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 September 30, 1999
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)
MARYLAND 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 November 10, 1999, there were 1,259,790 shares of the Registrant's common
stock issued and outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE>
MSB FINANCIAL, INC.
INDEX
PART I. FINANCIAL INFORMATION..............................................1
Item 1. Financial Statements (Unaudited)...................................1
Consolidated Condensed Statements of Financial Condition....................1
Consolidated Condensed Statements of Income and Compensive Income...........2
Consolidated Condensed Statements of Cash Flows.............................3
Notes to Consolidated Condensed Financial Statements........................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................6
PART II. OTHER INFORMATION..................................................11
SIGNATURES.........................................................12
EXHIBIT INDEX......................................................13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, 1999 and June 30, 1999
- --------------------------------------------------------------------------------------------------------------------
September 30, June 30,
1999 1999
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from financial institutions $ 1,760,006 $ 1,896,722
Interest-bearing deposits 178,342 715,536
--------------- ----------------
Total cash and cash equivalents 1,938,348 2,612,258
Securities held to maturity (fair value of $4,186 at
September 30, 1999 and $4,866 at June 30, 1999) 4,186 4,866
Loans held for sale, net of unrealized losses of
$108,441 at September 30, 1999 and $97,942 at June 30, 1999 2,952,949 3,158,577
Loans receivable, net of allowance for loan losses of
$473,129 at September 30, 1999 and $452,308 at June 30, 1999 77,683,968 74,716,028
Federal Home Loan Bank stock 1,333,200 1,270,500
Accrued interest receivable 467,273 455,481
Premises and equipment, net 649,061 684,068
Mortgage servicing rights 312,209 306,910
Other assets 1,306,548 1,247,474
--------------- ----------------
Total Assets $ 86,647,742 $ 84,456,162
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits $ 45,172,572 $ 45,836,977
Federal Home Loan Bank advance 26,662,989 23,864,235
Advance payments by borrowers for taxes and insurance 447,296 608,515
Accrued interest payable 109,194 104,361
Accrued expenses and other liabilities 907,469 860,598
--------------- ----------------
Total Liabilities 73,299,520 71,274,686
Shareholders' equity
Preferred stock, $.01 par value: 2,000,000 shares
authorized; none outstanding
Common stock, par value $.01: 4,000,000 shares authorized; 1,635,315 shares
issued and 1,259,790 shares outstanding at September 30, 1999 and
1,631,315 shares
issued and 1,261,586 shares outstanding at June 30, 1999 16,313 16,313
Additional paid-in capital 9,686,381 9,655,006
Retained earnings, substantially restricted 7,796,996 7,623,538
Unallocated Employee Stock Ownership Plan shares (242,117) (256,668)
Unearned Recognition and Retention Plan shares (110,783) (85,372)
Less cost of common stock in treasury- 371,509 shares at
September 30, 1999 and 369,729 shares at June 30, 1999 (3,798,568) (3,771,341)
---------------- -----------------
Total Shareholders' Equity 13,348,222 13,181,476
--------------- ----------------
Total Liabilities & Shareholders' Equity $ 86,647,742 $ 84,456,162
=============== ================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME Three months
ended September 30, 1999 and 1998
(Unaudited)
- ---------------------------------------------------------------------------------------------
Three Months
------------
1999 1998
---- ----
<S> <C> <C>
Interest and dividend income
Loans, including fees $ 1,621,519 $ 1,623,959
Securities held to maturity 75 125
Other interest and dividends 36,819 49,518
-------------- ---------------
1,658,413 1,673,602
Interest Expense
Deposits 408,878 402,941
Federal Home Loan Bank Advance 385,998 363,383
Other interest expense 3,993 3,435
-------------- ---------------
798,869 769,759
-------------- ---------------
NET INTEREST INCOME 859,544 903,843
Provision for loan losses 18,000 18,000
-------------- ---------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 841,544 885,843
Noninterest income
Loan servicing fees 16,025 19,767
Net gains on sales of loans held for sale 30,950 76,916
Service fees on deposit accounts 45,235 43,562
Other 54,819 44,162
-------------- ---------------
147,029 184,407
Noninterest expense
Salaries and employee benefits 261,961 262,524
Buildings, occupancy and equipment 66,732 68,184
Data processing 19,760 47,703
Year 2000 expense 7,487 8,576
Federal deposit insurance premiums 13,326 13,312
Director fees 31,422 29,497
Correspondent bank charges 9,126 14,134
Provision (recovery) to adjust loans held
for sale to lower of cost or market 10,499
Michigan Single Business tax 16,000 17,000
Professional fees 24,500 44,390
Other 110,480 121,108
-------------- ---------------
571,293 626,428
-------------- ---------------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 417,280 443,822
Federal income tax expense 144,000 159,000
-------------- ---------------
NET INCOME 273,280 284,822
Other comprehensive income 0 0
-------------- ---------------
COMPREHENSIVE INCOME $ 273,280 $ 284,822
============== ===============
Basic earnings per share $ 0.23 $ 0.23
============== ==============
Weighted average common shares outstanding 1,184,983 1,245,208
============== ===============
Diluted earnings per share $ 0.22 $ 0.22
============== ===============
Weighted average common and diluted
potential common shares outstanding 1,218,278 1,301,129
============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three months ended September 30, 1999 and 1998
(Unaudited)
- -------------------------------------------------------------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 273,280 $ 284,822
Adjustments to reconcile net income
to net cash from operating activities
Provision for loan losses 18,000 18,000
Provision to adjust loans held for sale
To lower of cost or market 10,499
Depreciation 38,708 34,537
Amortization of mortgage servicing rights 13,836 7,335
Employee Stock Ownership Plan expense 38,376 60,000
Recognition and Retention Plan expense 15,339 15,339
Originations of loans held for sale (1,718,371) (5,791,225)
Proceeds from sales of loans held for sale 1,925,315 4,596,325
Net gains on sales of loans held for sale (30,950) (76,916)
Change in assets and liabilities
Accrued interest receivable (11,792) (51,268)
Other assets (59,074) (9,191)
Accrued interest payable 4,833 99
Other expense and other liabilities 46,871 (555,436)
-------------- ----------------
Net cash from operating activities 564,870 (1,467,579)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal paydowns on mortgage-backed securities 680 1,014
Purchase of FHLB stock (62,700) (18,700)
Net increase in loans (2,985,940) (1,098,685)
Net purchases of premises and equipment (3,701) (44,376)
--------------- ----------------
Net cash used in investing activities (3,051,661) (1,160,747)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits (664,405) 771,304
Proceeds from Federal Home Bank advances 4,700,000 4,000,000
Repayments on Federal Home Bank advances (1,901,246) (2,434,781)
Decrease in advance payments
by borrowers for taxes and insurance (161,219) (131,848)
Payment of dividends on common stock (99,821) (95,132)
Repurchase of common stock (60,428) (74,725)
--------------- ----------------
Net cash from financing activities 1,812,881 2,034,818
-------------- ---------------
Net change in cash and cash equivalents (673,910) (593,508)
Cash and cash equivalents at beginning of period 2,612,258 3,280,713
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,938,348 $ 2,687,205
============== ===============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 794,036 $ 769,661
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
MSB FINANCIAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three months ended September 30,1999
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated condensed financial statements include the
accounts of MSB Financial, Inc. and its wholly-owned subsidiary, Marshall
Savings Bank, F.S.B. after the elimination of significant intercompany
transactions and accounts. The initial capitalization of MSB Financial and its
acquisition of Marshall Savings 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 our financial position at September 30, 1999 and
the results of operations and 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 included in the annual
report of MSB Financial, Inc. for the year ended June 30, 1999. 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.
NOTE 2 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
A reconciliation of the numerators and denominators used in the computation of
the basic earnings per common share and diluted earnings per common share is
presented below for the three month periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Basic Earnings Per Common Share
Numerator
Net Income $ 273,280 $ 284,822
=========== ===========
Denominator
Weighted average common shares outstanding 1,259,584 1,335,625
Less: Average unallocated ESOP Shares (54,882) (62,555)
Less: Average nonvested RRP Shares (19,719) (27,862)
------------ ------------
Weighted average common shares outstanding for
basic earnings per common shares 1,184,983 1,245,208
=========== ===========
Basic earnings per common share $ .23 $.23
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
MSB FINANCIAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three months ended September 30,1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Diluted Earnings Per Common Share
Numerator
Net Income $ 273,280 $ 284,822
=========== ===========
Denominator
Weighted average common shares outstanding
for basic earnings per common share 1,184,983 1,245,208
Add: Dilutive effects of average nonvested RRP
shares, net of tax benetifs 4,476 9,475
Add: Dilutive effective of assumed exercises of
stock options 28,819 46,446
----------- -----------
Weighted average common shares and dilutive 1,218,278 1,301,129
=========== ===========
potential common shares outstanding
Diluted earnings per common share $ .22 $ .22
=========== ===========
</TABLE>
Stock options for 67,848 shares of common stock were not considered in computing
diluted earnings per common share for the three month periods ended June 30,
1999 and 1998 because they were antidultive.
NOTE 3 - REPURCHASES OF COMMON STOCK
During the quarter ended September 30, 1999, we repurchased 5,780 shares of our
common stock at a total cost of $60,428, or $10.45 per share, as compared to
5,110 shares during the quarter ended September 30, 1998, at a total cost of
$74,725 or $14.62 per share. On February 16, 1999, the Board of Directors
approved a plan to repurchase up to 5%, or 65,657 shares, of our common stock.
Under the current repurchase program, which expires February 16, 2000, we have
repurchased a total of 54,365 shares at a total cost of $674,474 or $12.41 per
share. As of September 30, 1999, a total of 380,556 shares of common stock had
been repurchased at a total cost of $3,873,642, or $10.18 per share.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MSB Financial, Inc. was formed as a Delaware corporation in September 1994
to act as the holding company for Marshall Savings Bank, F.S.B. upon the
completion of Marshall Savings' conversion from the mutual to the stock form.
MSB Financial received approval from the Office of Thrift Supervision to acquire
all of the common stock of Marshall Savings to be outstanding upon completion of
the conversion. The conversion was completed on February 6, 1995. On December 8,
1998, shareholders approved a proposal to reincorporate MSB Financial from the
State of Delaware to the State of Maryland. The following discussion compares
the consolidated financial condition of MSB Financial and Marshall Savings at
September 30, 1999 to June 30, 1999 and the results of operations for the period
ended September 30, 1999 with the same period ended September 30, 1998. This
discussion should be read in conjunction with the consolidated condensed
financial statements and footnotes included herein. References in this 10-QSB to
"we", "us" and "our" refer to MSB Financial and/or Marshall Savings as the
contex requires.
FORWARD-LOOKING STATEMENTS DISCLOSURE
We may from time to time make written or oral "forward-looking
statements". These forward-looking statements may be contained in Quarterly
Report on Form 10-QSB and the exhibits, filings with the Securities and Exchange
Commission and in other communications by us, which are made in good faith
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The words "may", "could", "should, "would", "believe",
"anticipate", "estimate", "expect", "intend", "plan", and similar expressions
are intended to identify forward-looking statements.
Forward-looking statements include statements about our beliefs, plans,
objectives, goals, expectations, anticipations, estimates and intentions, that
are subject to significant risks and uncertainties. The following factors, many
of which are subject to change based on various other factors beyond our
control, could cause our financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements:
o the strength of the United States economy in general and the strength
of the local economies in which we conduct our operations;
o the effects of, and changes in, trade, monetary and fiscal policies and
laws, including interest rate policies of the Federal Reserve Board;
o inflation, interest rate, market and monetary fluctuations;
o the timely development of and acceptance of our new products and
services and the perceived overall value of these products and services
by users, including the features, pricing and quality compared to
competitors' products and services;
o the willingness of users to substitute competitors' products and
services for our products and services; o our success in gaining
regulatory approval of our products and services, when required; o the
impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
o the impact of technological changes;
o acquisitions;
o changes in consumer spending and savings habits; and
o our success at managing the risks involved in our business.
The list of important factors stated above is not exclusive. We do not
undertake to update any forward-forward-looking statement, whether written or
oral, that may be made from time to time by or on behalf of MSB Financial or
Marshall Savings.
FINANCIAL CONDITION
Total assets increased $2.2 million to $86.6 million from June 30, 1999 to
September 30, 1999. Net loans, including loans held for sale, increased by $2.8
million or 3.5% for the period, due primarily to the strong demand for mortgage
loans, especially residential 1-4 family construction loans, in our market
areas. This increase was primarily funded by an increase of $2.8 million in
Federal Home Loan Bank advances.
6
<PAGE>
Total liabilities increased $2.0 million to $73.3 million from June 30,
1999 to September 30, 1999. This increase primarily resulted from the increase
in Federal Home Loan Bank advances discussed above. We also experinced increases
in accrued interest payable of $5,000 and in accrued expenses and other
liabilities of $57,000. Offsetting the above increases in liabilities for the
period were decreases in deposits of $664,000 and in advance payments by
borrowers for taxes and insurance of $162,000.
Net income, offset by the payment of dividends on common stock and
repurchases of our common stock resulted in a net increase in shareholders'
equity of $167,000.
RESULTS OF OPERATIONS
GENERAL. The results of operations depend primarily upon the level of net
interest income, which is the difference 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 our
non-interest income, including fee income and service charges, and the level of
our non-interest expense, including general and administrative expenses. We,
like other financial institutions, are subject to interest rate risk to the
degree that our interest-bearing liabilities mature or reprice at different
times, or on a different basis, than our interest-earning assets.
NET INCOME. Net income for the three months ended September 30, 1999 was
$273,000, 4.1% lower than net income of $285,000 for same period ended September
30, 1999. Reasons for the decline in net income are discussed in detail below.
NET INTEREST INCOME. Net interest income decreased $44,000, or 4.9%, to $860,000
for the three month period ended September 30, 1999, as compared to the same
period ending September 30, 1998. The decrease in net interest income was
attributable to an increase in interest expense for the three month period ended
September 30, 1999 of $29,000 when compared to the same period ended September
30, 1998. The increase in interest expense was primarily a result of an increase
in interest paid on Federal Home Bank advances, due to increased advance
balances to fund loan demand. For the three month period ended September 30,
1999, Federal Home Loan Bank advance interest increased $23,000 when compared to
the same period ended September 30, 1998. Increased average deposit balances,
offset by declining rates paid on certificates of deposits, also contributed to
the increases in interest expense discussed above. Interest paid on deposits
increased $6,000 for the three month period ended September 30, 1999, as
compared to the same period ended September 30, 1998.
Contributing to the decrease in net interest income mentioned above was a
decrease in the weighted average yield on the loan portfolio for the three month
period ended September 30, 1999 of 56 basis points to 8.15% from 8.71% for the
same period ended September 30, 1998. The decrease in weighted average yield
for the three month period was primarily the result of adjustable rate mortgage
loans renewing at lower rates. Also contributing to the decrease in the weighted
average yield was a $29,000 decrease in net loan fee income due to a decrease in
loan sales during the three month period ended September 30, 1999.
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 remained unchanged at $18,000 for the three month
period ended September 30, 1999 as compared to the three month period ended
September 30, 1998, due to management's continuing reassessment of losses
inherent in the loan portfolio. At September 30, 1999, the allowance for loan
losses totaled $473,000 or 0.59% of net loans receivable and 1.05% of total
non-performing loans. At June 30, 1999, our allowance for loan losses totaled
$452,000, or 0.58% of net loans receivable and 1.16% 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 we have had extremely low loan losses during our history, we also
consider 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 September 30, 1999, non-performing assets, consisting of nonaccrual
loans and accruing loans 90 days or more delinquent, totaled $450,000, or 0.56%
of total loans, compared to $390,000, or 0.52% of total loans as of June 30,
1999, an increase of $60,000. Loans greater than 90 days past due, and other
7
<PAGE>
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. Real estate owned at September 30, 1999 totaled $24,000. We did not
have any real estate owned at September 30, 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 we maintain allowance for loan losses at a
level which we consider 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 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.
NONINTEREST INCOME. Noninterest income consists primarily of gains on the sale
of loans, loan servicing fees, service fees on deposit accounts and other fees.
Noninterest income decreased $37,000 during the three month period ended
September 30, 1999 compared to the three month period ended September 30, 1998.
This decrease was primarily due to a decrease in gains on the sale of loans of
$46,000, due to decreased sales of mortgage loans during the period. Sale of
mortgage loans decrease during the period due to an increase in mortgage rates
which resulted in a lower demand for one- to four-family fixed rate mortgage
loan products, which is the only mortgage loan product currently sold.
Offsetting the above mentioned decrease was an increase in other income of
$11,000, due primarily to an increase in ATM fees. ATM fees increased due to
increased debit card activity and a newly implemented foreign transaction
activity surcharge at our ATM terminal. No other significant changes in the
components of non-interest income.
NONINTEREST EXPENSE. Noninterest expense was $571,000 for the three month period
ended September 30, 1999 compared to $626,000 reported for the same prior year
period, a decrease of $55,000 or 8.8%. Decreases in noninterest expense for the
three month period ended September 30, 1999 included decreases in data
processing expense of $28,000, due to a prior period rebate from our data
processor, in professional fees of $20,000, a result of our reincorporation from
a Delaware into a Maryland corporation during the 1998 period, and in
advertising expense of $11,000. The above mentioned decreases in noninterest
expense were offset by a provision of $10,000 to adjust loans held for sale to
the lower of cost or market during the three month period ending September 30,
1999. The largest component on noninterest expense, salaries and employee
benefits, decreased $1,000 for the three month period ended September 30, 1999,
as compared to the same period during 1998
FEDERAL INCOME TAX EXPENSE. Federal income tax expense decreased $15,000 for the
three month period ended September 30, 1999 compared to the same period in 1998
due to the decrease in net income. MSB Financial's effective tax rate remains at
approximately 34%.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source 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 predictable, deposit flows and early loan prepayments are more
influenced by interest rates, general economic conditions and competition.
Federal regulations require Marshall Savings to maintain minimum levels of
liquid assets. The required percentage has varied from time to time based upon
economic conditions and savings flows. The percentage 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. Marshall Savings has maintained its liquidity ratio at
levels in excess of those required. At September 30, 1999, the liquidity ratio
was 4.49%.
We use our liquidity resources principally to meet ongoing commitments, to
fund maturing certificates of deposit and deposit withdrawals and to meet
operating expenses. We anticipate that there will have sufficient funds
available to meet current loan commitments. At September 30, 1999, we had
outstanding commitments to extend credit which amounted to $7.4 million
(including $4.0 million in available home equity lines of credit). At September
30, 1999, there was $26.7 million in advances from the Federal Home Loan Bank of
Indianapolis outstanding. We believe that loan repayments and other sources of
funds, including Federal Home Loan Bank advances and the Federal Reserve Bank
discount window, will be adequate to meet our foreseeable liquidity needs.
8
<PAGE>
Federal insured savings institutions are required to maintain a minimum
level of regulatory capital. The Office of Thrift Supervision has established
capital standards, including a tangible capital requirement, a leverage ratio
(or core capital) requirement and a risk-based capital requirement applicable to
such savings associations. As of September 30, 1999, Marshall Savings had
tangible capital and Tier 1 (core) capital of $10.5 million, or 12.1% or
adjusted total assets, which was approximately $9.2 million and $7.9 million
above the minimum requirements of 1.5% and 3.0%, respectively, of the adjusted
total assets in effect on that date. As of September 30, 1999, we had Tier 1
(core) capital of $10.5 million, or 12.2% of average total assets, which was
approximately $7.0 million above the minimum requirement of 4.0% of average
total assets in effect on that date. On September 30, 1999, we had risk-based
capital of $10.9 million (including $10.5 million in core capital), or 20.6% of
risk-weighted assets of $53.1 million. This amount was $6.8 million above the
8.0% requirement in effect on that date.
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 indicate 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. See
"Forward-Looking Statements Disclosure".
Financial institution regulators have issued guidance concerning the
responsibilities of senior management and directors regarding year 2000
compliance. The Federal Financial Institutions Examination Council has issued
several interagency statements on Year 2000 Project Management Awareness. These
statements require financial institutions to, among other things, examine the
year 2000 issue on their customers, suppliers and borrowers. These statements
also require each federally insured regulated financial institution to survey
its exposure, measure its risk and prepare a plan to address the year 2000
issue. In addition, the federal banking regulators have issued safety and
soundness guidelines to be followed by insured depository institutions, such as
the Bank, to assure resolution of any year 2000 problems. The federal banking
agencies have asserted that year 2000 testing and certification is a key safety
and soundness issue in conjunction with regulatory exams and, thus, that an
institution's failure to address appropriately the year 2000 issue could result
in supervisory action, including the reduction of the institution's supervisory
ratings, the denial of applications for approval of mergers or acquisitions, or
the imposition of civil money penalties.
MSB Financial has formed a Year 2000 Committee to address the potential
problems associated with the year 2000 computer issue. The Year 2000 Committee,
consisting of our directors, officers and employees, meets on a regular basis
and provides reports to the Board of Directors detailing progress with the year
2000 issue.
Our primary computer processing is provided by an independent third party
data center, and through this data center we migrated to a new year 2000
compliant teller/bank operation platform in November 1998. To ensure the
readiness of this system, we performed testing of actual customer data on a
separate system during March 1999. No year 2000 processing problems were
detected during this testing. As of September 30, 1999, all in-house computer
systems have been inspected and their risk of a year 2000 failure identified.
Also, all software is being evaluated through vendor ensured readiness
statements and testing by the Year 2000 Committee. We do not use any
custom-programmed software. Another area under review are systems which utilize
embedded microchips (such as in heating, ventilation and air conditioning
systems, security and other related systems). Venders for these systems have
been contacted and have indicated year 2000 risks to be minimal.
With an issue as complex as the year 2000, the we believe education of
employees, customers and community members is vital to a better understanding of
what real dangers are posed by the arrival of the year 2000. Education has been
provided through in-house training sessions, literature to customers, as well as
seminars offered to the community. Additional information has been provided
through Marshall Saving's internet site in the form of links to various year
2000 information sites.
Costs related to the year 2000 issue are estimated to be between $50,000
and $60,000. To date the following year 2000 expenses have been identified at
approximately $40,000 for testing of the data center equipment and programs,
$3,000 for equipment upgrades and $3,000 for employee and community education.
It is impossible to predict the exact expenses associated with the year 2000
9
<PAGE>
issue and additional funds may be needed for unknown expenses related to year
2000 testing, training, and education, as well as system and software
replacements.
As with any organization that depends on technology, particularly computer
systems and software, a year 2000 related failure poses a significant threat to
our continued business operations. While we are doing everything in our power to
ensure year 2000 readiness, we recognize that the success of our third party
providers is vital to our success. Of primary concern are local utility and
telecommunication companies. These, in addition to our third parties such as our
data center, electronic banking service providers and financial partners, have
been contacted and we are monitoring their progress towards their own year 2000
readiness. Another potential risk includes lending and deposit relationships. We
are currently evaluating these two groups and assessing any potential risks, as
well as establishing any necessary corrective procedures. There can be no
assurance that the systems of these third parties will be converted on a timely
basis, which could have material adverse affect on our business, financial
condition and results of operations.
MSB Financial has established a contingency plan to address potential year
2000 problems. The contingency plan has been tested and is revised as necessary.
All changes to the plan are presented to the Board of Directors. The plan
includes procedures for preparation efforts leading up to, and after, January 1,
2000. This plan includes, but is not limited to:
o performing a complete backup of each computer network and storage of
these backup tapes in a secure location,
o establishing and testing manual balancing procedures for a variety of
bank functions including customer transactions at the teller line,
back-office general ledger system and other vital accounting functions,
o critical bank reports will be securely stored on paper and CD-ROM
format prior to January 1, 2000,
o a contact list of key bank employees, as well as critical vendors and
third party providers, has been created listing business, home and
cellular telephone numbers as a reference in the event of an emergency,
o situation-specific procedures have been developed, detailing how the
bank will respond to a number of situations, starting with a worst-case
scenario of no power to operating "business as usual" and how a change
in operating procedures will be communicated to customers and employee.
We are committed to ensuring a smooth transition into the next century.
However, despite careful planing, we recognize there may be circumstances beyond
our control that may prohibit us from operating "as usual" after December 31,
1999.
10
<PAGE>
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
See Exhibit Index.
(b) Reports on Form 8-K
None.
11
<PAGE>
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: November 15, 1999 \s\Charles B. Cook
-------------------------------------
Charles B. Cook, President and Chief
Executive Officer (Duly Authorized
Officer)
Date: November 15, 1999 \s\Elaine R. Carbary
--------------------
Elaine R. Carbary, Chief Financial
Officer (Principal Financial Officer)
<PAGE>
MSB FINANCIAL, INC.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3 Registrant's Articles of Incorporation and Bylaws, filed on
February 4, 1999 as exhibits to the Registrant's Registration
Statement on Form S-8 (File No. 333-71837), are incorporated here
in by reference.
4 Registrant's Specimen Stock Certificate, filed on February 4,
1999 as Exhibit 4 to the Registrant's Registration Statement on
Form S-8 (File No. 333-71837), is incorporated herein by
reference.
10.1 Employment Agreement between the Bank and Charles B. Cook, filed
on September 23, 1995 as Exhibit 10.2 to Registrant's
Registration Statement on Form S-1 (File No. 33-81312), is
incorporated herein by reference.
10.2 Registrant's Employee Stock Ownership Plan, filed on September
23, 1995 as Exhibit 10.3 to Registrant's Registration Statemt on
Form S-1 (File No. 33-81312), is incorporated herein by
reference.
10.3 Registrant's 1995 Stock Option and Incentive Plan, filed as
Exhibit 10(b) to Registrant's Report on Form 10-KSB for the
fiscal year ended June 30, 1995 (File No. 0-24898), is
incorporated herein by reference.
10.4 Registrant's Recognition and Retention Plan, filed as Exhibit
10(c) to Registrant's Report on Form 10-KSB for the fiscal year
ended June 30, 1995 (File No. 0-24898), is incorporated herein by
reference.
10.5 Registrant's 1997 Stock Option and Incentive Plan, filed as
Appendix A to Registrants Schedule 14A filed on Setember 26, 1997
(File No. 0-24898).
11 Statement re: computation of earnings per share (see Note 1 of
the Notes to Consolidated Financial Statements)
27 Financial Data Schedule (electronic filing only)
<TABLE> <S> <C>
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THE FOLLOWING SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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