SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ to _______________
Commission File Number 0-24898
MSB FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 38-3203510
- -------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization Number)
PARK AND KALAMAZOO AVENUE, N.E., MARSHALL, MICHIGAN 49068
- --------------------------------------------------- ----------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (616) 781-5103
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
As of February 5, 2000, there were 1,266,143 shares of the Registrant's common
stock issued and outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
MSB FINANCIAL, INC.
INDEX
PART I. FINANCIAL INFORMATION.............................................. 1
Item 1. Financial Statements (Unaudited)............................ 1
Consolidated Condensed Statements of Financial Condition................... 1
Consolidated Condensed Statements of Income
and Comprehensive Income............................................... 2
Consolidated Condensed Statements of Cash Flows............................ 3
Notes to Consolidated Condensed Financial Statements....................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 6
PART II. OTHER INFORMATION........................................... 10
SIGNATURES.................................................. 11
EXHIBIT INDEX............................................... 12
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL
CONDITION December 31, 1999 and June 30, 1999
- ------------------------------------------------------------------------------------------------
December 31, June 30,
1999 1999
---- ----
(Unaudited)
ASSETS
Cash and due from financial institutions $ 2,009,696 $ 1,896,722
Interest-bearing deposits 409,965 715,536
------------ ------------
Total cash and cash equivalents 2,419,661 2,612,258
Securities held to maturity (fair value of $3,610 at
December 31, 1999 and $4,866 at June 30, 1999) 3,610 4,866
Loans held for sale, net of unrealized losses of
$135,788 at December 31, 1999 and $97,942 at June 30, 1999 2,812,443 3,158,577
Loans receivable, net of allowance for loan losses of
$490,014 at December 31, 1999 and $452,308 at June 30, 1999 79,564,665 74,716,028
Federal Home Loan Bank stock 1,422,900 1,270,500
Accrued interest receivable 469,496 455,481
Premises and equipment, net 614,538 684,068
Mortgage servicing rights 309,557 306,910
Other assets 1,403,981 1,247,474
------------ ------------
Total Assets $ 89,020,851 $ 84,456,162
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits $ 46,308,321 $ 45,836,977
Federal Home Loan Bank Advance 28,257,909 23,864,235
Advance payments by borrowers for taxes and insurance 121,801 608,515
Accrued interest payable 126,429 104,361
Accrued expenses and other liabilities 640,386 860,598
------------ ------------
Total Liabilities 75,454,846 71,274,686
Shareholders' equity
Preferred stock, $.01 par value: 2,000,000 shares
authorized; none outstanding
Common stock, par value $.01: 4,000,000 shares
authorized; 1,631,615 shares issued and 1,266,143 shares
outstanding at December 31, 1999 and 1,631,315 shares
issued and 1,261,586 shares outstanding at June 30, 1999 16,313 16,313
Additional paid-in capital 9,698,318 9,655,006
Retained earnings, substantially restricted 7,918,533 7,623,538
Unallocated Employee Stock Ownership Plan shares (227,566) (256,668)
Unearned Recognition and Retention Plan shares (93,755) (85,372)
Less cost of Common Stock in Treasury- 365,156 shares at
December 31, 1999 and 369,729 shares at June 30, 1999 (3,745,838) (3,771,341)
------------ ------------
Total Shareholders' Equity 13,566,005 13,181,476
------------ ------------
Total Liabilities & Shareholders' Equity $ 89,020,851 $ 84,456,162
============ ============
- -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
1
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Six months and three months ended December 1999 and 1998
(Unaudited)
- -------------------------------------------------------------------------------------------------
Six Months Three Months
---------- ------------
1999 1998 1999 1998
---- ---- ---- ----
Interest and dividend income
Loans, including fees $3,298,373 $3,270,388 $1,676,854 $1,646,429
Securities held to maturity 140 241 65 115
Other interest and dividends 81,462 103,810 44,643 54,292
---------- ---------- ---------- ----------
3,379,975 3,374,439 1,721,562 1,700,836
Interest Expense
Deposits 820,870 815,809 411,992 412,868
Federal Home Loan Bank Advance 811,482 751,431 425,484 388,048
Other interest expense 8,219 7,188 4,227 3,753
---------- ---------- ---------- ----------
1,640,571 1,574,428 841,703 804,669
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,739,404 1,800,011 879,859 896,167
Provision for loan losses 36,000 36,000 18,000 18,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,703,404 1,764,011 861,859 878,167
Noninterest income
Loan servicing fees, net 33,620 21,810 17,594 2,044
Net gains on sales of loans held for sale 49,578 184,110 18,628 107,193
Service fees on deposit accounts 90,862 86,439 45,628 42,878
Profit on sale of real estate owned 2,761 26,967 2,083 26,967
Other 102,989 90,195 48,848 46,033
---------- ---------- ---------- ----------
279,810 409,521 132,781 225,115
Noninterest expense
Salaries and employee benefits 517,403 527,144 255,442 264,620
Buildings, occupancy and equipment 133,235 139,189 66,503 71,005
Data processing 70,553 100,413 50,793 52,710
Year 2000 expense 13,275 15,367 5,788 6,790
Federal deposit insurance premiums 26,653 26,352 13,326 13,041
Director fees 63,219 61,069 31,797 31,572
Correspondent bank charges 18,718 27,117 9,592 12,982
Provision to adjust loans held for sale
to lower of cost or market 37,847 27,348
Michigan Single Business tax 30,000 36,000 14,000 19,000
Professional fees 60,505 98,745 36,006 54,355
Other 243,167 261,817 132,687 140,710
---------- ---------- ---------- ----------
1,214,575 1,293,213 643,282 666,785
---------- ---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 768,639 880,319 351,358 436,497
Federal income tax expense 271,000 315,000 127,000 156,000
---------- ---------- ---------- ----------
NET INCOME 497,639 565,319 224,358 280,497
Other comprehensive income 0 0 0 0
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME $ 497,639 $ 565,319 $ 224,358 $ 280,497
========== ========== ========== ==========
Basic earnings per share $ 0.42 $ 0.46 $ 0.19 $ 0.23
========== ========== ========== ==========
Weighted average common shares outstanding 1,189,005 1,241,493 1,193,090 1,237,234
========== ========== ========== ==========
Diluted earnings per share $ 0.41 $ 0.44 $ 0.19 $ 0.22
========== ========== ========== ==========
Weighted average common and diluted
potential common shares outstanding 1,212,515 1,295,499 1,206,065 1,288,775
========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
2
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1999 and 1998
(Unaudited)
- -----------------------------------------------------------------------------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 497,639 $ 565,319
Adjustments to reconcile net income
to net cash from operating activities
Provision for loan losses 36,000 36,000
Provision to adjust loans held for sale
to lower of cost or market 37,847
Depreciation 77,153 69,077
Amortization of mortgage servicing rights 26,441 24,197
Employee Stock Ownership Plan expense 72,488 112,200
Recognition and Retention Plan expense 32,367 30,678
Originations of loans held for sale (2,591,713) (14,030,959)
Proceeds from sales of loans held for sale 2,920,578 11,508,431
Net gains on sales of loans held for sale (49,666) (184,138)
Change in assets and liabilities
Accrued interest receivable (14,015) (3,029)
Other assets (156,507) (33,643)
Accrued interest payable 22,068 13,751
Other expense and other liabilities (220,212) (455,371)
------------ ------------
Net cash from operating activities 690,468 (2,347,487)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal paydowns on mortgage-backed securities 1,256 1,643
Purchase of Federal Home Loan Bank stock (152,400) (112,300)
Net increase in loans (4,884,637) (1,301,371)
Net purchases of premises and equipment (7,623) (82,903)
------------ ------------
Net cash used in investing activities (5,043,404) (1,494,931)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 471,344 1,748,072
Proceeds from Federal Home Bank advances 11,900,000 6,000,000
Repayments on Federal Home Bank advances (7,506,326) (2,808,697)
Decrease in advance payments
by borrowers for taxes and insurance (486,714) (343,451)
Payment of dividends on common stock (202,643) (188,629)
Repurchase of common stock (60,428) (379,745)
Exercise of stock options 45,106
------------ ------------
Net cash from financing activities 4,160,339 4,027,550
------------ ------------
Net change in cash and cash equivalents (192,597) 185,132
Cash and cash equivalents at beginning of period 2,612,258 3,280,713
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,419,661 $ 3,465,845
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,618,503 $ 1,560,677
Income taxes 275,000 345,000
Supplemental disclosure of noncash investing activities
Transfer from loans held for sale to loans held to maturity 110,000
- -----------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
3
MSB FINANCIAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Six months ended December 31,1999
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated condensed financial statements include the
accounts of MSB Financial, Inc. and its wholly-owned subsidiary, Marshall
Savings Bank, F.S.B. after the elimination of significant intercompany
transactions and accounts. The initial capitalization of MSB Financial and its
acquisition of Marshall Savings Bank took place on February 6, 1995.
These interim financial statements are prepared in accordance with the
Securities and Exchange Commission's rules for quarterly financial information
without audit and reflect all adjustments which, in the opinion of management,
are necessary to present fairly our financial position at December 31, 1999 and
the results of operations and its cash flows for the periods presented. All such
adjustments are normal and recurring in nature. The accompanying consolidated
condensed financial statements do not purport to contain all the necessary
disclosures required by generally accepted accounting principles that might
otherwise be necessary in the circumstances and should be read in conjunction
with the consolidated financial statements and notes included in the annual
report of MSB Financial, Inc. for the year ended June 30, 1999. The results of
the periods presented are not necessarily representative of the results of
operations and cash flows which may be expected for the entire year.
The provision for income taxes is based upon the effective tax rate expected to
be applicable for the entire year.
NOTE 2 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
A reconciliation of the numerators and denominators used in the computation of
the basic earnings per common share and diluted earnings per common share is
presented below for the six and three month periods ended December 31, 1999 and
1998:
Six Months Three Months
---------- ------------
1999 1998 1999 1998
---- ---- ---- ----
Basic Earnings Per Common Share
Numerator
Net Income $ 497,639 $ 565,319 $ 224,358 $ 280,497
=========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding 1,260,999 1,328,453 1,262,414 1,321,281
Less: Average unallocated ESOP Shares (53,283) (60,170) (51,684) (58,330)
Less: Average nonvested RRP Shares (18,711) (26,790) (17,640) (25,717)
----------- ----------- ----------- -----------
Weighted average common shares
outstanding for basic earnings per
common shares 1,189,005 1,241,493 1,193,090 1,237,234
=========== =========== =========== ===========
Basic earnings per common share $ 0.42 $ 0.46 $ 0.19 $ 0.23
=========== =========== =========== ===========
- --------------------------------------------------------------------------------
5
MSB FINANCIAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Six months ended December 31,1999
(Unaudited)
- --------------------------------------------------------------------------------
Diluted Earnings Per Common Share
Numerator
Net Income $ 497,639 $ 565,319 $ 224,358 $ 280,497
=========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding for basic earings per
common share 1,189,005 1,241,493 1,193,090 1,237,234
Add: Dilutive effects of average
nonvested RRP shares, net of
tax benefits 2,830 8,942 0 8,270
Add: Dilutive effective of assumed
exercises of stock options 20,680 45,064 12,975 43,271
----------- ----------- ----------- -----------
Weighted average common shares
and dilutive potential common
shares outstanding 1,212,515 1,295,499 1,206,065 1,288,775
=========== =========== =========== ===========
Diluted earnings per common share $ 0.41 $ 0.44 $ 0.19 $ 0.22
=========== =========== =========== ===========
Stock options for 81,508 of common stock for both the three month and six month
periods ending December 31, 1999 and stock options for 67, 848 shares of common
stock for both the three and six months periods ending December 31, 1998, were
not considered in computing diluted earnings per common shares because they were
antidilutive.
NOTE 3 - REPURCHASES OF COMMON STOCK
During the quarter ended December 31, 1999, there were no repurchases of our
common stock, as compared to 21,120 shares repurchased during the quarter ended
December 31, 1998, at a total cost of $305,020 or $14.44 per share. On February
16, 1999, the Board of Directors approved a plan to repurchase up to 5%, or
65,657 shares, of our common stock. Under the current repurchase program, which
expires February 16, 2000, we have repurchased a total of 54,365 shares at a
total cost of $674,474 or $12.41 per share. As of December 31, 1999, a total of
380,556 shares of common stock had been repurchased at a total cost of
$3,873,642, or $10.18 per share.
- --------------------------------------------------------------------------------
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MSB Financial, Inc. was formed as a Delaware corporation in September
1994 to act as the holding company for Marshall Savings Bank, F.S.B. upon the
completion of Marshall Savings' conversion from the mutual to the stock form.
MSB Financial received approval from the Office of Thrift Supervision to acquire
all of the common stock of Marshall Savings to be outstanding upon completion of
the conversion. The conversion was completed on February 6, 1995. On December 8,
1998, shareholders approved a proposal to reincorporate MSB Financial from the
State of Delaware to the State of Maryland. The following discussion compares
the consolidated financial condition of MSB Financial and Marshall Savings at
December 31, 1999 to June 30, 1999 and the results of operations for the period
ended December 31, 1999 with the same period ended December 31, 1998. This
discussion should be read in conjunction with the consolidated condensed
financial statements and footnotes included herein. References in this 10-QSB to
"we", "us" and "our" refer to MSB Financial and/or Marshall Savings as the
contex requires.
FORWARD-LOOKING STATEMENTS DISCLOSURE
We may from time to time make written or oral "forward-looking
statements". These forward-looking statements may be contained in Quarterly
Report on Form 10-QSB and the exhibits, filings with the Securities and Exchange
Commission and in other communications by us, which are made in good faith
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The words "may", "could", "should, "would", "believe",
"anticipate", "estimate", "expect", "intend", "plan", and similar expressions
are intended to identify forward-looking statements.
Forward-looking statements include statements about our beliefs, plans,
objectives, goals, expectations, anticipations, estimates and intentions, that
are subject to significant risks and uncertainties. The following factors, many
of which are subject to change based on various other factors beyond our
control, could cause our financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements:
o the strength of the United States economy in general and the
strength of the local economies in which we conduct our operations;
o the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Federal Reserve
Board;
o inflation, interest rate, market and monetary fluctuations;
o the timely development of and acceptance of our new products and
services and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors' products and services;
o the willingness of users to substitute competitors' products and
services for our products and services;
o our success in gaining regulatory approval of our products and
services, when required;
o the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and
insurance);
o the impact of technological changes;
o acquisitions;
o changes in consumer spending and savings habits; and
o our success at managing the risks involved in our business.
The list of important factors stated above is not exclusive. We do not
undertake to update any forward-looking statement, whether written or oral, that
may be made from time to time by or on behalf of MSB Financial or Marshall
Savings.
7
FINANCIAL CONDITION
Total assets increased $4.6 million to $89.0 million from June 30, 1999
to December 31, 1999. Net loans, including loans held for sale, increased by
$4.5 million or 5.8% for the period, due primarily to the strong demand for
mortgage loans, especially residential 1-4 family construction loans, in our
market areas. This increase was primarily funded by an increase of $4.4 million
in Federal Home Loan Bank advances.
Total liabilities increased $4.2 million to $75.5 million from June 30,
1999 to December 31, 1999. This increase primarily resulted from the increase in
Federal Home Loan Bank advances discussed above. We also experienced increases
in deposits of $471,000 and in accrued interest payable of $22,000. Offsetting
the above increases in liabilities for the period were decreases in accrued
expenses and other liabilities of $220,000 and advance payments by borrowers for
taxes and insurance of $487,000. The decrease in advance payments by borrowers
for taxes and insurance was primarily due to property tax bills due during the
month of December.
Net income, offset by the payment of dividends on common stock and
repurchases of our common stock resulted in a net increase in shareholders'
equity of $385,000.
RESULTS OF OPERATIONS
GENERAL. Our results of operations depend primarily upon the level of net
interest income, which is the difference between the average yield earned on
loans and securities, interest-bearing deposits, and other interest-earning
assets, and the average rate paid on deposits and borrowed funds, as well as
competitive factors that influence interest rates, loan demand, and deposit
flows. Our results of operations are also dependent upon the level of our
non-interest income, including fee income and service charges, and the level of
our non-interest expense, including general and administrative expenses. We,
like other financial institutions, are subject to interest rate risk to the
degree that our interest-bearing liabilities mature or reprice at different
times, or on a different basis, than our interest-earning assets.
NET INCOME. Net income for the three months ended December 31, 1999 was
$224,000, 20.0% lower than net income of $280,000 for same period ended December
31, 1998. Net income for the six month period ended December 31, 1999 was
$498,000, 12.0% lower than net income of $565,000 for the same period in 1998.
Reasons for the declines in net income are discussed in detail below.
NET INTEREST INCOME. Net interest income decreased $16,000, or 1.8%, to $880,000
for the three month period ended December 31, 1999, as compared to the same
three month period in 1998. For the six month period ended December 31, 1999,
net interest income decreased $61,000, or 3.4%, to $1.7 million. The above
decreases in net interest income were attributed to increases in interest
expense for the three and six month periods ended December 31, 1999 of $37,000
and $66,000, respectively, when compared to the same periods ended December 31,
1998. The increases in interest expense were primarily a result of increases in
interest paid on Federal Home Bank advances, due to increased advance balances.
For the three and six month periods ended December 31, 1999 Federal Home Loan
Bank advance interest increased $37,000 and $60,000, respectively, when compared
to the same periods ended December 31, 1998.
Contributing to the decrease in net interest income mentioned above was
a decrease in the weighted average yield on the loan portfolio for the three
month period ended December 31, 1999 of 55 basis points to 8.04% from 8.59% for
the same period ended December 31, 1998. For the six month period ended December
31, 1999 the weighted average yield on the loan portfolio was 8.10%, compared to
8.65% for the same period ended December 31, 1998, a decrease of 55 basis
points. The decreases in weighted average yields for both the three and six
month periods were primarily the result of adjustable rate mortgage loans
renewing at lower rates. The recent increase in mortgage rates will not affect
our adjustable rate mortgage loan portfolio until renewals scheduled for January
2000. Also contributing to the decrease in the weighted average yield for the
three and six month periods ended December 31, 1999 as compared to December 31,
1998 were decreases of $63,000 and $92,000, respectively, in loan fee income due
to a decrease in loan sales and loan originations during the periods ended
December 31, 1999.
PROVISION FOR LOAN LOSSES. The provision for loan losses is a result of our
periodic analysis of the adequacy of the allowance for loan losses. The
provision for loan losses remained at $18,000 for the three month period ended
December 31, 1999 as compared to the three month period ended December 31, 1998,
due to our continuing reassessment of losses inherent in the loan portfolio. At
December 31, 1999, the allowance for loan losses totaled $490,000 or 0.59% of
net loans receivable and 138% of total non-performing loans. At June 30, 1999,
our allowance for loan losses totaled $452,000, or 0.58% of net loans receivable
and 116% of total non-performing loans.
8
We establishe an allowance for loan losses based on an analysis of risk
factors in the loan portfolio. This analysis includes the evaluation of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio, estimated fair value of underlying
collateral, loan commitments outstanding, delinquencies, and other factors.
Because we have had extremely low loan losses during our history, we also
consider loss experience of similar portfolios in comparable lending markets.
Accordingly, the calculation of the adequacy of the allowance for loan losses
was not based directly on our level of non-performing assets.
As of December 31, 1999, the Company's non-performing assets, consisting
of nonaccrual loans and accruing loans 90 days or more delinquent, totaled
$355,000, or 0.43% of total loans, compared to $390,000, or 0.52% of total loans
as of June 30, 1999, a decrease of $35,000. Loans greater than 90 days past due,
and other designated loans of concern, are placed on non-accrual status, unless
it is determined that the loans are well collateralized and in the process of
collection. There was no real estate owned at December 31, 1999.
We will continue to monitor the allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although we maintain allowance for loan losses at a
level which we consider to be adequate to provide for losses, there can be no
assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods. In
addition, our determination as to the amount of the allowance for loan losses is
subject to review by the Office of Thrift Supervision and the Federal Deposit
Insurance Corporation, as part of their examination process, which may result in
the establishment of an additional allowance based upon their judgment of the
information available to them at the time of their examination.
NONINTEREST INCOME. Noninterest income consists primarily of gains on the sale
of loans, loan servicing fees, service fees on deposit accounts and other fees.
Noninterest income decreased $92,000 during the three month period ended
December 31, 1999 compared to the three month period ended December 31, 1998.
For the six month period ended December 31, 1999, noninterest income decreased
$130,000 compared the six month period ended December 31, 1998. The decrease
during the three and six month periods ended December 31, 1999 were primarily
due to a decrease in gains on the sale of loans of $89,000 and $135,000,
respectively, due to decreased sales of mortgage loans during these periods. The
sale of mortgage loans deceased during the three and six month periods due to an
increase in mortgage rates which resulted in a lower demand for one- to
four-family fixes rate mortgage loan products, which is the only mortgage loan
product currently sold. There was also a decrease during the six month period
ending December 31, 1999 in profit on the sale of real estate owned of $24,000
as compared to the same period in 1998. Offsetting the above mentioned decreases
were increases in loan servicing fees of $12,000 and deposit account service
fees of $4,000.
NONINTEREST EXPENSE. Noninterest expense was $643,000 for the three month period
ended December 31, 1999 compared to $667,000 reported for the same prior year
period, a decrease of $24,000 or 3.6%. Noninterest expense for the six month
period ended December 31, 1999 was $1.2 million compared to $1.3 million for the
same period in 1998, a decrease of $79,000 or 6.1%. Decreases in noninterest
expense for the six month period ended December 31, 1999 included decreases in
data processing expense of $30,000, due to a prior period rebate from our data
processor, in professional fees of $38,000, a result of our reincorporation from
a Delaware into a Maryland corporation during the 1998 period, and in our
correspondent bank charges of $8,000. The largest component on noninterest
expense, salaries and employee benefits, decreased $9,000 and $10,000 for the
three month and six month periods ended December 31, 1999, respectively,
compared to the same periods during 1998. The above mentioned decreases in
noninterest expense were offset by a provision of $38,000 to adjust loans held
for sale to the lower of cost or market during the six month period ended
December 31, 1999.
FEDERAL INCOME TAX EXPENSE. Federal income tax expense decreased $29,000 and
$44,000 for the three and six month periods ended December 31, 1999 compared to
the same periods in 1998 due to the decrease in net income. MSB Financial's
effective tax rate remains at approximately 34%.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds are deposits, principal and interest
repayments on loans, sales of loans, interest-bearing deposits and securities
available for sale. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan prepayments are more
influenced by interest rates, general economic conditions and competition.
9
Federal regulations require Marshall Savings to maintain minimum levels
of liquid assets. The required percentage has varied from time to time based
upon economic conditions and savings flows. The percentage is currently 4% of
net withdrawable savings deposits and borrowings payable on demand or in one
year or less during the preceding calendar month. Liquid assets for purposes of
this ratio include cash, certain time deposits, U.S. Government, government
agency and other securities and obligations generally having remaining
maturities of less than five years. Marshall Savings has maintained its
liquidity ratio at levels in excess of those required. At December 31, 1999, the
Bank's liquidity ratio was 4.26%.
We use our liquidity resources principally to meet ongoing commitments,
to fund maturing certificates of deposit and deposit withdrawals and to meet
operating expenses. We anticipate that there will be sufficient funds available
to meet current loan commitments. At December 31, 1999, we had outstanding
commitments to extend credit, which amounted to $5.3 million (including $3.9
million in available home equity lines of credit). At December 31, 1999, there
was $28.3 million in advances from the Federal Home Loan Bank of Indianapolis
outstanding. We believe that loan repayments and other sources of funds, will be
adequate to meet our foreseeable liquidity needs.
Federal insured savings institutions are required to maintain a minimum
level of regulatory capital. The Office of Thrift Supervision has established
capital standards, including a tangible capital requirement, a leverage ratio
(or core capital) requirement and a risk-based capital requirement applicable to
such savings associations. As of December 31, 1999, Marshall Savings had
tangible capital and Tier 1 (core) capital of $10.2 million, or 11.5% or
adjusted total assets, which was approximately $8.9 million and $7.6 million
above the minimum requirements of 1.5% and 3.0%, respectively, of the adjusted
total assets in effect on that date. As of December 31, 1999, we had Tier 1
(core) capital of $10.2 million, or 11.5% of average total assets, which was
approximately $6.7 million above the minimum requirement of 4.0% of average
total assets in effect on that date. On December 31, 1999, we had risk-based
capital of $10.7 million (including $10.2 million in core capital), or 19.6% of
risk-weighted assets of $54.5 million. This amount was $6.3 million above the
8.0% requirement in effect on that date.
10
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Shareholder's Meeting of MSB Financial, Inc. was held
on October 26, 1999 in Marshall, Michigan. At that meeting the
shareholders elected the following persons to three year terms to
the Board of Directors. Charles B. Cook by a vote of 960,841 for
and 15,818 withheld. Karl F. Loomis by a vote of 960,731 for and
15,928 withheld. J. Thomas Schaeffer by a vote of 959,521 for and
17,138 withheld. Also approved was the appointment of Crowe,
Chizek and Company, L.L.P., as independent auditors for the
Company for the fiscal year ending June 30, 2000, with a vote of
952,272 for, 23,529 against and 858 abstentions.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
None.
11
Pursuant to the requirement 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.
SIGNATURES
MSB FINANCIAL, INC.
Registrant
Date: February 14, 2000 \s\Charles B. Cook
-------------------------------------
Charles B. Cook, President and Chief
Executive Officer (Duly Authorized
Officer)
Date: February 14, 2000 \s\Elaine R. Carbary
-------------------------------------
Elaine R. Carbary, Chief Financial
Officer (Principal Financial Officer)
12
MSB FINANCIAL, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3 Registrant's Articles of Incorporation and Bylaws, filed on
February 4, 1999 as exhibits to the Registrant's Registration
Statement on Form S-8 (File No. 333-71837), are incorporated here
in by reference.
4 Registrant's Specimen Stock Certificate, filed on February 4,
1999 as Exhibit 4 to the Registrant's Registration Statement on
Form S-8 (File No. 333-71837), is incorporated herein by
reference.
10.1 Employment Agreement between the Bank and Charles B. Cook, filed
on September 23, 1995 as Exhibit 10.2 to Registrant's
Registration Statement on Form S-1 (File No. 33-81312), is
incorporated herein by reference.
10.2 Registrant's 1995 Stock Option and Incentive Plan, filed as
Exhibit 10(b) to Registrant's Report on Form 10-KSB for the
fiscal year ended June 30, 1995 (File No. 0-24898), is
incorporated herein by reference.
10.3 Registrant's Recognition and Retention Plan, filed as Exhibit
10(c) to Registrant's Report on Form 10-KSB for the fiscal year
ended June 30, 1995 (File No. 0-24898), is incorporated herein by
reference.
10.4 Registrant's Recognition and Retention Plan, filed as Exhibit
10(c) to Registrant's Report on Form 10-KSB for the fiscal year
ended June 30, 1995 (File No. o-24898), is incorporated herein by
reference.
10.5 Registrant's 1997 Stock Option and Incentive Plan, filed as
Appendix A to Registrants Schedule 14A filed on September 26,
1997 (File No. 0-24898).
11 Statement re: computation of earnings per share (see Note 1 of
the Notes to Consolidated Financial Statements)
27 Financial Data Schedule (electronic filing only)