<PAGE>
<PAGE>
TOTAL NUMBER OF PAGES 16
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 September 30, 1997
------------------
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 __ No x
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 October 31,1997
- --------------------------------------------------------------
Common Stock, $0.01 Par Value 296,749 Common Shares
<PAGE>
<PAGE>
PENFED BANCORP, INC.
INDEX
Part I Financial Information Page
Item 1 Unaudited Consolidated Financial Statements
Consolidated Statements of Financial
Condition, September 30, 1997 and
December 31, 1996 1
Consolidated Statements of Income, Three
Months Ended Septeber 30, 1997 and 1996 2
Consolidated Statements of Income, Nine
Months Ended September 30, 1997 and 1996 3
Consolidated Statements of Cash Flows,
Nine Months Ended September 30, 1997
and 1996 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II Other Information 15
Signatures 16
<PAGE>
<PAGE>
PENFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
(unaudited) (audited)
___________ __________
<S> <C> <C>
Cash and balances with banks $ 252,759 $ 270,794
Interest-bearing deposits
in other depository institutions 464,405 1,474,583
Investment securities, held to maturity 862,161 265,396
Mortgage-backed securities, held to maturity 599,926 746,093
Federal Home Loan Bank capital stock 259,300 243,900
Loans receivable, net 29,342,717 26,988,223
Accrued interest receivable on
loans and investments 152,778 102,732
Office property and equipment, at cost,
less accumulated depreciation 573,906 339,239
Real estate owned 31,464
Other assets 66,411 43,606
------------ -----------
Total Assets $ 32,574,363 $30,506,030
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits $ 4,915,612 $ 4,220,863
Certificates of deposit 19,125,867 18,898,762
Advances from Federal Home Loan Bank 3,500,000 2,200,000
Accrued interest 17,263 9,333
Other liabilities 164,519 130,067
Deferred income tax 14,224 14,224
------------ -----------
Total liabilities 27,737,485 25,473,249
Stockholders' equity:
Preferred stock, 500,000 shares
authorized and unissued
Common stock, $.01 par value, 2,000,000
shares authorized; 345,000 shares
issued; 294,781 shares outstanding at
September 30, 1997 and 306,387 shares
outstanding at December 31, 1996 3,450 3,450
Additional paid in capital 3,124,210 3,117,084
Retained income, substantially
restricted 2,294,857 2,336,596
Employee stock ownership plan (181,678) (208,490)
Treasury stock (403,961) (215,859)
----------- -----------
Total stockholders' equity 4,836,878 5,032,781
----------- -----------
Total liabilities and $32,574,363 $30,506,030
stockholders' equity =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements - General
1
<PAGE>
<PAGE>
PENFED BANCORP,INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30
--------- --------
1997 1996
--------- --------
<S> <C> <C>
Interest on loans $ 635,328 $ 561,213
Interest on investment securities 15,709 6,013
Interest on mortgage-backed securities 11,021 11,627
Other interest income 12,345 9,653
--------- --------
Total interest income 674,403 588,506
--------- --------
Interest on savings deposits and advances:
NOW accounts 6,184 4,783
Savings accounts 25,617 20,721
Certificates 276,959 236,683
Federal Home Loan Bank advances 49,830 35,211
--------- --------
Total interest expense 358,590 297,398
--------- --------
Net interest income 315,813 291,108
--------- --------
Provision for loan losses 9,000 9,000
--------- --------
Net interest income after
provision for loan losses 306,813 282,108
--------- --------
Noninterest income 20,125 16,708
--------- --------
Other expenses:
Salaries and benefits 79,865 74,505
Occupancy expense 33,454 15,152
Equipment and data processing 12,425 12,228
Professional services 24,133 15,852
Federal insurance premium 3,757 11,875
State ad valorem taxes 7,002 7,058
SAIF Assessment 114,183
Other 39,310 52,506
---------- --------
Total other expenses 199,946 303,359
---------- --------
Income(loss) before income taxes 126,992 (4,543)
Income tax expense 44,091 215
---------- --------
Net income(loss) $ 82,901 $ (4,758)
========== ========
Net income(loss) per share $ 0.27 $ (0.02)
========== ========
Weighted average common share
outstanding 302,169 317,585
</TABLE>
See Notes to Consolidated Financial Statements - General
2
<PAGE>
<PAGE>
PENFED BANCORP, INC.
CONSOLIATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30
--------- --------
1997 1996
--------- --------
<S> <C> <C>
Interest on loans $1,830,954 $1,624,597
Interest on investment securities 42,955 16,631
Interest on mortgage-backed securities 33,008 31,933
Other interest income 36,335 27,782
---------- ----------
Total interest income 1,943,252 1,700,943
---------- ----------
Interest on savings deposits and advances:
NOW accounts 16,098 11,774
Savings accounts 81,969 60,039
Certificates 820,758 732,657
Federal Home Loan Bank advances 100,769 74,085
---------- ----------
Total interest expense 1,019,594 878,555
---------- ----------
Net interest income 923,658 822,388
Provision for loan losses 43,937 15,000
---------- ----------
Net interest income after
provision for loan losses 879,721 807,388
---------- ----------
Noninterest income 54,603 57,585
---------- ----------
Other expenses:
Salaries and Benefits 246,239 234,901
Occupancy expense 56,282 50,209
Equipment and data processing 77,206 39,781
Professional services 56,633 73,129
Federal insurance premium 8,157 33,861
State ad valorem taxes 21,006 19,076
SAIF Assessment 114,183
Other 117,288 99,777
---------- ----------
Total other expenses 582,811 664,917
---------- ----------
Income before income taxes
and extraordinary item 351,513 200,056
Income tax expense 121,439 68,180
--------- ---------
Income before extraordinary item 230,074 131,876
Extraordinary item-flood loss net of
income tax benefit of $86,200 (167,329) 0
--------- ---------
Net income $ 62,745 $ 131,876
========= =========
Income per share before
extraordinary item $ 0.75 $ 0.42
Loss per share from extraordinary item $ (0.55) $ 0
--------- ---------
Net income per share $ 0.20 $ 0.42
========= =========
Weighted average common share outstanding 305,191 321,287
</TABLE>
See Notes to Consolidated Financial Statements - General
3<PAGE>
<PAGE>
PENFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30
--------- --------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from
operating activities: $ 272,039 $ 59,048
----------- -----------
Cash flows used in investing activities:
Securities (465,998) (196,464)
Loans receivable (2,329,512) (2,003,778)
Purchases of fixed assets (493,482)
---------- -----------
Net cash used in investing activities (3,288,992) (2,200,242)
Cash flows from financing activities:
Deposits 921,854 418,010
Net advances from Federal Home
Loan Bank 1,300,000 1,700,000
Purchases of treasury stock (188,102) 0
Dividends paid (45,012) 0
----------- ----------
Net cash from financing activities 1,988,740 2,118,010
Decrease in cash and cash equivalents (1,028,213) (23,184)
Cash and cash equivalents at
beginning of period 1,745,377 595,960
----------- ----------
Cash and cash equivalents at
end of period $ 717,164 $ 572,776
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements - General
4
<PAGE>
<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 nine months ended
September 30, 1997 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,
1996.
Allowance for Loan Losses:
An analysis of the changes in the loan loss allowance
for the nine months ended September 30, 1997 follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Beginning balance $159,000 $112,063 $124,063 $106,063
Provision 9,000 9,000 43,937 15,000
-------- -------- ------- --------
Ending balance $168,000 $121,063 $168,000 $121,063
======== ======== ======== ========
</TABLE>
5
<PAGE>
<PAGE>
Effect of Implementing New Accounting Standards
In June 1996, the FASB issued Statement of Financial
Standards (SFAS) No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments
of Liabilities." Under this standard, accounting for
transfers and servicing of financial assets and
extinguishments of liabilities is based on control.
After a transfer of financial assets, an entity
recognizes the financial and servicing assets it
controls and the liabilities it has incurred,
derecognizes financial assets when control has been
surrendered and derecognizes liabilities when
extinguished. This statement applies prospectively in
fiscal years beginning after December 31, 1996. The
Corporation adopted the statement January 1, 1997 with
no material effect on the financial statements.
In February 1997, the FASB issued SFAS No. 128,
"Earnings Per Share" (EPS). This statement specifies
the computation, presentation, and disclosure
requirements for EPS. SFAS No. 128 is designed to
improve the EPS information provided in financial
statements by simplifying the existing computational
guidelines, revising the disclosure requirements, and
increasing the comparability of EPS data on an
international basis. Some of the changes made to
simplify the EPS computations include: (a)
eliminating the presentation of primary EPS and
replacing it with basic EPS, with the principal
difference being that common stock equivalents (CSEs)
are not considered in computing basic EPS, (b)
eliminating the modified treasury stock method and
three percent materiality provision, and (c) revising
the contingent share provisions and the supplemental
EPS data requirements. SFAS No. 128 requires
presentation of basic EPS amounts from income for
continuing operations and net income on the face of
the income statement for entities with simple capital
structures and dual presentation of basic and diluted
EPS on the face of the income statement for all
entities with complex capital structures regardless of
whether basic and diluted EPS are the same. The
statement also requires a reconciliation of the
numerator and denominator used on computing basic and
diluted EPS and is applicable to all entities with
publicly held common stock or potential common stock.
SFAS No. 128 is effective for periods ending,
including interim periods after December 15, 1997.
Earlier application is not permitted. EPS calculated
under SFAS No. 128 are not expected to be materially
different from EPS calculated under the current
method.
6
<PAGE>
<PAGE>
Pending Financial Services Modernization Legislation
Legislation currently pending in Congress would
eliminate the thrift charter after two years.
Accordingly, the Savings Bank may be required to
convert its federal savings bank charter to either a
national bank charter, a state depository institution
charter, or a new designed charter. The Savings Bank
may also become regulated at the holding company level
by the Board of Governors of the Federal Reserve
System ("Federal Reserve") rather than by the Office
of Thrift Supervision ("OTS"). Regulation by the
Federal Reserve could subject the Savings Bank to
capital requirements that are not currently applicable
to the Corporation at a holding company level, which
business activities currently are not restricted. The
Savings Bank is unable to predict whether such
initiatives will result in enacted legislation
requiring a charter change and if so whether the
charter change would significantly impact the
Corporation's operations.
Impact of Flooding in First Quarter
On March 2, 1997 a severe storm created flooding on
the Licking River in Northern Kentucky. As a result,
the Corporation's wholly owned subsidiary, the Savings Bank,
experienced significant property damage. The sixty-one inches
of water in the Savings Bank's office in the Falmouth,
Kentucky severely damaged the internal fixtures of the
Savings Bank and numerous financial documents.
Collateral properties on several loans held by the
Savings Bank were also damaged.
The Savings Bank's office and many of the documents
have been reconstructed. The Savings Bank recognized
an extraordinary loss of $167,329, which is the net of
a related income tax benefit of $86,200, as a result
of uninsured flood loss. Management estimates that
less than 10% of the loans in the Savings Bank's
portfolio were adversely affected by the flood.
Management attributes this to the geographic diversity
of the Savings Bank's loans, in that an increasing
percentage of the Savings Bank's loans have been
collateralized by properties located outside of
Pendleton County in recent years. Management does not
believe that the impact of the flood on the
Corporation's future financial condition or results of
operations will be material.
7
<PAGE>
<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 Savings
Bank's net income is net interest income, which is the
difference between interest income and interest
expense. Consequently, the Savings 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 Savings Bank's earnings over time.
Impact of Flooding in First Quarter
On March 2, 1997 a severe storm created flooding on
the Licking River in Northern Kentucky. As a result,
the Corporation's wholly owned subsidiary, the Savings
Bank, experienced significant property damage. The
sixty-one inches of water in the Savings Bank's office
in Falmouth, Kentucky severely damaged the internal
fixtures of the Savings Bank and numerous financial
documents. Collateral properties on several loans
held by the Savings Bank were also damaged.
The Savings Bank's office and many of the documents
have been reconstructed. The Savings Bank recognized
an extraordinary loss of $167,329, which is the net of
a related income tax benefit of $86,200, as a result
of uninsured flood loss. Management estimates that
less than 10% of the loans in the Savings Bank's
portfolio were adversely affected by the flood.
Management attributes this to the geographic diversity
of the Savings Bank's loans, in that an increasing
percentage of the loans have been collateralized by
properties located outside of Pendleton County in
recent years. Management does not believe that the
impact of the flood on the Corporation's future
financial condition or results of operations will be
material.
Financial Condition
Total assets increased by 6.8% at September 30, 1997
from December 31, 1996. Net loans receivable and
investment securities increased 8.7% and 224.9%,
respectively. Office property and equipment, net of
depreciation, increased 69.2%. Mortgage-backed
securities decreased 19.6%. Deposits increased 4.0%
and Federal Home Loan Bank advances increased 59.1%.
Increases in deposits were used to fund a portion of
the increase in securities and loan receivable. The
increase in office property is due to the remodeling
of the main office building subsequent to the flood
and the purchase of a building for a future branch.
8 <PAGE>
<PAGE>
Due to the continuing marketing efforts of the Savings
Bank to take advantage of opportunities for lending
growth in its market areas, the Savings Bank's loans
receivable balance increased during the nine months
ended September 30, 1997. Fixed rate loans are
generally sold in the secondary market; therefore
their origination does not result in increases to the
Savings Bank's loan portfolio. During the nine months
ended September 30, 1997, the Savings Bank was able to
increase its loans receivable balance by originating
adjustable rate mortgage loans that are retained in
the Savings Bank's loan portfolio. Future increases in
the Savings Bank's loans receivable balances will be
funded through increased deposits or Federal Home Loan
Bank advances, if required. Investment securities
increased due to the purchase of two FNMA callable
bonds for $550,000.
The Savings Bank experienced an increase in deposits
due to new and existing depositors opening and/or
increasing 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 Savings 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 for September 30, 1997 was 14.8%
as compared to 16.5% at December 31, 1996. During the
nine months ended September 30, 1997, the Corporation
repurchased 14,482 shares of common stock for the
total price of $188,102 out of existing cash reserves.
The level of nonperforming loans increased as of
September 30,1997 as compared to September 30, 1996.
The following table sets forth information with
respect to the Savings Bank's nonperforming assets for
the periods indicated. During the periods shown, the
Savings Bank had no restructured loans with the
meaning of Statement of Financial Accounting Standards
No. 15.
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
At September 30,
---------------------
1997 1996
---------- ---------
(Dollars in thousands)
<S> <C> <C>
Loans accounted for on a
non-accrual basis $ 892 $ 671
Accruing loans which are
contractually past due 90 days
or more 0 0
------ ------
Total of non-accrual and 90 days
past due loans $ 892 $ 671
======= ======
Other real estate owned 0 0
------- ------
Total nonperforming assets $ 892 $ 671
======= ======
Ratio of nonperforming loans
to total loans 3.0% 2.6%
======== ======
Ratio of nonperforming assets
to total assets 2.7% 2.4%
======== ======
Ratio of allowance for loan losses
to total loans 0.6% 0.5%
======== ======
Ratio of allowance for loan losses
to nonperforming loans 18.8% 18.0%
======== ======
</TABLE>
The Savings Bank's total nonperforming loans and
total nonperforming assets at September 30, 1997
increased 32.9%, as compared to September 30, 1996.
Nonperforming loans at September 30, 1997 increased
due to a general increase in delinquencies. All
nonperforming loans at September 30, 1997 are
collateralized by residential property. Based on
management's review of the value of the underlying
collateral and other factors, no losses are expected
at September 30, 1997.
Results of Operations
Three Months Ended September 30, 1997, Compared to
September 30, 1996.
The Corporation's net income for the quarter ended
September 30, 1997 increased 1,842.3% as compared to
the same quarter of 1996 due to an increase in
interest income of 14.6%, a decrease in other expenses
of 34.1%, offset by an increase in interest expense of
20.6%.
Net interest income before provision for loan losses
increased by 8.5%. Total interest income increased
14.6%, due to an increase in the volume of outstanding
loans. Total interest expense increased 20.6% 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.
10
<PAGE>
<PAGE>
The Savings Bank's allowance for loan losses increased
38.8% from September 30, 1996 to September 30, 1997.
The allowance was increased in order to increase the
ratio of allowance for loan losses to nonperforming
loans, and to provide for losses associated with loans
affected by the flood in March 1997.
Other expenses decreased by 34.1% for the three months
ended September 30, 1997 as compared to the same
quarter of 1996. The decrease is primarily a result
of the special assessment levied by the Federal
Deposit Insurance Corporation to recapitalize the
Savings Association Insurance Fund ("SAIF") in the
third quarter of 1996. Occupancy expenses have
increased 120.8% as a result of expenses incurred to
repair items damaged in the flood.
Nine Months Ended September 30, 1997, Compared to
September 30, 1996
The Corporation's net income for the nine months ended
September 30, 1997 decreased 52.4% as compared to the
same period of 1996. The decrease is related to an
increase in interest expense of 16.1% and a net
extraordinary flood loss of $167,329 which were offset
by an increase in interest income of 14.2% and a
decrease in other expenses of 12.3%.
Net interest income before provision for loan losses
increased 12.3%. Total interest income increased
14.2% due to an increase in the volume of outstanding
loans. Total interest expense increased 16.1% as a
result of an increase in the effective rate paid on
interest-bearing liabilities, and also to the increase
in the balance on interest-bearing deposits and
Federal Home Loan Bank advances.
Other expenses decreased 12.3% for the nine months
ended September 30, 1997 as compared to the same
period of 1996. The decrease is primarily a result of
the special assessment levied by the Federal Deposit
Insurance Corporation to recapitalize the SAIF in the
third quarter of 1996. This has been offset by an
increase in equipment and data processing of 94.1%
because of the costs of implementing a new computer
system in June 1997.
For a discussion of the extraordinary item, see
"Impact of Flooding in First Quarter " herein.
The net effect of the extraordinary item-flood loss
combined with the increase in interest expense, and
offset by the increase in net interest income combined
to result in a decrease in net income of 52.4%.
11
<PAGE>
<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 Savings Bank's regulatory
liquidity at September 30, 1997 and December 31, 1996
was 7.22% and 10.68%, respectively. Management believes
that the Savings 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.
12
<PAGE>
<PAGE>
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
Savings Bank has no additional capital requirement
resulting from excessive exposure to interest rate
risk.
The following table summarizes the Savings Bank's
capital requirements and position at September 30,
1997, and December 31, 1996 in accordance with the
capital standards imposed by the OTS. Amounts are in
thousands.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- -------------
Amount % Amount %
------- ------ ------- -----
<S> <C> <C> <C> <C>
Tangible capital $ 4,592 14.1 $ 4,704 15.4
Tangible capital
requirement 488 1.5 458 1.5
------- ------ ------- -----
Excess $ 4,104 12.6 $ 4,264 13.9
======= ====== ======= =====
Core capital $ 4,592 14.1 $ 4,704 15.4
Core capital
requirement 976 3.0 915 3.0
------- ------ ------- -----
Excess $ 3,616 11.1 $ 3,789 12.4
======= ====== ======= =====
Tangible capital $ 4,592 $ 4,704
Allowance for loan loss 168 124
------- -------
Total capital
(core and supplemental) 4,760 23.7 4,828 27.8
Risk-based requirement 1,610 8.0 1,392 8.0
------- ------ -------- -----
Excess $ 3,150 15.7 $ 3,436 19.8
======= ====== ======== =====
</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 Corporation's operations. Unlike most
industrial companies, nearly all the assets and
liabilities of the Corporation are monetary in nature.
As a result, interest rates have a greater impact on
the Corporation'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.
13
<PAGE>
<PAGE>
Asset/Liability Management
Pendleton Federal's future financial performance
depends to a large extent on how successful the
Savings Bank is in limiting the sensitivity of the
Savings 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 Savings Bank's portfolio equity changes given an
immediate and sustained change in interest rates. At
September 30, 1997, (the most recent report available)
the Savings Bank's market value of portfolio equity
would decrease by $642,000 or 12% and increase by
$653,000 or 12% given a 200 basis point immediate and
sustained increase or decrease, respectively, in
interest rates. Based on this analysis, management
believes that the Savings 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 Savings
Bank's future ability to generate earnings
consistently. Accordingly, management has focused on
strategies to reduce the Savings 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>
<PAGE>
PENFED BANCORP, INC.
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
ITEM 6 Exhibits and Reports on Form 8-K
Exhibits
Exhibit 11 - Computation of Earning per share
Exhibit 27 - Financial Data Schedule
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.
December 3, 1997 /s/ David C. Wills
- ---------------- --------------------
Date David C. Wills
President and
Chief Executive Officer
(Duly Authorized Officer)
December 3, 1997 /s/ Leann Epperson
- ---------------- --------------------
Date Leann Epperson
Secretary and Controller
(Principal Financial Officer)
16
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
for the Three Months and Nine Months ended September 30, 1997
<TABLE>
<CAPTION>
Three Nine
Months Months
------ ------
<S> <C> <C>
Primary
Average share outstanding 294,685 298,356
Net effect of dilutive stock options-based
on the treasury stock method using average
market price 7,484 6,835
-------- ---------
Total 302,169 305,191
======== =========
Income before extraordinary item $ 82,901 $ 230,074
Extraordinary item-flood loss 0 (167,329)
======== =========
Net income $ 82,901 $ 62,745
======== =========
Income per share before extraordinary item $ 0.27 $ 0.75
Loss per share from extraordinary item 0 (0.55)
======== =========
Net income per share $ 0.27 $ 0.20
Fully Diluted
Average shares outstanding 294,685 298,356
Net effect of dilutive stock options-based
on the treasury stock method using the
period-end market price, if higher than
average market price 7,484 7,047
-------- ---------
Total 302,169 305,403
======== =========
Income before extraordinary item $ 82,901 $ 230,074
Extraordinary item-flood loss 0 (167,329)
======== =========
Net income $ 82,901 $ 62,745
======== =========
Income per share before extraordinary item $ 0.27 $ 0.75
Loss per share from extraordinary item 0 (0.55)
======== =========
Net income per share $ 0.27 $ 0.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 252,759
<INT-BEARING-DEPOSITS> 464,405
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 1,462,087
<INVESTMENTS-MARKET> 1,466,286
<LOANS> 29,342,717
<ALLOWANCE> 168,000
<TOTAL-ASSETS> 32,574,363
<DEPOSITS> 24,041,479
<SHORT-TERM> 3,500,000
<LIABILITIES-OTHER> 196,006
<LONG-TERM> 0
<COMMON> 3,450
0
0
<OTHER-SE> 4,833,428
<TOTAL-LIABILITIES-AND-EQUITY> 32,574,363
<INTEREST-LOAN> 1,830,954
<INTEREST-INVEST> 75,963
<INTEREST-OTHER> 36,335
<INTEREST-TOTAL> 1,943,252
<INTEREST-DEPOSIT> 918,825
<INTEREST-EXPENSE> 1,019,594
<INTEREST-INCOME-NET> 923,658
<LOAN-LOSSES> 43,937
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 582,811
<INCOME-PRETAX> 351,513
<INCOME-PRE-EXTRAORDINARY> 230,074
<EXTRAORDINARY> (167,329)
<CHANGES> 0
<NET-INCOME> 62,745
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 3.54
<LOANS-NON> 892,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 124,063
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 168,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 168,000
</TABLE>
