SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________________ TO _________________
Commission file number: 0-21108
MARION CAPITAL HOLDINGS, INC.
(Exact name of registrant specified in its charter)
Indiana 35-1872393
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 West Third Street
P.O. Box 367
Marion, Indiana 46952
(Address of principal executive offices,
including Zip Code)
(317) 664-0556
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's common stock, without par value,
outstanding as of November 11, 1997 was 1,777,812.
Marion Capital Holdings, Inc.
Form 10-Q
Index
Page No.
Forward Looking Statements.................................................1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements...........................................2
Consolidated Condensed Statement of
Financial Condition as of
September 30, 1997 and June 30, 1997.....................2
Consolidated Condensed Statement of
Income for the three-month
periods ended September 30, 1997 and 1996................3
Consolidated Condensed Statement of
Changes in Shareholders' Equity
for the three months ended September 30, 1997............4
Consolidated Condensed Statement of
Cash Flows for the three months
ended September 30, 1997 and 1996........................5
Notes to Consolidated Financial Statements...............7
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations....................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk....10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................11
Item 6. Exhibits and Reports on Form 8-K..............................11
SIGNATURES................................................................12
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-Q are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-Q
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
savings and financial institutions; substantial changes in financial markets;
changes in real estate values and the real estate market; regulatory changes; or
unanticipated results in pending legal proceedings.
1
MARION CAPITAL HOLDINGS, INC.
AND WHOLLY-OWNED SUBSIDIARY
FIRST FEDERAL SAVINGS BANK
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION
September 30, June 30,
1997 1997
--------------------------- ---------------------------
ASSETS
Cash $1,675,790 $2,328,605
Short-term interest bearing deposits 3,201,169 1,294,134
---------------- ----------------
Total cash and cash equivalents 4,876,959 3,622,739
Investment securities available for sale 3,027,500 2,997,500
Investment securities held to maturity
(market value $3,048,746 and $4,824,464) 3,061,850 4,847,519
Loans receivable, net 151,815,691 148,030,991
Real estate owned, net 65,000 0
Premises and equipment 1,657,482 1,520,381
Stock in Federal Home Loan Bank (at cost
which approximates market) 1,047,300 1,047,300
Investment in limited partnerships 4,964,175 1,448,869
Other assets 9,306,488 9,788,410
---------------- ----------------
Total assets $179,822,445 $173,303,709
================ ================
LIABILITIES
Deposits $120,579,368 $121,770,013
Advances from FHLB 10,884,976 8,228,976
Note Payable 3,604,406 0
Advances by borrowers for taxes and
insurance 300,126 223,520
Other liabilities 4,986,435 4,015,381
---------------- ----------------
Total liabilities 140,355,311 134,237,890
SHAREHOLDERS' EQUITY
Preferred Stock:
Authorized and unissued--2,000,000 shares 0 0
Common stock, without par value:
Authorized--5,000,000 shares
Issued and outstanding--1,775,812 and
1,768,099 shares 10,195,432 10,126,365
Retained earnings 29,343,980 29,074,055
Unrealized gain (loss) on securities available for sale 16,406 (1,961)
Unearned compensation (88,684) (132,640)
----------------- -----------------
Total shareholders' equity 39,467,134 39,065,819
---------------- ----------------
Total Liabilities and Shareholders' Equity $179,822,445 $173,303,709
================ ================
2
MARION CAPITAL HOLDINGS, INC.
AND WHOLLY-OWNED SUBSIDIARY
FIRST FEDERAL SAVINGS BANK
CONSOLIDATED CONDENSED STATEMENT OF INCOME
Three Months Ended
September 30,
-------------------------------------------------------
1997 1996
---- ----
Interest Income
Loans $3,258,100 $3,183,374
Mortgage-backed securities 1,942 16,687
Interest-bearing deposits 58,427 72,543
Investment securities 92,082 139,044
Other interest and dividend income 21,778 19,503
---------------- ----------------
Total interest income 3,432,329 3,431,151
Interest expense
Deposits 1,562,266 1,614,238
Advances from FHLB 146,925 100,033
------------------- -------------------
Total interest expense 1,709,191 1,714,271
------------------- -------------------
Net interest income 1,723,138 1,716,880
Provision for losses on loans 8,825 4,190
---------------- ----------------
Net interest income after
provision for losses on loans 1,714,313 1,712,690
---------------- ----------------
Other Income
Net loan servicing fees 19,571 22,207
Annuity and other commissions 37,897 44,516
Equity in losses of limited partnerships (89,100) (60,000)
Life insurance income and death benefits 48,793 179,787
Other income 35,154 18,592
---------------- ----------------
Total other income 52,315 205,102
---------------- ----------------
Other expenses
Salaries and employee benefits 583,961 865,391
Occupancy expense 47,387 43,948
Equipment expense 17,874 14,301
Deposit insurance expense 31,638 861,651
Real estate operations, net (933) 8,110
Data processing expense 39,479 34,658
Advertising 26,684 36,244
Other expenses 156,787 146,211
---------------- ----------------
Total other expenses 902,877 2,010,514
---------------- ----------------
Income (loss) before income taxes 863,751 (92,722)
Income tax expense (benefit) 203,558 (220,210)
---------------- -----------------
Net income $660,193 $127,488
================ ================
Per Share
Net income $0.36 $0.07
Dividends $0.22 $0.20
3
MARION CAPITAL HOLDINGS, INC.
AND WHOLLY-OWNED SUBSIDIARY
FIRST FEDERAL SAVINGS BANK
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Unearned Total
Common Stock Retained Unrealized gain Compensation Shareholders'
Shares Amount Earnings (loss) on Securities RRP Equity
------------------------------------------------------------------------------------------------
Balances, July 1, 1997 1,768,099 $10,126,365 $29,074,055 ($1,961) ($132,640) $39,065,819
Exercise of stock options 7,713 69,067 69,067
Amortization of unearned
compensation 43,956 43,956
Net change in
unrealized gain (loss) on
securities available for sale
18,367 18,367
Net income for
the three months
ended September 30, 1997 660,193 660,193
Cash dividends (390,268) (390,268)
Balances, September 30, 1997 1,775,812 $10,195,432 $29,343,980 $16,406 ($88,684) $39,467,134
================================================================================================
4
MARION CAPITAL HOLDINGS, INC.
AND WHOLLY-OWNED SUBSIDIARY
FIRST FEDERAL SAVINGS BANK
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended
September 30,
-----------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 660,193 $127,488
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 8,825 4,190
Equity in loss of limited partnerships 89,100 60,000
Amortization of net loan origination fees (38,263) (65,965)
Net amortization (accretion) of investment
securities' premiums and discounts 1,113 4,597
Net amortization (accretion) of mortgage-
backed securities and CMO premiums 0 750
Amortization of unearned compensation 43,956 112,442
Depreciation 23,706 18,960
Origination of loans for sale (1,416,307) (1,050,000)
Proceeds from sale of loans 1,416,307 1,050,000
Change in:
Interest receivable (57,997) (59,244)
Interest payable and other liabilities 971,054 1,713,018
Cash value of insurance (48,793) (179,787)
Prepaid expense and other assets (27,297) 120,634
-------------- ------------
Net cash provided by operating 1,625,597 1,857,083
------------- ------------
activities
INVESTING ACTIVITIES
Proceeds from maturity of investment
securities available for sale 0 1,000,000
Purchase of investment securities
held to maturity 0 (1,000,000)
Proceeds from maturity of investment
securities held to maturity 1,610,000 4,962,246
Payments on mortgage-backed securities 174,970 434,428
Net change in loans (3,817,317) (2,246,239)
Proceeds from real estate owned sales 0 30,722
Purchases of premises and equipment (113,395) (16,153)
Death benefits received on life insurance 553,793 352,687
------------- ------------
Net cash provided (used) by investing
activities (1,591,949) 3,517,691
-------------- ------------
5
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (continued)
Three Months Ended
September 30,
1997 1996
------------------------------
FINANCING ACTIVITIES
Net change in:
Noninterest-bearing deposits, NOW
passbook and money market savings
accounts 322,812 (1,170,884)
Certificates of deposit (1,513,645) (1,422,409)
Proceeds from FHLB advances 5,656,000 1,500,000
Repayment of FHLB advances (3,000,000) (1,800,000)
Net change in advances by borrowers for
taxes and insurance 76,606 (86,480)
Proceeds from exercise of stock options 69,067 57,090
Stock repurchases 0 (1,965,480)
Dividends paid (390,268) (368,328)
------------- ----------------
Net cash provided (used) by
financing activities 1,220,572 (5,256,491)
------------ ----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,254,220 118,283
Cash and Cash Equivalents,
Beginning of Period 3,622,739 7,520,323
------------ ---------------
Cash and Cash Equivalents,
End of Period $4,876,959 $7,638,606
============ ===============
ADDITIONAL CASH FLOWS AND
SUPPLEMENTARY INFORMATION
Interest paid $911,814 $898,991
Income tax paid 153,139 250,879
Loan balances transferred to real
estate owned 69,694 59,141
Loans to finance the sale of real
estate owned 0 38,000
MARION CAPITAL HOLDINGS, INC.
AND WHOLLY-OWNED SUBSIDIARY
FIRST FEDERAL SAVINGS BANK OF MARION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A: Basis of Presentation
The unaudited interim consolidated condensed financial statements include the
accounts of Marion Capital Holdings, Inc. (the "Company") and its subsidiary
First Federal Savings Bank of Marion (the "Bank").
The unaudited interim consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the financial statements reflect all adjustments, comprising only
normal recurring accruals, necessary to present fairly the Company's financial
position as of September 30, 1997, results of operations for the three-month
period ended September 30, 1997 and 1996, and cash flows for the three-month
period ended September 30, 1997 and 1996.
NOTE B: Dividends and Earnings Per Share
On August 19, 1997, the Board of Directors declared a quarterly cash dividend of
$.22 per share. This dividend was paid on September 15, 1997 to shareholders of
record as of August 29, 1997.
The per share amounts were computed based on average common and common
equivalent shares outstanding for the three-month period ended September 30,
1997 of 1,811,651. For the three month period ended September 30, 1996 average
common and common equivalent shares outstanding amounted to 1,913,198.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General:
The Company's total assets were $179.8 million at September 30, 1997 compared to
$173.3 million at June 30, 1997. Cash and cash equivalents increased $1.3
million or 34.6%, and investment securities decreased $1.8 million or 22.4% from
June 30, 1997 to September 30, 1997. Loans receivable were $151.8 million at
September 30, 1997, an increase of $3.8 million, or 3.0%, from June 30, 1997.
This increase is due, in part, to an origination of a $2.7 million long-term
loan to a limited partnership described below.
Investment in limited partnerships increased by $3.5 million at September 30,
1997 compared to June 30, 1997. This increase is related to another limited
partnership agreement entered into by the Company on a low income multi-family
housing project, which benefits the Company in the form of tax credits.
Deposits decreased to $120.6 million at September 30, 1997 compared to $121.8
million at June 30, 1997, a 1.0% decrease. This $1.2 million decrease
represented a $300,000 increase in passbook and transaction accounts and an
approximate $1.5 million decrease in certificate of deposit accounts. This
decrease in total deposits results primarily from an outflow of existing
accounts to different market alternatives.
7
Note payable was increased to $3.6 million at September 30, 1997. The note
payable is for amounts due under a limited partnership agreement entered into by
the Company on a low income multi-family housing project. This agreement calls
for the Company to disburse $3.6 million, in the form of annual installments,
over a ten-year period in exchange for tax credits.
Other liabilities increased from $4.0 million at June 30, 1997 to $5.0 million
at September 30, 1997 as a result of normal operational increases. The increase
consists primarily in an increase of $795,000 in accrued interest payable on
deposits since a majority of the certificates of deposit compound semi-annually
at June 30 and December 31.
Shareholders' equity was $39.5 million at September 30, 1997, compared to $39.1
million at June 30, 1997. This increase was primarily the result of the
Company's earnings during the three months ended September 30, 1997. As of
September 30, 1997, the Company was in the process of repurchasing an additional
5% of its outstanding shares. The current repurchase program was announced in
May 1997 totaling 87,905 shares of which no shares had been repurchased by
September 30, 1997, leaving the entire amount to be repurchased under the
current program.
Net income amounted to $660,193 for the three months ended September 30, 1997.
This amount represents a $532,705 increase from the earnings for the
three-months ended September 30, 1996 of $127,488. Earnings for the three months
ended September 30, 1996 included a FDIC special assessment for all institutions
with SAIF- insured deposits, which amounted to $776,717 and is included in other
expense. The after-tax effect on net income was $469,059 for the three months
ended September 30, 1996. SAIF-insured institutions, like the Company, are also
benefiting from a reduction of FDIC premiums beginning January 1, 1997, which
should have a positive effect on earnings in future periods. For the three
months ended September 30, 1997, the Bank made a provision of $8,825 for general
loan losses compared to $4,190 in loss provisions for the same period in the
prior year. Management continues to review its current portfolio to ensure that
total loss reserves remain adequate.
In October 1997, the Company opened its second Grant County office at the new
Wal-Mart SuperCenter in Marion, Indiana. The other branch office is located in
Decatur, Indiana. This second Marion, Indiana location is a full-service branch
and the area's first seven-day-a-week banking facility. The high volume shopping
traffic and repeat weekly visits of customers, make this an attractive location
to provide financial services. The new branch, operates approximately 57 hours
per week with a staff of 6-7 individuals. The Company believes that the
long-term prospects for growth from this new branch location are excellent.
Results of Operations Comparison of Three Months Ended September 30, 1997 and
September 30, 1996
Net income for the three months ended September 30, 1997 was $660,193 compared
with $127,488 for the three months ended September 30, 1996, an increase of
$532,705. During the quarter ended September 30, 1996, net income includes
expense of $469,059 after taxes for the FDIC special assessment. Interest income
for the three months ended September 30, 1997 increased $1,178 or 0.03% compared
to the same period in the prior year, while interest expense for the three
months ended September 30, 1997 decreased $5,080 or 0.3% compared to the same
period in the prior year. As a result, net interest income for the three months
ended September 30, 1997 amounted to $1,723,138 an increase of $6,258 or 0.4%
compared to the same period in the prior year.
A provision of $8,825 for losses on loans was made for the three months ended
September 30, 1997 compared to a provision of $4,190 in the same period last
year.
8
Total other income decreased by $152,787 for the three months ended September
30, 1997, compared to the same period in the prior year. This decrease was
primarily attributed to the amount of death benefits received on key man
insurance policies during the quarter ended September 30, 1996, compared to the
quarter ended for 1997.
Total other expenses decreased by $1,107,637, for the three months ended
September 30, 1997, compared to the same period in the prior year. Deposit
insurance expense decreased $830,013 as the result of the special FDIC special
assessment included in the prior year and a reduction in FDIC premiums. Salaries
and employee benefits decreased $281,430, primarily as a result of the vesting
of remaining shares under the RRP program and expense attributable to bringing
other benefit programs up to 100% for a deceased director included for the
period ended September 30, 1996.
Income tax expense for the three months ended September 30, 1997 amounted to
$203,558 compared to income tax benefit of $220,210 for the three months ended
September 30, 1996. The 1996 tax benefit resulted from the pre-tax operating
loss created by the SAEF special assessment and low income housing tax credits
from the limited partnership investment. The Company's effective tax rate for
the three months ended September 30, 1997 was 23.6%.
Allowance for loan losses amounted to $2.0 million at September 30, 1997, which
was unchanged from June 30, 1997 after adjusting for charge-offs and recoveries.
Management considered the allowances for loan and real estate losses at
September 30, 1997, to be adequate to cover estimated losses inherent in those
portfolios at that date, and its consideration included probable losses that
could be reasonably estimated. Such belief is based upon an analysis of loans
currently outstanding, real estate owned, past loss experience, current economic
conditions and other factors and estimates which are subject to change over
time. The following table illustrates the changes affecting the allowance
accounts for the three months ended September 30, 1997.
Allowance For Allowance For Total
Loan Losses REO Losses Allowances
Balances at July 1, 1997 $2,031,535 $0 $2,031,535
Provision for losses 8,825 0 8,825
Recoveries 0 0 0
Loans and REO charged off (4,695) 0 (4,695)
----------- ---- -----------
Balances at September 30, 1997 $2,035,665 $0 $2,035,665
The loan loss reserves to total loans at September 30, 1997 equaled 1.32% of
total loans outstanding, compared to 1.35% of total loans outstanding at June
30, 1997. Total nonperforming assets increased during the three months ended
September 30, 1997, from $1.4 million at June 30, 1997 to $1.9 million at
September 30, 1997. Non- performing assets at September 30, 1997 consisted of
$1.9 million of loans delinquent greater than 90 days and $66,000 of other real
estate owned.
Total non-performing loans totaled 1.23% of total loans outstanding at September
30, 1997 compared to .94% of total loans at June 30, 1997.
The following table further depicts the amounts and categories of the Bank's
non-performing assets. It is the policy of the Bank that all earned but
uncollected interest on all loans be reviewed monthly to determine if any
portion thereof should be classified as uncollectible for any loan past due in
excess of 90 days.
9
September 30, June 30,
1997 1997
(Dollars in Thousands)
Accruing loans delinquent
more than 90 days $ -- $ --
Non-accruing loans:
Residential 1,625 1,238
Multi-family -- --
Commercial 153 139
Consumer 107 34
Troubled debt restructurings -- --
------ ------
Total non-performing loans 1,885 1,411
Real estate owned, net 66 0
------ ------
Total nonperforming assets $1,951 $1,411
====== ======
Non-performing loans to
total loans 1.23% .94%
Non-performing assets to
total assets 1.08% .81%
Average Balances and Interest
The following table presents for the periods indicated the monthly average
balances 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 for the periods
presented.
Three Months Ended September 30
1997 1996
(Dollars in thousands)
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Total interest-
earnings assets $164,550 $3,432 8.34% $164,604 $3,431 8.34%
Total interest-
bearing liabilities 130,149 1,709 5.25% 130,370 1,714 5.26%
Net interest income/
interest rate spread 1,723 3.09% 1,717 3.08%
======= =====
10
Financial Condition
Shareholders' equity at September 30, 1997 was $39,467,134, an increase of
$401,315 or 1.0% from June 30, 1997. The Company's equity to asset ratio was
21.95% at September 30, 1997 compared to 22.54% at June 30, 1997. All fully
phased-in capital requirements are currently met. The following table depicts
the amounts and ratios of the Bank's capital as of September 30, 1997, under
each of the three regulatory capital requirements (tangible, core, and fully
phased-in risk based):
Tangible Core Risk-Based
Capital Capital Capital
(Dollars in thousands)
Amount $ 35,595 $ 35,595 $37,078
As a percent of assets, as defined 20.3% 20.3% 31.4%
Required amount 2,634 5,269 9,444
As a percent of assets, as defined 1.5% 3.0% 8.0%
Capital in excess of
required amount 32,961 $ 30,326 $27,634
Liquidity and Capital Resources
The standard measure of liquidity for savings associations is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings
accounts and borrowings due within one year. The minimum required ratio is
currently set by the Office of Thrift Supervision regulation at 5%, of which 1%
must be comprised of short-term investments. At September 30, 1997, the Bank's
liquidity ratio was 8.8% of which 4.5% was comprised of short-term investments.
Other
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy information statements and other information regarding
registrants that file electronically with the Commission, including the Company.
The address is (http://www.sec.gov).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market interest rates or in the Company's
interest rate sensitive instruments which would cause a material change in the
market risk exposures which effect the quantitative and qualitative risk
disclosures as presented in Item 7A of the Registrant's Annual Report on Form
10-K for the period ended June 30, 1997.
11
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank were during the three-month period ended
September 30, 1997, or are as of the date hereof involved in any legal
proceeding of a material nature. From time to time, the Bank is a party to legal
proceedings wherein it enforces its security interests in connection with its
mortgage loans.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3(1) The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3(1) to the Registration
Statement on Form S-1 (Registration No. 33-55052).
3(2) The Code of By-Laws of the Registrant is incorporated by
reference to Exhibit 3(2) to the Registration Statement on
Form S-1 (Registration No. 33-55052).
27 Financial Data Schedule
b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
September 30, 1997.
12
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARION CAPITAL HOLDINGS, INC.
Date: November 11, 1997 By: /s/ John M. Dalton
------------------
John M. Dalton, President
Date: November 11, 1997 By: /s/ Larry G. Phillips
---------------------
Larry G. Phillips, Vice President,
Secretary and Treasurer
13