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, 1999
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
- --------------------------------------------------------------------------------
(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, 1999, there were 1,361,210 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, 1999 and June 30, 1999
Consolidated Condensed Statement of Income for the Three
Months Ended September 30, 1999 and 1998
Consolidated Condensed Statement of Cash Flows for the
Three Months Ended September 30, 1999 and 1998
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Three Months Ended September 30, 1999
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,
1999 1999
------------- -------------
Assets
Cash ............................................ $ 488,318 $ 523,585
Short-term interest-bearing deposits ............ 5,688,020 4,409,228
------------- -------------
Total cash and cash equivalents .......... 6,176,338 4,932,813
Interest-bearing deposits ....................... 219,463 219,463
Securities available for sale ................... 909,730 880,900
Loans ........................................... 114,860,441 111,641,224
Allowance for loan losses ....................... (226,000) (226,000)
------------- -------------
Net loans .................................. 114,634,441 111,415,224
Real estate owned and held for development, net . 1,170,355 1,181,720
Premises and equipment .......................... 2,997,794 2,839,409
Federal Home Loan Bank stock .................... 1,650,700 1,250,700
Interest receivable ............................. 971,594 893,854
Other assets .................................... 301,607 345,036
------------- -------------
Total assets ............................. $ 129,032,022 $ 123,959,119
============= =============
Liabilities
Deposits
Noninterest bearing ......................... $ 1,330,836 $ 1,349,282
Interest bearing .......................... 84,436,844 81,118,363
------------- -------------
Total deposits .................... 85,767,680 82,467,645
Federal Home Loan Bank advances ................. 23,577,611 20,632,069
Interest payable ................................ 565,176 566,632
Deferred tax liability .......................... 360,008 347,089
Other liabilities ............................... 827,990 548,612
------------- -------------
Total liabilities ........................ 111,098,465 104,562,047
------------- -------------
Stockholders' Equity
Preferred stock, $.01 par value
authorized and unissued--2,000,000 shares
Common stock, $.01 par value--8,000,000 shares
authorized; 1,361,210 and 1,521,142 issued . 13,612 15,211
Paid-in capital ................................. 11,151,910 12,464,781
Retained earnings - substantially restricted .... 7,934,269 8,131,251
Unearned ESOP shares--112,022 and 114,180 ...... (1,120,218) (1,141,796)
Unearned compensation ........................... (83,766) (92,714)
Accumulated other comprehensive income ......... 37,750 20,339
------------- -------------
Total stockholders' equity ............... 17,933,557 19,397,072
------------- -------------
Total liabilities and stockholders' equity $ 129,032,022 $ 123,959,119
============= =============
See notes to Consolidated Condensed Financial Statements.
3
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Income
(Unaudited)
Three Months Ended
September 30,
1999 1998
----------- -----------
Interest and Dividend Income
Loans ...................................... $ 2,237,377 $ 2,100,016
Investment securities ...................... 7,546 3,497
Deposits with financial institutions ....... 97,282 110,558
Federal Home Loan Bank stock ............... 29,044 18,715
----------- -----------
Total interest and dividend income .... 2,371,249 2,232,786
----------- -----------
Interest Expense
Deposits ................................... 1,050,996 1,099,583
Federal Home Loan Bank advances ............ 320,936 166,173
----------- -----------
Total interest expense ................ 1,371,932 1,265,756
----------- -----------
Net Interest Income .......................... 999,317 967,030
Provision for losses on loans .............. 15,000
Net Interest Income After
Provision for Losses on Loans .............. 999,317 952,030
----------- -----------
Other Income
Service charges on deposit accounts ........ 13,814 10,618
Net appraisal income (expense) ............. 1,011 1,405
Other income ............................... 7,219 1,751
----------- -----------
Total other income .................... 22,044 13,774
----------- -----------
Other Expenses
Salaries and employee benefits ............. 366,322 283,915
Net occupancy expense ...................... 42,688 27,529
Equipment expense .......................... 60,819 46,557
Data processing expense .................... 50,735 35,853
Deposit insurance expense .................. 12,349 12,497
Real estate operations, net ................ (5,701) (5,243)
Advertising expense ........................ 25,144 11,292
Other expenses ............................. 155,418 123,876
----------- -----------
Total other expenses .............. 707,774 536,276
----------- -----------
Income Before Income Tax ..................... 313,587 429,528
Income tax expense ......................... 122,225 174,500
----------- -----------
Net Income ................................... $ 191,362 $ 255,028
Net Income Per Share
Basic ...................................... $ 0.14 $ 0.17
Diluted .................................... 0.14 0.17
Dividends Per Share .......................... 0.055 0.055
See Notes to Consolidated Condensed Financial Statements.
4
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended
September 30,
1999 1998
----------- -----------
Operating Activities
Net income ........................................... $ 191,362 $ 255,028
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ........................ 15,000
Depreciation ..................................... 78,590 51,402
ESOP stock amortization .......................... 20,967 25,149
Amortization of unearned compensation ............ 5,768 2,170
Change in
Interest receivable .......................... (77,740) (7,476)
Interest payable ............................. (1,456) 81,467
Other assets ................................. 43,429 (32,002)
Other liabilities ........................... 289,676 (19,466)
----------- -----------
Net cash provided by operating activities .... 550,596 371,272
----------- -----------
Investing Activities
Proceeds from paydowns of securities
available for sale ............................... 10,805
Purchase of securities available for sale ............ (437,258)
Net change in loans .................................. (3,219,217) (4,295,017)
Additions to real estate owned and held for investment (68,144) (21,785)
Proceeds from real estate owned sales ................ 70,520 286,722
Purchases of premises and equipment .................. (227,986) (298,854)
Purchase of FHLB of Indianapolis stock ............... (400,000) (41,600)
----------- -----------
Net cash used by investing activities ........ (3,844,827) (4,796,987)
----------- -----------
5
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Continued)
Three Months Ended
September 30,
1999 1998
----------- ------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and
savings deposits ............................ $ 2,653,592 $ 890,453
Certificates of deposit ......................... 646,443 (1,838,689)
Proceeds from FHLB advances ......................... 5,000,000 4,000,000
Repayment of FHLB advances ......................... (2,054,458) (1,000,000)
Stock purchase ...................................... (1,630,436) (119,824)
Dividends paid ...................................... (77,385) (90,917)
----------- ------------
Net cash provided by financing activities ... 4,537,756 1,841,023
----------- ------------
Net Change in Cash and Cash Equivalents ............... 1,243,525 (2,584,692)
Cash and Cash Equivalents, Beginning of Period ........ 4,932,813 10,896,745
----------- ------------
Cash and Cash Equivalents, End of Period .............. $ 6,176,338 $ 8,312,053
=========== ============
Additional Cash Flow and Supplementary Information
Interest Paid ....................................... $ 1,373,388 $ 1,184,289
Income Tax Paid ..................................... 30,655 387,733
Transfer from Loans to Other Real Estate Owned ...... 112,191
Cash Dividends Payable ............................. 68,587 83,548
See Notes to Consolidated Condensed Financial Statements
6
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, 1999 ............ 1,521,142 $ 15,211 $ 12,464,781 $ 8,131,251 $(1,141,796)
Net income for the three months
ended September 30, 1999 .... $ 191,362 191,362
Other comprehensive income,
net of tax
Unrealized gain on securities 17,411
Other comprehensive income ...... $ 208,773
Cash dividends ($.055 per share) (68,587)
Stock purchase .................. (159,932) (1,599) (1,309,080) (319,757)
ESOP shares earned .............. (611) 21,578
Amortization of unearned
compensation expense ........ (3,180)
--------- --------- ------------ ----------- -----------
Balance September 30, 1999 ...... 1,361,210 $ 13,612 $ 11,151,910 $ 7,934,269 $(1,120,218)
========= ========= ============ =========== ===========
Accumulated
Other
Unearned Comprehensive
Compensation Income Total
------------ ------ -----
Balance July 1, 1999 ............ $(92,714) $20,339 $19,397,072
Net income for the three months
ended September 30, 1999 .... 191,362
Other comprehensive income,
net of tax
Unrealized gain on securities 17,411 17,411
Other comprehensive income ......
Cash dividends ($.055 per share) (68,587)
Stock purchase .................. (1,630,436)
ESOP shares earned .............. 20,967
Amortization of unearned
compensation expense ........ 8,948 5,768
-------- ------- -----------
Balance September 30, 1999 ...... $(83,766) $37,750 $17,933,557
======== ======= ===========
See Notes to Consolidated Condensed Financial Statement
7
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, 1999, results
of operations for the three month periods ending September 30, 1999 and 1998,
and cash flows for the three month periods ended September 30, 1999 and 1998.
The results of operations for the three month period ended September 30, 1999
are not necessarily indicative of the results of operations which may be
expected for the fiscal year ending June 30, 2000.
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, 1999 September 30, 1998
------------------ ------------------
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 ...... $191,362 1,369,146 $ 0.14 $255,028 1,519,870 $ 0.17
======== =======
Effect of Dilutive Stock Options
and Grants .................. 0 10,146 0 14,403
-------- --------- --------- ---------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders ...... $191,362 1,379,292 $ 0.14 $255,028 1,534,273 $ 0.17
======== ========= ======== ======== ========= =======
8
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 $129.0 million at
September 30, 1999, an increase of $5.0 million, or 4.1 percent from June 30,
1999. During this three month period interest-earning assets increased $4.9
million, or 4.2 percent. Short-term interest-earning deposits increased $1.3
million, or 29.0 percent. Loans increased $3.2 million, or 2.9 percent. Federal
Home Loan Bank stock increased $400,000 or 32.0 percent due to an increase in
Federal Home Loan Bank advances. Deposits increased $3.3 million, or 4.0 percent
and FHLB advances increased $2.9 million, or 14.3 percent, causing a net
increase in interest-bearing liabilities of 6.1 percent. The increase in
borrowings was primarily used to fund loan growth.
Capital and Liquidity. At September 30, 1999, stockholders' equity was
$17.9 million or 13.9 percent of total assets, compared with stockholders'
equity of $19.4 million, or 15.7 percent, at June 30, 1999. With the approval of
OTS on May 5, 1999, Montgomery began to repurchase 209,171 of its outstanding
common stock. The repurchase was completed on September 24, 1999 at a total cost
of $2.1 million. The repurchase of stock during the quarter ended September 30,
1999 reduced capital in the amount of $1.6 million. The Association continues to
exceed all minimum regulatory capital requirements. At September 30, 1999, the
Association's tangible and core capital was $16,674,000, or 13.1 percent of
tangible assets, $14,757,000 in excess of the 1.5 percent minimum required
tangible capital and $11,582,000 in excess of the 4.0 percent minimum required
core capital. Risk-based capital equaled $16,165,000, or 20.3 percent of
risk-weighted assets, $9,801,000 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, 1999, was 7.6 percent.
9
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, 1999 the Association's total
assets were $129.0 million and risk based capital was 20.3 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, 1999, the most recent date
for which information is available from the OTS, 2.0% of the present value of
the Association's assets was approximately $2.49 million, which was less than
$4.12 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, 1999 NPV information, the amount of the Association's deduction from
capital, had it been subject to reporting, would have been approximately
$815,000.
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, 1999 and June 30, 1998, 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 $19.8 million and $18.9 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.
10
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
At June 30, 1999 At June 30,1998
- -------------------- ----------------- ------------------------------------ ------------------------------------
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 -6,573 -33 -5,717 -30
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
+200 -50 -4,122 -21 -3,463 -18
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
+100 -30 -1,809 -9 -1,452 -8
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
0 0 0 0 0 0
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
-100 -30 +1,166 +6 +1,020 +5
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
-200 -50 +2,187 +11 +1,761 +9
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
-300 -60 +3,329 +17 +2,782 +15
- -------------------- ----------------- ------------------ ----------------- ----------------- ------------------
In the event of a 300 basis point change in interest rate based upon
estimates as of June 30, 1999, the Association would experience a 17% increase
in NPV in a declining rate environment and a 33% 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 increased level of interest rate risk experienced by the
Association in recent periods was primarily due to the maturities of
interest-earning assets increasing more than the maturities on interest-bearing
liabilities due to the increase in fixed-rate residential mortgage loans and
non-residential loans.
Results of Operations. Montgomery's net income for the three months
ended September 30, 1999, was $191,000 compared to $255,000 for the three months
ended September 30, 1998, a decrease of $64,000. Net interest income increased
$32,000, or 3.3 percent, primarily due to an increase in average
interest-earning assets of $11.5 million, or 10.3 percent. Average
interest-earning assets were $122.7 million for the three months ended September
30, 1999 compared to $111.2 million for the 1998 period. Average
interest-bearing liabilities increased $13.5 million from $92.3 million to
$105.8 million during the comparable periods. Interest rate spread was 2.54
percent for both three-month periods. Net interest margin decreased from 3.48
percent for the three months ended September 30, 1998 to 3.26 percent for the
three months ended September 30, 1999. Non-interest income was $22,000 for the
1999 three-month period compared to $14,000 for the 1998 period. Non-interest
expense was $708,000 for the three months ended September 30, 1999 compared to
$536,000 for the 1998 period, an increase of $172,000, or 32.0 percent,
primarily due to expenses associated with the operation of the Lafayette,
Indiana office which opened in April, 1999. Income before income tax was
$314,000 for the three months ended September 30, 1999, compared to $430,000 for
the three months ended September 30, 1998, a decrease of $116,000. Income tax
for the three months ended September 30, 1999, was $122,000 compared to $175,000
for the three months ended September 30, 1998.
11
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Interest Income. Montgomery's total interest income for the three
months ended September 30, 1999, was $2.4 million, an increase of $138,000, or
6.2 percent, compared to interest income for the three months ended September
30, 1998. This increase was primarily caused by an increase in average
interest-earning assets from $111.2 million for the three months ended September
30, 1998, to $122.7 million for the three months ended September 30, 1999, an
increase of $11.5 million, or 10.3 percent. Average loans increased from $101.7
million for the 1998 period to $112.6 million for the 1999 period and average
interest-earning deposits decreased from $8.3 million to $7.7 million and
average investment securities increased from $302,000 to $897,000 for the
respective periods. The average yield on interest-earning assets was 7.73
percent for the three months ended September 30, 1999, compared to 8.03 percent
for the three months ended September 30, 1998. This decrease was primarily
caused by a decrease in the average yield on loans from 8.26 percent to 7.94
percent for the current three-month period.
Interest Expense. Interest expense for the three months ended
September 30, 1999, was $1.4 million compared to $1.3 million for the 1998
period, an increase of $106,000, or 8.4 percent. Average interest-bearing
liabilities increased $13.5 million, or 14.6 percent, from $92.3 million for the
three months ended September 30, 1998, to $105.8 million for the three months
ended September 30, 1999. The average cost of funds decreased from 5.49 percent
to 5.19 percent for the comparable periods and the average cost of deposits
decreased from 5.41 percent to 5.05 percent. In addition, the average rate on
FHLB advances decreased from 6.00 percent to 5.68 percent for the comparable
periods.
Provision for Losses on Loans. There was no provision for losses on
loans made for the three months ended September 30, 1999, compared to $15,000
for the three months ended September 30, 1998. 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. Loans delinquent ninety days or more were
$1,033,000 at September 30, 1999, compared to $547,000 at June 30, 1999.
Non-performing loans to total loans at September 30, 1999, was 0.90 percent
compared to 0.49 percent at June 30, 1999. The allowance for loan losses to
non-performing loans was 21.9 percent at September 30, 1999 compared to 41.3
percent at June 30, 1999. The allowance to total loans was 0.20 percent at
September 30, 1999, 0.20 percent at June 30, 1999. 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.
12
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Non-Interest Income. Montgomery's other income for the three months
ended September 30, 1999, totalled $22,000 compared to $14,000 for the three
months ended September 30, 1998, an increase of $8,000, or 60.0 percent. During
the comparable periods, service charges on deposit accounts increased $3,000 due
to an increase in the number of demand deposit accounts and other income
increased $5,000.
Non-Interest Expense. Montgomery's other expenses for the three months
ended September 30, 1999, totalled $708,000, compared to $536,000 for the three
months ended September 30, 1998, an increase of $172,000, or 32.0 percent.
Salaries and employee benefits increased $82,000 primarily due to an increase in
personnel to staff the Lafayette Office and to accommodate growth. Net occupancy
expense increased $15,000 and equipment expense increased $14,000 primarily due
to the increase in expenses associated with operation of the Lafayette Office.
Data processing expense increased $15,000 which includes $8,000 related to Year
2000 testing. The balance of the increase in data processing expense is
reflective of Montgomery's growth. Advertising expense increased $14,000
primarily due to the advertising increase to promote the recently opened
Lafayette Office operation. Other expenses increased $32,000 for the three
months ended September 30, 1999, compared to the same 1998 period. Included in
other expenses is approximately $5,000 in expense related to customer awareness
of the Y2K issue with the balance of the increase being primarily due to
Montgomery's growth.
Income Tax Expense. Income tax expense for the three months ended
September 30, 1999, was $122,000 compared to $175,000 for the three months ended
September 30, 1998, 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. Applications found in the review that could be
affected have been corrected by either replacement of hardware or software
updates. The Company's data processing is performed primarily by outside
venders. Testing has been completed to verify Year 2000 compliance by the
vendors. For the remainder of calendar 1999, the Company will test and evaluate
contingency plans and work closely with critical service providers to make sure
their systems will be ready for the Year 2000 date change.
As part of the Y2K planning process, contingency plans have been
established for mission-critical systems. These plans provide for alternative
methods of doing business, which includes provisions for manual processing
procedures, if needed, and addresses the procedures relating to possible
liquidity needs in case of an increase in cash requests from customers occurs.
These contingency plans will continue to be reviewed, tested, refined and
validated as Year 2000 approaches.
Although management believes it has taken the necessary steps to
address the Y2K compliance issue, no assurances can be given that some problems
will not occur or that the Company will not incur significant additional
expenses in future periods. In the event that the Company is ultimately required
to purchase replacement computer systems, programs or equipment, or to incur
substantial expenses to make its current systems, programs and equipment Y2K
compliant, its financial position and results of operations could be adversely
impacted.
13
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
14
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 12, 1999 By: /s/ Earl F. Elliott
-------------------
Earl F. Elliott, President and Chief
Executive Officer
Date: November 12, 1999 By: /s/ J. Lee Walden
-----------------
J. Lee Walden, Vice President and Chief
Financial Officer