<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 June 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,
June 30, 1997 and December 31, 1996 1
Consolidated Statements of Income, Three Months
Ended June 30, 1997 and 1996 2
Consolidated Statements of Income, Six Months
Ended June 30, 1997 and 1996 3
Consolidated Statements of Cash Flows,
Six Months Ended June 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>
June 30 December 31
1997 1996
(unaudited) (audited)
_________ _________
<S> <C> <C>
Cash and balances with banks $ 157,408 $ 270,794
Interest-
bearing deposits
in other depository institutions 181,000 1,474,583
Investment securities, held to maturity 607,949 265,396
Mortgage-backed securities,
held to maturity 516,152 746,093
Federal Home Loan Bank capital stock 254,700 243,900
Loans receivable, net 28,809,051 26,988,223
Accrued interest receivable on
loans and investments 132,855 102,732
Office property and equipment, at cost,
less accumulated depreciation 318,383 339,239
Real estate owned 31,464
Other assets 60,321 43,606
------------ -----------
Total Assets $ 31,037,819 $30,506,030
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits $ 4,824,093 $ 4,220,863
Certificates of deposit 18,756,036 18,898,762
Advances
from Federal Home Loan Bank 2,500,000 2,200,000
Accrued interest 20,865 9,333
Other liabilities 112,717 130,067
Deferred income tax 14,224 14,224
------------ -----------
Total liabilities 26,227,935 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; 294,790 shares outstanding at
June 30, 1997 and 306,387 shares
outstanding at December 31, 1996 3,450 3,450
Additional paid in capital 3,122,026 3,117,084
Retained income, substantially restricted 2,263,661 2,336,596
Employee stock ownership plan (189,618) (208,490)
Treasury stock (389,635) (215,859)
------------ -----------
Total stockholders' equity 4,809,884 5,032,781
------------ -----------
Total liabilities and $ 31,037,819 $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
June 30
--------- -------
1997 1996
--------- -------
<S> <C> <C>
Interest on loans $ 636,414 $ 505,696
Interest on
investment securities 14,805 5,309
Interest on mortgage-backed securities 10,847 12,339
Other interest income 10,862 8,840
----------- ---------
Total interest income 672,928 532,184
----------- ---------
Interest on savings deposits and advances:
NOW accounts 5,081 4,024
Savings accounts 31,560 20,139
Certificates 271,486 245,966
Federal Home Loan Bank advances 28,140 18,301
----------- ---------
Total interest expense 336,267 288,430
----------- ---------
Net interest income 336,661 243,754
Provision for loan losses 9,000 3,000
----------- ---------
Net interest income after
provision for loan losses 327,661 240,754
----------- ---------
Noninterest income 16,833 19,634
----------- ---------
Other expenses:
Salaries and benefits 85,375 80,252
Occupancy expense 19,013 16,555
Equipment and data processing 50,499 13,412
Professional services 16,500 35,750
Federal insurance premium 3,725 11,422
State ad valorem taxes 7,002 7,059
Other 50,598 27,835
----------- ---------
Total other expenses 232,712 192,285
----------- ---------
Income before income taxes 111,782 68,103
Income tax expense 40,574 22,063
----------- ---------
Net income $ 71,208 $ 46,040
=========== =========
Net income per share $ 0.24 $ 0.13
=========== =========
Weighted average common share
outstanding 302,574 322,399
</TABLE>
See Notes to Consolidated Financial Statements - General
2
<PAGE>
<PAGE>
PENFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
--------- ---------
1997 1996
--------- ---------
<S> <C> <C>
Interest on loans $1,206,251 $1,063,378
Interest on investment securities 27,246 10,618
Interest on mortgage-backed securities 21,987 20,306
Other interest income 23,990 18,129
---------- ----------
Total interest income 1,279,474 1,112,431
---------- ----------
Interest on savings deposits and advances:
NOW accounts 9,913 6,991
Savings accounts 56,352 39,318
Certificates 543,799 495,974
Federal Home Loan Bank advances 50,939 38,874
---------- ----------
Total interest expense 661,003 581,157
---------- ----------
Net interest income 618,471 531,274
Provision for loan losses 34,937 6,000
---------- ----------
Net interest income after
provision for loan losses 583,534 525,274
---------- ----------
Noninterest income 34,477 40,883
---------- ----------
Other expenses:
Salaries and Benefits 166,374 153,346
Occupancy expense 22,829 35,057
Equipment and data processing 64,781 27,553
Professional services 32,500 57,277
Federal insurance premium 4,400 21,986
State ad valorem taxes 14,004 12,018
Other 77,977 54,795
---------- ----------
Total other expenses 382,865 362,032
---------- ----------
Income before income taxes
and extraordinary item 235,146 204,125
Income tax expense 80,961 64,051
---------- ----------
Income before extraordinary item 154,185 140,074
Extraordinary item-flood loss net of
income tax benefit of $86,200 (167,329) 0
---------- ----------
Net (loss) income $ (13,144) $ 140,074
========== ==========
Income per share before
extraordinary item $ 0.50 $ 0.44
Loss per share from extraordinary item $ (0.55) $ 0
---------- ----------
Net (loss) income per share $ (0.05) $ 0.44
========== ==========
Weighted average common share outstanding 307,020 323,137
</TABLE>
See Notes to Consolidated Financial Statements - General
3
<PAGE>
<PAGE>
PENFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
--------- ---------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from (used in)
operating activities: $ 218,906 $ (45,871)
----------- ------------
Cash flows used in investing activities:
Securities (123,412) ( 87,821)
Loans receivable (1,808,863) (1,303,724)
Purchases of fixed assets (235,316)
----------- ------------
Net cash used in investing activities (2,167,591) (1,391,545)
Cash flows from financing activities:
Deposits 460,504 646,498
Net advances from Federal Home Loan
Bank 300,000 900,000
Purchases of treasury stock (173,776)
Dividends paid (45,012)
----------- ------------
Net cash from financing activities 541,716 1,546,498
Increase(decrease) in cash and cash
equivalents (1,406,969) 109,082
Cash and cash equivalents at
beginning of period 1,745,377 595,960
----------- ------------
Cash and cash equivalents at
end of period $ 338,408 $ 705,042
=========== ============
</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
six months ended June 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
six months ended June 30, 1997 follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Beginning balance $ 150,000 $ 109,063 $ 124,063 $ 106,063
Provision 9,000 3,000 34,937 6,000
-------- --------- --------- ---------
Ending balance $ 159,000 $ 112,063 $ 159,000 $ 112,063
========= ========= ========= =========
</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 1.7% at June 30, 1997 from December
31, 1996. Net loans receivable and investment securities
increased 6.7% and 129.1%, respectively. Mortgage-backed
securities decreased 30.8%. Deposits and Federal Home Loan Bank
advances increased 2.0% and 13.6%, respectively. Increases in
deposits were used to fund a portion of the increase in
securities and loan receivable.
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 six months ended June 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 six months ended June 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 a $250,000 FNMA callable bond.
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 June 30, 1997 was 15.5% as compared to
16.5% at December 31, 1996. During the six months ended June
30, 1997, the Corporation repurchased 13,380 shares of common
stock for the total price of $173,776 out of existing cash
reserves.
The level of nonperforming loans decreased as of June 30, 1997
as compared to June 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 June 30,
---------------------
1997 1996
---------- ---------
(Dollars in thousands)
<S> <C> <C>
Loans accounted for on a
non-accrual basis $ 560 $ 740
Accruing loans which are
contractually past due 90 days
or more 0 0
--------- --------
Total of non-accrual and 90 days
past due loans $ 560 $ 740
========= ========
Other real estate owned 0 0
--------- --------
Total nonperforming assets $ 560 $ 740
========= ========
Ratio of nonperforming loans
to total loans 1.9% 2.9%
========= =========
Ratio of nonperforming assets
to total assets 1.8% 2.6%
========= ==========
Ratio of allowance for loan losses
to total loans 0.6% 0.4%
========= ==========
Ratio of allowance for loan losses
to nonperforming loans 28.4% 15.1%
========= ==========
</TABLE>
The Savings Bank's total nonperforming loans and total
nonperforming assets at June 30, 1997 decreased 24.3% as
compared to June 30, 1996. Nonperforming loans at June 30, 1997
decreased due to some of the non-accrual loans becoming
current. All nonperforming loans at June 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 on these loans.
Results of Operations
Three Months Ended June 30, 1997, Compared to June 30, 1996
The Corporation's net income for the quarter ended June 30, 1997
increased 54.7% as compared to the same quarter of 1996 due to a
increase in interest income of 26.4%, offset by a decrease in
noninterest income of 14.3%, and an increase in interest expense
and other expenses of 16.6% and 21.0%, respectively.
Net interest income before provision for loan losses increased
by 38.1%. Total interest income increased 26.4%, due to an
increase in the volume of outstanding loans. Total interest
expense increased 16.6% 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.
The Savings Bank during this quarter continued paying interest
on the promotional certificate of deposit offering that was held
in the last quarter of 1996.
10
<PAGE>
<PAGE>
The Savings Bank's allowance for loan losses increased 41.9%
from June 30, 1996 to June 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 increased by 21.0% for the three months ended
June 30, 1997 as compared to the same quarter of 1996.
Equipment and data processing expenses and other expenses
increased by 276.5% and 81.8%, respectively, offset by a
decrease in professional services of 53.8% and a decrease in
federal insurance premiums of 67.4% due to the reduction in
premium rates following the recapitalization of the Savings
Association Insurance Fund. The increase in data processing is
due to start up costs of a new computer system put in place
in June 1997. Other expenses increased as a result of supplies
being purchased to restock the Savings Bank after the Flood.
Six Months Ended June 30, 1997, Compared to June 30, 1996
The Corporation's net income for the six months ended June 30,
1997 decreased 109.4% as compared to the same period in 1996 due
to an increase in interest expense of 13.7%, a decrease in
noninterest income of 15.7%, and an extraordinary flood loss of
$167,329, offset by an increase in interest income of 15.0%.
Net interest income before provision for loan losses increased
16.4%. Total interest income increased 15.0% due to an increase
in the volume of outstanding loans. Total interest expense
increased 13.7% 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.
Other expenses increased by 5.8% for the six months ended June
30, 1997 as compared to the same period of 1996. Equipment and
data processing expenses increased 135.1%, other expenses
increased by 42.3%, offset by a decrease in professional
services of 43.3% and a decrease in federal insurance premiums
of 79.9%. Data processing expense increased due to the costs of
a new computer system and the other expenses increased because
new supplies had to be purchased to replace items lost in the
flood.
For a discussion of the extraordinary item, see "Impact of
Flooding in First Quarter" herein.
11
<PAGE>
<PAGE>
The net effect of the extraordinary item-flood loss combined
with the increase in interest expense, decrease in noninterest
income, and offset by the increase in net interest income
resulted in a decrease in net income of 109.4%.
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 June 30, 1997 and December 31, 1996 was 7.65% 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.
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 June 30, 1997, and December 31,
1996 in accordance with the capital standards imposed by the
OTS. Amounts are in thousands.
12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------- ---------------
Amount % Amount %
------- ------ -------- -----
<S> <C> <C> <C> <C>
Tangible capital $ 4,537 14.6 $ 4,704 15.4
Tangible capital
requirement 466 1.5 458 1.5
------- ------ -------- ------
Excess $ 4,071 13.1 $ 4,246 13.9
======= ====== ======== ======
Core capital $ 4,537 14.6 $ 4,704 15.4
Core capital
requirement 932 3.0 915 3.0
------- ------ -------- ------
Excess $ 3,605 11.6 $ 3,789 12.4
======= ====== ======== ======
Tangible capital $ 4,537 $ 4,704
Allowance for loan loss 159 124
------- --------
Total capital
(core and supplemental) 4,696 25.2 4,828 27.8
Risk-based requirement 1,488 8.0 1,392 8.0
------- ------ -------- ------
Excess $ 3,208 17.2 $ 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
Report Item 5 on Form 8-K
Penfed Bancorp, Inc. filed a Form 8-K announcing that
the audit of its financial statements for the fiscal
year ended December 31, 1996 had been delayed due to
the recent flooding of the Licking River in Northern
Kentucky, which resulted in significant damage to the
properties of the Registrant's wholly owned
subsidiary, Pendleton Federal Savings Bank.
Exhibits
Exhibit 11 - Computation of Earning per share
Exhibit 27 - Financial Data Schedule
15
<PAGE>
<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 ended June 30, 1997
<TABLE>
<CAPTION>
Three Six
Months Months
------ ------
<S> <C> <C>
Primary
Average share outstanding 295,090 299,944
Net effect of dilutive stock options-based
on the treasury stock method using average
market price 7,484 6,763
-------- ---------
Total 302,574 306,707
======== =========
Income before extraordinary item $ 71,208 $ 154,185
Extraordinary item-flood loss 0 (167,329)
======== =========
Net income(loss) $ 71,208 $ (13,144)
======== =========
Income per share before extraordinary item $ 0.24 $ 0.50
Loss per share from extraordinary item 0 (0.55)
======== =========
Net income(loss) per share $ 0.24 $ (0.05)
Fully Diluted
Average shares outstanding 295,090 299,944
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 7,076
-------- ---------
Total 302,574 307,020
======== =========
Income before extraordinary item $ 71,208 $ 154,185
Extraordinary item-flood loss 0 (167,329)
======== =========
Net income(loss) $ 71,208 $ (13,144)
======== =========
Income per share before extraordinary item $ 0.24 $ 0.50
Loss per share from extraordinary item 0 (0.55)
======== =========
Net income(loss) per share $ 0.24 $ (0.05)
</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> 157,408
<INT-BEARING-DEPOSITS> 181,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 1,124,101
<INVESTMENTS-MARKET> 1,123,185
<LOANS> 28,809,051
<ALLOWANCE> 159,000
<TOTAL-ASSETS> 31,037,819
<DEPOSITS> 23,580,129
<SHORT-TERM> 2,500,000
<LIABILITIES-OTHER> 147,806
<LONG-TERM> 0
<COMMON> 3,450
0
0
<OTHER-SE> 4,806,434
<TOTAL-LIABILITIES-AND-EQUITY> 31,037,819
<INTEREST-LOAN> 1,206,251
<INTEREST-INVEST> 49,233
<INTEREST-OTHER> 23,990
<INTEREST-TOTAL> 1,279,474
<INTEREST-DEPOSIT> 610,064
<INTEREST-EXPENSE> 661,003
<INTEREST-INCOME-NET> 618,471
<LOAN-LOSSES> 34,937
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 382,865
<INCOME-PRETAX> 235,146
<INCOME-PRE-EXTRAORDINARY> 154,185
<EXTRAORDINARY> (167,329)
<CHANGES> 0
<NET-INCOME> (13,144)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
<YIELD-ACTUAL> 3.54
<LOANS-NON> 560,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 124,063
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 159,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 159,000
</TABLE>
