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 December 31, 1997
[ ] 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.
----------------------------------------------------------------------------
(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 January 28, 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 December 31, 1997 and
June 30, 1997 3
Consolidated Statements of Earnings for the Three
and Six months ended December 31, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity
for the Six months ended December 31, 1997 5
Consolidated Statements of Cash Flows for the
Six months ended December 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-11
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-25
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 26
Item 2: Changes in Securities 26
Item 3: Defaults Upon Senior Securities 26
Item 4: Submission of Matters to a Vote of Security Holders 26
Item 5: Other Information 26
Item 6: Exhibits and Reports on Form 8-K 26
Signatures 27
2
<PAGE>
REDWOOD FINANCIAL, INC., AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31 June 30,
Assets 1997 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 14,505 15,314
Interest-bearing deposits with banks 1,730,913 748,478
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 1,745,418 763,792
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Securities available for sale:
Mortgage-backed and related securities (amortized cost 12,571,756 8,149,752
$12,506,596 and $8,143,694, respectively)
Investment securities (amortized cost $6,403,149 and 6,429,367 6,981,250
$6,992,534, respectively)
- -------------------------------------------------------------------------------------------------------------------
Total securities available for sale 19,001,123 15,131,002
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Securities held to maturity:
Mortgage-backed and related securities (market value 12,100,866 13,873,801
$12,265,604 and $14,082,280, respectively)
Investment securities (market value $8,912,043 and 8,895,140 10,395,659
$10,399,446, respectively)
- -------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 20,996,006 24,269,460
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Loans receivable, net 23,374,423 20,766,539
Federal Home Loan Bank stock, at cost 415,000 333,500
Accrued interest receivable 653,366 613,357
Premises and equipment, net 398,839 212,067
Real Estate, net 0 13,520
Other assets 562,863 65,679
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Total Assets $ 67,147,038 62,168,916
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Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------------------
Deposits 46,979,232 46,093,213
Federal Home Loan Bank advances 8,016,083 3,500,000
Advance payments by borrowers for taxes and insurance 63,930 69,744
Accrued expenses and other liabilities 286,388 163,926
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Total Liabilities 55,345,633 49,826,883
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Common stock ($.10 par value): Authorized and issued
1,125,000 shares; outstanding 887,075 shares at
December 31, 1997; 961,875 shares at June 30, 1997 112,500 112,500
Additional paid-in capital 8,476,682 8,467,833
Retained earnings, subject to certain restrictions 6,574,634 6,369,591
Net unrealized gain (loss) on securities available for sale 54,827 (3,135)
Unearned employee stock ownership plan shares (496,384) (529,504)
Unearned management stock bonus plan shares (263,484) (306,797)
Treasury stock, at cost; 237,925 shares at
December 31, 1997; 163,125 shares at June 30, 1997 (2,657,370) (1,768,455)
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 11,801,405 12,342,033
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- -------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 67,147,038 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 Six months
ended December 31, ended December 31,
------------------ ------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 487,619 378,600 953,735 740,556
Securities held to maturity:
Mortgage-backed and related securities 221,540 266,099 453,033 538,670
Investment securities 144,897 209,841 295,402 435,914
Securities available for sale:
Mortgage-backed and related securities 170,463 0 335,260 0
Investment securities 111,602 0 239,553 0
Cash equivalents 22,109 54,503 35,524 103,664
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 1,158,230 909,043 2,312,507 1,818,804
Interest Expense:
Deposits 634,069 502,095 1,268,372 1,009,291
Federal Home Loan Bank advances 117,951 0 183,234 0
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 752,020 502,095 1,451,606 1,009,291
Net interest income 406,210 406,948 860,901 809,513
Provision for losses on loans 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for losses on loans 406,210 406,948 860,901 809,513
Noninterest income:
Gain on sale of mortgage-backed
securities available for sale 7,871 0 7,871 0
Fees and service charges 25,230 12,209 37,803 26,183
Other 435 503 1,314 1,462
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Total noninterest income 33,536 12,712 46,988 27,645
Noninterest expense:
Compensation and employee benefits 220,756 186,276 409,736 353,013
Advertising 7,512 5,511 13,673 8,607
Occupancy 6,905 6,821 13,048 14,252
Federal deposit insurance premiums 7,552 18,029 14,538 39,369
Professional fees 27,903 128,255 58,156 164,239
Data processing expense 8,282 0 12,687 0
Deposit insurance fund assessment 0 0 0 237,085
Other 39,586 21,821 64,207 45,316
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Total noninterest expense 318,496 366,713 586,045 861,881
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Earnings before income taxes 121,250 52,947 321,844 (24,723)
Income tax expense (benefit) 42,097 17,239 116,801 (22,884)
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Net earnings $ 79,153 35,708 205,043 (1,839)
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- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share - Basic $ 0.10 0.04 0.24 0.00
Net earnings per common share - Diluted 0.09 0.04 0.23 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding - Basic 818,324 969,352 841,084 968,313
Weighted average number of shares outstanding - Diluted 859,507 997,510 877,262 968,313
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited financial statements
4
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
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 205,043 205,043
Stock Repurchases (888,915) (888,915)
Net unrealized gain on
securities available for sale 57,962 57,962
Earned employee stock
ownership plan shares 8,849 33,120 41,969
Earned management
stock bonus plan shares 43,313 43,313
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 112,500 8,476,682 6,574,634 54,827 (496,384) (263,484) (2,657,370) 11,801,405
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited financial statements
5
<PAGE>
REDWOOD FINANCIAL, INC., AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months
ended December 31,
-------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net earnings (loss) $ 205,043 (1,839)
Adjustments to reconcile net earnings to net cash
provided by operations
Depreciation 11,073 9,074
Amortization of premiums and discounts on investment
securities, mortgage-backed and related securities
and loans receivable, net (9,555) (19,519)
Decrease (increase) in other assets (497,184) 40,472
Decrease (increase) in accrued interest receivable (40,009) 159,851
Increase in accrued interest payable 31,126 17,815
Gain on sale of mortgage-backed securities available for sale (7,871) 0
Amortization of unearned ESOP shares 33,120 33,120
Earned ESOP shares priced above original cost 8,849 6,641
Earned Management Stock Bonus Plan shares 43,313 43,313
Increase (decrease) in accrued expenses and other liabilities 122,462 (100,426)
Increase in deferred income taxes (38,642) 0
- --------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (138,275) 188,502
Investing Activities:
Proceeds from maturities of investment securities held to maturity 500,000 4,030,000
Principal collected on mortgage-backed and related securities held to maturity 2,034,858 763,883
Proceeds from maturities of investment securities available for sale 2,500,000 0
Purchases of investment securities available for sale (910,000) 0
Purchases of mortgage-backed and related securities available for sale (5,514,541) 0
Principal collected on mortgage-backed and related securities available for sale 181,590 0
Proceeds from sales of mortgage-backed securities available for sale 724,037
Increase in loans receivable, net (2,592,946) (1,656,387)
Purchases of premises and equipment (197,844) (17,406)
Increase in Federal Home Loan Bank Stock (81,500) 0
- --------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (3,356,346) 3,120,090
Financing Activities:
Increase in deposits, net 854,893 2,016,768
Decrease in advance payments by borrowers for taxes and insurance (5,814) (3,676)
Proceeds from Federal Home Loan Bank advances 7,216,083 0
Repayment of Federal Home Loan Bank advances (2,700,000) 0
Repurchase of common stock (888,915) 0
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,476,247 2,013,092
- --------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 981,626 5,321,684
Cash and cash equivalents, beginning of period 763,792 2,873,163
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,745,418 8,194,847
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures:
Cash paid for interest $ 1,434,593 997,476
Cash paid for income taxes 125,410 103,700
Supplemental noncash disclosures:
Transfer of real estate to loans 13,520 0
</TABLE>
See accompanying notes to unaudited financial statements
6
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997
(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 six months ended
December 31, 1997 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. In accordance with SFAS
No. 128, the Company has presented basic and diluted earnings per share.
Basic EPS is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects dilution for potential common stock that
would share in the earnings of the Company. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. SFAS No. 128 requires restatement of all
prior-period EPS data presented.
As required by SFAS No. 128 Earnings per Share, the following tables
illustrate the calculation of basic and diluted earnings per share for
the three and six months ended December 31, 1997 and 1996. The only stock
securities that effect the Company's earnings per share calculations are
options on common stock and restricted stock awards.
<TABLE>
<CAPTION>
For the Three Months Ended: December 31, 1997 December 31, 1996
--------------------------- ----------------- -----------------
Per-Share Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income: $79,153 $35,708
Basic EPS:
Income available to
common stockholders 79,153 818,324 $0.10 35,708 969,352 $0.04
Effect of Dilutive Securities:
Options on common stock 41,183 28,158
-------- -------
Diluted EPS:
Income available to common
stockholders plus assumed
conversions $79,153 859,507 $0.09 $35,708 997,510 $0.04
</TABLE>
(Continued)
8
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
For the Six Months Ended: December 31, 1997 December 31, 1996
------------------------- ----------------- -----------------
Per-Share Income Per Share
Income Shares Amount (Loss) Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income: $205,043 ($1,839)
Basic EPS:
Income (loss) available to
common stockholders 205,043 841,084 $0.24 ($1,839) 968,313 $0.00
Effect of Dilutive Securities:
Options on common stock 36,178 0
------- -------
Diluted EPS:
Income (loss) available to
common stockholders plus
assumed conversions $205,043 877,262 $0.23 ($1,839) 968,313 $0.00
</TABLE>
(4) Regulatory Capital Requirements
At December 31, 1997, the Association met each of the three current
minimum regulatory capital requirements. The following table summarizes
the Association's regulatory capital position at December 31, 1997:
<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> <C>
Association's Net Worth $8,676
Less: AFS Market 55
Valuation
Tangible Capital 8,621 13.34% $ 970 1.50% n/a n/a
(to tangible assets)
Core Capital 8,621 13.34% 1,939 3.00% $3,232 5.00%
(to adjusted tangible assets)
Core Capital 8,621 40.51% n/a n/a 1,277 6.00%
(to risk-weighted assets)
Plus: Allowable portion of 213
general allowance for
loan losses
Risk-based Capital $8,834 41.51% $1,702 8.00% $2,128 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 December 31, 1997, the Company purchased
26,707 shares of its outstanding common stock. Subsequently, the Company
purchased 18,982 shares in January 1998. 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 four months ended January 31, 1998:
Settlement Date Shares Purchased Price per share
--------------- ---------------- ---------------
November 28, 1997 24,707 $12.1250
December 4, 1997 2,000 $12.1250
January 6, 1998 6,500 $13.0000
January 12, 1998 12,482 $13.3125
Average Price per share: $12.5739
(Continued)
10
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
(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 is not expected to
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)
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 $4,978,000, or 8.01%, from $62,169,000
at June 30, 1997 to $67,147,000 at December 31, 1997. The increase in the
Company's assets largely reflected an increase in the level of Federal Home Loan
Bank (FHLB) advances during the six months ended December 31, 1997. These
advances were used to fund increased loan production and purchases of
mortgage-backed securities.
Cash and cash equivalents increased by $981,000, or 128.40%, from $764,000 at
June 30, 1997 to $1,745,000 at December 31, 1997. The increase in cash was
primarily due to the maturities of investments securities in December 1997. The
Company's strategy is to minimize its level of cash and cash equivalents in
order to enhance overall yield. As such, the higher level of cash at December
31, 1997 reflected a transition between when cash is obtained from investment
security maturities and loan and mortgage-backed securities repayments and when
it is reinvested.
(Continued)
12
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
The Company's loans receivable, net, increased $2,607,000, or 12.55% during the
six months ended December 31, 1997. The increase in loans was a result of
increased loan demand in the Company's market and primarily includes 1-4 family
residential mortgage loans and home equity loans. In addition, the Company
funded a $336,000 apartment complex purchase and a $400,000 commercial operating
loan to a local casino during the six months ended December 31, 1997. The
continued increase in the Company's loan portfolio will increase the Company's
credit risk exposure.
The Company's investment securities, including mortgage-backed and related
securities, designated as held to maturity decreased $3,273,000, or 13.49% from
June 30, 1997 to December 31, 1997. The decrease in investment securities,
including mortgage-backed and related securities designated held to maturity was
due to the Company's investment objective of designating select new investment
security purchases, including purchases of mortgage-backed and related
securities as available for sale. No securities designated held to maturity were
purchased or sold during the six months ended December 31, 1997. In addition,
commencing January 1, 1998, the Company has designated all investment
securities, including mortgage-backed and related securities as available for
sale. The purpose of this designation is to enhance the overall liquidity of the
Company's investment portfolio. The designation is not expected to have a
significant effect on stockholders' equity.
The Company's investment securities, including mortgage-backed securities
designated available for sale increased $3,870,000, or 25.58% during the six
months ended December 31, 1997. The increase primarily included the purchase of
7-year balloon mortgage-backed securities and 5-year callable government agency
securities. Purchases of mortgage-backed securities and investment securities
designated available for sale totaled approximately $5,515,000 and $910,000,
respectively, during this six month period. In addition, the carrying value of
the Company's investment securities, including mortgage-backed securities
designated available for sale reflected a $97,000 pre-tax increase due to market
value appreciation.
The Company's premises and equipment increased $187,000, or 88.21% from $212,000
at June 30, 1997, to $399,000 at December 31, 1997. The increase is primarily a
result of the purchase of a site for possible future office expansion and
capitalized equipment owing to the Association's recent computer conversion.
The Company's other assets increased by $497,000, or 753.03% from $66,000 at
June 30, 1997 to $563,000 at December 31, 1997. 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 December 31, 1997,
the limited partnership reported a net capital appreciation of $47,000 not
reflected in these financial statements as of December 31, 1997.
(Continued)
13
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
The Company's deposits, including accrued interest payable, increased by
$886,000, or 1.92%, from $46,093,000 at June 30, 1997 to $46,979,000 at December
31, 1997. At December 31, 1997, the Company's FHLB advances, including accrued
interest payable, totaled $8,016,000, an increase of $4,516,000, or 129.03% from
$3,500,000 at June 30, 1997. The advances were utilized to fund increased loan
production and mortgage-backed securities purchases during this six month
period. The Company may continue to increase its use of FHLB advances pending
the interest rate and other terms of future advance offerings. FHLB advances
provide an alternative source of funds for the Company.
Results of Operations
Net Earnings
Net earnings were $79,000 for the three months ended December 31, 1997, as
compared to $36,000 for the three months ended December 31, 1996. This
represented an increase of $43,000, or 119.44%. The increase in net earnings was
primarily attributable to decreased professional fees which totaled $28,000 and
$128,000 for the three months ended December 31, 1997 and 1996, respectively.
The higher level of professional fees for the three months ended December 31,
1996 was a result of an unsuccessful acquisition of a bank holding company. In
addition, net earnings were affected by a $21,000, or 161.54% increase in
noninterest income. The increase in net earnings was partially offset by a
$35,000 increase in compensation and employee benefits, an $18,000 increase in
other expenses, and a $25,000 increase in tax expense.
For the six months ended December 31, 1997, net earnings were $205,000, an
increase of $207,000, from a net loss of $2,000 for the six months ended
December 31, 1996. 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
the President Clinton on September 30, 1996, and the aforementioned higher
professional fees as a result of the aforementioned unsuccessful acquisition. In
addition, net earnings for the six months ended December 31, 1997 were also
impacted by a $51,000 increase in net interest income, a $24,000 decrease in
federal deposit insurance premiums and a $19,000 increase in noninterest income.
The increase was partially offset by a $57,000 increase in compensation and
employee benefits and a $19,000 increase in other expenses.
(Continued)
14
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Net Interest Income
Net interest income decreased by $1,000, or 0.25%, from $407,000 for the three
months ended December 31, 1996 to $406,000 for the three months ended December
31, 1997. The lack of change in net interest income was due primarily to a
decrease in the ratio of average interest-earning assets to interest-bearing
liabilities in comparison of the two three months as well as decrease in the
Company's net interest spread.
For the three months ended December 31, 1997, the ratio of average
interest-earnings assets to interest-bearing liabilities was 121.88% as compared
to 135.38% for the three months ended December 31, 1996. The decrease in earning
assets is a result of the use of funds to repurchase the Company's outstanding
stock and to fund the investment in the aforementioned increases in other assets
and premises and equipment. The Company's net interest spread declined from
1.78% for the three months ended December 31, 1996 to 1.52% for the three months
ended December 31, 1997. The decline in the net interest spread is primarily due
to higher costs of the sources utilized to fund the Company's growth in 1997.
For the six months ended December 31, 1997, net interest income increased
$51,000, or 6.30%, from $810,000 for the six months ended December 31, 1996 to
$861,000 for the six months ended December 31, 1997. Although both the Company's
ratio of average interest-earning assets to interest-bearing liabilities and its
net interest spread declined in comparison of the six month periods, the growth
of the Company through use of advances and public deposits (i.e. municipal or
other governmental deposits) generated an increase in net interest income to
offset this decline. The Company plans to continue to utilize these funding
sources which may result in a modest decrease in its net interest spread.
For the six months ended December 31, 1997, the ratio of average
interest-earnings assets to interest-bearing liabilities was 123.39% as compared
to 135.27% for the six months ended December 31, 1996. As discussed previously,
the decrease in earning assets is a result of the use of funds to repurchase the
Company's outstanding stock and to fund increases in other assets and premises
and equipment. The Company's net interest spread declined from 1.76% for the six
months ended December 31, 1996 to 1.65% for the six months ended December 31,
1997, as a result of utilization of higher costing sources to fund the Company's
growth in 1997.
(Continued)
15
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Interest Income
Interest income was $1,158,000 for the three months ended December 31, 1997, as
compared to $909,000 for the three months ended December 31, 1996, representing
an increase of $249,000, or 27.39%. The increase in interest income was
primarily due to the Company's growth in 1997. Average interest-earning assets
increased by $12,327,000, or 23.94% from $51,481,000 to $63,808,000 for the
three months ended December 31, 1996 and 1997, respectively. The increase in
interest income was also affected by an increase in the overall yield on
interest-earning assets. For the three months ended December 31, 1997, the yield
on interest-earning assets was 7.26%, as compared to 7.06% for the three months
ended December 31, 1996. The increase in yield on interest-earning assets was
due primarily to a change in the composition of the Company's interest-earning
assets, particularly the larger loan portfolio in the three months ended
December 31, 1997.
Interest income was $2,313,000 for the six months ended December 31, 1997, as
compared to $1,819,000 for the six months ended December 31, 1996, representing
an increase of $494,000, or 27.16%. As discussed previously, the increase in
interest income was primarily due to the Company's growth. Average
interest-earning assets increased by $11,843,000, or 23.04%, from $51,395,000 to
$63,238,000 for the six months ended December 31, 1996 and 1997, respectively.
The increase in interest income was also affected by an increase in the overall
yield on interest-earning assets. For the six months ended December 31, 1997,
the yield on interest-earning assets was 7.31%, as compared to 7.08% for the six
months ended December 31, 1996.
Interest on loans receivable increased by $109,000, or 28.76%, to $488,000 for
the three months ended December 31, 1997, as compared to $379,000 for the three
months ended December 31, 1996. Such increase was due to a $5,021,000, or 28.03%
increase in the average balance of loans receivable from $17,912,000 for the
three months ended December 31, 1996 to $22,933,000 for the three months ended
December 31, 1997. The increase in interest on loans receivable was also
affected by an increase in the average yield on loans receivable from 8.45% for
the three months ended December 31, 1996, to 8.51% for the three months ended
December 31, 1997.
Interest on loans receivable increased by $213,000, or 28.74%, to $954,000 for
the six months ended December 31, 1997, as compared to $741,000 for the six
months ended December 31, 1996. This increase was due to a $4,878,000, or 28.12%
increase in the average balance of loans receivable from $17,346,000 for the six
months ended December 31, 1996 to $22,224,000 for the six months ended December
31, 1997. The increase in interest on loans receivable was also affected by a
slight increase in the average yield on loans receivable from 8.54% for the six
months ended December 31, 1996, to 8.58% for the six months ended December 31,
1997.
(Continued)
16
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Since January 1997, management has designated all purchases of mortgage-backed
and related securities as available for sale. As a result of this strategy,
interest income on mortgage-backed and related securities held to maturity
declined $44,000, or 16.54% from $266,000 for the three months ended December
31, 1996 to $222,000 for the three months ended December 31, 1997. The decrease
in interest income on mortgage-backed and related securities held to maturity
was a result of a $2,476,000 decrease, or 16.32% in the average balance of
mortgage-backed and related securities held to maturity in comparison of the
three months ended December 31, 1997 and 1996, respectively. This decrease was
also affected by a slight decrease in the yield on the mortgage-backed and
related securities held to maturity from 7.01% for the three months ended
December 31, 1996, to 6.98% for the three months ended December 31, 1997.
Interest income on mortgage-backed and related securities available for sale was
$170,000 and $0 for the quarters ended December 31, 1997 and 1996, respectively.
The yield on the Company's mortgage-backed securities portfolio available for
sale was 6.38% for the three months ended December 31, 1997.
As a result of the aforementioned portfolio designation strategy, interest
income on mortgage-backed and related securities held to maturity declined
$86,000, or 15.96% from $539,000 for the six months ended December 31, 1996 to
$453,000 for the six months ended December 31, 1997. The decrease in interest
income on mortgage-backed and related securities held to maturity was a result
of a $2,290,000 decrease, or 14.84% in the average balance of mortgage-backed
and related securities held to maturity in comparison of the six months ended
December 31, 1997 and 1996, respectively. This decrease was also affected by a
decrease in the yield on mortgage-backed and related securities held to maturity
from 6.98% for the six months ended December 31, 1996, to 6.90% for the six
months ended December 31, 1997.
Interest income on mortgage-backed and related securities available for sale was
$335,000 and $0 for the six months ended December 31, 1997 and 1996,
respectively. The yield on the Company's mortgage-backed securities portfolio
available for sale was 6.66% for this period.
As with the Company's mortgage-backed and related securities purchases,
management has designated all purchases of investment securities as available
for sale since January 1997. As a result of this strategy, interest income on
investment securities held to maturity, declined $65,000, or 30.95% from
$210,000 for the three months ended December 31, 1996 to $145,000 for the three
months ended December 31, 1997. The decrease in interest income on investment
securities designated held to maturity is a result of a $3,322,000 decrease, or
24.83% in the average balance of investment securities held to maturity in
comparison of the three months ended December 31, 1997 and 1996, respectively.
This decrease was also affected by a decrease in the yield on the investment
securities held to maturity from 6.27% for the three months ended December 31,
1996, to 5.77% for the three months ended December 31, 1997.
(Continued)
17
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Interest income on investment securities available for sale was $112,000 and $0
for the three months ended December 31, 1997 and 1996, respectively. The yield
on the Company's investment securities portfolio designated available for sale
was 7.02% for the three months ended December 31, 1997.
As a result of the aforementioned portfolio designation strategy, interest
income on investment securities held to maturity, declined $141,000, or 32.34%
from $436,000 for the six months ended December 31, 1996 to $295,000 for the six
months ended December 31, 1997. The net decrease in interest income on
investment securities designated held to maturity is a result of a $4,197,000
decrease, or 29.14% in the average balance of investment securities held to
maturity in comparison of the six months ended December 31, 1997 and 1996,
respectively. This decrease was also affected by a slight decrease in the yield
on the investment securities held to maturity from 6.03% for the six months
ended December 31, 1996, to 5.74% for the six months ended December 31, 1997.
Interest income on investment securities available for sale was $240,000 and $0
for the six months ended December 31, 1997 and 1996, respectively. The yield on
the Company's investment securities portfolio designated available for sale was
7.22% for the six months ended December 31, 1997.
Interest income on cash and cash equivalents decreased by $33,000, or 60.00% for
the three months ended December 31, 1997 and 1996, respectively. 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 $68,000, or 65.38% for the six months ended December 31, 1997 and
1996, respectively.
Interest Expense
Interest expense increased by $250,000, or 49.80%, from $502,000 for the three
months ended December 31, 1996 to $752,000 for the three months ended December
31, 1997. The increase in interest expense resulted from a $14,327,000, or
37.67% increase in the average balance of interest-bearing liabilities from
$38,028,000 for the three months ended December 31, 1996 to $52,355,000 for the
three months ended December 31, 1997. The increase in interest expense was also
impacted by an increase in the average cost of funds to 5.75% during the three
months ended December 31, 1997, as compared to 5.28% for the three months ended
December 31, 1996.
(Continued)
18
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
The increase in the Company's sources of funds was primarily affected by an
increase in funds attracted from public deposits (i.e. municipal and other
governmental deposits) and the use of FHLB advances. The Company's average
balance of deposits, including accrued interest payable increased by $6,695,000,
or 17.61% for the three months ended December 31, 1996 in comparison to the
three months ended December 31, 1997. Public deposits are typically more
volatile and more costly than traditional retail deposits.
The Company had outstanding FHLB advances, including accrued interest payable of
$8,016,000 and $0 for the three months ended December 31, 1997 and 1996,
respectively. As such, interest expense on FHLB advances totaled $118,000 and
$0, respectively during these periods. The Company utilizes FHLB advances to
fund increases in loan production and purchases of investment securities,
including mortgage-backed and related securities.
Interest expense increased by $443,000, or 43.90%, from $1,009,000 for the six
months ended December 31, 1996 to $1,452,000 for the six months ended December
31, 1997. The increase in interest expense resulted from a $13,257,000, or
34.89% increase in the average balance of interest-bearing liabilities from
$37,993,000 for the six months ended December 31, 1996 to $51,250,000 for the
six months ended December 31, 1997. The increase in interest expense was also
impacted by an increase in the average cost of funds to 5.66% for the six months
ended December 31, 1997, as compared to 5.31% for the six months ended December
31, 1996.
The increase in the Company's sources of funds in comparison of the six 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
$7,300,000, or 19.21% from the six months ended December 31, 1996 in comparison
to the six months ended December 31, 1997. Interest expense on FHLB advances
totaled $183,000 and $0, respectively during the six months ended December 31,
1997 and 1996, respectively.
Provision for Loan Losses
The Company's provision for loan losses was $0 and $0 for the three months and
six months ended December 31, 1997 and 1996, respectively. Due to lack of
substantive problem loans (i.e. few nonaccrual loans) during these periods and
stable real estate values in the Company's market area, management believes that
the allowance for loan losses was adequate throughout these periods. The
allowance for loan losses was maintained at $213,000 at December 31, 1997 and
1996. The Company's net loan charge-offs were $0 and $0 for the three months
ended December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996,
the allowance for loan losses represented 0.90% and 1.16%, respectively, of
loans receivable. Nonaccrual loans totaled $0 and $57,000 at December 31, 1997
and 1996, respectively.
(Continued)
19
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Noninterest Income
Noninterest income increased $21,000, or 161.54% from $13,000 to $34,000 for the
three months ended December 31, 1996 and 1997, respectively. The increase is due
to a $20,000, one-time prepayment penalty on a commercial loan and an $8,000
gain recognized on the sale of a mortgage-backed security.
For the six months ended December 31, 1997, noninterest income increased
$19,000, or 67.86% to $47,000 from $28,000 for the six months ended December 31,
1996. The increase is due to the aforementioned prepayment penalty and gain on
the sale of a mortgage-backed security.
Noninterest Expense
Noninterest expense decreased by $49,000, or 13.35%, from $367,000 for the three
months ended December 31, 1996 to $318,000 for the three months ended December
31, 1997. The decrease in noninterest expense was primarily due to lower
professional fees for the three months ended December 31, 1997. As previously
discussed, the Company incurred higher professional fees in the three months
ended December 31, 1996 as a result of an unsuccessful acquisition attempt. This
decrease was also impacted by a $10,000, or 55.56% decrease in federal deposit
insurance premiums. The decrease in noninterest expense was partially offset by
a $35,000 increase in compensation and employee benefits, and an $18,000, or
81.82% increase in other expenses. The increase in compensation and employee
benefits was primarily due to increased staff and higher compensation of
existing employees. The increase in other expenses was primarily due to expenses
associated with the Company's investment in a limited partnership.
In addition, as a result of the Company's recent 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 (i.e. less than $1,000 per quarter). Data processing
expense totaled $8,000 for the three months ended December 31, 1997.
(Continued)
20
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Noninterest expense decreased by $276,000, or 32.02%, from $862,000 for the six
months ended December 31, 1996 to $586,000 for the six months ended December 31,
1997. The decrease in total noninterest expense was primarily due to the
aforementioned $237,000, special one time special deposit insurance fund
assessment during the six months ended December 31, 1996 and lower professional
fees for the six months ended December 31, 1997. As previously discussed, the
Company incurred higher professional fees in the six months ended December 31,
1996 as a result of an unsuccessful acquisition attempt. This decrease was also
impacted by a $24,000, or 61.54% decrease in federal deposit insurance premiums.
The decrease in noninterest expense was partially offset by a $57,000, or 16.15%
increase in compensation and employee benefits, and a $19,000, or 42.22%
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. The increase in other expenses is
primarily due to expenses associated with the Company's investment in a limited
partnership. For the six months ended December 31, 1997, data processing
expenses totaled $13,000.
Income Taxes
The Company's income tax expense increased by $25,000, or 147.06% from $17,000
for the three months ended December 31, 1996, to $42,000 for the three months
ended December 31, 1997. The change in income taxes was due primarily to an
increase in pre-tax earnings of $68,000, from $53,000 for the three months ended
December 31, 1996 to $121,000 for the three months ended December 31, 1997.
The Company's income tax expense increased by $140,000, from a tax benefit of
$23,000 for the six months ended December 31, 1996, to a tax expense of $117,000
for the six months ended December 31, 1997. The change in income taxes was due
primarily to an increase in pre-tax earnings of $347,000, from a pre-tax loss of
$25,000 for the six months ended December 31, 1996 to pre-tax earnings of
$322,000 for the six months ended December 31, 1997.
(Continued)
21
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
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 portfolios; 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.
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 six months ended December 31, 1997 and 1996, the Company's loan portfolio,
net, increased $2,593,000 and $1,656,000, respectively. During the same periods,
the Company purchased investment securities and mortgage-backed and related
securities in the amounts of $6,425,000, and $0, 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 quarters ended December 31, 1997 and 1996,
the Association utilized advances of $7,216,000 and $0, respectively. In
addition, commencing in January 1998, the Company's designation of all
investments as available for sale is intended to increase liquidity and overall
operational flexibility.
(Continued)
22
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
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
December 31, 1997 and June 30, 1997, cash and cash equivalents totaled
$1,745,000 and $764,000, respectively. Investment securities, including
mortgage-backed and related securities designated available for sale total
$19,001,000 and $0 at December 31, 1997 and 1996, respectively.
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 3.0% 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.
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit solicitation activities. Like many savings institutions,
the Association uses shorter term deposits to fund longer term loans and
investments. As such, future earnings of the Association may be affected by
increases or decreases in interest rates including non-parallel shifts in the
yield curve. To this extent, the Company regularly reviews its sensitivity to
changes in interest rates through various monitoring methods.
The following table shows the Company's financial instruments that are sensitive
to changes in interest rates, categorized by expected maturity. Market risk
sensitive instruments are generally defined as on- and off-balance sheet
derivatives and other financial instruments.
(Continued)
23
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
Scheduled Maturity (1)
December 31,
(Dollars in thousands)
<TABLE>
<CAPTION>
Average
Interest 2002 and
Rate 1998 1999 2000 2001 Beyond Total
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Sensitive Assets (2):
Loans receivable:
1-4 family mortgage 8.39% $ 839 $ 732 $ 1,165 $ 2,794 $14,593 $20,123
Commercial real estate 7.91% 198 7 0 0 1,673 1,878
Commercial non-mortgage 10.09% 0 425 0 0 789 1,214
Consumer 8.20% 0 0 0 0 390 390
Mortgage-backed Securities: 6.84% 993 960 2,025 1,319 19,348 24,645
Investment Securities 6.33% 6,525 2,055 60 60 6,610 15,310
FHLB Stock 7.00% 415 0 0 0 0 415
Interest Sensitive Liabilities:
Deposits:
Money Market Accounts 3.76% $ 5,635 $ 0 $ 0 $ 0 $ 0 $ 5,635
Passbook Accounts 2.65% 900 0 0 0 0 900
Certificate Accounts 5.90% 28,258 8,652 1,638 473 986 40,007
FHLB Advances 5.96% 7,000 0 1,000 0 0 8,000
Interest-Sensitive
Off-balance Sheet Items:
Commitments to extend
credit 7.64% $ 0 $ 0 $ 0 $ 5 $ 979 $ 984
</TABLE>
(1) Expected maturities are contractual maturities. Loans and mortgage-backed
and related securities are not adjusted for scheduled loan repayments or
prepayments.
(2) Deferred premiums, discounts, loan fees and loans in process are not
included in the reported balances of loans, mortgage-backed and related
securities and investment securities.
Recent Developments
1. Completion of Stock Repurchase Program
On November 18, 1997, the Company announced it had received the necessary
regulatory approval to repurchase 5% of its outstanding shares, or 45,689
shares. This repurchase represented the second 5% repurchase program
announced in fiscal 1998. The Company has completed the second 5%
repurchase program and no other repurchase programs are currently
outstanding.
(Continued)
24
<PAGE>
REDWOOD FINANCIAL, INC. AND SUBSIDIARY
2. Year 2000
The Company has completed its analysis of its exposure to potential
operating problems associated with the inability of various computerized
systems to adequately read and interpret data fields for years ending
after 1999. The Company believes its exposure is limited to the automated
data processing system to which the Company recently converted. This
system covers loans, deposits and general ledger applications. In its due
diligence prior to conversion, the Company sought and obtained a
commitment from the vendor that the data processing system will be
reprogrammed by Fall 1998 to correct this deficiency at no additional
expense to the Company. The Company believes that its data processing
vendor will accomplish this reprogramming effort by this time. In
addition, due to the residential mortgage lending emphasis, the Company
does not believe that its exposure to default by borrowers as a result of
this problem is significant. As such, the Company expects no significant
financial effect from the Year 2000 problem at this time.
(Continued)
25
<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.
On October 30, 1997, the Annual Meeting of the shareholders of
the Company was held to obtain the approval of the
shareholders of record as of October 6, 1997 in connection
with the matters indicated below. The following is a brief
description of the matters voted on at the meeting, and the
number of votes cast for, against, or withheld, as well as the
number of abstentions, as to such matters:
<TABLE>
<CAPTION>
Vote
-------------------------------------
Against or
Matter For withheld Abstain
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Election of directors:
Paul W. Pryor 756,080 10,300 N/A
Blaine C. Farnberg 757,080 9,300 N/A
2. Appointment of KPMG Peat Marwick 757,080 8,300 1,000
LLP as auditors for 1998 fiscal year
</TABLE>
ITEM 5: Other Information.
None.
ITEM 6: Exhibits and Reports on Form 8-K.
None
26
<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: January 30, 1997 /s/ Paul W. Pryor
---------------- -----------------
Paul W. Pryor, President and Chief Executive
Officer (Duly Authorized Officer)
Date: January 30, 1997 /s/ Anthony H. Acker
---------------- --------------------
Anthony H. Acker, Chief Financial Officer
(Principal Accounting Officer)
27
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 14,505
<INT-BEARING-DEPOSITS> 1,730,913
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,001,123
<INVESTMENTS-CARRYING> 20,996,006
<INVESTMENTS-MARKET> 21,777,617
<LOANS> 23,374,423
<ALLOWANCE> 213,034
<TOTAL-ASSETS> 67,147,038
<DEPOSITS> 46,979,232
<SHORT-TERM> 7,016,083
<LIABILITIES-OTHER> 350,318
<LONG-TERM> 1,000,000
0
0
<COMMON> 112,500
<OTHER-SE> 11,688,905
<TOTAL-LIABILITIES-AND-EQUITY> 11,801,405
<INTEREST-LOAN> 953,735
<INTEREST-INVEST> 1,323,248
<INTEREST-OTHER> 35,524
<INTEREST-TOTAL> 2,312,507
<INTEREST-DEPOSIT> 1,268,372
<INTEREST-EXPENSE> 1,451,606
<INTEREST-INCOME-NET> 860,901
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 7,871
<EXPENSE-OTHER> 586,045
<INCOME-PRETAX> 321,844
<INCOME-PRE-EXTRAORDINARY> 321,844
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 205,043
<EPS-PRIMARY> .24<F1>
<EPS-DILUTED> .23
<YIELD-ACTUAL> 2.72
<LOANS-NON> 0
<LOANS-PAST> 501,590
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 501,590
<ALLOWANCE-OPEN> 213,034
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 213,034
<ALLOWANCE-DOMESTIC> 213,034
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 213,034
<FN>
<F1> BASIC EARNINGS PER SHARE
</FN>
</TABLE>
