<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to
-------------- ---------------
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
- --------------------------------------------------- -----
(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 May 12, 1998, there were 1,229,410 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 Cash Flows............................... 3-4
Notes to Consolidated Condensed Financial Statements.......................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 6-9
PART II. OTHER INFORMATION.................................................. 10
SIGNATURES......................................................... 11
EXHIBIT INDEX...................................................... 12
</TABLE>
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CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
March 31, 1998 and June 30, 1997
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from financial institutions $ 2,145,509 $ 1,502,724
Interest-bearing deposits 1,782,594 1,577,888
------------ ------------
Total cash and cash equivalents 3,928,103 3,080,612
Securities held to maturity (fair value of $8,908 at
March 31, 1998 and $11,455 at June 30, 1997) 8,908 11,455
Loans held for sale 822,824 150,000
Loans receivable, net of allowance for loan losses of
$352,140 at March 31, 1998 and $302,903 at June 30, 1997 71,322,922 68,739,556
Federal Home Loan Bank stock 1,158,200 1,043,700
Accrued interest receivable 438,683 420,921
Premises and equipment, net 680,654 577,058
Mortgage servicing rights 131,209 27,595
Other assets 922,748 646,887
------------ ------------
Total Assets $ 79,414,251 $ 74,697,784
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits $ 42,964,989 $ 41,706,732
Federal Home Loan Bank Advances 21,971,976 19,373,600
Advance payments by borrowers for taxes and insurance 345,606 465,445
Accrued interest payable 97,458 79,114
Accrued expenses and other liabilities 774,596 382,697
------------ ------------
Total Liabilities 66,154,625 62,007,588
Shareholders' equity
Preferred stock, $.01 par value: 2,000,000 shares
authorized; none outstanding
Common stock, par value $.01: 4,000,000 shares authorized; 1,483,014 shares
issued and 1,230,510 shares outstanding at March 31, 1998 and 1,483,014
shares issued and 1,248,622 shares outstanding at June 30, 1997 14,830 14,830
Additional paid-in capital 7,210,705 7,096,776
Retained earnings, substantially restricted 9,034,024 8,372,493
Unallocated Employee Stock Ownership Plan shares (334,406) (383,006)
Unearned Recognition and Retention Plan shares (162,067) (208,084)
Less cost of Common Stock in Treasury- 252,504 shares at
March 31, 1998 and 234,392 shares at June 30, 1997 (2,503,460) (2,202,813)
------------ ------------
Total Shareholders' Equity 13,259,626 12,690,196
------------ ------------
Total Liabilities & Shareholders' Equity $ 79,414,251 $ 74,697,784
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Nine months and three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
----------- ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income
Loans, including fees $ 4,699,597 $ 3,892,199 $ 1,578,860 $ 1,365,410
Securities available for sale 28,179
Securities held to maturity 528 5,455 164 226
Other interest and dividends 160,425 87,044 57,448 28,152
----------- ----------- ----------- -----------
4,860,550 4,012,877 1,636,472 1,393,788
Interest Expense
Deposits 1,185,250 1,153,947 393,690 381,198
Federal Home Loan Bank Advances 1,009,025 468,802 349,032 207,623
Other interest expense 7,490 4,257 2,726 1,502
----------- ----------- ----------- -----------
2,201,765 1,627,006 745,448 590,323
----------- ----------- ----------- -----------
NET INTEREST INCOME 2,658,785 2,385,871 891,024 803,465
Provision for loan losses 55,000 27,000 15,000 9,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,603,785 2,358,871 876,024 794,465
Noninterest income
Loan servicing fees 58,417 64,722 19,646 21,167
Gain on sales of loans 183,518 24,501 72,219 8,766
Service fees on deposit accounts 115,899 93,648 39,923 35,316
Profit on sale of real estate owned 10,666
Loss on sale of securities available for sale (47,950) (12,203)
Other 112,254 93,485 43,537 36,816
----------- ----------- ----------- -----------
480,754 228,406 175,325 89,862
Noninterest expense
Salaries and employee benefits 758,930 626,050 259,620 214,100
Buildings, occupancy and equipment 153,893 147,383 54,691 48,178
Data processing 139,905 121,131 48,546 43,300
Federal deposit insurance premiums 39,080 65,171 13,126 12,164
Director fees 88,866 90,216 26,822 28,722
Correspondent bank charges 44,972 42,770 16,268 14,593
Michigan Single Business tax 52,000 41,550 17,000 16,000
Provision (recovery) to adjust loans held
for sale to lower of cost or market 7,615 21,260
SAIF special assessment 268,752
Professional fees 71,199 69,921 16,735 17,702
Other 324,353 288,677 111,140 90,957
----------- ----------- ----------- -----------
1,673,198 1,769,236 563,948 506,976
----------- ----------- ----------- -----------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 1,411,341 818,041 487,401 377,351
Federal income tax expense 501,000 281,500 176,000 132,000
----------- ----------- ----------- -----------
NET INCOME $ 910,341 $ 536,541 $ 311,401 $ 245,351
=========== =========== =========== ===========
Basic earnings per share $ 0.80 $ 0.46 $ 0.28 $ 0.21
=========== =========== =========== ===========
Weighted average common
share outstanding 1,133,104 1,171,632 1,132,132 1,155,571
=========== =========== =========== ===========
Diluted earnings per share $ 0.77 $ 0.45 $ 0.27 $ 0.21
=========== =========== =========== ===========
Weighted average common and diluted
potential common shares outstanding 1,179,853 1,187,141 1,148,085 1,162,730
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 910,341 $ 536,541
Adjustments to reconcile net income
to net cash from operating activities
Provision for loan losses 55,000 27,000
Provision to adjust loans held for sale
to lower of cost or market 7,615
Depreciation 76,099 77,490
Amortization of mortgage servicing rights 9,646
Net amortization of premium 396
Employee Stock Ownership Plan expense 166,320 97,128
Recognition and Retention Plan expense 46,017 44,561
Originations of loans held for sale (11,998,871) (1,871,946)
Proceeds from sales of loans held for sale 11,396,305 1,622,439
Net gains on sales of loans held for sale (183,518) (24,501)
Net losses on sales of securities available for sale 47,950
Change in assets and liabilities
Accrued interest receivable (17,762) (59,423)
Other assets (275,861) (269,482)
Accrued interest payable 18,344 30,260
Other expense and other liabilities 391,899 (157,939)
------------ ------------
Net cash from operating activities 593,959 108,089
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 2,079,261
Proceeds from maturities of securities held to maturity 1,000,000
Principal paydowns on mortgage-backed securities 2,547 3,442
Purchase of Federal Home Loan Bank stock (114,500) (727,000)
Net increase in loans (2,638,366) (11,985,626)
Net purchases of premises and equipment (179,695) (136,398)
------------ ------------
Net cash used in investing activities (2,930,014) (9,766,321)
</TABLE>
(Continued)
3
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 1,258,257 $ 924,672
Proceeds from Federal Home Bank advances 15,500,000 14,873,600
Repayments on Federal Home Bank advances (12,901,624)
Decrease in advance payments
by borrowers for taxes and insurance (119,839) (141,204)
Payment of dividends on common stock (248,810) (224,933)
Repurchase of common stock (327,000) (521,092)
Exercise of stock options 22,562
------------ ------------
Net cash from financing activities 3,183,546 14,911,043
------------ ------------
Net change in cash and cash equivalents 847,491 5,252,811
Cash and cash equivalents at beginning of period 3,080,612 2,180,060
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,928,103 $ 7,432,871
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 2,183,420 $ 1,592,489
Income taxes 593,956 352,299
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.
4
<PAGE> 7
MSB FINANCIAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Nine months ended March 31,1998
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated condensed financial statements include the
accounts of MSB Financial, Inc. (the "Company") 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
Company and its acquisition of the Bank took place on February 6, 1995.
These interim financial statements are prepared in accordance with the
Securities and Exchange Commission'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 Company at March
31, 1998, 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,
1997. 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.
Basic and diluted earnings per share for the periods presented in 1998 and 1997
were computed under a new accounting standard effective in the quarter ended
December 31, 1997. All prior amounts have been restated to be comparable. Basic
earnings per share is based on net income divided by the weighted average number
of common shares outstanding during the period, adjusted for Employee Stock
Ownership Plan (ESOP) shares not committed for release and Recognition and
Retention Plan (RRP) shares not yet vested. Diluted earnings per share shows the
dilutive effect of additional common shares issuable under stock option plans.
Net income was $910,341 and $311,401 for the nine month and three month periods
ended March 31, 1998. The weighted average number of common shares outstanding
for the nine and three month periods ended March 31, 1998, were 1,133,104 and
1,132,132, respectively. The weighted average of number of common and diluted
potential common shares outstanding for the nine and three months ended March
31, 1998, were 1,179,853 and 1,148,085, respectively. For the nine month and
three month periods ended March 31, 1997, respectively, net income was $536,541
and $245,351. The weighted average number of common shares outstanding for the
nine and three month periods ended March 31, 1997, were 1,171,632 and 1,155,571,
respectively. The weighted average number of common and diluted potential common
shares outstanding for the nine and three months ended March 31, 1997, were
1,187,141 and 1,162,730, respectively.
NOTE 2 - REPURCHASES OF COMMON STOCK
On November 17, 1995, the Company received a "no objection" letter from the
Office of Thrift Supervision (the "OTS") to repurchase up to 9% (129,962 shares)
of its common stock in the open market over a twelve month period. As of March
31, 1996, the Company had completed the repurchase program with a total of
129,962 shares at an average price of $9.35 per share. On April 22, 1996, the
Company received OTS approval to repurchase up to 5% (67,780 shares) of its
common stock. As of January 31, 1997, the Company had completed this repurchase
program with a total of 67,780 shares at an average price of $8.85 per share. On
February 11, 1997, the Company received OTS approval to repurchase up to 5%
(64,264 shares) of its common stock. On February 11, 1998, approval to
repurchase these shares expired with a total of 56,550 shares repurchased at an
average price of $12.31 per share. On March 11, 1998, the Company's Board of
Directors approved a plan to repurchase up to 5% (61,581 shares) of its common
stock. As of March 31, 1998, 1,100 shares had been repurchased at an average
price of $17.00 per share.
5
<PAGE> 8
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 March 31, 1998, to June 30, 1997, and the results
of operations for the three and nine month periods ended March 31, 1998, with
the same periods ended March 31, 1997. This discussion should be read in
conjunction with the consolidated condensed financial statements and footnotes
included herein.
Forward-Looking Statements
When used in this Quarterly Report of Form 10-QSB or future filings by
the Company with the Securities and Exchange Commission, in the Company's press
releases or other public or shareholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases
"will likely result", "are expected to", "will continue", "is anticipated",
"estimated", "project", "believe" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and to advise readers that various factors including
regional and national economic conditions, changes in levels of market interest
rates, credit risks of lending activities, and competitive and regulatory
factors could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake and specifically disclaims any
obligation to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
Financial Condition
Total assets increased $4.7 million to $79.4 million from June 30, 1997
to March 31, 1998. Net loans, including loans held for sale, increased by $3.3
million, or 4.5% for the period, due primarily to the strong demand for mortgage
loans, especially residential 1-4 family construction loans, in the Company's
market area. This increase was primarily funded by an increase of $2.6 million
in Federal Home Loan Bank advances and a $1.3 million increase in deposits.
Total liabilities increased $4.1 million to $66.2 million from June 30,
1997 to March 31, 1998. In addition to the increase in the Federal Home Loan
Bank advances and deposits discussed above, were increases in accrued expenses
and other liabilities of $392,000 and accrued interest payable of $18,000. The
increase in accrued expenses and other liabilities was attributed to an increase
of $461,000 in funds due Federal Home Loan Mortgage Corporation (FHLMC) for
payoffs on mortgages serviced by the Company. Offsetting the above increases in
liabilities for the period was a decrease of $120,000 in advance payments by
borrowers for taxes and insurance.
The repurchase of the Company's common stock, payment of dividends
declared on common stock, and net income resulted in a net increase in
shareholders' equity of $569,000.
Results of Operations
GENERAL. The Company's results of operations depend primarily upon the
level of net interest income, which is a function of the difference ("spread")
between the 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 noninterest income, including fee
income and service charges, and the level of its noninterest expense, including
general and administrative expenses. The Company,
6
<PAGE> 9
like other financial institutions, is subject to interest rate risk to the
degree that its interest-bearing liabilities mature or reprice at different
times, or on a different basis, than its interest-earning assets.
NET INCOME. Net income for the three months ended March 31, 1998, was
$311,000, 26.9% higher than net income of $245,000 for same period ended March
31, 1997. Net income for the nine month period ended March 31, 1998, was
$910,000, compared to net income of $537,000 for the same period in 1997. Net
income for the nine month period ended March 31, 1997, was reduced by $170,000,
net of taxes, due to a non-recurring special assessment to recapitalize the
Savings Association Insurance Fund (SAIF). Net income without the SAIF
assessment for the nine months ended March 31, 1997 was $707,000 as compared to
$910,000 for the same nine month period in 1998, resulting in an increase of
$203,000 or 28.8%.
NET INTEREST INCOME. Net interest income increased $88,000, or 10.9%,
to $891,000 for the three month period ended March 31, 1998. For the nine month
period ended March 31, 1998, net interest income increased $273,000, or 11.4%,
to $2.7 million. The increases in net interest income for the three month and
nine month periods ended March 31, 1998, compared to the same periods in 1997
were primarily a result of an increase in interest income. Interest income
increased primarily due to the increase in the average outstanding balance of
net loans, as discussed above. The weighted average yield on the loan portfolio
for the three month period ended March 31, 1998, increased 27 basis points to
8.72% from 8.45% for the same period ended March 31, 1997. For the nine month
period ended March 31, 1998, the weighted average yield on the loan portfolio
was 8.76%, compared to 8.57% for the same period ended March 31, 1997, an
increase of 19 basis points. Interest expense increased $155,000 for three month
period ended March 31, 1998, and increased $575,000 for the nine month period
ended March 31, 1998, as compared to the same periods in 1997. These increases
are attributable to an increase in interest paid on Federal Home Loan Bank
advances for the three month and nine month periods ended March 31, 1998, of
$141,000 and $540,000, respectively, when compared to the same periods ended
March 31, 1997.
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 $6,000 to $15,000 for the three month
period ended March 31, 1998, as compared to the three month period ended March
31, 1997, due to management's continuing reassessment of losses inherent in the
loan portfolio. At March 31, 1998, the Company's allowance for loan losses
totaled $352,000 or 0.49% of net loans receivable and 60.27% of total
non-performing loans. At June 30, 1997, the Company's allowance for loan losses
totaled $303,000, or 0.44% of net loans receivable and 65.16% 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 losses during its
history, management also considers loss experience of similar portfolios in
comparable lending markets. Accordingly, the calculation of the adequacy of the
allowance for loan losses was not based directly on the level of non-performing
assets.
As of March 31, 1998, the Company's non-performing assets, consisting
of nonaccrual loans and accruing loans 90 days or more delinquent, totaled
$584,000, or 0.81% of total net loans, compared to $465,000, or 0.67% of total
loans as of June 30, 1997, an increase of $119,000. 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 March 31, 1998.
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 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 OTS and the Federal
Deposit Insurance Corporation (FDIC), 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.
NONINTEREST INCOME. Noninterest 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.
Noninterest income increased $85,000 during the three month period ended March
31, 1998, compared to the three month period ended March 31, 1997. For the nine
month period ended March 31, 1998, noninterest income
7
<PAGE> 10
increased $252,000 compared the nine month period ended March 31, 1997. The
increase for the nine month period ended March 31, 1998, was due to increases in
gains on sales of loans of $159,000, due to increased sales of loans, an
increase of $22,000 in service charges on deposit accounts and a $11,000 profit
on the sale of real estate owned. Also, net realized losses of $48,000 on the
sale of securities available for sale during the nine month period ended March
31, 1997, resulted in lower noninterest income for the 1997 period. There were
no other significant changes in the components of noninterest income.
NONINTEREST EXPENSE. Noninterest expense was $564,000 for the three
month period ended March 31, 1998, compared to $507,000 reported for the same
prior year period, an increase of $57,000 or 11.2%. For the nine month period
ended March 31, 1997, noninterest expense was $1.8 million including the
non-recurring SAIF assessment of $269,000. Noninterest expense without the SAIF
assessment was $1.5 million for the nine month period ended March 31, 1997,
compared to $1.7 million for the same nine month period in 1998, an increase of
$173,000 or 11.5%. Salaries and employee benefits, the largest component of
noninterest expense, increased $46,000 and $133,000 for the three month and nine
month periods ended March 31, 1998, respectively, compared to the same periods
during 1997. Significant factors causing the increase in salaries and employee
benefits was the addition of a full-time employee during the 1998 period and
increases in expenses associated with the Company's stock-based benefit plans,
as a result of the Company's stock price. Also contributing to the increase in
noninterest expense, were increases in data processing expense of $19,000 and
the Michigan Single Business Tax of $10,000 for the nine month period ending
March 31, 1998, as compared to the same period in 1997.
INCOME TAX EXPENSE. Income tax expense increased $44,000 and $219,000
for the three and nine month periods ended March 31, 1998, compared to the same
periods in 1997 due to the increase 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 mortgage loans, interest-bearing deposits
and securities available for sale. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan prepayments
are more influenced 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 4% 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 March 31, 1998, the Bank's liquidity ratio was
8.04%.
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 it will have
sufficient funds available to meet current loan commitments. At March 31, 1998,
the Company had outstanding commitments to extend credit which amounted to $4.9
million (including $3.3 million in available home equity lines of credit). At
March 31, 1998, the Company had $22.0 million in advances from the Federal Home
Loan Bank 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 March 31, 1998, the Bank had tangible capital of $10.1 million, or
12.74% of adjusted total assets which was $8.9 million above the minimum capital
requirement of $1.2 million, or 1.5% of adjusted total assets.
The Bank had, at March 31, 1998, core capital of $10.1 million, or
12.74% of adjusted total assets which was $7.7 million above the minimum capital
requirement of $2.4 million, or 3.0% of adjusted total assets.
At March 31, 1998, the Bank had total risk based capital of $10.4
million and risk weighted assets of $48.5 million or total risk based capital of
21.53% of risk weighted assets. This amount was $6.5 million above the minimum
regulatory requirement of $3.9 million, or 8.0% of risk weighted assets.
8
<PAGE> 11
Year 2000 Issue
The approach of the year 2000 presents potential problems to businesses
that utilize computers in their daily operations. Some computer systems may not
be able to properly interpret dates after December 31, 1999 because they use
only two digits to indicated the year in the date. Therefore, a date using "00"
as the year may be recognized as the year 1900 rather than the year 2000.
The Company is currently addressing the potential problems associated
with the Year 2000 computer issue. As a result, the Company has established a
Year 2000 Committee (the "Committee") consisting of directors, officers, and
employees of the Company. The purpose of the Committee is to review all
operating systems of the Company, ensure that these systems are able to properly
deal with the year 2000 rollover and provide regular reports to the Board of
Directors detailing progress with the Year 2000 issue. The Committee is
requiring computer system and software vendors to represent that their products
are, or will be, Year 2000 compliant and has planned a program to test these
products for compliance. The Committee will also contact large commercial loan
customers to determine their readiness with the Year 2000 issue.
Based on information currently available, management does not
anticipate that the cost to address the Year 2000 issue will have a material
adverse impact on the Company's financial condition, results of operation, or
liquidity.
9
<PAGE> 12
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
10
<PAGE> 13
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.
SIGNATURES
MSB FINANCIAL, INC.
Registrant
Date: May 12, 1998 \s\Charles B. Cook
------------------
Charles B. Cook, President and Chief
Executive Officer (Duly Authorized
Officer)
Date: May 12, 1998 \s\Elaine R. Carbary
--------------------
Elaine R. Carbary, Chief Financial
Officer (Principal Financial Officer)
11
<PAGE> 14
MSB FINANCIAL, INC.
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule 13
12
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S QUARTERLY REPORT ON
FORM 10-QSB FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,145,509
<INT-BEARING-DEPOSITS> 1,782,594
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 8,908
<INVESTMENTS-MARKET> 8,908
<LOANS> 72,497,886
<ALLOWANCE> 352,140
<TOTAL-ASSETS> 79,414,251
<DEPOSITS> 42,964,989
<SHORT-TERM> 4,512,918
<LIABILITIES-OTHER> 1,217,660
<LONG-TERM> 17,459,058
0
0
<COMMON> 14,830
<OTHER-SE> 13,244,796
<TOTAL-LIABILITIES-AND-EQUITY> 79,414,251
<INTEREST-LOAN> 4,699,597
<INTEREST-INVEST> 528
<INTEREST-OTHER> 160,425
<INTEREST-TOTAL> 4,860,550
<INTEREST-DEPOSIT> 1,185,250
<INTEREST-EXPENSE> 2,201,765
<INTEREST-INCOME-NET> 2,658,785
<LOAN-LOSSES> 55,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,673,198
<INCOME-PRETAX> 1,411,341
<INCOME-PRE-EXTRAORDINARY> 1,411,341
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 910,341
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 0
<LOANS-NON> 91,142
<LOANS-PAST> 492,697
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 302,903
<CHARGE-OFFS> 12,415
<RECOVERIES> 6,652
<ALLOWANCE-CLOSE> 352,140
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
