<PAGE>
TOTAL NUMBER OF PAGES 18
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1996
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission file number: 0-25750
-------
PENFED BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 61-1275478
------------------------- --------------------
State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
215 W. Shelby Street, Falmouth, KY 41040
-------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(606) 654-6961
-------------------------------------------------
Registrant's telephone number, including area code)
N/A
----------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
--- ---
Indicate the number of share outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding at August 1,1996
- ------------------------ ----------------------------
Common Stock, $0.01 Par Value 307,660 Common Share
1
<PAGE>
PENFED BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Part I Financial Information Page
<S> <C> <C>
Item 1 Consolidated Financial Statements
Consolidated Statements of Financial Condition,
June 30, 1996 and December 31, 1995 1
Consolidated Statements of Income, Three Months
Ended June 30, 1996 and 1995 2
Consolidated Statements of Income, Six Months
Ended June 30, 1996 and 1995 3
Consolidated Statements of Cash Flows,
Six Months Ended June 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II Other Information 15
Signatures 16
</TABLE>
<PAGE>
PENFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
(unaudited)
----------- -----------
<S> <C> <C>
Cash and balances with banks $ 264,642 $ 248,547
Interest-bearing deposits
in other depository institutions 440,700 347,413
Investment securities, held to maturity 372,032 250,000
Mortgage-backed securities,
held to maturity 544,460 578,671
Federal Home Loan Bank capital stock 235,600 224,500
Loans receivable, net 25,703,455 24,339,783
Office property and equipment, at cost,
less accumulated depreciation 356,472 379,033
Real Estate Owned 0 59,948
Mortgage servicing rights 11,040 0
Other assets 115,474 122,455
----------- -----------
Total assets $28,043,875 $26,550,350
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Savings deposits $ 4,183,181 $ 3,630,984
Certificates of deposit 16,383,494 16,289,193
Advances from Federal Home Loan Bank 2,300,000 1,400,000
Other liabilities 83,812 127,195
----------- -----------
Total liabilities 22,949,180 21,447,372
Stockholders' equity:
Preferred stock, 500,000 shares
authorized and unissued
Common stock, $.01 par value, 2,000,000
shares authorized; 345,000 shares issued;
307,660 shares outstanding
at June 30, 1996 3,450 3,450
Additional paid in capital 3,112,931 3,109,755
Retained income,
substantially restricted 2,325,977 2,235,233
Employee Stock Ownership Plan (224,240) (244,260)
Treasury stock (124,730) (1,200)
----------- -----------
Total stockholders' equity 5,093,388 5,102,978
----------- -----------
Total liabilities and $28,043,875 $26,550,350
stockholders' equity =========== ===========
</TABLE>
1
<PAGE>
PENFED BANCORP,INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Interest on loans $ 495,274 $ 463,892
Interest on investment securities 17,648 13,042
Interest on interest-bearing deposits
in other depository institutions 4,840 3,525
Other interest income 4,000 6,874
----------- -----------
Total interest income 521,762 487,333
----------- -----------
Interest on savings deposits and advances:
NOW accounts 4,024 1,694
Savings accounts 20,139 19,066
Certificates 245,966 218,828
Federal Home Loan Bank Advances 18,301 27,315
----------- -----------
Total interest expense 288,430 266,903
----------- -----------
Net interest income 233,332 220,430
----------- -----------
Provision for loan losses 3,000 3,000
----------- -----------
Net interest income after
provision of loan losses 230,332 217,430
----------- -----------
Noninterest income 30,056 13,079
----------- -----------
Other expenses:
Salaries and benefits 80,252 72,058
Occupancy expense 16,555 18,356
Equipment and data processing 13,412 8,762
Professional services 35,750 14,379
Federal insurance premium 11,422 10,320
State ad valorem taxes 7,059 5,188
Other 27,835 24,172
----------- -----------
Total other expenses 192,285 153,235
----------- -----------
Income before income taxes 68,103 77,274
Income tax expense 22,063 28,313
----------- -----------
Net income $ 46,040 $ 48,961
=========== ===========
Net income per share $ 0.13 $ 0.15
=========== ===========
Weighted average common share 322,399 317,934
outstanding
</TABLE>
2
<PAGE>
PENFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Interest on loans $ 1,043,136 $ 870,887
Interest on investment securities 30,924 22,974
Interest on interest-bearing deposits
in other depository institutions 10,229 21,718
Other interest income 7,900 6,955
----------- -----------
Total interest income 1,092,189 922,534
----------- -----------
Interest on savings deposits and advances:
NOW accounts 6,991 3,224
Savings accounts 39,318 39,347
Certificates 495,974 432,228
Federal Home Loan Bank Advances 38,874 69,840
----------- -----------
Total interest expense 581,157 544,639
----------- -----------
Net interest income 511,032 377,895
----------- -----------
Provision for loan losses 6,000 6,000
----------- -----------
Net interest income after
provision of loan losses 505,032 371,895
----------- -----------
Noninterest income 61,125 19,556
----------- -----------
Other expenses:
Salaries and benefits 153,346 126,400
Occupancy expense 35,057 38,053
Equipment and data processing 27,553 19,839
Professional services 57,277 23,198
Federal insurance premium 21,986 20,639
State ad valorem taxes 12,018 10,377
Other 54,795 37,286
----------- -----------
Total other expenses 362,032 275,792
----------- -----------
Income before income taxes 204,125 115,659
Income tax expense 64,051 41,263
----------- -----------
Net income $ 140,074 $ 74,396
=========== ===========
Net income per share $ 0.44 $ 0.23
=========== ===========
Weighted average common share
outstanding 323,137 317,667
</TABLE>
3
<PAGE>
PENFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from
operating activities: $ (45,871) $ 85,559
----------- -----------
Cash flows from investing activities:
Securities ( 87,821) (641,283)
Loans receivable (1,303,724) (2,281,289)
Purchases equipment 0 (154,800)
----------- -----------
Net cash used investing activities: (1,391,545) (3,077,372)
Cash flows from financing activities:
Deposits 646,498 717,425
Advances from FHLB 900,000 (400,000)
Net proceeds from stock conversion 0 2,153,327
----------- -----------
Net cash used in financing activities 1,546,498 2,470,752
Net cash and cash equivalents 109,382 (521,061)
Cash and cash equivalents at
beginning of period 595,960 901,500
----------- -----------
Cash and cash equivalents at
end of period $ 705,342 $ 380,439
=========== ===========
</TABLE>
4
<PAGE>
PENFED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
The accompanying consolidated financial statements of Penfed Bancorp, Inc.
(the "Corporation") and Pendleton Federal Savings Bank (the subsidiary, "Savings
Bank") have been prepared in accordance with the instructions for Form 10-QSB
and therefore do not include certain information or footnotes necessary for the
presentation of financial position in accordance with generally accepted
accounting principles. However, in the opinion of management, the consolidated
financial statements reflect all adjustments (which consist of normal recurring
accruals) necessary for a fair presentation of the results for the unaudited
periods. The results of operations for the six months ended June 30, 1996 are
not necessarily indicative of the results which may be expected for the entire
year. The consolidated financial statements should be read in conjunction with
the audited financial statements and the notes thereto for the year ended
December 31, 1995.
Allowance for Loan Losses:
An analysis of the changes in the loan loss allowance for the six months ended
June 30, 1996 follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Beginning balance $ 109,063 $ 97,063 $ 106,063 $ 94,063
Provision 3,000 3,000 6,000 6,000
--------- --------- -------- --------
Ending balance $ 112,063 $ 100,063 112,063 100,063
========= ========= ======== ========
</TABLE>
Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board issued SFAS 122,
Accounting for Mortgage Servicing Rights, an amendment to SFAS 65. The Company
elected to adopt SFAS 122 for its financial statement reporting in the first
quarter of 1996. SFAS 122 prohibits retroactive application. Accordingly, the
Company's financial statement reporting for the year of 1995 was accounted for
under the original SFAS 65. As a consequence, the Company's 1996 results are
not directly comparable to the results of 1995. Net income for 1996 was
increased by approximately $11,000 as a result of the adoption.
5
<PAGE>
Mortgage Servicing Rights continued
FAS 122 eliminates the accounting distinction between servicing rights acquired
through purchase transactions and those acquired through origination activities.
Recognition of mortgage servicing
rights related to loan origination activities was not permitted for periods
prior to the adoption of FAS 122. When a mortgage banking enterprise purchases
or originates a mortgage loan with a definitive plan to sell the loan and retain
the mortgage servicing rights, FAS 122 requires that a portion of the loan be
allocated to the mortgage servicing rights based on its fair value relative to
the fair value of the loan including the mortgage servicing rights. To
determine the fair value of the servicing rights created during 1995, the
Company used the market prices of comparable servicing sale contracts when
available, or alternatively, a valuation model that calculates the present value
of estimated future cash flows. The estimates of future cash flows are based on
assumptions that market participants would use in estimating future net
servicing income. These assumptions included estimates of the cost of servicing
per loan, the discount rate, float rate, and inflation rate, ancillary income
per loan, prepayment speeds and default rates.
Mortgage servicing rights are amortized over the estimated life of the related
loans in proportion to estimated net servicing income.
To evaluate potential impairment at the end of each quarter, the
postimplementation mortgage servicing portfolio is disaggregated based on its
predominant risk characteristics. The Company has determined those risk
characteristics to be loan type and interest rate. The resulting segments of
the portfolio are then valued using the same model as was originally used to
determine the fair value at origination using current assumptions. The
calculated value is then compared with the book value of each segment to
determine if a reserve for impairment is required.
Effect of Implementing New Accounting Standards:
None
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The primary business of Pendleton Federal Savings Bank is the origination of
residential real estate loans and funding such loans through deposits and other
borrowings. The largest component of the Bank's net income is net interest
income, which is the difference between interest income and interest expense.
Consequently, the Bank's earnings are primarily dependent on its interest
income, which is determined by (1) the difference ("interest rate spread")
between rates of interest earned on interest-earning assets and rates paid on
interest-bearing liabilities, and (2) the relative amounts of interest-earning
assets and interest-bearing liabilities.
Because most deposit accounts react more quickly to market interest rate
movements than do traditional mortgage loans, sharp increases in rates can
adversely affect the Bank's earnings over time.
Financial Condition
Total assets increased by 5.6% during the quarter ended June 30, 1996. Loans
receivable and investment securities increased 5.6% and 48.8%, respectively.
Mortgage-backed securities decreased 5.9%. Deposits increased 3.2% and Federal
Home Loan Bank advances increased 64.3%.
Due to the continuing marketing efforts of the Bank to take advantage of
opportunities for lending growth in its market areas, the Bank's loans
receivable balance increased during the second quarter. Fixed rate loans are
generally sold in the secondary market; therefore their origination does not
result in increases to the Bank's loan portfolio. During the quarter, the Bank
was able to increase its loans receivable balance by originating adjustable rate
mortgage loans that are retained in the Bank's loan portfolio. Future increases
in the Bank's loans receivable balances will be funded through increased
deposits or Federal Home Loan Bank advances, if required. Investment securities
increased due to a purchase of a SBA pool and a municipal bond.
7
<PAGE>
The Bank experienced an increase in deposits due to new depositors opening
accounts. Management will continue to monitor deposit levels in light of
prevailing interest rates and other factors and may choose to increase deposit
rates in the future to preserve market share or obtain required levels of cash
flows. To the extent that the Bank elects to increase deposit rates in order to
attract and/or maintain deposits and to fund future loan growth and other
operating needs, interest income may be adversely affected. Currently, however,
management does not anticipate the necessity of offering above-market interest
rates on deposits.
Stockholders' equity decreased from 19.2% of assets at December 31, 1995 to
18.2% of assets at June 30, 1996. This is due primarily to the increase in
loans and treasury stock pruchases.
Although the level of nonperforming loans increased for the second quarter as
compared to the same quarter of the prior year, (see table below) overall the
Bank continued to experience low loan losses. The following table sets forth
information with respect to the Bank's nonperforming assets for the periods
indicated. During the periods shown, the Bank had no restructured loans with
the meaning of Statement of Financial Accounting Standards No. 15.
<TABLE>
<CAPTION>
At June 30,
---------------------
1996 1995
------- --------
(Dollars in thousands)
<S> <C> <C>
Loans accounted for on a
non-accrual basis $ 740 $ 386
Accruing loans which are
contractually past due 90 days
or more 0 63
-------- --------
Total of non-accrual and 90 days
past due loans $ 740 $ 449
======== ========
Other real estate owned 0 0
-------- --------
Total nonperforming assets $ 740 $ 449
======== ========
Ratio of nonperforming loans
to total loans 2.9% 1.9%
======== ========
Ratio of nonperforming assets
to total assets 2.6% 1.8%
======== ========
Ratio of allowance for loan losses
to total loans 0.4% 0.4%
======== ========
Ratio of allowance for loan losses
to nonperforming loans 15.1% 22.3%
======== ========
</TABLE>
8
<PAGE>
The Bank's total nonperforming loans and total nonperforming assets at June 30,
1996 increased 64.8%, as compared to June 30, 1995. Nonperforming loans at June
30, 1996 increased due to a general increase in delinquencies, however all
nonperforming loans are collateralized by residential property. Based on
management's review of the value of the underlined collateral and other factors,
no losses are expected.
The Bank's allowance for loan losses increased $12,000 from June 30, 1995 to
June 30, 1996 and the provision for loan losses remained constant at $6,000 in
the first six months of 1996 as compared to the first six-months of 1995. (See
"Allowance for Loan Losses" of the Notes to the Consolidated Financial
Statements).
Results of Operations
Three Months Ended June 30, 1996, Compared to June 30, 1995.
The Corporation's net income for the quarter ended June 30, 1996 decreased 5.9%
as compared to the same quarter of 1995 due to a increase in interest expense of
8.1%, an increase in other expenses of 29.1%, offset by an increase in interest
income of 7.1% and an in increase in noninterest income of 129.8%, and an
decrease in income tax expense of 22.1%.
Net interest income before provision for loan losses increased by 5.9%. Total
interest income increased 7.1%, due to an increase in the effective rate earned
on interest-earning assets. Even though the trend for interest rates was lower
for the June 30, 1996 quarter as compared to the same period in 1995,
competitive conditions in Pendelton Federal's market area have allowed the Bank
to maintain near the same interest rate this quarter as compared to the same
period last year. Total interest expense increased 8.1% as a result of an
increase in the effective rate paid on interest-bearing liabilities, and also
due to the increase in the balance of interest-bearing deposits.
Noninterest income increased 129.8% for the three months ended June 30, 1996 as
compared to the same quarter of 1995. The primary reason for this increase is
late charge income earned on loans, which increased 91.7%.
Other expenses increased by 29.1% for the three months ended June 30, 1996 as
compared to the same quarter of 1995. Salaries and benefits increased 11.4% due
primarily to the implementation of the Employee Stock Option Plan and Management
Recognition Plan. Professional services, principally legal and accounting fees,
increased 148.6% due to increased reporting requirements associated with being a
public company.
9
<PAGE>
The increase in other expenses, offset by the increase in net interest income
along with the increase in noninterest income, combined to result in a decrease
in income before income taxes of 11.9%. Income taxes decreased by 12.8% as
result of lower profits.
Six Months Ended June 30, 1996, Compared to June 30, 1995.
The Corporation's net income for the six months ended June 30, 1996 increased
96.3% as compared to the same quarter of 1995 due to an increase in net interest
income of 35.2% and an increase in noninterest income of 212.6%, offset by an
increase in other expenses of 33.1% and an increase in income tax expense of
55.2%.
Net interest income before provision for loan losses increase by 35.2%. Total
interest income increased 18.4%, due to an increase in the effective rate earned
on interest-earning assets. Even though the trend for interest rates was lower
for the first six months as compared to the same period in 1995, competitive
conditions in Pendelton Federal's market area have allowed the Bank to maintain
near the same interest rate this six months as compared to the same period last
year. Total interest expense increased 6.7% as a result of an increase in the
effective rate paid on interest-bearing liabilities, and also due to the
increase in the balance of interest-bearing deposits.
Noninterest income increased 192.8% for the six months ended June 30, 1996 as
compared to the first quarter of 1995. The primary reason for the increase is
late charge income earned on loans, which increased 110.2%
Other expenses increased by 33.1% for the six months ended June 30, 1996 as
compared to the same period of 1995. Salaries and benefits increased 21.3% due
primarily to the implementation of the Employee Stock Option Plan and Management
Recognition Plan. Professional services, principally legal and accounting fees,
increased 146.9% due to increased reporting requirements associated with being a
public company.
The increase in net interest income along with the increase in noninterest
income, offset by the increase in other expenses, combined to result in an
increase in income before income taxes of 78.3%. Income taxes increased by
55.2% as a result of higher profits.
10
<PAGE>
Liquidity and Capital Resources
Liquidity
Pendleton Federal is required by federal regulations to maintain specified
levels of "liquid" assets consisting of cash and other eligible investments. The
current level of liquidity required by the OTS is 5% of the sum of net
withdrawable savings and borrowings due within one year. The Bank's regulatory
liquidity at June 30, 1996 and December 31, 1995 was 6.28% and 6.24%,
respectively. Management believes that the Bank has an adequate level of
liquidity to meet anticipated cash flow needs.
Capital Resources
The Office of Thrift Supervision ("OTS") imposes regulations which provide that
savings associations must maintain certain levels of capital. The regulations
include a leverage limit, a tangible capital requirement and a risk-based
capital requirement. Specifically, the regulations provide that savings
associations must maintain tangible capital equal to 1.5% of adjusted total
assets, core capital equal to 3% of adjusted total assets and a combination of
core and supplementary capital equal to 8% of risk weighted assets. Pendleton
Federal is in compliance with these capital regulations.
The OTS capital regulations also require savings associations to maintain
capital based on the amount of their exposure to losses from changes in market
interest rates ("interest rate risk"). The calculation performed by the OTS
indicates that the Bank has no additional capital requirement resulting from
excessive exposure to interest rate risk. The OTS has also proposed an
amendment to its core capital requirement to conform to the leverage capital
requirements applicable to national banks. The Bank does not expect such
amendment, if adopted, to cause the Bank to fall below its capital requirements.
The following table summarizes the Bank's capital requirements and position at
March 31, 1996 and December 31, 1995 in accordance with the capital standards
imposed by the OTS. Amounts are in thousands.
11
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------------- --------------
Amount % Amount %
------- ----- ------- -----
<S> <C> <C> <C> <C>
Tangible capital $5,089 18.2 $5,103 19.2
Tangible capital
requirement 421 1.5 398 1.5
------ ---- ------ ----
Excess $4,668 16.7 $4,705 17.7
====== ==== ====== ====
Core capital $5,089 18.2 $5,103 19.2
Core capital
requirement 841 3.0 797 3.0
------ ---- ------ ----
Excess $4,248 15.2 $4,307 16.2
====== ==== ====== ====
Tangible capital $5,089 $5,103
Allowance for loan loss 112 106
------ ---- ------ ----
Total capital
(core and supplemental) 5,201 32.3 5,209 33.9
Risk-based requirement 1,285 8.0 1,228 8.0
------ ---- ------ ----
Excess $3,916 24.3 $3,981 25.9
====== ==== ====== ====
</TABLE>
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are monetary in
nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.
Effect of Implementing New Accounting Standards
See "Notes to the Consolidated Financial Statements for discussion of new
accounting standards.
12
<PAGE>
Possible BIF-SAIF Premium Disparity
The Federal Deposit Insurance Corporation ("FDIC") has lowered the deposit
insurance assessment rate for most commercial banks insured by the Bank
Insurance Fund ("BIF") to 0.04% of insured deposits. The FDIC has indicated
that the assessment rate for SAIF-insured institutions will not fall below .23%
of insured deposits until approximately the year 2002. This decrease in BIF
rates has resulted in a substantial disparity in deposit insurance premiums paid
by savings institutions, such as the Bank, which are insured by the Savings
Association Insurance Fund ("SAIF") and institutions insured by the BIF. The
lower rates paid by BIF-insured institutions are likely to give them a
significant competitive advantage over SAIF-insured institutions such as the
Bank.
To alleviate this disparity, one proposal being considered by the U.S.
Department of Treasury, the FDIC, and the U.S. Congress provides that a one-time
assessment estimated to be 80 basis points be imposed on all SAIF-insured
deposits to cause the SAIF insurance fund to reach its designated reserve ratio
(currently 1.25%). Once this occurs, the two funds would be merged into one
fund. There can be no assurance that this proposal or any other proposal will
be implemented or that premiums for either fund will not be adjusted in the
future by the FDIC or legislative action.
The payment of a special assessment would severely and negatively impact the
Bank's results of operations, resulting in a net charge of up to approximately
$106,000, after adjusting for tax benefits. However, if such a special
assessment is imposed and the SAIF is recapitalized, it could have the effect of
reducing the Bank's insurance premiums in the future, thereby creating equal
competition between BIF-insured and SAIF-insured institutions.
In addition, another proposal under consideration by Congress would require
savings associations to convert their charters to that of commercial banks in
connection with a merger of the BIF and the SAIF. Under current tax laws, a
savings association converting to a commercial bank charter must recapture into
taxable income the portion of the tax debt reserve that exceeds the 1988 tax
loan loss reserve. Under the proposal, $126,566 of the Bank's bad debt reserve
would be required to be recaptured into taxable income. If this legislation is
enacted into law, the Bank would also no longer be allowed to use the reserve
method for tax loan loss provisions, but would be required to change to the
charge-off method for tax purposes. No certainty exists that the pending
legislation will be enacted into law.
13
<PAGE>
Asset/Liability Management
Pendleton Federal's future financial performance depends to a large extent on
how successful the Bank is in limiting the sensitivity of the Bank's earnings
and net asset value to changes in interest rates. Such sensitivity may be
analyzed by examining the amount by which the market value of the Bank's
portfolio equity changes given an immediate and sustained change in interest
rates. At March 31, 1995, (the most recent report available) the Bank's market
value of portfolio equity would decrease by $416,000 or 8.0% and increase by
$384,000 or 7.0% given a 200 basis point immediate and sustained increase or
decrease, respectively, in interest rates. Based on this analysis, management
believes that the Bank has an acceptable level of interest rate risk and is
adequately protected from the effects of interest rate fluctuations.
Management believes that interest rate risk is one of the most significant
factors affecting the Bank's future ability to generate earnings consistently.
Accordingly, management has focused on strategies to reduce the Bank's interest
risk in recent years. These strategies include the origination of its portfolio
of adjustable rate mortgage loans with greater interest rate sensitivity than
long term fixed rate mortgage loans, the sale of long term fixed rate loans in
the secondary market and increasing the balance of transaction accounts.
Sources of non-interest income such as loan servicing fees and service charges
on deposits are also emphasized.
14
<PAGE>
PENFED BANCORP, INC.
PART II
OTHER INFORMATION
ITEM 1 Legal Proceeding
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
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENFED BANCORP, INC.
August 8, 1996 /s/ David C. Wills
- ------------- -------------------------
Date David C. Wills
President and Chief Executive Officer
(Duly Authorized Officer)
August 8, 1996 /s/ Leann Banta
- ------------- -------------------------
Date Leann Banta
Secretary and Controller
(Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1.00
<CASH> 264,642
<INT-BEARING-DEPOSITS> 440,770
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 916,492
<INVESTMENTS-MARKET> 925,383
<LOANS> 25,703,455
<ALLOWANCE> 112,063
<TOTAL-ASSETS> 28,043,875
<DEPOSITS> 20,566,675
<SHORT-TERM> 2,300,000
<LIABILITIES-OTHER> 83,812
<LONG-TERM> 0
0
0
<COMMON> 345,000
<OTHER-SE> 4,748,388
<TOTAL-LIABILITIES-AND-EQUITY> 28,043,875
<INTEREST-LOAN> 1,043,136
<INTEREST-INVEST> 30,924
<INTEREST-OTHER> 18,129
<INTEREST-TOTAL> 1,092,189
<INTEREST-DEPOSIT> 542,283
<INTEREST-EXPENSE> 581,157
<INTEREST-INCOME-NET> 511,032
<LOAN-LOSSES> 6,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 362,032
<INCOME-PRETAX> 204,125
<INCOME-PRE-EXTRAORDINARY> 140,074
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,074
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 740,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 109,063
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 112,063
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 112,063
</TABLE>
