SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 December 31, 1998
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 0-25484
AMTRUST CAPITAL CORP.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 35-1940250
------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
20 W. Fifth Street, Peru, Indiana 46970
-----------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (765) 472-1991
Check here whether the issuer (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 reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ x ] No [ ]
As of December 31, 1998, there were 469,179 shares of the Registrant's common
stock outstanding.
Transitional Small Disclosure (check one): Yes [ ] No [ x ]
<PAGE>
AMTRUST CAPITAL CORP. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated condensed balance sheet at
December 31, 1998 and June 30, 1998
(Unaudited)...............................................3
Consolidated condensed statement of income for
the three and six months ended December 31, 1998
and 1997 (Unaudited)......................................4
Consolidated condensed statement of
stockholders' equity for the six months ended
December 31, 1998 and 1997 (Unaudited)....................5
Consolidated condensed statement of cash flows for
the six months ended December 31, 1998 and 1997
(Unaudited)...............................................6
Notes to unaudited consolidated condensed financial
statements ...............................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..........................................16
Item 2. Changes in Securities.......................................16
Item 3. Defaults Upon Senior Securities.............................16
Item 4. Submission of Matters to a Vote of Security Holders ........16
Item 5. Other Information ..........................................16
Item 6. Exhibits and Reports on Form 8-K............................16
Signatures..................................................17
<PAGE>
AMTRUST CAPITAL CORP. AND SUBSIDIARY
AMERICANTRUST FEDERAL SAVINGS BANK
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 3,978,658 $ 1,776,692
INTEREST-BEARING DEPOSITS 2,033,004 1,099,107
INVESTMENT SECURITIES HELD TO MATURITY 965,926 1,139,995
AVAILABLE FOR SALE 19,819,863 4,349,636
----------- -----------
TOTAL INVESTMENT SECURITIES 20,785,789 5,489,631
MORTGAGE LOANS HELD FOR SALE 2,362,715 1,944,088
LOANS 39,795,564 43,091,521
ALLOWANCE FOR LOAN LOSSES (486,174) (517,653)
----------- -----------
NET LOANS 39,309,390 42,573,868
PREMISES AND EQUIPMENT 1,795,651 1,794,803
FEDERAL HOME LOAN BANK OF INDIANAPOLIS
STOCK 1,050,000 1,050,000
CASH SURRENDER VALUE-LIFE INSURANCE
POLICIES 2,395,512 1,296,746
INTEREST RECEIVABLE 375,013 257,754
DEFERRED INCOME TAX BENEFITS 95,245 66,575
CURRENT INCOME TAX REFUNDABLE 0 123,735
OTHER ASSETS 1,240,326 595,610
----------- -----------
TOTAL ASSET $75,421,303 $58,068,609
=========== ===========
LIABILITIES
DEPOSITS $55,295,013 $46,881,488
ADVANCES FROM FHLB OF INDIANAPOLIS 12,370,405 3,070,405
INTEREST PAYABLE 144,644 101,259
CURRENT TAX PAYABLE (36,551) 0
OTHER LIABILITIES 505,924 584,079
----------- -----------
TOTAL LIABILITIES 68,279,435 50,637,231
----------- -----------
STOCKHOLDERS' EQUITY PREFERRED STOCK
($.01 PAR VALUE) AUTHORIZED AND UNISSUED
--350,000 SHARES COMMON STOCK ($.01 PAR VALUE)
AUTHORIZED--1,750,000 SHARES ISSUED--580,064
SHARES, OUTSTANDING--469,179 AND 475,860 SHARES 5,801 5,801
PAID IN CAPITAL 4,246,690 4,236,559
RETAINED EARNINGS-SUBSTANTIALLY RESTRICTED 4,189,958 4,284,019
UNEARNED ESOP SHARES -- 22,990 AND 27,594
SHARES (202,190) (220,752)
TREASURY STOCK AT COST -- 87,895 AND 76,610
SHARES (1,085,398) (915,583)
ACCUMULATED OTHER COMPREHENSIVE INCOME (12,993) 41,334
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,141,868 7,431,378
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $75,421,303 $58,068,609
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
AMTRUST CAPITAL CORP AND SUBSIDIARY
AMERICANTRUST FEDERAL SAVINGS BANK
CONSOLIDATED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
----------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME
LOANS RECEIVABLE $ 819,032 $ 942,280 $1,673,548 $1,887,375
SECURITIES, INCLUDING DIVIDENDS 310,538 262,902 405,893 529,075
INTEREST BEARING DEPOSITS 9,483 10,094 121,889 25,824
---------- ---------- ---------- ----------
1,139,053 1,215,276 2,201,330 2,442,274
---------- ---------- ---------- ----------
INTEREST EXPENSE
DEPOSITS 584,665 542,653 1,138,626 1,139,559
ADVANCES FROM FEDERAL
HOME LOAN BANK 135,353 217,194 202,346 381,767
---------- ---------- ---------- ----------
720,018 759,847 1,340,972 1,521,326
---------- ---------- ---------- ----------
NET INTEREST INCOME 419,035 455,429 860,358 920,948
PROVISION FOR LOSSES ON LOANS 7,483 11,304 7,483 20,269
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOSSES ON LOANS 411,552 44,125 852,875 900,679
---------- ---------- ---------- ----------
OTHER INCOME
SERVICE CHARGES ON DEPOSIT
ACCOUNTS 32,032 27,283 59,552 54,829
GAINS ON SALE OF LOANS HELD
FOR SALE 110,494 105,172 166,313 155,657
LOAN FEES AND SERVICE CHARGES 29,265 21,280 61,102 37,666
ANNUITY COMMISSIONS AND OTHER FEES 12,159 31,753 19,866 74,064
OTHER INCOME 18,179 26,532 35,309 44,339
---------- ---------- ---------- ----------
202,129 212,020 342,142 366,555
---------- ---------- ---------- ----------
OTHER EXPENSES
SALARIES AND EMPLOYEE BENEFITS 269,359 247,369 507,196 483,570
NET OCCUPANCY EXPENSE 40,563 35,349 81,698 69,401
EQUIPMENT EXPENSES 38,980 28,826 74,892 56,340
DATA PROCESSING FEES 36,290 29,249 76,358 58,043
DEPOSIT INSURANCE EXPENSE 6,820 8,432 14,808 16,485
LEGAL FEES 82,368 8,292 159,996 13,250
CUSTOMER DEPOSIT ACCOUNT EXPENSE 22,870 5,397 38,782 10,868
ADVERTISING AND PROMOTION 13,418 10,075 23,876 19,650
PRINTING AND OFFICE SUPPLIES 15,452 10,661 32,471 20,488
OTHER EXPENSES 149,547 174,161 276,135 314,821
---------- ---------- ---------- ----------
675,667 557,811 1,286,212 1,062,916
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE (BENEFIT) (61,986) 98,334 (91,195) 204,318
INCOME TAX EXPENSE (BENEFIT) (27,738) 34,495 (46,918) 79,400
---------- ---------- --------- ----------
NET INCOME (LOSS) $ (34,248) $ 63,839 $ (44,277) $ 124,918
========== ========== ========= ==========
NET INCOME (LOSS) PER SHARE:
BASIC $ (0.07) $ 0.13 $ (0.09) $ 0.26
DILUTED (0.07) 0.13 (0.09) 0.25
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
AMTRUST CAPITAL CORP. AND SUBSIDIARY
AMERICANTRUST FEDERAL SAVINGS BANK
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
IX MONTHS ENDED
DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
BEGINNING BALANCE $7,431,378 $7,463,513
COMPREHENSIVE INCOME:
NET INCOME (LOSS) (44,277) 124,918
OTHER COMPREHENSIVE INCOME, NET OF TAX:
UNREALIZED GAINS (LOSSES) ON SECURITIES
AVAILABLE FOR SALE (54,327) 133,548
---------- ----------
COMPREHENSIVE INCOME (LOSS) (98,604) 258,466
---------- -----------
DIVIDENDS (49,784) (52,188)
PURCHASE OF COMMON STOCK (198,125) 275,173)
ESOP SHARES EARNED 18,562 18,562
RECOGNITION AND RETENTION SHARES EARNED 28,310 37,069
ADDITIONAL PAID IN CAPITAL 10,131 30,853
---------- ----------
ENDING BALANCE $7,141,868 $7,481,102
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
AMTRUST CAPITAL CORP. AND SUBSIDIARY
AMERICANTRUST FEDERAL SAVINGS BANK
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
------------ -----------
OPERATING ACTIVITIES: (UNAUDITED)
<S> <C> <C>
NET INCOME (LOSS) $ (44,277) $ 124,918
ADJUSTMENTS TO RECONCILE
NET INCOME (LOSS)
TO NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES:
PROVISION FOR LOAN LOSSES 7,483 20,269
PREMIUM AND DISCOUNT AMORTIZATION, NET 7,261 (365)
DEPRECIATION AND AMORTIZATION 63,362 60,563
DEFERRED INCOME TAX BENEFIT (28,670) 10,260
CURRENT INCOME TAX REFUNDABLE 123,735 196,299
CURRENT INCOME TAX PAYABLE (36,551) 76,917
LOANS ORIGINATED FOR SALE (7,695,743) (5,310,511)
PROCEEDS FROM SALES AND PAYDOWNS
ON LOANS HELD FOR SALE 7,381,861 6,016,974
(GAINS) LOSSES ON SALES OF LOANS HELD FOR SALE (166,313) (155,657)
ESOP SHARES EARNED 28,693 49,413
RECOGNITION AND RETENTION PLAN
COMPENSATION EXPENSE 28,310 37,069
CHANGE IN:
INTEREST RECEIVABLE AND OTHER ASSETS (67,890) 49,907
CASH SURRENDER VALUE OF LIFE INSURANCE
POLICIES (1,098,766) (21,270)
INTEREST PAYABLE AND OTHER LIABILITIES (34,770) 106,927
------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (1,532,275) 1,261,713
------------ ------------
INVESTING ACTIVITIES:
NET CHANGE IN INTEREST-BEARING DEPOSITS (933,897) 151,718
PURCHASES OF SECURITIES AVAILABLE FOR SALE (16,374,503) (29,533)
PAYMENTS ON SECURITIES AVAILABLE FOR SALE 897,861
PAYMENTS ON SECURITIES HELD TO MATURITY 173,223 285803
NET CHANGE IN LOANS 3,264,236 2,210,681
CASH ACQUIRED IN BRANCH ACQUISITION 10,913,403
PURCHASE OF PREMISES AND EQUIPMENT (64,210) (407,702)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (2,123,887) 2,210,967
------------ ------------
FINANCING ACTIVITIES:
NET CHANGE IN NOW, SAVINGS AND CERTIFICATES
OF DEPOSIT (3,193,963) (7,300,571)
PROCEEDS FROM FHLB ADVANCES 18,690,000 23,550,000
REPAYMENT OF FHLB ADVANCES (9,390,000) (19,590,000)
PURCHASE OF AMTRUST STOCK (198,125) (275,173)
PAYMENT OF DIVIDENDS (49,784) (52,188)
------------ ------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 5,858,128 (3,667,932)
------------ ------------
NET CHANGE IN CASH 2,201,966 (195,252)
CASH, BEGINNING OF YEAR 1,776,692 1,514,563
------------ ------------
CASH, END OF PERIOD $ 3,978,658 $ 1,319,311
============ ============
ADDITIONAL CASH FLOW AND SUPPLEMENTARY INFORMATION
INTEREST PAID $ 1,307,182 $ 1,499,352
INCOME TAX PAID 86,250 152,412
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
AMTRUST CAPITAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The unaudited interim consolidated condensed financial statements
include the accounts of AmTrust Capital Corp. (the "Company") and its
subsidiary, AmericanTrust Federal Savings Bank (the "Bank") and should be read
in conjunction with the Company's most recent annual report.
The significant accounting policies followed by the Company and Bank
for interim financial reporting are consistent with the accounting policies
followed for annual financial reporting.
The unaudited interim consolidated condensed financial statements have
been prepared in accordance with the instructions to Form 10-QSB and, therefore,
do not include all information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the financial statements reflect all adjustments necessary to
present fairly the Company's financial position as of December 31, 1998 and
results of operations for the three- and six-month periods ending December 31,
1998 and 1997. The results of operations for the three and six months ended
December 31, 1998 are not necessarily indicative of the results of operations
which may be expected for the fiscal year ended June 30, 1999.
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. Comprehensive income includes unrealized gains
on securities available for sale, net of tax. Accumulated other comprehensive
income and income tax on such income reported are as follows:
<TABLE>
<CAPTION>
Six Months Ended
December 31
1998 1997
--------------------
<S> <C> <C>
Accumulated comprehensive income (loss)
Balance, July 1................................ $ 41,334 $(153,165)
Net unrealized gains (losses).................. (54,327) 133,548
-------- --------
Balance, December 31........................... $(12,993) $ (19,617)
======== =========
Income tax expense (benefit):
Unrealized holding gains (losses).............. $(35,633) $ 87,595
</TABLE>
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, changes the way public business enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about reportable segments in interim
financial reports to shareholders. It also establishes standards for related
<PAGE>
disclosures about products and services, geographic areas and major
customers. SFAS No. 131 became effective for the Company in 1998.
Note 2 - Earnings Per Share
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
1998 1997
---------------------------- --------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
-------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic Net Income Per Share:
Net Income (Loss) Available to
Common Stockholders $(34,248) 465,910 $(0.07) $63,839 482,169 $0.13
====== =====
Effect of Dilutive Stock Option
and Grants --- --- --- 10,791
-------- ------- ------- -------
Diluted Net Income Per Share:
Net Income (Loss) Available to
Common Stockholders $(34,248) 465,910 $(0.07) $63,839 492,960 $0.13
======== ======= ====== ======= ======= =====
For the Six Months Ended December 31,
1998 1997
--------------------------- ---------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
------- -------- ------ ------- -------- ------
Basic Net Income Per Share:
Net Income (Loss) Available to
Common Stockholders $(44,277) 468,918 $(0.09) $124,918 486,932 $0.26
====== =====
Effect of Dilutive Stock Option
and Grants --- --- --- 9,422
-------- ------- -------- ------
Diluted Net Income Per Share:
Net Income (Loss) Available to
Common Stockholders $(44,277) 468,918 $(0.09) $124,918 496,354 $0.25
======== ======= ====== ======== ======= =====
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings by the Company with the
Securities and Exchange Commission, the Company's press releases or other public
or shareholder communications, or in oral statements made with the approval of
an authorized executive officer, the words or phrases "would be," "will allow,"
"intends to," "will likely result," "are expected to,"
<PAGE>
"will continue," "is anticipated," "estimate," "project," or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected.
The Company wishes to caution readers not to place undue reliance on
any such forward- looking statements, which speak only as of the date made, and
advises readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
GENERAL
AmTrust Capital Corp. was incorporated under the laws of the State of
Delaware for the purpose of becoming the savings and loan holding company of
AmericanTrust Federal Savings Bank in connection with the Bank's conversion from
a federally chartered mutual savings bank to a federally chartered stock savings
bank, pursuant to its Plan of Conversion. Additionally, at December 31, 1998,
the Company had no significant assets except the equity investment in the Bank's
stock and cash, had no material liabilities, and had not conducted any material
operations. As a result, the consolidated condensed financial statements
appearing herein and the following discussion of results of operations relate
primarily to the Bank.
AmericanTrust has been, and continues to be, a community-oriented
financial institution offering selected financial services to meet the needs of
the communities it services. The Bank attracts deposits from the general public
and historically has used such deposits, together with other funds, primarily to
originate one- to four-family residential mortgage loans. The Bank also
originates consumer loans, and to a lesser extent, construction loans. Through
its main office and three branch offices, AmericanTrust serves communities in
Howard and Miami Counties, Indiana.
The Company's results of operations depend primarily upon the level of
net interest income, which is the difference between the interest income earned
on its interest-earning assets such as loans and investments, and the costs of
the Company's interest-bearing liabilities, primarily deposits and borrowings.
Results of operations are also dependent upon the level of the Company's
non-interest income, including fee income and service charges, and are affected
by the level of its non-interest expenses, including its general and
administrative expenses. Net interest income depends upon the volume of
interest-earning assets and interest-bearing liabilities and the interest rates
earned or paid on them, respectively.
<PAGE>
FINANCIAL CONDITION
Total assets increased by $17.3 million in the six months ended
December 31, 1998 from $58.1 million at June 30, 1998 to $75.4 million. Cash and
interest-bearing deposits increased $3.1 million, and investment securities
increased $15.3 million due to the use of cash received in the Bunker Hill
branch acquisition and advances from Federal Home Loan Bank. Total loans
decreased by $3.3 million due to principal reductions.
Deposits increased to $55.3 million at December 31, 1998 from $46.9
million at June 30, 1998. The net increase of $8.4 million was due to the Bunker
Hill acquisition, offset by a decrease in the use of public funds. FHLB advances
increased to $12.4 million at December 31, 1998 from $3.1 million at June 30,
1998 in order to fund investment purchases.
Stockholders' equity decreased $289,000 between June 30, 1998 and
December 31, 1998 as a result of a net loss for the six months of $44,000, a
reduction of net unrealized gains on securities available for sale, net of tax,
of $54,000, a payment of dividends to shareholders of $50,000, and purchases of
treasury stock totaling $198,000. This decrease was partially offset by earned
ESOP and Recognition & Retention shares of $57,000.
COMPARISON OF OPERATING RESULTS FOR THE THREE- AND SIX-MONTH
PERIODS ENDED DECEMBER 31, 1998 AND 1997
General. The Company had net losses of $34,000 and $44,000 for the
three- and six- month periods ended December 31, 1998 as compared to net income
of $64,000 and $125,000 for the three- and six-month periods ended December 31,
1997. The decreases of $98,000 for the quarter and $169,000 year-to-date are
primarily due to increased legal expenses in connection with Bennett Funding
Group, Inc. and increased occupancy and data processing expenses resulting from
the addition of Bunker Hill and Kokomo branches.
Net Interest Income. Net interest income decreased $36,000 and $61,000
for the three and six months ended December 31, 1998 as compared to the three
and six months ended December 31, 1997. The decrease in net interest income is
due to the decrease in average interest-earning assets of $1.9 million from 65.2
million for the six months ended December 31, 1997 to $63.3 million for the six
months ended December 31, 1998 and an increase in interest-bearing liabilities
of $1.1 million from 62.3 million to $63.4 million during the same period. The
Company's average spread for the three months ended December 31, 1998 decreased
to 2.51% as compared to 2.61% for the three months ended December 31, 1997. The
spreads for the six months ended December 31, 1998 and 1997 were 2.68% and
2.51%. The ratio of the Company's average interest-earning assets to average
interest-bearing liabilities decreased to 99.81% during the six-month period
ended December 31, 1998 from 104.79 for the six-month period ended December 31,
1997.
Interest Income. Total interest income decreased by $76,000 and
$241,000 for the three and six months ended December 31, 1998 from the three and
six months ended December 31, 1997 as a result of the decrease in average
interest-earning assets and a decrease in average yields for the six-
<PAGE>
month period. Average yields on interest-earning assets decreased in the quarter
ended December 31, 1998 as compared to the same period a year ago from 7.53% to
6.78%. Yields for the six months ended December 31, 1998 fell from 7.47% to
6.95%.
Interest Expense. Interest expense decreased $40,000 and $180,000 in
the three and six months ended December 31, 1998 from the three and six months
ended December 31, 1997. Although average interest-bearing liabilities increased
during the periods, average rates decreased to 4.27% and 4.26% for the three-
and six-month periods ended December 31, 1998 from 4.93% and 4.92% for the
three- and six-month periods ended December 31, 1997.
Provision for Losses on Loans. The provision for losses on loans was
$7,000 for the three and six months ended December 31, 1998 as a result of
management's quarterly assessment of classified assets, provision for loan
losses and the portfolio as a whole. At both December 31, 1998 and June 30, 1998
the allowance for losses on loans was 1.15% of total loans.
Bennett Funding Group. The Company has a business relationship with
Bennett Funding Group, Inc. ("BFGI") which filed for Chapter 11 bankruptcy
protection on March 29, 1996. From 1992 to 1995, the Company purchased
commercial lease contracts covering business equipment from BFGI, for which BFGI
acts as servicer. At December 31, 1998, the book value of the Company's lease
contracts totaled $267,000. In addition, the Company had $674,000 in Short Term
Dealer Contracts with Bennett Leasing Corporation ("BLC") which was later
included in the bankruptcy proceedings. Newspaper reports have indicated that
BFGI may have utilized fictitious leases in some of its business activities. The
Securities and Exchange Commission has filed a criminal and civil suit against
an officer of BFGI which alleges various fraudulent actions including the sale
of the same leases to two or more buyers. Reserves of $216,000 have been
recorded for probable losses. The leases are currently on non-accrual status.
BFGI continues to service the lease contracts and has remitted $191,000 during
the six months ending December 31, 1998, under the leadership of the
court-appointed Trustee. The Company is continuing to evaluate the allegations
against BFGI and BLC and the effect that the bankruptcy filing will have on its
security. Until the evaluation is complete, management is unable to predict with
any certainty the effects of the bankruptcy on the Company.
Other Income. Other income decreased $10,000 and $25,000 for the three-
and six-month periods ended December 31, 1998 as compared to the three and six
months ended December 31, 1997. Increases in service charges and gains on loan
sales were offset by decreases in commissions and other income.
Other Expenses. Other expenses increased $118,000 and $223,000 for the
three months and six months ended December 31, 1998 from the same periods ending
December 31, 1997. The increases were primarily a result of increased legal
expenses in connection with Bennett Funding Group, Inc. and increased salary,
occupancy and data processing expenses due to the addition of Bunker Hill and
Kokomo branches.
<PAGE>
Income Tax Expense. Income tax expense decreased from a tax expense of
$79,000 for the six months ended December 31, 1997 to a tax benefit of $47,000
for the six months ended December 31, 1998 as a result of the decrease in
pre-tax income.
ASSET/LIABILITY MANAGEMENT
The Bank is subject to interest rate risk to the extent that its
interest-bearing liabilities reprice on a different basis than its
interest-earning assets. OTS regulations provide a Net Portfolio Value ("NPV")
approach to the quantification of interest rate risk. In essence, this approach
calculates the difference between the present value of liabilities, expected
cash flows from assets and cash flows from off balance sheet contracts. Under
OTS regulations, an institution's "normal" level of interest rate risk in the
event of an immediate and sustained 200 basis point change in interest rates is
a decrease in the institution's NPV in an amount not exceeding 2% of the present
value of its assets. Thrift institutions with greater than "normal" interest
rate exposure must take a deduction from their total capital available to meet
their risk-based capital requirement. The amount of that deduction is one-half
of the difference between (a) the institution's actual calculated exposure to
the 200 basis point interest rate increase or decrease (whichever results in the
greater pro forma decrease in NPV) and (b) its "normal" level of exposure which
is 2% of the present value of its assets. Regulations do exempt all institutions
under $300 million in assets and risk-based capital exceeding 12% from reporting
information to calculate exposure and making any deductions from risk-based
capital. At December 31, 1998 the Bank's total assets were $75.4 million and
risk-based capital was 12.7% and the Bank would have been exempt from
calculating or making any risk-based capital reduction.
The Bank's management feels interest-rate risk is an important factor and
makes all reports necessary to the OTS to calculate interest-rate risk on a
voluntary basis. At September 30, 1998, 2% of the present value of the Bank's
assets was approximately $1.5 million which was more than the greatest decrease
in NPV resulting from a 200 basis point change in interest rates as reflected in
the Bank's OTS interest rate risk exposure report. The report is not yet
available for December 1998, but management does not anticipate significant
changes. As a result, the Bank would not have been required to make a deduction
from total capital in calculating its risk-based capital requirement had this
rule been in effect on such date and had the Bank not been exempt from reporting
on such date.
It has been and continues to be a priority of the Board of Directors
and management to manage interest rate risk and thereby limit any negative
effect of changes interest rates on the NPV. The Bank's Interest Rate Risk
Policy, established by the Board of Directors, promulgates acceptable limits on
the amount of change in NPV given certain changes in interest rates. Specific
strategies have included the sale of most long-term, fixed-rate loans to reduce
the average maturity of its interest-bearing liabilities.
Presented below, as of September 30, 1998, is an analysis of the Bank's
estimated interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in interest rates, up and down 300 basis points in 100
point increments, compared to the limits set by the Board. Assumptions used in
calculating the amounts in this table are those assumptions utilized by the OTS
<PAGE>
for the purposes of interest rate risk assessment and should not be considered
as an indicator of value of the Bank. As mentioned above, this analysis is not
available as of December 31, 1998, but management does not anticipate
significant changes.
<TABLE>
<CAPTION>
Assumed At September 30, 1998
Change in Board Limit --------------------------------
Interest Rates % Change in NPV $ Change in NPV % Change in NPV
-------------- --------------- --------------- ---------------
<S> <C> <C> <C>
+300 -57 -642 -10%
+200 -46 -324 -5%
+100 -35 -141 -2%
0 0
-100 -35 212 +3%
-200 -46 620 +9%
-300 -57 1164 +18%
</TABLE>
In the event of a 300 basis point change in interest rate based upon
estimates as of September 30, 1998, the Bank would experience an 18% increase in
NPV in a declining rate environment and a 10% decrease in NPV in a rising rate
environment. During periods of rising rates, the value of monetary assets and
liabilities decline. Conversely, during periods of falling rates, the value of
monetary assets and liabilities increase. However, the amount of change in value
of specific assets and liabilities due to changes in rates is not the same in a
rising rate environment as in a falling rate environment (i.e., the amount of
value increase under a specific rate decline may not equal the amount of value
decrease under an identical upward rate movement).
In evaluating the Bank's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates. Further, in the event of a change in interest rates, prepayments
and early withdrawal levels could deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
debt may decrease in the event of an interest rate increase. As a result, the
actual effect of changing interest rates may differ from that presented in the
foregoing table.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's most liquid assets are cash and interest-bearing deposits.
The levels of these assets are dependent on the Bank's operating, financing and
investing activities. At December 31, 1998 and June 30, 1998, cash and
interest-bearing deposits totaled $6.0 million and $2.9 million, respectively.
The Bank's primary sources of funds include principal and interest payments on
loans (both scheduled and prepayments), maturities of investment securities and
principal payments from mortgage-backed securities.
While scheduled loan repayments and proceeds from maturing investment
securities and principal payments on mortgage-backed securities are relatively
predictable, deposit flows and early
<PAGE>
repayments are more influenced by interest rates, general economic conditions,
and competition. The Bank attempts to price its deposits to meet asset-liability
objectives and local market conditions.
Liquidity management is both a short- and a long-term responsibility of
management. The Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) projected purchases of
investment and mortgage-backed securities, (iii) expected deposit flows, (iv)
yields available on interest-bearing deposits, and (v) liquidity of its
asset/liability management program. Excess liquidity is generally invested in
interest-earning overnight deposits and other short-term U.S. agency
obligations. If the Bank requires funds beyond its ability to generate them
internally, it has the ability to borrow funds from the Federal Home Loan Bank
of Indianapolis ("FHLB"). Federal law limits an institution's borrowings from
the FHLB to 20 times the amount paid for capital stock in the FHLB, subject to
regulatory capital requirements. As a policy matter, however, the FHLB of
Indianapolis typically limits the amount of borrowings from the FHLB to 50% of
adjusted assets (total assets less borrowings). At December 31, 1998, the Bank
had approximately $19.1 million of unused credit available to it under the
above-mentioned borrowing arrangement. At December 31, 1998, the Bank had
borrowings of $12.4 million from the FHLB of Indianapolis.
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may be varied at the
direction of the OTS depending upon economic conditions, is based upon a
percentage of deposits and short-term borrowings. The required ratio is
currently 4.0%. The Bank's liquidity ratios have consistently been maintained at
levels in excess of regulatory requirements and at December 31, 1998 and June
30, 1998 were 25.5% and 8.8%, respectively.
At December 31, 1998 and June 30, 1998, the Bank had outstanding
commitments to originate loans of $228,500 and $250,000, respectively. The Bank
anticipated that it will have sufficient funds available to meet its current
commitments principally through the use of current liquid assets and through its
borrowing capacity discussed above.
The OTS's minimum capital standards generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement and
the risk-based capital requirement. The tangible capital requirement provides
for minimum tangible capital (defined as retained earnings less all intangible
assets) equal to 1.5% of adjusted total assets. The core capital requirement
provides for minimum core capital (tangible capital plus certain forms of
supervisory goodwill and other qualifying intangible assets) equal to 4% of
adjusted total assets. The risk-based capital requirements provide for the
maintenance of core capital plus a portion of unallocated loss allowances equal
to 8% of risk- weighted assets. In computing risk-weighted assets the Bank
multiplies the value of each asset on its balance sheet by a defined
risk-weighting factor (e.g. one- to four-family residential loans carry a
risk-weighted factor of 50%).
At December 31, 1998, the Bank's tangible and core capital both totaled
$6.0 million, or 8.0% of adjusted total assets, which exceeded the minimum
tangible requirement by $4.9 million
<PAGE>
and the minimum core requirement by $3.0 million. The Bank's risk-based capital
at December 31, 1998 totaled $4.9 million, or 12.7% of risk-weighted assets,
which is $1.8 million above the 8% requirement.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated condensed financial statements and related financial
data presented herein have been prepared in accordance with GAAP 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, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
IMPACT OF THE YEAR 2000
The Company has conducted a comprehensive review of its computer
systems to identify applications that could be affected by the "Year 2000"
issue, and has developed an implementation plan to address the issue. The
Company's data processing is performed primarily in-house; however software and
hardware utilized is under maintenance agreements with third party vendors,
consequently the Company is very dependent on those vendors to conduct its
business. The Company has already contacted each vendor to request time tables
for year 2000 compliance and expected costs, if any, to be passed along to the
Company. To date, the Company has been informed that its primary service
providers anticipate that all reprogramming efforts will be completed by
December 31, 1999, allowing the Company adequate time for testing. Certain other
vendors have not yet responded. However, the Company will pursue other options
if it appears that these vendors will be unable to comply. If such reprogramming
efforts were not done on a timely basis, or are done incorrectly, or if the
Company is unable to pursue other options on a timely basis, the Company and the
Bank will likely experience significant data processing delays, mistakes or
outright failures which could have a significant adverse effect on the financial
condition or results of operations of the Company. Management does not expect
the costs in connection with the Year 2000 problem to have a significant impact
on its financial position or results of operations but there can be no assurance
that the vendors' systems will be Year 2000 compliant. Consequently the Company
could incur incremental costs to convert to another vendor. The Company has
identified certain of its hardware and software equipment that will not be Year
2000 compliant and intends to purchase new equipment and software prior to March
31, 1999. These capital expenditures are expected to total approximately
$25,000.
<PAGE>
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.
(A) Exhibits
27. Financial Data Schedules
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTRUST CAPITAL CORP.
Registrant
Date: February 12, 1999 \s\ Bruce M. Borst
----------------------------------
Bruce M. Borst, President, Chief
Executive Officer and Director
(Duly Authorized Officer)
Date: February 12, 1999 \s\ Deborah M. Huff
----------------------------------
Deborah M. Huff, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-END> Jun-30-1999
<CASH> 3,979
<INT-BEARING-DEPOSITS> 2,033
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,820
<INVESTMENTS-CARRYING> 966
<INVESTMENTS-MARKET> 931
<LOANS> 39,796
<ALLOWANCE> 486
<TOTAL-ASSETS> 75,421
<DEPOSITS> 55,295
<SHORT-TERM> 690
<LIABILITIES-OTHER> 804
<LONG-TERM> 11,680
0
0
<COMMON> 6
<OTHER-SE> 7,136
<TOTAL-LIABILITIES-AND-EQUITY> 75,421
<INTEREST-LOAN> 819
<INTEREST-INVEST> 311
<INTEREST-OTHER> 9
<INTEREST-TOTAL> 1,139
<INTEREST-DEPOSIT> 585
<INTEREST-EXPENSE> 720
<INTEREST-INCOME-NET> 419
<LOAN-LOSSES> 7
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 676
<INCOME-PRETAX> (62)
<INCOME-PRE-EXTRAORDINARY> (62)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
<YIELD-ACTUAL> 6.78
<LOANS-NON> 467
<LOANS-PAST> 0
<LOANS-TROUBLED> 614
<LOANS-PROBLEM> 2,522
<ALLOWANCE-OPEN> 495
<CHARGE-OFFS> 9
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 486
<ALLOWANCE-DOMESTIC> 486
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
