U.S. 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 March 31, 1998
[ ] 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 0-25884
REDWOOD FINANCIAL, INC.
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(Exact name of Registrant as specified in its Charter)
Minnesota 41-1807233
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(State or other jurisdiction of incorporation (IRS Employer Identification
or organization) Number)
P.O. Box 317, 301 S. Washington St., Redwood Falls, Minnesota 56283-0317
- ------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (507) 637-8730
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of April 30, 1998:
Class Outstanding
----- -----------
Common stock, par value $0.10 per share 868,093
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1: Financial Statements
Consolidated Balance Sheets at March 31, 1998 and
June 30, 1997 3
Consolidated Statements of Earnings for the Three
and Nine months ended March 31, 1998 and 1997 4
Consolidated Statement of Stockholders' Equity
for the Nine months ended March 31, 1998 5
Consolidated Statements of Cash Flows for the
Nine months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-11
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-23
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 24
Item 2: Changes in Securities 24
Item 3: Defaults Upon Senior Securities 24
Item 4: Submission of Matters to a Vote of Security
Holders 24
Item 5: Other Information 24
Item 6: Exhibits and Reports on Form 8-K 24
Signatures 25
2
<PAGE>
REDWOOD FINANCIAL, INC., AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
Assets 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 14,888 15,314
Interest-bearing deposits with banks 2,432,488 748,478
- -------------------------------------------------------------------------------------------
Cash and cash equivalents 2,447,376 763,792
- -------------------------------------------------------------------------------------------
Securities available for sale:
Mortgage-backed and related securities (amortized cost 27,022,437 8,149,752
$26,760,931 and $8,143,694, respectively)
Investment securities (amortized cost $11,284,813 and 11,310,315 6,981,250
$6,992,534, respectively)
- -------------------------------------------------------------------------------------------
Total securities available for sale 38,332,752 15,131,002
- -------------------------------------------------------------------------------------------
Securities held to maturity:
Mortgage-backed and related securities (market value 0 13,873,801
$0 and $14,082,280, respectively)
Investment securities (market value $0 and 0 10,395,659
$10,399,446, respectively)
- -------------------------------------------------------------------------------------------
Total securities held to maturity 0 24,269,460
- -------------------------------------------------------------------------------------------
Loans receivable, net 26,905,925 20,766,539
Federal Home Loan Bank stock, at cost 435,000 333,500
Accrued interest receivable 537,077 613,357
Premises and equipment, net 479,608 212,067
Real Estate, net 0 13,520
Other assets 549,933 65,679
- -------------------------------------------------------------------------------------------
Total Assets $69,687,671 62,168,916
- -------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------
Deposits 48,668,957 46,093,213
Federal Home Loan Bank advances 8,700,000 3,500,000
Advance payments by borrowers for taxes and insurance 113,325 69,744
Accrued expenses and other liabilities 380,970 163,926
- -------------------------------------------------------------------------------------------
Total Liabilities 57,863,252 49,826,883
- -------------------------------------------------------------------------------------------
Common stock ($.10 par value): Authorized and issued
1,125,000 shares; outstanding 868,093 shares at
March 31, 1998; 961,875 shares at June 30, 1997 112,500 112,500
Additional paid-in capital 8,482,892 8,467,833
Retained earnings, subject to certain restrictions 6,686,511 6,369,591
Net unrealized gain (loss) on securities available for sale 172,204 (3,135)
Unearned employee stock ownership plan shares (479,824) (529,504)
Unearned management stock bonus plan shares (241,828) (306,797)
Treasury stock, at cost; 256,907 shares at
March 31, 1998; 163,125 shares at June 30, 1997 (2,908,036) (1,768,455)
- -------------------------------------------------------------------------------------------
Total Stockholders' Equity 11,824,419 12,342,033
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- -------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $69,687,671 62,168,916
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</TABLE>
See accompanying notes to unaudited financial statements
3
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine months
ended March 31, ended March 31,
----------------------- -----------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 530,514 400,449 1,484,249 1,141,005
Securities held to maturity:
Mortgage-backed and related securities 0 257,864 453,033 796,534
Investment securities 0 164,264 295,402 600,178
Securities available for sale:
Mortgage-backed and related securities 436,564 49,598 771,824 49,598
Investment securities 217,146 42,029 456,698 42,029
Cash equivalents 18,035 57,974 53,560 161,637
- ------------------------------------------------------------------------------------------------------------
Total interest income 1,202,259 972,178 3,514,766 2,790,981
Interest Expense:
Deposits 647,265 552,263 1,915,637 1,561,553
Federal Home Loan Bank advances 111,460 926 294,694 926
- ------------------------------------------------------------------------------------------------------------
Total interest expense 758,725 553,189 2,210,331 1,562,479
Net interest income 443,534 418,989 1,304,435 1,228,502
Provision for losses on loans 14,000 0 14,000 0
- ------------------------------------------------------------------------------------------------------------
Net interest income after provision
for losses on loans 429,534 418,989 1,290,435 1,228,502
Noninterest income:
Fees and service charges 21,137 5,678 58,940 31,861
Gains on sale of investment and mortgage-backed
securities available for sale 7,469 2,863 15,339 2,863
Other 6,448 6,382 7,762 7,844
- ------------------------------------------------------------------------------------------------------------
Total noninterest income 35,054 14,923 82,041 42,568
Noninterest expense:
Compensation and employee benefits 213,925 177,873 623,660 531,240
Advertising 7,318 4,866 20,991 13,473
Occupancy 9,621 8,134 22,670 23,496
Federal deposit insurance premiums 7,430 6,020 21,967 45,389
Professional fees 18,922 14,233 77,078 178,471
Data processing expense 8,051 0 20,738 0
Deposit insurance fund assessment 0 0 0 237,085
Other 22,174 20,948 86,381 64,801
- ------------------------------------------------------------------------------------------------------------
Total noninterest expense 287,441 232,074 873,485 1,093,955
- ------------------------------------------------------------------------------------------------------------
Earnings before income taxes 177,147 201,838 498,991 177,115
Income tax expense 65,270 74,986 182,071 52,103
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Net earnings $ 111,877 126,852 316,920 125,012
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Net earnings per common share - Basic $ 0.14 0.14 0.38 0.13
Net earnings per common share - Diluted 0.13 0.13 0.37 0.13
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding - Basic 790,772 921,424 824,558 952,912
Weighted average number of shares outstanding - Diluted 836,398 951,901 863,839 981,462
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited financial statements
4
<PAGE>
<TABLE>
<CAPTION>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(Unaudited)
Net Unearned
unrealized Employee Unearned
gain on Stock management
Additional securities Ownership stock bonus Total
Common Paid in Retained available Plan recognition Treasury stockholders'
Stock Capital Earnings for sale Shares plan shares Stock equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 $112,500 8,467,833 6,369,591 (3,135) (529,504) (306,797) (1,768,455) 12,342,033
Net Earnings 316,920 316,920
Stock Repurchases (1,139,581) (1,139,581)
Net unrealized gain on
securities available
for sale 175,339 175,339
Earned employee stock
ownership plan shares 15,059 49,680 64,739
Earned management
stock bonus plan shares 64,969 64,969
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 $112,500 8,482,892 6,686,511 172,204 (479,824) (241,828) (2,908,036) 11,824,419
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited financial statements
5
<PAGE>
REDWOOD FINANCIAL, INC., AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
ended March 31,
---------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net earnings $ 316,920 125,012
Adjustments to reconcile net earnings to net cash
provided by operations
Provision for loan losses 14,000 0
Depreciation 19,665 13,193
Amortization of premiums and discounts on investment
securities, mortgage-backed and related securities
and loans receivable, net (22,096) (28,869)
Decrease (increase) in other assets (484,254) 34,239
Decrease in accrued interest receivable 76,280 121,991
Increase in accrued interest payable 394,532 417,057
Gain on sale of mortgage-backed securities available for sale (15,339) 0
Gain on sale of investment securities available for sale 0 (2,863)
Amortization of unearned ESOP shares 49,680 49,680
Earned ESOP shares priced above original cost 15,059 12,765
Earned Management Stock Bonus Plan shares 64,969 64,969
Increase (decrease) in accrued expenses and other liabilities 217,044 (150,261)
Decrease (increase) in deferred income taxes (116,895) 48,447
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 529,565 705,360
Investing Activities:
Proceeds from maturities of investment securities held to maturity 500,000 4,295,000
Principal collected on mortgage-backed and related securities held to maturity 2,034,858 1,320,723
Purchases of investment securities available for sale (1,990,093) (4,990,575)
Purchases of mortgage-backed and related securities available for sale (9,918,914) (6,251,792)
Principal collected on mortgage-backed and related securities available for sale 2,279,766 37,639
Proceeds from sales of investment securities available for sale 0 999,376
Proceeds from sales of mortgage-backed securities available for sale 885,305 0
Proceeds from maturities of investment securities available for sale 7,600,000 0
Increase in loans receivable, net (6,133,409) (2,363,081)
Purchases of premises and equipment (287,206) (19,665)
Purchases of Federal Home Loan Bank stock (101,500) 0
- ------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (5,131,193) (6,972,375)
Financing Activities:
Increase in deposits, net 2,181,212 4,102,627
Increase in advance payments by borrowers for taxes and insurance 43,581 44,066
Proceeds from Federal Home Loan Bank advances 12,200,000 1,500,000
Repayment of Federal Home Loan Bank advances (7,000,000) (650,000)
Repurchase of common stock (1,139,581) (1,227,049)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,285,212 3,769,644
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,683,584 (2,497,371)
Cash and cash equivalents, beginning of period 763,792 2,873,163
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,447,376 375,792
- ------------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures:
Cash paid for interest $ 1,815,799 1,145,422
Cash paid for income taxes 163,259 162,920
Supplemental noncash disclosures:
Transfer of real estate to loans 13,520 0
Transfer of invesment and mortgage-backed and related securities from held to
maturity to available for sale 36,531,995 0
</TABLE>
See accompanying notes to unaudited financial statements
6
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
(1) Redwood Financial, Inc.
Redwood Financial, Inc. (the Company) was incorporated under the laws of
the State of Minnesota for the purpose of becoming the savings and loan
holding company of Redwood Falls Federal Savings and Loan Association (the
Association) in connection with the Association's conversion from a
federally-chartered mutual savings and loan association to a
federally-chartered stock savings and loan association, pursuant to its
Plan of Conversion.
The Company commenced on May 22, 1995 a Subscription and Community Offering
of its shares (the Offering) in connection with the conversion of the
Association. The Offering was closed on June 22, 1995 and the conversion
was completed July 7, 1995 (see note 5).
(2) Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and, therefore, do not
include all disclosures necessary for a complete presentation of the
consolidated balance sheets, consolidated statements of earnings,
consolidated statement of stockholders' equity, and consolidated statements
of cash flows in conformity with generally accepted accounting principles.
However, all adjustments, consisting only of normal recurring adjustments,
which are, in the opinion of management, necessary for the fair
presentation of the interim financial statements have been included. The
statements of earnings for the three months and nine months ended March 31,
1998 are not necessarily indicative of the results which may be expected
for the entire year.
The material contained herein is written with the presumption that the
users of the interim financial statements have read or have access to the
most recent Annual Report on Form 10- KSB of Redwood Financial, Inc., which
contains the latest audited financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Condition
and Results of Operations as of June 30, 1997 and for the year then ended.
(Continued)
7
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
(3) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 Earnings per Share. SFAS
No. 128 establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or
potential common stock. SFAS No. 128 supercedes the standards for computing
EPS previously found in Accounting Principles Board (APB) Opinion No. 15,
Earnings per Share. The Company adopted SFAS No. 128 effective for the
period ending December 31, 1997. In accordance with SFAS No. 128, all prior
period earnings per share have been restated.
The following tables illustrate the calculation of basic and diluted
earnings per share for the three and nine months ended March 31, 1998 and
1997.
<TABLE>
<CAPTION>
For the Three Months Ended: March 31, March 31, 1997
--------------------------- ----------- --------------
Per-Share Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Income: $111,877 $126,852
Basic EPS:
Income available to
common stockholders 111,877 790,772 $ 0.14 126,852 921,424 $0.14
Effect of Dilutive Securities:
Options on common stock and
unvested restricted stock awards 45,626 30,477
------- -------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $111,877 836,398 $ 0.13 $126,852 951,901 $0.13
</TABLE>
(Continued)
8
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
For the Nine months Ended: March 31, 1998 March 31, 1997
-------------------------- -------------- --------------
Per-Share Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Income: $316,920 $125,012
Basic EPS:
Income (loss) available to
common stockholders 316,920 824,558 $0.38 125,012 952,912 $0.13
Effect of Dilutive Securities:
Options on common stock and
unvested restricted stock awards 39,281 28,550
------ -------
Diluted EPS:
Income (loss) available to
common stockholders plus
assumed conversions $316,920 863,839 $0.37 $125,012 981,462 $0.13
</TABLE>
(4) Regulatory Capital Requirements
At March 31, 1998, the Association met each of the three current minimum
regulatory capital requirements. The following table summarizes the
Association's regulatory capital position at March 31, 1998:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Actual Required Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Association's Net Worth $8,419
Less: AFS Market 172
Valuation
Tangible Capital 8,247 12.25% $1,010 1.50% n/a n/a
(to tangible assets)
Core Capital 8,247 12.25% 2,694 4.00% $3,367 5.00%
(to adjusted tangible assets)
Core Capital 8,247 33.46% n/a n/a 1,479 6.00%
(to risk-weighted assets)
Plus: Allowable portio 227
general allowance for
loan losses
Risk-based Capital $8,474 34.38% $1,972 8.00% $2,465 10.00%
(to risk-weighted assets)
</TABLE>
(Continued)
9
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
(5) Stockholders' Equity and Stock Conversion
The Association converted from a federally-chartered mutual savings and
loan association to a federally-chartered stock savings and loan
association pursuant to its plan of Conversion which was approved by the
Association's members on June 23, 1995. The conversion was effected on July
7, 1995, and resulted in the issuance of 1,125,000 shares of common stock
(par value $0.10) at $8.00 per share for a gross sales price of $9,000,000.
Costs related to conversion (primarily underwriters' commission, printing,
and professional fees) aggregated $450,639 and were deducted to arrive at
the net proceeds of $8,549,361. The Company established an employee stock
ownership trust which purchased 82,748 shares of common stock of the
Company at the issuance price of $8.00 per share from funds borrowed from
the holding company.
(6) Stock Repurchases
During the three months ended March 31, 1998, the Company purchased 18,982
shares of its outstanding common stock, completing all stock repurchase
programs announced to date. During fiscal 1998, the Company purchased a
total of 93,782 shares, or 9.7% of its 961,875 shares outstanding as of
June 30, 1997. As a result of these stock repurchase programs, the Company
has now outstanding 868,093 shares of common stock. The following
summarizes the Company's common stock repurchases during the three months
ended March 31, 1998:
Settlement Date Shares Purchased Price per share
--------------- ---------------- ---------------
January 6, 1998 6,500 $13.0000
January 12, 1998 12,482 $13.3125
Average Price per share: $13.2055
(7) New Accounting Standards
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which codifies existing disclosure requirements
regarding capital structure. SFAS No. 129 did not have a significant impact
on the Company's current capital structure disclosures.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Management is currently determining what effect
adoption of this statement will have on the reporting of its financial
information.
(Continued)
10
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 requires disclosure of
selected information about operating segments, as defined in SFAS No. 131,
which include those components for which financial information is available
and evaluated by the chief operating decision maker in assessing
performance and making resource allocation determinations for operating
components such as those which exceed 10 percent or more of the combined
revenue, income, or assets. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Management is currently determining what
effect adoption of this statement will have on the reporting of its
financial information.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". SFAS No. 132 revises
employers' disclosures about pension and other post retirement benefit
plans and suggests combined formats for presentation of pension and other
post retirement benefit disclosures. It is effective for the fiscal years
beginning after December 15, 1997. Restatement of disclosures for earlier
periods provided for comparative purposes is required unless the
information is not readily available. This standard is not expected to have
a material impact on the Company's consolidated financial statements.
(Continued)
11
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Item 2-Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
The Company's net earnings are dependent primarily on its net interest income,
which is the difference between interest income earned on its investment and
loan portfolio and interest paid on interest-bearing liabilities. Net interest
income is determined by (1) the difference between yields earned on
interest-earning assets and rates paid on interest-bearing liabilities (interest
rate spread) and (2) the relative amounts of interest-earning assets and
interest-bearing liabilities. The Company's interest rate spread is affected by
regulatory, economic, and competitive factors that influence interest rates,
loan demand, and deposit flows. To a lesser extent, the Company's net earnings
also are affected by the level of noninterest income, which primarily consists
of service charges and other fees. In addition, net earnings are affected by the
level of noninterest (general and administrative) expenses.
The operations of financial institutions, including the Association, are
significantly affected by prevailing economic conditions, competition, and the
monetary and fiscal policies of the federal government and governmental
agencies. Lending activities are influenced by the demand for and supply of
housing, competition among lenders, the level of interest rates, and the
availability of funds. Deposit flows and costs of funds are influenced by
prevailing market rates of interest, primarily on competing investments, account
maturities, and the levels of personal income and savings in the Association's
market area.
Financial Condition
The Company's total assets increased by $7,519,000, or 12.09%, from $62,169,000
at June 30, 1997 to $69,688,000 at March 31, 1998. The increase in the Company's
assets largely reflected an increase in the level of loan production and
purchases of mortgage-backed securities. The increase in loans and purchases of
mortgage-backed securities were largely funded through the use of Federal Home
Loan Bank (FHLB) advances during the nine months ended March 31, 1998.
Cash and cash equivalents increased by $1,683,000, or 220.29%, from $764,000 at
June 30, 1997 to $2,447,000 at March 31, 1998. The increase in cash was
primarily due to the procurement of $2.0 million in FHLB advances on March 31,
1998, which were subsequently used to repay advances maturing in early April,
1998. The Company's strategy is to minimize its level of cash and cash
equivalents in order to enhance overall yield.
(Continued)
12
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
The Company's loans receivable, net, increased $6,139,000, or 29.56% during the
nine months ended March 31, 1998. The increase in loans was due to expansion in
the Company's agricultural lending program as previously announced. During the
quarter ended March 31, 1998, the Company announced the hiring of an experienced
agricultural and commercial loan officer to expand the Company's agricultural
lending program. As a result of these efforts, during the quarter ended March
31, 1998, the Company originated $2,611,000 in agricultural and commercial
loans. These loans primarily include agricultural operating and term loans, but
also include agricultural real estate and also commercial operating and real
estate loans. Large concentrations of credit include a $912,000 agricultural
operating loan secured by agricultural cooperative stock and a $580,000 loan
secured by real estate and inventory financing to a local retailer. The
Company's commercial loan growth in the nine months ended March 31, 1998 also
included the financing of a $336,000 apartment complex and a $400,000 commercial
operating loan to a local casino. The Company has also increased its 1-4 family
residential loan portfolio by approximately $2.6 million since June 30, 1997.
The continued increase in the Company's loan portfolio and changes in loan
portfolio mix will increase the Company's credit risk exposure. Furthermore, in
conjunction with the increase in loans receivable, the Company is increasing its
allowance for loan losses.
Effective January 1, 1998, the Company designated all investment securities,
including mortgage-backed and related securities as available for sale.
Previously, the Company maintained a portfolio of investment securities and
mortgage-backed and related securities purchased before January 1997 as held to
maturity. The purpose for the designation is to enhance operational flexibility
and liquidity. To this extent, $36,532,000 in investment securities previously
designated held to maturity, including mortgage-backed and related securities
were specifically redesignated as available for sale. The Company will not
maintain any investments, including mortgage-backed and related securities as
held to maturity for the foreseeable future.
Overall, the Company's mortgage-backed and related securities designated
available for sale increased $18,872,000, or 231.56% from $8,150,000 at June 30,
1997 to $27,022,000 at March 31, 1998. The increase is due to the aforementioned
redesignation of $20,134,000 in mortgage-backed and related securities and the
purchase of $9,919,000 in mortgage-backed securities designated available for
sale during the nine months ended March 31, 1998. The carrying value of the
Company's mortgage-backed and related securities also reflected an increase of
$262,000 due to market appreciation. Mortgage-backed and related securities
previously designated held to maturity reflected net market appreciation of
$165,000 at redesignation to available for sale.
(Continued)
13
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
The Company's investment securities designated available for sale increased
$4,329,000, or 62.01% from $6,981,000 at June 30, 1997 to $11,310,000 at March
31, 1998. The increase is also primarily due to the aforementioned redesignation
of investment securities as available for sale and the purchase of $1,990,000 in
investment securities designated available for sale during the nine months ended
March 31, 1998. The carrying value of the Company's mortgage-backed and related
securities also reflected an increase of $26,000 due to market appreciation.
Investment securities previously designated held to maturity reflected net
market appreciation of $17,000 at redesignation to available for sale.
The Company's premises and equipment increased $268,000, or 126.42% from
$212,000 at June 30, 1997, to $480,000 at March 31, 1998. The increase is
primarily a result of the purchase of two lots for possible future office
expansion and capitalized equipment purchases owing to the Association's recent
electronic data processing conversion.
The Company's other assets increased by $484,000, or 733.33% from $66,000 at
June 30, 1997 to $550,000 at March 31, 1998. In October 1997, the Company
invested $500,000 in a limited partnership specializing in the buying and
selling of equity securities of financial institutions. At March 31, 1998, the
market value of the Company's share in this partnership exceeds its carrying
value by approximately $106,000. This unrealized market appreciation is not
reflected in these financial statements as of March 31, 1998 because the
investment in the limited partnership is recorded on the equity basis.
The Company's deposits, including accrued interest payable, increased by
$2,576,000, or 5.59%, from $46,093,000 at June 30, 1997 to $48,669,000 at March
31, 1998. At March 31, 1998, the Company's FHLB advances totaled $8,700,000, an
increase of $5,200,000, or 148.57% from $3,500,000 at June 30, 1997. These
advances have maturities from 1 to 10 years, of which advances totaling $3.0
million include various call provisions. The advances were utilized to fund
increased loan production and investment and mortgage-backed securities
purchases during this nine month period. The Company may continue to increase
its use of FHLB advances pending rate and other terms of future advance
offerings.
(Continued)
14
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Results of Operations
Net Earnings
Net earnings were $112,000 for the three months ended March 31, 1998, as
compared to $127,000 for the three months ended March 31, 1997. This represented
a decrease of $15,000, or 11.81%. The decrease in net earnings for the three
months ended March 31, 1998 was a result of an increase in net interest income
offset by an increase in the provision for loan losses and an increase in
compensation and employee benefits. For the three months ended March 31, 1998,
net interest income increased $25,000, or 5.97% due to the Company's growth and
a change in the composition of its interest-earning assets. This increase in net
interest income was offset by a $36,000, or 20.22% increase in compensation and
employee benefits, and a $14,000 increase in the provision for loan losses. The
Company's provision for loan losses is a result of recent loan growth. The
Company made no provision for loan losses in the three months ended March 31,
1997.
For the nine months ended March 31, 1998, net earnings were $317,000, an
increase of $200,000 or 153.60%, from $125,000 for the nine months ended March
31, 1997. The increase was primarily a result of a $237,000, special one-time
federal deposit insurance fund assessment levied against thrift institutions as
part of an appropriations bill enacted by Congress and signed by President
Clinton on September 30, 1996, and higher professional fees as a result of an
unsuccessful acquisition attempt during the nine months ended March 31, 1997. In
addition, net earnings for the nine months ended March 31, 1998 were also
impacted by a $75,000 increase in net interest income, a $39,000 increase in
noninterest income, a $23,000 decrease in federal deposit insurance premiums, a
$93,000 increase in compensation and employee benefits, a $21,000 increase in
other expenses, and a $14,000 increase in the provision for loan losses.
Net Interest Income
Net interest income increased by $25,000, or 5.97%, from $419,000 for the three
months ended March 31, 1997 to $444,000 for the three months ended March 31,
1998. The increase in net interest income was due primarily to a large increase
in the average balance of interest-earning assets. The increase in net interest
income was partially offset by a slight decrease in the Company's net interest
spread.
(Continued)
15
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
For the three months ended March 31, 1998, the Company's interest-earning assets
increased $11,450,000, or 21.07% in comparison of the three months ended March
31, 1998 and 1997. The incremental increase in interest generated from this
growth offset additional interest expense on the Company's interest-bearing
liabilities which funded this growth. Interest-bearing liabilities increased
$12,939,000, or 31.14% in comparison of these two periods. As a result, the
Company's ratio of average interest-earnings assets to interest-bearing
liabilities decreased to 120.72% from 130.75% for the three months ended March
31, 1998 and 1997, respectively. The increase in net interest income was
impacted by a slight decrease in net interest spread to 1.74% from 1.83% for the
three months ended March 31, 1998 and 1997, respectively.
For the nine months ended March 31, 1998, the Company's net interest income
increased $75,000, or 6.10% to $1,304,000 from $1,229,000 for the nine months
ended March 31, 1997. As previously discussed, the increase in net interest
income was due primarily to a large increase in the average balance of
interest-earning assets. The increase in net interest income was impacted by a
slight decrease in the Company's net interest spread.
For the nine months ended March 31, 1998, the Company's average interest-earning
assets increased $11,592,000, or 22.12% in comparison of the nine months ended
March 31, 1998 and 1997. The incremental increase in interest generated from
this growth offset additional interest expense on the Company's interest bearing
liabilities which funded this growth. Interest-bearing liabilities increased
$12,994,000, or 33.12% in comparison of these two periods. As a result, the
Company's ratio of average interest-earnings assets to interest-bearing
liabilities decreased to 122.55% from 133.60% for the nine months ended March
31, 1998 and 1997, respectively. The increase in net interest income was
impacted by a slight decrease in net interest spread to 1.68% from 1.79% for the
nine months ended March 31, 1998 and 1997, respectively.
Interest Income
Interest income was $1,202,000 for the three months ended March 31, 1998, as
compared to $972,000 for the three months ended March 31, 1997, representing an
increase of $230,000, or 23.66%. The increase in interest income was primarily
due to the Company's aforementioned growth for the nine months ended March 31,
1998. The increase in interest income was also affected by an increase in the
overall yield on interest-earning assets. For the three months ended March 31,
1998, the yield on interest-earning assets was 7.31%, as compared to 7.16% for
the three months ended March 31, 1997. The increase in yield on interest-earning
assets was due primarily to a change in the composition of the Company's
interest-earning assets in the three months ended March 31, 1998.
(Continued)
16
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Interest income was $3,515,000 for the nine months ended March 31, 1998, as
compared to $2,791,000 for the nine months ended March 31, 1997, representing an
increase of $724,000, or 25.94%. As discussed previously, the increase in
interest income was primarily due to the Company's growth in 1997. The increase
in interest income was also affected by an increase in the overall yield on
interest-earning assets. For the nine months ended March 31, 1998, the yield on
interest-earning assets was 7.32%, as compared to 7.10% for the nine months
ended March 31, 1997. The increase in yield on interest-earning assets was due
primarily to a change in the composition of the Company's interest-earning
assets in the nine months ended March 31, 1998.
Interest on loans receivable increased by $131,000, or 32.75%, to $531,000 for
the three months ended March 31, 1998, as compared to $400,000 for the three
months ended March 31, 1997. Such increase was due to a $6,333,000, or 34.24%
increase in the average balance of loans receivable from $18,497,000 for the
three months ended March 31, 1997 to $24,830,000 for the three months ended
March 31, 1998. The increase in interest on loans receivable was partially
offset by a slight decrease in the average yield on loans receivable from 8.66%
for the three months ended March 31, 1997, to 8.55% for the three months ended
March 31, 1998.
Interest on loans receivable increased by $343,000, or 30.06%, to $1,484,000 for
the nine months ended March 31, 1998, as compared to $1,141,000 for the nine
months ended March 31, 1997. This increase was due to a $5,282,000, or 29.80%
increase in the average balance of loans receivable from $17,724,000 for the
nine months ended March 31, 1997 to $23,006,000 for the nine months ended March
31, 1998. The increase in interest on loans receivable was also affected by a
slight increase in the average yield on loans receivable from 8.58% for the nine
months ended March 31, 1997, to 8.60% for the nine months ended March 31, 1998.
In January 1997, the Company began designating all new mortgage-backed security
purchases as available for sale. Mortgage-backed securities purchased prior to
this date remained as held to maturity. Subsequently, in January 1998, the
Company determined that it no longer had the intent to hold these securities to
maturity and redesignated all mortgage-backed and related securities as
available for sale. As a result of this redesignation, the Company reported no
interest income on mortgage-backed and related securities held to maturity in
the three months ended March 31, 1998.
Interest income on mortgage-backed and related securities available for sale was
$437,000 and $50,000 for the three months ended March 31, 1998 and 1997,
respectively. The yield on the Company's mortgage-backed securities portfolio
available for sale was 6.66% for the three months ended March 31, 1998. Interest
income on mortgage-backed and related securities available for sale was $772,000
and $50,000 for the nine months ended March 31, 1998 and 1997, respectively. The
yield on the Company's mortgage-backed securities portfolio available for sale
was 6.90% for the nine months ended March 31, 1998.
(Continued)
17
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
As with the Company's mortgage-backed and related securities portfolio, in
January 1997, the Company began designating all new investment security
purchases as available for sale. Investment securities purchased prior to this
date remained as held to maturity. In January 1998, the Company redesignated all
investment securities as available for sale. As a result of this redesignation,
the Company reported no interest income on investment securities held to
maturity in the three months ended March 31, 1998.
Interest income on investment securities available for sale, including FHLB
stock was $217,000 and $42,000 for the three months ended March 31, 1998 and
1997, respectively. The yield on the Company's investment securities portfolio
available for sale was 6.48% for the three months ended March 31, 1998. Interest
income on investment securities available for sale including FHLB stock was
$457,000 and $42,029 for the nine months ended March 31, 1998 and 1997,
respectively. The yield on the Company's investment securities portfolio
available for sale was 6.82% for the nine months ended March 31, 1998.
Interest income on cash and cash equivalents decreased by $40,000, or 68.97% for
the three months ended March 31, 1998, as compared to the three months ended
March 31, 1997. The decrease is a result of management's decision to decrease
its cash on hand in order to enhance overall yield. Similarly, interest income
on cash and cash equivalents decreased by $108,000, or 66.67% for the nine
months ended March 31, 1998, as compared to the nine months ended March 31,
1997.
Interest Expense
Interest expense increased by $206,000, or 37.25%, from $553,000 for the three
months ended March 31, 1997 to $759,000 for the three months ended March 31,
1998. The increase in interest expense resulted from $12,939,000, or 31.14%
increase in the average balance of interest-bearing liabilities from $41,556,000
for the three months ended March 31, 1997 to $54,495,000 for the three months
ended March 31, 1998. The increase in interest expense was also impacted by an
increase in the average cost of funds to 5.57% during the three months ended
March 31, 1998, as compared to 5.32% for the three months ended March 31, 1997.
The increase in the Company's sources of funds, and its resulting interest
expense was primarily affected by an increase in the use of FHLB advances. The
Company had average outstanding FHLB advances of $7,404,000 and $212,500 for the
three months ended March 31, 1998 and 1997, respectively. As such, interest
expense on FHLB advances totaled $111,000 and $1,000, respectively, during these
periods. The Company utilized FHLB advances to fund increases in loan production
and purchases of investment securities and mortgage-backed securities.
(Continued)
18
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
The Company's average balance of deposits, including accrued interest payable
increased by $5,748,000, or 13.90% for the three months ended March 31, 1998 in
comparison to the three months ended March 31, 1997. The increase in deposits is
primarily due to increased public (i.e. governmental) deposits. Public deposits
are typically more volatile and more costly than traditional retail deposits.
Interest expense increased by $648,000, or 41.49%, from $1,562,000 for the nine
months ended March 31, 1997 to $2,210,000 for the nine months ended March 31,
1998. The increase in interest expense resulted from a $12,994,000, or 33.12%
increase in the average balance of interest-bearing liabilities from $39,230,000
for the nine months ended March 31, 1997 to $52,224,000 for the nine months
ended March 31, 1998. The increase in interest expense was also impacted by an
increase in the average cost of funds to 5.64% for the nine months ended March
31, 1998, as compared to 5.31% for the nine months ended March 31, 1997.
As previously discussed, the increase in the Company's sources of funds in
comparison of the nine month periods was primarily affected by an increase in
public deposits and the use of FHLB advances. The Company's average balance of
deposits increased by $6,687,000, or 17.08% for the nine months ended March 31,
1998 in comparison to the nine months ended March 31, 1997. As a result,
interest expense on deposits increased $354,000, or 22.66% in comparison of the
two periods.
Interest expense on FHLB advances totaled $295,000 and $1,000 during the nine
months ended March 31, 1998 and 1997, respectively. The Company's use of FHLB
advances during the nine months ended March 31, 1997 was negligible.
Provision for Loan Losses
The Company's provision for loan losses was $14,000 and $14,000 for the three
months and nine months ended March 31, 1998. During the three and nine months
ended March 31, 1997, no loan loss reserves were provided. As noted, the Company
has experienced large growth in its loan portfolio primarily as a result of its
agricultural and commercial lending program. However, the Company has also
increased loan production of 1-4 family residential mortgage loans, including
home equity loans. The provision was increased in response to loan growth in
anticipation that losses could occur. As such, the Company intends to regularly
provide for known and unanticipated loan losses. The level of this provision is
dependent on loan growth, delinquencies, economic conditions, and other various
factors used by management in the assessment of its loan portfolio and overall
level of loan loss reserves. The Company is committed to maintaining adequate
allowances for loan losses, regardless of the impact on reported earnings.
(Continued)
19
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
At March 31, 1998 and 1997, the allowance for loan losses totaled $227,000 and
$213,000, respectively. The Company's net loan charge-offs were $0 and $0 for
the three and nine months ended March 31, 1998 and 1997, respectively. At March
31, 1998 and 1997, the allowance for loan losses represented 0.84% and 1.12% of
loans receivable, respectively. Nonaccrual loans totaled $0 and $0 at March 31,
1998 and 1997, respectively. At March 31, 1998 and 1997, classified assets
totaled $741,000 and $252,000, respectively. The increase was the result of two
agricultural participation loans which were past due at March 31, 1998, but have
subsequently been brought current.
Noninterest Income
Noninterest income increased $20,000, or 133.33% from $15,000 to $35,000 for the
three months ended March 31, 1998 and 1997, respectively. The increase is due to
an increase in fees and service charges and a $7,000 gain recognized on the
sales of mortgage-backed securities.
For the nine months ended March 31, 1998, noninterest income increased $39,000,
or 90.70% to $82,000 from $43,000 for the nine months ended March 31, 1997. The
increase is due to a $20,000 one-time prepayment penalty on a commercial loan
participation and $15,000 in gains on the sales of mortgage-backed securities.
Noninterest Expense
Noninterest expense increased by $55,000, or 23.71%, from $232,000 for the three
months ended March 31, 1997 to $287,000 for the three months ended March 31,
1998. The increase in noninterest expense was primarily due to higher
compensation and employee benefits expenses. These expenses increased $36,000,
or 20.22% and are a result of increased staff and higher compensation to
existing employees.
In addition, as a result of the Company's October 1997 conversion to an
automated data processing system from a manual data processing system, the
Company now reports data processing expense separately. In previous periods,
manual data processing costs were not material. Data processing expense totaled
$8,000 for the three months ended March 31, 1998.
Noninterest expense decreased by $221,000, or 20.20%, from $1,094,000 for the
nine months ended March 31, 1997 to $873,000 for the nine months ended March 31,
1998. The decrease in total noninterest expense was primarily due to a $237,000,
one time special deposit insurance fund assessment during the nine months ended
March 31, 1997 and lower professional fees of approximately $101,000 for the
nine months ended March 31, 1998. The Company had incurred higher professional
fees in the nine months ended March 31, 1997 as a result of an unsuccessful
acquisition attempt. The decrease in noninterest expense was also impacted by a
$23,000, or 51.11% decrease in federal deposit insurance premiums.
(Continued)
20
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
The decrease in noninterest expense was partially offset by a $93,000, or 17.51%
increase in compensation and employee benefits, and a $21,000, or 32.31%
increase in other expenses. As previously discussed, the increase in
compensation and employee benefits is primarily due to increased staff and
higher compensation of existing employees and directors. The increase in other
expenses is primarily due to management fees associated with the Company's
investment in a limited partnership. In addition, for the nine months ended
March 31, 1998, data processing expenses totaled $21,000.
Income Taxes
The Company's income tax expense decreased by $10,000, or 13.33% from $75,000
for the three months ended March 31, 1997, to $65,000 for the three months ended
March 31, 1998. The change in income taxes was due primarily to a decrease in
pre-tax earnings of $25,000, or 12.38% from $202,000 for the three months ended
March 31, 1997 to $177,000 for the three months ended March 31, 1998.
The Company's income tax expense increased by $130,000, or 250.00% from $52,000
for the nine months ended March 31, 1997, to $182,000 for the nine months ended
March 31, 1998. The change in income taxes was due primarily to an increase in
pre-tax earnings of $322,000, or 181.92% from $177,000 for the nine months ended
March 31, 1997 to $499,000 for the nine months ended March 31, 1998.
Forward Looking Information
In recent years, significant new federal legislation has imposed numerous new
legal and regulatory requirements on financial institutions. In addition to the
uncertainties posed by possible legislative change, there are many other
uncertainties that may make the Company's historical performance an unreliable
indicator of its future performance, and forward-looking information, including
projections of future performance, is subject to numerous possible adverse
developments, including but not limited to the possibility of adverse economic
developments which may increase default and delinquency risks in the Company's
loan portfolio; shifts in interest rates which may result in shrinking interest
margins; deposits outflows; interest rates on competing investments; demand for
financial services and loan products; increases generally in competitive
pressure in the banking and financial services industry; changes in accounting
policies or guidelines, or monetary and fiscal policies of the federal
government; changes in the quality or composition of the Company's loan and
investment portfolios; or other significant uncertainties.
(Continued)
21
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, FHLB advances and proceeds
from maturing investment securities and principal and interest payments on loans
and mortgage-backed and related securities. While maturities and scheduled
amortization of mortgage-backed and related securities and loans are a
predictable source of funds, deposit flows and mortgage prepayments are
generally influenced by general interest rates, economic conditions,
competition, and other factors. A substantial portion of the Company's deposits
are funds from local government entities.
The primary investing activities of the Company are the origination of loans and
the purchase of investment and mortgage-backed and related securities. During
the nine months ended March 31, 1998 and 1997, the Company's loan portfolio,
net, increased $6,133,000 and $2,363,000, respectively. During the same periods,
the Company purchased investment securities and mortgage-backed and related
securities in the amounts of $11,909,000 and $11,242,000, respectively. The
primary financing activity of the Company is the attraction of savings deposits
and utilization of FHLB advances.
The Company has other sources of liquidity if there is a need for funds. The
Association has the ability to obtain additional advances from the Federal Home
Loan Bank of Des Moines. During the nine months ended March 31, 1998 and 1997,
the Association utilized advances of $12,200,000 and $1,500,000, respectively.
The Company's advances include $3,000,000 which include call provisions. In the
event that these advances are called, the FHLB has committed to providing an
alternative funding, albeit at different rates and terms. In addition,
commencing in January 1998, the Company's redesignation of all investment
securities, including mortgage-backed and related securities as available for
sale is intended to increase liquidity and overall operational flexibility.
The Association is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may be changed at the
direction of the OTS depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required
minimum ratio is currently 4.0%.
The Company's most liquid assets are cash and cash equivalents. In addition, the
Company maintains a portfolio of readily marketable investment securities,
including mortgage-backed and related securities which are designated available
for sale. The levels of cash and investment securities, including
mortgage-backed and related securities, are dependent on the Company's
operating, financing, and investing activities during any given period. At March
31, 1998 and June 30, 1997, cash and cash equivalents totaled $2,447,000 and
$764,000, respectively. Investment securities, including mortgage-backed and
related securities designated available for sale total $38,333,000 and
$15,131,000 at March 31, 1998 and June 30, 1997, respectively.
(Continued)
22
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Federal savings institutions are required to satisfy three capital requirements:
(i) a requirement that "tangible capital" equal or excess 1.5% of tangible
assets, (ii) a requirement that "core capital" equal or excess 4.0% of adjusted
tangible assets, and (iii) a risk-based capital requirement currently of 8.0% of
"risk-adjusted" assets. The Association currently meets all three capital
requirements.
Recent Developments
Proposed Bank Building
In April, 1998, the Company announced that it has approved the construction of a
new bank building for the Association on the east side of the City of Redwood
Falls, Minnesota. Construction is to commence shortly with completion scheduled
near December 1998. The Company is constructing the new building in order to
modernize its facilities and to offer additional banking services in the near
future. The Company believes that its current facilities are not adequate to
effectively promote additional banking services nor generate increased revenues.
The use of funds to construct this facility and the resulting higher occupancy
costs will result in a decrease in the Company's net earnings. The Company
estimates that this decrease in net earnings will be approximately $120,000 per
year. The Company's estimate does not reflect any additional staffing or other
indirect costs which may be incurred, nor any additional revenues which may be
generated. The Company expects to continue utilizing its existing downtown
Redwood Falls location.
(Continued)
23
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings.
None.
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.
None
ITEM 5: Other Information.
None.
ITEM 6: Exhibits and Reports on Form 8-K.
None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REDWOOD FINANCIAL, INC.
Registrant
Date: April 30, 1998 /s/ Paul W. Pryor
-------------- -----------------
Paul W. Pryor, President and Chief Executive
Officer (Duly Authorized Officer)
Date: April 30, 1998 /s/ Anthony H. Acker
-------------- --------------------
Anthony H. Acker, Chief Financial Officer
(Principal Accounting Officer)
25
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM
THE QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,888
<INT-BEARING-DEPOSITS> 2,432,488
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,332,752
<INVESTMENTS-CARRYING> 38,332,752
<INVESTMENTS-MARKET> 38,332,752
<LOANS> 27,132,959
<ALLOWANCE> 227,034
<TOTAL-ASSETS> 69,687,671
<DEPOSITS> 48,668,957
<SHORT-TERM> 7,700,000
<LIABILITIES-OTHER> 494,295
<LONG-TERM> 1,000,000
0
0
<COMMON> 112,500
<OTHER-SE> 11,711,919
<TOTAL-LIABILITIES-AND-EQUITY> 69,687,671
<INTEREST-LOAN> 1,484,249
<INTEREST-INVEST> 1,976,957
<INTEREST-OTHER> 53,560
<INTEREST-TOTAL> 3,514,766
<INTEREST-DEPOSIT> 1,915,637
<INTEREST-EXPENSE> 2,210,331
<INTEREST-INCOME-NET> 1,304,435
<LOAN-LOSSES> 14,000
<SECURITIES-GAINS> 15,339
<EXPENSE-OTHER> 873,485
<INCOME-PRETAX> 498,991
<INCOME-PRE-EXTRAORDINARY> 498,991
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316,920
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
<YIELD-ACTUAL> 2.72
<LOANS-NON> 0
<LOANS-PAST> 501,589
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 213,034
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 227,034
<ALLOWANCE-DOMESTIC> 227,034
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 227,034
</TABLE>
