields &
Balance Interest Rates (1) Balance Interest Rates (1)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans receivable (2) $ 315,658 $ 7,073 8.96% $ 272,463 $ 5,586 8.20%
Mortgage-backed securities 43,212 598 5.54 44,298 576 5.20
Investment securities (3) 55,140 751 5.45 93,732 1,105 4.72
---------------------- -----------------------
Total interest earning assets 414,010 8,422 8.14 410,493 7,267 7.08
---------------------- ----------------------
Other assets 22,541 14,083
------------ -------------
Total assets $ 436,551 $ 424,576
============ =============
Liabilities:
Interest bearing deposits $ 251,310 $ 2,945 4.69% $ 234,512 $ 2,540 4.33%
Borrowings 140,847 2,109 5.99 144,796 1,986 5.49
---------------------- -----------------------
Total interest bearing liabilities 392,157 5,054 5.16% 379,308 4,526 4.77%
---------------------- ----------------------
Other liabilities 4,386 3,583
------------ -------------
Total liabilities 396,543 382,891
Stockholders' equity 40,008 41,685
------------ -------------
Total liabilities and stockholders' equity $ 436,551 $ 424,576
============ =============
Net interest income $ 3,368 $ 2,741
Net spread (4) 2.98% 2.31%
Net margin (5) 3.25 2.67
Ratio of average interest earning assets
to average interest bearing liabilities 1.06X 1.08X
</TABLE>
1. Annualized.
2. Average balances include non-accrual loans and loans held for sale.
3. Includes interest bearing deposits in other financial institutions.
4. Net spread represents the difference between the average yield on interest
earning assets and the average cost of interest bearing liabilities.
5. Net margin represents net interest income as a percentage of average
interest earning assets.
Net Income
The Corporation recorded net income of $954,000 for the three months ended June
30, 2000, as compared to net income of $525,000 for the three month period ended
June 30, 1999. This increase in net income was $429,000 or 81.7%.
Total Interest Income
Total interest income increased by $1.2 million or 16.4% to $8.4 million for the
three months ended June 30, 2000. The average yield on loans increased to 8.96%
for the quarter ended June 30, 2000, from 8.20% for the quarter ended June 30,
1999. During the same period, the average yield on mortgage-backed securities
increased 34 basis points (100 basis points equals 1%). The average balance of
investment securities decreased to $55.1 million for the quarter ended June 30,
2000, from $93.7 million for the quarter ended June 30, 1999. This decrease was
the result of securities that matured, securities that were called and a
reduction in the Bank's liquidity. The average yield increased from 4.72% for
the three months ended June 30, 1999, to 5.45% for the same period in 2000, as
excess funds or short-term investments, which provided lower yields, were
deployed into other higher earning assets.
10
<PAGE>
Total Interest Expense
Total interest expense increased to $5.1 million for the three months ended June
30, 2000, from $4.5 million for the same period in 1999. The average balance of
interest-bearing deposits increased from $234.5 million for the three months
ended June 30, 1999, to $251.3 million for the three months ended June 30, 2000,
mainly due to an increase in certificate of deposit accounts. The average cost
of deposits increased 36 basis points from 4.33% for the three month period
ended June 30, 1999, to 4.69% for the same period in 2000, due to increases in
the rates offered by the Bank. No assurance can be made that deposits can be
maintained in the future without further increasing the cost of funds if
interest rates increase. The average balance of borrowings decreased $3.9
million to $140.9 million for the three months ended June 30, 2000, from $144.8
million for the three months ended June 30, 1999. The cost of such borrowings
increased by 50 basis points to 5.99% for the three months ended June 30, 2000,
from 5.49% for the same period in 1999. Borrowings decreased as the Bank
utilized repayments of loans and the increase in deposits to meet liquidity
needs.
Net Interest Income
Net interest income increased from $2.7 million for the three months ended June
30, 1999, to $3.4 million for the same period ended June 30, 2000. Average
interest-earning assets increased $3.5 million from $410.5 million for the three
months ended June 30, 1999, to $414.0 million for the three months ended June
30, 2000, while the average yield on those interest-earning assets increased
from 7.08% for 1999 to 8.14% for 2000. Average interest-bearing liabilities
increased by $12.9 million to $392.2 million for the three months ended June 30,
2000, from $379.3 million for the three months ended June 30, 1999, while the
cost of those interest-bearing liabilities increased from 4.77% in 1999 to 5.16%
in 2000.
Provision for Loan Losses
The Corporation's provision for loan losses was $54,000 for the three months
ended June 30, 2000, as compared to $114,000 for the same period in 1999. During
fiscal 1999, the composition of the Bank's loan portfolio changed substantially.
Generally, agricultural loans, land and commercial real estate loans and
commercial business loans are considered to contain a higher risk profile than
single family residential mortgages. In order to account for the higher risk
profile associated with the loan portfolio changes, additional provisions were
utilized to help maintain reserves at adequate levels; however, the provision
was reduced in fiscal 2000. The Corporation's allowance for loan losses was $1.5
million at June 30, 2000 and $1.3 million at June 30, 1999, respectively. At
June 30, 2000, the Corporation's allowance for loan losses constituted 121.2% of
non-performing assets as compared to 308.9% of non-performing assets at June 30,
1999. The allowance for looses on loans is maintained at a level which is
considered by management to be adequate to absorb probable losses on existing
loans that may become uncollectible, based on an evaluation of the
collectibility of loans, prior loan loss experience and market conditions. The
evaluation takes into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrower's
ability to pay. The allowance for loan losses is established through a provision
for loan losses charges to expense. While the Corporation maintains its
allowance for losses at a level which it considers to be adequate, there can be
no assurance that further additions will not be made to the loss allowances or
that such losses will not exceed the estimated amounts.
Non-interest Income
Total non-interest income decreased $256,000 during the three month period ended
June 30, 2000, to $1.1 million, as compared with the same period in 1999. Gains
on loans sold decreased from $624,000 at June 30, 1999, to $246,000 at June 30,
2000, which was primarily due to rising interest rates which slowed down the
purchase and refinance markets. Continued increases in interest rates may affect
the ability to generate new loans. Commission income increased from $226,000 for
the quarter ended June 30, 1999, to $294,000 for the quarter ended June 30,
2000, while other service charges and fees decreased from $217,000 for the three
months ended June 30, 1999, to $168,000 for the three months ended June 30,
2000, as a result of reduced mortgage loan originations. Other income increased
$52,000 for the three months ended June 30, 2000, which was primarily due to
$55,000 of income on investments in insurance policies not present in third
quarter 1999.
11
<PAGE>
Non-interest Expense
Total non-interest expense decreased $250,000 or 8.0% over the periods compared.
Compensation and benefits decreased from $1.8 million to $1.6 million and is
partially offset by an increase in professional fees. As a result of discussions
being held with the U.S. Department of Labor, the Bank may have to alter the
manner in which it compensates some of its employees, which may impact
compensation expense and/or the Bank's ability to generate additional loans
and/or deposits. Occupancy and equipment expense decreased by $67,000. Data
processing expense increased $19,000 to $179,000 for the period ended June 30,
2000, due to processing expenses associated with the increased delivery of
electronic services to customers. Professional fees increased from $78,000 for
the third quarter of fiscal 1999 to $112,000 for the third quarter of fiscal
2000, due to outsourcing of some services related to personnel changes,
additional audit requirements and the discussions with the Department of Labor.
Other expenses decreased from $591,000 for the quarter ended June 30, 1999, to
$573,000 for the quarter ended June 30, 2000.
Income Tax Expense
Income taxes increased by $252,000 or 70.4%, to $610,000 for the three month
period ended June 30, 2000, from $358,000 for the same period in 1999, which was
primarily due to an increase of $681,000 in income before tax. The effective tax
rate decreased by 1.5% for the same periods as the result of an increase in tax
exempt income of $79,000.
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Interest Interest
Average Yields & Average Yields &
Balance Interest Rates (1) Balance Interest Rates (1)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans receivable (2) $ 300,020 $ 19,505 8.66 % $ 274,959 $ 17,079 8.28 %
Mortgage-backed securities 43,309 1,943 5.98 47,420 1,706 4.80
Investment securities (3) 57,092 2,305 5.38 90,124 3,227 4.77
------------------------ ------------------------
Total interest earning assets 400,421 23,753 7.91 412,503 22,012 7.11
------------------------ -----------
Other assets 22,561 13,097
------------ -------------
Total assets $ 422,982 $ 425,600
============ =============
Liabilities:
Interest bearing deposits $ 237,914 $ 7,938 4.45 % $ 233,103 $ 7,748 4.43 %
Borrowings 139,834 6,128 5.84 145,985 6,004 5.48
------------------------ ------------------------
Total interest bearing liabilities 377,748 14,066 4.96 % 379,088 13,752 4.84 %
------------------------ -----------------------
Other liabilities 3,709 3,228
------------ -------------
Total liabilities 381,457 382,316
Stockholders' equity 41,525 43,284
------------ -------------
Total liabilities and stockholders' equity $ 422,982 $ 425,600
============ =============
Net interest income $ 9,687 $ 8,260
Net spread (4) 2.95 % 2.27 %
Net margin (5) 3.23 % 2.67 %
Ratio of average interest earning assets
to average interest bearing liabilities 1.06X 1.09X
</TABLE>
1. Annualized.
2. Average balances include non-accrual loans and loans held for sale.
3. Includes interest bearing deposits in other financial institutions
4. Net spread represents the difference between the average yield on interest
earning assets and the average cost of interest bearing liabilities.
5. Net margin represents net interest income as a percentage of average
interest earning assets.
12
<PAGE>
Net Income
The Corporation recorded net income of $2.6 million for the nine months ended
June 30, 2000, as compared to net income of $2.1 million for the nine month
period ended June 30, 1999. This increase in net income was $572,000 or 27.8%.
Total Interest Income
Total interest income increased by $1.7 million or 7.7% to $23.8 million for the
nine months ended June 30, 2000. The average yield on loans increased to 8.66%
for the nine months ended June 30, 2000, from 8.28% for the nine months ended
June 30, 1999. During the same period, the average yield on mortgage-backed
securities increased 118 basis points (100 basis points equals 1%). The average
balance of investment securities decreased to $57.1 million for the nine months
ended June 30, 2000, from $90.1 million for the nine months ended June 30, 1999.
This decrease was a result of securities that matured, securities that were
called and a reduction in the Corporation's liquidity. The average yield
increased from 4.77% for the nine months ended June 30, 1999, to 5.38% for the
same period in 2000, as excess funds or short-term investments, which provided
lower yields, were deployed into other higher earning assets.
Total Interest Expense
Total interest expense increased to $14.1 million for the nine months ended June
30, 2000, from $13.8 million for the same period in 1999. The average balance of
interest-bearing deposits increased from $233.1 million for the nine months
ended June 30, 1999, to $237.9 million for the nine months ended June 30, 2000.
The average cost of deposits increased 2 basis points from 4.43% for the nine
months ended June 30, 1999, to 4.45% for the same period in 2000, due to the mix
of non-certificate account balances decreasing more than certificate account
balances. No assurance can be made that deposits can be maintained in the future
without further increasing the cost of funds if interest rates increase. The
average balance of borrowings decreased $6.2 million to $139.8 million for the
nine months ended June 30, 2000, from $146.0 million for the nine months ended
June 30, 1999. The cost of such borrowings increased by 36 basis points to 5.84%
for the nine months ended June 30, 2000, from 5.48% for the same period in 1999.
Borrowings decreased as the Corporation utilized repayments of loans and
mortgage-backed securities to meet liquidity needs.
Net Interest Income
Net interest income increased from $8.3 million for the nine months ended June
30, 1999, to $9.7 million for the same period ended June 30, 2000. Average
interest-earning assets decreased $12.1 million, from $412.5 million for the
nine months ended June 30, 1999, to $400.4 million for the nine months ended
June 30, 2000, while the average yield on those interest-earning assets
increased from 7.11% for 1999 to 7.91% for 2000. Average interest-bearing
liabilities decreased by $1.4 million to $377.7 million for the nine months
ended June 30, 2000, from $379.1 million for the nine months ended June 30,
1999, while the overall cost of those interest-bearing liabilities increased 12
basis points to 4.96%.
Provision for Loan Losses
The Corporation's provision for loan losses decreased to $162,000 for the nine
months ended June 30, 2000, from $342,000 for the same period in 1999. See also
"Comparison of the Three Months Ended June 30, 2000 and 1999 Provision for Loan
Losses".
13
<PAGE>
The following table sets forth information with respect to the Bank's allowance
for loan losses at the dates indicated:
<TABLE>
<CAPTION>
For the Nine Months
At June 30,
---------------------------------------
2000 1999
---------------------------------------
(in thousands)
<S> <C> <C>
Total loans outstanding $ 364,243 $ 296,363
=======================================
Average loans outstanding $ 300,020 $ 274,959
=======================================
Allowance balance (beginning of period) $ 1,387 $ 1,035
=======================================
Provision (credit):
Residential (1) - -
Land and commercial real estate 45 20
Commercial & agricultural business 117 312
Consumer - 10
---------------------------------------
Total provision 162 342
Charge-offs:
Residential - -
Land and commercial real estate - -
Consumer 55 124
---------------------------------------
Total charge-offs 55 124
Recoveries:
Residential - -
Land and commercial real estate - -
Consumer 21 32
---------------------------------------
Total recoveries 21 32
---------------------------------------
Net charge-offs 34 92
---------------------------------------
Allowance balance (end of period) $ 1,515 $ 1,285
=======================================
Allowance as percent of total loans 0.42% 0.43%
Net loans charged off as a percent of 0.41% 0.03%
average loans
</TABLE>
--------------------------------------------------
1. Includes one-to-four family and multi-family residential real estate loans.
Non-interest Income
Total non-interest income decreased $361,000 for the nine month period ended
June 30, 2000, to $3.6 million, as compared with the same period in 1999. HMC
was acquired on November 17, 1998, and as a result, the consolidated statements
of income reflect nine full months of income and expense for HMC in fiscal 2000
but only seven and a half months of income and expense for fiscal 1999. Gains on
loans sold decreased from $1.9 million at June 30, 1999, to $838,000 at June 30,
2000, primarily due to rising interest rates which slowed down the purchase and
refinance markets. Continued increases in interest rates could affect the
ability to generate new loans. Commission income increased from $672,000 for the
nine months ended June 30, 1999, to $828,000 for the nine months ended June 30,
2000. Other service charges and fees remained about the same for the periods
compared. Other income increased $306,000 for the nine months ended June 30,
2000, to $378,000, mainly due to $233,000 of income on investments in insurance
policies not present in fiscal year 1999 and profit from the sale of property of
$86,000.
Non-interest Expense
Total non-interest expense increased $419,000 or 5.0% over the periods compared.
Compensation and benefits increased from $5.1 million to $5.2 million or 2.0%,
primarily due to the acquisition of HMC. Occupancy and equipment expense
increased by $58,000, largely from the HMC acquisition also. Data processing
expense increased $86,000 to $510,000 for the period ended June 30, 2000, due to
processing expenses associated with the increased delivery of electronic
services to customers, and to a lesser extent, as a result of costs associated
with the Corporation's Year 2000 readiness program. Professional fees increased
from $233,000 for the first nine months of fiscal 1999 to $279,000 for the first
nine months of fiscal 2000. Other expenses increased from $1.6 million for the
nine months ended June 30, 1999, to $1.7 million for the nine months ended June
30, 2000, and was comprised of increased expenses as a result of the acquisition
of HMC and the goodwill amortization associated with it.
14
<PAGE>
Income Tax Expense
Income taxes increased by $255,000 to $1.7 million for the nine month period
ended June 30, 2000. The effective tax rate decreased by 1.5% for the same
periods as the result of an increase in tax exempt income of $233,000.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds are deposits, borrowings, principal
and interest payments on loans, investments and mortgage-backed securities,
sales of mortgage loans and funds provided by operations. While scheduled
payments on loans, mortgage-backed securities and short-term investments are
relatively predictable sources of funds, deposit flows and early loan repayments
are greatly influenced by general interest rates, economic conditions and
competition.
The Bank is required under federal regulations to maintain certain specified
levels of "liquid investments", which include certain United States Government
obligations and other approved investments. Federal regulations reduced the
requirement for Banks to maintain liquid assets from 5% to not less than 4% of
its net withdrawable accounts plus short-term borrowings and eliminated the
requirement to maintain not less than 1% of short-term liquid assets of such
accounts and borrowings. The Bank's regulatory liquidity was 6.0% and 15.5% at
June 30, 2000 and 1999, respectively. The options from the previous method were
used in the current period, which are more restrictive.
The amount of certificate accounts which are scheduled to mature during the
twelve months ending June 30, 2001, is approximately $115.9 million. To the
extent that these deposits do not remain at the Bank upon maturity, the Bank
believes that it can replace these funds with new deposits, excess liquidity and
FHLB advances or outside borrowings. It has been the Bank's experience that
substantial portions of such maturing deposits remain at the Bank.
At June 30, 2000, the Bank and HMC had outstanding loan commitments of $243,000.
Funds required to meet these commitments are derived primarily from current
excess liquidity, loan sales, advances, deposit inflows or loan and security
repayments.
Regulations require the Bank to maintain minimum amounts and ratios of tangible
capital and leverage capital to average assets and risk-based capital to
risk-weighted assets. The following table sets forth the Bank's actual capital,
required capital amounts and ratios at June 30, 2000, which, at that date,
exceeded the capital adequacy requirements.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
GAAP capital, June 30, 2000 $36,267
Add: Unrealized losses on debt
securities held for sale 873
Less: Goodwill (2,124)
------------
Tangible equity capital and ratio to
adjusted total assets 35,016 7.8% 6,777 1.5% 9,036 2.0%
--------------------- ---------------------- ---------------------
Tier 1 (core) capital and ratio to
adjusted total assets 35,016 7.8% 18,071 4.0% 22,589 5.0%
--------------------- ---------------------- ---------------------
Total risk-based capital and ratio to
risk-weighted assets 35,016 11.1% 12,600 4.0% 18,900 6.0%
--------- ---------------------- ---------------------
Tier 2 risk-based capital, net adjustments 780
------------
Total risk-based capital and ratio to
risk-weighted assets, June 30, 2000 $35,796 11.4% $ 25,200 8.0% $31,499 10.0%
===================== ====================== =====================
</TABLE>
15
<PAGE>
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates, could adversely affect future
earnings and, as a result, the ability of the Bank to meet its future minimum
capital requirements.
It has been the Bank's policy that employees of the Bank who hold the title of
"personal banker" or "mortgage banker" are salaried employees and do not receive
overtime compensation and are not required to maintain a time card (an "exempt
employee"). During a routine audit of the Bank by the Department of Labor in
February 2000, they did not agree with the Bank's exempt policy regarding
personal bankers or mortgage bankers. As a result, for the three months ended
June 30, 2000, the Company accrued approximately $16,600 in compensation and
benefits expense due personal bankers. However, the Company does not agree with
the Department of Labor's determination that employees who are classified as
mortgage bankers should be considered a non-exempt employee and has engaged the
services of outside legal counsel in an attempt to resolve this issue.
Currently, costs incurred in regard to the resolution of this matter are not
estimable but the Company does not believe that the costs to resolve this matter
will have a material affect on the Company's financial statements. However, if
the Department of Labor's position regarding classification of mortgage bankers
prevails, the Company's ability to generate mortgage loans in a profitable
manner may be adversely affected in the future.
There were no significant changes for the nine months ended June 30, 2000, from
the information presented in the annual report on Form 10-K for the year ended
September 30, 1999, concerning quantitative disclosures about market risk.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information regarding market risk
disclosed under the heading "Asset and Liability Management" in the
Corporation's Annual Report for the year ended September 30, 1999.
Further, the subsidiary Bank paid a dividend to the Parent Corporation in the
amount of $3.0 million in December 1999 and $3.0 million in May 2000, which
reduced the Bank's regulatory capital and net portfolio value. These were used
by the Corporation to purchase treasury shares and pay dividends.
The following table sets forth the present value estimates of the Bank at June
30, 2000 and September 30, 1999, as calculated by its NPV Model. The table shows
the NPV of the Bank under rate shock scenarios of -300 basis points to +300
basis points in increments of 100 basis points. As market rates increase, the
market value of the Bank's large portfolio of mortgage loans and securities
declines significantly and prepayments are slow. As rates decrease, the market
value of mortgage loans and securities increase only modestly due to prepayment
risk, periodic rate caps and other embedded options. Actual changes in market
value will differ from estimated changes set forth in this table due to various
risks and uncertainties.
Changes in Interest
Rates in Basis
Points (Rate Shock)
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
----------------------------------- -----------------------------------
NPV Ratio Change NPV Ratio Change
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
+300 BP 5.89% -1.50% 7.75% -1.48%
+200 BP 6.37% -1.02% 8.22% -1.01%
+100 BP 6.87% -0.52% 8.72% -0.51%
NO CHANGE 7.39% 0.00% 9.23% 0.00%
-100 BP 7.95% 0.55% 9.76% 0.53%
-200 BP 8.53% 1.14% 10.31% 1.08%
-300 BP 9.15% 1.76% 10.90% 1.67%
</TABLE>
16
<PAGE>
This report contains "forward-looking statements" as defined in section 27A of
the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended, which includes statements such as projections,
plans and objectives and assumptions about the future, and such forward-looking
statements are subject to the safe harbor created by these sections. Many
factors could cause the actual results, amounts or events to differ materially
from those the Company expects to achieve or occur, such as changes in
competition, market interest rates, economic conditions and regulations.
Although the Company has based its plans and projections on certain assumptions,
there can be no assurances that its assumptions will be correct, or that its
plans and projections can be achieved.
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries were
engaged in any legal proceedings of a material nature at June
30, 2000. From time to time, the Corporation is a party to
legal proceedings in the ordinary course of business wherein
it enforces its security interest in loans.
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 applicable.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
See Item 6 (b) below.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits 27- Financial Data Schedule (electronic filing
only).
(b) Reports on Form 8-K Form 8-K was filed on April 21,
2000 to announce the Company's declaration of a regular
quarterly dividend and its intent to purchase shares of
the Company during the next 12 months.
17
<PAGE>
FSF FINANCIAL CORP. AND SUBSIDIARIES
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.
FSF FINANCIAL CORP.
Date: August 10, 2000 By: /s/ Richard H. Burgart
---------------------- ----------------------
Richard H. Burgart
Chief Financial Officer
18
