SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 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: 0-26184
FIRST MUTUAL BANCORP, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 37-1339075
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
135 East Main Street, Decatur, Illinois 62523
---------------------------------------------
(Address of principle executive offices)
Registrant's telephone number, including area code: (217) 429-2306
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check ____ whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: There were 3,530,570
shares of the Registrant's common stock outstanding as of March 31, 1998.
Included were 272,600 unearned ESOP shares.
<PAGE>
FIRST MUTUAL BANCORP, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................. 1
Consolidated Statements of Financial Condition as of
March 31, 1998, and December 31, 1997......................... 2
Consolidated Statements of Income for the Three Months Ended
March 31, 1998 and 1997....................................... 3
Consolidated Statements of Changes in Stockholders' Equity for the
Three Months Ended March 31, 1998............................. 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 ...................................... 5
Notes to Consolidated Financial Statements............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 14
PART II. OTHER INFORMATION................................................ 17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page 1
<PAGE>
FIRST MUTUAL BANCORP, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
(UNAUDITED)
March 31, December 31,
1998 1997
---- ----
ASSETS
Cash and cash equivalents ................. $ 3,438 $ 4,612
Interest-bearing deposits with
financial institutions .................. 19,114 13,993
Securities held to maturity
(Estimated fair value:
March 31, 1998 $30,119)
(Estimated fair value:
December 31, 1997 $34,167) ............ 29,935 33,976
Securities available for sale ............. 2,019 17
Loans held for sale ....................... 4,720 2,057
Loans receivable, net ..................... 301,324 307,237
Federal Home Loan Bank stock .............. 2,349 2,349
Accrued interest receivable ............... 2,239 2,194
Foreclosed real estate, net of
allowance for losses .................... 321 29
Premises and equipment .................... 6,737 6,896
Cash surrender value of life insurance .... 3,537 3,496
Goodwill and core deposit intangibles ..... 12,463 12,643
Other assets .............................. 2,035 1,940
----------- -----------
TOTAL ASSETS ................................. $ 390,231 $ 391,439
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits .................................. $ 319,820 $ 320,031
Advances from borrowers for taxes
and insurance ........................... 2,055 1,344
Advances from Federal Home Loan Bank ...... 9,500 12,500
Accrued expenses and other liabilities .... 3,642 3,375
----------- -----------
TOTAL LIABILITIES ............................ 335,017 337,250
STOCKHOLDERS' EQUITY
Common Stock $.10 par value;
8,000,000 shares authorized;
issued 4,700,000 shares ................... 470 470
Additional paid in capital ................ 45,594 45,420
Unearned ESOP shares ...................... (2,726) (2,820)
Unearned stock awards ..................... (928) (1,027)
Retained earnings, substantially
restricted .............................. 29,907 29,523
Treasury Stock at cost - 1,192,930
shares (Dec. 31, 1997) - 1,169,430
shares (March 31, 1998) ................. (17,101) (17,377)
Unrealized appreciation
(depreciation) on securities
available for sale, net of tax .......... (2) --
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................... 55,214 54,189
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ... $ 390,231 $ 391,439
=========== ===========
Number of Shares Outstanding,
Net of Unearned ESOP Shares ............... 3,257,970 3,225,070
Book Value Per Share ......................... $ 16.95 $ 16.80
page 2
<PAGE>
FIRST MUTUAL BANCORP, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
------------------------
March 31, March 31,
1998 1997
---- ----
Interest Income
Loans receivable
First mortgage loans ..................... $ 4,821 $ 4,689
Consumer and other loans ................. 1,066 928
Commercial loans ......................... 285 198
Securities .................................... 507 815
Other interest-earning assets ................. 241 605
----------- -----------
Total Interest Income .................... 6,920 7,235
Interest Expense
Deposits ...................................... 3,764 3,999
Federal Home Loan Bank advances
and other interest charges ............... 198 393
----------- -----------
Total Interest Expense ................... 3,962 4,392
----------- -----------
Net Interest Income ............................... 2,958 2,843
Provision for loan losses ......................... 180 160
----------- -----------
Net Interest Income after provision
for loan losses ............................... 2,778 2,683
Noninterest income
Gain on sales of loans ........................ 163 37
Deposit service fee income .................... 217 155
Loan servicing fees ........................... 18 29
Investment sales commissions .................. 55 38
Other ......................................... 116 94
----------- -----------
Total noninterest income ................. 569 353
Noninterest expense
Compensation and benefits ..................... 1,428 1,513
Occupancy and equipment ....................... 345 332
FDIC Deposit insurance premium ................ 33 33
Advertising and promotion ..................... 54 137
Data processing ............................... 207 217
Printing, postage, stationery,
and supplies ............................. 113 126
Net expense on foreclosed real estate
operations ............................... 4 2
Net loss on sale of real estate
owned including provisions for losses .... 24 12
Amortization of Goodwill and Core
Deposit Intangibles ...................... 180 242
Other ......................................... 339 382
----------- -----------
Total noninterest expense ................ 2,727 2,996
----------- -----------
Income before income taxes ........................ 620 40
Income taxes (benefit) ............................ 236 (41)
----------- -----------
Net income ........................................ $ 384 $ 81
=========== ===========
Average Number of Shares Outstanding
for calculating:
Basic Earnings per share ...................... 3,126,248 3,429,217
Diluted Earnings per share .................... 3,281,083 3,513,488
Earnings per common share
Basic ......................................... $ .12 $ .02
Diluted ....................................... $ .12 $ .02
Page 3
<PAGE>
FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Appreciation
Retained (Depreciation)
Additional Unearned Unearned Earnings- on Securities
Common Paid ESOP Stock Substantially Treasury Available
Stock in Capital Shares Awards Restricted Stock For Sale Total
----- ---------- ------ ------ ---------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 ........... $ 470 $ 44,980 $ (3,572) $ -- $ 29,604 $ -- $ 46 $ 71,528
Net Income ........................... -- -- -- -- 1,171 -- -- 1,171
Purchase of Treasury Shares........... -- -- -- -- -- (10,330) -- (10,330)
Unearned Stock Awards ................ -- -- -- (2,099) -- 2,099 -- --
ESOP Shares earned ................... -- 116 376 -- -- -- -- 492
Stock Awards earned .................. -- -- -- 595 -- -- -- 595
Tax benefit of stock awards .......... -- 8 -- -- -- -- -- 8
Change in unrealized appreciation
(depreciation) on securities
available for sale, net of tax..... -- -- -- -- -- -- (50) (50)
Cash dividends ($.30 per share) ...... -- -- -- -- (1,197) -- -- (1,197)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1996 ......... 470 45,104 (3,196) (1,504) 29,578 (8,231) (4) 62,217
Net Income ........................... -- -- -- -- 986 -- -- 986
Purchase of Treasury Shares .......... -- -- -- -- -- (9,151) -- (9,151)
ESOP Shares earned ................... -- 247 376 -- -- -- -- 623
Stock Awards earned .................. -- -- -- 477 -- -- -- 477
Tax Benefit of Stock Awards .......... -- 69 -- -- -- -- -- 69
Exercise of Stock Options ............ -- -- -- -- -- 5 -- 5
Change in unrealized appreciation
(depreciation) on securities
available for sale, net of tax .... -- -- -- -- -- -- 4 4
Cash dividends ($.32 per share) ...... -- -- -- -- (1,041) -- -- (1,041)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1997 ......... 470 45,420 (2,820) (1,027) 29,523 (17,377) -- 54,189
Net Income ........................... -- -- -- -- 384 -- -- 384
ESOP Shares earned ................... -- 99 94 -- -- -- -- 193
Stock Awards earned .................. -- -- -- 99 -- -- -- 99
Tax Benefit of Stock Awards........... -- -- -- -- -- -- -- --
Exercise of Stock Options ............ -- -- -- -- -- 276 -- 276
Tax Benefit
of Stock Options exercised ......... -- 75 -- -- -- -- -- 75
Change in unrealized appreciation
(depreciation) on securities
available for sale, net of tax..... -- -- -- -- -- -- (2) (2)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1998 ............ $ 470 $ 45,594 $ (2,726) $ (928) $ 29,907 $(17,101) $ (2) $(55,214)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Page 4
<PAGE>
FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
------------------------
March 31, March 31,
1998 1997
---- ----
Cash flows from operating activities
Net Income ....................................$ 384 $ 81
Adjustments to reconcile net income
to net cash from operating
activities
Depreciation and amortization ................. 180 156
Amortization of Goodwill
and Core Deposit Intangibles ............ 180 242
Amortization of premiums and
discounts on mortgaged-backed
and investment securities, net .......... 42 53
ESOP Compensation Expense ..................... 193 145
Stock Awards Expense .......................... 99 179
Origination of loans held
for sale ................................ (17,765) (2,476)
Proceeds from sale of loans ................... 15,265 2,526
Change in net deferred loan
origination costs ....................... 13 16
Change in deferred income taxes ............... 34 (57)
Provision for loan losses ..................... 180 160
Provision for losses on foreclosed
real estate ............................. 29 --
Net (gain) loss on sales of available-
for-sale
securities .............................. -- 8
Net (gain) loss on sales of loans ............. (163) (37)
Net (gain) loss on sale of foreclosed
real estate ............................. (5) 12
Change in
Accrued interest receivable ............. (45) (708)
Cash surrender value of life insurance .. (41) (35)
Other assets ............................ (143) 3
Accrued expenses and other liabilities .. 600 1,341
-------- --------
Net cash provided by (used in)
operating activities .................... (963) 1,609
Cash flows from investing activities
Net (increase) decrease in loans receivable ... 5,315 (8,403)
Proceeds from maturity of investment
securities Held to Maturity ............. 4,000 3,000
Proceeds of sales and calls of investment
securities - Available for Sale ......... -- 14,006
Purchase of investment securities
- Held to Maturity ...................... -- (22,353)
Purchase of investments securities
- Available for Sale .................... (2,007) (24,048)
Page 5
<PAGE>
Cash flows from investing activities (continued)
Three Months Ended
------------------------
March 31, March 31,
1998 1997
---- ----
Investments in (continued)
Loans purchased ........................... $ -- $ (9,929)
Premises and equipment .................... (6) (2,615)
Foreclosed real estate .................... (61) (12)
Goodwill and core deposit intangibles ..... -- (13,342)
Net (increase) decrease in interest-bearing
deposits with financial institutions ...... (5,121) (30,329)
Proceeds from sales of foreclosed real estate ... 151 77
--------- ---------
Net cash provided by (used in)
investing activities .......................... 2,271 (93,948)
Cash flows from financing activities
Net increase (decrease) in deposits ............. (211) 134,865
Net change in advances from
Federal Home Loan Bank .................... (3,000) (38,800)
Proceeds from exercise of
stock options ............................. 276 --
Net decrease in advances from
borrowers for taxes and insurance ......... 711 723
Purchase of treasury stock ...................... -- (5,408)
Dividends paid .................................. (258) (298)
--------- ---------
Net cash provided by (used in) financing
activities ................................ (2,482) 91,082
========= =========
Net decrease in cash and cash equivalents ....... (1,174) (1,257)
Cash and cash equivalents at
beginning of period ....................... 4,612 4,350
--------- ---------
Cash and cash equivalents at end of period ......... $ 3,438 $ 3,093
========= =========
Supplemental disclosures of cash flow information
Cash paid for
Interest ......................... $ 3,881 $ 3,376
Income taxes (refunds) ........... -- (230)
Transfers from loans to real estate acquired
through foreclosure ....................... 433 --
Real estate owned financed through
loan originations ......................... 27 --
Page 6
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The financial information of First Mutual Bancorp, Inc. (the "Company") included
herein is unaudited; however, such information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The accompanying consolidated financial statements include the accounts of First
Mutual Bancorp, Inc. (the "Company"), its wholly-owned subsidiary, First Mutual
Bank, S.B. (the "Bank"), and the Bank's wholly-owned subsidiary, First Mutual
Corporation, which provides investment and insurance services. All significant
intercompany transactions and balances are eliminated in consolidation.
The financial information has been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The results of the interim period ended March 31, 1998 are not necessarily
indicative of the results expected for the year ending December 31, 1998.
(2) Conversion
On June 30, 1995, First Mutual Bank, S.B. (the "Bank") converted from a
state-chartered mutual savings bank to a state-chartered stock savings bank. The
Bank issued all of its common stock to the Company and at the same time the
Company issued 4,700,000 shares of common stock at $10.00 per share to the ESOP,
certain depositors of the Bank, and certain members of the general public, all
pursuant to a plan of conversion (the "Conversion").
The ESOP purchased 376,000 shares of common stock representing 8% of the total
issued shares at a price of $10.00 per share. The ESOP borrowed $3,760,000 from
the Company to purchase the stock using the stock as collateral for the loan.
The loan is to be repaid principally from the Bank's contributions to the ESOP
over a period of up to 10 years.
(3) Earnings Per Share of Common Stock
Basic and diluted earnings per share for the quarter were computed by dividing
net income by 3,126,248 and 3,281,083 respectively, the weighted average number
of net shares of common stock outstanding during the three months ended March
31, 1998. There were 383,700 outstanding stock options March 31, 1998 at an
exercise price of $11.75 per share.
Page 7
<PAGE>
A reconciliation of the numerators and denominators for earnings per common
share computations for the quarters ended March 31, 1998, and March 31, 1997 is
presented below.
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(In thousands except per share amounts)
Basic Earnings Per Share
Net income ............................ $ 384 $ 81
====== ======
Weighted average common
shares outstanding .............. 3,126 3,429
====== ======
Basic Earnings Per Share .............. $ .12 $ .02
====== ======
Earnings Per Share Assuming Dilution
Net income ............................ $ 384 $ 81
====== ======
Weighted average common
shares outstanding .............. 3,126 3,429
Add: dilutive effect of
assumed exercises:
Stock options ................... 155 84
------ ------
Weighted average common and
dilutive common shares
outstanding ..................... 3,281 3,513
====== ======
Diluted Earnings Per Share ............ $ .12 $ .02
====== ======
Page 8
<PAGE>
(4) Accounting Changes
On March 3, 1997, the Financial Accounting Standards Board (FASB) issued
Statement 128, Earnings Per Share, which is effective for financial statements
beginning with year end 1997. Statement 128 simplifies the calculation of
earnings per share (EPS) by replacing primary EPS with basic EPS. It also
requires dual presentation of basic EPS and diluted EPS for entities with
complex capital structures. Basic EPS includes no dilution and is computed by
dividing income available to common shareholders by the weighted-average common
shares outstanding for the period. Diluted EPS reflects the potential dilution
of securities that could share in earnings, such as stock options, warrants or
other common stock equivalents. Statement 128 had little impact on the Company's
earnings per share calculations for 1997 other than changing terminology from
primary EPS to basic EPS. All prior period EPS data was restated to conform with
the new presentation.
Under a new accounting standard, Statement of Financial Accounting Standards No.
130, comprehensive income is now reported for all periods. Comprehensive income
includes both net income and other comprehensive income. Other comprehensive
income includes the change in unrealized gains and losses on securities
available for sale. Other comprehensive income is not material and therefore is
not included as a disclosure in the financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," was issued in 1997 by the Financial
Accounting Standards Board. This Statement established standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Statement 131 is
effective for periods beginning after December 15, 1997. Management does not
believe that the provisions of this Statement are applicable to the Company,
since substantially all of the Company's operations are banking activities.
Page 9
<PAGE>
(5) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Total assets decreased $1.2 million, or .3%, to $390.2 million at March 31,
1998, from $391.4 million at December 31, 1997.
Loans receivable (including loans held for sale) decreased $3.3 million, or
1.1%, to $306.0 million at March 31, 1998, from $309.3 million at December 31,
1997, primarily due to the excess of loan repayments versus loan originations
during the quarter. Increased repayments resulted from the increased prepayment
of mortgage loans due to the lower interest rate environment for mortgage loans
during the period. Loan sales also increased during the quarter as a result of
the lower interest rate environment. The increase in loan sales was due to the
increase in the origination of fixed rate mortgage loans available for sale,
which borrowers typically prefer in a low interest rate environment.
Interest-bearing deposits with financial institutions and securities
held-to-maturity and available for sale increased $3.1 million, or 6.5%, to
$51.1 million at March 31, 1998, from $48.0 million at December 31, 1997. The
increase was primarily due to the decrease in loans receivable during the same
period and the resulting increase in funds available for liquidity type
investments.
Advances from the Federal Home Loan Bank decreased $3.0 million, or 24%, to $9.5
million at March 31, 1998, from $12.5 million at December 31, 1997.
Page 10
<PAGE>
Non-performing assets were $1.7 million as of March 31, 1998, compared to $1.6
million as of December 31, 1997. The following table sets forth the amounts and
categories of non-performing assets.
March 31, 1998 December 31, 1997
-------------- -----------------
(Dollars in Thousands)
Non-performing Loans:
One to four family .......................... $1,161 $1,235
Consumer .................................... 209 231
Commercial .................................. -- 60
------ ------
Total ....................................... 1,370 $1,526
Total Repossessed Assets ....................... 12 37
Total Real Estate Owned ........................ 321 29
------ ------
Total Non-performing Assets .................... $1,703 $1,592
====== ======
Total Non-performing Loans as a
percentage of net loans receivable ........... .45% .49%
Total Non-performing Assets as a
percentage of total assets ................... .44% .41%
Page 11
<PAGE>
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, funds received from the
sale, amortization, and prepayment of loans, advances from the Federal Home Loan
Bank, and funds provided from operations. While scheduled loan repayments are a
relatively predictable source of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. The Company also borrows funds from the Federal Home Loan Bank
based on need, comparative costs, and availability at the time. Assets of the
Company qualifying for regulatory liquidity totalled $55.5 million at March 31,
1998.
As of March 31, 1998, the Company had total equity capital of $55.2 million and
the Bank had total equity capital of $51.9 million. All the minimum levels of
regulatory capital required by the Federal Reserve Board for the Company and the
Federal Deposit Insurance Corporation for the Bank were met.
Results of Operations
General. Net income for the three months ended March 31, 1998, was $384,000
compared to $81,000 for the same period in 1997. The increase was primarily due
to the decrease in non-interest expense of $269,000, or 9.0%, the increase in
non-interest income of $216,000, or 61.2%, and the increase in net interest
income of $115,000, or 4.0%. These were partially offset by the increase in
income taxes of $277,000.
Interest Income. Interest income for the three months ended March 31, 1998
decreased $315,000, or 4.4%, from the three months ended March 31, 1997. The
decrease was primarily the result of the decrease in average earning assets to
$359.3 million from $398.1 million in the earlier period. Average earning assets
decreased primarily as a result of the decrease in average paying liabilities
during the period. This was partially offset by the increase in the average
yield on earning assets to 7.70% from 7.27% in the earlier period.
Interest Expense. Interest expense decreased $430,000, or 9.8%, from the three
months ended March 31, 1998, primarily due to the decrease in average interest
paying liabilities to $330.9 million from $365.6 million in the earlier period
resulting from the decrease in deposits and advances from the Federal Home Loan
Bank. The cost of the average interest paying liabilities also decreased to
4.79% from 4.81% in the earlier period.
Net Interest Income. Net interest income increased $115,000, or 4.0%, during the
current three-month period versus the earlier three-month period. The increase
was primarily due to the increase in the net interest rate spread, which
increased to 2.91% from 2.46% in the earlier period.
Page 12
<PAGE>
Provision for Loan Losses. The Bank maintains an allowance for loan losses based
upon management's periodic evaluation of known and inherent risks in the loan
portfolio including commercial real estate and commercial business loans, the
Bank's past loss experience, adverse situations that may affect borrowers'
ability to repay loans, estimated value of underlying loan collateral, current
and to a lesser extent, expected future economic conditions. During the three
months ended March 31, 1998, a $180,000 provision for loan losses was recorded
primarily as a result of changes in the loan portfolio mix, especially the
increase in commercial and consumer loans, and to the net charge-offs incurred
during the period. Bank management made a $160,000 provision to the allowance
for loan losses for the same period in 1997. The Bank's ratio of allowance for
loan losses to non-performing loans was 105.91% at March 31, 1998, compared to
93.77% at December 31, 1997, primarily due to the decrease in non-performing
loans to $1.4 million at March 31, 1998, compared to $1.5 million at December
31, 1997.
Non-Interest Income. Non-interest income, consisting primarily of service
charges and fees on loans and deposit accounts, net gain on sale of mortgage
loans, investment sales commissions, and loan servicing fees increased $216,000,
or 61.2%, for the three-month period ended March 31, 1998, as compared to the
earlier three-month period. The increase was primarily due to the increases in
the gain on sale of loans of $126,000, or 340.5%, and deposit service fee income
of $62,000, or 40.0%.
Non-Interest Expense. Non-interest expense, consisting primarily of employee
compensation and benefits, premises and equipment expenses, federal deposit
insurance premiums, data processing, advertising and promotion, amortization of
goodwill and core deposit intangibles, and other miscellaneous items decreased
$269,000, or 9.0%, for the three-month period ended March 31, 1998, as compared
to the earlier three-month period in 1997. The decrease was primarily due to the
decreases in compensation and benefits of $85,000, or 5.6%, advertising and
promotion of $83,000, or 60.6%, amortization of goodwill and core deposit
intangibles of $62,000, or 25.6%, and other expenses of $43,000 or 11.3%.
Income Tax Expenses. Income tax expenses increased $277,000 for the three-month
period versus the earlier period. The increase was due to the increase in
earnings before taxes to $620,000 for the current three-month period versus
$40,000 in the earlier period.
Year 2000. The Company has conducted a review of its computer systems to review
the systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to
Page 13
<PAGE>
define the applicable year. For example, programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company presently believes that, with modifications to existing software and by
converting to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted. However, if such modifications and conversions are not completed
timely, the Year 2000 problem may have a material impact on the operations of
the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1997 based on the information and assumptions set forth in the notes. The
Company believes that the assumptions utilized are reasonable. The Company had
no derivative financial instruments, or trading portfolio, as of December 31,
1997. The expected maturity date values for loans receivable and investment
securities were calculated by adjusting the instrument's contractual maturity
date for expectations of prepayments, as set forth in the notes. Similarly,
expected maturity date values for interest-bearing core deposits were calculated
based upon estimates of the period over which the deposits would be outstanding
as set forth in the notes. With respect to the Company's adjustable rate
instruments, expected maturity date values were measured by adjusting the
instrument's contractual maturity date for expectations of prepayments, as set
forth in the notes. From a risk management perspective, however, the Company
believes that repricing dates, as opposed to expected maturity dates, may be a
more relevant metric in analyzing the value of such instruments. Company
borrowings were tabulated by contractual maturity dates.
The Company believes the December 31, 1997 table presented also represents a
reasonable estimate of this information as of March 31, 1998.
In preparing the table, it has been assumed that: (i) adjustable rate mortgage
loans on one- to four-family residences will repay at a rate of 15% per year;
(ii) fixed rate mortgage loans on one-to four-family residences with terms to
maturity of 10 years or less will repay at a rate of 14% per year; (iii) fixed
rate first mortgage loans on one-to four-family residential properties with
remaining terms to maturity of over 10 years will prepay annually as follows:
Page 14
<PAGE>
Prepayment
Assumption Over
Interest Rate: 10 to 20 years 20 years
-------------- -------------- --------
8% or less 14% 11%
8.01% to 10% 20% 20%
10.01 to 12% 20% 20%
12.01 to 14% 20% 20%
14.01% and over 20% 20%
(iv) fixed and adjustable rate first mortgage loans on residential properties of
five or more units and non-residential properties will prepay at a rate of 12%
per year; (v) consumer loans will prepay at a rate of 18% per year; (vi)
commercial loans will not prepay; (vii) fixed maturity deposits will not be
withdrawn prior to maturity; (viii) passbook savings accounts assume an annual
decay rate of 75.33% in the first year and 15% for the remaining years; (ix) NOW
and super accounts assume an annual decay rate of 64.80% in the first year and
18.72% for the remaining years; (x) non-interest bearing checking accounts
assume an annual decay rate of 45% in the first year and 37.56% for the
remaining years; and (xi) money market accounts assume an annual decay rate of
73.45% in the first year and 37.56% for the remaining years.
All loans are presented net of undisbursed loan proceeds and do not include net
deferred loan fees/costs or the allowance for loan losses.
The above assumptions are annual percentages based on remaining balances and
should not be regarded as indicative of the actual prepayments and withdrawals
which may be experienced by the Company.
15
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Maturing in:
------------------------------------------------
1999- 2001- Fair value
(Dollars in Thousands) 1998 2000 2002 Thereafter Total 12/31/97
---- ---- ---- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Fixed-interest-rate loans
Residential 1-4 family real estate ........ $ 21,144 $ 24,681 $ 16,978 $ 25,909 $ 88,712 $ 89,953
Average interest rate ..................... 7.98% 7.64% 7.61% 7.53% 7.68%
Multifamily and commercial real estate .... 3,701 2,190 673 151 6,715 6,720
Average interest rate ..................... 8.35% 8.36% 8.32% 8.61% 8.36%
Commercial business loans ................. 2,819 1,337 883 112 5,151 5,148
Average interest rate ..................... 8.69% 9.14% 8.70% 8.85% 8.81%
Consumer loans ............................ 18,927 20,094 5,965 652 45,638 45,762
Average interest rate ..................... 9.20% 9.04% 8.99% 9.82% 9.11%
Variable-interest-rate loans
Residential 1-4 family real estate ........ $ 18,061 $ 28,446 $ 20,284 $ 45,592 $112,383 $112,177
Average interest rate ..................... 7.73% 7.71% 7.71% 7.70% 7.71%
Multifamily and commercial real estate .... 7,860 12,508 9,374 12,203 41,945 41,918
Average interest rate ..................... 8.51% 8.47% 8.46% 8.42% 8.46%
Commercial business loans ................. 6,046 1,118 32 26 7,222 7,728
Average interest rate ..................... 9.09% 9.01% 9.00% 9.00% 9.08%
Consumer loans ............................ 1,189 1,151 345 -- 2,685 2,685
Average interest rate ..................... 8.75% 7.99% 7.83% -- 8.31%
Fixed-interest-rate securities
(including interest bearing deposits) ....... $ 29,755 $ 18,214 -- -- $ 47,969 $ 48,160
Average interest rate ..................... 5.76% 6.14% -- -- 5.90%
Rate-sensitive liabilities:
Non-interest bearing checking ............... $3,279 $ 2,446 $ 954 $ 610 $ 7,289 $ 7,289
Average interest rate ....................... -- -- -- -- -- --
NOW and super NOW accounts .................. 25,713 4,740 3,132 6,097 39,682 39,682
Average interest rate ....................... 2.96% 2.96% 2.96% 2.96% 2.96%
Passbook saving accounts .................... 13,978 1,270 918 2,390 18,556 18,556
Average interest rate ....................... 2.61% 2.61% 2.61% 2.61% 2.61%
Money Market accounts ....................... 25,258 5,570 2,172 1,388 34,388 34,388
Average interest rate ....................... 4.34% 4.34% 4.34% 4.34% 4.34%
Certificate of deposit accounts ............. 130,278 78,977 10,749 112 220,116 220,596
Average interest rate ....................... 5.40% 5.92% 6.10% 5.92% 5.62%
FHLB advances ............................... 10,500 2,000 -- -- 12,500 12,547
Average interest rate ....................... 6.53% 6.71% -- -- 6.56%
</TABLE>
Page 16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party other than ordinary routine
litigation incidental to their respective businesses.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
Page 17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FIRST MUTUAL BANCORP, INC.
(Registrant)
Date: May 13, 1998 By: /s/ Paul K. Reynolds
------------------------ ------------------------------------
Paul K. Reynolds, President
and Chief Executive Officer
Date: May 13, 1998 By: /s/ G. Lynn Brinkman
------------------------ ------------------------------------
G. Lynn Brinkman, Vice President
Secretary, Treasurer and
Chief Financial Officer
Page 18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,438
<INT-BEARING-DEPOSITS> 19,114
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,019
<INVESTMENTS-CARRYING> 29,935
<INVESTMENTS-MARKET> 30,119
<LOANS> 306,044
<ALLOWANCE> 1,451
<TOTAL-ASSETS> 390,231
<DEPOSITS> 319,820
<SHORT-TERM> 7,500
<LIABILITIES-OTHER> 5,697
<LONG-TERM> 2,000
0
0
<COMMON> 470
<OTHER-SE> 54,744
<TOTAL-LIABILITIES-AND-EQUITY> 390,231
<INTEREST-LOAN> 6,172
<INTEREST-INVEST> 507
<INTEREST-OTHER> 241
<INTEREST-TOTAL> 6,920
<INTEREST-DEPOSIT> 3,764
<INTEREST-EXPENSE> 3,962
<INTEREST-INCOME-NET> 2,958
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,727
<INCOME-PRETAX> 620
<INCOME-PRE-EXTRAORDINARY> 384
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<YIELD-ACTUAL> 3.29
<LOANS-NON> 601
<LOANS-PAST> 784
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,431
<CHARGE-OFFS> 172
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 1,451
<ALLOWANCE-DOMESTIC> 1,451
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
