[FRONT COVER OF 1996 ANNUAL REPORT]
96
ANNUAL REPORT
MARION CAPITAL
HOLDINGS, INC.
and Subsidiary
First Federal Savings Bank
of Marion
TABLE OF CONTENTS
Message to Shareholders.............................................. 1
Selected Consolidated Financial Data................................. 3
Management's Discussion and Analysis................................. 4
Independent Auditor's Report......................................... 16
Consolidated Statement of Financial Condition........................ 17
Consolidated Statement of Income..................................... 18
Consolidated Statement of Changes in Shareholders' Equity............ 19
Consolidated Statement of Cash Flows................................. 20
Notes to Consolidated Financial Statements........................... 22
Directors and Officers............................................... 42
Shareholder Information.............................................. 44
DESCRIPTON OF BUSINESS
Marion Capital Holdings, Inc. ("MCHI"), an Indiana corporation, became a unitary
savings and loan holding company upon the conversion of First Federal Savings
Bank of Marion ("First Federal" and, together with MCHI, the "Company") from a
federally chartered mutual savings bank to a federally chartered stock savings
bank in March, 1993. The Company conducts business from a single office in
Marion, Grant County, Indiana, and First Federal has a branch office in Decatur,
Indiana. First Federal is and historically has been among the top real estate
mortgage lenders in Grant County and is the largest independent financial
institution headquartered in Grant County. First Federal offers a variety of
lending, deposit and other financial services to its retail and commercial
customers. MCHI has no other business activity than being the holding company
for First Federal. MCHI is the sole shareholder of First Federal.
To our Shareholders:
The year ended June 30, 1996 marked the third full year of operations for Marion
Capital Holdings, Inc. as a unitary savings and loan holding company which began
operations on March 18, 1993 when First Federal Savings Bank of Marion converted
to a federal stock savings bank. First Federal Savings Bank of Marion will
complete its 60th year of financial service to the community in 1996.
Our net income for the year ended June 30, 1996 was $2,481,414, which was a 2.1%
increase over the 1995 net income of $2,429,948. This represents the fourth
consecutive year the Company has been able to increase its net income. Earnings
per share for the year ended June 30, 1996 amounted to $1.22, an increase of
9.9% over earnings per share of $1.11 reported in the prior year. In June 1996,
we increased our quarterly dividend to $.20 per share which was an 11% increase
over the dividend paid in each of the previous four quarters. Marion Capital
Holdings, Inc. was able to increase net income even though the interest rate
spread declined slightly. The interest rate spread for the year ended June 30,
1996 decreased to 3.01% from 3.20% for the year ended June 30, 1995.
The Company showed improvement in many financial ratios. The ratio of
nonperforming assets to total assets at June 30, 1996 was 1.07%, which compares
to 1.13% at June 30, 1995. Real estate owned declined by 11%. Nonperforming
loans to total loans was 1.18% at June 30, 1996 compared to 1.27% at June 30,
1995. Return on assets for the year ended June 30, 1996 was 1.41% which was
unchanged from the previous year. Return on equity improved from 5.58% for the
year ended June 30, 1995 to 5.86% for the current year.
Shareholders' equity decreased during the year as the Company continued to
repurchase common stock in the open market. During the year ended June 30, 1996,
100,658 shares were retired at an average cost of $20.53 or approximately 96% of
average book value. Book value per share increased to $21.47 per share from
$21.08 per share last year. In July 1996, the Company repurchased 96,680 shares
at an average cost of $20.33, or approximately 95% of book value. These
repurchases are intended to enhance the potential for growth in earnings per
share and increase the return on equity.
Loan originations remained strong for the year ended June 30, 1996, and
repayments remained stable as interest rates stabilized and refinancing became
less popular. This resulted in net loans receivable increasing by $6.8 million,
or 5%, from June 30, 1995. This helped improve the yield on assets as funds were
reallocated from lower yielding investments to higher yielding mortgage loans.
The yield on mortgage loans increased from 8.52% for the year ended June 30,
1995 to 8.78% for the year ended June 30, 1996.
Deposits increased by $5.6 million, or 4.7%, from June 30, 1995, and the cost of
those funds increased as well from 4.66% for the year ended June 30, 1995 to
5.22% for the year ended June 30, 1996.
On March 1, 1996 John M. Dalton became President and CEO of Marion Capital
Holdings, Inc. and First Federal Savings Bank of Marion upon the retirement of
Robert D. Burchard.
Mr. Dalton began his career at First Federal in 1962, has been a director since
1974, and was Executive Vice President of First Federal from 1983 until his
recent promotion. He was also Executive Vice President and director of Marion
Capital Holdings, Inc. from its beginning until March 1, 1996. He was elected
Vice Chairman of the boards of Marion Capital Holdings, Inc. and First Federal
on August 12, 1996.
Mr. Burchard was employed at First Federal beginning in 1959, and became a
director in 1969 and President and CEO from 1983 until his retirement. In
addition, he was President and CEO of Marion Capital Holdings, Inc. from March
18, 1993 until his retirement and had been Vice Chairman of First Federal and
Marion Capital Holdings, Inc. He became Chairman on August 12, 1996 of both
organizations.
In July 1996, we were all saddened by the death of Merritt B. McVicker, Chairman
of the Board of Directors since 1974 and former President of First Federal
Savings Bank from 1967 to 1983. Mr. McVicker first joined the bank in 1959, and
was very instrumental in making First Federal into the area's premier mortgage
lender. Mr. McVicker was past Chairman of the Indiana League of Savings
Institutions, director of the Federal Home Loan Bank of Indianapolis, Trustee of
the Advertising Council of the U.S. League, and served on the boards of various
community organizations. He will be sadly missed by his family, friends and
business associates. He was a real "Team Player!"
On August 12, 1996, the boards of Marion Capital Holdings, Inc. and First
Federal Savings Bank were expanded from six (6) to seven (7) members effective
September 1, 1996. At those board meetings, Jerry D. McVicker was appointed to
fill the unexpired term of Merritt B. McVicker which expires in 1997. Steven L.
Banks was appointed to the new board position. He will be nominated for
re-election at Marion Capital's annual meeting on October 17, 1996, for a
three-year term expiring in 1999.
Mr. McVicker, 51 years of age, is currently Director of Operations for Marion
Community Schools and has served in various capacities throughout many years
with the school.
Mr. Banks, 46 years of age, was President and CEO of Fidelity Federal Savings
Bank of Marion. On September 1, 1996, he assumed the duties of Executive Vice
President of both Marion Capital Holdings, Inc. and First Federal Savings Bank
of Marion.
We believe the Company has enjoyed a good and profitable year, and we are
thankful for the continued support and confidence of our customers and
shareholders.
/s/ John M. Dalton /s/ Robert Burchard
President Chairman of the Board
SELECTED CONSOLIDATED FINANCIAL DATA OF
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
The following selected consolidated financial data of MCHl and its
subsidiaries is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements, including notes thereto, included
elsewhere in this Annual Report.
AT JUNE 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In Thousands)
Summary of Financial Condition:
Total assets......................................... $177,767 $172,711 $170,799 $173,861 $161,308
Loans, net........................................... 143,165 136,323 127,092 133,000 133,257
Cash and investment securities....................... 21,578 23,743 30,863 27,531 15,257
Real estate limited partnerships..................... 1,624 1,527 1,422 1,363 1,182
Deposits............................................. 126,260 120,613 120,965 121,944 131,174
Advances from FHLB of Indianapolis................... 6,241 6,963 3,200 3,075 5,175
Shareholders' equity................................. 41,511 41,864 44,331 46,773 23,256
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In Thousands)
Summary of Operating Results:
Interest income...................................... $13,740 $ 12,786 $ 12,391 $ 12,885 $ 13,927
Interest expense..................................... 6,853 5,922 5,872 6,936 9,109
-------- -------- -------- -------- --------
Net interest income............................... 6,887 6,864 6,519 5,949 4,818
Provision for losses on loans........................ 34 68 65 367 1,150
-------- -------- -------- -------- --------
Net interest income after
provision for losses on loans................... 6,853 6,796 6,454 5,582 3,668
-------- -------- -------- -------- --------
Other income:
Net loan servicing fees........................... 81 69 62 51 33
Annuity and other commissions..................... 147 144 211 194 166
Other income...................................... 95 76 83 91 82
Equity in losses of limited partnerships.......... (193) (185) (236) (190) (195)
Gains (losses) on sale of investments ............ -- -- 15 (16) --
-------- -------- -------- -------- --------
Total other income................................ 130 105 134 130 86
-------- -------- -------- -------- --------
Other expense:
Salaries and employee benefits.................... 2,296 2,339 1,970 1,574 1,874(8)
Other............................................. 1,293 1,216 1,634 1,470 1,359
-------- -------- -------- -------- --------
Total other expense............................. 3,589 3,555 3,604 3,044 3,233
-------- -------- -------- -------- --------
Income before income tax and accounting
method changes.................................... 3,394 3,346 2,984 2,668 521
Income tax expense (benefit)......................... 913 916 715 578 (230)
Accounting method changes............................ -- -- -- 98 --
-------- -------- -------- -------- --------
Net Income........................................ $ 2,481 $ 2,430 $ 2,269 $ 1,992 $ 751
======== ======== ======== ======== ========
Supplemental Data:
Book value per common share at end of year........... $21.47 $ 21.08 $ 20.20 $ 19.37 N/A
Return on assets (1)................................. 1.41% 1.41% 1.29% 1.19% .46%
Return on equity (2)................................. 5.86 5.58 5.00 6.45 3.28
Interest rate spread (3)............................. 3.01 3.20 2.96 3.08 2.61
Net yield on interest earning assets (4)............. 4.17 4.28 3.97 3.82 3.19
Operating expenses to average assets (5)............. 2.04 2.06 2.04 1.82 1.97(8)
Net interest income to operating expenses (6)........ 1.92x 1.93x 1.81x 1.95x l.49x(8)
Equity-to-assets at end of year (7).................. 23.35 24.24 25.96 26.90 14.42
Average equity to average total assets............... 24.09 25.27 25.72 18.52 13.94
Average interest-earning assets to average
interest-bearing liabilities...................... 127.93 129.08 128.37 116.65 109.69
Non-performing assets to total assets................ 1.07 1.13 3.20 4.10 5.52
Non-performing loans to total loans.................. 1.18 1.27 3.59 3.95 5.43
Loan loss reserve to total loans..................... 1.38 1.45 1.59 1.52 1.70
Loan loss reserve to non-performing loans............ 117.07 114.87 44.21 38.44 31.31
Net charge-offs to average loans..................... .03 .08 .05 .46 .60
Number of full service offices....................... 2 2 2 2 2
- ----------
(1) Net income divided by average total assets.
(2) Net income divided by average total equity.
(3) Interest rate spread is calculated by subtracting combincd weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated.
(4) Net interest income divided by average interest-earnings assets.
(5) Other expense divided by average total assets.
(6) Net interest income divided by other expense.
(7) Total equity divided by assets.
(8) Other expense was adversely affected during the year ended June 30, 1992,
by $549,000 because of a change in the accounting treatment for a
supplemental retirement program for certain officers and directors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The principal business of thrift institutions, including First Federal, has
historically consisted of attracting deposits from the general public and making
loans secured by residential and commercial real estate. First Federal and all
other savings associations are significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
Deposit flows are influenced by a number of factors, including interest rates
paid on competing investments, account maturities and level of personal income
and savings. In addition, deposit growth is affected by how customers perceive
the stability of the financial services industry amid various current events
such as regulatory changes, failures of other financial institutions and
financing of the deposit insurance fund. Lending activities are influenced by
the demand for and supply of housing lenders, the availability and cost of funds
and various other items. Sources of funds for lending activities include
deposits, payments on loans, proceeds from sale of loans, borrowings, and funds
provided from operations. The Company's earnings are primarily dependent upon
net interest income, the difference between interest income and interest
expense.
Interest income is a function of the balances of loans and investments
outstanding during a given period and the yield earned on such loans and
investments. Interest expense is a function of the amounts of deposits and
borrowings outstanding during the same period and rates paid on such deposits
and borrowings. The Company's earnings are also affected by provisions for loan
and real estate losses, service charges, income from subsidiary activities,
operating expenses and income taxes.
Asset/Liability Management
First Federal, like other savings associations, is subject to interest rate
risk to the degree that its interest-bearing liabilities, primarily deposits
with short and medium-term maturities, mature or reprice at different rates than
its interest-earning assets. Although having liabilities that mature or reprice
less frequently on average than assets will be beneficial in times of rising
interest rates, such an asset/liability structure will result in lower net
income during periods of declining interest rates, unless offset by other
factors.
Since the early 1980's, First Federal's asset/liability management strategy
has been directed toward reducing its exposure to a rise in interest rates. At
June 30, 1996, First Federal's cumulative One-Year Gap, based on total assets,
was a positive 16.81% and has been positive at the end of each quarter since
September 30, 1988. A positive interest rate gap can be expected to have a
favorable effect on the Company's earnings in periods of rising interest rates
because during such periods interest income earned on assets will generally
increase more rapidly than the interest expense paid on liabilities. Conversely,
in a falling interest rate environment, the interest earned on assets will
generally decline more rapidly than the total expense paid on liabilities. A
negative interest rate gap will have the opposite effects. First Federal
protects against problems arising in a falling interest rate environment by
requiring interest rate minimums on its residential and commercial real estate
adjustable-rate mortgages ("ARMs") and against problems arising in a rising
interest rate environment by having in excess of 89% of its mortgage loans with
adjustable rate features. Due to the interest rate minimums, the Company has not
experienced a significant decline in net interest yield in recent periods of
declining interest rates. First Federal's management believes that the interest
rate gap measurement does not accurately depict its interest sensitivity due to
its success in utilizing interest rate minimums. As noted in the table on the
following page, $78.7 million, or 50.2%, of the Company's interest-earning
assets reprice or mature in the 12 months ending June 30, 1997, which could have
a significant impact on future yields and net interest margin. First Federal
includes interest rate minimums on almost all loans originated, and management
believes that these minimums, which establish floors below which the loan
interest rate cannot decline, will continue to reduce its interest rate
vulnerability in a declining interest rate environment. For the loans which do
not adjust because of the interest rate minimums, there is an increased risk of
prepayment. In periods of rising interest rates, the impact on the Company's
yields and net interest margin should be favorable because interest income
earned on its assets will generally increase more rapidly than interest paid on
its liabilities.
Loan prepayments increased in the year ended June 30, 1996, compared to the
prior fiscal year. Although less than 11% of the Company's residential mortgage
portfolio consists of fixed-rate loans, prepayments could have an impact on
yields and net interest margins in periods of falling interest rates. The net
yield on loans for the year ended June 30, 1996, was 8.78%, an increase from
8.52% for the the year ended June 30, 1995. While loan yields increased during
these periods, the net interest margin decreased to 4.17% for the year ended
June 30, 1996, from 4.28% in the prior fiscal year. First Federal believes its
asset/liability strategy of maintaining over 89% of the Company's residential
portfolio in ARMs and requiring interest rate minimums on these loans will
continue to protect net interest margins.
The Company's mortgage-backed security portfolio is subject to prepayments,
and for those mortgage-backed securities with variable interest rates, to
changing yields. These prepayments have increased in recent years as the
underlying mortgages have been refinanced at lower interest rates, and interest
rate changes on adjustable-rate mortgage-backed securities could have an effect
on First Federal's asset/liability management strategy. Since the Company's
mortgage-backed security portfolio only represents 0.8% of the Company's total
assets at June 30, 1996, management believes that such impact would be
insignificant.
The following table illustrates the projected maturities and the repricing
of the major asset and liability categories of First Federal as of June 30,
1996. Maturity and repricing dates have been projected by applying the
assumptions set forth below to contractual maturity and repricing dates.
Classifications of such items in the table below are different from those
presented in other schedules and financial statements included herein and do not
reflect non-performing loans.
At June 30, 1996
Maturing or Repricing Within
-----------------------------------------------------------------------------
6 Months
0 to 3 3 to 6 to 1 to 3 3 to 5 5 to 10 10 to 20 Over 20
Months Months 1 Year Years Years Years Years Years Total
------ ------ ------ ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
Assets:
Adjustable-rate mortgages $16,180 $21,869 $27,071 $20,209 $32,581 $ 7,135 $ 84 $ 98 $125,227
Fixed-rate mortgages 724 607 872 4,873 2,541 3,345 1,418 270 14,650
Nonmortgage loans 2,965 86 24 349 271 -- 78 -- 3,773
Nonmortgage investments 5,126 1,000 2,000 4,414 -- 648 -- -- 13,188
Mortgage investments 52 47 79 68 (23) (18) (5) (1) 199
Off balance sheet assets (1) (5,899) 196 5,703 -- -- -- -- -- --
Unamortized yield
adjustments (8) (8) (15) (59) (29) (70) (124) -- (313)
------ ------ ------ ------ ------ ----- ----- ----- -------
Total interest-earning
assets 19,140 23,797 35,734 29,854 35,341 11,040 1,451 367 156,724
------ ------ ------ ------ ------ ----- ----- ----- -------
Interest-bearing liabilities
Fixed maturity deposits 12,684 9,504 11,437 28,190 24,477 1,594 -- -- 87,886
Other deposits 4,430 3,524 5,259 9,794 4,648 5,892 3,797 1,060 38,404
FHLB advances 1,800 1,208 4 1,891 864 38 436 -- 6,241
------ ------ ------ ------ ------ ----- ----- ----- -------
Total interest-bearing
liabilities 18,914 14,236 16,700 39,875 29,989 7,524 4,233 1,060 132,531
------ ------ ------ ------ ------ ----- ----- ----- -------
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities $ 226 $ 9,561 $19,034 $(10,021) $5,352 $3,516 $ (2,782) $ (693)$ 24,193
======= ======= ======= ======== ====== ====== ======== ====== ========
Cumulative excess (deficiency)
of interest-earning assets over
interest-bearing liabilities $ 226 $ 9,787 $28,821 $18,800 $24,152 $27,668 $24,886 $24,193 $ 24,193
Cumulative interest rate gap .13% 5.71% 16.81% 10.97% 14.09% 16.14% 14.52% 14.11% 14.11%
- ----------
(1) Includes loan commitments and loans in process.
In preparing the table above it has been assumed, in assessing the interest rate
sensitivity of savings institutions, that (i) adjustable-rate first mortgage
loans will prepay at the rate of 12% per year; (ii) fixed-rate first mortgage
loans will prepay at the rate of 10% per maturity classification, and (iii)
nonmortgage loans and investments will not prepay.
In addition, it is assumed that fixed maturity deposits are not withdrawn
prior to maturity, and that other deposits are withdrawn or repriced as follows:
0 to 3 3 to 6 6 months 1 to 3 3 to 5 5 to 10 10 to 20 Over 20
Type months months to 1 year years years years years years
------ ------ --------- ------- ------- -------- --------- -------
Passbook (1)................. 4.55% 4.34% 8.11% 25.82% 16.83% 21.37% 14.78% 4.20%
Money market
accounts (1).............. 32.31 21.87 24.82 11.00 5.24 4.01 .72 .03
Interest-bearing
transaction
accounts.................. 10.91 9.72 16.37 33.87 9.06 12.16 6.68 1.22
Noninterest-bearing
transaction
accounts.................. 2.60 2.53 4.87 17.10 13.85 24.18 22.71 12.16
- ----------
(1) Based on actual industry and historical experience, management has
determined that these deposit rates and balances respond slowly to changes
in market rates and that balances tend to remain with First Federal even
when market rates rise above deposit rates.
In evaluating the Company's exposure to interest rate movements, certain
shortcomings inherent in the method of analysis presented in the foregoing
tables must be considered. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as ARMs, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. In particular, most of First Federal's ARMs and adjustable-rate loans
have interest rate minimums of 6.00% for residential loans and 7.0% for
commercial real estate loans. Currently, originations of residential ARMs have
interest rate minimums of 6.00%. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in calculating the table. Finally, the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase although First Federal does underwrite these mortgages at approximately
4.0% above the origination rate. The Company considers all of these factors in
monitoring its exposure to interest rate risk.
Average Balances and Interest
The following table presents for the periods indicated the monthly average
balances of each category of the Company's interest-earning assets and
interest-bearing liabilities, the interest earned or paid on such amounts, and
the average yields earned and rates paid. Such yields and costs are determined
by dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Management believes that the use of
month-end average balances instead of daily average balances has not caused any
material difference in the information presented.
Year Ended June 30,
--------------------------------------------------------------------------------
1996 1995
--------------------------------------- ------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
Assets:
Interest-earning assets:
Interest-earning deposits ........... $ 4,972 $ 334 6.72% $ 2,531 $ 159 6.28%
Investment securities ............... 17,306 877 5.07 22,674 1,111 4.90
Loans (1) ........................... 141,946 12,456 8.78 134,428 11,451 8.52
Stock in FHLB of Indianapolis ....... 927 73 7.87 909 65 7.15
------- ------ ------- ------
Total interest-earning assets .... 165,151 13,740 8.32 160,542 12,786 7.96
Non-interest earning assets .............. 10,762 -- 11,873 ---
-------- ------ -------- ------
Total assets ...................... $175,913 13,740 $172,415 12,786
======== ------ ======== ------
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Savings accounts .................... $ 18,127 588 3.24 $ 22,582 726 3.21
NOW and money market accounts ....... 18,718 667 3.56 18,332 593 3.23
Certificates of deposit ............. 84,650 5,089 6.01 77,884 4,221 5.42
------- ------ -------- ------
Total deposits ................... 121,495 6,344 5.22 118,798 5,540 4.66
FHLB borrowings ..................... 6,694 457 6.83 5,574 382 6.85
Other borrowings .................... 901 52 5.77
-------- ------ -------- ------
Total interest-bearing liabilities 129,090 6,853 5.31 124,372 5,922 4.76
Other liabilities ........................ 4,451 -- 4,469
-------- ------ -------- ------
Total liabilities ................. 133,541 -- 128,841
Shareholders' equity ..................... 42,372 -- 43,574
-------- ------ -------- ------
Total liabilities and shareholders'
equity .......................... $172,913 6,853 $172,415 5,922
======== ------ ======== ------
Net interest-earning assets .............. $ 36,061 $ 36,170
Net interest income ...................... $ 6,887 $6,864
======= ======
Interest rate spread (2) ................. 3.01 3.20
Net yield on weighted average
interest-earning assets (3) ......... 4.17 4.28
Average interest-earning assets to
average interest-bearing
liabilities ......................... 127.93% 129.08%
====== ======
Year Ended June 30,
1994
------------------------------------
Average Average
Balance Interest Yield/Cost
------- -------- ----------
Assets:
Interest-earning assets:
Interest-earning deposits ........... $ 7,474 $ 312 4.17%
Investment securities ............... 24,825 1,065 4.29
Loans (1) ........................... 130,897 10,961 8.37
Stock in FHLB of Indianapolis ....... 909 53 5.83
------- ------
Total interest-earning assets .... 164,105 12,391 7.55
Non-interest earning assets .............. 12,309 --
------- ------
Total assets ...................... $176,414 12,391
======== ------
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Savings accounts .................... $ 24,450 787 3.22
NOW and money market accounts ....... 18,327 522 2.85
Certificates of deposit ............. 81,734 4,319 5.28
------- ------
Total deposits ................... 124,511 5,628 4.52
FHLB borrowings ..................... 3,331 244 7.33
Other borrowings .................... -- --
Total interest-bearing liabilities 127,842 5,872 4.59
Other liabilities ........................ 3,202 --
------- ------
Total liabilities ................. 131,044 --
Shareholders' equity ..................... 45,370 --
------- ------
Total liabilities and shareholders'
equity .......................... $176,414 5,872
======= ------
Net interest-earning assets .............. $ 36,263
Net interest income ...................... $6,519
======
Interest rate spread (2) ................. 2.96
Net yield on weighted average
interest-earning assets (3) ......... 3.97
Average interest-earning assets to
average interest-bearing
liabilities ......................... 128.37%
======
- ----------
(1) Average balances include non-accrual loans.
(2) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Interest Rate Spread."
(3) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated.
Interest Rate Spread
The following table sets forth the weighted average effective interest rate
earned by the Company on its loan and investment portfolios, the weighted
average effective cost of the Company's deposits, the interest rate spread of
the Company, and the net yield on weighted average interest-earning assets for
the period and as of the date shown. Average balances are based on month-end
average balances.
Year Ended June 30,
At ----------------------------------------
June 30, 1996 1996 1995 1994
------------- ------ ------ ------
Weighted average interest rate earned on:
Interest-earning deposits................. 5.31% 6.72% 6.28% 4.17%
Investment securities..................... 5.10 5.07 4.90 4.29
Loans (1) ............................. 8.47 8.78 8.52 8.37
Stock in FHLB of Indianapolis............. 7.53 7.87 7.15 5.83
Total interest-earning assets......... 8.08 8.32 7.96 7.55
Weighted average interest rate cost of:
Savings accounts.......................... 3.25 3.24 3.21 3.22
NOW and money market accounts............. 3.33 3.56 3.23 2.85
Certificates of deposit................... 5.96 6.01 5.42 5.28
FHLB borrowings........................... 6.50 6.83 6.85 7.33
Other borrowings.......................... -- 5.77
Total interest-bearing liabilities.... 5.21 5.31 4.76 4.59
Interest rate spread (2)....................... 2.87 3.01 3.20 2.96
Net yield on weighted average
interest-earning assets (3)............... -- 4.17 4.28 3.97
- ----------
(1) Average balances include non-accrual loans.
(2) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. Interest rate spread figures must be
considered in light of the relationship between the amounts of
interest-earning assets and interest-bearing liabilities. Since MCHI's
interest-earning assets exceeded its interest-bearing liabilities for
each of the three years shown above, a positive interest rate spread
resulted in net interest income.
(3) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated. No net yield figure is presented at June
30, 1996, because the computation of net yield is applicable only over a
period rather than at a specific date.
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
the Company's interest income and expense during the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (1) changes in rate (changes in rate
multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume that
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
Increase (Decrease) in Net Interest Income
------------------------------------------
Total
Net Due to Due to
Change Rate Volume
------ ---- ------
(In Thousands)
Year ended June 30, 1996
compared to year
ended June 30, 1995
Interest-earning assets:
Interest-earning deposits................... $ 175 $ 12 $ 163
Investment securities....................... (234) 37 (271)
Loans....................................... 1,005 352 653
Stock in FHLB of Indianapolis............... 8 7 1
------- ------ -------
Total..................................... 954 408 546
------- ------ -------
Interest-bearing liabilities:
Savings accounts............................ (138) 6 (144)
NOW and money market accounts............... 74 61 13
Certificates of deposit..................... 868 484 384
FHLB advances............................... 75 (1) 76
Other borrowings............................ 52 --- 52
------- ------ -------
Total..................................... 931 550 381
------- ------ -------
Change in net interest income................... $ 23 $(142) $ 165
======= ====== =======
Year ended June 30, 1995
compared to year
ended June 30, 1994
Interest-earning assets:
Interest-earning deposits................... $ (153) $ 112 $ (265)
Investment securities....................... 46 143 (97)
Loans....................................... 490 191 299
Stock in FHLB of Indianapolis............... 12 12 --
------- ------ -------
Total..................................... 395 458 (63)
------- ------ -------
Interest-bearing liabilities:
Savings accounts............................ (61) (1) (60)
NOW and money market accounts............... 71 71 --
Certificates of deposit..................... (98) 109 (207)
FHLB advances............................... 138 (17) 155
------- ------ -------
Total..................................... 50 162 (112)
------- ------ -------
Change in net interest income................... $ 345 $ 296 $ 49
======= ====== =======
Changes in Financial Position and Results of Operations - Year Ended June 30,
1996, Compared to Year Ended June 30, 1995:
General. MCHI's total assets were $177.8 million at June 30, 1996, an
increase of $5.1 million or 2.9% from June 30, 1995. During 1996, average
interest-earnings assets increased $4.6 million, or 2.9%, while average
interest-bearing liabilities increased $4.7 million, or 3.8%, compared to June
30, 1995. Cash and cash equivalents and investment securities decreased $2.2
million, or 9.1%, primarily as a result of their use in funding increased loan
originations. Net loans increased $6.8 million, or 5.0%, primarily from
originations of 1-4 family and multi-family real estate loans. Certain loans
originated during the year were sold to other investors. All such loan sales
were consummated at the time of origination of the loan, and at June 30, 1996
and 1995, no loans in the portfolio were held for sale. Deposits increased $5.6
million, to $126.3 million, or 4.7%, at June 30, 1996 from the amount reported
last year.
MCHI's net income for the year ended June 30, 1996 was $2.5 million, an
increase of $51,000, or 2.1% over the results for the year ended June 30, 1995.
Net interest income increased $23,000, or .3%, from the previous year, and
provision for losses on loans in the amount of $34,200 decreasd $33,300 from
that recorded in 1995.
Stock Repurchases. During the year ended June 30, 1996, MCHI repurchased
100,658 shares of common stock in the open market at an average cost of $20.53,
or approximately 96% of average book value. This repurchase amounted to 5% of
the outstanding stock, the maximum amount of stock that could be repurchased
prior to March 18, 1996 under Office of Thrift Supervision ("OTS") regulations
then in effect, except in special circumstances. This 5% limitation expired on
March 18, 1996. In July, 1996, MCHI repurchased another 96,680 shares, or 5%, at
an average cost of $20.33, or approximately 95% of book value. These open-market
purchases are intended to enhance the book value per share and enhance potential
for growth in earnings per share.
Cash Dividends. Since First Federal's conversion in March 1993, MCHI has
paid quarterly dividends in each quarter, amounting to $.125 for each of the
first four quarters, $.15 per share for each of the second four quarters, $.18
per share for each of the third four quarters, and $.20 per share in the most
recent quarter ended June 30, 1996.
Interest Income. MCHI's total interest income for the year ended June 30,
1996 was $13.7 million, an increase of $954,000, or 7.5%, from interest income
for the year ended June 30, 1995. This increase resulted principally from an
increase in the yield on interest earning assets from 7.96% to 8.32% and an
increase in average interest earning assets of $4.6 million.
Interest Expense. Total interest expense for the year ended June 30, 1996,
was $6.9 million, which was an increase of $931,000, or 15.7% from interest
expense for the year ended June 30, 1995. This increase resulted principally
from an increase in the cost on interest bearing liabilities from 4.76% to 5.31%
and an increase in average interest earning liabilities of $4.7 million.
Provision for Losses on Loans. The provision for the year ended June 30,
1996, was $34,200, compared to $67,500 in 1995. The 1996 chargeoffs net of
recoveries totaled $38,000, compared to the prior year of $105,000. The ratio of
the allowance for loan losses to total loans decreased from 1.45% at June 30,
1995 to 1.38% at June 30, 1996, and the ratio of allowance for loan losses to
nonperforming loans increased from 114.87% at June 30, 1995, to 117.07% at June
30, 1996. The 1996 provision was to replenish the allowance for loan losses as a
result of chargeoffs and to maintain management's desired reserve ratios. In
determining the provision for loan losses for the years ended June 30, 1996 and
1995, MCHI considered past loan experience, changes in the composition of the
loan portfolio and the current condition and amount of loans outstanding.
Other Income. MCHI's other income for the year ended June 30, 1996, totaled
$130,000, compared to $105,000 for 1995, an increase of $25,000, or 23.8%. This
increase was due in part from increased loan service fees of $12,000.
Other Expenses. MCHI's other expenses for the year ended June 30, 1996,
totaled $3.6 million which was unchanged from the previous year. This represents
the third consecutive year where other expenses have remained relatively
constant. There were no significant changes in any of the other expense
categories.
Income Tax Expense. Income tax expense for the year ended June 30, 1996,
totaled $913,000, a decrease of $3,000 from the expense recorded in 1995. Tax
expense on earnings was offset by certain low-income housing tax credits which
totaled $423,000 and $406,000 for the years ended June 30, 1996 and 1995.
Additional tax credits are available through the year ended June 30, 1998.
Changes in Financial Position and Results of Operations - Year Ended June 30,
1995, Compared to Year Ended June 30, 1994:
General. The Company's total assets were $172.7 million at June 30, 1995,
an increase of $1.9 million or 1.1% from June 30, 1994. During 1995, average
interest-earnings assets decreased $3.6 million, or 2.2%, while average
interest-bearing liabilities declined $3.5 million, or 2.7%, compared to June
30, 1994. Average assets were lower for the year ended June 30, 1995 as a result
of First Federal's decision to reduce short-term public fund deposits throughout
the year. However, total assets increased during the year ended June 30, 1995 as
loan originations outpaced loan repayments and funds were borrowed to meet the
demand. Cash and cash equivalents and investment securities decreased $7.1
million, or 23.1%, primarily as a result of their use in funding increased loan
originations. Net loans increased $9.2 million primarily from originations of
1-4 family and multi-family real estate loans. Certain loans originated during
the year were sold to other investors. All such loan sales were consummated at
the time of origination of the loan, and at June 30, 1995 and 1994, no loans
were held for sale in the loan portfolio. Net real estate owned was reduced by
$624,000, or 75.2%, as a result of a combination of disposals and chargeoffs.
The Company's net income for the year ended June 30, 1995, was $2.4
million, an increase of $161,000, or 7.1%, over the results for the year ended
June 30, 1994. Net interest income increased $345,000, or 5.3%, from the
previous year, and provision for losses on loans in the amount of $67,500
increased $2,500 from that recorded in 1994. During the year ended June 30,
1995, the Company reduced its real estate owned loss reserves resulting in
income of $140,000. These loss reserves were reduced when the properties were
sold, resulting in fewer losses than anticipated. In the prior year, $305,000
was charged to provision for real estate owned losses. The 1995 chargeoffs of
real estate owned totaled $171,000, which was $185,000 less than the allowance
for real estate losses at June 30, 1994. Chargeoffs net of recoveries totalled
$152,000, which was $204,000 less than the beginning allowance. The 1995
chargeoffs included additional writedowns on a commercial warehouse facility, a
day care center, and certain smaller chargeoffs from sales of other properties.
These chargeoffs represented recognition of additional losses in the real estate
owned portfolio that were not evident when the properties were first transferred
from loans to real estate owned. Properties are written down to their fair value
at time of foreclosure with the loss charged to the allowance for loan losses.
As circumstances change and the property or market deteriorates, additional
writedowns are made by chargeoffs to the allowance for losses on real estate
owned.
Stock Repurchases. During the year ended June 30, 1995, MCHI repurchased
214,249 shares of common stock in the open market at an average cost of $18.15,
or approximately 88% of average book value. These repurchases amounted to 5% of
the outstanding stock in each six-month period, the maximum amount of stock that
could be repurchased under Office of Thrift Supervision ("OTS") regulations then
in effect. Current OTS regulations permit a maximum repurchase of 5% in a
twelve-month period, except in special circumstances, during the first three
years after converting to stock form. This 5% limitation imposed by OTS will
expire in March, 1996. These open-market purchases are intended to enhance the
book value per share and enhance the potential for growth in earnings per share.
Cash Dividends. Since First Federal's conversion in March, 1993, MCHI has
paid quarterly dividends in each quarter, amounting to $.125 per share for each
of the first four quarters of operation, $.15 per share for each of the second
four quarters of operation, and $.18 per share in the most recent quarter ending
June 30, 1995.
Interest Income. The Company's total interest income for the year ended June 30,
1995 was $12.8 million, an increase of $395,000, or 3.2%, from interest income
for the year ended June 30, 1994. This increase resulted principally from an
increase in the yield on interest earning assets from 7.55% to 7.96% while
interest earning assets decreased by $3.6 million.
Interest Expense. Total interest expense for the year ended June 30, 1995,
was $5.9 million, which was unchanged from the year ended June 30, 1994.
Interest expense was unchanged as the average balance of interest-bearing
liabilities decreased by $3.5 million, while the average cost of funds increased
from 4.59% to 4.76%.
Provision for Losses on Loans. The provision for the year ended June 30,
1995, was $67,500, compared to $65,000 in 1994. During the year ended June 30,
1995, the Company acquired title by foreclosure to a nursing home property that
had been included in nonperforming loans. The foreclosure and subsequent sale of
this property resulted in First Federal's nonperforming loans being reduced from
$4.6 million at June 30, 1994, to $1.8 million at June 30, 1995, a decrease of
$2.8 million, or 62.2%. The ratio of the allowance for loan losses to total
loans decreased from 1.59% at June 30, 1994, to 1.45% at June 30, 1995, and the
ratio of allowance for loan losses to nonperforming loans increased from 44.2%
at June 30, 1994, to 114.9% at June 30, 1995. The 1995 provision was to
replenish the allowance for loan losses as a result of chargeoffs and to
maintain management's desired reserve ratios. In determining the provision for
loan losses for the years ended June 30, 1995 and 1994, the Company considered
past loan loss experience, changes in the composition of the loan portfolio and
the current condition and amount of loans outstanding.
Other Income. The Company's other income for the year ended June 30, 1995,
totaled $105,000, compared to $134,000 for 1994, a decrease of $29,000, or
21.6%. This decrease was caused by the Company receiving less commissions for
sales of annuity and other mutual fund products by First Federal's wholly-owned
subsidiary, First Marion Service Corporation. Sales of these products have
declined significantly from the prior year, resulting in fewer commissions
earned.
Other Expenses. The Company's other expenses for the year ended June 30,
1995, totaled $3.6 million which was unchanged from the previous year. Normal
operating cost increases in most categories were offset by a $472,000 decline in
real estate operation expense for the year ended June 30, 1995 as compared to
the prior year as a result of the Company's liquidating real estate owned
properties and substantially reducing the expense incurred in holding and
maintaining such properties. Increases in other categories occurred in the
normal course of business.
Income Tax Expense. Income tax expense for the year ended June 30, 1995
totaled $916,000, an increase of $201,000 from the expense recorded in 1994.
This increase was due to higher pre-tax earnings in 1995. Tax expense on
earnings was offset by certain low-income housing tax credits which totaled
$406,000 and $426,000 for the years ended June 30, 1995, and June 30, 1994,
respectively.
Liquidity and Capital Resources
The Company's primary source of funds is its deposits. To a lesser extent,
the Company has also relied upon loan payments and payoffs and Federal Home Loan
Bank ("FHLB") advances as sources of funds. Scheduled loan payments are a
relatively stable source of funds, but loan payoffs and deposit flows can
fluctuate significantly, being influenced by interest rates, general economic
conditions and competition. First Federal attempts to price its deposits to meet
its asset/liability management objectives consistent with local market
conditions. First Federal's access to FHLB advances is limited to approximately
62% of First Federal's available collateral. At June 30, 1996, such available
collateral totaled $89.5 million. Based on existing FHLB lending policies, the
Company could have obtained approximately $49.7 million in additional advances.
First Federal's deposits have remained relatively stable, averaging between
$126 and $121 million, for the three years in the period ended June 30, 1996.
The percentage of IRA deposits to total deposits has increased from 21.4% ($26.1
million) at June 30, 1993, to 23.1% ($29.1 million) at June 30, 1996. During the
same period, deposits in withdrawable accounts have decreased from 34.6% ($42.2
million) of total deposits at June 30, 1993, to 26.2% ($33.1 million) at June
30, 1996. This change in deposit composition, attributable to the higher
interest rates currently paid on longer term certificates, has not had a
significant effect on First Federal's liquidity. The impact on results of
operations from this change in deposit composition has been a reduction in
interest
expense on deposits due to a decrease in the average cost of funds. It is
estimated that yields and net interest margin would increase in periods of
rising interest rates since short-term assets reprice more rapidly than
short-term liabilities. In periods of falling interest rates, little change in
yields or net interest margin is expected since First Federal has interest rate
minimums on a significant portion of its interest-earning assets.
Federal regulations have historically required First Federal to maintain
minimum levels of liquid assets. The required percentage has varied from time to
time based upon economic conditions and savings flows. At June 30, 1996, the
requirement was 5.0% subject to reduction for aggregate net withdrawals provided
such ratio is not reduced below 4.0%. Liquid assets for purposes of this ratio
include cash, cash equivalents consisting of short-term interest earning
deposits, certain other time deposits, and other obligations generally having
remaining maturities of less than five years. First Federal has historically
maintained its liquidity ratio at a level in excess of that required. At June
30, 1996, First Federal's liquidity ratio was12.3% and has averaged 19.9% over
the past three years.
Liquidity management is both a daily and long-term responsibility of
management. First Federal adjusts liquid assets based upon management's
assessment of (i) expected loan demand, (ii) projected loan sales, (iii)
expected deposit flows, (iv) yields available on interest-bearing deposits, and
(v) the objectives of its asset/liability management program. Excess liquidity
is invested generally in federal funds and mutual funds investing in government
obligations and adjustable-rate or short-term mortgage-related securities. If
First Federal requires funds beyond its ability to generate them internally, it
has additional borrowing capacity with the FHLB of Indianapolis and collateral
eligible for repurchase agreements.
Cash flows for the Company are of three major types. Cash flows from
operating activities consist primarily of net income generated by cash.
Investing activities generate cash flows through the origination, sale and
principal collections on loans as well as the purchases and sales of
investments. Cash flows from financing activities include savings deposits,
withdrawals and maturities and changes in borrowings. The following table
summarizes cash flows for each of the three years in the period ended June 30,
1996:
Year Ended June 30,
---------------------------------
1996 1995 1994
------ ------- ---------
(In Thousands)
Operating activites........................ $ 3,232 $ 3,181 $ 2,984
Investing activities:
Investment purchases.................. (11,261) (2,418) (68,592)
Investment maturities................. 17,132 6,684 62,484
Net change in loans................... (6,918) (8,419) 5,442
Other investing activities............ 69 183 5,122
------ ------- ---------
(978) (3,968) 4,456
------ ------- ---------
Financing activities:
Deposit increases (decreases)......... 5,647 (352) (978)
Borrowings............................ 3,500 5,000 1,000
Payments on borrowings................ (4,222) (1,237) (875)
Repurchase of common stock............ (2,066) (3,889) (3,931)
Dividends paid........................ (1,468) (1,333) (1,198)
Other financing activities............ 392 64 147
------ ------- ---------
1,783 (1,747) (5,835)
------ ------- ---------
Net change in cash and cash equivalents.... $ 4,037 $(2,534) $ 1,605
====== ======= =========
Investing cash flows for the three years ended June 30, 1996 have resulted
primarily from investment and loan activities. The Company's cash flows from
investments resulted primarily from the purchases and maturities of term federal
funds and securities. Loan sales during the periods are predominantly from the
origination of commercial real estate loans where the principal balance in
excess of the Company's retained amount is sold to a participating financial
institution. These investors are obtained prior to the origination of the loan
and the sale of participating interests does not result in any gain or loss to
the Company.
The Company considers its liquidity and capital resources to be adequate to
meet its foreseeable short and long-term needs. First Federal anticipates that
it will have sufficient funds available to meet current loan commitments and to
fund or refinance, on a timely basis, its other material commitments and
long-term liabilities. At June 30, 1996, First Federal had outstanding
commitments to originate loans of $4.6 million. Certificates of deposit
scheduled to mature in one year or less at June 30, 1996, totalled $33.6
million. Based upon historical deposit flow data, First Federal's competitive
pricing in its market and management's experience, management believes that a
significant portion of such deposits will remain with First Federal. At June 30,
1996, the Company had $3.0 million of FHLB advances which mature in one year or
less.
First Federal has entered into agreements with certain officers and
directors which provide that, upon their death, their beneficiaries will be
entitled to receive certain benefits. These benefits are to be funded primarily
by the proceeds of insurance policies owned by First Federal on the lives of the
officers and directors. If the insurance companies issuing the policies are not
able to perform under the contracts at the dates of death of the officers or
directors, there would be an adverse effect on the Company's operating results,
financial condition and liquidity. Under currently effective capital
regulations, savings associations currently meet a 1.5% tangible capital
requirement, a 3.0% leverage ratio (or core capital) requirement and a total
risk-based capital to risk-weighted assets ratio of 8.0%. At June 30, 1996,
First Federal's tangible capital ratio was 20.7%, its leverage ratio was 20.7%
and its risk-based capital to risk-weighted assets ratio was 32.7%. Therefore,
First Federal's capital significantly exceeds all of the capital requirements
currently in effect.
Impact of Inflation
The audited consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles. These
principles 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 assets and liabilities of savings institutions such as First
Federal are monetary in nature. As a result, interest rates have a more
significant impact on First Federal's performance than the effects of general
levels of inflation. Interest rates, however, do not necessarily move in the
same direction or with the same magnitude as the price of goods and services,
since such prices are affected by inflation. In a period of rapidly rising
interest rates, the liquidity and maturity structures of First Federal's assets
and liabilities are critical to the maintenance of acceptable performance
levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of other expense. Such expense items as
employee compensation, employee benefits, and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans made by First Federal.
New Accounting Pronouncements Accounting for Mortgage Servicing Rights
During 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 122, entitled Accounting for Mortgage Servicing Rights. SFAS No. 122
pertains to mortgage banking enterprises and financial institutions that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. The Statement eliminates the accounting distinction
between mortgage servicing rights that are acquired through loan origination
activities and those acquired through purchase transactions. Under this
Statement, if a mortgage banking enterprise sells or securitizes loans and
retains the mortgage servicing rights, the enterprise must allocate the total
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the rights) based on their relative fair values if it is practicable to
estimate those fair values. If it is not practicable, the entire cost should be
allocated to the mortgage loans and no cost should be allocated to the mortgage
servicing rights. An entity would measure impairment of mortgage service rights
and loans based on the excess of the carrying amount of the mortgage servicing
rights portfolio over the fair value of that portfolio.
The Statement is to be applied prospectively in fiscal years beginning
after December 15, 1995, to transactions in which an entity acquires mortgage
servicing rights and to impairment evaluations of all capitalized mortgage
servicing rights. Retroactive application is prohibited.
During 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This statement
is effective for the transactions entered into after January 1, 1997 and at that
date will supersede SFAS No. 122. Early adoption is not permitted.
Accounting for Stock-based Compensation
The FASB has issued SFAS No. 123, Accounting for Stock-based Compensation.
This Statement establishes a fair value based method of accounting for
stock-based compensation plans. The FASB encourages all entities to adopt this
method for accounting for all arrangements under which employees receive shares
of stock or other equity instruments of the employer, or the employer incurs
liabilities to employees in amounts based on the price of its stock.
Due to the extremely controversial nature of this project, the Statement
permits a company to continue the accounting for stock-based compensation
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. If a company elects that option, proforma disclosures of
net income (and EPS, if presented) are required in the footnotes as if the
provisions of this Statement had been used to measure stock-based compensation.
The disclosure requirements of Opinion No. 25 have been superseded by the
disclosure requirements of this Statement.
Once an entity adopts the fair value based method for accounting for these
transactions, that election cannot be reversed.
Equity instruments granted or otherwise transferred directly to an employee
by a principal stockholder are stock-based employee compensation to be accounted
for in accordance with either Opinion 25 or this Statement, unless the transfer
clearly is for a purpose other than compensation.
The accounting requirements of this Statement and related disclosure
requirements are effective for transactions entered into by the Bank for the
fiscal year ending June 30, 1997. Proforma disclosures required for entities
that elect to continue to measure compensation cost using Opinion 25 must
include the effects of all awards granted in fiscal years that begin after
December 15, 1994.
In general, during the initial phase-in period, the effects of applying
this Statement are not likely to be representative of the effects on reported
net income for future years because options vest over several years and
additional awards generally are made each year. If that situation exists, the
Company must include a statement to that effect.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1996 and 1995
Independent Auditor's Report
Board of Directors
Marion Capital Holdings, Inc.
Marion, Indiana
We have audited the consolidated statement of financial condition of Marion
Capital Holdings, Inc. and subsidiary corporations as of June 30, 1996 and 1995,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of Marion
Capital Holdings, Inc. and subsidiary corporations as of June 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
As described in the notes to the financial statements, the Company changed its
method of accounting for investments in securities in 1995.
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
July 26, 1996
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Condition
June 30,
----------------------------------
1996 1995
------------ ------------
Assets
Cash $ 2,365,805 $ 2,178,493
Short-term interest-bearing deposits 5,154,518 1,304,691
------------ ------------
Total cash and cash equivalents 7,520,323 3,483,184
Investment securities
Available-for-sale 999,750 2,985,263
Held-to-maturity 13,057,722 17,274,654
------------ ------------
Total investment securities 14,057,472 20,259,917
Loans 145,173,891 138,336,048
Allowance for loan losses (2,009,250) (2,012,602)
------------ ------------
Net loans 143,164,641 136,323,446
Foreclosed real estate 182,959 205,723
Premises and equipment 1,446,025 1,495,608
Federal Home Loan Bank of Indianapolis stock, at cost 988,400 909,100
Other assets 10,406,755 10,033,778
------------ ------------
Total assets $177,766,575 $172,710,756
============ ============
Liabilities
Deposits $126,260,010 $120,613,003
Advances from Federal Home Loan Bank of Indianapolis 6,241,474 6,963,152
Other liabilities 3,754,017 3,270,576
Total liabilities 136,255,501 130,846,731
Commitments and contingent liabilities
Shareholders' Equity
Preferred stock
Authorized and unissued--2,000,000 shares
Common stock, without par value
Authorized--5,000,000 shares
Issued and outstanding--1,933,613 and 1,986,288 shares 13,814,937 15,489,336
Retained earnings--substantially restricted 28,128,458 27,114,816
Net unrealized loss on securities available-for-sale (119) (9,235)
Unearned compensation (432,202) (730,892)
------------ ------------
Total shareholders' equity 41,511,074 41,864,025
------------ ------------
Total liabilities and shareholders' equity $177,766,575 $172,710,756
============ ============
See notes to consolidated financial statements.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Income
Year Ended June 30,
----------------------------------------------
1996 1995 1994
----------- ----------- -----------
Interest Income
Loans $12,456,465 $11,451,350 $10,961,117
Investment securities 876,326 1,110,742 1,064,746
Federal funds sold 14,234 141,682
Deposits with financial institutions 333,876 144,344 170,538
Dividend income 73,341 65,386 53,011
----------- ----------- -----------
Total interest income 13,740,008 12,786,056 12,391,094
----------- ----------- -----------
Interest Expense
Deposits 6,344,259 5,539,915 5,627,917
Repurchase agreements 52,159
Federal Home Loan Bank advances 456,484 381,770 243,904
----------- ----------- -----------
Total interest expense 6,852,902 5,921,685 5,871,821
----------- ----------- -----------
Net Interest Income 6,887,106 6,864,371 6,519,273
Provision for losses on loans 34,231 67,500 65,000
----------- ----------- -----------
Net Interest Income After Provision for Losses on Loans 6,852,875 6,796,871 6,454,273
----------- ----------- -----------
Other Income
Gains on sale of marketable equity securities 15,169
Net loan servicing fees 81,202 68,886 61,526
Annuity and other commissions 146,827 143,986 210,746
Equity in losses of limited partnerships (193,139) (184,582) (236,481)
Other income 94,993 76,312 82,860
----------- ----------- -----------
Total other income 129,883 104,602 133,820
----------- ----------- -----------
Other Expenses
Salaries and employee benefits 2,296,293 2,339,129 1,969,862
Net occupancy expenses 153,340 155,997 131,599
Equipment expenses 59,173 51,294 45,306
Deposit insurance expense 326,871 323,835 327,347
Foreclosed real estate expenses and losses, net (12,643) (98,413) 373,676
Other expenses 764,981 783,577 755,974
----------- ----------- -----------
Total other expenses 3,588,015 3,555,419 3,603,764
----------- ----------- -----------
Income Before Income Tax 3,394,743 3,346,054 2,984,329
Income tax expense 913,329 916,106 715,072
----------- ----------- -----------
Net Income $ 2,481,414 $ 2,429,948 $ 2,269,257
=========== =========== ===========
Primary and Fully Diluted Net Income Per Share $ 1.22 $ 1.11 $ .99
=========== =========== ===========
Average Common and Equivalent Shares Outstanding 2,033,955 2,186,137 2,297,853
=========== =========== ===========
See notes to consolidated financial statements.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
Common Stock Retained
Shares Amount Earnings
------ ------ --------
Balances, July 1, 1993 2,415,000 $23,097,375 $24,946,678
Net income for 1994 2,269,257
Cash dividends ($.525 per share) (1,198,401)
Repurchase of common stock (235,695) (3,931,479)
Exercise of stock options 14,863 148,630
Amortization of unearned
compensation expense
--------- ----------- -----------
Balances, June 30, 1994 2,194,168 19,314,526 26,017,534
Net income for 1995 2,429,948
Cash dividends ($.63 per share) (1,332,666)
Cumulative effect of change in accounting
for securities, net of taxes of $(38,098)
Net change in unrealized gain (loss) on
securities available-for-sale, net of
taxes of $32,041
Repurchase of common stock (214,249) (3,888,880)
Exercise of stock options 6,369 63,690
Amortization of unearned
compensation expense
--------- ----------- -----------
Balances, June 30, 1995 1,986,288 15,489,336 27,114,816
Net income for 1996 2,481,414
Cash dividends ($.74 per share) (1,467,772)
Net change in unrealized gain (loss)
on securities available-for-sale,
net of taxes of $5,979
Repurchase of common stock (100,658) (2,066,332)
Exercise of stock options 47,983 301,855
Amortization of unearned
compensation expense
Tax benefit of stock options
exercised and RRP 90,078
--------- ----------- -----------
Balances, June 30, 1996 1,933,613 $13,814,937 $28,128,458
========= =========== ===========
Net
Unrealized
Gain (Loss)
Unearned on Securities
Compensation Available-for-Sale Total
----------- ------------------ --------------
Balances, July 1, 1993 $(1,270,628) $46,773,425
Net income for 1994 2,269,257
Cash dividends ($.525 per share) (1,198,401)
Repurchase of common stock (3,931,479)
Exercise of stock options 148,630
Amortization of unearned
compensation expense 269,868 269,868
----------- --------- -----------
Balances, June 30, 1994 (1,000,760) 44,331,300
Net income for 1995 2,429,948
Cash dividends ($.63 per share) (1,332,666)
Cumulative effect of change in accounting
for securities, net of taxes of $(38,098) $(58,085) (58,085)
Net change in unrealized gain (loss) on
securities available-for-sale, net of
taxes of $32,041 48,850 48,850
Repurchase of common stock (3,888,880)
Exercise of stock options 63,690
Amortization of unearned
compensation expense 269,868 269,868
----------- --------- -----------
Balances, June 30, 1995 (730,892) (9,235) 41,864,025
Net income for 1996 2,481,414
Cash dividends ($.74 per share) (1,467,772)
Net change in unrealized gain (loss)
on securities available-for-sale,
net of taxes of $5,979 9,116 9,116
Repurchase of common stock (2,066,332)
Exercise of stock options 301,855
Amortization of unearned
compensation expense 298,690 298,690
Tax benefit of stock options
exercised and RRP 90,078
----------- --------- -----------
Balances, June 30, 1996 $ (432,202) $ (119) $41,511,074
=========== ========= ===========
MARION CAPITAL HOLDINGS, INC AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year Ended June 30,
--------------------------------------------
1996 1995 1994
--------- --------- ---------
Operating Activities
Net income $2,481,414 $2,429,948 $2,269,257
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 34,231 67,500 65,000
Provision (adjustment) for losses of
foreclosed real estate (19,136) (140,000) 305,000
Marketable equity security gains 15,169
Equity in losses of limited partnerships 193,139 184,582 236,481
Amortization of net loan origination costs (fees) 10,467 (30,065) (102,211)
Depreciation 77,321 64,706 64,050
Amortization of unearned compensation 298,690 269,868 269,868
Deferred income tax benefit (174,865) (153,390) (139,910)
Origination of loans for sale (5,664,822) (2,414,254) (10,059,717)
Proceeds from sale of loans 5,664,822 2,414,254 10,059,717
Changes in
Interest receivable (64,299) (72,120) (60,499)
Interest payable and other liabilities 491,704 583,878 229,633
Cash value of insurance (116,500) (108,000) (21,125)
Prepaid expense and other assets 73,569 85,752 (14,765)
Other (53,686) (1,202) (101,967)
--------- --------- ---------
Net cash provided by operating activities 3,232,049 3,181,457 2,983,643
--------- --------- ---------
Investing Activities
Net change in interest-bearing deposits 100,000
Net change in marketable equity securities 4,025,606
Purchase of term federal funds (2,128,000) (50,945,000)
Proceeds from term federal funds maturities 2,128,000 50,945,000
Proceeds from maturities of securities
available-for-sale 2,000,000 2,000,000
Purchase of securities held-to-maturity (10,891,992) (17,352,386)
Proceeds from maturities of securities
held-to-maturity 15,131,842 2,555,938 11,539,030
Contribution to limited partnership (290,000) (290,000) (295,000)
Net changes in loans (6,918,405) (8,418,943) 5,441,780
Additions to real estate owned (283,000)
Proceeds from real estate owned sales 98,850 291,421 1,495,833
Purchase of FHLB stock (79,300)
Purchase of premises and equipment (29,063) (106,957) (35,259)
Premiums paid on life insurance (180,000)
-------- ---------- ---------
Net cash provided (used) by investing activities (978,068) (3,968,541) 4,456,604
-------- ---------- ---------
(continued)
MARION CAPITAL HOLDINGS, INC AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year Ended June 30,
--------------------------------------------
1996 1995 1994
--------- --------- ---------
Financing Activities
Net change in
Interest-bearing demand and savings deposits 1,157,963 (7,741,237) 2,714,713
Certificates of deposit 4,489,044 7,388,768 (3,693,355)
Proceeds from Federal Home Loan Bank advances 3,500,000 5,000,000 1,000,000
Repayment of Federal Home Loan Bank advances (4,221,678) (1,236,848) (875,000)
Dividends paid (1,467,772) (1,332,666) (1,198,401)
Exercise of stock options 391,933 63,690 148,630
Repurchase of common stock (2,066,332) (3,888,880) (3,931,479)
--------- --------- ---------
Net cash provided (used) by financing activities 1,783,158 (1,747,173) (5,834,892)
--------- --------- ---------
Net Change in Cash and Cash Equivalents 4,037,139 (2,534,257) 1,605,355
Cash and Cash Equivalents, Beginning of Year 3,483,184 6,017,441 4,412,086
--------- --------- ---------
Cash and Cash Equivalents, End of Year $7,520,323 $3,483,184 $6,017,441
========== ========== ==========
Additional Cash Flows and Supplementary Information
Interest paid $6,873,949 $5,875,374 $5,890,378
Income tax paid 960,958 948,959 850,000
Loan balances transferred to foreclosed real estate 447,511 2,592,839 1,496,781
Loans to finance the sale of foreclosed real estate 415,000 3,442,850 1,022,262
See notes to consolidated financial statements.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The accounting and reporting policies of Marion Capital Holdings, Inc.
("Company") and its wholly owned subsidiary, First Federal Savings Bank of
Marion ("Bank") and the Bank's wholly owned subsidiary, First Marion Service
Corporation ("FMSC"), conform to generally accepted accounting principles and
reporting practices followed by the thrift industry. The more significant of the
policies are described below.
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 disclosure 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 Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a federal thrift
charter and provides full banking services. As a federally-chartered thrift, the
Bank is subject to regulation by the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation.
The Bank generates residential and commercial mortgage and consumer loans and
receives deposits from customers located primarily in central Indiana. The
Bank's loans are generally secured by specific items of collateral including
real property and consumer assets. FMSC is engaged in the selling of financial
services.
Consolidation--The consolidated financial statements include the accounts of the
Company, the Bank and the Bank's subsidiary after elimination of all material
intercompany transactions and accounts.
Investment Securities--The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, on July 1, 1994, and investment securities with an
approximate carrying value of $4,985,000 were reclassified as
available-for-sale. This reclassification resulted in a decrease in total
shareholders' equity, net of taxes, of $58,000.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Securities
held-to-maturity are carried at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Securities available-for-sale are carried at fair value with
unrealized gains and losses reported separately, net of tax, in shareholders'
equity.
Amortization of premiums and accretion of discounts are recorded using the
interest method as interest income from securities. Realized gains and losses
are recorded as net security gains (losses). Gains and losses on sales of
securities are determined on the specific-identification method.
Prior to the adoption of SFAS No. 115, investment securities were carried at
cost, adjusted for amortization of premiums and discounts, and securities held
for sale and marketable equity securities were carried at the lower of aggregate
cost or market. Realized gains and losses on sales were included in other
income. Unrealized losses on securities held for sale were included in other
income. Unrealized losses on marketable equity securities were charged to
shareholders' equity. Gains and losses on the sale of securities were determined
on the specific-identification method.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. Loans are placed in a nonaccrual
status when the collection of interest becomes doubtful. Interest income
previously accrued but not deemed collectible is reversed and charged against
current income. Interest on these loans is then recognized as income when
collected. Loans are considered impaired when it becomes probable that the bank
subsidiary will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Interest income on these loans is
recognized as described above depending on the accrual status of the loan.
Certain loan fees and direct costs are being deferred and the net amounts are
amortized as an adjustment of yield on the loans. When a loan is paid off or
sold, any unamortized loan origination fee balance is credited to income.
Foreclosed real estate arises from loan foreclosure or deed in lieu of
foreclosure and is carried at the lower of cost or fair value less estimated
selling costs. Real estate has not been acquired for development or sale. Costs
relating to development and improvement of property are capitalized, whereas
costs relating to the holding of property, net of rental and other income are
expensed. Realized gains and losses are recorded upon the sale of real estate,
with gains deferred and recognized on the installment method for sales not
qualifying for the full accrual method.
Allowances for loan and real estate losses are maintained to absorb potential
loan and real estate losses based on management's continuing review and
evaluation of the loan and real estate portfolios and its judgment as to the
impact of economic conditions on the portfolios. The evaluation by management
includes consideration of past loss experience, changes in the composition of
the portfolios, the current condition and amount of loans and foreclosed real
estate outstanding, and the probability of collecting all amounts due. Impaired
loans are measured by the present value of expected future cash flows, or the
fair value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses and the
valuation of real estate is based on estimates that are particularly susceptible
to significant changes in the economic environment and market conditions.
Management believes that as of June 30, 1996, the allowance for loan losses and
carrying value of foreclosed real estate are adequate based on information
currently available. A worsening or protracted economic decline in the area
within which the Bank operates would increase the likelihood of additional
losses due to credit and market risks and could create the need for additional
loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated useful lives of the assets. Maintenance and repairs are expensed as
incurred while major additions and improvements are capitalized. Gains and
losses on dispositions are included in current operations.
Federal Home Loan Bank stock is a required investment for institutions that are
members of the Federal Home Loan Bank system. The required investment in the
common stock is based on a predetermined formula.
Pension plan costs are based on actuarial computations and charged to current
operations. The funding policy is to pay at least the minimum amounts required
by ERISA.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. Business
tax credits are deducted from federal income tax in the year the credits are
used to reduce income taxes payable. The Company files consolidated income tax
returns with its subsidiaries.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Primary earnings per share for 1996 and 1995 are computed by dividing net income
by the weighted average number of common and equivalent shares outstanding
during the period. For 1996 and 1995, fully diluted earnings per share are the
same as primary earnings per share. For 1994, the computation of primary and
fully diluted earnings per share reflected no dilution.
Reclassifications of certain amounts in the 1995 and 1994 consolidated financial
statements have been made to conform to the 1996 presentation.
Restriction on Cash
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at June 30, 1996, was $200,000.
o Investment Securities
June 30, 1996
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- ---------- ----------- -----------
Available-for-sale
Federal agencies $ 1,000 $ 1,000
------- -------
Held-to-maturity
U. S. Treasury 3,015 $ 40 2,975
Federal agencies 6,954 $ 8 45 6,917
State and municipal 610 5 605
Mortgage-backed securities 1,491 102 1,389
Other 988 12 1,000
------- --- ---- -------
Total held-to-maturity 13,058 20 192 12,886
------- --- ---- -------
Total investment securities $14,058 $20 $192 $13,886
======= === ==== =======
June 30, 1995
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- ---------- ----------- -----------
Available-for-sale
Federal agencies $ 3,000 $ 15 $ 2,985
------- ---- -------
Held-to-maturity
U. S. Treasury 3,035 57 2,978
Federal agencies 11,000 256 10,744
State and municipal 610 18 592
Mortgage-backed securities 2,630 52 2,578
------- ---- -------
Total held-to-maturity 17,275 383 16,892
------- --- ---- -------
Total investment securities $20,275 $0 $398 $19,877
======= === ==== =======
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The amortized cost and fair value of securities held-to-maturity and
available-for-sale at June 30, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Maturity Distribution at June 30, 1996
---------------------------------------------
Available-for-Sale Held-to-Maturity
------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------ ------ ------- -------
Within one year $1,000 $1,000 $ 7,953 $ 7,958
One to five years 3,614 3,539
------ ------ ------- -------
1,000 1,000 11,567 11,497
Mortgage-backed securities 1,491 1,389
------ ------ ------- -------
Totals $1,000 $1,000 $13,058 $12,886
====== ====== ======= =======
o Loans
June 30,
---------------------------
1996 1995
-------- --------
Real estate mortgage loans
One-to-four family $ 87,505 $ 82,056
Multi-family 15,573 14,495
Commercial real estate 36,170 35,937
Real estate construction loans 4,994 7,332
Commercial 7 9
Consumer loans 3,777 2,814
-------- --------
Total loans 148,026 142,643
Undisbursed portion of loans (2,539) (4,004)
Deferred loan fees (313) (303)
-------- --------
$145,174 $138,336
======== ========
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
1996 1995 1994
------ ------ ------
Allowance for loan losses
Balances, July 1 $2,013 $2,050 $2,051
Provision for losses 34 68 65
Recoveries on loans 2 12 17
Loans charged off (40) (117) (83)
------ ------ ------
Balances, June 30 $2,009 $2,013 $2,050
====== ====== ======
June 30,
-------------------------
1996 1995
-------- -------
Nonperforming loans
Nonaccruing loans $1,716 $1,752
Additional interest income of $43,000, $69,000 and $157,000 for 1996, 1995 and
1994 would have been recognized on nonaccruing loans had such loans been
considered collectible and accounted for on the accrual basis.
On July 1, 1995, the Company adopted SFAS Nos. 114 and No. 118, Accounting for
Creditors for Impairment of a Loan and Accounting for Creditors for Impairment
of a Loan--Income Recognition and Disclosures. The adoption of SFAS Nos. 114 and
118 did not have a material impact on the Company's financial position or
results of operations. No loans were considered impaired at June 30, 1996.
Mortgage loans serviced for others are not included in the accompanying
consolidated statement of financial condition. The loans are serviced primarily
for the Federal Home Loan Mortgage Corporation, and the unpaid principal
balances totaled $7,825,000 and $7,586,000 at June 30, 1996 and 1995.
o Forclosed Real Estate
June 30,
------------------------
1996 1995
------ ------
Real estate acquired in settlement of loans $ 199 $ 270
Allowance for losses (16) (64)
----- -----
$ 183 $ 206
===== =====
1996 1995 1994
------ ------ ------
Allowance for losses on foreclosed real estate
Balances, July 1 $64 $356 $252
Provision (adjustment) for losses (19) (140) 305
Real estate charged off (49) (171) (426)
Recoveries on real estate 20 19 225
--- ---- ----
Balances, June 30 $16 $ 64 $356
=== ==== ====
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Premises and Equipment
June 30,
--------------------------
1996 1995
--------- ---------
Land $ 632 $ 633
Buildings and land improvements 1,417 1,400
Furniture and equipment 467 481
------ ------
Total cost 2,516 2,514
Accumulated depreciation (1,070) (1,018)
------ ------
Net $1,446 $1,496
====== ======
o Other Assets and Other Liabilities
June 30,
---------------------------
1996 1995
--------- ---------
Other assets
Interest receivable
Investment securities $ 159 $ 262
Loans 483 316
Cash value of insurance 5,588 5,471
Deferred income tax asset 2,320 2,151
Investment in limited partnership 1,624 1,527
Prepaid expenses and other 233 307
------ ------
Total $10,407 $10,034
======= =======
Other liabilities
Interest payable
Deposits $ 99 $ 117
Other borrowings 17 19
Deferred compensation and fees payable 2,072 1,886
Deferred gain on sale of real estate owned 353 362
Advances by borrowers for taxes and insurance 392 214
Other 821 673
------ ------
Total $3,754 $3,271
====== ======
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Investment in Limited Partnership
Included in other assets is an investment of $1,623,869 and $1,527,008 at June
30, 1996 and 1995 representing 99 percent equity in a limited partnership
organized to build, own and operate an apartment complex. The Bank records its
equity in the net income or loss of the partnership. Certain fees to the general
partner not recorded or estimable to date by the partnership under provisions of
the partnership agreement could adversely affect future operating results when
accrued or paid. In addition to recording its equity in the losses of the
partnership, the Bank has recorded the benefit of low income housing tax credits
of $405,000, $405,000, and $408,000 for 1996, 1995 and 1994. At June 30, 1996,
the Bank has committed to make its final annual capital contribution in January,
1997, of $130,000. Condensed financial statements of the partnership are as
follows:
June 30,
------------------------
1996 1995
------ ------
(Unaudited)
Condensed statement of financial condition
Assets
Cash $ 306 $ 17
Land and property 3,711 3,807
Other assets 987 1,061
----- -----
Total assets $5,004 $4,885
====== ======
Liabilities
Notes payable $3,289 $3,309
Other liabilities 61 52
----- -----
Total liabilities 3,350 3,361
Partners' equity 1,654 1,524
----- -----
Total liabilities and partners' equity $5,004 $4,885
====== ======
Year Ended June 30,
---------------------------------
1996 1995 1994
------ ------- -------
(Unaudited)
Condensed statement of operations
Total revenue $ 648 $ 662 $676
Total expense 808 862 869
----- ----- -----
Net loss $(160) $(200) $(193)
===== ===== =====
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Deposits
June 30,
---------------------------
1996 1995
-------- --------
Interest-bearing demand $ 20,803 $ 18,438
Savings 17,572 18,779
Certificates and other time deposits
of $100,000 or more 11,761 9,389
Other certificates and time deposits 76,124 74,007
-------- --------
Total deposits $126,260 $120,613
======== ========
Certificates maturing in years ending June 30:
1997 $33,624
1998 13,069
1999 15,121
2000 16,559
2001 7,918
Thereafter 1,594
-------
$87,885
=======
o Federal Home Loan Bank Advances
1996
--------------------------
Weighted
Average
Years Ending June 30 Amount Rate
------ ----
Advances from FHLB
Maturities
1997 $3,012 6.81%
1998 1,701 6.10
1999 190 5.93
2000 481 6.57
2001 383 5.09
Thereafter 474 7.33
------
$6,241
======
The FHLB advances are secured by first mortgage loans and investment securities
totaling $89,509,000. Advances are subject to restrictions or penalties in the
event of prepayment.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Income Tax
Year Ended June 30,
-----------------------------------------
1996 1995 1994
------ ------ ------
Currently payable
Federal $765 $706 $574
State 323 363 281
Deferred
Federal (144) (100) (101)
State (31) (53) (39)
---- ---- ----
Total income tax expense $913 $916 $715
==== ==== ====
Year Ended June 30,
------------------------------------------
1996 1995 1994
------- ------ ------
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $1,154 $1,138 $1,014
Increase in cash value of insurance (40) (37) (7)
Effect of state income taxes 193 205 160
Business income tax credits (423) (406) (426)
Other 29 16 (26)
---- ---- ----
Actual tax expense $ 913 $ 916 $ 715
======= ====== ======
The tax expense related to securities gains was $5,900 for 1994.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
A cumulative deferred tax asset of $2,320,000 and $2,151,000 is included in
other assets. The components of the asset are as follows:
June 30,
---------------------------
1996 1995
------ ------
Differences in accounting for loan losses $ 987 $ 992
Deferred compensation 880 801
Deferred loan fees 127 129
Business income tax credits 309 298
Deferred state income taxes (149) (138)
Differences in accounting for pensions and other employee benefits 182 90
Differences in accounting for securities available-for-sale 6
FHLB of Indianapolis stock dividend (49) (49)
Other 33 22
------ ------
$2,320 $2,151
====== ======
Assets $2,518 $2,338
Liabilities (198) (187)
------ ------
$2,320 $2,151
====== ======
No valuation allowance was considered necessary at June 30, 1996 and 1995.
At June 30, 1996, the Company had an unused business income tax credit
carryforward of $309,000 expiring in 2011.
Retained earnings include approximately $8,300,000 for which no deferred income
tax liability has been recognized. This amount represents an allocation of
income to bad debt deductions as of June 30, 1988 for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carryback of net operating losses would create income
for tax purposes only, which income would be subject to the then-current
corporate income tax rate. At June 30, 1996, the unrecorded deferred income tax
liability on the above amount was approximately $3,300,000.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Restriction on Dividends
The Company is not subject to any regulatory restrictions on the payment of
dividends to its shareholders. The Office of Thrift Supervision ("OTS")
regulations provide that a savings association which meets fully phased-in
capital requirements (those in effect on December 31, 1994) and is subject only
to "normal supervision" may pay out, as a dividend, 100 percent of net income to
date over the calendar year and 50 percent of surplus capital existing at the
beginning of the calendar year without supervisory approval, but with 30 days
prior notice to the OTS. Any additional amount of capital distributions would
require prior regulatory approval.
At the time of the Bank's conversion to a stock savings bank, a liquidation
account was established in an amount equal to the Bank's net worth as reflected
in the latest statement of condition used in its final conversion offering
circular. The liquidation account is maintained for the benefit of eligible
deposit account holders who maintain their deposit account in the Bank after
conversion. In the event of a complete liquidation (and only in such event),
each eligible deposit account holder will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted subaccount balance for deposit accounts then held, before any
liquidation distribution may be made to stockholders. Except for the repurchase
of stock and payment of dividends, the existence of the liquidation account will
not restrict the use or application of net worth. The initial balance of the
liquidation account was $24,100,000.
At June 30, 1996, total shareholder's equity of the Bank was $35,519,000, of
which a minimum of $11,419,000 was available for the payment of dividends.
Stock Transactions
The Company's Board of Directors has approved periodically the repurchase of up
to 5 percent of the Company's outstanding shares of common stock. Such purchases
were made subject to market conditions in open market or block transactions.
During the years ended June 30, 1996, 1995 and 1994, the Company had repurchased
100,658, 214,249 and 235,695 of its outstanding shares.
Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by the regulatory agencies that, if undertaken, could have a
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
At June 30, 1996, the Bank believes that it meets all capital adequacy
requirements to which it is subject and the most recent notification from the
regulatory agency categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action.
The Bank's actual and required capital amounts and ratios are as follows:
June 30, 1996
-----------------------------------------------------------------------------------------
Required
for Adequate To Be Well
Actual Capital 1 Capitalized 1
------------------- ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total capital 1
(to risk weighted
assets)
Bank $36,940 32.7% $9,045 8.0% $11,307 10.0%
Tier I capital 1
(to risk weighted
assets)
Bank 35,519 31.4% 4,523 4.0% 6,784 6.0%
Tier I capital 1
(to total assets)
Bank 35,519 20.7% 6,871 4.0% 8,588 5.0%
- ----------
1 As defined by the regulatory agencies
o Benefit Plans
The Bank provides pension benefits for substantially all of the Bank's employees
and is a participant in a pension fund known as the Financial Institutions
Retirement Fund ("FIRF"). This plan is a multi-employer plan; separate actuarial
valuations are not made with respect to each participating employer. A
supplemental plan provides for additional benefits for certain employees.
Pension expense (credit) was $211,123, $108,417, and $(464) for 1996, 1995 and
1994.
The Bank contributes up to 3 percent of employees' salaries for those
participating in a nonqualified thrift plan. The Bank's contribution was
$23,300, $20,600, and $18,900 for 1996, 1995 and 1994.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Bank has purchased life insurance on certain officers and directors, which
insurance had an approximate cash value of $5,588,000 and $5,471,000 at June 30,
1996 and 1995. The Bank has approved arrangements that provide retirement and
death benefits to those officers and directors covered by the keyman policies.
The benefits to be paid will be funded primarily by the keyman policies and are
being accrued over the period of active service to eligibility dates. The
accrual of benefits totalled $277,000, $447,000, and $248,000 for 1996, 1995 and
1994.
Certain insurance companies which have issued policies described above have been
placed in conservatorship by the insurance commissioner of the state of
California (the "Commissioner"). During the year ended June 30, 1994, the Bank
reduced the cash value on such policies to estimated values provided by the
Commissioner.
The Company has a stock option plan in which 155,089 common shares were reserved
at June 30, 1996 for issuance under the plan. The incentive stock option
exercise price will not be less than the fair market value of the common stock
(or 85 percent of the fair market value of common stock for non-qualified
options) on the date of the grant of the option. The date on which the options
are first exercisable is determined by the Board of Directors, and the terms of
the stock options will not exceed ten years from the date of grant. In March,
1993, the Company granted incentive and non-qualified stock options for 132,824
and 60,377 shares. During the years ended June 30, 1996, 1995 and 1994, options
totaling 65,179 (with 17,196 shares tendered as partial payment), 6,369 and
14,863 were exercised. 48,299 shares were available for grant at June 30, 1996.
The weighted option price per share for the 1996, 1995 and 1994 options
exercised and at June 30, 1996, was $10.
The Bank's Board of Directors has established Recognition and Retention Plans
and Trusts ("RRP"). The Bank contributed $1,349,340 to the RRPs for the purchase
of 96,600 shares of Company common stock, and in March, 1993, awards of grants
for these shares were issued to various directors, officers and employees of the
Bank. These awards generally are to vest and be earned by the recipient at a
rate of 20 percent per year, commencing March, 1994. The unearned portion of
these stock awards is presented as a reduction of shareholders' equity.
SFAS No. 123, Stock-Based Compensation, is effective for the Company for the
year ended June 30, 1997. This statement establishes a fair value based method
of accounting for stock-based compensation plans. The Company has not yet
determined the impact of adopting SFAS No. 123 on net income or financial
position in the year of adoption.
o Postretirement Plan
The Bank sponsors a defined benefit postretirement plan that covers both
salaried and nonsalaried employees. The plan provides postretirement health care
coverage to eligible retirees. An eligible retiree is an employee who retires
from the Bank on or after attaining age 65 and who has rendered at least 15
years of service.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Bank continues to fund benefit costs on a pay-as-you-go basis, and, for
1996, 1995 and 1994, the Bank made benefit payments totaling $3,842, $2,986 and
$3,252. The following table sets forth the plan's funded status, and amounts
recognized in the consolidated statement of financial condition:
June 30,
------------------------
1996 1995
------ ------
Accumulated postretirement benefit obligation
Retirees $100 $ 76
Other active plan participants 80 78
Accumulated postretirement benefit obligation 180 154
Unrecognized net gain from past experience
different from that assumed
and from changes in assumptions 84 98
---- ----
Accrued postretirement benefit cost $264 $252
==== ====
June 30,
-----------------------------------------
1996 1995 1994
------ ------ ------
Net periodic postretirement cost included the following
components
Service cost--benefits attributed to service
during the period $13 $21 $19
Interest cost on accumulated postretirement
benefit obligation 12 16 15
Net amortization and deferral (9)
--- --- ---
Net periodic postretirement benefit cost $16 $37 $34
=== === ===
At June 30, 1996 and 1995, there were no plan assets. The assumed health care
cost trend rate used in measuring the accumulated postretirement benefit
obligation was 12 percent in 1996, gradually declining to 6 percent in the year
2011. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75 percent.
If the health care cost trend rate assumptions were increased by 1 percent, the
accumulated postretirement benefit obligation as of June 30, 1996 would have
increased by 14 percent. The effect of this change on the sum of the service
cost and interest would be an increase of 17 percent.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, which are not
included in the accompanying consolidated financial statements. The Bank's
exposure to credit loss in the event of nonperformance by the other party to the
financial instruments for commitments to extend credit is represented by the
contractual or notional amount of those instruments. The Bank uses the same
credit policies in making such commitments as it does for instruments that are
included in the consolidated statement of financial condition.
Financial instruments whose contract amount represents credit risk as of June 30
were as follows:
1996 1995
------- -------
Mortgage loan commitments at variable rates $3,211 $3,894
Consumer and commercial loan commitments 1,365 936
Standby letters of credit 3,239 1,518
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include residential real estate,
income-producing commercial properties, or other assets of the borrower.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of the customer to a third party.
A significant portion of the Bank's loan portfolio consists of commercial real
estate loans, including loans secured by nursing homes. These commercial real
estate loans, totaling $36,170,000 and $35,937,000 at June 30, 1996 and 1995,
have a significantly higher degree of credit risk than residential mortgage
loans. Loan payments on the nursing home loans are often dependent on the
operation of the collateral, and risks inherent in the nursing home industry
include licensure and certification laws and changes affecting payments from
third party payors.
The Company and subsidiaries are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. Based on information presently
available, it is the opinion of management that the disposition or ultimate
determination of such possible claims or lawsuits will not have a material
adverse effect on the consolidated financial position of the Company.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The deposits of the Bank are presently insured by the Savings Association
Insurance Fund (the "SAIF"). A recapitalization plan for the SAIF under
consideration by Congress provides for a special assessment on all SAIF-insured
institutions to enable the SAIF to achieve its required level of reserves. If
the proposed assessment of .85% was effected based on deposits as of March 31,
1995 (as originally proposed), the Bank's special assessment would amount to
approximately $1,008,000, before taxes. Accordingly, this special assessment
would significantly increase other expenses and adversely affect results of
operations. Depending upon the capital level and supervisory rating of the Bank,
and assuming the insurance premium levels for commercial banks and SAIF members
again equalized, future deposit insurance premiums could decrease from the .23%
of deposits currently paid by the Bank. Such reduction in premiums would reduce
other expenses for future periods.
o Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Investment Securities--Fair values are based on quoted market prices.
Loans--The fair value for loans is estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Interest Receivable/Payable--The fair values of accrued interest
receivable/payable approximates carrying values.
FHLB Stock--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
Deposits--Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on such time deposits.
Federal Home Loan Bank Advances--The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current rates for
similar debt.
Advances by Borrowers for Taxes and Insurance--The fair value approximates
carrying value.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The estimated fair values of the Company's financial instruments are as follows:
1996 1995
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Assets
Cash and cash equivalents $7,520 $7,520 $3,483 $3,483
Securities available-for-sale 1,000 1,000 2,985 2,985
Securities held-to-maturity 13,058 12,886 17,275 16,892
Loans, net 143,165 145,788 136,323 136,746
Interest receivable 642 642 578 578
Stock in FHLB 988 988 909 909
Liabilities
Deposits 126,260 127,210 120,613 120,502
FHLB advances 6,241 6,261 6,963 6,893
Interest payable 116 116 136 136
Advances by borrowers for taxes and insurance 392 392 214 214
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
Condensed Balance Sheet
June 30,
---------------------------
1996 1995
--------- ---------
Assets
Cash and cash equivalents $ 3,048 $ 603
Investment securities held-to-maturity 2,978
Investment in subsidiary 35,519 41,301
Other assets 5 6
------- -------
Total assets $41,550 $41,910
======= =======
Liabilities $ 39 $ 46
Shareholders' Equity 41,511 41,864
------- -------
Total liabilities and shareholders' equity $41,550 $41,910
======= =======
Condensed Statement of Income
Year Ended June 30,
-------------------------------------------
1996 1995 1994
------ ------ ------
Income
Dividends from Bank $8,600 $2,000 $3,000
Other 120 96 108
Expenses 85 132 146
------ ------ ------
Income before income tax and equity in undistributed
income of subsidiary 8,635 1,964 2,962
Income tax expense (benefit) 14 (14) (15)
------ ------ ------
Income before equity in undistributed
income of subsidiary 8,621 1,978 2,977
Equity in undistributed (distribution in excess of)
income of subsidiary (6,140) 452 (708)
------ ------ ------
Net Income $2,481 $2,430 $2,269
====== ====== ======
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Condensed Statement of Cash Flows
Year Ended June 30,
------------------------------------------
1996 1995 1994
------ -------- --------
Operating Activities
Net income $2,481 $2,430 $2,269
Adjustments to reconcile net income to net cash provided
by operating activities 6,057 (434) 653
------ ------ ------
Net cash provided by operating activities 8,538 1,996 2,922
------ ------ ------
Investing Activities
Purchase of securities held-to-maturity (5,951) (496)
Proceeds from maturities of securities held-to-maturity 3,000 6,000
------ ------
Net cash provided (used) by investing activities (2,951) 5,504
------ ------
Financing Activities
Exercise of stock options 392 64 148
Cash dividends (1,468) (1,333) (1,198)
Repurchase of common stock (2,066) (3,889) (3,931)
------ ------ ------
Net cash used by financing activities (3,142) (5,158) (4,981)
------ ------ ------
Net Increase (Decrease) in Cash and Cash Equivalents 2,445 (3,162) 3,445
------ ------ ------
Cash and Cash Equivalents at Beginning of Year 603 3,765 320
------ ------ ------
Cash and Cash Equivalents at End of Year $3,048 $ 603 $3,765
====== ====== ======
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Quarterly Results
Year Ended June 30, 1996
----------------------------------------------
June March December September
1996 1996 1995 1995
---- ---- ---- ----
Interest income $3,416 $3,442 $3,465 $3,417
Interest expense 1,706 1,714 1,721 1,712
------ ------ ------ ------
Net interest income 1,710 1,728 1,744 1,705
Provision for losses on loans 10 24
------ ------ ------ ------
Net interest income after provisions for losses on loans 1,700 1,728 1,720 1,705
Other income 24 23 25 58
Other expenses 872 927 874 916
------ ------ ------ ------
Income before income tax 852 824 871 847
Income tax expense 223 216 233 241
------ ------ ------ ------
Net Income $ 629 $ 608 $ 638 $ 606
====== ====== ====== ======
Per share
Net income $.33 $.29 $.31 $.29
Dividends $.20 $.18 $.18 $.18
Year Ended June 30, 1995
----------------------------------------------
June March December September
1995 1995 1994 1994
---- ---- ---- ----
Interest income $3,300 $3,246 $3,149 $3,091
Interest expense 1,624 1,500 1,388 1,410
------ ------ ------ ------
Net interest income 1,676 1,746 1,761 1,681
Provision for losses on loans 3 65
------ ------ ------ ------
Net interest income after provisions for losses on loans 1,673 1,746 1,761 1,616
Other income 31 19 14 41
Other expenses 916 913 870 856
------ ------ ------ ------
Income before income tax 788 852 905 801
Income tax expense 177 220 265 254
------ ------ ------ ------
Net Income $ 611 $ 632 $ 640 $ 547
====== ====== ====== ======
Per share
Net income $.28 $.30 $.29 $.24
Dividends $.18 $.15 $.15 $.15
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Robert D. Burchard W. Gordon Coryea Jack O. Murrell
Chairman of the Board Attorney Retired, Murrell and Keal
Retired, Former President
of MCHI and First Federal
Jerry D. McVicker John M. Dalton George L. Thomas
Director of Operations President Retired, Foster-Forbes
Marion Community Schools Vice Chairman of
the Board
Steven L. Banks
Executive Vice President
OFFICERS OF MARION CAPITAL HOLDINGS, INC.
John M. Dalton Larry G. Phillips
President Sr. Vice President and
Secretary-Treasurer
Steven L. Banks Jackie Noble
Executive Vice President Assistant Secretary and
Assistant Treasurer
Tim D. Canode
Vice President
OFFICERS OF FIRST FEDERAL SAVINGS BANK OF MARION
John M. Dalton Larry G. Phillips Steven L. Banks
President Sr. Vice President and Executive Vice President
Secretary-Treasurer
Stephen A. Smithley James E. Adkins Charles N. Sponhauer
Vice President Vice President Vice President
Jackie Noble Chris Bradford Kathy Kuntz
Assistant Secretary and Assistant Secretary Assistant Secretary
Assistant Treasurer
Tim D. Canode Lowell Martin Randy J. Sizemore
Vice President Assistant Vice President, Assistant Treasurer
Branch Manager
DIRECTORS AND OFFICERS
Robert D. Burchard (age 65) is a Director of Marion Capital Holdings, Inc.
Mr. Burchard served as President of Marion Capital Holdings, Inc. from its
formation until 1996. Mr. Burchard also served as President of First Federal
from 1983 until 1996 and as President of First Marion Service Corporation in
1996. Mr. Burchard became Chairman of the Boards of Marion Captial Holdings,
Inc. and First Federal in 1996.
W. Gordon Coryea (age 71) is a Director of Marion Capital Holdings, Inc. He
is also an attorney at law based in Marion, Indiana, and has served as attorney
for First Federal since 1965.
John M. Dalton (age 62) is a Director of Marion Capital Holdings, Inc. and
has served as its President since 1996. Prior to that, he served as Marion
Capital Holdings, Inc.'s Executive Vice President. He has also served as
President of First Federal since 1996 and as Executive Vice President of First
Marion Service Corporation in 1996. Mr. Dalton was the Executive Vice President
of First Federal from 1983 to 1996.
Merritt B. McVicker (age 77) was Chairman of the Board of Marion Captial
Holdings, Inc. until his death in July 1996. He had also served as Chairman of
First Federal since 1974, as President of First Marion since 1971 and became
Chairman of First Marion Service Corporation in 1974.
Jack O. Murrell (age 73) is a Director of Marion Capital Holdings, Inc. He
has also served as President of Murrell and Keal, Inc. since 1958 (a retailer
located in Marion, Indiana).
George L. Thomas (age 79) is a Director of Marion Capital Holdings, Inc. He
also served as Chairman of Foster-Forbes Glass Co., a division of the National
Can Corporation, located in Marion, Indiana until his retirement in 1984.
Larry G. Phillips (age 47) is Sr. Vice President, Secretary and Treasurer
of Marion Capital Holdings, Inc. He has also served as Sr. Vice President and
Treasurer of First Federal since 1996, as Secretary of First Federal since 1989,
and as Secretary and Treasurer of First Marion since 1989. Mr. Phillips was Vice
President and Treasurer of First Federal from 1983 to 1996.
Tim D. Canode (age 51) has served as Vice President of Marion Capital
Holdings, Inc. since 1996 and as Vice President of First Federal since 1983 and
as Assistant Vice President of First Marion since 1983.
Jacquelin Ann Noble (age 55) is Assistant Secretary and Assistant Treasurer
of Marion Capital Holdings, Inc. She has served as Assistant Secretary and
Assistant Treasurer of First Federal since 1967. She has also served as
Assistant Secretary and Assistant Treasurer of First Marion since 1971.
Steven L. Banks (age 46) was President and CEO of Fidelity Federal Savings
Bank of Marion. On September 1, 1996 he assumed the duties of Executive Vice
President of both Marion Capital Holdings, Inc. and First Federal, and will
serve as a director of Marion Capital Holdings, Inc. and First Federal.
Jerry D. McVicker (age 51) is Director of Operations for Marion Community
Schools. On September 1, 1996, he assumed the duties of director of Marion
Capital Holdings, Inc. and First Federal.
SHAREHOLDER INFORMATION
Market Information
The common stock of Marion Capital Holdings, Inc. is traded on the National
Association of Securities Dealers Automated Quotation System, National Market
System, under the symbol "MARN," and is listed in the Wall Street Journal under
the abbreviation "MarionCap." As of June 30, 1996, there were approximately 536
shareholders of record and MCHI estimates that, as of that date, there were an
additional 1,000 in "street" name. The following table sets forth market price
information for MCHI's common stock for the periods indicated.
Fiscal Quarter Ended High Low Dividend Per Share
- -------------------- ---- --- ------------------
September 30, 1994 $18.750 $15.750 $.15
December 31, 1994 18.000 15.000 .15
March 31, 1995 17.750 15.250 .15
June 30, 1995 20.000 17.250 .18
September 30, 1995 20.625 18.500 .18
December 31, 1995 20.625 19.250 .18
March 31, 1996 20.750 19.250 .18
June 30, 1996 21.000 19.750 .20
Transfer Agent and Registrar General Counsel
Fifth Third Bank Barnes & Thornburg
38 Fountain Square 1313 Merchants Bank Building
Cincinnati, Ohio 45263 11 South Meridian Street
Indianapolis, Indiana 46204
Shareholders and General Inquiries
MCHI is required to file an Annual Report on Form 10-K for its fiscal year
ended June 30, 1996 with the Securities and Exchange Commission. Copies of this
annual report may be obtained without charge upon written request to:
Larry Phillips
Sr. Vice President, Secretary and Treasurer
Marion Capital Holdings, Inc.
100 West Third Street
Marion, Indiana 46952
Office Location Branch Location
100 West Third Street 1045 South 13th Street
Marion, Indiana 46952 Decatur, Indiana 46733
Telephone: (317) 664-0556 Telephone: (219) 728-2106
[LOGO] FIRST FEDERAL
SAVINGS BANK
100 West Third Street, Marion, Indiana 46952
(317) 664-0556