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TABLE OF CONTENTS
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Message to Shareholders.................................................... 1
Selected Consolidated Financial Data....................................... 2
Management's Discussion and Analysis....................................... 3
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
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DESCRIPTION OF BUSINESS
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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. In addition, First Federal anticipates the opening of a branch inside
the Wal-Mart Supercenter in Marion and also expects a branch acquisition in Gas
City, Grant County, Indiana to be completed during fiscal year end June 30,
1998. 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, except that during the year ended June 30, 1997, MCHI
extended a $2.5 million loan to a non-related bank holding company. MCHI is the
sole shareholder of First Federal.
To Our Shareholders
On June 30, 1997, Marion Capital Holdings, Inc. ended its fourth full year of
operations as a unitary savings and loan holding company. The Company began
operations on March 18, 1993 when First Federal - Marion converted to a federal
stock savings bank. First Federal completed its 61st year on July 20, 1997.
Our net income for the year ended June 30, 1997 was $2,440,000, a decrease of
$41,000 or 1.7% compared to the results for the year ended June 30, 1996. The
decrease in earnings is attributable to the signing of the Omnibus
Appropriations Bill on September 30, 1996, that imposed a special FDIC
assessment for all SAIF-insured deposits. This assessment amounted to $777,000
and is included in other expense for the twelve months ended June 30, 1997. The
after-tax effect on net income was $469,000. Since January 1, 1997, and in
future periods, the Company will benefit from a reduction in FDIC premiums which
should have a positive effect on future earnings. Earnings per share for the
year ended June 30, 1997, was $1.30, an increase of 6.6% over 1996. In June
1997, the Board of Directors increased the quarterly dividend to $.22 per share
from $.20 per share. Net interest income increased in the past year to
$7,026,000 from $6,887,000, an increase of 2.0%. The interest rate spread
increased to 3.21% for the year ended June 30, 1997, from 3.01% for the year
ended June 30, 1996.
Shareholders' equity was $39,066,000 on June 30, 1997, a decrease of $2,445,000
due to the Company's continual repurchase of its common stock in the open
market. During the past year Marion Capital retired 188,887 shares at an average
cost of $21.17. Book value has now increased to $22.09 per share at June 30,
1997 from $21.47 per share on June 30, 1996.
Loans remained strong for this past year, increasing to over $148,000,000 from
$143,000,000 or 3.4%. This was the major reason for the net yield on weighted
average interest-earning assets increasing to 4.29% from 4.17% even though the
yield on mortgage loans decreased from 8.78% for the year ended June 30, 1996 to
8.62% for the year ended June 30, 1997. In June 1997, Marion Capital lost a true
friend of this organization, Robert D. Burchard. Bob passed away on June 26. He
had been Chairman of the Board since August, 1996 and had served First Federal
since 1959. His financial wisdom will be difficult to replace. He is missed by
his family, friends and business associates. He was a friend to the undersigned
for 50 years. All of us are deeply saddened by his passing.
On July 21, 1997 Jon R. Marler was appointed a director to fill the unexpired
term of Robert D. Burchard. Mr. Marler, 47 years of age, is currently Sr. Vice
President of Ralph M. Williams & Associates of Marion, Indiana. He is a lifetime
resident of the Marion area and brings a broad business background to our
organization. Also, during July, 1997 the undersigned, John M. Dalton, was
elected Chairman of the Board.
Looking to the future, we are very enthusiastic with our opportunities. In the
spring of 1997 we asked for and received permission to establish a full-time
sales office in the new Wal-Mart Supercenter in Marion. We were selected over
other financial institutions, and we will be the first full-service, seven days
per week, bank in Grant County, Indiana. We could not build a branch anywhere
with this kind of foot traffic. This sales office should be open in October,
1997. In addition, we will be acquiring the branch office of NBD Bank in Gas
City, Indiana, which is our second largest customer area. It is a natural
expansion of our franchise. We will be receiving approximately $10 million in
deposits and a ten year old facility. This is a strategic location to better
serve our communities.
We appreciate the continued support and confidence of our customers and
shareholders as we proceed into the future. Remember, this is your Bank so be
sure to use it for all your personal and business needs and recommend it to your
friends and neighbors.
/s/ John Dalton
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,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
Summary of Financial Condition:
Total assets......................................... $173,304 $177,767 $172,711 $170,799 $173,861
Loans, net........................................... 148,031 143,165 136,323 127,092 133,000
Cash and investment securities....................... 11,468 21,578 23,743 30,863 27,531
Real estate limited partnerships..................... 1,449 1,624 1,527 1,422 1,363
Deposits............................................. 121,770 126,260 120,613 120,965 121,944
Advances from FHLB of Indianapolis................... 8,229 6,241 6,963 3,200 3,075
Shareholders' equity................................. 39,066 41,511 41,864 44,331 46,773
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
Summary of Operating Results:
Interest income...................................... $13,733 $13,740 $ 12,786 $ 12,391 $ 12,885
Interest expense..................................... 6,707 6,853 5,922 5,872 6,936
--------- --------- ---------- ---------- ----------
Net interest income............................... 7,026 6,887 6,864 6,519 5,949
Provision for losses on loans........................ 58 34 68 65 367
Net interest income after
provision for losses on loans................... 6,968 6,853 6,796 6,454 5,582
--------- --------- ---------- ---------- ----------
Other income:
Net loan servicing fees........................... 86 81 69 62 51
Annuity and other commissions..................... 153 147 144 211 194
Other income...................................... 181 95 76 83 91
Equity in losses of limited partnerships.......... (305) (193) (185) (236) (190)
Gains (losses) on sale of investments ............ -- -- -- 15 (16)
Life insurance income and death benefits.......... 808 117 108 21 205
--------- --------- ---------- ---------- ----------
Total other income................................ 923 247 213 155 335
--------- --------- ---------- ---------- ----------
Other expense:
Salaries and employee benefits.................... 2,881 2,413 2,447 1,991 1,779
Other............................................. 2,170 1,293 1,216 1,634 1,470
--------- --------- ---------- ---------- ----------
Total other expense............................. 5,051 3,706 3,663 3,625 3,249
--------- --------- ---------- ---------- ----------
Income before income tax and accounting
method changes.................................... 2,840 3,394 3,346 2,984 2,668
Income tax expense................................... 400 913 916 715 578
Accounting method changes............................ -- -- -- -- 98
--------- --------- ---------- ---------- ----------
Net Income........................................ $ 2,440 $ 2,481 $ 2,430 $ 2,269 $ 1,992
========= ========= ========== ========== ==========
Supplemental Data:
Book value per common share at end of year........... $ 22.09 $ 21.47 $ 21.08 $ 20.20 $ 19.37
Return on assets (1)................................. 1.40% 1.41% 1.41% 1.29% 1.19%
Return on equity (2)................................. 6.09 5.86 5.58 5.00 6.45
Interest rate spread (3)............................. 3.21 3.01 3.20 2.96 3.08
Net yield on interest earning assets (4)............. 4.29 4.17 4.28 3.97 3.82
Operating expenses to average assets (5)............. 2.89 2.11 2.12 2.05 1.95
Net interest income to operating expenses (6)........ 1.39x 1.86x 1.87x 1.80x 1.83x
Equity-to-assets at end of year (7).................. 22.54 23.35 24.24 25.96 26.90
Average equity to average total assets............... 22.89 24.09 25.27 25.72 18.52
Average interest-earning assets to average
interest-bearing liabilities...................... 126.34 127.93 129.08 128.37 116.65
Non-performing assets to total assets................ .81 1.07 1.13 3.20 4.10
Non-performing loans to total loans.................. .94 1.18 1.27 3.59 3.95
Loan loss reserve to total loans..................... 1.35 1.38 1.45 1.59 1.52
Loan loss reserve to non-performing loans............ 143.98 117.07 114.87 44.21 38.44
Net charge-offs to average loans..................... .02 .03 .08 .05 .46
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.
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, 1997, First Federal's cumulative One-Year Gap, based on total assets,
was a positive 8.22% 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, $67.2 million, or 42.8%, of the Company's interest-earning
assets reprice or mature in the 12 months ending June 30, 1998, 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, 1997, 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, 1997, was 8.62%, a decrease from
8.78% for the the year ended June 30, 1996. While loan yields decreased during
these periods, the net interest margin increased to 4.29% for the year ended
June 30, 1997, from 4.17% 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 .14% of the Company's total
assets at June 30, 1997, 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,
1997. 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, 1997
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 $14,461 $18,189 $26,000 $22,725 $40,927 $ 3,377 $ 202 $ 126 $126,007
Fixed-rate mortgages 703 390 1,183 3,521 2,626 4,097 2,311 196 15,027
Nonmortgage loans 2,237 790 625 570 461 2,566 75 --- 7,324
Nonmortgage investments 1,340 --- 1,100 3,000 3,129 --- --- --- 8,569
Mortgage investments 54 48 81 70 (24) (18) (6) --- 205
Off balance sheet assets (1) (4,577) 152 4,425 --- --- --- --- --- ---
Unamortized yield
adjustments (6) (6) (12) (49) (24) (58) (102) (2) (259)
------- ------- ------- ---------- ------- ------- ------- ----- -------
Total interest-earning
assets 14,212 19,563 33,402 29,837 47,095 9,964 2,480 320 156,873
------- ------- ------- ---------- ------- ------- ------- ----- -------
Interest-bearing liabilities
Fixed maturity deposits 14,471 12,038 10,582 37,923 8,839 1,004 --- --- 84,857
Other deposits 4,320 3,447 5,158 9,556 4,375 5,553 3,546 975 36,930
FHLB advances 3,000 196 5 1,671 2,890 40 427 --- 8,229
------- ------- ------- ---------- ------- ------- ------- ----- -------
Total interest-bearing
liabilities 21,791 15,681 15,745 49,150 16,104 6,597 3,973 975 130,016
------- ------- ------- ---------- ------- ------- ------- ----- -------
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities $(7,579) $ 3,882 $17,657 $ (19,313) $30,991 $ 3,367 $(1,493) $(655) $26,857
======= ======= ======= ========== ======= ======= ======= ===== =======
Cumulative excess (deficiency)
of interest-earning assets over
interest-bearing liabilities $(7,579) $(3,697) $13,960 $(5,353) $25,638 $29,005 $27,512 $26,857 $26,857
Cumulative interest rate gap (4.46)% (2.18)% 8.22% (3.15)% 15.09% 17.07% 16.19% 15.81% 15.81%
(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,
---------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ------------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
Assets:
Interest-earning assets:
Interest-earning deposits........ $ 3,937 $ 264 6.71% $ 4,972 $ 334 6.72% $ 2,531 $ 159 6.28%
Investment securities............ 9,517 528 5.55 17,306 877 5.07 22,674 1,111 4.90
Loans (1) .................... 149,170 12,862 8.62 141,946 12,456 8.78 134,428 11,451 8.52
Stock in FHLB of Indianapolis.... 1,002 79 7.88 927 73 7.87 909 65 7.15
-------- ------ -------- ------ -------- ------
Total interest-earning assets. 163,626 13,733 8.39 165,151 13,740 8.32 160,542 12,786 7.96
Non-interest earning assets........... 11,153 -- 10,762 -- 11,873 --
-------- ------ -------- ------ -------- ------
Total assets................... $174,779 13,733 $175,913 13,740 $172,415 12,786
======== ====== ======== ====== ======== ======
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Savings accounts................. $ 16,681 483 2.90 $18,127 588 3.24 $ 22,582 726 3.21%
NOW and money market accounts.... 19,817 657 3.32 18,718 667 3.56 18,332 593 3.23
Certificates of deposit.......... 85,636 5,104 5.96 84,650 5,089 6.01 77,884 4,221 5.42
-------- ------ -------- ------ -------- ------
Total deposits................ 122,134 6,244 5.11 121,495 6,344 5.22 118,798 5,540 4.66
FHLB borrowings.................. 7,382 463 6.27 6,694 457 6.83 5,574 382 6.85
Other borrowings................. -- -- 901 52 5.77
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities................. 129,516 6,707 5.18 129,090 6,853 5.31 124,372 5,922 4.76
Other liabilities .................... 5,259 -- 4,451 -- 4,469
-------- ------ -------- ------ -------- ------
Total liabilities.............. 134,775 -- 133,541 -- 128,841
Shareholders' equity.................. 40,004 -- 42,372 -- 43,574
-------- ------ -------- ------ -------- ------
Total liabilities and
shareholders' equity......... $174,779 6,707 $172,913 6,853 $172,415 5,922
======== ------ ======== ------ ======== ------
Net interest-earning assets........... $ 34,110 $ 36,061 $ 36,170
Net interest income................... $7,026 $ 6,887 $ 6,864
====== ======== ========
Interest rate spread (2).............. 3.21 3.01 3.20
Net yield on weighted average
interest-earning assets (3)...... 4.29 4.17 4.28
Average interest-earning assets
to average
interest-bearing liabilities..... 126.34% 127.93% 129.08%
====== ====== ======
(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, 1997 1997 1996 1995
------------- ------ ---- -----
Weighted average interest rate earned on:
Interest-earning deposits................. 5.95% 6.71% 6.72% 6.28%
Investment securities..................... 5.94 5.55 5.07 4.90
Loans (1) ............................. 8.49 8.62 8.78 8.52
Stock in FHLB of Indianapolis............. 7.81 7.88 7.87 7.15
Total interest-earning assets......... 8.34 8.39 8.32 7.96
Weighted average interest rate cost of:
Savings accounts.......................... 2.75 2.90 3.24 3.21
NOW and money market accounts............. 3.19 3.32 3.56 3.2
Certificates of deposit................... 6.00 5.96 6.01 5.42
FHLB borrowings........................... 6.14 6.27 6.83 6.85
Other borrowings.......................... --- --- 5.77 ---
Total interest-bearing liabilities.... 5.16 5.18 5.31 4.76
Interest rate spread (2)....................... 3.18 3.21 3.01 3.20
Net yield on weighted average
interest-earning assets (3)............... --- 4.29 4.17 4.28
(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, 1997, 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, 1997
compared to year
ended June 30, 1996
Interest-earning assets:
Interest-earning deposits................... $ (70) $ (1) $ (69)
Investment securities....................... (349) 77 (426)
Loans....................................... 406 (220) 626
Stock in FHLB of Indianapolis............... 6 --- 6
------ ------ -----
Total..................................... (7) (144) 137
------ ------ -----
Interest-bearing liabilities:
Savings accounts............................ (105) (60) (45)
NOW and money market accounts............... (10) (48) 38
Certificates of deposit..................... 15 (44) 59
FHLB advances............................... 6 (39) 45
Other borrowings............................ (52) --- (52)
------ ------ -----
Total..................................... (146) (191) 45
------ ------ -----
Change in net interest income................... $ 139 $ 47 $ 92
====== ====== =====
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
====== ====== =====
Changes in Financial Position and Results of Operations - Year Ended June 30,
1997, Compared to Year Ended June 30, 1996:
General. MCHI's total assets were $173.3 million at June 30, 1997, a
decrease of $4.5 million or 2.5% from June 30, 1996. During 1997, average
interest-earnings assets decreased $1.5 million, or .9%, while average
interest-bearing liabilities increased $.4 million, or .3%, compared to June 30,
1996. Cash and cash equivalents and investment securities decreased $10.1
million, or 46.9%, primarily as a result of their use in funding increased loan
originations. Net loans increased $4.9 million, or 3.4%, primarily from
originations of 1- 4 family real estate loans, 1-4 family equity lending, and a
$2.5 million loan to a non-related bank holding company. 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, 1997
and 1996, no loans in the portfolio were held for sale. Deposits decreased $4.5
million, to $121.8 million, or 3.6%, at June 30, 1997 from the amount reported
last year.
MCHI's net income for the year ended June 30, 1997 was $2.4 million, a
decrease of $41,000, or 1.7% over the results for the year ended June 30, 1996.
Net interest income increased $139,000, or 2.0%, from the previous year, and
provision for losses on loans in the amount of $58,000 increasd $24,000 from
that recorded in 1996.
Stock Repurchases. During the year ended June 30, 1997, MCHI repurchased
188,887 shares of common stock in the open market at an average cost of $21.17,
or approximately 97.5% of average book value. This repurchase amounted to 9.8%
of the outstanding stock. In May, 1997, MCHI authorized another 87,905 shares,
or 5% of its outstanding stock, to be repurchased. As of June 30, 1997, no
shares had been repurchased. 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, $.20 per share for each of the
fourth four quarters, and $.22 in the most recent quarter ended June 30, 1997.
Interest Income. MCHI's total interest income for the year ended June 30,
1997 was $13.7 million, which was unchanged from interest income for the year
ended June 30, 1996.
Interest Expense. Total interest expense for the year ended June 30, 1997,
was $6.7 million, which was a decrease of $146,000, or 2.1% from interest
expense for the year ended June 30, 1996. This decrease resulted principally
from a decrease in the cost on interest bearing liabilities from 5.3% to 5.2%
while average interest earning liabilities remained relatively unchanged.
Provision for Losses on Loans. The provision for the year ended June 30,
1997, was 58,000, compared to $34,000 in 1996. The 1997 chargeoffs net of
recoveries totaled $35,000, compared to the prior year of $38,000. The ratio of
the allowance for loan losses to total loans decreased from 1.38% at June 30,
1996 to 1.35% at June 30, 1997, and the ratio of allowance for loan losses to
nonperforming loans increased from 117.07% at June 30, 1996, to 143.98% at June
30, 1997. The 1997 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, 1997 and
1996, 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, 1997, totaled
$923,000, compared to $247,000 for 1996, an increase of $676,000. This increase
was due primarily to a $691,000 increase in life insurance income and death
benefits. During the year ended June 30, 1997, the Company received death
benefit proceeds from key man life insurance policies in excess of cash
surrender value of the policies. This increase was in part offset by increased
losses from investment in limited partnerships.
Other Expenses. MCHI's other expenses for the year ended June 30, 1997,
totaled $5.1 million, an increase of $1.3 million, or 36.3%, from the year ended
June 30, 1996. This increase is directly attributable to the signing of the
Omnibus Appropriations Bill September 30, 1996 which imposed a FDIC special
assessment for all institutions with SAIF-insured deposits. SAIF insured
institutions, like the Company, are benefiting from a reduction of FDIC premiums
which began January 1, 1997 and should have a positive effect on future
earnings. In addition, salaries and employee benefits expense increased
$468,000, or 12.6%, due to increases in deferred compensation expense and normal
increases in employee compensation and related payroll taxes.
Income Tax Expense. Income tax expense for the year ended June 30, 1997,
totaled $400,000, a decrease of $513,000 from the expense recorded in 1996. Tax
expense on earnings was offset by certain low-income housing tax credits which
totaled $423,000 for the years ended June 30, 1997 and 1996. Additional tax
credits are available through the year ended June 30, 1998. During the year
ended June 30, 1997, income before income tax decreased, and additional tax free
income from an increase in cash value of life insurance and death benefits was
recorded. As a result, the effective tax expense for the Company was reduced.
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
$247,000, compared to $213,000 for 1995, an increase of $34,000, or 16.0%. 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 $3.7 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.
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, 1997, such available
collateral totaled $98.0 million. Based on existing FHLB lending policies, the
Company could have obtained approximately $53.0 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, 1997.
The percentage of IRA deposits to total deposits has increased from 21.0% ($25.4
million) at June 30, 1994, to 24.4% ($29.7 million) at June 30, 1997. During the
same period, deposits in withdrawable accounts have decreased from 37.2% ($45.0
million) of total deposits at June 30, 1994, to 30.3% ($36.9 million) at June
30, 1997. 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, 1997, 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, 1997, First Federal's liquidity ratio was 8.8% and has averaged 15.8% 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,
1997:
Year Ended June 30,
-----------------------------------------
1997 1996 1995
------ ------ -------
(In Thousands)
Operating activites......................................... $2,149 $3,232 $ 3,181
------- ------ -------
Investing activities:
Investment purchases................................... (6,191) (11,261) (2,418)
Investment maturities.................................. 12,242 17,132 6,684
Net change in loans.................................... (4,687) (6,918) (8,419)
Other investing activities............................. 275 69 183
------- ------ -------
1,639 (978) (3,968)
------- ------ -------
Financing activities:
Deposit increases (decreases).......................... (4,490) 5,647 (352)
Borrowings............................................. 5,000 3,500 5,000
Payments on borrowings................................. (3,012) (4,222) (1,237)
Repurchase of common stock............................. (3,998) (2,066) (3,889)
Dividends paid......................................... (1,495) (1,468) (1,333)
Other financing activities............................. 309 392 64
------- ------ -------
(7,686) 1,783 (1,747)
------- ------ -------
Net change in cash and cash equivalents..................... $(3,898) $4,037 $(2,534)
======= ====== =======
Investing cash flows for the three years ended June 30, 1997 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, 1997, First Federal had outstanding
commitments to originate loans of $4.7 million. Certificates of deposit
scheduled to mature in one year or less at June 30, 1997, totalled $37.1
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,
1997, the Company had $3.2 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, 1997,
First Federal's tangible capital ratio was 20.6%, its leverage ratio was 20.6%
and its risk-based capital to risk-weighted assets ratio was 32.3%. 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 Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are considered secured borrowings.
A transfer of financial assets in which the transferor surrenders control
over those assets is accounted for as a sale to the extent that consideration
other than beneficial interests in the transferred assets is received in
exchange. The transferor has surrendered control over transferred assets only if
all of the following conditions are met:
o The transferred assets have been isolated from the transferor--put
presumptively beyond the reach of the transferor and its creditors,
even in bankruptcy or other receivership.
o Each transferee obtains the right--free of conditions that constrain it
from taking advantage of that right--to pledge or exchange the
transferred assets, or the transferee is a qualifying special-purpose
entity and the holders of beneficial interests in that entity have the
right--free of conditions that constrain them from taking advantage of
that right--to pledge or exchange those interests.
o The transferor does not maintain effective control over the transferred
assets through an agreement that both entitles and obligates the
transferor to repurchase or redeem them before their maturity, or an
agreement that entitles the transferor to repurchase or redeem
transferred assets that are not readily obtainable.
SFAS No. 125 provides detailed measurement standards for assets and
liabilities included in these transactions. It also includes implementation
guidance for assessing isolation of transferred assets and for accounting for
transfers of partial interests, servicing of financial assets, securitizations,
transfers of sales-type and direct financing lease receivables, securities
lending transactions, repurchase agreements, "wash sales," loan syndications and
participations, risk participations in banker's acceptances, factoring
arrangements, transfers of receivables with recourse, and extinguishments of
liabilities.
The Statement supersedes SFAS No. 76, Extinguishment of Debt, and No. 77,
Reporting by Transferors for Transfers of Receivables with Recourse, and No.
122, Accounting for Mortgage Servicing Rights and amends SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, in addition to
clarifying or amending a number of other statements and technical bulletins. As
issued, Statement No. 125 was effective for all transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996.
The Financial Accounting Standards Board ("FASB") was made aware that the
volume of certain transactions and the related changes to information systems
and accounting processes that are necessary to comply with the requirements of
SFAS No. 125 would make it extremely difficult, if not impossible, for some
affected enterprises to apply the transfer and collateral provisions of SFAS No.
125 to those transactions as soon as January 1, 1997. As a result, SFAS No. 127
defers for one year the effective date (a) of paragraph 15 of Statement No. 125
and (b) for repurchase agreement, dollar-roll, securities lending, and similar
transactions, of paragraphs 9-12 and 237(b) of SFAS No. 125.
SFAS No. 127 provides additional guidance on the types of transactions for
which the effective date of No. 125 has been deferred. It also requires that if
it is not possible to determine whether a transfer occurring during
calendar-year 1997 is part of a repurchase agreement, dollar-roll, securities
lending, or similar transaction, then paragraphs 9-12 of SFAS No. 125 should be
applied to that transfer. All provisions of Statement No. 125 should continue to
be applied prospectively, and earlier or retroactive application is not
permitted.
Earnings per Share. SFAS No. 128, Earnings per Share, establishes standards
for computing and presenting earnings per share (EPS) and applies to entities
with publicly held common stock or potential common stock, as well as any other
entity that chooses to present EPS in its financial statements.
This Statement simplifies the current standards of APB Opinion No. 15,
Earnings per Share, and makes them comparable to international EPS standards. It
eliminates the presentation of primary EPS and requires presentation of basic
EPS (the principal difference being that common stock equivalents are not
considered in the computation of basic EPS). It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
Basic EPS includes no dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if the potential common shares were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to that of fully
diluted EPS pursuant to Opinion No. 15.
The Statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
is not permitted. The Statement requires restatement of all prior-period EPS
data presented.
Disclosure of Information about Capital Structure. SFAS No. 129, Disclosure
of Information about Capital Structure, continues the current requirements to
disclose certain information about an entity's capital structure found in APB
Opinion No. 10, Omnibus Opinion--1966, Opinion No. 15, and SFAS No. 47,
Disclosure of Long-Term Obligations. It consolidates specific disclosure
requirements from those standards. SFAS No. 129 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods.
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. It requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
SFAS No. 130 also requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
The Statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. This Statement supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise, but retains the requirement to report
information about major customers. It amends SFAS No. 94, Consolidation of All
Majority-Owned Subsidiaries, to remove the special disclosure requirements for
previously unconsolidated subsidiaries. This Statement does not apply to
nonpublic business enterprises or to not-for-profit organizations.
SFAS No. 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
This Statement requires that a public business enterprise report a measure
of segment profit or loss, certain specific revenue and expense items, and
segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts in the enterprise's general-purpose financial
statements. This Statement also requires that a public business enterprise
report descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.
SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. This Statement need not be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods in the
second year of application.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1997 and 1996
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, 1997 and 1996,
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,
1997. 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, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
July 25, 1997
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Condition
June 30,
1997 1996
------------- -------------
Assets
Cash $ 2,328,605 $ 2,365,805
Short term interest bearing deposits 1,294,134 5,154,518
------------- -------------
Total cash and cash equivalents 3,622,739 7,520,323
Investment securities
Available for sale 2,997,500 999,750
Held to maturity 4,847,519 13,057,722
------------- -------------
Total investment securities 7,845,019 14,057,472
Loans 150,062,526 145,173,891
Allowance for loan losses (2,031,535) (2,009,250)
------------- -------------
Net loans 148,030,991 143,164,641
Foreclosed real estate 182,959
Premises and equipment 1,520,381 1,446,025
Federal Home Loan Bank of Indianapolis stock, at cost 1,047,300 988,400
Other assets 11,237,279 10,406,755
------------- -------------
Total assets $173,303,709 $177,766,575
============ ============
Liabilities
Deposits $121,770,013 $126,260,010
Advances from Federal Home Loan Bank of Indianapolis 8,228,976 6,241,474
Other liabilities 4,238,901 3,754,017
------------ ------------
Total liabilities 134,237,890 136,255,501
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--1,768,099
and 1,933,613 shares 10,126,365 13,814,937
Retained earnings--substantially restricted 29,074,055 28,128,458
Net unrealized loss on securities available for sale (1,961) (119)
Unearned compensation (132,640) (432,202)
------------ ------------
Total shareholders' equity 39,065,819 41,511,074
------------ ------------
Total liabilities and shareholders' equity $173,303,709 $177,766,575
============ ============
See notes to consolidated financial statements.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Income
Year Ended June 30,
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
Interest Income
Loans $12,862,390 $12,456,465 $11,451,350
Investment securities 528,070 876,326 1,110,742
Federal funds sold 14,234
Deposits with financial institutions 263,806 333,876 144,344
Dividend income 78,585 73,341 65,386
----------- ----------- -----------
Total interest income 13,732,851 13,740,008 12,786,056
----------- ----------- -----------
Interest Expense
Deposits 6,243,723 6,344,259 5,539,915
Repurchase agreements 52,159
Federal Home Loan Bank advances 463,288 456,484 381,770
----------- ----------- -----------
Total interest expense 6,707,011 6,852,902 5,921,685
----------- ----------- -----------
Net Interest Income 7,025,840 6,887,106 6,864,371
Provision for losses on loans 58,156 34,231 67,500
----------- ----------- -----------
Net Interest Income After Provision for
Losses on Loans 6,967,684 6,852,875 6,796,871
----------- ----------- -----------
Other Income
Net loan servicing fees 85,837 81,202 68,886
Annuity and other commissions 153,464 146,827 143,986
Equity in losses of limited partnerships (305,000) (193,139) (184,582)
Life insurance income and death benefits 808,424 116,500 108,000
Other income 181,261 94,993 76,312
----------- ----------- -----------
Total other income 923,986 246,383 212,602
----------- ----------- -----------
Other Expenses
Salaries and employee benefits 2,880,969 2,412,793 2,447,129
Net occupancy expenses 168,666 153,340 155,997
Equipment expenses 61,011 59,173 51,294
Deposit insurance expense 996,303 326,871 323,835
Foreclosed real estate expenses and losses, net (21,054) (12,643) (98,413)
Data processing expense 147,720 134,247 119,182
Advertising 153,685 105,060 86,526
Other expenses 663,794 525,674 577,869
----------- ----------- -----------
Total other expenses 5,051,094 3,704,515 3,663,419
----------- ----------- -----------
Income Before Income Tax 2,840,576 3,394,743 3,346,054
Income tax expense 400,382 913,329 916,106
----------- ----------- -----------
Net Income $2,440,194 $ 2,481,414 $ 2,429,948
========== =========== ===========
Primary and Fully Diluted Net Income Per Share $1.30 $1.22 $1.11
========== =========== ===========
Average Common and Equivalent Shares Outstanding 1,871,435 2,033,955 2,186,137
========== =========== ===========
See notes to consolidated financial statements.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
Net
Unrealized
Gain (Loss)
Common Stock Retained Unearned on Securities
Shares Amount Earnings Compensation Available for Sale Total
------ ------ -------- ------------ ------------------ -----
Balances, July 1, 1994 2,194,168 $19,314,526 $26,017,534 $(1,000,760) $44,331,300
Net income for 1995 2,429,948 2,429,948
Cash dividends ($.63 per share) (1,332,666) (1,332,666)
Cumulative effect of change in
accounting for securities $(58,085) (58,085)
Net change in unrealized gain (loss)
on securities available for sale 48,850 48,850
Repurchase of common stock (214,249) (3,888,880) (3,888,880)
Exercise of stock options 6,369 63,690 63,690
Amortization of unearned
compensation expense 269,868 269,868
--------- ----------- ----------- ------------ -------- -----------
Balances, June 30, 1995 1,986,288 15,489,336 27,114,816 (730,892) (9,235) 41,864,025
Net income for 1996 2,481,414 2,481,414
Cash dividends ($.74 per share) (1,467,772) (1,467,772)
Net change in unrealized gain (loss)
on securities available for sale 9,116 9,116
Repurchase of common stock (100,658) (2,066,332) (2,066,332)
Exercise of stock options 47,983 301,855 301,855
Amortization of unearned
compensation expense 298,690 298,690
Tax benefit of stock options
exercised and RRP 90,078 90,078
--------- ----------- ----------- ------------ -------- -----------
Balances, June 30, 1996 1,933,613 13,814,937 28,128,458 (432,202) (119) 41,511,074
Net income for 1997 2,440,194 2,440,194
Cash dividends ($.82 per share) (1,494,597) (1,494,597)
Net change in unrealized gain (loss)
on securities available for sale (1,842) (1,842)
Repurchase of common stock (188,887) (3,998,270) (3,998,270)
Exercise of stock options 23,373 176,210 176,210
Amortization of unearned
compensation expense 299,562 299,562
Tax benefit of stock options
exercised and RRP 133,488 133,488
--------- ----------- ----------- ------------ -------- -----------
Balances, June 30, 1997 1,768,099 $10,126,365 $29,074,055 $ (132,640) $ (1,961) $39,065,819
========= =========== =========== ============ ======== ===========
See notes to consolidated financial statements.
MARION CAPITAL HOLDINGS, INC AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year Ended June 30,
---------------------------------------------
1997 1996 1995
--------- --------- ---------
Operating Activities
Net income $2,440,194 $2,481,414 $2,429,948
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 58,156 34,231 67,500
Adjustment for losses of foreclosed real estate (31,898) (19,136) (140,000)
Equity in losses of limited partnerships 305,000 193,139 184,582
Amortization of net loan origination costs (fees) (35,966) 10,467 (30,065)
Depreciation 83,968 77,321 64,706
Amortization of unearned compensation 299,562 298,690 269,868
Deferred income tax benefit (465,185) (174,865) (153,390)
Origination of loans for sale (7,208,207) (5,664,822) (2,414,254)
Proceeds from sale of loans 7,208,207 5,664,822 2,414,254
Changes in
Interest receivable (150,548) (64,299) (72,120)
Interest payable and other liabilities 484,884 491,704 583,878
Cash value of life insurance (808,424) (116,500) (108,000)
Prepaid expense and other assets 17,855 73,569 85,752
Other (48,177) (53,686) (1,202)
--------- --------- ---------
Net cash provided by operating activities 2,149,421 3,232,049 3,181,457
--------- --------- ---------
Investing Activities
Purchase of term federal funds (2,128,000)
Proceeds from term federal funds maturities 2,128,000
Purchase of securities available for sale (5,002,125)
Proceeds from maturities of
securities available for sale 3,000,000 2,000,000 2,000,000
Purchase of securities held to maturity (1,000,000) (10,891,992)
Proceeds from maturities of securities held to maturity 9,241,819 15,131,842 2,555,938
Contribution to limited partnership (130,000) (290,000) (290,000)
Net changes in loans (4,686,519) (6,918,405) (8,418,943)
Proceeds from real estate owned sales 30,722 98,850 291,421
Purchase of FHLB stock (58,900) (79,300)
Purchase of premises and equipment (158,324) (29,063) (106,957)
Proceeds from life insurance 1,261,987
Premiums paid on life insurance (860,000)
--------- --------- ---------
Net cash provided (used) by investing activities 1,638,660 (978,068) (3,968,541)
--------- --------- ---------
(continued)
MARION CAPITAL HOLDINGS, INC AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year Ended June 30,
--------------------------------------------
1997 1996 1995
--------- --------- ---------
Financing Activities
Net change in
Interest-bearing demand and savings deposits (1,461,116) 1,157,963 (7,741,237)
Certificates of deposit (3,028,881) 4,489,044 7,388,768
Proceeds from Federal Home Loan Bank advances 5,000,000 3,500,000 5,000,000
Repayment of Fedral Home Loan Bank advances (3,012,498) (4,221,678) (1,236,848)
Dividends paid (1,494,597) (1,467,772) (1,332,666)
Exercise of stock options 309,697 391,933 63,690
Repurchase of common stock (3,998,270) (2,066,332) (3,888,880)
---------- --------- ----------
Net cash provided (used) by financing activities (7,685,665) 1,783,158 (1,747,173)
---------- --------- ----------
Net Change in Cash and Cash Equivalents (3,897,584) 4,037,139 (2,534,257)
Cash and Cash Equivalents, Beginning of Year 7,520,323 3,483,184 6,017,441
---------- --------- ----------
Cash and Cash Equivalents, End of Year $3,622,739 $7,520,323 $3,483,184
========== ========== ==========
Additional Cash Flows and Supplementary Information
Interest paid $6,704,766 $6,873,949 $5,875,374
Income tax paid 676,345 960,958 948,959
Loan balances transferred to foreclosed real estate 119,002 447,511 2,592,839
Loans to finance the sale of foreclosed real estate 321,023 415,000 3,442,850
See notes to consolidated financial statements.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Nature of Operations and Summary of Significant Accounting Policies
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--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.
Loans are carried at the principal amount outstanding. A loan is impaired when,
based on current information or events, it is probable that the Bank will be
unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. Payments with insignificant delays not
exceeding 90 days outstanding are not considered impaired. Certain nonaccrual
and substantially delinquent loans may be considered to be impaired. The Bank
considers its investment in one-to-four family residential loans and consumer
loans to be homogeneous and therefore excluded from separate identification for
evaluation of impairment. Interest income is accrued on the principal balances
of loans. The accrual of interest on impaired and nonaccrual loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed when considered uncollectible. Interest income is
subsequently recognized only to the extent cash payments are received. Certain
loan fees and direct costs are being deferred and amortized as an adjustment of
yield on the loans over the contractual lives of the loans. When a loan is paid
off or sold, any unamortized loan origination fee balance is credited to income.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
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, 1997, 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.
Primary earnings per share are computed by dividing net income by the weighted
average number of common and equivalent shares outstanding during the period.
Fully diluted earnings per share are the same as primary earnings per share.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Statement of Financial Accounting Standards No. 128, Earnings Per Share, is
effective for the Company for periods ending after December 15, 1997, including
interim periods. This Statement eliminates the presentation of primary earnings
per share (EPS) currently presented and requires presentation of basic EPS (the
principal difference being that common stock equivalents are not considered in
the computation of basic EPS). It also requires dual presentation of basic and
diluted EPS on the face of the income statement. Diluted EPS reflects the
potential dilution that could occur from common stock equivalents, and is
computed similarly to that of fully diluted EPS currently presented.
Reclassification of certain amounts in the 1996 and 1995 consolidated financial
statements have been made to conform to the 1997 presentation.
o 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, 1997, was $219,000.
o Investment Securities
June 30, 1997
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
Available for sale
Federal agencies $3,001 $ 3 $2,998
Held to maturity
U. S. Treasury 2,001 13 1,988
Federal agencies 2,000 9 1,991
State and municipal 610 610
Mortgage-backed securities 237 2 235
------ --- ------
Total held to maturity 4,848 24 4,824
------ --- ------
Total investment securities $7,849 $27 $7,822
====== === ======
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
======= === ==== =======
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, 1997, 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, 1997
Available for Sale Held to Maturity
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------ --------- ------
Within one year $3,001 $2,998 $1,612 $1,609
One to five years $3,001 $2,998 2,999 2,980
------ ------ ------ ------
3,001 2,998 4,611 4,589
Mortgage-backed securities 237 235
------ ------ ------ ------
Totals $3,001 $2,998 $4,848 $4,824
====== ====== ====== ======
o Loans
June 30,
---------------------------
1997 1996
-------- --------
Real estate mortgage loans
One-to-four family $ 98,393 $ 87,505
Multi-family 11,394 15,573
Commercial real estate 31,122 36,170
Real estate construction loans 4,699 4,994
Commercial 2,525 7
Consumer loans 4,833 3,777
-------- --------
Total loans 152,966 148,026
Undisbursed portion of loans (2,626) (2,539)
Deferred loan fees (277) (313)
-------- --------
$150,063 $145,174
======== ========
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
1997 1996 1995
------ ------ ------
Allowance for loan losses
Balances, July 1 $2,009 $2,013 $2,050
Provision for losses 58 34 68
Recoveries on loans 2 12
Loans charged off (35) (40) (117)
------ ------ ------
Balances, June 30 $2,032 $2,009 $2,013
====== ====== ======
No loans were considered impaired at June 30, 1997.
Mortgage loans serviced for others are not included in the accompanying
consolidated statement of financial condition. The unpaid principal balances
totaled $6,643,000, $7,825,000 and $7,586,000 at June 30, 1997, 1996 and 1995.
On July 1, 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 122, Accounting for Mortgage Servicing Rights. This Statement
requires the capitalization of retained mortgage servicing rights on originated
or purchased loans. The amount of servicing rights capitalized during the year
ended June 30, 1997, was not material.
o Forclosed Real Estate
June 30,
1996
--------
Real estate acquired in settlement of loans $ 199
Allowance for losses (16)
-----
$ 183
=====
1997 1996 1995
---- ---- ----
Allowance for losses on foreclosed real estate
Balances, July 1 $16 $64 $356
Provision (adjustment) for losses (32) (19) (140)
Real estate charged off (25) (49) (171)
Recoveries on real estate 41 20 19
---- --- ----
Balances, June 30 $ 0 $16 $ 64
==== === ====
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Premises and Equipment
June 30,
-------------------------
1997 1996
------ ------
Land $ 632 $ 632
Buildings and land improvements 1,458 1,417
Furniture and equipment 490 467
------ ------
Total cost 2,580 2,516
Accumulated depreciation (1,060) (1,070)
------ ------
Net $1,520 $1,446
====== ======
o Other Assets and Other Liabilities
June 30,
---------------------------
1997 1996
------- -------
Other assets
Interest receivable
Investment securities $ 129 $ 159
Loans 664 483
Cash value of life insurance 5,994 5,588
Deferred income tax asset 2,786 2,320
Investment in limited partnership 1,449 1,624
Prepaid expenses and other 215 233
------- -------
Total $11,237 $10,407
======= =======
Other liabilities
Interest payable
Deposits $ 97 $ 99
Other borrowings 21 17
Deferred compensation and fees payable 2,488 2,072
Deferred gain on sale of real estate owned 346 353
Advances by borrowers for taxes and insurance 224 392
Other 1,063 821
------- -------
Total $4,239 $3,754
======= =======
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 $1,448,869 and $1,623,869 at June
30, 1997 and 1996 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. In 1997, the Bank also
recorded an additional loss of $170,000 for adjustments made to partners'
equity. 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 for 1997, 1996 and 1995. Condensed
financial statements of the partnership are as follows:
June 30,
-----------------------------
1997 1996
------ ------
(Unaudited)
Condensed statement of financial condition
Assets
Cash $ 72 $ 306
Land and property 3,764 3,711
Other assets 527 987
------ ------
Total assets $4,363 $5,004
------ ------
Liabilities
Notes payable $3,153 $3,289
Other liabilities 113 61
------ ------
Total liabilities 3,266 3,350
Partners' equity, net of general partner's
withdrawals of $385 for 1997 1,097 1,654
------ ------
Total liabilities and partners' equity $4,363 $5,004
====== ======
Year Ended June 30,
------------------------------------------
1997 1996 1995
----- ----- -----
(Unaudited)
Condensed statement of operations
Total revenue $670 $ 648 $ 662
Total expense 805 808 862
----- ----- -----
Net loss $(135) $(160) $(200)
===== ===== =====
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Deposits
June 30,
--------------------------
1997 1996
-------- --------
Interest-bearing demand $ 21,230 $ 20,803
Savings 15,683 17,572
Certificates and other time
deposits of $100,000 or more 11,709 11,761
Other certificates and time deposits 73,148 76,124
-------- --------
Total deposits $121,770 $126,260
======== ========
Certificates maturing in years ending June 30:
1998 $37,091
1999 17,961
2000 19,962
2001 6,623
2002 2,216
Thereafter 1,004
-------
$84,857
=======
o Federal Home Loan Bank Advances
June 30,
1997
---------------------
Weighted
Average
Amount Rate
------ ---------
Advances from FHLB Maturities in years ending June 30:
1998 $3,201 6.07%
1999 1,190 5.74
2000 481 6.57
2001 383 5.09
2002 2,506 6.27
Thereafter 468 7.33
------
$8,229 6.14%
======
The FHLB advances are secured by first mortgage loans and investment securities
totaling 98,034,000. 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,
---------------------------------------
1997 1996 1995
---- ---- ----
Currently payable
Federal $630 $765 $706
State 235 323 363
Deferred
Federal (418) (144) (100)
State (47) (31) (53)
---- ---- ----
Total income tax expense $400 $913 $916
==== ==== ====
Year Ended June 30,
-------------------------------------------
1997 1996 1995
---- ---- ----
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $966 $1,154 $1,138
Increase in cash value of life insurance and death benefits (257) (40) (37)
Effect of state income taxes 124 193 205
Business income tax credits (423) (423) (406)
Other (10) 29 16
---- ------- ------
Actual tax expense $400 $ 913 $ 916
==== ======= ======
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
A cumulative deferred tax asset of $2,786,000 and $2,320,000 is included in
other assets. The components of the asset are as follows:
June 30,
1997 1996
------ ------
Differences in accounting for loan losses $ 990 $ 987
Deferred compensation 1,057 880
Deferred loan fees 69 127
Business income tax credits 553 309
Deferred state income taxes (164) (149)
Differences in accounting for pensions and other employee benefits 255 182
Differences in accounting for securities available for sale 1
FHLB of Indianapolis stock dividend (49) (49)
Other 74 33
------ ------
$2,786 $2,320
====== ======
Assets $2,999 $2,518
Liabilities (213) (198)
------ ------
$2,786 $2,320
====== ======
No valuation allowance was considered necessary at June 30, 1997 and 1996.
At June 30, 1997, the Company had an unused business income tax credit
carryforward of $553,000. Credits of $423,000 expire in 2012 and $130,000 expire
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
including redemption of bank stock or excess dividends, or loss of "bank"
status, would create income for tax purposes only, which income would be subject
to the then-current corporate income tax rate. At June 30, 1997, 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, 1997, total shareholder's equity of the Bank was $34,964,000, of
which a minimum of $10,864,000 was available for the payment of dividends.
o 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, 1997, 1996 and 1995, the Company had repurchased
188,887, 100,658 and 214,249 of its outstanding shares.
o 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, 1997, 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, 1997
----------------------------------------------------------------------------
Required
for Adequate To Be Well
Actual Capital 1 Capitalized 1
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total risk-based capital 1
(to risk-weighted
assets) $36,341 32.3% $9,014 8.0% $11,267 10.0%
Core capital 1
(to adjusted tangible
assets) 34,925 20.6% 5,096 3.0% 10,193 6.0%
Core capital 1
(to adjusted total assets) 34,925 20.6% 5,096 3.0% 8,494 5.0%
- --------
1 As defined by the regulatory agencies
The Bank's tangible capital at June 30, 1997 was $34,925, which amount was 20.6
percent of tangible assets and exceeded the required ratio of 1.5 percent.
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 Pentegra Group (formerly
known as the Financial Institutions Retirement Fund). 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 was $174,611, $211,123, and
$108,417 for 1997, 1996 and 1995.
The Bank contributes up to 3 percent of employees' salaries for those
participating in a thrift plan. The Bank's contribution was $25,400, $23,300,
and $20,600 for 1997, 1996 and 1995.
The Bank has purchased life insurance on certain officers and directors, which
insurance had an approximate cash value of $5,994,000 and $5,588,000 at June 30,
1997 and 1996. The Bank has also 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 totaled $625,000, $277,000, and $447,000 for
1997, 1996 and 1995.
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
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.
o Stock Option Plan
Under the Company's stock option plan, which is accounted for in accordance with
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, and related interpretations, the Company grants stock option awards
to directors, selected executives and other key employees. Stock option awards
vest and become fully exercisable at the end of 6 months of continued
employment. 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. The exercise price of each option was equal to the market
price of the Company's stock on the date of grant; therefore, no compensation
expense was recognized.
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. Although the Company has
elected to follow APB No. 25, SFAS No. 123 requires pro forma disclosures of net
income and earnings per share as if the Company had accounted for its employee
stock options under that Statement. The fair value of each option grant was
estimated on the grant date using an option-pricing model with the following
assumptions:
June 30,
1997
----------
Risk-free interest rates 6.4%
Dividend yields 3.9
Expected volatility factor of market price of common stock 11.0
Weighted-average expected life of the options 7 years
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this Statement are as follows:
June 30,
1997
-----------------------------
Net income As reported $2,440
Pro forma 2,389
Primary earnings per share As reported 1.30
Pro forma 1.28
Fully diluted earnings per share As reported 1.30
Pro forma 1.27
The following is a summary of the status of the Company's stock option plan and
changes in that plan as of and for the years ended June 30, 1997, 1996 and 1995.
Year Ended June 30,
1997 1996 1995
Weighted- Weighted- Weighted-
Average Average Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding, beginning of year 106,790 $10.00 171,969 $10.00 178,338 $10.00
Granted 20,166 20.25
Exercised (27,862) 10.00 (65,179) 10.00 (6,369) 10.00
------ ------- -------
Outstanding, end of year 99,094 12.09 106,790 10.00 171,969 10.00
====== ======= =======
Options exercisable at year end 99,094 106,790 171,969
Weighted-average fair value of
options granted during the year $ 3.14
As of June 30, 1997, options outstanding totaling 78,928 have an exercise price
of $10 and a weighted-average remaining contractual life of 5.7 years, and
options outstanding totaling 20,166 have an exercise price of $20.25 and a
weighted-average remaining contractual life of 9.2 years.
For the years ended June 30, 1997 and 1996, 4,489 and 17,196 shares were
tendered as partial payment for options exercised. At June 30, 1997, 28,133
shares were available for grant.
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
1997, 1996 and 1995, the Bank made benefit payments totaling $5,619, $3,842 and
$2,986. The following table sets forth the plan's funded status, and amounts
recognized in the consolidated statement of financial condition:
June 30,
-------------------------
1997 1996
------- ------
Accumulated postretirement benefit obligation
Retirees $62 $100
Other active plan participants 91 80
---- ----
Accumulated postretirement benefit obligation 153 180
Unrecognized net gain from past experience
different from that assumed
and from changes in assumptions 127 84
---- ----
Accrued postretirement benefit cost $280 $264
==== ====
June 30,
------------------------
1997 1996 1995
---- ---- ----
Net periodic postretirement cost
included the following
components
Service cost--benefits attributed to service
during the period $15 $13 $21
Interest cost on accumulated postretirement
benefit obligation 14 12 16
Net amortization and deferral (8) (9)
--- --- ---
Net periodic postretirement benefit cost $21 $16 $37
=== === ===
At June 30, 1997 and 1996, there were no plan assets. The assumed health care
cost trend rate used in measuring the accumulated postretirement benefit
obligation was 12 percent in 1997, gradually declining to 6 percent in the year
2012. 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, 1997 would have
increased by 15 percent. The effect of this change on the sum of the service
cost and interest would be an increase of 18 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 and letters of
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:
1997 1996
------ ------
Mortgage loan commitments at variable rates $4,734 $3,211
Consumer and commercial loan commitments 2,564 1,365
Standby letters of credit 3,239 3,239
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 $31,122,000 and $36,170,000 at June 30, 1997 and 1996,
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)
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.
The estimated fair values of the Company's financial instruments are as follows:
1997 1996
----------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets -------- ------- --------- --------
Cash and cash equivalents $3,623 $3,623 $7,520 $7,520
Securities available for sale 2,998 2,998 1,000 1,000
Securities held to maturity 4,848 4,824 13,058 12,886
Loans, net 148,031 150,524 143,165 145,788
Interest receivable 793 793 642 642
Stock in FHLB 1,047 1,047 988 988
Liabilities
Deposits 121,770 121,773 126,260 127,210
FHLB advances 8,229 8,089 6,241 6,261
Interest payable 118 118 116 116
Advances by borrowers for
taxes and insurance 224 224 392 392
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,
----------------------
1997 1996
--------- --------
Assets
Cash and cash equivalents $ 591 $ 3,048
Investment securities held to maturity 2,978
Loans 3,500
Investment in subsidiary 34,963 35,519
Other assets 63 5
------- -------
Total assets $39,117 $41,550
======= =======
Liabilities $ 51 $ 39
Shareholders' Equity 39,066 41,511
------- -------
Total liabilities and shareholders' equity $39,117 $41,550
======= =======
Condensed Statement of Income
Year Ended June 30,
--------------------------------
1997 1996 1995
------ ------ ------
Income
Dividends from Bank $3,250 $8,600 $2,000
Other 300 120 96
Expenses 114 85 132
------ ------ ------
Income before income tax and
equity in undistributed
income of subsidiary 3,436 8,635 1,964
Income tax expense (benefit) 74 14 (14)
------ ------ ------
Income before equity in undistributed
income of subsidiary 3,362 8,621 1,978
Equity in undistributed
(distribution in excess of)
income of subsidiary (922) (6,140) 452
------ ------ ------
Net Income $2,440 $2,481 $2,430
====== ====== ======
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,
-------------------------------------------
1997 1996 1995
------- ------ ------
Operating Activities
Net income $2,440 $2,481 $2,430
Adjustments to reconcile net income to net cash provided
by operating activities 786 6,057 (434)
------- ------ ------
Net cash provided by operating activities 3,226 8,538 1,996
------- ------ ------
Investing Activities
Purchase of securities held to maturity (5,951)
Proceeds from maturities of securities held to maturity 3,000 3,000
Net change in loans (3,500)
------- ------
Net cash used by investing activities (500) (2,951)
------- ------
Financing Activities
Exercise of stock options 310 392 64
Cash dividends (1,495) (1,468) (1,333)
Repurchase of common stock (3,998) (2,066) (3,889)
------- ------ ------
Net cash used by financing activities (5,183) (3,142) (5,158)
------- ------ ------
Net Change in Cash and Cash Equivalents (2,457) 2,445 (3,162)
------- ------ ------
Cash and Cash Equivalents at Beginning of Year 3,048 603 3,765
------- ------ ------
Cash and Cash Equivalents at End of Year $ 591 $3,048 $ 603
======= ====== ======
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Quarterly Results (Unaudited)
Year Ended June 30, 1997
------------------------------------------------
June March December September
1997 1997 1996 1996
------ ------- -------- ---------
Interest income $3,416 $3,455 $3,431 $3,431
Interest expense 1,652 1,658 1,683 1,714
----- ------ ------ ------
Net interest income 1,764 1,797 1,748 1,717
Provision for losses on loans 11 37 6 4
----- ------ ------ ------
Net interest income after
provisions for losses on loans 1,753 1,760 1,742 1,713
Other income 258 346 113 206
Other expenses 1,099 985 956 2,011
----- ------ ------ ------
Income (loss) before income tax 912 1,121 899 (92)
Income tax expense (benefit) 166 218 236 (220)
----- ------ ------ ------
Net Income $ 746 $ 903 $ 663 $ 128
===== ====== ====== ======
Per share
Net income $.40 $.48 $.35 $.07
Dividends $.22 $.20 $.20 $.20
Life insurance income and death benefits of $180,000, $35,000, $325,000 and
$268,000 for the first through fourth quarters of 1997 have been reclassified
from other expenses to other income. Amounts for 1996 of $27,000, $28,000,
$30,000 and $32,000 have also been reclassified.
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 55 53 53 85
Other expenses 903 957 902 943
------ ------ ------ ------
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
BOARD OF DIRECTORS
John M. Dalton Steven L. Banks Jack O. Murrell
President Executive Vice President Retired, Murrell and Keal
Chairman of the Board
Jerry D. McVicker W. Gordon Coryea George L. Thomas
Director of Operations Attorney Retired, Foster-Forbes
Marion Community Schools
Jon R. Marler
Sr. Vice President
Ralph M. Williams & Associates
OFFICERS OF MARION CAPITAL HOLDINGS, INC.
John M. Dalton Steven L. Banks
President Executive Vice President
Larry G. Phillips Jackie Noble
Sr. Vice President and Assistant Secretary and
Secretary-Treasurer 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 Vice President Assistant Secretary
Assistant Treasurer
Tim D. Canode Randy J. Sizemore
Vice President Assistant Treasurer
DIRECTORS AND OFFICERS
Robert D. Burchard (age 66) was a Director of Marion Capital Holdings, Inc.
and served as President of Marion Capital Holdings, Inc. from its formation
until his death in June 1997. Mr. Burchard also served as President of First
Federal from 1983 until 1996, President of First Marion Service Corporation in
1996, and became Chairman of the Boards of Marion Captial Holdings, Inc. and
First Federal in 1996.
W. Gordon Coryea (age 72) 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 63) 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 President of First Marion Service
Corporation since 1997. Mr. Dalton was the Executive Vice President of First
Federal from 1983 to 1996. He became Chairman of the Boards of Marion Capital
Holdings, Inc. and First Federal in 1997.
Jack O. Murrell (age 74) is a Director of Marion Capital Holdings, Inc. He
had also served as President of Murrell and Keal, Inc. since 1958 (a retailer
located in Marion, Indiana).
George L. Thomas (age 80) 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.
Steven L. Banks (age 47) is a Director of Marion Capital Holdings, Inc. and
has served as its Executive Vice President since 1996. He has also served as
Executive Vice President of First Federal since 1996 and as Executive Vice
President of First Marion Service Corporation since 1997.
Jerry D. McVicker (age 52) is a Director of Marion Capital Holdings, Inc.
He also currently serves as Director of Operations for Marion Community Schools.
Jon R. Marler (age 47) is Senior Vice President of Ralph M. Williams and
Associates. On July 21, 1997, he assumed the duties of Director of Marion
Capital Holdings, Inc. and First Federal.
Larry G. Phillips (age 48) 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 52) 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 56) 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.
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, 1997, there were approximately 442
shareholders of record and MCHI estimates that, as of that date, there were an
additional 1,100 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, 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
September 30, 1996 21.000 20.000 .20
December 31, 1996 21.500 19.250 .20
March 31, 1997 22.000 19.250 .20
June 30, 1997 23.250 22.500 .22
Transfer Agent and Registrar General Counsel
Fifth Third Bank Barnes & Thornburg
38 Fountain Square 11 South Meridian Street
Cincinnati, Ohio 45263 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, 1997 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: (765) 664-0556 Telephone: (219) 728-2106