UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 5TH STREET, N.W.
WASHINGTON, D. C. 20549
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 March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to Commission File No. 0-24664
FIRST OZAUKEE CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1781744
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
W61 N526 Washington Avenue, Cedarburg, Wisconsin 53012
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (414) 377-0750
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
duringthe preceding 12 months (or for such shorter 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 .
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding April 30, 1997
Common Stock, par value $1.00 per share 627,477 Shares
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
PAGE NO.
PART I - Financial Information
Consolidated Statements of Financial Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Note to Consolidated Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - Other Information 8
Consolidated Statements of Financial Condition
(Dollars in Thousands)
March 31, September 30,
1997 1996
Assets (Unaudited)
Cash and cash equivalents $ 2,380 725
Securities:
Available for sale, at market value (amortized cost of $4,995 and
$9,850, respectively) 4,963 9,857
Held to maturity at amortized cost (market value of $1,975 and
$1,992, respectively) 1,997 1,997
Stock in Federal Home Loan Bank, at cost 152 152
Mortgage-backed securities held to maturity, at amortized cost
(market value of $3,350 and $3,582, respectively) 3,508 3,721
Loans receivable, net 20,841 16,341
Premises and equipment, net 563 572
Accrued interest receivable:
Securities, certificates of deposit and mortgage-backed securities 176 308
Loans receivable 95 75
Other assets 306 300
Total assets $ 34,981 34,048
Liabilities and Stockholders' Equity
Deposits $ 26,313 24,962
Advances from borrowers for taxes and insurance 116 373
Other liabilities 326 559
Income taxes payable (39) (32)
Total liabilities 26,716 25,862
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000 shares
authorized; shares issued - none - -
Common stock, $1.00 par value; 4,000,000 shares authorized;
627,477 shares issued and outstanding 627 627
Additional paid-in capital 4,041 4,032
Unearned ESOP compensation (205) (217)
Unearned BIP compensation (58) (111)
Unrealized gain (loss) on securities available for sale, net (19) 4
Retained earnings - substantially restricted 3,879 3,851
Total stockholders' equity 8,265 8,186
Total liabilities and stockholders' equity $ 34,981 34,048
See accompanying note to consolidated financial statements.
1
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Consolidated Statements of Income
(Dollars in Thousands)
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
(Unaudited)
Interest and dividend income:
Loans receivable $ 449 309 814 605
Mortgage-backed securities 54 61 110 125
Securities 130 252 286 533
Total interest income 633 622 1,210 1,263
Interest expense:
Deposits 295 343 583 693
Escrows and borrowed funds - 1 2 3
Total interest expense 295 344 585 696
Net interest income 338 278 625 567
Provision for loan losses 5 4 9 9
Net interest income after
provision for loan losses 333 274 616 558
Noninterest income:
Other fees and service charges 2 1 6 2
Deposit account fees and service
charges 2 3 4 5
Gain (loss) on sale of securities
available for sale 1 16 5 42
Gain (loss) on sale of
loans receivable - - - 1
Rental income 3 2 5 4
Other 1 2 1 2
Total noninterest income 9 24 21 56
General and administrative expenses:
Compensation and benefits 149 185 303 395
Occupancy and insurance expense 46 47 83 86
Data processing fees 24 27 51 52
Federal insurance premiums 4 17 4 34
Directors' fees 7 7 14 13
Legal, auditing, examination and
accounting fees 41 80 83 133
Advertising and promotion 5 3 8 7
Stationery, communications and
other operating expenses 35 35 58 61
Total general and
administrative expenses 311 401 604 781
Income (loss) before
income taxes 31 (103) 33 (167)
Income taxes 5 (11) 5 (39)
Net income (loss) $ 26 (92) 28 (128)
Net income (loss) per share $ .04 (.16) .05 (.22)
Weighted-average shares outstanding 602,763 582,121 597,701 577,577
Dividends per share $ .00 .00 .00 .00
See accompanying note to consolidated financial statements.
2
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Six Months Ended
March 31,
1997 1996
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 28 (128)
Adjustments to reconcile net income
(loss) to net cash provided by (used for)
operating activities:
Depreciation expense 23 23
Provision for loan losses 9 9
Gain on sale of securities available for sale (5) (42)
Gain on sale of loans receivable - (1)
ESOP expense 21 20
BIP expense 53 101
Amortization of premiums (discounts),
net on securities and MBS (1) (48)
Loans originated for sale - (110)
Proceeds from sale of loans - 111
Decrease (increase) in:
Accrued interest receivable 112 23
Other assets (6) (8)
Increase (decrease) in:
Other liabilities (233) 45
Income taxes payable 9 84
Net cash provided by (used for)
operating activities 10 79
Cash flows from investing activities:
Loans originated and purchased, net of principal
collections on loans (4,509) (1,393)
Principal collections on mortgage-backed
securities held to maturity 213 287
Securities:
Available for sale:
Purchased (2,497) (2,110)
Proceeds from sale 2,747 508
Proceeds from maturity or call 4,610 5,234
Held to maturity:
Purchased (999) (1,000)
Proceeds from sale 1,000 -
Proceeds from maturity or call - 1,750
Purchase of premises and equipment (14) (10)
Proceeds from redemption of FHLB stock - 16
Net cash provided by (used for)
investing activities 551 3,282
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 1,351 108
Advances from borrowers for
taxes and insurance (257) (262)
Proceeds from advance from FHLB - 500
Repayment of advance from FHLB - (500)
Net cash provided by (used for)
financing activities 1,094 (154)
Net increase (decrease) in cash
and cash equivalents 1,655 3,207
Cash and cash equivalents at beginning of period 725 870
Cash and cash equivalents at end of period $ 2,380 4,077
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $ 583 693
Interest on escrows and borrowed funds 2 3
Income taxes 6 -
Noncash investing activity - transfer of
securities from held to maturity to
available for sale $ - 10,430
See accompanying note to consolidated financial statements.
3
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
Note to Consolidated Financial Statements
(Unaudited)
(1) The information contained in the accompanying consolidated financial statements is
unaudited. In the opinion of management, the financial statements contain all adjustments
(none of which were other than normal recurring entries) necessary for a fair statement of
the results of operations for the interim periods. The results of operations for the interim
periods are not necessarily indicative of the results which may be expected for the entire
fiscal year. These consolidated financial statements should be read in conjunction with the
consolidated financial statements of the Company for the year ended September 30, 1996
contained in the 1996 Annual Report to Stockholders which is filed as an exhibit to the
Company's Annual Report on Form 10-KSB.
4
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
First Ozaukee Capital Corp. (Company) has no significant assets other than common stock of First
Ozaukee Savings Bank (Bank), cash and cash equivalents, securities and the loan to the ESOP. The
Company's principal business is the business of the Bank. Therefore, the information in the
Management's Discussion and Analysis of Financial Condition and Results of Operations relates
to the Bank and its operations.
Certain statements in this report which relate to the Company's plans, objectives or future
performance may be deemed to be forward-looking statements within the meaning of Private
Securities Litigation Act of 1995. Such statements are based on management's current
expectations. Actual strategies and results in future periods may differ materially from those
currently expected because of various risks and uncertainties. Additional discussion of factors
affecting the Company's business and prospects is contained in periodic filings with the Securities
and Exchange Commission.
Liquidity and Capital Resources
The Bank's principal sources of funds are cash receipts from deposits, principal collections on loans
and mortgage-backed securities, proceeds from maturities of securities, and net earnings. The
Bank has an agreement with the Federal Home Loan Bank to provide cash advances, should the
Bank need additional funds.
The Bank is required to maintain minimum amounts of capital to total "risk-weighted" assets, as
defined by the banking regulators. At March 31, 1997, the Bank is required to have a minimum
3% Tier 1 capital to total assets, a minimum 4% Tier 1 capital to risk-weighted assets ratio and
a minimum 8% of qualifying total capital to risk-weighted assets ratio. The Bank's actual ratios
at that date were 18.1%, 35.6% and 36.5%, respectively. Wisconsin-chartered savings banks
are also required to maintain a minimum capital to assets ratio of 6%. The Bank's capital exceeds
all minimum standards required by federal and state regulations.
For regulatory purposes, liquidity is measured as a ratio of cash and certain investments to
withdrawable deposits and short-term borrowings. The minimum level of liquidity required by
regulation is presently 8%. The Bank's liquidity ratio exceeded the regulatory requirement at
March 31, 1997.
Commitments to originate adjustable-rate mortgage loans (including loans in process) at March 31,
1997 were approximately $1,049,000. Commitments on behalf of borrowers for unused lines of
credit on home equity loans and unused credit card lines were $1,108,000 and $133,000,
respectively.
5
Financial Condition
Proceeds from maturing, and sale of, securities available for sale were used to fund loans and
increase cash and cash equivalents. Loans increased from $16.3 million at September 30, 1996
to $20.8 million at March 31, 1997 due to the purchase of fixed-rate, single-family loans. Accrued
interest receivable on securities, certificates of deposit and mortgage-backed securities decreased
due to lower portfolio balances. Accrued interest receivable on loans increased due to timing of
interest receipts. Advances from borrowers for taxes and insurance decreased as a result of
seasonal factors. Real estate taxes are paid on behalf of customers in December of each year.
Other liabilities decreased as a result of the payment of the SAIF special assessment and certain
other accrual items.
Results of Operations
Net Income
The Company incurred a net loss of $92,000 for the three months ended March 31, 1996
compared to net earnings of $26,000 for the three months ended March 31, 1997. Net income
increased from a loss of $128,000 for the six months ended March 31, 1996 to income of
$28,000 for the six months ended March 31, 1997. The primary reasons for the improvement in
net income were due to higher net interest income, lower compensation expense related to the
Bank Incentive Plan (BIP), lower Federal insurance premiums and lower professional expenses
offset by lower noninterest income and higher income taxes.
Net Interest Income
Net interest income increased from $278,000 for the three months ended March 31, 1996 to
$338,000 for the three months ended March 31, 1997. Net interest income increased from
$567,000 for the six months ended March 31, 1996 to $625,000 for the six months ended March
31, 1997. Interest income on loans increased due to a higher average balance, while interest
income on securities decreased due to a lower average balance. Loans receivable, which carry
higher interest rates than other interest-earning assets, increased while securities decreased.
Components of interest income change from time to time due to the availability and interest rates
of loans, securities and other interest-bearing assets. Interest expense on deposits decreased as
a result of a lower average balance. Deposits at March 31, 1997 were $26.3 million compared
to $29.6 million at March 31, 1996.
Provision for Loan Losses
Provision for loan losses is based upon management's consideration of economic conditions which
may affect the ability of borrowers to repay the loans. Management also reviews individual loans
for which full collectibility may not be reasonably assured and considers, among other matters, the
risks inherent in the Bank's portfolio and the estimated fair value of the underlying collateral. This
evaluation is ongoing and results in variations in the Bank's provision for loan losses.
Nonperforming loans amounted to $124,000 and $100,000 at March 31, 1997 and September
30, 1996. As a result of this evaluation, the Bank's provision for loan losses for the three and
six months ended March 31, 1996 amounted to $4,000 and $9,000, respectively. Provisions of
$5,000 and $9,000 were recorded for the three and six months ended March 31, 1997,
respectively.
6
Noninterest Income
Noninterest income decreased from $24,000 for the three months ended March 31, 1996 to
$9,000 for the three months ended March 31, 1997. Noninterest income decreased from $56,000
for the six months ended March 31, 1996 to $21,000 for the six months ended March 31, 1997.
These decreases were due to lower gains on sale of securities available for sale. Gain on sale of
securities available for sale is not a stable source of income and no assurance can be given that
the Bank will generate such gains in the future.
General and Administrative Expenses
General and administrative expenses decreased from $401,000 for the three months ended March
31, 1996 to $309,000 for the three months ended March 31, 1997. Noninterest expense
decreased from $781,000 for the six months ended March 31, 1996 to $604,000 for the six
months ended March 31, 1997. Decreases in the 1997 periods were due to lower compensation
and benefits, professional services and deposit insurance premiums. Compensation and benefits
decreased due to the immediate vesting of one-third of the BIP shares upon adoption of the plan
on November 7, 1995. The remaining shares vest on subsequent anniversary dates.
Compensation expense for stock awarded under this plan is recognized over the vesting periods.
Compensation and benefits also decreased due to the employment of one less officer in 1997 than
in 1997. Professional services were reduced substantially from $133,000 for the six months
ended March 31, 1996 to $83,000 for the six months ended March 31, 1997. Professional fees
in the 1996 periods include initial services for stock benefit plans and assistance with periodic
securities filings. Management expects recurring professional fees to be reduced from the 1996
level. Deposit insurance premiums decreased as a result of the recapitalization of the SAIF.
Recurring federal insurance premiums are expected to be paid at an annual rate of 6.48 basis
points of assessable deposits effective January 1, 1997. Stationery, communications and other
operating expenses includes $6,000 for the environmental remediation expenses not recoverable
from the Petroleum Environmental Cleanup Fund.
Income Taxes
Income taxes fluctuated due to the level of income before income taxes.
Merger Agreement
On April 25, 1997, Central Illinois Bancorp, Inc., Sidney, Illinois and First Ozaukee Capital Corp.,
Cedarburg, Wisconsin, announced that they had executed a definitive merger agreement under
which Central Illinois Bancorp, Inc. would acquire First Ozaukee Capital Corp. in a transaction
valued at approximately $9.6 million.
First Ozaukee shareholders will receive $15.10 in cash, subject to upward or downward
adjustment under certain conditions, for each share of First Ozaukee common stock. The merger
is subject to approval of the shareholders of First Ozaukee Capital Corp., regulatory approval and
various other conditions.
Central Illinois Bancorp, Inc. is the bank holding company for Central Illinois Bank, Champaign,
Illinois, Central Illinois Bank, MC, Normal, Illinois and CIB Bank, Hillside, Illinois. The merger is
expected to be completed in the fourth quarter of 1997.
7
FIRST OZAUKEE CAPITAL CORP. AND SUBSIDIARY
PART II - Other Information
Item 1 - Legal Proceeding
There are no material legal proceedings to which the Holding Company or the Bank is a party
or of which any of their property is subject. From time to time, the Bank is a party to various
legal proceedings incident to its business.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
Not applicable.
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: none
(b) Reports on Form 8-K: No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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.
FIRST OZAUKEE CAPITAL CORP.
(Registrant)
DATE: May 2, 1997 BY: Russell S. Jones
Russell S. Jones, Chairman of the Board and
President (Principal Executive Officer and
Principal Financial and Accounting Officer)