<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 December 31, 1996
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 February 7, 1997 there were 3,770,117 shares of the Registrant's
common stock issued and outstanding.
Transitional Small Business Disclosure Format(check one): Yes No X
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<PAGE> 2
DAMEN FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
December 31, 1996 (Unaudited) and September 30, 1996 4
Consolidated Statements of Earnings for the three
months ended December 31, 1996 and 1995
(unaudited) 5
Consolidated Statements of Cash Flows for the three
months ended December 31, 1996 and 1995
(unaudited) 6
Notes to Unaudited Consolidated Financial
Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Part II. OTHER INFORMATION 13
Signatures 14
Index to Exhibits 15
Earnings Per Share Analysis(Exhibit 11)
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
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<PAGE> 4
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31, September 30,
------------ --------------
1996 1996
---- ----
Assets (unaudited)
- ------
<S> <C> <C>
Cash and amounts due from
depository institutions $ 436,808 170,034
Interest-bearing deposits 1,049,523 1,011,197
---------- ----------
Total cash and cash equivalents 1,486,331 1,181,231
Investment securities (fair value: $1,771,900 at
December 31, 1996 and $1,777,000 at September 30, 1996) 1,771,951 1,776,979
Investment securities, available for sale, at fair value 43,559,898 43,342,710
Mortgage-backed securities
(fair value: $33,377,000 at December 31, 1996
and $34,641,300 at September 30, 1996) 34,066,505 35,503,531
Mortgage-backed securities, available for sale,
at fair value 55,354,908 52,594,450
Loans receivable (net of allowance for
loan losses: $345,000 at December 31, 1996 and
$345,000 at September 30,1996) 90,383,322 91,145,893
Stock in Federal Home Loan Bank of Chicago 3,110,500 3,110,500
Accrued interest receivable 1,515,387 1,661,087
Office properties and equipment - net 3,510,274 3,502,987
Prepaid expenses and other assets 504,981 736,041
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Total assets 235,264,057 234,555,409
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits 120,028,662 118,973,335
Borrowed money 58,000,000 59,600,000
Advance payments by borrowers for taxes
and insurance 1,532,300 638,768
Other liabilities 1,872,662 2,473,435
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Total liabilities 181,433,624 181,685,538
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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
3,770,117 shares outstanding at
December 31, 1996 and September 30, 1996 39,675 39,675
Additional paid-in capital 38,358,662 38,345,966
Retained earnings, substantially restricted 21,313,878 21,131,170
Unrealized gain on securities available for sale,
net of income taxes 786,679 167,679
Treasury stock, at cost (197,383 shares
at December 31, 1996 and September 30, 1996) (2,311,375) (2,311,375)
Common stock acquired by Employee Stock Ownership Plan (2,709,500) (2,762,400)
Common stock awarded by Recognition and Retention Plan (1,647,586) (1,740,844)
----------- -----------
Total stockholders' equity 53,830,433 52,869,871
----------- -----------
Total liabilities and stockholders' equity $ 235,264,057 234,555,409
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Interest income:
Loans $ 1,874,077 1,788,551
Mortgage-backed securities 1,519,515 1,436,841
Tax-exempt securities 389,768 346,781
Interest and dividends on other investments 318,655 424,490
Dividends on FHLB stock 54,731 45,565
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Total interest income 4,156,746 4,042,228
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Interest expense:
Deposits 1,531,170 1,639,911
Borrowings 911,129 767,684
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Total interest expense 2,442,299 2,407,595
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Net interest income before provision for loan losses 1,714,447 1,634,633
Provision for loan losses 4,618 15,000
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Net interest income after provision for loan losses 1,709,829 1,619,633
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Non-interest income:
Loan fees and service charges 18,671 21,173
Other income 18,496 20,966
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Total non-interest income 37,167 42,139
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Non-interest expense:
Compensation, employee benefits, and related expenses 727,826 578,111
Advertising and promotion 83,764 114,141
Occupancy and equipment expense 196,033 157,090
Data processing 29,290 24,813
Insurance expense 17,313 17,016
Federal insurance premiums 57,061 75,982
Legal, audit, and examination services 88,722 52,732
Other operating expenses 91,766 81,095
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Total non-interest expense 1,291,775 1,100,980
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Net income before income taxes 455,221 560,792
Provision for federal and state income taxes 62,880 89,600
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Net income $ 392,341 471,192
========= =========
Earnings per share - primary $ .11 .13
Earnings per share - fully diluted .11 .13
Dividends declared per common share $ .06 .00
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</TABLE>
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<PAGE> 6
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 392,341 471,192
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 49,277 43,804
Amortization of cost of stock benefit plans 158,854 294,097
Provision for loan losses 4,618 15,000
Increase (decrease) in deferred loan income (65,690) 6,103
(Increase) decrease in prepaid and deferred federal
and state income taxes (151,297) 80,600
(Increase) decrease in accrued interest receivable 145,700 (123,045)
Increase (decrease) in accrued interest payable 23,900 (387,100)
Decrease in other assets 88,185 66,773
Decrease in other liabilities (754,028) (381,435)
---------- ----------
Net cash provided by (for) operating activities (108,140) 85,989
---------- ----------
Cash flows from investing activities:
Purchase of investment securities,
available for sale (1,603,709) (12,559,824)
Purchase of investment securities (8,317) (97,953)
Purchase of mortgage-backed securities, available for sale (4,025,957) (9,224,879)
Proceeds from maturities of investment
securities, available for sale 1,950,522 2,012,781
Proceeds from maturities of investment securities 13,345 15,970
Proceeds from maturities of mortgage-backed
securities, available for sale 1,751,077 993,917
Proceeds from maturities of mortgage-backed securities 1,437,026 2,615,057
Purchase of Federal Home Loan Bank stock - (35,000)
Disbursements for loans (3,594,268) (5,194,706)
Loan repayments 4,417,911 4,478,240
Property and equipment expenditures (56,564) (43,778)
---------- ----------
Net cash provided by (for) investing activities 281,066 (17,040,175)
---------- ----------
Cash flows from financing activities:
Deposit receipts 18,490,759 17,199,555
Deposit withdrawals (18,538,973) (21,758,262)
Interest credited to deposit accounts 1,103,541 1,604,244
Proceeds from borrowed money 57,200,000 31,400,000
Repayment of borrowed money (58,800,000) (25,400,000)
Increase (decrease) in advance payments by borrowers
for taxes and insurance 893,532 (1,294,208)
Dividends paid on common stock (216,685) -
---------- ----------
Net cash provided by financing activities 132,174 1,751,329
---------- ----------
Increase (decrease) in cash and cash equivalents 305,100 (15,202,857)
Cash and cash equivalents at beginning of period 1,181,231 20,363,159
---------- ----------
Cash and cash equivalents at end of period $ 1,486,331 5,160,302
========== ==========
Cash paid during the period for:
Interest $ 2,418,399 2,794,695
Income taxes 210,000 229
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
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<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 December 31, 1996, the results of operations for the three
months ended December 31, 1996 and 1995 and cash flows for the three months
ended December 31, 1996 and 1995. 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 Federal Bank for Savings (the"Bank") and Dasch
Inc. The results of operations for the three month period ended December 31,
1996 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. Earnings Per Share
Earnings per share for the three month periods ended December 31, 1996 and
1995 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.
4. 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.
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<PAGE> 8
4. Impact of New Accounting Standards (continued)
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 does not anticipate that this
pronouncement will have a significant impact on its consolidated financial
condition or results of operations.
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.
5. SAIF Special Assessment and its Impact on SAIF Insurance Premiums
The deposits of savings associations, such as Damen Federal Bank for
Savings, are presently insured by the Savings Association Insurance Fund
("SAIF"), which together with the Bank Insurance Fund ("BIF"), are the two
insurance funds administered by the Federal Deposit Insurance Corporation
("FDIC"). Financial institutions which are members of the BIF are experiencing
substantially lower deposit insurance premiums because the BIF has achieved its
required level of reserves while the SAIF has not yet achieved its required
reserves. In order to help eliminate this disparity and any competitive
disadvantage due to disparate deposit insurance premium schedules, legislation
to recapitalize the SAIF was enacted in September 1996.
The legislation required a special one-time assessment of 65.7 cents per
$100 of SAIF insured deposits held by the Bank at March 31, 1995. The one-time
special assessment has resulted in a charge to earnings of $860,000 during the
year ended September 30, 1996. The after-tax effect of this one-time charge to
earnings totaled $507,400. The legislation is intended to fully recapitalize
the SAIF fund so that commercial bank and thrift deposits will be charged the
same FDIC premiums beginning January 1, 1997. As of such date, deposit
insurance premiums for highly rated institutions, such as the Bank, will be
substantially reduced.
The Bank, however, will continue to be subject to an assessment to fund
repayment of the Financing Corporation's ("FICO") obligations. The FICO
assessment for SAIF insured institutions will be 6.48 cents per $100 of
deposits while BIF insured institutions will pay 1.30 cents per $100 of
deposits until the year 2000 when the assessment will be imposed at the same
rate on all FDIC insured institutions. Accordingly, as a result of the
reduction of the SAIF assessment and the resulting FICO assessment, the annual
after-tax decrease in assessment costs is expected to be approximately $117,000
based upon a December 31, 1996 assessment base.
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
DECEMBER 31, 1996 COMPARED TO SEPTEMBER 30, 1996.
Total assets increased $709,000 to $235.3 million as of December 31, 1996 from
$234.6 million as of September 30, 1996. Interest-bearing deposits increased
$305,000 to $1.5 million as of December 31, 1996 as compared to $1.2 million
at September 30, 1996. Investment securities available for sale increased
$217,000 to $43.6 million at December 31, 1996 from $43.4 million at September
30, 1996 due primarily to purchases of $1.6 million and a market value increase
of $563,000 less maturities of $2.0 million. Mortgage-backed securities held
to maturity decreased $1.4 million to $34.1 million at December 31, 1996 from
$35.5 million at September 30, 1996 due primarily to repayments.
Mortgage-backed securities available for sale increased $2.8 million to $55.4
million at December 31, 1996 from $52.6 million at September 30, 1996 due
primarily to purchases of $4.0 million and a market value increase of $485,000,
less repayments of $1.8 million. Loans receivable decreased $763,000 to $90.4
million at December 31, 1996 from $91.1 million at September 30, 1996 due to
repayments of $4.4 million exceeding new loan originations of $3.6 million.
Total deposits increased $1.0 million to $120.0 million at December 31, 1996
from $119.0 million at September 30, 1996. The increase was primarily due to
interest credited. FHLB advances decreased $1.6 million to $58.0 million at
December 31, 1996 from $59.6 million at September 30, 1996. The reduced
advances were the result of decreased loan originations and increased
repayments from loans and mortgage-backed securities.
Stockholders' equity increased $961,000 to $53.8 million at December 31, 1996
from $52.9 million at September 30, 1996 due primarily to net income for the
three months of $392,000, stock plan reductions of $146,000, and an increase in
net unrealized gains, net of taxes, on investments available-for-sale of
$619,000, offset by the declaration of a cash dividend of $226,000.
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 DECEMBER 31, 1996 AND 1995.
NET INCOME. The Company's net income for the three months ended December 31,
1996 was $392,000 as compared to $471,000 for the same period in 1995 or a
decrease of $79,000. This decrease was due primarily to an increase in
non-interest expense of $191,000 which was partially offset by an increase in
net interest income of $79,000 and a decrease in income taxes of $27,000.
INTEREST INCOME. Total interest income for the quarter ended December 31, 1996
increased $115,000 to $4.2 million from $4.1 million a year ago due primarily
to an increase in average interest-earning assets of $1.7 million. The yield
on average interest-earning assets increased to 7.32% from 7.17% due primarily
to an increase in the yield on the mortgage loan portfolio.
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<PAGE> 10
INTEREST EXPENSE. The Company's interest expense increased $34,000 to $2.4
million for the quarter ended December 31, 1996 from $2.4 million a year ago.
The increase was due to an increase in average interest-bearing liabilities of
$4.3 million to $176.8 million at December 31, 1996 from $172.5 million a year
ago, partially offset by a decrease in the average rate to 5.52% from 5.58%.
The decrease in rates was primarily the result of certificates of deposits
being renewed at lower rates in the 1996 quarter as well as a decrease in
interest rates on borrowed money. The increase in average interest-bearing
liabilities resulted from an increase in the average balance of borrowed money
of $10.5 million offset by a decrease in the average balance of savings
deposits of $6.2 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 $4,600 for the quarter ended
December 31, 1996 compared to $15,000 for the same quarter the prior year. The
current quarter provision was due to a slight increase in non-performing loans
from the prior quarter. Non-performing loans increased to $363,000 at December
31, 1996 from $351,000 at September 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 was $37,000 for the
quarter ended December 31, 1996 compared to $42,000 for the same quarter a year
ago. The decrease was due to a decrease in fees realized on loans and
services.
NON-INTEREST EXPENSE. The Company's non-interest expense increased $191,000
for the quarter ended December 31, 1996 to $1.3 million from $1.1 million for
the same quarter of 1995 due primarily to increases of $150,000 in compensation
and related expenses, $39,000 in occupancy and equipment expense, and $36,000
in legal and accounting expenses. The increase in compensation was primarily
due to Recognition and Retention Plan expense of $93,000, while the increase in
legal expenses was primarily the result of the filing of the application for a
charter change and the request for a private letter ruling regarding a return
of capital distribution. These increases were partially offset by decreases in
advertising of $30,000, and federal insurance premiums of $19,000.
PROVISION FOR INCOME TAXES. Tax expense for the quarter ended December 31,
1996 was $63,000 compared to $90,000 for the comparable quarter in 1995 due to
a decrease in pre-tax income of $106,000.
-10-
<PAGE> 11
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, but has from time to time decided not
to pay deposit rates that are as high as those of its competitors and, when
necessary, to supplement deposits with longer term and/or less expensive
alternative sources of funds.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 5% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. Liquid assets for purposes of this ratio include
cash, certain time deposits, U.S. Government, government agency and corporate
securities and other obligations generally having remaining maturities of less
than five years. The Bank has historically maintained its liquidity ratio for
regulatory purposes at levels in excess of those required. At December 31,
1996, the Bank's liquidity ratio for regulatory purposes was 7.87%.
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
December 31, 1996 and September 30, 1996, cash and cash equivalents totaled
$1.5 million and $1.2 million respectively.
The primary financing activities of the Company are deposits and borrowings.
For the three months ended December 31, 1996, deposits increased $1.0 million
and the Bank's net (proceeds less repayments) financing activity with the FHLB
decreased $1.6 million.
The Company anticipates that it will have sufficient funds available to meet
current commitments. At December 31, 1996 the Company has outstanding loan
commitments totaling $815,000 and outstanding commitments to purchase
investment securities of $1.4 million.
Federally insured savings associations, such as the Bank, are required to
maintain a minimum level of regulatory capital. The OTS has established
capital standards, including a tangible capital requirement, a leverage ratio
(or core capital) requirement and a risk-based capital requirement applicable
to such savings associations. These capital requirements must be generally as
stringent as the comparable capital requirements for national banks. The OTS
is also authorized to impose capital requirements in excess of these standards
on individual associations on a case-by-case basis.
At December 31, 1996, the Bank had tangible capital of $37.0 million, or 16.66%
of adjusted total assets, which was approximately $33.6 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
The Bank had core capital equal to $37.0 million, or 16.66% of adjusted total
assets at December 31, 1996, which was $30.3 million above the minimum leverage
ratio requirement of 3% in effect on that date. The Bank had total capital of
$37.3 million (including $37.0 million in core capital and $345,000 in
qualifying supplementary capital) and risk-weighted assets of $74.5 million
(including no converted off-balance sheet assets); or total risk-based capital
of 50.09% of risk-weighted assets at December 31, 1996. This amount was $31.4
million above the 8% requirement in effect on that date.
-11-
<PAGE> 12
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
December 31, 1996, the Company had no restructured loans or foreclosed assets.
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
(Dollars in Thousands)
<S> <C> <C>
Non-accruing loans:
One- to four- family........................ $ 98 $ 99
Multi-family................................ 265 252
Commercial real estate. .................... --- ---
Consumer.................................... --- ---
---- ----
Total..................................... 363 351
---- ----
Total non-performing assets.................. $ 363 $ 351
==== ====
Total as a percentage of total assets........ .15% .15%
==== ====
</TABLE>
For the quarter ended December 31, 1996, gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms amounted to $9,000.
In addition to the non-performing assets set forth in the table above, as of
December 31, 1996, there were no 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.
-12-
<PAGE> 13
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 October 23, 1996 to report
quarterly earnings. In addition, the Company filed an 8-K dated
January 22, 1997 attaching (i) its press release announcing
regulatory approval for the charter conversion of its subsidiary
thrift to a national bank and (ii) attaching its press release
announcing the Company's earnings for the quarter ended
December 31, 1996.
-13-
<PAGE> 14
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: February 7, 1997
BY: /s/ Mary Beth Poronskky 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)
-14-
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C> <C>
11 Statement regarding Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Quarter Ended
December 31, 1996
-----------------
<S> <C>
Net Income $ 392,341
=======
Weighted average shares outstanding 3,770,117
Reduction for common shares not yet
released by Employee Stock Ownership Plan (276,240)
Common stock equivalents due to dilutive
effect of stock options 24,797
---------
Total weighted average common shares and
equivalents outstanding 3,518,674
=========
Primary earnings per share $ .11
===
Total weighted average common
shares and equivalents outstanding
for primary computation 3,518,674
Additional dilutive shares using the end
of period market value versus the average
market value when applying the treasury
stock method* 6,484
---------
Total weighted average common shares and
equivalents outstanding for fully diluted
computation 3,525,158
=========
Fully diluted earnings per share $ .11
===
</TABLE>
* Note: If the average share price is greater than the ending price, use
average price for both primary and fully diluted calculation.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 436,808
<INT-BEARING-DEPOSITS> 1,049,523
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 98,914,806
<INVESTMENTS-CARRYING> 35,838,456
<INVESTMENTS-MARKET> 35,148,900
<LOANS> 90,383,322
<ALLOWANCE> (345,000)
<TOTAL-ASSETS> 235,264,057
<DEPOSITS> 120,028,662
<SHORT-TERM> 23,000,000
<LIABILITIES-OTHER> 1,872,662
<LONG-TERM> 35,000,000
0
0
<COMMON> 39,675
<OTHER-SE> 53,790,758
<TOTAL-LIABILITIES-AND-EQUITY> 235,264,057
<INTEREST-LOAN> 1,874,077
<INTEREST-INVEST> 2,282,669
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,156,746
<INTEREST-DEPOSIT> 1,531,170
<INTEREST-EXPENSE> 2,442,299
<INTEREST-INCOME-NET> 1,714,447
<LOAN-LOSSES> 4,618
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,291,775
<INCOME-PRETAX> 455,221
<INCOME-PRE-EXTRAORDINARY> 392,341
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 392,341
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<YIELD-ACTUAL> 3.02
<LOANS-NON> 363,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 345,000
<CHARGE-OFFS> 4,618
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 345,000
<ALLOWANCE-DOMESTIC> 345,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
