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, 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 February 6, 1998 there were 3,123,154 shares of the Registrant's
common stock issued and outstanding.
<PAGE>
DAMEN FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
December 31, 1997 (Unaudited) and September 30, 1997 4
Consolidated Statements of Earnings for the three
months ended December 31, 1997 and 1996 (unaudited) 5
Consolidated Statements of Changes in
Stockholders' Equity for the three months
ended December 31, 1997 (unaudited) 6
Consolidated Statements of Cash Flows for the three
months ended December 31, 1997 and 1996 (unaudited) 7
Notes to Unaudited Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Part II. OTHER INFORMATION 14
Signatures 15
Index to Exhibits 16
Earnings Per Share Analysis (Exhibit 11) 17
Financial Data Schedule (Exhibit 27) 18
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<PAGE>
PART I - FINANCIAL INFORMATION
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<PAGE>
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
----------------
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1997 1997
---- ----
Assets (unaudited)
- ------
<S> <C> <C>
Cash and amounts due from depository institutions $ 644,075 500,455
Interest-bearing deposits 6,162,522 1,590,529
----------- ----------
Total cash and cash equivalents 6,806,597 2,090,984
Investment securities (fair value: $1,824,000 at
December 31, 1997 and $1,845,400 at September 30, 1997) 1,823,976 1,845,383
Investment securities, available for sale, at fair value 38,473,064 35,874,298
Mortgage-backed securities
(fair value: $25,262,600 at December 31, 1997
and $27,548,700 at September 30, 1997) 25,386,962 27,869,570
Mortgage-backed securities, available for sale,
at fair value 55,400,979 56,740,190
Loans receivable (net of allowance for
loan losses: $353,000 at December 31, 1997 and
$332,000 at September 30, 1997) 99,022,327 97,244,031
Foreclosed real estate 79,000 79,000
Stock in Federal Home Loan Bank and
Federal Reserve Bank of Chicago 3,698,500 3,698,500
Accrued interest receivable 1,524,961 1,551,284
Office properties and equipment - net 3,429,303 3,473,326
Prepaid expenses and other assets 304,473 642,654
----------- -----------
Total assets 235,950,142 231,109,220
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits 126,200,919 125,746,001
Borrowed money 59,000,000 56,500,000
Advance payments by borrowers for taxes and insurance 1,639,116 722,141
Other liabilities 2,416,512 2,202,115
----------- -----------
Total liabilities 189,256,547 185,170,257
----------- -----------
Stockholders' Equity
- --------------------
Preferred stock, $.01 par value; authorized
100,000 shares; none outstanding - -
Common stock, $.01 par value; authorized
4,500,000 shares; 3,977,467 shares issued and 3,119,187
shares outstanding at December 31, 1997
and 3,109,220 shares outstanding at September 30, 1997 39,775 39,675
Additional paid-in capital 38,610,781 38,452,948
Retained earnings, substantially restricted 22,387,731 22,100,190
Unrealized gain on securities available for sale,
net of income taxes 1,545,560 1,382,560
Treasury stock, at cost (858,280 shares at
December 31, 1997 and September 30, 1997) (12,117,799) (12,117,799)
Common stock acquired by Employee Stock Ownership Plan (2,497,900) (2,550,800)
Common stock awarded by Recognition and Retention Plan (1,274,553) (1,367,811)
Total stockholders' equity 46,693,595 45,938,963
----------- -----------
Total liabilities and stockholders' equity $ 235,950,142 231,109,220
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
----------------
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Interest income:
Loans $ 2,046,023 1,874,077
Mortgage-backed securities 1,424,569 1,519,515
Tax-exempt securities 332,537 389,768
Interest and dividends on other investments 277,460 318,655
Dividends on FHLB and FRB stock 63,728 54,731
--------- ---------
Total interest income 4,144,317 4,156,746
--------- ---------
Interest expense:
Deposits 1,650,303 1,531,170
Borrowings 896,110 911,129
--------- ---------
Total interest expense 2,546,413 2,442,299
--------- ---------
Net interest income before provision for loan losses 1,597,904 1,714,447
Provision for loan losses 21,000 4,618
--------- ---------
Net interest income after provision for loan losses 1,576,904 1,709,829
--------- ---------
Non-interest income:
Loan fees and service charges 13,047 18,671
Gain on sale of investment securities, available for sale 131,237 -
Other income 32,178 18,496
--------- ---------
Total non-interest income 176,462 37,167
--------- ---------
Non-interest expense:
Compensation, employee benefits, and related expenses 661,856 727,826
Advertising and promotion 143,426 83,764
Occupancy and equipment expense 185,959 196,033
Data processing 32,298 29,290
Insurance expense 18,238 17,313
Federal insurance premiums 19,115 57,061
Legal, audit, and examination services 62,192 88,722
Other operating expenses 74,164 91,766
--------- ---------
Total non-interest expense 1,197,248 1,291,775
--------- ---------
Net income before income taxes 556,118 455,221
Provision for federal and state income taxes 97,328 62,880
--------- ---------
Net income $ 458,790 392,341
========= =========
Earnings per share - basic $ .16 .11
--- ---
Earnings per share - diluted .15 .11
--- ---
Dividends declared per common share $ .06 .06
--- ---
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
----------------
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain on Common Common
Additional Securities Stock Stock
Common Paid-In Retained Available Treasury Acquired Awarded
Stock Capital Earnings For Sale Stock by ESOP by RRP Total
----- ------- -------- -------- ----- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 $ 39,675 38,452,948 22,100,190 1,382,560 (12,117,799) (2,550,800) (1,367,811) 45,938,963
Additions (deductions)
for the period ended
December 31, 1997:
Net income 458,790 458,790
Adjustment of
securities to fair value,
net of tax effect 163,000 163,000
Tax benefit related to
employee stock plans 9,786 9,786
Exercise of stock
options (9,967 shares) 100 115,767 115,867
Amortization of award
of RRP stock 93,258 93,258
Contribution to fund ESOP loan 32,280 52,900 85,180
Dividends declared on
common stock (171,249) (171,249)
------ ---------- ---------- --------- ---------- --------- --------- ----------
Balance at December 31, 1997 $ 39,775 38,610,781 22,387,731 1,545,560 (12,117,799) (2,497,900) (1,274,553) 46,693,595
====== ========== ========== ========= ========== ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
DAMEN FINANCIAL CORPORATION
AND SUBSIDIARIES
----------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 458,790 392,341
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 58,876 49,277
Amortization of cost of stock benefit plans 178,438 158,854
Provision for loan losses 21,000 4,618
Decrease in deferred loan income (89,651) (65,690)
(Increase) decrease in prepaid and deferred federal
and state income taxes 283,517 (151,297)
Gain on sale of investment securities,
available for sale (131,237) -
Decrease in accrued interest receivable 26,323 145,700
Increase in accrued interest payable 38,900 23,900
Decrease in other assets 39,731 88,185
Increase (decrease) in other liabilities 79,372 (754,028)
---------- ---------
Net cash provided by (for) operating activities 964,059 (108,140)
---------- ---------
Cash flows from investing activities:
Purchase of investment securities, available for sale (4,074,729) (1,603,709)
Purchase of investment securities - (8,317)
Purchase of mortgage-backed securities,
available for sale (2,009,139) (4,025,957)
Proceeds from sales of investment securities,
available for sale 381,237 -
Proceeds from maturities of investment securities,
available for sale 1,498,963 1,950,522
Proceeds from maturities of investment securities 21,407 13,345
Proceeds from maturities of mortgage-backed securities,
available for sale 3,351,339 1,751,077
Proceeds from maturities of mortgage-backed securities 2,482,608 1,437,026
Disbursements for loans (5,064,593) (3,594,268)
Loan repayments 3,354,948 4,417,911
Property and equipment expenditures (14,853) (56,564)
---------- ----------
Net cash provided by (for) investing activities (72,812) 281,066
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 115,867 -
Deposit receipts 17,233,287 18,490,759
Deposit withdrawals (17,900,523) (18,538,973)
Interest credited to deposit accounts 1,122,154 1,103,541
Proceeds from borrowed money 21,200,000 57,200,000
Repayment of borrowed money (18,700,000) (58,800,000)
Increase in advance payments by borrowers
for taxes and insurance 916,975 893,532
Dividends paid on common stock (163,394) (216,685)
---------- ----------
Net cash provided by financing activities 3,824,366 132,174
---------- ----------
Increase (decrease) in cash and cash equivalents 4,715,613 305,100
Cash and cash equivalents at beginning of period 2,090,984 1,181,231
---------- ----------
Cash and cash equivalents at end of period $ 6,806,597 1,486,331
========== ==========
Cash paid during the period for:
Interest $ 2,507,513 2,418,399
Income taxes 2,388 210,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
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, 1997, the results of operations for the three months
ended December 31, 1997 and 1996 and cash flows for the three months ended
December 31, 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
month period ended December 31, 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. Earnings Per Share
Earnings per share for the three month periods ended December 31, 1997
and 1996 were determined by dividing net income for the periods by the weighted
average number of both basic and diluted shares of common stock and common stock
equivalents outstanding (see Exhibit 11 attached). Stock options are regarded as
common stock equivalents and are considered in 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.
Earnings per share data for the three month period ended December 31, 1996 have
been restated for comparative purposes to reflect the implementation of
Statement of Financial Accounting Standards No. 128.
-8-
<PAGE>
4. Impact of New Accounting Standards
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 No. 127"), "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125". The statement
delays for one year the implementation of SFAS No. 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 No. 125 (those
not deferred by SFAS No. 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 No. 125, management does
not believe that adoption of the portions of SFAS No. 125 which have been
deferred by SFAS No. 127 will have a material effect on the Company.
Reporting Comprehensive Income. In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). This statement establishes standards for reporting and the
display of comprehensive income and its components (revenues, expenses, gains,
losses) in a full set of general-purpose financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. The Company has
not yet determined the impact of adopting this statement.
Disclosures about Segments of an Enterprise and Related Information. In
June 1997, the FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") which becomes effective for fiscal years beginning after December 15,
1997. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments and requires enterprises
to report selected information about operating segments in interim financial
reports. The Company has not yet determined the impact of adopting this
statement.
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>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
December 31, 1997 compared to September 30, 1997
Total assets increased $4.8 million to $236.0 million as of December 31, 1997
from $231.1 million as of September 30, 1997. Interest-bearing deposits
increased $4.6 million to $6.2 million as of December 31, 1997 as compared to
$1.6 million at September 30, 1997. Investment securities available-for-sale
increased $2.6 million to $38.5 million at December 31, 1997 from $35.9 million
at September 30, 1997 due primarily to purchases of $4.1 million and a market
value increase of $273,000 exceeding sales and maturities of $1.9 million.
Mortgage-backed securities held to maturity decreased $2.5 million to $25.4
million at December 31, 1997 from $27.9 million at September 30, 1997 due
primarily to repayments. Mortgage-backed securities available-for-sale decreased
$1.3 million to $55.4 million at December 31, 1997 from $56.7 million at
September 30, 1997 due primarily to repayments of $3.4 million exceeding
purchases of $2.0 million. Loans receivable increased $1.8 million to $99.0
million at December 31, 1997 from $97.2 million at September 30, 1997 due
primarily to new loan originations of $5.1 million and loan purchases of
$253,000 exceeding repayments of $3.4 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 $455,00 to $126.2 million at December 31, 1997 from
$125.7 million at September 30, 1997. The increase was primarily due to interest
credited. FHLB advances increased $2.5 million to $59.0 million at December 31,
1997 from $56.5 million at September 30, 1997. The increased advances were the
result of cash flows necessary for loan originations.
Stockholders' equity increased $755,000 to $46.7 million at December 31, 1997
from $45.9 million at September 30, 1997 due primarily to net income of $459,000
for the three months ended December 31, 1997, an increase in net unrealized
gains of $163,000 and proceeds of $116,000 from the exercise of stock options.
At December 31, 1997, there were 3,119,187 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 December 31, 1997 and 1996.
Net Income. The Company's net income for the three months ended December 31,
1997 was $459,000 as compared to $392,000 for the same period in 1996, an
increase of $67,000. This increase was due primarily to an increase in gains on
the sale of investments available-for-sale of $131,000 and a decrease in
non-interest expense of $95,000, partially offset by a decrease in net interest
income of $116,00 and an increase in income taxes of $34,000.
Interest Income. Total interest income for the quarter ended December 31, 1997
decreased $13,000 compared to a year ago due to a decrease in average
interest-earning assets of $4.5 million to $222.7 million from $227.2 million,
partially offset by an increase in the yield on average interest-earning assets
to 7.44% from 7.32%. The decrease in average interest-earning assets was
partially due to the utilization of $9.8 million during 1997 for the repurchase
of Company stock.
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<PAGE>
Interest Expense. The Company's interest expense increased $104,000 for the
quarter ended December 31, 1997 compared to a year ago due to an increase in
average interest-bearing liabilities to $182.1 million at December 31, 1997 from
$176.8 million a year ago, and the average interest rate increased to 5.59% from
5.52%. The increase in average interest bearing liabilities resulted from an
increase in the average balance of savings deposits of $7.3 million partially
offset by a decrease in the average balance of borrowed money of $2.0 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 $21,000 for the quarter ended
December 31, 1997 compared to $4,600 for the same quarter in the prior year.
Non-performing loans increased to $275,000 from $197,000 at September 30, 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 $176,000 for the
quarter ended December 31, 1997 compared to $37,000 for the same quarter a year
ago. The increase was due primarily to an increase of $131,000 in net realized
gains on thrift equity securities available-for-sale and an increase in service
fees of $13,000.
Non-Interest Expense. The Company's non-interest expense decreased $95,000 for
the quarter ended December 31, 1997 to $1.2 million from $1.3 million for the
same quarter of 1996 due primarily to a decrease of $66,000 in compensation and
related expenses, a decrease of $38,000 in federal insurance premiums, and a
decrease of $27,000 in professional fees, partially offset by an increase in
advertising costs of $59,000.
Provision for Income Taxes. Tax expense for the quarter ended December 31, 1997
was $97,000 compared to $63,000 for the same quarter in 1996 due to an increase
in pre-tax income.
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<PAGE>
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
December 31, 1997 and September 30, 1997, cash and cash equivalents totaled $6.8
million and $2.1 million respectively.
The primary financing activities of the Company are deposits and borrowings. For
the three months ended December 31, 1997, deposits increased $455,000 and the
Bank's net (proceeds less repayments) financing activity with the FHLB increased
$2.5 million.
The Company anticipates that it will have sufficient funds available to meet
current commitments. At December 31, 1997 the Company has outstanding loan
commitments totaling $1,215,000, and unused lines of credit granted totaling
$1,143,000.
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 December 31, 1997, the Bank had Tier 1 capital of $39.8 million or 17.4% of
adjusted total assets and Tier 2 capital of $40.2 million or 45.7% of total
risk-weighted assets.
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<PAGE>
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).
December 31, September 30,
1997 1997
------------ -------------
(Dollars in Thousands)
Non-accruing loans:
One-to-four family.......................... $ 275 $ 197
Multi-family................................ - -
Commercial real estate. .................... - -
Consumer.................................... - -
---- ----
Total..................................... 275 197
---- ----
Foreclosed assets:
Commercial and multi-family real estate..... 79 79
---- ----
Total non-performing assets.................. $ 354 $ 276
==== ====
Total as a percentage of total assets........ .15% .12%
=== ===
For the three months ended December 31, 1997, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $6,300.
In addition to the non-performing assets set forth in the table above, as of
December 31, 1997, 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.
Recent Developments
On January 6, 1998 the Board of Directors approved a cash dividend of $.10 per
share to be payable February 13, 1998 to shareholders of record on January 31,
1998.
In addition, on January 13, 1998, Damen Financial Corporation announced the
appointment of Albert C. Baldermann to its Board of Directors effective
immediately.
-13-
<PAGE>
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) No reports on Form 8-K were filed during the quarter
ended December 31, 1997.
-14-
<PAGE>
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 6, 1998
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)
-15-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Page No.
- ----------- --------
11 Statement regarding Computation of Earnings Per Share 17
27 Financial Data Schedule 18
-16-
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
December 31, 1997
-----------------
Net Income $ 458,790
=========
Weighted average shares outstanding 3,111,387
Reduction for common shares not yet
released by Employee Stock Ownership Plan (255,080)
---------
Total weighted average common shares
outstanding for basic computation 2,856,307
=========
Basic earnings per share $ .16
===
Total weighted average common shares
outstanding for basic computation 2,856,307
Common stock equivalents due to dilutive
effect of stock options 122,648
---------
Total weighted average common shares and
equivalents outstanding for diluted computation 2,978,955
=========
Diluted earnings per share $ .15
===
-17-
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