<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission File Number 0-26574
DAMEN FINANCIAL CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-4029638
-------- ----------
(State or other jurisdiction I.R.S. Employer
of incorporation or Identification
organization) Number
200 WEST HIGGINS ROAD, SCHAUMBURG, ILLINOIS 60195
- -------------------------------------------- ----------
(Address of Principal executive offices) (Zip Code)
Registrant telephone number, including area code: (847) 882-5320
--------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
As of August 8, 1997 there were 3,226,720 shares of the Registrant's common
stock issued and outstanding.
Transitional Small Business Disclosure Format(check one): Yes No X
--- ---
<PAGE> 2
DAMEN FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
June 30, 1997 (Unaudited) and September 30, 1996 4
Consolidated Statements of Earnings for the three
and nine months ended June 30, 1997 and 1996
(unaudited) 5
Consolidated Statements of Cash Flows for the nine
months ended June 30, 1997 and 1996
(unaudited) 6
Notes to Unaudited Consolidated Financial
Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Part II. OTHER INFORMATION 15
Signatures 16
Index to Exhibits 17
Earnings Per Share Analysis (Exhibit 11) 18
Financial Data Schedule (Exhibit 27) 19
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
-3-
<PAGE> 4
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, September 30,
------------ --------------
1997 1996
---- ----
Assets (unaudited)
- ------
<S> <C> <C>
Cash and amounts due from
depository institutions $ 534,001 170,034
Interest-bearing deposits 2,964,459 1,011,197
----------- ----------
Total cash and cash equivalents 3,498,460 1,181,231
Investment securities (fair value: $1,850,700 at
June 30, 1997 and $1,777,000 at September 30, 1996) 1,850,751 1,776,979
Investment securities, available for sale, at fair value 34,124,221 43,342,710
Mortgage-backed securities
(fair value: $30,474,400 at June 30, 1997
and $34,641,300 at September 30, 1996) 30,957,660 35,503,531
Mortgage-backed securities, available for sale,
at fair value 54,131,177 52,594,450
Loans receivable (net of allowance for
loan losses: $377,000 at June 30, 1997 and
$345,000 at September 30,1996) 95,250,969 91,145,893
Stock in Federal Home Loan Bank of Chicago
and Federal Reserve Bank of Chicago 3,698,500 3,110,500
Accrued interest receivable 1,406,155 1,661,087
Office properties and equipment - net 3,498,354 3,502,987
Prepaid expenses and other assets 575,700 736,041
----------- -----------
Total assets 228,991,947 234,555,409
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits 120,325,676 118,973,335
Borrowed money 58,500,000 59,600,000
Advance payments by borrowers for taxes
and insurance 1,717,153 638,768
Other liabilities 1,802,236 2,473,435
----------- -----------
Total liabilities 182,345,065 181,685,538
----------- -----------
Stockholders' Equity
- --------------------
Preferred stock, $.01 par value; authorized
100,000 shares; none outstanding - -
Common stock, $.01 par value; authorized
4,500,000 shares; 3,967,500 shares issued and
3,226,720 shares outstanding at June 30, 1997
and 3,770,117 shares outstanding at September 30, 1996 39,675 39,675
Additional paid-in capital 38,429,423 38,345,966
Retained earnings, substantially restricted 21,774,860 21,131,170
Unrealized gain on securities available for sale,
net of income taxes 882,679 167,679
Treasury stock, at cost (740,780 and 197,383 shares
at June 30, 1997 and September 30, 1996) (10,414,986) (2,311,375)
Common stock acquired by Employee Stock Ownership Plan (2,603,700) (2,762,400)
Common stock awarded by Recognition and Retention Plan (1,461,069) (1,740,844)
----------- -----------
Total stockholders' equity 46,646,882 52,869,871
----------- -----------
Total liabilities and stockholders' equity $ 228,991,947 234,555,409
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 1,929,330 1,806,199 5,664,971 5,372,418
Mortgage-backed securities 1,505,616 1,544,360 4,580,693 4,505,975
Tax-exempt securities 322,718 399,232 1,075,212 1,119,223
Interest and dividends on
other investments 264,356 379,720 902,477 1,190,142
Dividends on FHLB and FRB stock 61,210 44,016 170,856 132,477
--------- --------- ---------- ----------
Total interest income 4,083,230 4,173,527 12,394,209 12,320,235
--------- --------- ---------- ----------
Interest expense:
Deposits 1,526,802 1,612,739 4,560,965 4,862,113
Borrowings 934,425 794,333 2,744,165 2,355,807
--------- --------- ---------- ----------
Total interest expense 2,461,227 2,407,072 7,305,130 7,217,920
--------- --------- ---------- ----------
Net interest income before
provision for loan losses 1,622,003 1,766,455 5,089,079 5,102,315
Provision for loan losses 30,000 15,000 36,618 52,000
--------- --------- ---------- ----------
Net interest income after
provision for loan losses 1,592,003 1,751,455 5,052,461 5,050,315
--------- --------- ---------- ----------
Non-interest income:
Loan fees and service charges 5,947 33,092 36,327 85,809
Gain (loss) on sale of:
Mortgage-backed securities,
available for sale - - (17,365) 7,829
Investment securities,
available for sale - 59,823 157,083 59,823
Other income 17,597 17,102 54,435 56,115
--------- --------- ---------- ----------
Total non-interest income 23,544 110,017 230,480 209,576
--------- --------- ---------- ----------
Non-interest expense:
Compensation, employee benefits, and
related expenses 659,260 503,138 2,023,332 1,566,469
Advertising and promotion 175,134 130,645 394,993 343,566
Occupancy and equipment expense 206,325 167,779 601,996 493,437
Data processing 28,683 23,590 91,399 73,922
Insurance expense 17,313 18,936 51,939 52,968
Federal insurance premiums 19,382 71,907 95,824 222,352
Legal, audit, and examination services 64,599 95,480 216,636 209,780
Other operating expenses 88,801 95,652 268,138 263,999
--------- --------- ---------- ----------
Total non-interest expense 1,259,497 1,107,127 3,744,257 3,226,493
--------- --------- ---------- ----------
Net income before income taxes 356,050 754,345 1,538,684 2,033,398
Provision for federal and state
income taxes 64,546 129,400 296,547 346,000
--------- --------- ---------- ----------
Net income $ 291,504 624,945 1,242,137 1,687,398
========= ========= ========== ==========
Earnings per share - primary $ .10 .17 .37 .46
--- --- --- ---
Earnings per share - fully diluted .10 .17 .37 .46
--- --- --- ---
Dividends declared per common share $ .06 .06 .18 .06
--- --- --- ---
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,242,137 1,687,398
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 149,516 130,966
Amortization of cost of stock benefit plans 521,932 447,373
Provision for loan losses 36,618 52,000
Decrease in deferred loan income (233,591) (63,991)
(Increase) decrease in prepaid and deferred federal
and state income taxes (107,018) 218,091
(Gain) loss on sale of mortgage-backed
securities, available for sale 17,365 (7,829)
Gain on sale of investment securities, available for sale (157,083) (59,823)
(Increase) decrease in accrued interest receivable 254,932 (225,160)
Decrease in accrued interest payable (19,000) (302,000)
(Increase) decrease in other assets 33,066 (175,634)
Decrease in other liabilities (698,800) (344,823)
----------- ----------
Net cash provided by operating activities 1,040,074 1,356,568
----------- ----------
Cash flows from investing activities:
Purchase of investment securities,
available for sale (3,826,592) (18,553,246)
Purchase of investment securities (172,481) (220,785)
Purchase of mortgage-backed securities, available for sale (8,173,518) (19,643,260)
Purchase of mortgage-backed securities - (229,361)
Proceeds from sales of investment securities, available for sale 9,472,341 363,500
Proceeds from sales of mortgage-backed securities,
available for sale 1,816,256 726,777
Proceeds from maturities of investment
securities, available for sale 4,194,823 4,526,813
Proceeds from maturities of investment securities 98,709 67,393
Proceeds from maturities of mortgage-backed
securities, available for sale 5,550,749 6,799,685
Proceeds from maturities of mortgage-backed securities 4,545,871 5,610,124
Proceeds from redemption of Federal Home Loan Bank stock 55,500 130,000
Purchase of Federal Home Loan Bank and Federal Reserve Bank stock (643,500) (260,000)
Disbursements for loans originated and purchased (17,222,091) (15,327,348)
Loan repayments 13,313,988 12,107,480
Property and equipment expenditures (144,883) (332,689)
----------- -----------
Net cash provided by (for) investing activities 8,865,172 (24,234,917)
----------- -----------
Cash flows from financing activities:
Deposit receipts 57,039,136 51,611,394
Deposit withdrawals (59,012,786) (56,734,996)
Interest credited to deposit accounts 3,325,991 4,009,535
Proceeds from borrowed money 139,700,000 114,200,000
Repayment of borrowed money (140,800,000) (105,700,000)
Increase (decrease) in advance payments by borrowers
for taxes and insurance 1,078,385 (1,131,666)
Purchase of RRP stock - (1,865,187)
Purchase of treasury stock (8,103,611) -
Dividends paid on common stock (815,132) -
----------- -----------
Net cash provided by (for) financing activities (7,588,017) 4,389,080
----------- -----------
Increase (decrease) in cash and cash equivalents 2,317,229 (18,489,269)
Cash and cash equivalents at beginning of period 1,181,231 20,363,159
----------- -----------
Cash and cash equivalents at end of period $ 3,498,460 1,873,890
=========== ===========
Cash paid during the period for:
Interest $ 7,324,130 7,519,920
Income taxes 350,142 210,229
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 7
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and Article 10 of Regulation
S-X, and in the opinion of management contains all adjustments (all of which are
normal and recurring in nature) necessary to present fairly the financial
position as of June 30, 1997, the results of operations for the three and nine
months ended June 30, 1997 and 1996 and cash flows for the nine months ended
June 30, 1997 and 1996. These results have been determined on the basis of
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The attached consolidated statements are those of Damen Financial
Corporation (the "Holding Company") and its consolidated subsidiaries Damen
National Bank (the"Bank") and Dasch Inc. The results of operations for the
three and nine month periods ended June 30, 1997 are not necessarily indicative
of the results to be expected for the full year.
2. Mutual to Stock Conversion
In April 1995, the Bank's Board of Directors approved a Plan of Conversion
(the "Conversion"), providing for the Bank's conversion from a federally
chartered mutual bank for savings to a federally chartered stock bank for
savings with the concurrent formation of a holding company. The Holding Company
issued 3,967,500 shares of $.01 par value common stock at $10.00 per share, for
an aggregate purchase price of $39,675,000. The Conversion and sale of
3,967,500 shares of common stock of the Holding Company was completed on
September 29, 1995. Net proceeds to the Company, after conversion expenses,
totaled approximately $38,320,000.
3. Modified Dutch Auction Tender Offer
Damen Financial Corporation purchased 523,397 common shares at a total cost
of approximately $7,818,000 in a Modified Dutch Auction Tender Offer which was
effective on March 31, 1997, and settled on April 3, 1997. The number of shares
purchased by the Company represented approximately 13.9% of the shares
outstanding prior to the transaction.
4. Earnings Per Share
Earnings per share for the three and nine month periods ended June 30, 1997
and 1996 were determined by dividing net income for the periods by the weighted
average number of both primary and fully diluted shares of common stock and
common stock equivalents outstanding (see Exhibit 11 attached). Stock options
are regarded as common stock equivalents and are therefore considered in both
primary and fully diluted earnings per share calculations. Common stock
equivalents are computed using the treasury stock method. ESOP shares not
committed to be released to participants are not considered outstanding for
purposes of computing earnings per share amounts.
5. Charter Conversion
Damen Federal Bank for Savings received approval from the Office of the
Comptroller of the Currency to convert its charter from a federal savings bank
to a national bank. Effective February 27, 1997, the Bank converted to a
national bank and changed its name to Damen National Bank.
-7-
<PAGE> 8
6. Impact of New Accounting Standards
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS. Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of," is effective for
fiscal years beginning after December 15, 1995. The statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss is recognized if the sum of the expected future cash flows is
less than the carrying amount of the asset. The Company has adopted SFAS 121
effective October 1, 1996, resulting in no material impact on its consolidated
financial condition or results of operations.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. In May 1995, the FASB issued
Statement of Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting
for Mortgage Servicing Rights." This statement amends Statement of Financial
Accounting Standards No. 65 ("SFAS 65"), "Accounting for Certain Mortgage
Banking Activities," to require that a mortgage banking enterprise recognize as
separate assets rights to service mortgage loans for others, however those
services rights are acquired. SFAS 122 requires that a mortgage banking
enterprise assess its capitalized mortgage servicing rights for impairment based
on the fair value of those rights. SFAS 122 is effective for fiscal years
beginning after December 15, 1995. The Company has adopted SFAS 122 effective
October 1, 1996, resulting in no material impact on its consolidated financial
condition or results of operations.
ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, the FASB issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation." This statement establishes a value-based method
of accounting for stock options which encourages employers to account for stock
compensation awards based on their fair value at the date the awards are
granted. The resulting compensation award would be shown as an expense on the
income statement.
SFAS 123 also permits entities to continue to use the intrinsic value
method, allowing them to continue to apply current accounting requirements,
which generally result in no compensation cost for most fixed stock-option
plans. If the intrinsic value method is retained, SFAS 123 requires
significantly expanded disclosures, including disclosure of the pro forma amount
of net income and earnings per share as if the fair value-based method were used
to account for stock based compensation. SFAS 123 is effective for fiscal years
beginning after December 15, 1995, however, employers will be required to
include in that year's financial statements, information about options granted
in 1995. The Company has determined that it will apply the APB Opinion No. 25
method in preparing its consolidated financial statements.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the FASB issued SFAS No. 125
("SFAS 125"), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement, among other things, applies a
"financial-components approach" that focuses on control, whereby an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996. The Company has adopted SFAS 125 effective January 1, 1997,
resulting in no material impact on its consolidated financial condition or
results of operations.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In December 1996, the FASB issued Statement of
Financial Accounting Standards No. 127 ("SFAS 127"), "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125". The statement delays for
one year the implementation of SFAS 125, as it relates to (1) secured borrowings
and collateral, and (2) for the transfers of financial assets that are part of
repurchase agreements, dollar-rolls, securities lending and similar
transactions. The Company has adopted portions of SFAS 125 (those not deferred
by SFAS 127) effective January 1, 1997. Adoption of these portions did not have
a significant effect on the Company's financial condition or results of
operations. Based on its review of SFAS 125, management does not believe that
adoption of the portions of SFAS 125 which have been deferred by SFAS 127 will
have a material effect on the Company.
-8-
<PAGE> 9
6. Impact of New Accounting Standards (continued)
ACCOUNTING FOR EARNINGS PER SHARE. In February 1997, the FASB issued SFAS
No. 128 ("SFAS 128"), "Earnings Per Share". This statement is intended to
simplify the computation of earnings per share ("EPS") by replacing the
presentation of primary EPS with a presentation of basic EPS. Basic EPS does
not include potential dilution and is computed by dividing income available to
common stockholders by the average number of common shares outstanding.
Diluted EPS reflects the potential dilution of securities that could share
in the earnings of a company, similar to the fully diluted EPS currently used.
The statement requires dual presentation of basic and diluted EPS by companies
with complex capital structures. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, and will require restatement
of all prior-period EPS data presented. The Company does not anticipate that
this statement will have a material impact on its diluted earnings per share.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. In February 1997, the
FASB issued Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS No. 129"). This statement
establishes standards for disclosing information about an entity's capital
structure. It supersedes specific disclosure requirements of APB Opinions No.
10, "Omnibus Opinion-1966," and No. 15, "Earnings Per Share," and SFAS No. 47,
"Disclosure of Long-Term Obligations," and consolidates them in this statement
for ease of retrieval and for greater visibility to nonpublic entities. This
statement is effective for financial statements for periods ending after
December 15, 1997. It contains no changes in disclosure requirements for
entities that were previously subject to the requirements of Opinions No. 10 and
No. 15 and SFAS No. 47, and, therefore, is not expected to have a significant
impact on the consolidated financial condition or results of operations of the
Company.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Company keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.
-9-
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
JUNE 30, 1997 COMPARED TO SEPTEMBER 30, 1996.
Total assets decreased $5.6 million to $229.0 million as of June 30, 1997 from
$234.6 million as of September 30, 1996. Interest-bearing deposits increased
$2.0 million to $3.0 million as of June 30, 1997 as compared to $1.0 million at
September 30, 1996. Investment securities available-for-sale decreased $9.2
million to $34.1 million at June 30, 1997 from $43.3 million at September 30,
1996 due primarily to sales and maturities of $13.7 million exceeding a market
value increase of $465,000 and purchases of $3.8 million. Investment sales
were primarily completed in March, 1997 to provide funding for the Modified
Dutch Auction Tender completed at the end of March, 1997. Mortgage-backed
securities held to maturity decreased $4.5 million to $31.0 million at June 30,
1997 from $35.5 million at September 30, 1996 due primarily to repayments.
Mortgage-backed securities available-for-sale increased $1.5 million to $54.1
million at June 30, 1997 from $52.6 million at September 30, 1996 due primarily
to purchases of $8.2 million and a market value increase of $748,000, exceeding
repayments of $5.6 million, and sales of $1.8 million. Loans receivable
increased $4.1 million to $95.2 million at June 30, 1997 from $91.1 million at
September 30, 1996 due primarily to new loan originations of $17.0 million and
loan purchases of 218,000 exceeding repayments of $13.3 million. Loan
originations consisted primarily of mortgage loans and home equity line of
credit loans, and increased due to promotions and favorable interest rates.
Total deposits increased $1.3 million to $120.3 million at June 30, 1997 from
$119.0 million at September 30, 1996. The increase was primarily due to
interest credited. FHLB advances decreased $1.1 million to $58.5 million at
June 30, 1997 from $59.6 million at September 30, 1996. The reduced advances
were the result of cash flows from increased savings deposits.
Stockholders' equity decreased $6.2 million to $46.7 million at June 30, 1997
from $52.9 million at September 30, 1996 due primarily to the repurchase of
543,397 shares of the Company's stock at a cost of $8.1 million and the payment
of cash dividends totaling approximately $647,000, which were partially offset
by net income of $1.2 million for the nine months ended June 30, 1997 and an
increase in net unrealized gains of $715,000. At June 30, 1997, there were
3,226,720 shares of common stock outstanding.
RESULTS OF OPERATIONS
The Company's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
its interest-earning assets such as loans and investments, and the costs of the
Company's interest-bearing liabilities, primarily deposits and borrowing. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them,
respectively. Results of operations are also dependent upon the level of the
Company's non-interest income, including fee income and service charges, and
affected by the level of its non-interest expenses, including its general and
administrative expenses.
COMPARISON OF OPERATING RESULTS FOR THE
QUARTERS ENDED JUNE 30, 1997 AND 1996.
NET INCOME. The Company's net income for the three months ended June 30, 1997
was $292,000 as compared to $625,000 for the same period in 1996, a decrease of
$333,000. This decrease was due primarily to a decrease in net interest income
of $144,000, a decrease in gains on the sale of investments available-for-sale
of $60,000 and an increase in non-interest expense of $152,000, partially
offset by a decrease in income taxes of $65,000.
INTEREST INCOME. Total interest income for the quarter ended June 30, 1997
decreased $91,000 to $4.1 million from $4.2 million a year ago due to a
decrease in average interest-earning assets of $7.0 million to $220.4 million
from $227.4 million, partially offset by an increase in the yield on average
interest-earning assets to 7.41% from 7.34%.
-10-
<PAGE> 11
INTEREST EXPENSE. The Company's interest expense increased $54,000 for the
quarter ended June 30, 1997 compared to a year ago due to an increase in
average interest-bearing liabilities to $178.4 million at June 30, 1997 from
$174.3 million a year ago, while the average interest rate remained constant at
5.52%. The increase in average interest bearing liabilities resulted from an
increase in the average balance of borrowed money of $10.9 million partially
offset by a decrease in the average balance of savings deposits of $6.8
million.
PROVISION FOR LOAN LOSSES. The determination of the allowance for loan losses
involves material estimates that are susceptible to significant change in the
near term. The allowance for loan losses is maintained at a level deemed
adequate to provide for losses through charges to operating expense. The
allowance is based upon past loss experience and other factors which, in
management's judgement, deserve current recognition in estimating losses. Such
other factors considered by management include growth and composition of the
loan portfolio, the relationship of the allowance for losses to outstanding
loans, and economic conditions.
The Company's provision for loan losses was $30,000 for the quarter ended June
30, 1997 compared to $15,000 for the same quarter in the prior year.
Non-performing loans increased to $654,000 from $451,000 at March 31, 1997.
The Company will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provisions for loan losses in
light of its level of loans and as economic conditions dictate. There can be
no assurance that the Company will not make future provisions in an amount
equal to or greater than the amount provided during recent periods, or that
future losses will not exceed estimated amounts.
NON-INTEREST INCOME. The Company's non-interest income was $24,000 for the
quarter ended June 30, 1997 compared to $110,000 for the same quarter a year
ago. The decrease was due primarily to a decrease of $60,000 in net realized
gains on securities available-for-sale and a decrease in loan fees of $27,000
due to a reduction in loan fees charged and an increase in loan expenses
primarily related to new home equity line of credit loans and commercial loans.
NON-INTEREST EXPENSE. The Company's non-interest expense increased $152,000
for the quarter ended June 30, 1997 to $1.3 million from $1.1 million for the
same quarter of 1996 due primarily to an increase of $156,000 in compensation
and related expenses due to the introduction of the Recognition and Retention
Plan in June, 1996 as well as increases in salaries and other benefits. In
addition, advertising costs increased $44,000, and occupancy and equipment
expense increased $38,000, partially offset by a decrease in Federal insurance
premiums of $53,000 and a decrease in professional fees of $30,000 during the
quarter.
PROVISION FOR INCOME TAXES. Tax expense for the quarter ended June 30, 1997
was $65,000 compared to $129,000 for the same quarter in 1996 due to a decrease
in pre-tax income.
COMPARISON OF OPERATION RESULTS FOR THE
NINE MONTHS ENDED JUNE 30, 1997 AND 1996.
NET INCOME. The Company's net income for the nine months ended June 30,1997
was $1.2 million as compared to $1.7 million for the same period in 1996, or a
decrease of $445,000. An increase in net gains on the sale of investments
available-for-sale of $72,000 and a decrease in income taxes of $50,000 was
more than offset by an increase in non-interest expense of $518,000, and a
decrease in loan fees of $49,000.
INTEREST INCOME. Total interest income for the nine months ended June 30, 1997
increased $74,000 to $12.4 million from $12.3 million a year ago due primarily
to an increase in the yield on average interest-earning assets of .12% to 7.35%
from 7.23%, partially offset by a decrease in average interest-earning assets
of $2.5 million.
-11-
<PAGE> 12
INTEREST EXPENSE. The Company's interest expense increased $87,000 to $7.3
million for the nine months ended June 30, 1997 from $7.2 million a year ago.
The increase was due to an increase in average interest-bearing liabilities of
$5.3 million to $177.4 million at June 30, 1997 from $172.1 million a year ago,
partially offset by a decrease in the average rate to 5.49% from 5.60%. The
decrease in rates was primarily the result of certificates of deposits and
borrowed money being renewed at lower rates. The increase in average
interest-bearing liabilities resulted from an increase in the average balance
of borrowed money of $11.9 million partially offset by a decrease in the
average balance of savings deposits of $6.6 million.
PROVISION FOR LOAN LOSSES. The determination of the allowance for loan losses
involves material estimates that are susceptible to significant change in the
near term. The allowance for loan losses is maintained at a level deemed
adequate to provide for losses through charges to operating expense. The
allowance is based upon past loss experience and other factors which, in
management's judgement, deserve current recognition in estimating losses. Such
other factors considered by management include growth and composition of the
loan portfolio, the relationship of the allowance for losses to outstanding
loans, and economic conditions.
The Company's provision for loan losses was $37,000 for the nine months ended
June 30, 1997 compared to $52,000 for the same period in the prior year. The
prior year's nine month provision was greater due to an increase in mortgage
loan balances and an increase in non-performing loans from $65,000 at September
30, 1995 to $470,000 at June 30, 1996.
The Company will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provisions for loan losses in
light of its level of loans and as economic conditions dictate. There can be
no assurance that the Company will not make future provisions in an amount
equal to or greater than the amount provided during recent periods, or that
future losses will not exceed estimated amounts.
NON-INTEREST INCOME. The Company's non-interest income increased $21,000 for
the nine months ended June 30, 1997 to $230,000 from $209,000 for the same
period one year ago. The increase was due primarily to an increase of $72,000
in net realized gains on the sale of investments available-for-sale which was
partially offset by a decrease of $49,000 in loan fees and service charges.
NON-INTEREST EXPENSE. The Company's non-interest expense increased $518,000
for the nine months ended June 30, 1997 to $3.7 million from $3.2 million for
the same period one year ago due primarily to an increase of $457,000 in
compensation and related expenses, primarily as a result of the introduction of
the Company's Recognition and Retention Plan in June of 1996. In addition,
occupancy and equipment costs increased $109,000 and advertising expenses
increased $51,000. These additional expenses were partially offset by a
reduction of $126,000 in Federal insurance premiums.
PROVISION FOR INCOME TAXES. Tax expense for the nine months ended June 30,
1997 decreased $50,000 to $296,000 compared to $346,000 for the comparable
period in 1996. The decreased expense was due to a decrease in pre-tax income.
-12-
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits and borrowings,
amortization and prepayments of loan principal and mortgage-backed securities,
maturities of investment securities and income from operations. While
scheduled loan repayments and maturing investments are relatively predictable,
deposit flows and early loan repayments are more influenced by interest rates,
floors and caps on loan rates, general economic conditions and competition.
The Company generally manages the pricing of its deposits to be competitive and
to increase core deposit relationships, where practicable.
The Company's most liquid assets are cash and cash equivalents, which consist
of interest bearing deposits and short term highly liquid investments with
original maturities of less than three months that are readily convertible to
known amounts of cash. The level of these assets is dependent on the Company's
operating, financing and investing activities during any given period. At June
30, 1997 and September 30, 1996, cash and cash equivalents totaled $3.5 million
and $1.2 million respectively.
The primary financing activities of the Company are deposits and borrowings.
For the nine months ended June 30, 1997, deposits increased $1.3 million and
the Bank's net (proceeds less repayments) financing activity with the FHLB
decreased $1.1 million.
The Company anticipates that it will have sufficient funds available to meet
current commitments. At June 30, 1997 the Company has outstanding loan
commitments totaling $1,453,000, and unused lines of credit granted totaling
$1,275,000.
The Bank is subject to the capital regulations of the Office of the Comptroller
of the Currency ("OCC"). The OCC's regulations establish two capital standards
for national banks: a leverage requirement and a risk-based capital
requirement. In addition, the OCC may, on a case-by- case basis, establish
individual minimum capital requirements for a national bank that vary from the
requirements which would otherwise apply under OCC regulations. A national
bank that fails to satisfy the capital requirements established under the OCC's
regulations will be subject to such administrative action or sanctions as the
OCC deems appropriate.
The leverage ratio adopted by the OCC requires a minimum ratio of "Tier 1
capital" to adjusted total assets of 3% for national banks rated composite 1
under the CAMEL rating system for banks. National banks not rated composite 1
under the CAMEL rating system for banks are required to maintain a minimum
ratio of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon
the level and nature of risks of their operations. For purposes of the OCC's
leverage requirement, Tier 1 capital generally consists of common stockholders'
equity and retained income and certain non-cumulative perpetual preferred stock
and related income, except that no intangibles and certain purchased mortgage
servicing rights and purchased credit card relationships may be included in
capital.
The risk-based capital requirements established by the OCC's regulations
require national banks to maintain "total capital" equal to at least 8% of
total risk-weighted assets. For purposes of the risk-based capital
requirement, "total capital" means Tier 1 capital (as described above) plus
"Tier 2 capital", provided that the amount of Tier 2 capital may not exceed the
amount of Tier 1 capital, less certain assets. The components of Tier 2
capital include certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets.
The OCC has revised its risk-based capital requirements to permit the OCC to
require higher levels of capital for an institution in light of its interest
rate risk. In addition, the OCC has proposed that a bank's interest rate risk
exposure would be quantified using either the measurement system set forth in
the proposal or the institution's internal model for measuring such exposure,
if such model is determined to be adequate by the institution's examiner.
Management of the Bank has not determined what effect, if any, the OCC's
proposed interest rate risk component would have on the Bank's capital
requirement if adopted as proposed.
At June 30, 1997, the Bank had Tier 1 capital of $38.8 million or 17.4% of
adjusted total assets and Tier 2 capital of $39.1 million or 44.8% of total
risk-weighted assets.
-13-
<PAGE> 14
NON-PERFORMING ASSETS
The following table sets forth the amounts and categories of non-performing
assets in the Company's portfolio. Loans are reviewed monthly and any loan
whose collectibility is doubtful is placed on non-accrual status. Loans are
placed on non-accrual status when principal and interest is 90 days or more
past due, unless, in the judgement of management, the loan is well collaterized
and in the process of collection. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan. Restructured loans include troubled debt
restructuring (which involved forgiving a portion of interest or principal on
any loans or making loans at a rate materially less than the market rate). At
June 30, 1997, the Company had no restructured loans or foreclosed assets.
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
------------ -------------
(Dollars in Thousands)
<S> <C> <C>
Non-accruing loans:
One-to-four family.......................... $ 385 $ 99
Multi-family................................ 269 252
Commercial real estate. .................... --- ---
Consumer.................................... --- ---
---- ----
Total..................................... 654 351
---- ----
Total non-performing assets.................. $ 654 $ 351
==== ====
Total as a percentage of total assets........ .29% .15%
=== ===
</TABLE>
For the nine months ended June 30, 1997, gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms amounted to $32,000.
In addition to the non-performing assets set forth in the table above, as of
June 30, 1997, there were ten loans to one borrower with unpaid balances
totaling $933,000 which were delinquent one month. Subsequently, as of July
31, 1997, six of these loans totaling $372,000 were delinquent two months,
while the remaining four loans totaling $559,000 remained one month delinquent.
These loans are secured by seventeen properties (primarily small apartment
buildings), of which nine are currently listed for sale. Management does not
anticipate any significant loss in the ultimate collection of these loans.
There were no other loans with respect to which known information about the
possible credit problems of the borrowers or the cash flows of the security
properties have caused management to have concerns as to the ability of the
borrowers to comply with present loan repayment terms and which may result in
the future inclusion of such items in the non-performing asset categories.
Management has considered the Company's non-performing and "of concern" assets
in establishing its allowance for loan losses.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operations of the Company is reflected in increased operating costs. Unlike
most industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates,
generally, have a more significant impact on a financial institution's
performance than does inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.
RECENT DEVELOPMENTS
On April 1, 1997, Damen Financial Corporation announced the appointment of
Nicholas J. Raino to its Board of Directors effective April 1, 1997. Mr. Raino
has been appointed to fill the unexpired term of Dr. Mark Guinan who retired
from the Board.
In addition, on July 15, 1997 the Board of Directors approved a cash dividend
of $.06 per share to be payable August 15, 1997 to shareholders of record on
July 31, 1997.
-14-
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Computation of earnings per share (Exhibit 11 filed herewith)
Financial Data Schedule (Exhibit 27 filed herewith)
(b) The Company filed a Form 8-K on April 22, 1997 to report
quarterly earnings.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DAMEN FINANCIAL CORPORATION
---------------------------
Registrant
DATE: August 8, 1997
BY: /s/ Mary Beth Poronsky Stull
----------------------------
Mary Beth Poronsky Stull
President, Chief Executive Officer and Director
(Duly Authorized Representative)
BY: /s/ Gerald J. Gartner
----------------------------
Gerald J. Gartner
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
-16-
<PAGE> 17
INDEX TO EXHIBITS
Exhibit No. Page No.
- ----------- --------
11 Statement regarding Computation of Earnings Per Share 18
27 Financial Data Schedule 19
-17-
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, 1997 June 30, 1997
------------------ -----------------
<S> <C> <C>
Net Income $ 291,504 1,242,137
========= =========
Weighted average shares outstanding 3,246,720 3,595,652
Reduction for common shares not yet
released by Employee Stock Ownership Plan (265,660) (270,950)
Common stock equivalents due to dilutive
effect of stock options 72,174 54,048
--------- ---------
Total weighted average common shares and
equivalents outstanding for primary
computation 3,053,234 3,378,750
========= =========
Primary earnings per share $ .10 .37
=== ===
Total weighted average common shares and
equivalents outstanding for primary
computation 3,053,234 3,378,750
Additional dilutive shares using the end
of period market value versus the average
market value when applying the treasury
stock method* - 6,658
--------- ---------
Total weighted average common shares and
equivalents outstanding for fully diluted
computation 3,053,234 3,385,408
========= =========
Fully diluted earnings per share $ .10 .37
=== ===
</TABLE>
* Note: If the average share price is greater than the ending price, use
average price for both primary and fully diluted calculation.
-18-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 534,001
<INT-BEARING-DEPOSITS> 2,964,459
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,255,398
<INVESTMENTS-CARRYING> 32,808,411
<INVESTMENTS-MARKET> 32,325,100
<LOANS> 95,250,969
<ALLOWANCE> (377,000)
<TOTAL-ASSETS> 228,991,947
<DEPOSITS> 120,325,676
<SHORT-TERM> 23,500,000
<LIABILITIES-OTHER> 1,802,236
<LONG-TERM> 35,000,000
0
0
<COMMON> 39,675
<OTHER-SE> 46,607,207
<TOTAL-LIABILITIES-AND-EQUITY> 228,991,947
<INTEREST-LOAN> 5,664,971
<INTEREST-INVEST> 6,729,238
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,394,209
<INTEREST-DEPOSIT> 4,560,965
<INTEREST-EXPENSE> 7,305,130
<INTEREST-INCOME-NET> 5,089,079
<LOAN-LOSSES> 36,618
<SECURITIES-GAINS> 139,718
<EXPENSE-OTHER> 3,744,257
<INCOME-PRETAX> 1,538,684
<INCOME-PRE-EXTRAORDINARY> 1,242,137
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,242,137
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<YIELD-ACTUAL> 3.02
<LOANS-NON> 654,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 933,000
<ALLOWANCE-OPEN> 345,000
<CHARGE-OFFS> 4,618
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 377,000
<ALLOWANCE-DOMESTIC> 377,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
