<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________________________
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
____________________________________
For Quarter Ended: Commission File Number
March 31, 1996 0-26440
Quantum Financial Holdings, Inc.
--------------------------------
Maryland 52-1919323
- - -------------------------------- ------------------------------
(State or other jurisdiction of (IRS Employee
incorporation or organization) Identification Number)
4023 Annapolis Road
Baltimore, Maryland 21227 21227
- - -------------------------------- ------------------------------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including are code: (410) 789-6882
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 require-
ments for the past 90 days.
YES X NO _____
-----
Number of shares outstanding of common stock
as of: March 31, 1996
$0.01 par value common stock 106,924 shares
---------------------------- ---------------
Class Outstanding
<PAGE>
QUANTUM FINANCIAL HOLDINGS, INC.
INDEX
-----
Part I - Financial Information
- - ------------------------------
ITEM 1 - Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1996 (unaudited), and
December 31, 1994.
Consolidated Statements of Operations for the three months ended March
31, 1996 and 1995 (unaudited).
Consolidated Statements of Cash Flows for the three months ended March
31, 1996 and 1995 (unaudited).
Notes to Consolidated Financial Statements (unaudited)
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II - Other Information
- - ---------------------------
ITEM 1 - Legal Proceedings
ITEM 2 - Changes in Securities
ITEM 3 - Defaults Upon Senior Securities
ITEM 4 - Submission of Matters to a Vote of Security Holders
ITEM 5 - Other Materially Important Events
ITEM 6 - Exhibits and Reports
Part III - Signatures
- - ---------------------
2
<PAGE>
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
ASSETS
------
CASH AND DUE FROM BANKS $ 1,163,203 $ 1,063,563
FEDERAL FUNDS SOLD 2,260,877 509,018
----------- -----------
Cash and cash equivalents 3,424,080 1,572,581
INVESTMENT SECURITIES HELD-TO-MATURITY 299,660 564,927
ACCRUED INTEREST RECEIVABLE 253,457 249,527
SECONDARY MARKET FUNDING RECEIVABLE 344,836 525,732
LOANS RECEIVABLE, net 21,154,573 22,006,556
RESIDENTIAL REAL ESTATE OWNED 1,602,688 1,524,583
COMMERCIAL REAL ESTATE OWNED 1,261,642 1,263,292
FEDERAL HOME LOAN BANK STOCK 169,100 165,000
PREMISES AND EQUIPMENT, net 437,711 381,971
OTHER ASSETS 668,479 729,557
----------- -----------
Total Assets $29,616,226 $28,983,726
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DEPOSITS $27,248,948 $24,546,708
FEDERAL HOME LOAN BANK ADVANCES 0 2,000,000
ACCRUED EXPENSES 135,576 203,431
OTHER LIABILITIES (2,311) 18,500
OTHER BORROWED MONEY 18,000 27,000
----------- -----------
Total Liabilities 27,400,213 26,795,639
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $0.01 per share;
5,000,000 shares authorized, 106,924 and
114,374 shares issued and outstanding 1,069 1,069
Additional Paid-in Capital 700,205 700,205
Retained earnings 1,532,739 1,513,813
----------- -----------
2,234,013 2,215,087
Deferred compensation (18,000) (27,000)
----------- -----------
Total Stockholders' Equity 2,216,013 2,188,087
----------- -----------
Total Liabilities and Stockholders' Equity $29,616,226 $28,983,726
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
--------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------------- -------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 530,975 $ 493,672
Interest on investment securities 37,539 28,946
Interest on federal funds sold 23,858 3,810
----------- -----------
592,372 526,428
----------- -----------
INTEREST EXPENSE:
Interest on deposits 348,479 247,040
Other interest expense 10,434 40,162
----------- -----------
358,913 287,202
----------- -----------
Net interest income 233,459 239,226
PROVISION FOR LOAN LOSSES 1,710 2,554
----------- -----------
Net interest income after
provision for loan losses 231,749 236,672
----------- -----------
OTHER INCOME:
Fees on loans originated for others, net of
related commissions & payroll taxes 26,025 15,599
Other operating income, including subsidiary
net income 56,235 32,349
----------- -----------
82,260 47,948
----------- -----------
OTHER EXPENSES:
Salaries, benefits and payroll taxes 135,248 136,949
Other operating expenses 145,410 117,073
----------- -----------
280,658 254,022
----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 33,351 30,598
INCOME TAX EXPENSE 14,426 12,852
----------- -----------
NET INCOME $ 18,925 $ 17,746
=========== ===========
EARNINGS PER SHARE $ 0.18 $ 0.16
====== ======
Weighted average number of shares outstanding 106,924 114,374
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
Page 1 of 2
-----------
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
--------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,925 $ 17,747
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Provision for loan losses 1,710 2,554
Loan fees deferred, net of costs 3,530 2,209
Amortization of deferred loan fees (15,190) (12,188)
Depreciation 13,894 7,387
Decrease (increase) in accrued
interest receivable (3,930) (22,597)
Origination of loans sold on the
secondary market (1,030,450) (535,700)
Proceeds from sale of loans on the
secondary market 1,211,346 842,773
Decrease (increase) in deferred income tax asset 0 0
Decrease (increase) in other assets 61,078 (46,939)
(Decrease) increase in accrued expenses and
other liabilities (88,666) (63,917)
Amortization of deferred
compensation 9,000 9,000
Stock dividends received on Federal Home
Loan Bank Stock 0 0
----------- ------------
Net cash provided by (used in)
operating activities 181,247 200,329
----------- ------------
</TABLE>
5
<PAGE>
Page 2 of 2
-----------
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
--------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing investment securities $ 266,080 $ 99,074
Purchases of investment securities (813) (197,951)
Proceeds from sale of FHLB Stock 0 0
Purchase of FHLB Stock (4,100) (16,100)
Decrease (increase) in loans, net 861,934 (146,327)
Purchase of premises and equipment (69,634) (6,316)
Purchase of and investment in foreclosed
real estate, net (76,455) (111,278)
----------- ----------
Net cash (used in) provided by investing activities 977,012 (378,898)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in deposits, net 2,702,240 (406,233)
Repayment of FHLB Advances (2,000,000) 0
Increase in short-term borrowings, net 0 0
Debt repayment (9,000) (9,000)
----------- ----------
Net cash provided by (used in) financing activities 693,240 (415,233)
----------- ----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 1,851,499 (593,802)
CASH AND CASH EQUIVALENTS, beginning
of year 1,572,581 2,026,237
----------- -----------
CASH AND CASH EQUIVALENTS, end of quarter $ 3,424,080 $ 1,432,435
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOWS INFORMATION:
Cash paid during the quarter for:
Interest $ 358,913 $ 287,202
Income taxes, net of refund 13,125 10,500
In-substance foreclosure on real estate 0 0
Foreclosure on real estate 62,929 101,917
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do not
include information or footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. However, all adjustments which are,
in the opinion of management, necessary for a fair presentation have been
included. The results of operations for the nine and three month period ended
September 30, 1995 are not necessarily indicative of the results which may be
expected for the entire fiscal year. The Notes to Consolidated Financial
Statements for the year ended December 31, 1994, included in the Savings
Bank's Form 10-K, should be read in conjunction with these statements.
Note 2 - Holding Company Reorganization
------------------------------
On July 12, 1995, the Company completed the acquisition of Baltimore
American Savings Bank, FSB (the "Bank") pursuant to an Agreement and Plan of
Reorganization in which the Bank became a wholly-owned subsidiary of the
Company, a newly formed holding company incorporated by the Bank for that
purpose. Under the terms of the Agreement and Plan of Reorganization, each
outstanding share, other than shares as to which dissenters' rights were
properly exercised, of the common stock, $1.00 par value per share, of the
Bank (the "Bank's Common Stock") was converted into one share of the common
stock $.01 par value per share, of the Company (the "Common Stock") and the
former holders of the Bank's Common Stock became the holders of all the
outstanding Common Stock. For the periods prior to July 12, 1995, the
financial statements of the Company consist of the financial statements of the
Bank.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL PERSPECTIVE
During the three months ending March 31, 1996, Baltimore American increased
stockholders' equity through the production of profits. At March 31, 1996,
earnings per share were $0.18 per share, as compared with $0.16 per share for
the same period in 1995. The increase of $0.02 per share was a direct result of
an increase in interest income and other income, as well as a smaller provision
for loan losses. Although the Company has increased its profitability and
capital for the first quarter 1996, it continues to focus on loans that are
slow, loans that are delinquent, and loans that are foreclosed upon. Management
and the Board of Directors continue to emphasize achieving a high quality
portfolio through more stringent loan approval criteria. The emphasis placed on
resolving the nonperforming loans and real estate owned by the Company, as well
as the increase in the number of loans placed in the portfolio, have resulted in
the Bank's first quarter profits and overall profitability for the three months
ended March 31, 1996.
FINANCIAL CONDITION
General Overview
Total assets increased by $632,500 or 2.18% during the three months ended
March 31, 1996. The increase in total assets was primarily due to an increase
in federal funds sold which was a result of prepayment of loans and the maturity
of investment securities. In addition, these funds will be utilized for first
mortgage loan originations. "Table 1. Utilization of Assets" exhibits for the
periods indicated certain consolidated balance sheet items related to the
financial structure of the Company.
_______________________________________________________________________________
TABLE 1
Utilization of Assets
_______________________________________________________________________________
<TABLE>
<CAPTION>
March 31, December 31,
1996 1996 Difference
----------- ------------ -------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 1,163,203 $ 1,063,563 $ 99,640 9.37 %
Federal funds sold 2,260,877 509,018 1,751,859 344.16
Investment securities held-to-maturity 299,660 564,927 (265,267) (46.96)
Loans receivable, Net 21,154,573 22,006,556 (851,983) (3.87)
Secondary market funding receivable 344,836 525,732 (180,896) (34.41)
Residential Real Estate Owned 1,602,688 1,524,583 78,105 5.12
Commercial Real Estate Owned 1,261,642 1,263,292 (1,650) (0.13)
All other assets 1,528,747 1,526,055 2,692 0.18
----------- ----------- ---------- -------
$29,616,226 $28,983,726 $ 632,500 2.18 %
=========== =========== ========== ========
</TABLE>
_______________________________________________________________________________
8
<PAGE>
Commercial real estate owned comprises commercial real estate that was
foreclosed upon by the Company. Of the $1,261,642 in commercial real estate,
$1,139,751 represents Sheridan Station Shopping Center, which is 33,014 square
feet and is comprised of eleven (11) tenant spaces, with 127 parking spaces
available.
As of March 31, 1996, the center is seventy percent (70%) leased and
generated operating income of $56,426 and operating expenses of $25,317 for
pretax income of $31,109, which is included as other operating income in the
accompanying consolidated statement of operations for the quarter ended March
31, 1996. During the first quarter of 1996, Management began negotiating with
three prospective tenants for the remaining space.
Management is actively marketing this property for sale. Management intends
to sell the property as soon as a viable buyer is identified. However, no
assurance can be made that a sale will be consummated or that losses on the sale
or from operations prior to the sale will not be realized. Management believes
that an adequate allowance for any potential losses on the ultimate sale of the
property has been provided as of March 31, 1996.
In addition, commercial real estate owned includes a one acre parcel of
commercial property located in Anne Arundel County on Ridge Road in the amount
of $121,891. This asset is over five years old and is now considered real
estate held for investment. As such, the balance at which the property is
carried reduces the risk-based capital of the Company by that amount. Although
the Company believes its interest in this property is currently adequately
secure, there is no assurance that the property will be sold or that Baltimore
American will recoup its investment.
Residential real estate owned comprises residential real estate that was
foreclosed upon by the Company. Of the $1,602,688 in residential real estate,
$1,522,177 represents residential homes and $80,511 represents residential land
owned by the Company. Management is actively marketing these properties and
intends to sell these properties as soon as viable buyers are identified.
During the first quarter of 1996, the Company has entered into contracts to sell
six properties. In the interim, and where possible, the Company is
rehabilitating these homes and renting them out to low- and moderate-income
families. The rental income is being applied directly to the outstanding
balance, reducing the Company's exposure and enhancing the property's
marketability. It is worth noting that management was awarded citations by
Baltimore's Mayor Schmoke and by Mary Pat Clark, President of the Baltimore City
Council, in recognition of its commitment in building strong communities. While
management believes it will be able to find buyers in the future, no assurance
can be made that buyers will be found or that losses on the sale will not be
realized. Management believes that an adequate allowance for any potential
losses on the ultimate sale of these properties has been provided as of March
31, 1996.
Total liabilities increased by $604,574 or 2.26% during the three months
ended March 31, 1996 directly as a result of the increase in deposits (see Table
2. Source of Funds).
The increase in deposits is the result of aggressive marketing to established
customers to increase their deposit base within the Company. $2 million worth
of borrowings from the Federal Home Loan Bank were repaid through the increase
in deposits. Accrued expenses and other liabilities decreased as a result of
management's cost control measures. Other borrowed money, representing the
Employee Stock Ownership Plan (ESOP), was reduced by $9,000, which is the
principal amount of the loan paid each year.
9
<PAGE>
_______________________________________________________________________________
TABLE 2
Source of Funds
_______________________________________________________________________________
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 Difference
------------ ------------ ----------------------
<S> <C> <C> <C> <C>
Deposits $27,248,948 $24,546,708 $ 2,702,240 11.00%
Federal Home Loan Bank Advances 0 2,000,000 (2,000,000) (100.00)
Accrued Expenses 135,576 203,431 (67,855) (33.36)
Other Liabilities (2,311) 18,500 (20,811) (112.49)
Other Borrowed Money 18,000 27,000 (9,000) (33.33)
----------- ----------- ----------- -------
$27,400,213 $26,795,639 $ 604,574 2.26%
=========== =========== =========== =======
</TABLE>
_______________________________________________________________________________
Liquidity
Adequate liquidity must be maintained to fund deposit withdrawals, to meet
customers' borrowing needs, to take advantage of investment opportunities, and
to maintain the required levels of reserves. On the asset side, the primary
sources of liquidity are cash and due from banks, investment securities, federal
funds, and scheduled repayments on outstanding loans. On the liability side,
the primary sources of liquidity are deposit growth and the line of credit with
the Federal Home Loan Bank.
Management evaluates the Company's liquidity position daily to maintain a
level conducive to efficient operations and to satisfy regulatory requirements.
Attention is directed primarily to assets and liabilities that mature or can be
repriced within one year. The Company matches the maturities, to the extent
possible, of its assets and liabilities to minimize variability in net interest
income; this practice helps to minimize interest rate risk. Prudent risks are
taken, however, by leaving certain assets and liabilities unmatched in an effort
to benefit from the interest rate sensitivity inherent in the U.S. monetary
system.
The minimum regulatory required level of long-term liquidity is currently 5%
of total deposits and borrowed money; the minimum required short-term level is
1%. The liquidity level of Baltimore American at March 31, 1996, as measured
for regulatory purposes, was approximately 13.79% for both long- and short-term
purposes. Management believes the Company can meet its obligations of
outstanding loan commitments and at the same time maintain liquidity in excess
of the minimum regulatory requirement without having to borrow funds.
Capital Resources
The Company's Stockholders' Equity was $2,216,012 or 7.48% of total assets on
March 31, 1996 compared to $2,188,087 or 7.55% on December 31, 1995. Although
the percentage of Stockholders' Equity to Total Assets decreased by 0.07%,
Stockholders' Equity increased by $18,925 as a result of
10
<PAGE>
current earnings. The Company exceeds all regulatory requirements for capital.
Management continually reviews and identifies areas of growth opportunity. The
various methods for generating equity from internal and external sources are
constantly under review to ascertain the most effective approach for the
Company. Table 3. Regulatory Capital Requirements represents the Company's
position to its various minimum regulatory capital requirements at March 31,
1996.
______________________________________________________________________
TABLE 3
Regulatory Capital Requirements
______________________________________________________________________
<TABLE>
<CAPTION>
March 31, 1996 (unaudited)
---------------------------------
Percentage
Amount of Assets*
------------ ------------
(in Thousands)
<S> <C> <C>
Tangible Capital................... $2,130 7.19%
Tangible Capital Requirement....... 444 1.50%
------ -----
Excess............................. $1,686 5.69%
====== =====
Core Capital....................... $2,130 7.19%
Core Capital Requirement........... 888 3.00%
------ -----
Excess............................. $1,242 4.19%
====== =====
Total Capital...................... $2,247 11.87%
(Core and Supplementary Capital)
Risk-Based Capital Requirement..... 1,515 8.00%
------ -----
Excess............................. $ 732 3.87%
====== =====
</TABLE>
______________________________
*Based on adjusted total assets of $2,961,500 for purposes of the tangible
capital and core capital requirements, and risk-weighted assets of
$18,932,000 for purposes of the risk-based capital requirements.
______________________________________________________________________
RESULTS OF OPERATIONS
General Overview
For the three months ended March 31, 1996, Baltimore American posted a
$18,925 profit, as compared to a profit of $17,746 for the same period in 1995.
The increase in net income for the three months ended March 31, 1996, as
compared with the same period in 1995, is primarily due to an increase in
interest income and other income.
11
<PAGE>
Earnings per share of common stock were $0.18 per share for the three months
ended March 31, 1996, as compared to $0.16 per share for the same period in
1995. Table 4. Operations Items as of March 31, 1996 exhibits for the periods
indicated certain consolidated statement of operations items which contributed
to earnings.
_____________________________________________________________________________
TABLE 4
Operations Items as of March 31,
_____________________________________________________________________________
<TABLE>
<CAPTION>
1996 1995 Difference
--------- --------- --------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $530,975 $493,672 $ 37,303 7.56 %
Other interest income 61,397 32,756 28,641 87.44
-------- -------- -------- -------
$592,372 $526,428 $ 65,944 12.53 %
======== ======== ======== ========
INTEREST EXPENSE:
Interest on deposits $348,479 $247,040 $101,439 41.06 %
Other interest expense 10,434 40,162 (29,728) (74.02)
-------- -------- -------- -------
$358,913 $287,202 $ 71,711 24.97 %
======== ======== ======== ========
PROVISION FOR LOAN LOSSES $ 1,710 $ 2,554 $ (844) (33.05)%
======== ======== ======== ========
OTHER INCOME:
Fees on loans originated
for others $ 26,025 $ 15,599 $ 10,426 66.84 %
Other operating income 56,235 32,349 23,886 73.84
-------- -------- -------- -------
$ 82,260 $ 47,948 $ 34,312 71.56 %
======== ======== ======== ========
OTHER EXPENSES:
Salaries, benefits and payroll
taxes $135,248 $136,949 $ (1,701) (1.24)%
Other operating expenses 145,410 117,073 28,337 24.20 %
-------- -------- -------- -------
$280,658 $254,022 $ 26,636 10.49 %
======== ======== ======== ========
</TABLE>
_____________________________________________________________________________
Net Interest Income
Net interest income is the foundation and core of Baltimore American's
earnings, representing the difference between total interest and fees earned on
all loans, investments and other interest earning assets, and the total interest
paid on deposits and borrowings. For the three months ended March 31, 1996, net
interest income was $233,459, as compared with $239,226 for the same period in
1995.
12
<PAGE>
Net interest income decreased $5,767, or 2.41%, during the first quarter
1996, as compared with the same period in 1995. This was the direct result of an
increase in expense resulting from an increase in national interest rates.
In recognition of the nonperforming loans and the inherent risk in lending,
Management has established a provision for loan losses. The provision for loan
losses is a reserve of funds established to absorb potential loan losses after
evaluating the asset portfolio (current economic conditions, changes in the
nature and volume of lending, and past loan loss experience, as well as other
factors). Upon evaluation of the future trends of general economic conditions
in this country and in particular Baltimore American's market area, Management
and the Board of Directors decided to continue to reserve additional funds in
regard to the future economic trends that might have an effect on the portfolio
of loans. The provision for loan losses for the three months ended March 31,
1996, was $1,710, as compared to $2,554 for the same period in 1995. As of
March 31, 1996, the provision for loan losses declined in proportion to the
volume of loans originated for the Company's portfolio.
For the three months ended March 31, 1996, net interest income after
provision for loan loss was $231,749, as compared with $236,672 for the same
period in 1995.
Other Income
There are two significant components of non-interest income for the three
months ended March 31, 1996. (1) Fees on loans originated for others was
$10,426 or 66.84% greater during the three months ended March 31, 1996 as
compared with the same period in 1995. This is the direct result of an increase
in the volume of residential home sales and refinances. (2) Other operating
income was $23,886 or 73.84% more during the three months ended March 31, 1996
as compared with the same period in 1995. This is the result of the increase in
revenues generated by Sheridan Station Shopping Center and an increase in retail
banking service fees.
Other Expense
Non-interest expense increased by $26,636 or 10.49% during the three months
ending March 31, 1996 as compared to the same period in 1995. The largest
component, employee compensation, decreased by $1,701 or 1.24%.
All other operating expenses increased by $28,337 or 24.20% as a result of an
increase in professional fees and marketing fees in order to stimulate loan
activity, as well as the addition of a consultant for financial reporting.
Provision For Taxes
The Company's effective tax rate varies with changes in the proportion of tax
exempt income, changes in corporate tax rates, and certain local tax credits.
Provision for income taxes for the three months ended March 31, 1996 was
$14,426, compared to $12,852 during the first quarter of 1995.
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation on the Company is reflected primarily in the
increased cost of operations. A portion of these increased costs are generally
passed on to customers in the form of increased service fees. Because the
Company's assets and liabilities are virtually all monetary in nature,
reinvestment and prepayment rate fluctuations more significantly impact the
Company's performance than the effects of inflation. Volatile interest rate
environments require management to maintain acceptable levels of liquidity and
to maintain proper maturity structure of the Company's assets and liability.
13
<PAGE>
In structuring fees, negotiating loan margins, and developing customer
relationships, Management concentrates its efforts on maximizing earnings, while
attempting to contain increases in operating expenses. Management and the Board
of Directors continually review the feasibility of new and additional fee-
generating services to offset the effects of inflation and changing prices.
Management and the Board of Directors perform this function with the objective
of increased earnings.
14
<PAGE>
PART II
ITEM 1. Legal Proceedings
-----------------
Not applicable.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
ITEM 5. Other Materially Important Events
---------------------------------
None.
ITEM 6. Exhibits and Reports
--------------------
Exhibit 27 - Financial Data Schedule
15
<PAGE>
PART III
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
/s/ Richard Kraus
Date: May 10, 1996 By: ----------------------------------
------------------- Richard W. Kraus
PRESIDENT, CHIEF EXECUTIVE OFFICER
& CHIEF FINANCIAL OFFICER
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,163,203
<INT-BEARING-DEPOSITS> 99,000
<FED-FUNDS-SOLD> 2,260,877
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 200,660
<INVESTMENTS-MARKET> 201,808
<LOANS> 21,372,452
<ALLOWANCE> 448,936
<TOTAL-ASSETS> 29,616,226
<DEPOSITS> 27,248,948
<SHORT-TERM> 0
<LIABILITIES-OTHER> (2,311)
<LONG-TERM> 18,000
0
0
<COMMON> 701,274
<OTHER-SE> 1,514,739
<TOTAL-LIABILITIES-AND-EQUITY> 29,616,226
<INTEREST-LOAN> 530,975
<INTEREST-INVEST> 37,539
<INTEREST-OTHER> 23,858
<INTEREST-TOTAL> 592,372
<INTEREST-DEPOSIT> 348,479
<INTEREST-EXPENSE> 358,913
<INTEREST-INCOME-NET> 233,459
<LOAN-LOSSES> 1,710
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 280,658
<INCOME-PRETAX> 33,351
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,925
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.38
<LOANS-NON> 423,000
<LOANS-PAST> 1,060,000
<LOANS-TROUBLED> 76,000
<LOANS-PROBLEM> 3,291,000
<ALLOWANCE-OPEN> 447,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 449,000
<ALLOWANCE-DOMESTIC> 449,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
