<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to
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Commission File Number 0-24898
MSB FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3203510
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization Number)
PARK AND KALAMAZOO AVENUE, N.E., MARSHALL, MICHIGAN 49068
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (616) 781-5103
--------------
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 [ ]
As of November 5, 1996, there were 651,201 shares of the Registrant's common
stock issued and outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
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MSB FINANCIAL, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION.............................................................. 1
Item 1. Financial Statements (Unaudited)................................................... 1
Consolidated Condensed Statements of Financial Condition................................... 1
Consolidated Condensed Statements of Income................................................ 2
Consolidated Condensed Statements of Shareholders' Equity.................................. 3
Consolidated Condensed Statements of Cash Flows............................................ 4-5
Notes to Consolidated Condensed Financial Statements....................................... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 8-11
PART II. OTHER INFORMATION............................................................ 12
SIGNATURES................................................................... 13
EXHIBIT INDEX................................................................ 14
</TABLE>
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MSB FINANCIAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 and June 30, 1996
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- -----------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and due from financial institutions $1,871,593 $ 2,122,384
Interest-bearing deposits 35,528 57,676
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Total cash and cash equivalents 1,907,121 2,180,060
Securities available for sale 1,120,898 2,118,157
Securities held to maturity (fair value of $15,009 at
September 30,1996 and $1,016,926 at June 30,1996) 15,009 1,016,381
Loans, net 57,257,111 52,327,685
Loans held for sale 821,472 957,018
Federal Home Loan Bank stock 400,000 316,700
Premises and equipment, net 622,117 530,182
Accrued interest receivable 336,153 332,240
Other assets 351,911 352,072
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Total Assets $62,831,792 $60,130,495
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits $41,115,087 $40,452,058
Federal Home Loan Bank Advance 8,000,000 6,000,000
Advance payments by borrowers for
taxes and insurance 295,254 406,201
Accrued interest payable 49,398 44,332
SAIF special assessment 268,752
Accrued expenses and other liabilities 507,639 633,560
------------- -----------
Total Liabilities 50,236,130 47,536,151
Shareholders' equity
Preferred stock, $.01 par value: 2,000,000 shares
authorized; none outstanding
Common stock, par value $.01: 4,000,000 shares
authorized; 740,785 shares issued and outstanding
at September 30, 1996 and June 30, 1996 7,408 7,408
Additional paid-in capital 7,031,392 7,017,760
Retained earnings, substantially restricted 7,834,732 7,870,150
Net unrealized loss on securities available for sale,
net of tax benefit of $6,971 at September 30 and
$19,382 at June 30 (13,532) (37,622)
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14,860,000 14,857,696
Unallocated Employee Stock Ownership Plan shares (434,359) (451,399)
Unearned Recognition and Retention Plan shares (239,533) (254,200)
Less cost of Common Stock in Treasury- 87,184 shares at
September 30 and 85,219 shares at June 30 (1,590,446) (1,557,753)
------------- -----------
Total Stockholders' Equity 12,595,662 12,594,344
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Total Liabilities & Stockholder's Equity $62,831,792 $60,130,495
============= ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
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MSB FINANCIAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months
-------------------
1996 1995
----------- ---------
<S> <C> <C>
Interest and dividend income
Loans, including fees $1,205,265 $1,010,223
Securities available for sale 19,020 34,531
Securities held to maturity 4,976 9,036
Other interest and dividends 31,247 72,500
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1,260,508 1,126,290
Interest Expense
Deposits 384,244 396,339
Federal Home Loan Bank Advance 106,431
Escrows 1,519
---------- ----------
492,194 396,339
---------- ----------
NET INTEREST INCOME 768,314 729,951
Provision for loan losses 9,000 6,000
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 759,314 723,951
Non-interest income
Loan servicing fees 22,152 23,584
Gain on sales of loans 6,812 6,378
Service fees on deposit accounts 28,472 23,526
Loss on sale of securities available
for sale (32,240)
Other 28,887 23,105
---------- ----------
54,083 76,593
Non-interest expense
Salaries and employee benefits 203,609 175,493
Buildings, occupancy and equipment 48,905 40,204
Data processing 39,296 35,512
Federal deposit insurance premiums 29,535 28,066
Director fees 30,072 22,875
Correspondent bank charges 13,664 12,260
Michigan Single Business tax 9,000 12,750
Provision (recovery) to adjust loans held
for sale to lower of cost or market (3,945) 1,372
SAIF special assessment 268,752
Other 115,366 99,026
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754,254 427,558
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INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 59,143 372,986
Federal income tax expense 18,500 127,300
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NET INCOME $ 40,643 245,686
========== ==========
Earnings per common and common
equivalent share $ 0.07 .37
========== ==========
Average common and common
equivalent shares outstanding 617,356 $ 670,848
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 5
MSB FINANCIAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
Three months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized Unallocated
Additional Loss on Securities Employee Stock
Common Paid-In Retained Available for Sale, Ownership
Stock Capital Earnings Net of Tax Plan Shares
------ ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1995 $ 7,220 $ 6,674,977 $ 7,139,068 $ (41,474) $ (519,850)
Net income 245,686
Cash dividends declared on common stock, net
of dividends on unallocated ESOP Shares (66,973)
Shares committed to be released ( 1,711 shares)
under the Employee Stock Ownership Plan (ESOP) 11,977 17,110
Change in unrealized loss on securities
available for sale 310
--------- ------------ ----------- ---------- -----------
BALANCES, SEPTEMBER 30, 1995 $ 7,220 $ 6,686,954 $ 7,317,781 $ (41,164) $ (502,740)
========= ============ =========== ========== ===========
BALANCES, JULY 1, 1996 $ 7,408 $ 7,017,760 $ 7,870,150 $ (37,622) $ (451,399)
Net income 40,643
Shares committed to be released ( 1,704 shares)
under the Employee Stock Ownership Plan (ESOP) 13,632 17,040
Shares earned under the Recognition and
Retention Plan (RRP)
Cash dividends declared on common stock, net
of dividends on unallocated ESOP shares (76,061)
Repurchase of 1,965 shares of Common Stock
Change in unrealized loss on securities
available for sale 24,090
--------- ------------ ----------- ---------- -----------
BALANCES, SEPTEMBER 30, 1996 $ 7,408 $ 7,031,392 $ 7,834,732 $ (13,532) $ (434,359)
========= ============ =========== ========== ===========
<CAPTION>
Unearned
Recognition Common Total
and Retention Stock in Shareholders'
Plan Shares Treasury Equity
----------- -------- ------
<S> <C> <C> <C>
BALANCE, JULY 1, 1995 $ 13,259,941
Net income 245,686
Cash dividends declared on common stock, net
of dividends on unallocated ESOP Shares (66,973)
Shares committed to be released ( 1,711 shares)
under the Employee Stock Ownership Plan (ESOP) 29,087
Change in unrealized loss on securities
available for sale 310
------------
BALANCES, SEPTEMBER 30, 1995 $ 13,468,051
============
BALANCES, JULY 1, 1996 $ (254,200) $ (1,557,753) $ 12,594,344
Net income 40,643
Shares committed to be released ( 1,704 shares)
under the Employee Stock Ownership Plan (ESOP) 30,672
Shares earned under the Recognition and
Retention Plan (RRP) 14,667 14,667
Cash dividends declared on common stock, net
of dividends on unallocated ESOP shares (76,061)
Repurchase of 1,965 shares of Common Stock (32,693) (32,693)
Change in unrealized loss on securities
available for sale 24,090
------------ ------------- ------------
BALANCES, SEPTEMBER 30, 1996 $ (239,533) $ (1,590,446) $ 12,595,662
============ ============= ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 6
MSB FINANCIAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 40,643 $ 245,686
Adjustments to reconcile net income
to net cash from operating activities
Provision for loan losses 9,000 6,000
Provision (recovery) to adjust loans held
for sale to lower of cost or market (3,945) 1,372
Depreciation 26,430 21,105
Net amortization of premium 396 347
Employee Stock Ownership Plan expense 30,672 29,087
Recognition and Retention Plan expense 14,667
Originations of loans for sale (337,556) (1,070,972)
Proceeds from sales of loans originated for sale 436,373 1,189,911
Gain on sales of loans originated for sale (6,812) (6,378)
Loss on sale of securities available for sale (32,240)
Change in assets and liabilities
Accrued interest receivable (3,913) 34,460
Other assets 19,990 (8,089)
Accrued interest payable 5,066 948
Other liabilities 142,831 25,800
----------- -----------
Net cash from operating activities 341,602 469,277
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 1,033,760
Proceeds from maturities of securities available for sale 500,000
Purchases of securities held to maturity (1,005,312)
Proceeds from maturities of securities held to maturity 1,000,000
Principal paydowns on mortgage-backed securities 976 1,011
Purchase of FHLB stock (83,300)
Net increase in loans (4,890,940) (1,350,962)
Purchases of premises and equipment (118,365) (16,184)
----------- -----------
Net cash used in investing activities (3,057,869) (1,871,447)
</TABLE>
(Continued)
4
<PAGE> 7
MSB FINANCIAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) in advance payments
by borrowers for taxes and insurance $ (110,947) $ (95,893)
Net (decrease) increase in deposits 663,029 (236,989)
Proceeds from Federal Home Bank Advance 2,000,000
Payment of dividends on common stock (76,061) (66,973)
Repurchase of Common Stock (32,693)
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Net cash from financing activities 2,443,328 (399,855)
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Net change in cash and cash equivalents (272,939) (1,802,025)
Cash and cash equivalents at beginning of period 2,180,060 5,823,872
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,907,121 $ 4,021,847
========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 485,609 $ 395,391
Income taxes 28,299 45,000
Supplemental disclosure of noncash investing activities
Transfer from loans held for sale to loans held to maturity $ 47,486 $
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 8
MSB FINANCIAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three months ended September 30, 1996
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated condensed financial statements include the
accounts of MSB Financial, Inc. (the "Corporation") and its wholly-owned
subsidiary, Marshall Savings Bank, F.S.B. ("Bank") after the elimination of
significant intercompany transactions and accounts. The initial capitalization
of the Corporation and its acquisition of the Bank took place on February 6,
1995.
These interim financial statements are prepared in accordance with the SEC's
rules for quarterly financial information without audit and reflect all
adjustments which, in the opinion of management, are necessary to present
fairly the financial position of the Corporation at September 30, 1996 and the
results of its operations and its cash flows for the periods presented. All
such adjustments are normal and recurring in nature. The accompanying
consolidated condensed financial statements do not purport to contain all the
necessary disclosures required by generally accepted accounting principles that
might otherwise be necessary in the circumstances and should be read in
conjunction with the consolidated financial statements and notes thereto
included in the annual report of MSB Financial, Inc. for the year ended June
30, 1996. The results of the periods presented are not necessarily
representative of the results of operations and cash flows which may be
expected for the entire year.
The provision for income taxes is based upon the effective tax rate expected to
be applicable for the entire year.
Earnings per common share for the periods presented in 1996 was computed by
dividing net income by the weighted average number of common shares outstanding
and common share equivalents which would arise from considering dilutive stock
options, less Employee Stock Ownership Plan (ESOP) shares not committed to be
released. Net income was $40,643 for the three month period ended September
30, 1996. The weighted average number of shares outstanding for the 1996
period was 617,356. Earnings per common share for the period presented in 1995
was computed by dividing net income by the weighted average number of shares,
less Employee Stock Ownership Plan (ESOP) shares. Net income was $245,686 for
the period ended September 30, 1995. The weighted average number of shares
outstanding for the 1995 period was 670,848.
(Continued)
6
<PAGE> 9
MSB FINANCIAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three months ended September 30, 1996
(Unaudited)
NOTE 2 - REPURCHASES OF COMMON STOCK
On November 17, 1995 the Corporation received a "no objection" letter from the
Office of Thrift Supervision to repurchase up to 9% (64,981 shares) of its
common stock in the open market over a twelve month period. As of March 31,
1996 the Corporation had completed the repurchase program with a total of
64,981 shares at an average price of $18.69 per share. On April 22, 1996, the
Corporation received OTS approval to repurchase up to 5% (33,790 shares) of
its common stock. As of September 30, 1996, 22,203 shares had been repurchased
at an average price of $16.93 and therefore the Corporation has remaining
approval to repurchase up to 11,587 shares. Approval to repurchase these
shares expires on April 22, 1997.
NOTE 3 - ACCOUNTING STANDARDS IMPLEMENTED IN FISCAL 1997
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of (SFAS 121). SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed of. The
Statement requires review of such assets whenever events of changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. The Statement is effective for financial
statements for fiscal years beginning after December 15, 1995. The Corporation
adopted SFAS No. 121 effective July 1, 1996. Its adoption had no material
effect on the Corporation's consolidated financial position or results of
operations for the three months ended September 30, 1996.
In May 1995, the Financial Accounting Standards Board recently released
Statement of Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights (SFAS 122). This Statement changes the accounting for
mortgage servicing rights retained by the loan originator. Under this
Statement, an entity that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells or securities those loans
with servicing rights retained should allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. Under current practice,
all such cost are assigned to the loan. The cost allocated to mortgage
servicing rights are to be recorded as a separate asset and amortized in
proportion to, and over the life of, the net servicing income. The carrying
value of the mortgage servicing rights are to be periodically evaluated for
impairment. The Statement become effective for the Corporation as of July 1,
1996. The adoption of SFAS No. 122 did not have a material effect on the
Corporation's consolidated financial position or results of operations for the
three months ended September 30, 1996.
In October 1995, the Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS 123). SFAS No. 123 encourages, but does not require,
entities to use a fair value based method to account for stock-based
compensation plans. If the fair value accounting encouraged by SFAS No. 123 is
not adopted, entities must disclose the pro forma effect on net income and on
earnings per common share had the fair value accounting been adopted. The
Corporation has elected to not adopt SFAS No. 123. However, the Corporation
will provide any required proforma disclosures in any future complete
consolidated financial statements. The proforma disclosures are not required
in noncomplete interim consolidated financial statements.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MSB Financial, Inc. (the "Company") was incorporated under the laws of the
State of Delaware for the purpose of becoming the savings and loan holding
company of Marshall Savings Bank, F.S.B. (the "Bank") in connection with the
Bank's conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank (the "Conversion"). On February 6, 1995 the
Conversion was completed and the Bank became a wholly-owned subsidiary of the
Company. The following discussion compares the consolidated financial
condition of the Company and the Bank at September 30, 1996 to June 30, 1996
and the results of operations for the three month period ended September 30,
1996 with the same period ended September 30, 1995. This discussion should be
read in conjunction with the consolidated condensed financial statements and
footnotes included herein.
FINANCIAL CONDITION
Total assets increased $2.7 million to $62.8 million from June 30, 1996 to
September 30, 1996. Net loans, including loans held for sale, increased by
$4.8 million, or 9.0%, for the period, due primarily to an increase in
residential mortgage loans originated and held in portfolio. The increase in
loans was funded by proceeds received from a $2.0 million, or 63.7% decrease in
securities available for sale and securities held to maturity, a $663,000
increase in deposits and a $2.0 million Federal Home Loan Bank advance.
Securities available for sale decreased $997,000 from June 30, 1996 to
September 30, 1996 due to sales during the quarter. Securities held to
maturity decreased $1.0 million from June 30, 1996 to September 30, 1996 due to
a maturing U.S. Treasury security.
Total liabilities increased $2.7 million to $50.2 million from June 30,
1996 to September 30, 1996. In addition to the FHLB advance discussed above,
advance payments by borrowers for taxes and insurance decreased $111,000, or
27.3%. Liabilities also increased due to a special assessment of $269,000
payable by the Bank to recapitalize the Federal Deposit Insurance Corporation's
"FDIC" Savings Association Insurance Fund "SAIF".
The repurchase of the Company's common stock, payment of dividends
declared on common stock, combined with a positive adjustment of net unrealized
loss on securities, and net income resulted in a net increase in shareholder's
equity of $1,000.
RESULTS OF OPERATIONS
GENERAL. The Company's results of operations depend primarily upon the level of
net interest income, which is the difference ("spread") between average yield
earned on loans and securities, interest-bearing deposits, and other
interest-earning assets, and the average rate paid on deposits and borrowed
funds, as well as competitive factors that influence interest rates, loan
demand, and deposit flows. Results of operations are also dependent upon the
level of the Company's non-interest income, including fee income and service
charges, and the level of its non-interest expense, including general and
administrative expenses. The Company, like other financial institutions, is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different time, or on a different basis, than
its interest-earning assets.
8
<PAGE> 11
NET INCOME. Net income for the three months ended September 30, 1996 was
$41,000, 83.5% lower than net income of $246,000 for the same period in 1995.
The decline in net income for the three month period ended September 30, 1996
was related to the special assessment by the SAIF of $170,000, net of taxes.
Net income, without the SAIF assessment, for the three months ended September
30, 1996 was $211,000 as compared to $246,000 for the same three month period
in 1995, resulting in a decrease of $35,000.
NET INTEREST INCOME. Net interest income increased $38,000, or 5.2%, to
$768,000 for the quarter ended September 30, 1996. The $38,000 increase in net
interest income for the three month period ended September 30, 1996 compared to
the same period in 1995 was primarily a result of an increase in interest
income. Interest income increased primarily due to the increase in net loans
discussed above. The weighted average yield on the loan portfolio for the
three month period ended September 30, 1996 decreased 40 basis points to 8.60%
from 9.00% for the same period ended September 30, 1995. Interest expense
increased $96,000 for the three month period ended September 30, 1996 compared
to the same period in 1995, primarily attributable to interest paid on Federal
Home Loan Bank advances of $106,000.
PROVISION FOR LOAN LOSSES. The provision for loan losses is a result of
management's periodic analysis of the adequacy of the allowance for loan
losses. The provision for loan losses increased by $3,000 to $9,000 for the
three month period ended September 30, 1996 as compared to the three month
period ended September 30, 1995, due to management's continuing reassessment of
losses inherent in the loan portfolio. At September 30, 1996 the Company's
allowance for loan losses totaled $358,000 or 0.62 % of net loans receivable
and 72.8% of total non-performing loans. At June 30, 1996, the Company's
allowance for loan losses totaled $348,000, or 0.65% of net loans receivable
and 73.3% of total non-performing loans.
Management establishes an allowance for loan losses based on an analysis
of risk factors in the loan portfolio. This analysis includes the evaluation
of concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio, estimated fair value of
underlying collateral, loan commitments outstanding, delinquencies, and other
factors. Because the Company has had extremely low loan loss experience during
its history, management also considers the loan loss experience of similar
portfolios in comparable lending markets. Accordingly, the calculation of the
adequacy of the allowance for loan losses was not based solely on the level of
non-performing assets.
As of September 30, 1996, the Company's non-performing assets, consisting
of nonaccrual loans and accruing loans 90 days or more delinquent, totaled
$492,000, or 0.85% of total loans, compared to $475,000, or 0.89% of total
loans as of June 30, 1996, an increase of $17,000. Loans greater than 90 days
past due, and other designated loans of concern , are placed on non-accrual
status, unless it is determined that the loans are well collateralized and in
the process of collection. There was no real estate owned at September 30,
1996.
Management will continue to monitor the allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Company maintains its allowance for
loan losses at a level which it considers to be adequate to provide for losses,
there can be no assurance
9
<PAGE> 12
that future losses will not exceed estimated amounts or that additional
provisions for loan losses will not be required in future periods. In addition,
management's determination as to the amount of the allowance for loan losses is
subject to review by the Office of Thrift Supervision and the Federal Deposit
Insurance Corporation, as part of their examination process, which may result in
the establishment of an additional allowance based upon their judgment of the
information available to them at the time of their examination.
NON-INTEREST INCOME. Non-interest income consists primarily of gains on the
sale of loans, gains or losses on sale of securities available for sale, loan
servicing fees, service fees on deposit accounts and other fees. Non-interest
income decreased $23,000 to $54,000 during the three month period ended
September 30, 1996 from $77,000 during the three month period ended September
30,1995. The decline was due primarily to a loss of $32,000 on the sale of
securities held for sale. There were no other significant changes in the
components of non-interest income.
NON-INTEREST EXPENSE. Non-interest expense was $754,000 for the three month
period ended September 30, 1996 including the non-recurring SAIF assessment of
$269,000. Non-interest expense without the SAIF assessment was $486,000 for
the three month period ended September 30, 1996, compared to $428,000 for the
same three month period in fiscal 1995, an increase of $58,000 or 13.5%.
Salaries and employee benefits, the largest component of non-interest expense,
increased $28,000 from the quarter ended September 30, 1995 to the quarter
ended September 30, 1996, representing an increase of 16.0%. A significant
factor causing the increase in salaries and expenses for the three month period
was a $15,000 expense associated with the Company's Recognition and Retention
Plan.
Congress recently enacted the Deposit Insurance Funds Act of 1996 (the
"Act"), which brings major changes to the Federal Deposit Insurance System.
One such change will eliminate the Bank Insurance Fund ("BIF") and the SAIF,
the two insurance funds administered by the FDIC, by merging the two funds into
a single fund. The Act calls for a special assessment on SAIF-assessable
deposits to capitalize the SAIF and bring the fund into parity with the BIF.
On September 30, 1996, based on an assessment of 65.7 basis points on March 31,
1995 deposit balances (as required in the Act), the Company recorded a one-time
charge of $269,000, or $0.44 per share, to pre-tax earnings. The Bank's annual
deposit insurance expense will hereafter be reduced for the foreseeable future
by approximately 70% of current premiums, representing an after-tax cost
savings to the Company of approximately $44,000, or $0.07 per share, based upon
the actual fiscal 1996 deposit insurance premiums incurred by the Bank. The
Bank after the recording of this charge to earnings still remains a
well-capitalized institution for regulatory purposes.
INCOME TAX EXPENSE. Income tax expense decreased $109,000 for the three month
period ended September 30, 1996 compared to the same period in 1995 due to the
decrease in net income. The Company's effective tax rate remains at
approximately 34%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits, principal and
interest repayments on loans, sales of loans, interest-bearing deposits and
securities available for sale. While scheduled loan repayments and maturing
investments are relatively
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<PAGE> 13
predictable, deposit flows and loan prepayments are influenced more by interest
rates, general economic conditions and competition.
Federal regulations have required the Bank to maintain minimum levels of
liquid assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 5% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. Liquid assets for purposes of this ratio include
cash, certain time deposits, U.S. Government, government agency and other
securities and obligations generally having remaining maturities of less than
five years. The Bank has maintained its liquidity ratio at levels in excess of
those required. At September 30, 1996, the Bank's liquidity ratio was 6.65%.
The Company uses its liquidity resources principally to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals
and to meet operating expenses. The Company anticipates that is will have
sufficient funds available to meet current loan commitments. At September 30,
1996, the Company had outstanding commitments to extend credit which amounted to
$4.7 million (including $2.8 million in available home equity lines of credit).
At September 30, 1996, the Company had $8.0 million in advances from the FHLB of
Indianapolis outstanding. Management believes that loan repayments and other
sources of funds, including Federal Home Loan Bank borrowings, will be adequate
to meet the Company's foreseeable liquidity needs.
At September 30, 1996 the Bank had tangible capital of $9.4 million, or
15.0 % of adjusted total assets, which was $8.5 million above the minimum
capital requirement of $943,000, or 1.5% of adjusted total assets.
The Bank had at September 30, 1996, core capital of $9.4 million, or 15.0%
of adjusted total assets which was $7.5 million above the minimum capital
requirement of $1.9 million, or 3.0% of adjusted total assets.
At September 30, 1996, the Bank had total risk based capital of $9.8
million and risk weighted assets of $39.1 million, or total risk based capital
of 25.0% of risk weighted assets. This amount was $6.7 million above the
minimum regulatory requirement of $3.1 million, or 8.0% of risk weighted assets.
Accounting Changes
See Note 3 to the accompanying condensed consolidated Financial
Statements.
11
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
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
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
12
<PAGE> 15
SIGNATURES
Pursuant to the requirement 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.
MSB FINANCIAL, INC.
Registrant
Date: 11/11/96 \s\Charles B. Cook
-------------------- -------------------------------------
Charles B. Cook, President and Chief
Executive Officer (Duly Authorized
Officer)
Date: 11/11/96 \s\Charles B. Cook
-------------------- -------------------------------------
Charles B. Cook, Chief Financial
Officer (Principal Financial Officer)
13
<PAGE> 16
MSB FINANCIAL, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<C> <S> <C>
27 Financial Data Schedule 15
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,871,593
<INT-BEARING-DEPOSITS> 35,528
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,120,898
<INVESTMENTS-CARRYING> 15,009
<INVESTMENTS-MARKET> 15,009
<LOANS> 58,436,976
<ALLOWANCE> 358,393
<TOTAL-ASSETS> 62,831,792
<DEPOSITS> 41,115,087
<SHORT-TERM> 4,000,000
<LIABILITIES-OTHER> 1,121,043
<LONG-TERM> 4,000,000
0
0
<COMMON> 7408
<OTHER-SE> 12,588,254
<TOTAL-LIABILITIES-AND-EQUITY> 62,831,792
<INTEREST-LOAN> 1,205,265
<INTEREST-INVEST> 23,996
<INTEREST-OTHER> 31,247
<INTEREST-TOTAL> 1,260,508
<INTEREST-DEPOSIT> 384,244
<INTEREST-EXPENSE> 492,194
<INTEREST-INCOME-NET> 768,314
<LOAN-LOSSES> 9,000
<SECURITIES-GAINS> (32,240)
<EXPENSE-OTHER> 754,254
<INCOME-PRETAX> 59,143
<INCOME-PRE-EXTRAORDINARY> 59,143
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,643
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
<YIELD-ACTUAL> 0
<LOANS-NON> 116,709
<LOANS-PAST> 375,291
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 348,067
<CHARGE-OFFS> 0
<RECOVERIES> 1,326
<ALLOWANCE-CLOSE> 358,393
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 358,393
</TABLE>
