SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
MONTGOMERY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer in its Charter)
Indiana 35-1962246
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
119 East Main Street
Crawfordsville, Indiana 47933
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(Address of Principal Executive Offices) (Zip Code)
(765) 362-4710
(Registrant's telephone number, including area code)
Check here whether the issuer (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 period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
As of October 31, 1998, there were 1,621,681 shares of the Registrant's
common stock issued and outstanding.
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Form 10-QSB
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement of Financial Condition
As of September 30, 1998 and June 30, 1998
Consolidated Condensed Statement of Income for the Three
Months Ended September 30, 1998 and 1997
Consolidated Condensed Statement of Cash Flows for the
Three Months Ended September 30, 1998 and 1997
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Three Months Ended September 30, 1998
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Financial Condition
(Unaudited)
September 30, June 30,
------------- -------------
1998 1998
------------- -------------
Assets
Cash .............................................. $ 294,589 $ 326,922
Short-term interest-bearing deposits .............. 8,017,464 10,569,823
------------- -------------
Total cash and cash equivalents ............ 8,312,053 10,896,745
Interest-bearing deposits ......................... 215,000 215,000
Securities available for sale ..................... 731,874 311,967
Loans ............................................. 104,578,380 100,395,554
Allowance for loan losses ......................... (201,000) (186,000)
------------- -------------
Net loans .................................... 104,377,380 100,209,554
Real estate owned and held for development, net 1,306,829 1,468,199
Premises and equipment ............................ 2,257,620 2,001,544
Federal Home Loan Bank stock ...................... 963,100 921,500
Interest receivable ............................... 851,275 843,799
Other assets ...................................... 326,326 294,324
------------- -------------
Total assets ............................... $ 119,341,457 $ 117,162,632
============= =============
Liabilities
Deposits
Noninterest bearing ........................... $ 2,121,751 $ 1,864,658
Interest bearing ........................... 80,911,995 82,117,324
------------- -------------
Total deposits ...................... 83,033,746 83,981,982
Federal Home Loan Bank advances ................... 14,260,715 11,260,715
Interest payable .................................. 619,918 538,451
Deferred tax liability ............................ 368,605 371,197
Other liabilities ................................. 918,299 945,136
------------- -------------
Total liabilities .......................... 99,201,283 97,097,481
============= =============
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Financial Condition
(Unaudited)
September 30, June 30,
------------- -------------
1998 1998
------------- -------------
Stockholders' Equity
Preferred stock, $.01 par value
authorized and unissued--2,000,000 shares
Common stock, $.01 par value--8,000,000 shares
authorized; 1,642,381 and 1,653,032 issued ... 16,424 16,530
Paid-in capital ................................... 13,480,086 13,571,387
Retained earnings - substantially restricted ...... 7,921,374 7,782,192
Unearned ESOP shares--121,968 and 123,080 ........ (1,208,550) (1,230,802)
Unearned compensation ............................. (119,559) (128,507)
Accumulated other comprehensive income ........... 50,399 54,351
------------- -------------
Total stockholders' equity ................. 20,140,174 20,065,151
------------- -------------
Total liabilities and stockholders' equity . $ 119,341,457 $ 117,162,632
============= =============
See notes to Consolidated Condensed Financial Statements.
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Income
(Unaudited)
Three Months Ended
September 30,
--------------------------------
1998 1997
----------- -----------
Interest and Dividend Income
Loans ........................................... $ 2,100,016 $ 1,854,433
Investment securities ........................... 3,497 567
Deposits with financial institutions ............ 110,558 114,746
Federal Home Loan Bank stock .................... 18,715 19,163
----------- -----------
Total interest and dividend income ......... 2,232,786 1,988,909
----------- -----------
Interest Expense
Deposits ........................................ 1,099,583 956,764
Federal Home Loan Bank advances ................. 166,173 145,160
----------- -----------
Total interest expense ..................... 1,265,756 1,101,924
----------- -----------
Net Interest Income ............................... 967,030 886,985
Provision for losses on loans ................... 15,000 3,000
----------- -----------
Net Interest Income After
Provision for Losses on Loans ................... 952,030 883,985
----------- -----------
Other Income
Service charges on deposit accounts ............. 10,618 7,238
Net appraisal income (expense) .................. 1,405 (1,054)
Other income .................................... 1,751 1,318
----------- -----------
Total other income ......................... 13,774 7,502
----------- -----------
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Income
(Unaudited)
(continued)
Three Months Ended
September 30,
--------------------------------
1998 1997
----------- -----------
Other Expenses
Salaries and employee benefits .................. 283,915 275,858
Net occupancy expense ........................... 27,529 26,186
Equipment expense ............................... 46,557 35,333
Data processing expense ......................... 35,853 27,958
Deposit insurance expense ....................... 12,497 11,428
Real estate operations, net ..................... (5,243) (10,685)
Advertising expense ............................. 11,292 8,599
Other expenses .................................. 123,876 114,183
----------- -----------
Total other expenses ................... 536,276 488,860
----------- -----------
Income Before Income Tax .......................... 429,528 402,627
Income tax expense .............................. 174,500 177,050
----------- -----------
Net Income ........................................ $ 255,028 $ 225,577
=========== ===========
Net Income Per Share
Basic ........................................... $ 0.17 $ 0.15
Diluted ......................................... 0.17 0.15
Dividends Per Share ............................... 0.055 0.055
See Notes to Consolidated Condensed Financial Statements.
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended
September 30,
------------------------------
1998 1997
----------- -----------
Operating Activities
Net income ............................................ $ 255,028 $ 225,577
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ......................... 15,000 3,000
Depreciation ...................................... 51,402 50,450
ESOP stock amortization ........................... 25,149 19,837
Amortization of unearned compensation ............. 2,170
Change in
Interest receivable ........................... (7,476) (35,144)
Interest payable .............................. 81,467 63,326
Other assets .................................. (32,002) (26,265)
Other liabilities ............................ (19,466) 136,418
----------- -----------
Net cash provided by operating activities ..... 371,272 437,199
----------- -----------
Investing Activities
Proceeds from paydowns of securities
available for sale ................................ 10,805 10,087
Purchase of securities available for sale ............. (437,258)
Net change in loans ................................... (4,295,017) (3,682,301)
Additions to real estate owned and held for investment (21,785) (39,824)
Proceeds from real estate owned sales ................. 286,722
Purchases of premises and equipment ................... (298,854) (77,656)
Purchase of FHLB of Indianapolis stock ................ (41,600)
----------- -----------
Net cash used by investing activities ......... (4,796,987) (3,789,694)
----------- -----------
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Continued)
Three Months Ended
September 30,
-------------------------------
1998 1997
------------ ------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and
savings deposits ............................... $ 890,453 $ 1,472,058
Certificates of deposit ............................ (1,838,689) (330,481)
Proceeds from FHLB advances ............................ 4,000,000
Repayment of FHLB advances ............................ (1,000,000) (3,000,000)
Stock purchase ......................................... (119,824)
Dividends paid ......................................... (90,917)
------------ ------------
Net cash provided (used) by financing activities 1,841,023 (1,858,423)
------------ ------------
Net Change in Cash and Cash Equivalents .................. (2,584,692) (5,210,918)
Cash and Cash Equivalents, Beginning of Period ........... 10,896,745 11,594,772
------------ ------------
Cash and Cash Equivalents, End of Period ................. $ 8,312,053 $ 6,383,854
============ ============
Additional Cash Flow and Supplementary Information
Interest Paid .......................................... $ 1,184,289 $ 1,038,598
Income Tax Paid ........................................ 387,733 102,800
Transfer from Loans to Other Real Estate Owned ......... 112,191
Cash Dividends Payable ................................. 83,548 90,917
See Notes to Consolidated Condensed Financial Statements
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Changes in Stockholders' Equity
(Unaudited)
Common Stock
---------------------- Paid-in Comprehensive Retained Unearned
Shares Amount Capital Income Earnings ESOP Shares
--------- --------- ------------ ----------- ----------- -----------
Balance July 1, 1998 ............ 1,653,032 $ 16,530 $ 13,571,387 $ 7,782,192 $(1,230,802)
Net income for the three months
ended September 30, 1998 .... $ 255,028 255,028
Other comprehensive income,
net of tax
Unrealized loss on securities (3,952)
-----------
Other comprehensive income ...... $ 251,076
===========
Cash dividends ($.055 per share) (83,548)
Stock purchase .................. (10,651) (106) (87,420) (32,298)
ESOP shares earned .............. 2,897 22,252
Amortization of unearned
compensation expense ........ (6,778)
--------- --------- ------------ ----------- ----------- -----------
Balance September 30, 1998 ...... 1,642,381 $ 16,424 $ 13,480,086 $ 7,921,374 $(1,208,550)
========= ========= ============ =========== =========== ===========
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Changes in Stockholders' Equity
(Unaudited)
Accumulated
Other
Unearned Comprehensive
Compensation Income Total
------------ ------ -----
Balance July 1, 1998 ............ $(128,507) $54,351 $20,065,151
Net income for the three months
ended September 30, 1998 .... 255,028
Other comprehensive income,
net of tax
Unrealized loss on securities (3,952) (3,952)
Other comprehensive income ......
Cash dividends ($.055 per share) (83,548)
Stock purchase .................. (119,824)
ESOP shares earned .............. 25,149
Amortization of unearned
compensation expense ........ 8,948 2,170
--------- ------- -----------
Balance September 30, 1998 ...... $(119,559) $50,399 $20,140,174
========= ======= ===========
See Notes to Consolidated Condensed Financial Statement
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Condensed Financial Statements
Basis of Presentation
The unaudited interim consolidated condensed financial statements include the
accounts of Montgomery Financial Corporation ("Montgomery"), its subsidiary,
Montgomery Savings, A Federal Association (the "Association") and its
subsidiary, MSA SERVICE CORP.
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 necessary to
present fairly Montgomery's financial position as of September 30, 1998, results
of operations for the three month periods ending September 30, 1998 and 1997,
and cash flows for the three month periods ended September 30, 1998 and 1997.
The results of operations for the three month period ended September 30, 1998
are not necessarily indicative of the results of operations which may be
expected for the fiscal year ending June 30, 1999.
Net Income Per Share
Net income per share for the three month periods ended September 30, 1998 and
1997, are computed by dividing net earnings by the weighted average shares of
common stock outstanding during the period.
For the Three Months Ended September 30, 1998 September 30, 1997
------------------------------------- -------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
-------- --------- ---------- -------- --------- ----------
Basic Net Income Per Share:
Net Income Available
to Common Stockholders ...... $255,028 1,519,870 $ 0.17 $225,577 1,520,063 $ 0.15
========== ==========
Effect of Dilutive Stock Options
and Grants .................. 0 14,403 0 16,047
-------- --------- ---------- -------- ---------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders ...... $255,028 1,534,273 $ 0.17 $225,577 1,536,110 $ 0.15
======== ========= ========== ======== ========= ==========
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. When used in this Form 10-QSB or future
filings by Montgomery with the Securities and Exchange Commission, in
Montgomery's press releases or other public shareholder communications, or in
oral statements made with the approval of an authorized executive officer, the
words or phrases, "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", "believe", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Montgomery wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made, and to advise readers that various
factors, including regional and national economic conditions, changes in levels
of market interest rates, credit risks of lending activities, and competitive
and regulatory factors, could affect Montgomery" financial performance and could
cause Montgomery's actual results for future periods to differ materially from
those anticipated or projected. Montgomery does not undertake, and specifically
disclaims any obligation, to revise any forward-looking statements to reflect
the occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
Financial Condition. Montgomery's total assets were $119.3 million at
September 30, 1998, an increase of $2.1 million, or 1.9 percent from June 30,
1998. During this three month period interest-earning assets increased $2.1
million, or 1.9 percent. Short-term interest-earning deposits decreased $2.6
million, or 24.1 percent primarily due to the use of liquidity to fund loan
growth. Loans increased $4.2 million, or 4.2 percent, which is the approximate
increase budgeted for the current year-to-date. Deposits decreased $948,000, or
1.1 percent and FHLB advances increased $3.0 million, or 26.6 percent, causing a
net increase in interest-bearing liabilities of 2.2 percent. The increase in
borrowings was primarily used to fund loan growth.
Capital and Liquidity. At September 30, 1998, stockholders' equity was
$20,140,000 or 16.9 percent of total assets, compared with stockholders' equity
of $20,065,000, or 17.1 percent, at June 30, 1998. The Association continues to
exceed all minimum regulatory capital requirements. At September 30, 1998, the
Association's tangible and core capital was $15,813,000, or 13.4 percent of
tangible assets, $14,075,000 in excess of the 1.5 percent minimum required
tangible capital and $11,097,000 in excess of the 4.0 percent minimum required
core capital. Risk-based capital equaled $15,097,000, or 20.6 percent of
risk-weighted assets, $9,233,000 more than the minimum 8.0 percent risk based
level required. The director of the OTS is required to set minimum liquidity
levels between four and 10 percent of assets. Current regulations require a
minimum liquidity level of five percent. The Association's average liquidity
ratio for the three months ended September 30, 1998, was 8.9 percent.
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Asset/Liability Management. The Association, like other financial
institutions, is subject to interest rate risk to the extent that its
interest-bearing liabilities reprice on a different basis than its
interest-bearing assets. OTS regulations provide a Net Portfolio Value ("NPV")
approach to the quantification of interest rate risk. In essence, this approach
calculates the difference between the present value of liabilities, expected
cash flows from assets and cash flows from off balance sheet contracts. Under
OTS regulations, an institution's "normal" level of interest rate risk in the
event of an immediate and sustained 200 basis point change in interest rates is
a decrease in the institution's NPV in an amount not exceeding 2 percent of the
present value of its assets. Thrift institutions with greater than "normal"
interest rate exposure must take a deduction from their total capital available
to meet their risk-based capital requirement. The amount of that deduction is
one-half of the difference between (a) the institution's actual calculated
exposure to the 200 basis point interest rate increase or decrease (whichever
results in the greater pro forma decrease in NPV) or (b) its "normal" level of
exposure which is 2% of the present value of its assets. Regulations do exempt
all institutions under $300 million in assets with risk-based capital above 12
percent from reporting information to calculate exposure and making any
deduction from risk-based capital. At September 30, 1998, the Association's
total assets were $119.3 million and risk based capital was 20.6 percent;
therefore the Association would have been exempt from calculating or making any
risk-based capital reduction. The Association's management believes
interest-rate risk is an important factor and makes all reports necessary to OTS
to calculate interest-rate risk on a voluntary basis. At June 30, 1998, the most
recent date for which information available from the OTS, 2.0% of the present
value of the Association's assets was approximately $2.39 million, which was
less than $3.46 million, the greatest decrease in NPV resulting from a 200 basis
point change in interest rates. As a result, the Association, for OTS reporting
purposes, would have been required to make a deduction from total capital in
calculating its risk-based capital requirement had this rule been in effect and
had the Association not been exempt from reporting on such date. Based on June
30, 1998 NPV information, the amount of the Association's deduction from
capital, had it been subject to reporting, would have been approximately
$535,000.
It has been and continues to be a priority of the Association's Board
of Directors and management to manage interest rate risk and thereby limit any
negative effect of changes in interest rates on the Association's NPV. The
Association's Interest Rate Risk Policy, established by the Board of Directors,
promulgates acceptable limits on the amount of change in NPV given certain
changes in interest rates. Specific strategies have included shortening the
amortized maturity of fixed-rate loans and increasing the volume of adjustable
rate loans to reduce the average maturity of the Association's interest-earning
assets. FHLB advances are used in an effort to match the effective maturity of
the Association's interest-bearing liabilities to its interest-earning assets.
Presented below, as of June 30, 1998 and June 30, 1997, is an analysis
of the Association's estimated interest rate risk as measured by changes in NPV
for instantaneous and sustained parallel shifts in interest rates, up and down
300 basis points in 100 point increments, compared to limits set by the Board.
Assumptions used in calculating the amounts in this table are assumptions
utilized by the OTS in assessing the interest risk of the thrifts it regulates.
Based upon these assumptions at June 30, 1998, and June 30, 1997, the NPV of the
Association was $18.9 million and $18.4 million, respectively. NPV is calculated
by the OTS for the purpose of interest rate risk assessment and should not be
considered as an indicator of value of the Association.
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
At June 30, 1998 At June 30,1997
Assumed Board
Change in Limit
Interest Rates % Change $ Change % Change $ Change % Change
(Basis Points) in NPV in NPV in NPV in NPV in NPV
-------------- ------ ------ ------ ------ ------
(Dollars in Thousands)
+300 -60 -5,717 -30 -5,754 -43
+200 -50 -3,463 -18 -3,637 -31
+100 -30 -1,452 -8 -1,622 -20
0 0 0 0 0 0
-100 -30 +1,020 +5 +988 +5
-200 -50 +1,761 +9 +1,237 +7
-300 -60 +2,782 +15 +1,347 +7
In the event of a 300 basis point change in interest rate based upon
estimates as of June 30, 1998, the Association would experience a 15% increase
in NPV in a declining rate environment and a 30% decrease in NPV in a rising
environment. During periods of rising rates, the value of monetary assets and
liabilities decline. Conversely, during periods of falling rates, the value of
monetary assets and liabilities increase. However, the amount of change in value
of specific assets and liabilities due to changes in rates is not the same in a
rising rate environment as in a falling rate environment (i.e., the amount of
value increase under a specific rate decline may not equal the amount of value
decrease under an identical upward rate movement). Based upon the NPV
methodology, the decreased level of interest rate risk experienced by the
Association in recent periods was primarily due to the interest rate on
interest-earning assets increasing more than the interest rate on
interest-bearing liabilities due to the increase in fixed rate residential
mortgage loans and non-residential loans, which generally carry a higher rate of
interest than one year adjustable rate loans.
Results of Operations. Montgomery's net income for the three months
ended September 30, 1998, was $255,000 compared to $226,000 for the three months
ended September 30, 1997, an increase of $29,000. Net interest income increased
$80,000, or 9.0 percent, primarily due to an increase in average
interest-earning assets of $13.9 million, or 14.2 percent. Average
interest-earning assets were $111.2 million for the three months ended September
30, 1998 compared to $97.3 million for the 1997 period. Average interest-bearing
liabilities increased $13.6 million from $78.7 million to $92.3 million during
the comparable periods. Interest rate spread decreased from 2.58 percent for the
three months ended September 30, 1997, to 2.54 percent for the three months
ended September 30, 1998. Net interest margin decreased from 3.64 percent for
the three months ended September 30, 1997 to 3.48 percent for the three months
ended September 30, 1998. The provision for losses on loans was $15,000 for the
three months ended September 30, 1998, compared to $3,000 for the three months
ended September 30, 1997. Non-interest expense was $536,000 for the three months
ended September 30, 1998 compared to $489,000 for the 1997 period, an increase
of $47,000, or 9.7 percent, primarily due to growth of the Association. Income
before income tax was $430,000 for the three months ended September 30, 1998,
compared to $403,000 for the three months ended September 30, 1997, an increase
of $27,000. Income tax for the three months ended September 30, 1998, was
$175,000 compared to $177,000 for the three months ended September 30, 1997.
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Interest Income. Montgomery's total interest income for the three
months ended September 30, 1998, was $2.2 million, an increase of $244,000, or
12.3 percent, compared to interest income for the three months ended September
30, 1997. This increase was primarily caused by an increase in average
interest-earning assets from $97.3 million for the three months ended September
30, 1997, to $111.2 million for the three months ended September 30, 1998, an
increase of $13.9 million, or 14.3 percent. Average loans increased from $88.9
million for the 1997 period to $101.7 million for the 1998 period and average
interest-earning deposits increased from $7.5 million to $8.3 million and
average investment securities increased from $35,000 to $302,000 for the
respective periods. The average yield on interest-earning assets was 8.03
percent for the three months ended September 30, 1998, compared to 8.17 percent
for the three months ended September 30, 1997. This decrease was primarily
caused by a decrease in the average yield on loans from 8.35 percent to 8.26
percent for the current three month period.
Interest Expense. Interest expense for the three months ended
September 30, 1998, was $1.3 million compared to $1.1 million for the 1997
period, an increase of $164,000, or 14.9 percent. Average interest-bearing
liabilities increased $13.6 million, or 17.3 percent, from $78.7 million for the
three months ended September 30, 1997, to $92.3 million for the three months
ended September 30, 1998. The average cost of funds decreased from 5.60 percent
to 5.49 percent for the comparable periods and the average cost of deposits
decreased from 5.51 percent to 5.41 percent. In addition, the average rate on
FHLB advances decreased from 6.22 percent to 6.00 percent for the comparable
periods.
Provision for Losses on Loans. The provision for losses on loans was
$15,000 for the three months ended September 30, 1998, compared to $3,000 for
the three months ended September 30, 1997. Provision or adjustment entries are
made based on the Internal Loan and Asset Review Policy. A review is performed
at least quarterly to determine the adequacy of the current balance in allowance
for loss accounts. Based on the most recent review, to comply with the current
review policy, it was necessary to make the $15,000 provision. Both the $15,000
and the $3,000 provisions for losses were made, primarily due to increased loan
growth. Loans delinquent ninety days or more were $417,000 at September 30,
1998, compared to $724,000 at June 30, 1998 and $640,000 at September 30, 1997.
Non-performing loans to total loans at September 30, 1998, was 0.40 percent
compared to 0.72 percent at June 30, 1998 and 0.71 percent at September 30,
1997. The allowance for loan losses to non-performing loans was 48.2 percent at
September 30, 1998 compared to 25.7 percent at June 30, 1998 and 28.6 percent at
September 30, 1997. The allowance to total loans was 0.19 percent at September
30, 1998, 0.19 percent at June 30, 1998 and 0.20 percent at September 30, 1997.
Montgomery is continually re-evaluating the level of the allowance for loan
losses as the amount of non-residential mortgage loans and other new loan
products are offered.
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Non-Interest Income. Montgomery's other income for the three months
ended September 30, 1998, totalled $14,000 compared to $8,000 for the three
months ended September 30, 1997, an increase of $6,000, or 83.6 percent. During
the comparable periods, service charges on deposit accounts increased $4,000 due
to an increase in the number of demand deposit accounts and appraisal income
increased $2,000.
Non-Interest Expense. Montgomery's other expenses for the three months
ended September 30, 1998, totalled $536,000, compared to $489,000 for the three
months ended September 30, 1997, an increase of $47,000, or 9.7 percent.
Salaries and employee benefits increased $8,000 primarily due to an increase in
personnel to accommodate growth. Equipment expense increased $11,000 and data
processing expense increased $8,000. These increases are generally reflective of
Montgomery's growth. Real estate operations net income for the three months
ended September 30, 1998, was $5,000 compared to $11,000 for the 1997 comparable
period, a decrease of $6,000. This was due to a decrease in net rental income.
Advertising expense increased $3,000, or 31.3 percent due to an increased
marketing effort to attract new loan and deposit customers. Other expenses
increased $10,000, or 8.5 percent, for the three months ended September 30,
1998, compared to the same 1997 period, primarily due to Montgomery's growth.
Income Tax Expense (Benefit). Income tax expense for the three months
ended September 30, 1998, was $175,000 compared to $177,000 for the three months
ended September 30, 1997, due to the change in taxable income.
Impact of the Year 2000. Montgomery has conducted a comprehensive
review of its computer systems to identify applications that could be affected
by the "Year 2000" issue, and has developed an implementation plan to address
the issue. Montgomery's data processing is performed primarily by outside
venders. Montgomery has already contacted each vendor to request time tables for
year 2000 compliance and expected costs, if any, to be passed along to
Montgomery. To date, Montgomery anticipates that its primary service provider
will complete all reprogramming efforts by March 31, 1999; however, Montgomery
will pursue other options if it appears that any vendors will be unable to
comply. Management does not expect these costs to have a significant impact on
its financial position or results of operations, however, there can be no
assurance that the vendors systems will be Year 2000 compliant, consequently
Montgomery could incur incremental costs to convert to another vendor or move
data processing in house. Montgomery has established a budget of $75,000 for
testing and remediation relating to the Year 2000 issue.
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Part II. OTHER INFORMATION
Item 1. Legal Proceedings None.
Item 2. Changes in Securities and Use of Proceeds None.
Item 3. Defaults Upon Senior Securities None.
Item 4. Submission of Matters to a Vote of Security Holders None.
Item 5. Other Information None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
Crawfordsville, Indiana
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.
Montgomery Financial Corporation
Date: November 10, 1998 By: /s/Earl F. Elliot
-----------------
Earl F. Elliott, President and Chief
Executive Officer
Date: November 10, 1998 By: /s/J. Lee Walden
----------------
J. Lee Walden, Vice President and Chief
Financial Officer