1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 Commission File No. 0-19510
FINANCIAL SECURITY CORP.
Delaware 36-3781658
-------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification Number)
1209 N. MILWAUKEE AVENUE, CHICAGO, 60622
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ILLINOIS (Zip Code)
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(address of principal executive office)
Registrant's telephone number, including area (312) 227-7020
code --------------
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and has been subject to such filing requirements
for the past 90 days.
1. YES X NO
--- ---
Number of shares Common Stock outstanding at the close of business on
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April 30, 1996: 1,550,846 $.01 PAR VALUE OF COMMON STOCK
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FINANCIAL SECURITY CORP.
AND SUBSIDIARY
FORM 10-QSB/A
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Consolidated Statements of financial Condition
as of March 31, 1996 (Unaudited) and December
31, 1995. 3
Consolidated Statements of Earnings for the Three
Months ended March 31, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash flows for the Three
Months ended March 31, 1996 and 1995 (Unaudited) 5-6
Notes to the Unaudited Consolidated Financial
Statements 7-9
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operation 10-14
PART II. OTHER INFORMATION 15-16
Signatures 17
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FINANCIAL SECURITY CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
ASSETS: -----------
- -------
Cash and Cash Due from Banks $ 793,845 $ 1,143,375
Interest Earning Deposits 9,507,854 6,267,332
Federal Funds Sold -0- 745,696
------------ --------------
Total Cash and Cash Equivalents 10,301,699 8,156,403
Securities Held to Maturity 1,152,106 1,341,470
Securities Available-for-Sale 55,348,869 54,134,691
Loans Receivable - Net of allowance
for loan losses of $2,341,662 at
March 31, 1996 and $2,284,662 at
December 31, 1995 186,639,039 190,495,513
Loans Held for Sale - (Net) 1,580,340 3,483,448
Foreclosed Real Estate - (Net) 1,190,996 1,321,009
Limited Partnership Investment in
Purchased Mortgage Servicing Rights 9,032,941 8,615,863
Accrued Interest Receivable 2,018,333 2,370,350
Federal Home Loan Bank Stock 2,075,000 2,187,500
Premises and Equipment 3,086,073 3,151,491
Real Estate Held for Development 416,400 466,400
Prepaid Expenses and Other Assets 1,123,330 1,333,061
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TOTAL ASSETS $ 273,965,126 $ 277,057,199
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
- ------------
Deposits $ 188,776,784 $ 193,845,087
Borrowed Funds 41,500,000 39,344,703
Advance Payment by Borrowers for
Taxes and Insurance 272,150 1,152,685
Accrued Interest Payable and Other 4,044,353 3,946,861
Liabilities ----------- -----------
TOTAL LIABILITIES 234,593,287 238,289,336
----------- -----------
STOCKHOLDER'S EQUITY:
Preferred Stock, $.01 Par Value.
Authorized 1,000,000 shares;
None Issued or Outstanding -0- -0-
Common Stock, $.01 Par Value.
Authorized 3,000,000; Issued
1,769,420; Outstanding 1,523,338 17,694 17,419
Additional Paid in Capital 16,729,847 16,386,274
Treasury Stock (246,082 shares at
March 31, 1996 and December 31, 1995.) (3,826,060) (3,826,060)
Retained Earnings (Substantially
Restricted) 27,535,901 26,987,884
Employee Stock Ownership Plan Loan (600,000) (644,703)
Recognition and Retention Plan Stock
Awards (292,093) (326,400)
Unrealized Gain or (Loss) on
Securities Available for Sale
(Net of Income Taxes) (193,450) 173,449
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 39,371,839 38,767,863
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 273,965,126 $ 277,057,199
============= =============
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FINANCIAL SECURITY CORP.
------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
(UNAUDITED)
-----------
For the Three Months Ended For the Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
INTEREST INCOME:
- ----------------
Loans Receivable $ 4,007,646 $ 4,193,965
Securities 751,120 466,773
Mortgage-backed Securities 234,704 255,274
Interest Earning Deposits and
Federal Funds Sold 52,579 47,354
Dividends on FHLB Stock 35,094 32,507
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Total Interest Income: 5,081,143 4,995,873
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INTEREST EXPENSE:
- -----------------
Deposits: 2,342,584 2,351,963
Borrowed Funds 640,269 585,938
--------- ---------
Total Interest Expense 2,982,853 2,937,901
--------- ---------
Net Interest Income Before Provision
for Loan Losses 2,098,290 2,057,972
Provision for Loan Losses 75,000 100,000
--------- -------
Net Interest Income After Provision
for Loan Losses 2,023,290 1,957,972
Non Interest Income:
Gain on Sale Of:
Loans 61,205 -0-
Investment Available for Sale -0- 25,000
Foreclosed Real Estate Loans 121,333 54,100
Insurance Commissions 16,612 20,455
Equity in Earnings of Limited
Partnership investments in
Purchased Mortgage Servicing Rights 228,078 184,985
Other Income 57,051 32,547
---------- ----------
Total Non Interest Income 484,279 317,087
Non Interest Expense:
Compensation and Benefits 831,779 757,399
Office Occupancy and Equipment 150,594 157,387
Federal Deposit Insurance Premiums 114,975 109,978
Data Processing 80,350 87,516
Legal Fees 7,198 30,960
Adverstising and Promotion 20,354 74,614
Loss from Foreclosed Real Estate
Operations (Net) 106,790 97,326
Provision for Loss on Securities 137,592 127,387
Provision for Real Estate held-for-
development 50,000 -0-
Other 271,920 274,914
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Total Non Interest Expense 1,771,552 1,717,481
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Income Before Income Taxes 736,017 557,578
Income Tax Expense 188,000 54,000
----------- -----------
Net Income $ 548,017 $ 503,578
=========== ===========
Net Earnings Per Share:
Primary $ 0.35 $ 0.31
=========== ===========
Fully Diluted $ 0.35 $ 0.31
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FINANCIAL SECURITY CORP.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For the Three Months Ended For the Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 548,017 $ 503,578
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 73,521 86,536
Deferred income tax expense (benefit) -0- (101,121)
Amortization of premiums,
discounts and deferred loan fees (92,589) 26,273
Amortization of ESOP and RRP 79,010 71,855
Provisions for Losses:
Loans Receivable 75,000 100,000
Foreclosed real estate and real
estate held-for-development 50,000 -0-
Securities 137,592 127,387
Gain on Sale of:
Securities available for sale -0- (25,000)
Foreclosed real estate (121,333) (54,100)
Loans (61,205) -0-
Purchase of loans held for sale -0- (1,514,000)
Proceeds from sale of loans held for sale 1,699,000 1,442,000
Equity in earnings of limited partnership
investment in purchased mortgage servicing rights (228,078) (184,985)
Decrease in accrued interest receivable, prepaid
expenses and other assets 1,071,800 952,769
Increase in accrued interest
payable and other liabilities 97,492 977,664
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,328,227 2,408,856
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in loans receivable and
held for sale 3,642,730 (774,068)
Principle repayments on:
Mortgage backed securities 970,000 440,000
Proceeds from maturities and calls
of securities 8,500,000 -0-
Increase in mutual funds, net -0- (70,932)
Proceeds from sales of
Securities available-for-sale -0- 4,006,000
Foreclosed real estate 549,635 670,000
Purchase of:
Securities available-for-sale (11,500,000) (8,528,000)
Premises and equipment (8,103) (39,523)
Federal Home Loan Bank stock
(purchase) redemption 112,500 (37,500)
Limited partnership investment
purchased mortgage servicing rights -0- (370,000)
--------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING 2,266,762 (4,704,023)
ACTIVITIES --------- ------------
(CONTINUED)
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FINANCIAL SECURITY CORP.
------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(UNAUDITED)
-----------
(CONTINUED) For the Three Months Ended For the Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (5,068,303) 17,445,115
Proceeds from borrowed funds 12,900,000 2,100,000
Repayment of borrowed funds (10,744,703) (13,042,982)
Purchase of treasury stock -0- (1,391,031)
Proceeds from exercise of stock options 343,848 27,500
Cash dividends paid -0- (1,569,128)
Net decrease in advance payments by
borrowers for taxes and insurance (880,535) (2,208,526)
--------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (3,449,693) 1,360,948
----------- ---------
Net decrease in cash and cash equivalents 2,145,296 (934,219)
Cash and cash equivalents at beginning of year 8,156,403 6,036,418
--------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 10,301,699 $ 5,102,199
============ ===========
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the quarter for:
Interest $ 2,982,853 $ 2,937,901
----------- -----------
Income Taxes -0- -0-
--- ---
Non-Cash Activities:
Transfer of loans to foreclosed real estate $ 298,289 $ 777,140
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1)
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP) for
interim financial information and with the instructions to form 10-QSB and
Article 10 of regulation S-X. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles and with general practices within the thrift
industry requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. The actual results could
differ from these estimates. Areas involving the use of management's estimates
and assumptions, and which are more susceptible to change in the near term,
include the allowance for loan losses, the realization of deferred tax assets,
fair value of certain securities, including FHA Title I securities and
collateralized mortgage obligations, the determination and carrying value of
impaired loans, the carrying value of loans held for sale, the carrying value of
other real estate, the fair value of mortgage servicing rights as they relate to
the limited partnership, and the determination of other-than-temporary
reductions in the fair value of securities.
The results of operations and other data for the three months ended March
31, 1996 are not necessarily indictive of results that may be expected for the
entire fiscal year ending December 31, 1996.
The unaudited consolidated financial statements include the accounts of
Financial Security Corp. (the "Company") and its wholly owned subsidiary,
Security Federal Savings and Loan Association of Chicago (the "Association"),
and subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation.
(2)
Other Events. On April 22, 1996, the Company entered into an Agreement
and Plan of Merger (the "Agreement") with Pinnacle Banc Group, Inc. ("Pinnacle")
pursuant to which Pinnacle will acquire the Company with the Company merging
into Pinnacle. The Company's wholly-owned subsidiary, Security Federal Savings
and Loan Association of Chicago will be held as a separate subsidiary of
Pinnacle.
Under the terms of the Agreement, holders of the Company's common stock
will receive $28.50, subject to adjustment, in cash, Pinnacle common stock or a
combination thereof for each share.
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The Agreement is subject to approval by the shareholders of the Company and
Pinnacle and the approval of the appropriate regulatory authorities.
(3)
Earnings per share of common stock for the quarter ended March 31, 1996
have been determined by dividing net income by 1,571,791 primary shares and
1,579,198 fully diluted shares respectively; the weighted average number of
shares of common stock and common stock equivalents outstanding. Stock options
are regarded as common stock equivalents and are therefore considered in the
earnings per share calculations. Common stock equivalents are computed using the
treasury stock method. (See Exhibit 11.0).
(4) Recapitalization of SAIF and Other Legislative Initiatives
Legislative initiatives regarding the recapitalization of the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC"), deposit insurance premiums, FICO bond interest payments, the merger of
SAIF and Bank Insurance Fund ("BIF"), financial industry regulatory structure,
bad debt recapture and revision of thrift and bank charters are still pending
before Congress. Management cannot predict the ultimate impact any final
legislation or regulatory actions may have on the operations of the Company.
Without passage of legislation addressing the FDIC insurance premium disparity,
the Association, like other thrifts, will continue to pay deposit insurance
premiums significantly higher than banks. As long as such premium differential
continues, it may have adverse consequences on the Company's earnings and the
Company may be placed at a substantial competitive disadvantage to commercial
banking organizations insured by the BIF.
(5) SFAS No. 122
On January 1, 1996, the Company adopted a Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights ("MSRs")
(an amendment to Statement 65)." SFAS 122 provides for the capitalization of
MSRs when mortgage loans are either originated or purchased and the underlying
loan is sold or securitized with the MSR retained. The statement applies to
servicing rights resulting from mortgage loans only and is effective for fiscal
years starting after December 15, 1995. The Association is currently not
originating mortgage loans for sale and therefore the adoption of SFAS 122 did
not have a material impact on the Company.
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(6) SFAS No. 123
During 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" which provides new accounting guidelines over the
treatment of employee stock options. The Statement gives entities a choice of
either adopting a new fair value method of accounting for employee stock options
and expensing any related compensation costs in the income statement, or
continuing to apply Accounting Principles Board Opinion No. 25 and provide pro
forma disclosure of the effect of the fair value method within the financial
statements. The Statement is effective for financial statements beginning after
December 15, 1995. The Company currently intends to adopt the disclosure method
of the Statement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations are primarily dependent upon its net
interest income which is the difference between interest on its interest-earning
assets, such as loans, mortgage-backed securities and investment securities, and
interest paid on its interest-bearing liabilities, such as deposits and
borrowings. Net interest income is directly affected by the relative amounts of
interest-earning assets and interest-bearing liabilities and the interest rates
earned or paid on such amounts. The Company's results of operations are also
affected by the provision for loan losses and the level of non-interest income
and expenses. Non-interest income includes transactional fees, loan servicing
fees, fees on purchased mortgage servicing rights, real estate operations and
fees and commissions form the sales of insurance products through its operating
subsidiary. Non-interest expenses primarily consist of salaries and employee
benefits, occupancy expenses, federal deposit insurance premiums and other
operating expenses.
The operating results of the Company are also significantly affected by
general economic and competitive conditions, the monetary and fiscal policies of
federal agencies and the policies of agencies that regulate financial
institutions. The cost of funds is influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
influenced by the demand for real estate loans and other types of loans, which
is in turn affected by the interest rates at which such loans are made. General
economic conditions affect the loan demand and the availability of funds for
lending activities.
During the first quarter of 1996, the yields on long-term investments
(such as mortgage loans and U.S. Treasury bonds) have increased moderately,
while the yields on short-term investments have remained relatively stable.
During the first quarter, the Company's yield on interest earning assets
decreased from 8.16% to 8.02% and the cost of funds decreased from 5.38% for
fiscal 1995 to 5.27% due to a reduction in deposit rates from 5.10% to 4.97% and
borrowing costs from 6.87% to 6.79%, which resulted in a net interest margin of
3.31% as compared to 3.30% at year end 1995.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
The Company's primary sources of funds are deposits and proceeds from
principal and interest payments on loans. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by interest rate cycles, economic
conditions and competition.
Liquidity management for the Company is both a daily and long-term
function of management's strategy. The Company's subsidiary thrift association
is required to
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maintain minimum levels of qualifying liquid assets which are defined by OTS
regulations. This requirement, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon percentage
of deposits and short-term borrowings. The required ratio is currently 5.0%. At
March 31, 1996, the Association's liquidity ratio was 6.2%.
The Company continues to maintain adequate liquidity with approximately
$10.3 million held in cash and cash equivalents and $56.9 million in investments
and loans classified as available-for-sale. If necessary, the Association has
additional secured borrowing ability with the Federal Home Loan Bank of Chicago.
The Association will continue to use advances from the Federal Home Loan
Bank-Chicago if they prove to be a less costly source of funds or can be
invested at a positive rate of return.
Management's interest rate sensitivity strategy is designed to provide a
relatively stable stream of net interest income in moderately varying interest
rate environments. Having relatively high levels of cash, cash equivalents, and
short to intermediate term securities helps achieve this objective.
The Company's cash flows are comprised of three classifications: cash
flows from operating activities, cash flows from investing activities, and cash
flows from financing activities. Cash flows from operating activities,
consisting primarily of interest and dividends received; less interest paid on
deposits, were $3.3 million for the three months ended March 31, 1996. Net cash
provided by investing activities was $2.3 million for the three months ended
March 31, 1996. Disbursements for loan originations, and the purchase of
investments available for sale totaled $12.9 million, these were offset by
principal collected on loans, mortgage-backed securities, and maturity of
securities totaling $14.5 million. Net cash provided by financing activities
amounted to $3.5 million for the three months ended March 31, 1996.
At March 31, 1996, the Company had outstanding commitments of $949,000,
all of which were fixed rate loans, with rates ranging from 6.25% to 10.50%. In
addition, the Company had $1.0 million in unused lines of credit under its home
equity loan program. The weighted average rate on those lines is 9.44%. The
Company anticipates that it will have sufficient funds available to meet its
current commitments. Certificates of deposit scheduled to mature in one year or
less from March 31, 1996 totaled $91.6 million. Management believes that a
significant portion of such deposits will remain with the Company and that their
maturity and repricing will not have a material adverse impact.
The current FHLB-Chicago advances mature on a tiered basis over the next
four years. Management intends to monitor these advances during their terms and
repay or renegotiate such advances as required.
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CHANGES IN FINANCIAL CONDITION
- ------------------------------
TOTAL ASSETS as of March 31, 1996 amounted to $274.0 million as compared
to $277.1 million at December 31, 1995, a decrease of $3.1 million or 1.1%.
Total loans as of March 31, 1996, including loans held for sale, amounted to
$188.2 million as compared to $194.0 million at December 31, 1995, a decrease of
$5.8 million or 3.0%. The decrease in loans resulted from a lack of loan demand
and the sales of $1.6 million from loans available-for-sale. During the three
months ended March 31, 1996 the Company originated $1.4 million in loans as
compared to $5.2 million in the comparable period in 1995, while loan payments
increased from $4.4 million in 1995 to $5.0 million in 1996. Total securities
amounted to $56.5 million as of March 31, 1996 as compared to $55.5 million in
1995, an increase of $1,000,000 or 1.8%.
TOTAL DEPOSITS at March 31, 1996 amounted to $188.8 million as compared to
$193.8 million at December 31, 1995 a decrease of $5 million or 2.6%. The
decrease in deposits is due mainly to a decrease in certificates of deposit at
the Niles office from $16.6 million to $12.3 million. Advances from the Federal
Home Loan Bank increased $2.8 million from $38.7 at December 31, 1995 to $41.5
million at March 31, 1996 while the weighted average rate decreased from 6.66%
at December 31, 1995 to 6.48% at March 31, 1996.
STOCKHOLDERS EQUITY at March 31, 1996 amounted to $39.4 million as
compared to $38.8 million as of December 31, 1995, an increase of $600,000. This
increase was due to net income of $548,000, proceeds from the exercise of
employee stock options of $344,000 and contributions from employment benefit
plans of $79,000 which was partially offset by a net decrease in market value of
the available-for-sale portfolio of $366,000. As of March 31, 1996 the book
value per outstanding share of common stock was $25.85 as compared to $25.92 at
December 31, 1995. The primary reasons for this decrease were the exercise of
shareholder options and the fluctuation in the market value of the
available-for-sale portfolio.
The Office of Thrift Supervision ("OTS") has established three capital
standards for thrifts:
- - Tangible capital ratio equal to 1.5% of adjusted total assets
- - Core capital ratio equal to 3.0% of adjusted total assets
- - Risk-based ratio equal to 8.0% of risk weighted assets
The Company's subsidiary significantly exceeds each of the regulatory capital
requirements at March 31, 1996. The following table represents the Associations
capital ratios:
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Tangible Leverage Risk-Based
Capital (Core) Capital Capital
(Dollars in Thousands) ---------------- ----------------- ------------------
Required Capital Ratio 1.50% 3.00% 8.00%
Actual Capital Ratio 11.40% 11.09% 21.30%
Actual Capital $ 30,345 $ 29,442 $ 30,836
Required Capital $ 3,995 $7,962 $ 11,581
Excess Capital $ 26,350 $ 21,480 $ 19,255
The OTS issued final regulations which set forth the methodology for
calculating an interest rate-risk component that is being incorporated in the
OTS regulatory capital rules. Under the new regulations, only savings
institutions with "above normal" interest rate-risk exposure are required to
maintain additional capital. The OTS has deferred implementation of this
regulation. As of March 31, 1996 the Association was not subject to any interest
rate-risk component.
NON-PERFORMING ASSETS at March 31, 1996 amounted to $7.0 million or 2.6% of
total assets as compared to $5.5 million or 2.0% at December 31, 1995. Total
non-performing loans and leases amounted to $5.7 million or 3.0% of total loans
as compared to 2.1% as of December 31, 1995. The primary reason for the increase
in non-performing loans and assets are the commercial office equipment leases
purchased from Bennett Family Group, Inc., totaling $1.6 million. On March 28,
1996, the U.S. Attorney's office in New York City charged Patrick Bennett and
Bennett Funding Group, a Syracuse, N.Y. company ("Bennett") with securities
fraud and perjury in connection with Bennett's offering of up to $80 million in
short-and medium-term notes. In addition, the Securities and Exchange Commission
("SEC") filed suit against Mr. Bennett and his related companies. On April 1,
1996, Bennett filed for Chapter 11 bankruptcy protection and ceased payments to
investors. It is uncertain what effect, if any, the Bennett litigation will have
on the Company. Therefore the Company has classified the leases as
non-performing and placed them on non-accrual status. Currently, it is
anticipated that the Company may experience a temporary loss of interest on the
leases until they can be transferred. However, there can be no assurance the
additional losses will not be incurred due to the pending litigation against
Bennett.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
INTEREST INCOME for the three months ended March 31, 1996 amounted to $5.1
---------------
million as compared to $5.0 million for the comparable period in 1995, an
increase of $.1 million or 2.0%. This increase was attributable primarily to a
decrease in the average balances outstanding on interest earning assets which
was offset by an increase in the annualized yield from 7.56% in 1995
to 8.02% in 1996.
INTEREST EXPENSE for the three months ended March 31, 1996 amounted to
----------------
$2.98 million compared to $2.94 million for the comparable period in 1995, an
increase of $40,000 or 1.4%. This increase was due primarily to increased cost
of funds from 5.13% for the quarter ended March 31, 1995 as compared to 5.27%
for the comparable period in 1996.
NET INTEREST income for the three months ended March 31, 1996 amounted to
------------
$2.098 million as compared to $2.057 million at March 31, 1995, an increase of
$41,000 or .2%. Net interest margin at March 31, 1996 amounted to 3.31% as
compared to 2.92% at March 31, 1995. The effect of the increase in rates was
offset by decreased balances outstanding during the quarter.
PROVISION FOR LOAN LOSSES was $75,000 for the quarter ended March 31,
-------------------------
1996, due to the Bennett leases. While management believes that its allowances
for losses are at an adequate level, there can be no assurance that losses will
not exceed estimated amounts. Management continues to monitor the allowance in
relation to the performance of the Company 's loan portfolio, the economy and
changes in real estate values. (See Non-Performing Assets Page 13.)
NON-INTEREST INCOME for the three months ended March 31, 1996 amounted to
-------------------
$484,000 as compared to $317,000 for the comparable period in 1995, an increase
of $167,000 or 52.7%. This increase was primarily attributable to increased
gains on sale of assets of $103,000 and increased income from PMSR's of $43,000.
NON-INTEREST EXPENSE for the three months ended March 31, 1996 remained
--------------------
constant at $1.7 million as cost reductions in occupancy, data processing, legal
fees, and advertising were offset by increases in compensation, federal deposit
insurance premiums, loss on R.E.O. operations and provision for losses on
securities.
INCOME TAX EXPENSE for the three months ended March 31, 1996 amounted to
------------------
$188,000 as compared to $54,000 for the comparable period in 1995. This increase
was primarily due to increased pre-tax income for the first quarter of 1996 and
tax credits pertaining to a low income housing project which were recorded in
the first quarter of 1995.
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FINANCIAL SECURITY CORP.
AND SUBSIDIARY
PART II: OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings.
The Company and the Association are not engaged in any legal
proceedings of a material nature at the present time.
Item 2. Changes in securities. (Not applicable.)
Item 3. Defaults upon senior securities. (Not applicable.)
Item 4. Submission of matters to a vote of security holders.
Proposal 1. Election of Directors
Shares Shares Voted Votes
Voted For Percent Against Percent Withheld Percent
--------- ------- ------------ ------- -------- -------
Nominees:
Ivan F. Kovac 1,293,541 86.4% -0- -0-% 11,769 0.79%
Julia Machacek 1,293,641 86.5% -0- -0-% 11,669 0.78%
Proposal 2. Ratification of Appointment of Independent Auditors.
Shares Shares Voted Votes
Voted For Percent Against Percent Withheld Percent
--------- ------- ------------ ------- -------- -------
Nominees:
Crowe, Chizek & Co 1,257,765 84.1% 38,200 2.55% 9,344 0.6%
Total Shares Voted 1,305,310 87.3%
Total Shares Unvoted 190,520 12.7%
Total Shares Outstanding 1,495,830
Brokers Shares Unvoted 121,707
Item 5. Other information. None.
Item 6. Exhibits and Reports on Form 8-K.
1. Form 8-K dated April 27, 1996, under Item 5.
2. The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Financial Security Corp.*
3.2 Bylaws of Financial Security Corp.*
4.0 Stock Certificate of Financial Security Corp.*
11.0 Statement re. Computation of Earnings Per Share.
(filed herewith)
27.0 Financial Data Schedule (filed herewith)
* Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement, filed on August 8, 1991 and any amendments
thereto, Registration No. 33-42492.
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FINANCIAL SECURITY CORP.
AND
SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FINANCIAL SECURITY CORP.
Date: July 1, 1996 By: /s/ Daniel K. Augustine
------------ ---------------------------------------
Daniel K. Augustine
President, Chief Executive Officer
Date: July 1, 1996 By: /s/ William C. Preissner
------------ ---------------------------------------
William C. Preissner
Vice President, Chief Financial Officer
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