SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
for the quarterly period ended June 30, 1997
---------------------------------------------
[ ] Transition report under Section 13 or 15(d) of
the Exchange Act for the transition period
from ___________ to ______________
Commission File Number 0-26440
Quantum Financial Holdings, Inc.
--------------------------------
Maryland 52-1919323
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
4023 Annapolis Road
Baltimore, Maryland 21227
- ------------------------------- ---------------------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code:(410) 789-6882
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Number of shares outstanding of common stock
as of: June 30, 1997
$0.01 per value common stock 106,924 shares
---------------------------- --------------
Class Outstanding
Transitional Small Business Disclosure Format: Yes X No
--- ----
QUANTUM FINANCIAL HOLDINGS, INC.
INDEX
-----
Part I - Financial Information
- ------------------------------
ITEM 1 - Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1997
(unaudited), and December 31, 1996
Consolidated Statements of Operations for the three
and six months ended June 30, 1997 and 1996
(unaudited)
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements
(unaudited)
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II - Other Information
- ---------------------------
ITEM 1 - Legal Proceedings
ITEM 2 - Changes in Securities
ITEM 3 - Defaults Upon Senior Securities
ITEM 4 - Submission of Matters to a Vote of Security Holders
ITEM 5 - Other Materially Important Events
ITEM 6 - Exhibits and Reports on Form 8-K
Part III - Signatures
- ---------------------
2
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
---------------------------------------------
(Unaudited)
JUNE 30, December 31,
1997 1996
---------- ------------
ASSETS
------
CASH AND DUE FROM BANKS $ 917,638 $ 450,230
FEDERAL FUNDS SOLD 603,582 465,530
----------- -----------
Cash and cash equivalents 1,521,220 915,760
INVESTMENT SECURITIES HELD-TO-MATURITY 920,112 920,187
ACCRUED INTEREST RECEIVABLE 182,016 278,140
SECONDARY MARKET FUNDING RECEIVABLE 2,545 522,763
LOANS RECEIVABLE, net 19,637,485 20,473,502
RESIDENTIAL REAL ESTATE OWNED 1,657,336 1,603,395
COMMERCIAL REAL ESTATE OWNED 1,340,114 1,307,098
FEDERAL HOME LOAN BANK STOCK 169,100 169,100
PREMISES AND EQUIPMENT, net 417,593 426,125
OTHER ASSETS 692,657 725,435
----------- -----------
Total Assets $26,540,178 $27,341,505
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DEPOSITS $23,475,242 $24,889,630
FEDERAL HOME LOAN BANK ADVANCES 950,000 450,000
ACCRUED EXPENSES 227,577 89,887
OTHER LIABILITIES 32,649 63,149
OTHER BORROWED MONEY 9,000 18,000
----------- -----------
Total Liabilities 24,694,468 25,510,666
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $0.01 per share;
5,000,000 shares authorized, 106,924
shares issued and outstanding 1,069 1,069
Additional Paid-in Capital 700,205 700,205
Current Earnings 5,870 --
Retained earnings 1,147,566 1,147,565
----------- -----------
1,854,710 1,848,839
Deferred compensation (9,000) (18,000)
----------- -----------
Total Stockholders' Equity 1,845,710 1,830,839
----------- -----------
Total Liabilities and Stockholders' Equity $26,540,178 $27,341,505
=========== ===========
The accompanying notes are an integral part of these consolidated
balance sheets.
3
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
-----------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
----------------- --------------------
1997 1996 1997 1996
------ ------ ------ ------
INTEREST INCOME:
Interest and fees on loans $ 954,104 $1,036,511 $ 456,145 $ 505,536
Interest on investment securities 48,543 63,396 24,311 25,857
Interest on federal funds sold 12,052 59,853 6,232 35,995
---------- ---------- ---------- ----------
1,014,699 1,159,760 486,688 567,388
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 612,174 716,825 303,171 368,346
Other interest expense 19,010 10,767 12,658 333
---------- ---------- ---------- ----------
631,184 727,592 315,829 368,679
---------- ---------- ---------- ----------
Net interest income 383,515 432,167 170,859 198,708
PROVISION FOR LOAN LOSSES (2,395) (13,206) (1,363) (14,916)
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 381,120 445,373 169,496 213,624
---------- ---------- ---------- ----------
OTHER INCOME:
Fees on loans originated for others,
net of related commissions &
payroll taxes 56,103 69,633 38,027 43,608
Other operating income, including
subsidiary net income 127,019 142,357 66,374 86,122
---------- ---------- ---------- ----------
183,122 211,990 104,401 129,730
---------- ---------- ---------- ----------
OTHER EXPENSES:
Salaries, benefits and payroll taxes 232,148 258,300 111,389 123,053
Other operating expenses 315,148 352,190 143,780 206,780
---------- ---------- ---------- ----------
547,296 610,490 255,169 329,832
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX
EXPENSE 16,946 46,873 18,728 13,522
INCOME TAX (BENEFIT) EXPENSE 11,076 20,042 11,076 5,616
---------- ---------- ---------- ----------
NET INCOME $ 5,870 $ 26,831 $ 7,652 $ 7,906
========== ========== ========== ==========
EARNINGS PER SHARE $ 0.05 $ 0.25 $ 0.07 $ 0.07
====== ====== ====== ======
Weighted average number of shares
outstanding 106,924 106,924 106,924 106,924
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated
statements.
4
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
-----------------------------------------------
1997 1996
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,870 $ 26,831
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Provision for loan losses 2,395 (13,206)
Loan fees deferred, net of costs 12,549 12,529
Amortization of deferred loan fees (36,291) (32,184)
Depreciation 14,328 28,774
Decrease (increase) in accrued
interest receivable 96,124 11,644
Origination of loans sold on the
secondary market (1,721,300) (2,931,629)
Proceeds from sale of loans on the
secondary market 2,241,518 3,162,477
Decrease (increase) in deferred income
tax asset 0 0
Decrease (increase) in other assets 32,778 51,760
(Decrease) increase in accrued expenses and
other liabilities 107,190 (39,255)
Amortization of deferred compensation 9,000 9,000
----------- -----------
Net cash provided by (used in)
operating activities 764,161 286,746
----------- -----------
5
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
-----------------------------------------------
1997 1996
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing investment securities $ 100,248 $ 265,220
Purchases of investment securities (100,173) (298,968)
Proceeds from sale of FHLB Stock 0 0
Purchase of FHLB Stock 0 (4,100)
Decrease (increase) in loans, net 857,364 775,371
Purchase of premises and equipment (5,795) (71,397)
Purchase of and investment in foreclosed
real estate, net (86,957) (87,954)
----------- -----------
Net cash (used in) provided by
investing activities 764,687 578,672
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in deposits, net (1,414,388) 2,869,857
Repayment of FHLB Advances 500,000 (2,000,000)
Increase in short-term borrowings, net 0 0
Debt repayment (9,000) (9,000)
----------- -----------
Net cash provided by (used in)
financing activities (923,388) 860,857
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 605,460 1,726,275
CASH AND CASH EQUIVALENTS, beginning
of year 915,760 1,572,581
----------- -----------
CASH AND CASH EQUIVALENTS, end of quarter $ 1,521,220 $ 3,298,856
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOWS INFORMATION:
Cash paid during the quarter for:
Interest $ 315,829 $ 727,592
Income taxes, net of refund 1,520 0
In-substance foreclosure on real estate 23,770 0
Foreclosure on real estate 26,255 428,831
The accompanying notes are an integral part of these consolidated
statements.
6
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have
been prepared in accordance with instructions to Form 10-QSB and,
therefore, do not include information or footnotes necessary for a fair
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
However, all adjustments which are, in the opinion of management,
necessary for a fair presentation have been included. The results of
operations for the three and six month period ended June 30, 1997 are
not necessarily indicative of the results which may be expected for the
entire fiscal year. The Notes to Consolidated Financial Statements for
the year ended December 31, 1996, included in the Savings Bank's Form
10-K, should be read in conjunction with these statements.
Note 2 - Holding Company Reorganization
------------------------------
On July 12, 1995, the Company completed the acquisition of
Baltimore American Savings Bank, FSB (the "Bank") pursuant to an
Agreement and Plan of Reorganization in which the Bank became a wholly-
owned subsidiary of the Company, a newly formed holding company
incorporated by the Bank for that purpose. Under the terms of the
Agreement and Plan of Reorganization, each outstanding share, other
than shares as to which dissenters' rights were properly exercised, of
the common stock, $1.00 par value per share, of the Bank (the "Bank's
Common Stock") was converted into one share of the common stock $.01
par value per share, of the Company (the "Common Stock") and the former
holders of the Bank's Common Stock became the holders of all the
outstanding Common Stock. For the periods prior to July 12, 1995, the
financial statements of the Company consist of the financial statements
of the Bank.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL PERSPECTIVE
Since December 31, 1996, Management and the Board of Directors
have made several changes in operations that have contributed to the
reduction in operating losses for the Company. Compensation costs have
been reduced, other operating expense has been contained, and interest
expense has been reduced by shrinking the deposit base. The primary
problems facing the Company are the lack of core earnings resulting
from a high level of criticized assets and real estate owned, the
continued decrease in the volume of loans originated, and the
significant costs for professional fees associated with operating a
savings bank. It is Management and the Board's goal to resolve the
level of criticized assets and to dispose of the real estate owned; to
increase the volume of loans originated through the origination of
nonconforming loans, which is a new niche market for the Savings Bank
in 1997; and to contain the costs of professional fees.
FINANCIAL CONDITION
General Overview
Total assets decreased by $801,327 or 50.12% during the six months
ended June 30, 1997. The decrease in total assets was primarily due to
decrease in the secondary market funding receivable, which was the
direct result of the decrease in the volume of loans originated in the
first quarter, and a decrease in loans receivable, net, which was the
direct result of early loan payoffs. "Table 1. Utilization of Assets"
exhibits for the periods indicated certain consolidated balance sheet
items related to the financial structure of the Company.
_________________________________________________________________
TABLE 1
Utilization of Assets
- -----------------------------------------------------------------
June 30, December 31,
1997 1996 Difference
------- ----------- ----------------------
Cash and due from banks $ 917,638 $ 450,230 $ 467,408 103.82 %
Federal funds sold 603,582 465,530 138,052 29.65
Investment securities
held-to-maturity 920,112 920,187 (75) (0.01)
Loans receivable, Net 19,637,485 20,473,502 (836,017) (4.08)
Secondary market funding
receivable 2,545 522,763 (520,218) (99.51)
Residential Real Estate
Owned 1,657,336 1,603,395 53,941 3.36
Commercial Real Estate Owned 1,340,114 1,307,098 33,016 2.53
All other assets 1,461,366 1,598,800 (137,434) (8.60)
----------- ----------- ----------- ------
$26,540,178 $27,341,505 $ (801,327) (50.12)%
=========== =========== =========== ======
- ------------------------------------------------------------------------------
8
Commercial real estate owned comprises commercial real estate that
was foreclosed upon by the Company. Of the $1,340,114 in commercial
real estate, $1,218,223 represents Sheridan Station Shopping Center,
which is 33,014 square feet and is comprised of eleven (11) tenant
spaces, with 127 parking spaces available. The increase in commercial
real estate owned was the direct result of improvements made to
Sheridan Station Shopping Center.
As of June 30, 1997, the center is eighty percent (80%) leased and
generated operating income of $115,980 and operating expenses of
$49,071 for pretax income of $66,909, which is included as other
operating income in the accompanying consolidated statement of
operations for the quarter ended June 30, 1997.
Management is actively marketing this property for sale.
Management intends to sell the property as soon as a viable buyer is
identified. However, no assurance can be made that a sale will be
consummated or that losses on the sale or from operations prior to the
sale will not be realized. Management believes that an adequate
allowance for any potential losses on the ultimate sale of the property
has been provided as of June 30, 1997.
In addition, the Savings Bank's $1,218,223 investment in Sheridan
Station must be deducted from total capital beginning in June 1998. If
the Savings Bank were required to deduct Sheridan Station from total
capital, the Savings Bank would no longer be in compliance with OTS
risk-based capital requirements and would become subject to significant
restrictions on its operations. Depending on the capital levels at
that time, the Savings Bank could become subject to more severe
sanctions, including conservatorship or receivership, which would
generally result in a complete loss of the Company's investment in the
Savings Bank. Although Management of the Savings Bank is working to
dispose of its foreclosed properties and to resolve its nonperforming
assets, stockholders should be aware that the future results of
operations of the Savings Bank, its compliance with regulatory capital
requirements, and its ability to continue as a going concern are all
subject to the satisfactory disposition of these foreclosed properties
and nonperforming assets.
In addition, commercial real estate owned includes a one acre
parcel of commercial property located in Anne Arundel County on Ridge
Road in the amount of $121,891. This asset is over five years old and
is now considered real estate held for investment. As such, the
balance at which the property is carried reduces the risk-based capital
of the Company by that amount. Although the Company believes its
interest in this property is currently adequately secure, there is no
assurance that the property will be sold or that Baltimore American
will recoup its investment.
Residential real estate owned comprises residential real estate
that was foreclosed upon by the Company. Of the $1,657,336 in
residential real estate, $1,566,849 represents residential homes and
$90,487 represents residential land owned by the Company. This land
asset is over five years old and is now considered real estate held for
investment. As such, the balance at which the property is carried
reduces the risk-based capital of the Company by that amount. Although
the Company believes its interest in this property is currently
adequately secure, there is no assurance that the property will be sold
or that Baltimore American will recoup its investment. Management is
actively marketing thes residential properties and intends to sell
these properties as soon as viable buyers are identified. In the
interim, and where possible, the Company is rehabilitating these homes
and renting them out to low- and moderate-income families. The rental
income is being applied directly to the outstanding balance, reducing
the Company's exposure and enhancing the property's marketability. It
is worth noting that management was awarded citations by Baltimore's
Mayor Schmoke and by Mary Pat Clark, President of the Baltimore City
Council, in recognition of its commitment to building strong
communities. While management believes it will be able to find buyers
in the future, no assurance can be made that buyers will be found or
that losses on the sale will not be realized. Management believes that
an adequate allowance for any potential losses on the ultimate sale of
these properties has been provided as of June 30, 1997.
Total liabilities decreased by $816,198 or 3.20% during the six
months ended June 30, 1997, directly as a result of the decrease in
deposits (see Table 2. Source of Funds). The decrease in deposits
is the result of individual depositors opting for higher rates at other
institutions. Other borrowed money, representing the Employee Stock
Ownership Plan (ESOP), was reduced by $9,000, which is the principal
amount of the loan paid each year.
9
_________________________________________________________________
TABLE 2
Source of Funds
- -----------------------------------------------------------------
June 30, December 31,
1997 1996 Difference
------- ----------- ----------------------
Deposits $23,475,242 $24,889,630 $ (1,414,387) (5.68)%
Federal Home Loan Bank
Advances 950,000 450,000 500,000 111.11
Accrued Expenses 227,577 89,887 137,690 153.18
Other Liabilities 32,649 63,149 (30,500) (48.30)
Other Borrowed Money 9,000 18,000 (9,000) (50.00)
----------- ----------- ------------ ------
$24,694,468 $25,510,666 $ (816,198) (3.20)%
=========== =========== ============ ======
- ---------------------------------------------------------------------------------
Liquidity
Adequate liquidity must be maintained to fund deposit withdrawals,
to meet customers' borrowing needs, to take advantage of investment
opportunities, and to maintain the required levels of reserves. On the
asset side, the primary sources of liquidity are cash and due from
banks, investment securities, federal funds, and scheduled repayments
on outstanding loans. On the liability side, the primary sources of
liquidity are deposit growth and the line of credit with the Federal
Home Loan Bank.
Management evaluates the Company's liquidity position daily to
maintain a level conducive to efficient operations and to satisfy
regulatory requirements. Attention is directed primarily to assets and
liabilities that mature or can be repriced within one year. The
Company matches the maturities, to the extent possible, of its assets
and liabilities to minimize variability in net interest income; this
practice helps to minimize interest rate risk. Prudent risks are
taken, however, by leaving certain assets and liabilities unmatched in
an effort to benefit from the interest rate sensitivity inherent in the
U.S. monetary system.
The minimum regulatory required level of long-term liquidity is
currently 5% of total deposits and borrowed money; the minimum required
short-term level is 1%. The liquidity level of Baltimore American at
June 30, 1997, as measured for regulatory purposes, was approximately
8.31% for both long- and short-term purposes. Management believes the
Company can meet its obligations of outstanding loan commitments and at
the same time maintain liquidity in excess of the minimum regulatory
requirement without having to borrow funds.
Capital Resources
The Company's Stockholders' Equity was $1,845,710 or 6.95% of
total assets on June 30, 1997 compared to $2,216,012 or 7.48% on
December 31, 1996. The Company exceeds all regulatory requirements for
capital. Management continually reviews and identifies areas of growth
opportunity. The various methods for generating equity from internal
and external sources are constantly under review to ascertain the most
effective approach for the Company. Table 3. Regulatory Capital
Requirements represents the Company's position to its various minimum
regulatory capital requirements at June 30, 1997.
10
_________________________________________________________________
TABLE 3
Regulatory Capital Requirements
- -----------------------------------------------------------------
June 30, 1997 (unaudited)
---------------------------
Percentage
Amount of Assets*
------ ----------
(In thousands)
Tangible Capital $1,789 6.72%
Tangible Capital Requirement 399 1.50%
------ -----
Excess $1,390 5.22%
====== =====
Core Capital $1,789 6.72%
Core Capital Requirement 798 3.00%
------ -----
Excess $ 991 3.72%
====== =====
Total Capital $1,796 10.32%
(Core and Supplementary Capital)
Risk-Based Capital Requirement 1,392 8.00%
------ -----
Excess $ 404 2.32%
====== =====
<FN>
____________
*Based on adjusted total assets of $26,608,000 for purposes of the
tangible capital and core capital requirements, and risk-weighted
assets of $17,398,000 for purposes of the risk-based capital
requirements.
</FN>
- -----------------------------------------------------------------
RESULTS OF OPERATIONS
General Overview
For the six months ended June 30, 1997, the Company posted a
$5,870 profit, as compared to a profit of $26,831 for the same period
in 1996. For the three months ended June 30, 1997, the Company posted
a $7,651 profit, as compared to a profit of $7,906 for the same period
in 1996. Although the Company reported positive earnings for the first
six months of 1997, net income was not as significant as that for the
same period in 1996, which is the result of the high level of
criticized assets and real estate owned, the first quarter decrease in
the volume of loans originated, and the significant costs for
professional fees associated with operating a savings bank during the
first quarter It is Management and the Board's goal to resolve the
level of criticized assets and to dispose of the real estate owned; to
increase the volume of loans originated through the origination of
nonconforming loans, which is a new niche market for the Savings Bank
in 1997; and to contain the costs of professional fees.
11
Earnings per share of common stock were $0.05 per share for the
six months ended June 30, 1997, as compared to $0.25 per share for the
same period in 1997. Earnings per share of common stock were $0.07 per
share for the three months ended June 30, 1997, as compared to $0.07
per share for the same period in 1996. Table 4. Operations Items as
of June 30, 1997 exhibits for the periods indicated certain
consolidated statement of operations items which contributed to
earnings.
Net Interest Income
Net interest income is the foundation and core of Baltimore
American's earnings, representing the difference between total interest
and fees earned on all loans, investments and other interest earning
assets, and the total interest paid on deposits and borrowings. For
the six months ended June 30, 1997, net interest income was $383,515,
as compared with $432,167 for the same period in 1996. For the three
months ended June 30, 1997, net interest income was $170,859, as
compared with $198,708 for the same period in 1996.
Net interest income decreased $48,652, or 11.26%, during the first
six months of 1997, as compared with the same period in 1996. This was
the direct result of the decrease in interest income on loans,
investments and federal funds sold. In particular, the decrease in
interest income from loans has resulted from the deteriorated mortgage
market. The volume of conforming paper with strong credit is almost
completely diminished in the Baltimore area. Competition for the small
market prohibits Baltimore American from originating residential
mortgage loans for the portfolio. Other areas of loan origination are
considered too risky for the Savings Bank and therefore are not
feasible. Baltimore American's new niche of nonperforming paper is
also considered too risky for the portfolio. However, the sale of
these type loans into the secondary market is beginning to increase
noninterest income. Baltimore American will try to offset the loss of
interest income on loans by increasing the volume of investments in
securities as well as by the continued increase in fees earned on
nonconforming loans originated for others.
In recognition of the nonperforming loans and the inherent risk in
lending, Management has established a provision for loan losses. The
provision for loan losses is a reserve of funds established to absorb
potential loan losses after evaluating the asset portfolio (current
economic conditions, changes in the nature and volume of lending, and
past loan loss experience, as well as other factors). Upon evaluation
of the future trends of general economic conditions in this country and
in particular Baltimore American's market area, Management and the
Board of Directors decided to continue to reserve additional funds in
regard to the future economic trends that might have an effect on the
portfolio of loans. The provision for loan losses for the six months
ended June 30, 1997 was $2,395, as compared to $13,206 for the same
period in 1996. The provision for loan losses for the three months
ended June 30, 1997 was $1,363, as compared to $14,916 for the same
period in 1996 As of June 30, 1997, the provision for loan losses
declined in proportion to the volume of loans originated for the
Company's portfolio.
For the six months ended June 30, 1997, net interest income after
provision for loan loss was $381,120 as compared with $445,373 for the
same period in 1996. For the three months ended June 30, 1997, net
interest income after provision for loan loss was $169,496 as compared
with $213,614 for the same period in 1996.
Other Income
There are two significant components of non-interest income for
the six months ended June 30, 1997. (1) Fees on loans originated for
others decreased by $13,530 or 19.43% during the six months ended June
30, 1997 as compared with the same period in 1996. Fees on loans
originated for others decreased by $5,581 or 12.80% during the three
months ended June 30, 1997 as compared with the same period in 1996.
This is the direct result of the continued decline in loan originations
of conforming paper with strong credit. However, originations of
nonconforming paper continue to grow and have begun to offset the
decrease in conforming paper in the second quarter. (2) Other
operating income was $15,338 or 10.77% less during the six months ended
June 30, 1997 as compared with the same period in 1996. Other
operating income was $19,748 or 22.93% less during the three months
ended June 30, 1997 as compared with the same period in 1996. The
decrease in other income reflects the result of no gain on the sale of
real estate owned property in 1997 as occurred during the same period
in 1996.
12
_________________________________________________________________
TABLE 4
Operations Items as of June 30,
- -----------------------------------------------------------------
Six Months Ended
June 30,
-----------------------
1997 1996 Difference
--------- ----------- -------------------
INTEREST INCOME:
Interest and fees on loans $ 954,104 $1,036,511 $ (82,407) (7.95)%
Other interest income 60,595 123,249 (62,654) (50.84)
---------- ---------- --------- ------
$1,014,699 $1,159,760 $(145,061) 9.63%
========== ========== ========= ======
INTEREST EXPENSE:
Interest on deposits $ 612,174 $ 716,825 $(104,651) 39.48%
Other interest expense 19,010 10,767 8,243 75.56
---------- ---------- --------- ------
$ 631,183 $ 727,592 $ (96,409) (13.25)%
========== ========== ========= =======
PROVISION FOR LOAN LOSSES $ 2,395 $ 13,206 $ (10,811) (81.86)%
========== ========== ========= =======
OTHER INCOME:
Fees on loans originated
for others (Net of sales
commissions and related
payroll taxes) $ 56,103 $ 69,633 $ (13,530) (19.43)%
Other operating income,
including subsidiary
net income 127,019 142,357 (15,338) (10.77)
---------- ---------- --------- ------
$ 183,122 $ 211,990 $ (28,868) (13.62)%
========== ========== ========= =======
OTHER EXPENSES:
Salaries, benefits and payroll
taxes $ 232,148 $ 258,300 $ (83,000) (32.13)%
Other operating expenses 315,148 352,190 (37,042) (10.52)
---------- ---------- --------- ------
$ 547,296 $ 610,490 $ (63,194) (10.35)%
========== ========== ========= =======
- --------------------------------------------------------------------------------
_________________________________________________________________
TABLE 4
Operations Items as of June 30,
- -----------------------------------------------------------------
Three Months Ended
June 30,
-----------------------
1997 1996 Difference
--------- ----------- -------------------
INTEREST INCOME:
Interest and fees on loans $ 456,145 $ 505,536 $ (49,391) (9.77)%
Other interest income 30,543 61,852 (31,309) (50.62)
---------- ---------- --------- ------
$ 486,688 $ 567,388 $ (80,700) (14.22)%
========== ========== ========= ======
INTEREST EXPENSE:
Interest on deposits $ 303,171 $ 368,346 $ (65,175) (17.69)%
Other interest expense 12,658 333 12,325 97.37
---------- ---------- --------- ------
$ 315,829 $ 368,679 $ (52,850) (14.33)%
========== ========== ========= =======
PROVISION FOR LOAN LOSSES $ 1,363 $ 14,916 $ (13,553) (90.86)%
========== ========== ========= =======
OTHER INCOME:
Fees on loans originated
for others (Net of sales
commissions and related
payroll taxes) $ 38,027 $ 43,608 $ (5,581) (12.80)%
Other operating income,
including subsidiary
net income 66,374 86,122 (19,748) (22.93)
---------- ---------- --------- ------
$ 104,401 $ 129,730 $ (25,329) (19.52)%
========== ========== ========= =======
OTHER EXPENSES:
Salaries, benefits and payroll
taxes $ 111,389 $ 123,053 $ (11,664) (9.48)%
Other operating expenses 143,780 206,780 (63,000) (30.47)
---------- ---------- --------- ------
$ 255,169 $ 329,832 $ (74,663) (22.64)%
========== ========== ========= =======
- --------------------------------------------------------------------------------
13
Other Expense
Total non-interest expense decreased by $63,194 or 10.36% during
the six months ending June 30, 1997 as compared to the same period in
1996. Total non-interest expense decreased by $74,663 or 22.64% during
the three months ending June 30, 1997 as compared to the same period in
1996. Employee compensation decreased by $83,000 or 32.13% and other
operating expenses decreased by $37,042 or 10.52%. Total non-interest
expense decreased as a result of the cost control measures implemented
by Management and the Board.
Provision For Taxes
The Company's effective tax rate varies with changes in the
proportion of tax exempt income, changes in corporate tax rates, and
certain local tax credits. Provision for income taxes for the six
months ended June 30, 1997 was $11,076, compared to $20,042 for the
same period in 1996.
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation on the Company is reflected primarily in
the increased cost of operations. A portion of these increased costs
are generally passed on to customers in the form of increased service
fees. Because the Company's assets and liabilities are virtually all
monetary in nature, reinvestment and prepayment rate fluctuations more
significantly impact the Company's performance than the effects of
inflation. Volatile interest rate environments require management to
maintain acceptable levels of liquidity and to maintain proper maturity
structure of the Company's assets and liability.
In structuring fees, negotiating loan margins, and developing
customer relationships, Management concentrates its efforts on
maximizing earnings, while attempting to contain increases in operating
expenses. Management and the Board of Directors continually review the
feasibility of new and additional fee-generating services to offset the
effects of inflation and changing prices. Management and the Board of
Directors perform this function with the objective of increased
earnings.
14
PART II
ITEM 1. Legal Proceedings
-----------------
Not applicable.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On May 22, 1997, the Company held its Annual Meeting of
Stockholders at which the following matters were voted
on:
Proposal I -- Election of Directors
---------------------
NOMINEE FOR WITHHELD
------- --- --------
Richard W. Kraus 79,979 625
Nancy H. Burger 80,254 350
There were no abstentions or broker non-votes.
ITEM 5. Other Materially Important Events
---------------------------------
None.
ITEM 6. Exhibits and Reports
--------------------
A. Exhibit 27: Financial Data Schedule (EDGAR Only)
B. Reports on Form 8-K. There were no reports on
Form 8-K filed during the quarter.
15
PART III
SIGNATURES
Pursuant to the requirements 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.
Date: August 13, 1997 By: /s/ Richard W. Kraus
---------------------------
Richard W. Kraus
PRESIDENT, CHIEF EXECUTIVE
OFFICER & CHIEF FINANCIAL
OFFICER
16