SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from _________ to _________
Commission File No. 0-28934
Empire Federal Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 81-0512374
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
123 South Main Street, Livingston, Montana 59047
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(Address of principal executive offices)
(406) 222-1981
----------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class: Common Stock, par value $.01 per share
Outstanding at April 30, 2001: 1,562,143
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
EMPIRE FEDERAL BANCORP, INC.
INDEX TO FORM 10-QSB
Page
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PART I FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2001 and
December 31, 2000 (unaudited)................................ 1
Consolidated Statements of Income for the Three Months Ended
March 31, 2001 and 2000 (unaudited).......................... 2
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000 (unaudited).................... 3
Notes to Unaudited Interim Consolidated Financial Statements.. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 8
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings............................................ 12
Item 2. Changes in Securities........................................ 12
Item 3. Defaults upon Senior Securities.............................. 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 5. Other Information............................................ 12
Item 6. Exhibits and Reports on Form 8-K............................. 12
SIGNATURES ........................................................... 13
PART I, ITEM 1 - FINANCIAL STATEMENTS
EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
(unaudited)
March 31, December 31,
Assets 2001 2000
--------- -----------
Cash and due from banks $ 2,309,389 $ 2,482,564
Interest-bearing deposits 132,712 165,136
--------- ---------
Cash and cash equivalents 2,442,101 2,647,700
Investment and mortgage-backed securities available-
for-sale 32,999,125 29,374,395
Investment and mortgage-backed securities held-to-
maturity (estimated market value of $5,067,695 at
December 31, 2000) - 5,024,454
Loans receivable, net 85,289,353 80,362,737
Loans held for sale 1,522,948 1,497,244
Stock in Federal Home Loan Bank of Seattle, at cost 1,585,700 1,560,700
Accrued interest receivable 579,995 528,281
Premises and equipment, net 3,672,435 3,719,566
Prepaid expenses and other assets 334,036 352,188
---------- ----------
Total assets $ 128,425,693 $ 125,067,265
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits $ 2,077,595 $ 1,630,238
NOW accounts 10,038,073 11,487,266
Money market 12,276,875 11,261,730
Regular savings 10,827,910 11,199,567
Certificates of deposit 41,543,591 42,087,843
---------- ----------
Total deposits 76,764,044 77,666,644
Advances from Federal Home Loan Bank and
other borrowed funds 20,000,000 16,200,000
Note payable 514,658 530,749
Advances from borrowers for taxes and insurance 409,735 286,086
Accrued expenses and other liabilities 1,547,041 1,468,565
---------- ----------
Total liabilities 99,235,478 96,152,044
Stockholders' equity:
Preferred stock, par value $.01 per share, 250,000
shares authorized, none issued and outstanding - -
Common stock, par value $.01 per share, 4,000,000
shares authorized, 2,592,100 issued 25,921 25,921
Additional paid-in capital 25,286,170 25,278,214
Unearned ESOP and MRDP compensation (1,885,666) (1,928,091)
MRDP shares acquired (258,864) (302,011)
Retained earnings, substantially restricted 18,447,469 18,351,208
Accumulated other comprehensive income, net 1,647,568 1,562,363
Treasury shares acquired, at cost,
1,029,957 shares at March 31, 2001 and
December 31, 2000 (14,072,383) (14,072,383)
---------- ----------
Total stockholders' equity 29,190,215 28,915,221
---------- ----------
Total liabilities and stockholders' equity $128,425,693 $125,067,265
=========== ===========
See accompanying notes to unaudited interim consolidated financial statements.
1
EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended March 31, 2001 and 2000
(unaudited)
Three Months Ended
March 31
2001 2000
------ ------
Interest income:
Loans receivable $1,806,291 $1,288,559
Mortgage-backed securities 523,460 699,739
Investment securities 7,523 46,849
Other 28,017 35,979
---------- ----------
Total interest income 2,365,291 2,071,126
---------- ----------
Interest expense:
Deposits 878,267 778,011
FHLB advances and other borrowings 276,507 152,933
---------- ----------
Total interest expense 1,154,774 930,944
---------- ----------
Net interest income 1,210,517 1,140,182
Provision for loan losses 25,002 15,000
---------- ----------
Net interest income after provision for loan losses 1,185,515 1,125,182
Non-interest income:
Insurance commission income 129,673 122,727
Customer service charges 68,083 90,058
Gain on sale of investments, net - 49,314
Gain on sale of loans 82,262 -
Other 9,843 8,858
---------- ----------
Total non-interest income 289,861 270,957
Non-interest expense:
Compensation and benefits 612,271 530,709
Occupancy and equipment 162,252 112,030
Deposit insurance premiums 24,667 11,550
Other 252,462 195,085
---------- ----------
Total non-interest expense 1,051,652 849,374
---------- ----------
Income before income taxes 423,724 546,765
Income taxes 166,894 212,000
---------- ----------
Net income $ 256,830 $ 334,765
========== ==========
Basic earnings per share $ 0.19 $ 0.19
========== ==========
Diluted earnings per share $ 0.19 $ 0.19
========== ==========
Dividends declared per share $ 0.115 $ 0.11
========== ==========
See accompanying notes to unaudited interim consolidated financial statements.
2
EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000
(unaudited)
Three Months Ended
March 31,
------------------
2001 2000
------ ------
Cash flows from operating activities:
Net income $ 256,830 $ 334,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 25,002 15,000
Depreciation 83,539 57,573
ESOP shares committed to be released 44,845 39,813
MRDP shares vested 48,683 47,637
Gain on sale of investments and mortgage-
backed securities - (49,315)
Gain on sale of loans (82,262) -
Stock dividends reinvested in Federal Home Loan Bank (25,000) (23,600)
Proceeds from sales of loans 5,023,067 -
Origination of loans held for sale (4,940,805) -
Decrease(increase) in accrued interest receivable (51,714) 24,199
Decrease(increase)in prepaid expenses and other assets (26,266) 69,816
Increase in accrued expenses and other liabilities 68,419 193,402
--------- ---------
Net cash provided by operating activities 424,338 709,290
--------- ---------
Cash flows from investing activities:
Net change in loans receivable (4,977,321) (5,441,636)
Proceeds from sale of mortgage-backed securities
available-for-sale - 1,737,870
Principal payments on mortgage-backed securities
held-to maturity - 301,094
Proceeds from sale of securities available-for-sale - 1,593,817
Principal payments on mortgage-backed securities
available-for-sale 1,539,404 1,510,272
Purchases of premises and equipment (36,408) (615,779)
--------- ---------
Net cash used in investing activities (3,474,325) (914,362)
--------- ---------
Cash flows from financing activities:
Net change in deposits (902,600) 285,165
Repayment of note payable (16,091) (14,720)
Net change in advances from borrowers for taxes
and insurance 123,649 158,596
Dividends paid (160,570) (200,371)
Proceeds from advances from FHLB 3,800,000 2,200,000
Purchase of treasury stock - (2,330,206)
--------- ---------
Net cash provided by financing activities 2,844,388 98,464
--------- ---------
Net decrease in cash and cash equivalents (205,599) (106,608)
Cash and cash equivalents, beginning of period 2,647,700 2,372,119
--------- ---------
Cash and cash equivalents, end of period $2,442,101 $2,265,511
========= =========
Cash paid during the period for:
Interest $1,221,943 $1,107,589
Income taxes 29,000 15,000
========= =========
See accompanying notes to unaudited interim consolidated financial statements.
3
Notes to Unaudited Interim Consolidated Financial Statements
March 31, 2001
Note 1 Basis of Presentation
---------------------
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for
interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally
accounting principles generally accepted in the United States of
America for audited financial statements. They should be read in
conjunction with the audited consolidated financial statements
filed as part of the Annual Report on Form 10-KSB for the year
ended December 31, 2000.
The accompanying consolidated financial statements include the
accounts of Empire Federal Bancorp, Inc. (the Holding Company) and
its wholly-owned subsidiary, Empire Bank (Empire or the Bank) and
Dime Service Corporation (Dime), a wholly-owned subsidiary of
Empire. The Holding Company, Empire and Dime are herein referred
to collectively as "the Company." All significant intercompany
balances and transactions have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair
presentations have been included. The results of operations for
the three months ended March 31, 2001, and 2000 are not
necessarily indicative of the results which may be expected for an
entire year or any other period.
In June 2000, the Financial Accounting standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 138,
"Accounting for Derivative Instruments and Hedging Activities," an
amendment to SFAS No. 133. SFAS No. 133 and SFAS No. 138
established accounting and reporting standards requiring that
every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. These standards require that changes in the derivative's
fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. As of March 31, 2001, the
Company was not engaged in hedging activities nor did it hold
derivative instruments that will require adjustments to carrying
values under SFAS No. 133 and No. 138. The Company adopted the
standards on January 1, 2001 and the impact of the adoption was
not material. Upon adoptions of SFAS No. 133, the Company
transferred held-to-maturity securities with amortized costs of
$5,024,454 and market value of $5,067,695 into the
available-for-sale securities category. The $43,241 unrealized
gain was recorded as a component of comprehensive income as a
transaction adjustment on January 2, 2001.
4
Note 2 Comprehensive Income
--------------------
The Company's only component of comprehensive income is the net
unrealized gains or losses on securities available-for-sale. The
following summarizes total comprehensive income (loss) for the
noted periods:
Three Months Ended March 31
--------------------------------------------
2001 2000
------ ------
$ 342,035 $ 83,171
========= =========
As a result of the transfer of held-to-maturity securities to
available-for-sale comprehensive income was increased by $26,204
during the three months ended March 31, 2001.
Note 3 Earnings Per Share
------------------
Basic earnings per share (EPS) excludes dilution and is computed
by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the
period. Additionally, ESOP shares which are unallocated and not
yet committed to be released (unallocated) and unvested MRDP
shares issued are excluded from the weighted-average common shares
outstanding calculation. At March 31, 2001, included in the
weighted average calculations were 47,843 allocated shares and
3,456 committed to be released ESOP shares. There were 61,829
vested MRDP shares.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised
or resulted in the issuance of common stock that would share in
the earnings of the entity. At March 31, 2001 and 2000,
outstanding stock options and unvested MRDP shares were
anti-dilutive to EPS. Dilutive potential common shares are added
to the weighted-average shares used to compute basic EPS. The
following information provides a reconciliation of the numerators
and denominators of the basic and fully diluted EPS computation:
For the three months ended March 31
--------------------------------------------------------
2001 2000
--------------------------- ---------------------------
Per-Share Per-Share
Net Income Shares Amount Net Income Shares Amount
---------- ------ ------ ---------- ------ ------
BASIC EPS
Net income available to
common stockholders $256,830 1,369,507 $0.19 $334,765 1,720,640 $0.19
======== ===== ======== =====
EFFECT OF DILUTIVE SECURITIES
Stock Options - granted 2,887 16
Unvested MRDP shares 762 -
------- -------
DILUTED EPS
Income available to
common stockholders plus
assumed conversion $256,830 1,373,156 $0.19 $334,765 1,720,656 $0.19
======== ========= ===== ======== ========= =====
5
Note 4 Cash Dividend Declared
----------------------
On January 24, 2001, the Board of Directors declared a quarterly
cash dividend of $.115 per common share to stockholders of record
on February 14, 2001 payable on February 28, 2001.
Note 5 Capital Compliance
------------------
The following table presents Empire's compliance with its
regulatory capital requirements of March 31, 2001 (dollars in
thousands):
Percentage
Amount of Assets
------ ---------
GAAP capital(1) $28,755 22.39%
====== ======
Tangible capital $26,670 21.29%
Tangible capital requirement 1,879 1.50%
------ -----
Excess $24,791 19.79%
====== =====
Core capital $26,670 21.29%
Core capital requirement 3,758 3.00%
------ ------
Excess $22,912 18.29%
====== ======
Total risk-based capital(2) $28,168 38.29%
Total risk-based capital
requirement(2) 5,885 8.00%
------ -----
Excess $22,283 30.29%
====== =====
(1) Empire's GAAP capital includes unrealized gains
on certain available-for-sale securities of
$1,648,000 and $437,000 of investments in Dime,
which are excluded for purposes of calculating
both tangible and core capital.
(2) Based on risk-weighted assets of $73,562,000.
Note 6 Operating Segment Information
-----------------------------
The Company evaluates segment performance internally based on its
two primary lines of business, commercial banking and insurance,
and thus the operating segments are so defined. The operating
segment defined as "other" includes the Holding Company and
eliminations of transactions between segments.
The accounting policies of the individual operating segments are
the same as those of the Company. Transactions between operating
segments are primarily conducted at fair value, resulting in
profits that are eliminated for reporting consolidated results of
operations.
6
The following is a summary of selected operating segment information as of and
for the three months ended March 31, 2001 and 2000.
2001: EMPIRE DIME OTHER CONSOLIDATED
-------- ------ ------ ------------
Net interest income $1,180,238 3,391 26,888 1,210,517
Non-interest income 174,119 135,634 (19,892) 289,861
--------- ------- ------ ---------
Total income 1,354,357 139,025 6,996 1,500,378
Provision for loan losses 25,002 - - 25,002
Other non-interest expense 821,632 144,148 85,872 1,051,652
--------- ------- ------ ---------
Income before income taxes 507,723 (5,123) (78,876) 423,724
Income taxes 195,240 - (28,346) 166,894
--------- ------- ------- ---------
Net income $ 312,483 (5,123) (50,530) 256,830
========= ======= ======= =========
Assets $128,570,590 461,841 (606,738) 128,425,693
Net loans 85,289,353 - - 85,289,353
Deposits 77,347,723 - (583,679) 76,764,044
Stockholders' equity 28,755,006 437,202 (1,993) 29,190,215
=========== ======= ======= ===========
2000:
Net interest income $ 1,077,305 3,530 59,347 1,140,182
Non-interest income 157,702 128,873 (15,618) 270,957
--------- ------- ------ ---------
Total income 1,235,007 132,403 43,729 1,411,139
Provision for loan losses 15,000 - - 15,000
Other non-interest expense 619,675 140,437 89,262 849,374
--------- ------- ------ ---------
Income before income taxes 600,332 (8,034) (45,533) 546,765
Income taxes 230,800 - (18,800) 212,000
--------- ------- ------ ---------
Net income $ 369,532 (8,034) (26,733) 334,765
========= ======= ====== =========
Assets $114,926,588 493,092 (591,280) 114,828,400
Net loans 64,996,419 - - 64,996,419
Deposits 71,960,121 - (321,858) 71,638,263
Stockholders' equity 27,801,049 429,826 2,164,386 30,395,261
============ ======= ========== ===========
7
PART I, ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company.
OPERATING STRATEGY
The Bank is a community oriented financial institution which has traditionally
offered a variety of savings products to its retail customers while
concentrating its lending activities on the origination of loans secured by
one-to-four family residential dwellings. In the past, the Bank considered
Gallatin, Park and Sweet Grass counties in south-central Montana as its primary
market area. During 1999, the Bank received regulatory approval to open a de
novo branch in Billings, Montana, and management opened the new branch in April
2000. In addition, the Bank opened a loan production office in Missoula, Montana
during the third quarter of 2000. Lending activities also have included the
origination of multi-family, commercial, business, commercial real estate and
home equity loans. The Bank's primary business has been that of a traditional
financial institution, originating loans in its primary market area for its
portfolio. In addition, the Bank has maintained a significant portion of its
assets in investment and mortgage-backed securities. Similar to its lending
activities, the Bank's investment portfolio has been weighted toward U.S.
Government agency mortgage-backed securities secured by one-to-four family
residential properties. The Bank plans to continue to fund its assets primarily
with deposits, although FHLB advances are used as a supplemental source of
funds.
The Bank relies to a significant extent on borrowings from the FHLB of Seattle
to finance its short-term and, to a certain extent, its longer term financing
needs. The FHLB of Seattle functions as the central reserve bank providing
credit for savings institutions and certain other member financial institutions.
In recent periods, borrowings from the FHLB of Seattle have been available at
rates that are more favorable than the rates that the Bank would be required to
pay on deposits. Further, borrowings from the FHLB are available at various
maturities, facilitating the accurate matching of asset and liability maturity
dates. The Bank has used these available borrowings during the past nine months
in part to fund expansion of its lending activities and treasury stock
repurchases.
The Bank's profitability depends primarily on its net interest income, which is
the difference between the income it receives on its loan and investment
portfolio and its cost of funds, which consists of interest paid on deposits and
FHLB advances. Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities. When interest-earning
assets equal or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The Bank's profitability is also
affected by the level of other income and expenses. Other income consists of
service charges on checking and NOW accounts and other fees, insurance
commissions and net gains or losses on the sale of investments. Other expenses
include compensation and employee benefits, occupancy expenses, deposit
insurance premiums, equipment and data servicing expenses, professional fees and
other operating costs. The Bank's results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government legislation and policies concerning
8
monetary and fiscal affairs, housing and financial institutions and the
attendant actions of the regulatory authorities.
The Bank's strategy is to operate as a conservative, well-capitalized,
profitable institution dedicated to offering a full line of community banking
services and to providing quality service to all customers. The Bank believes
that it has successfully implemented its strategy by (i) maintaining strong
capital levels, (ii) maintaining effective control over operating expenses to
attempt to achieve profitability under differing interest rate scenarios, (iii)
emphasizing local loan originations, and (iv) emphasizing high-quality customer
service with a competitive fee structure.
As evidenced by the new branch in Billings and an increase in commercial and
business loans, the Bank's strategy is changing from its historical role as a
mortgage lender to a growth-oriented expansion strategy by pursuing internal and
external growth opportunities, when appropriate. This new strategy may subject
the Company to a greater degree of risk. Risks associated with this new business
strategy include increased risk of losses on loans, provision to loan losses
which exceed historical levels, difficulties in integrating or managing new
branches or acquired institutions and problems related to the management of
growth. There can be no assurance that the Company will be successful in
implementing this new business strategy or in managing growth.
FINANCIAL CONDITION
Consolidated assets increased by approximately $3.4 million, or 2.7%, from
$125.1 million at December 31, 2000 to $128.4 million at March 31, 2001.
Effective January 1, 2001, the Company transferred held-to-maturity securities
with amortized costs of $5.0 million to the available-for-sale securities
category as allowed by Statement of Financial Accounting Standard No. 133.
Investment and mortgage-backed securities available-for-sale, after
reclassification on January 1, 2001, decreased $1.4 million, or 4.1%, from $34.4
million at December 31, 2000 to $33.0 million at March 31, 2001 as the result of
maturities and payments of $1.5 million offset by an increase in market value of
$140,000.
Net loans increased $4.9 million, or 6.1%, from $80.4 million at December 31,
2000 to $85.3 million at March 31, 2001.
Deposits decreased from $77.7 million at December 31, 2000 to $76.8 million at
March 31, 2001.
Premises and equipment decreased by $47,000 from $3.7 million at December 31,
2000 to $3.6 million at March 31, 2001 as the result of depreciation of $84,000
offset by purchases of $37,000.
Stockholders' equity increased from $28.9 million at December 31, 2000, to $29.2
million at March 31, 2001. The change is the result of net income of $257,000,
the release of ESOP shares in the amount of $45,000 and an increase of $85,000
related to the market value of securities available-for-sale. In addition, 3,067
shares of MRDP vested and unearned MRDP compensation was reduced by $49,000.
Stockholders' equity was also decreased by the payments of $161,000 in
dividends.
ASSET QUALITY
At March 31, 2001, the Bank had no nonaccrual loans. At March 31, 2001, the Bank
had seventeen loans delinquent over 30 days amounting to $1.7 million of which
one loan amounting to $7,000 was delinquent over 90 days. The Bank had no real
estate acquired through foreclosure.
9
RESULTS OF OPERATIONS
The operating results of the Bank depend primarily on its net interest income.
The Bank's net interest income is determined by its interest rate spread, which
is the difference between the yields earned on its interest-earning assets and
the rates paid on its interest-bearing liabilities and the degree of mismatch in
the maturity and repricing characteristics of its interest-earning assets and
interest-bearing liabilities. The Bank's net earnings are also affected by the
establishment of provisions for loan losses and the level of its other
non-interest income, including insurance commission income and deposit service
charges, as well as its other expenses and income tax provisions.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
2001 AND 2000
Net Income. Net income decreased by $78,000 to $257,000 for the three months
ended March 31, 2001 as compared to the same period in 2000. Increased costs
associated with the new branch facility and the loan production office are the
main cause of the decrease. The following narrative discusses the various
components of the change.
Net Interest Income. Net interest income increased $70,000, or 6.2%, from $1.1
million for the three months ended March 31, 2000 to $1.2 million for the same
period in 2001. The interest rate spread increased from 2.87% for the three
months ended March 31, 2000 to 2.90% for the comparable period in 2001.
Interest Income. Total interest income increased by $294,000, or 14.2% from $2.1
million for the three months ended March 31, 2000 to $2.4 million for the same
period in 2001. The increase was primarily attributable to an increase in
average interest earning assets of $8.4 million, or 7.6% from $111.5 million for
the three months ended March 31, 2000 as compared to the comparable period in
2001. Average outstanding loans increased $21.5 million offset by decreases in
the average outstanding balances of investments and mortgage-backed securities
of $12.6 million. The yield on interest earning assets for the three months
ended March 31, 2001, was 7.9% as compared to 7.4% for the comparable period in
2000.
Interest Expense. Total interest expense was $1.2 million for the three months
ended March 31, 2001, as compared to $931,000 for the same period in 2000.
Interest on deposits increased by $100,000, or 12.9%, and interest on notes
payable and other debt increased by $124,000, or 80.8%.
Average deposits for the three months ended March 31, 2001 amounted to $73.8
million as compared to $71.2 million for the same period in 2000. In addition to
the increase in average deposits, the cost of deposits increased from 4.4% for
the three months ended March 31, 2000 to 4.8% for the same period in 2001
reflecting a general increase in interest rates in the Bank's markets.
Other interest expense of $277,000 for the three months ended March 31, 2001
includes $264,000 related to borrowings from the FHLB and $13,000 associated
with other debt. Other interest expense for the comparable period in 2000
included $140,000 related to FHLB borrowings and $13,000 associated with other
debt.
Provision for Loan Losses. The provision for loan losses was $25,002 for three
months ended March 31, 2001 as compared to $15,000 for the same period in 2000.
At the end of both periods,
10
the level of reserves was deemed to be adequate by management. Loan loss
reserves as a percentage of loans were .42% at March 31, 2001, and .37% at March
31, 2000. Management's periodic evaluation of the adequacy of the allowance is
based on factors such as the Bank's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying collateral,
current and prospective economic conditions, peer group comparisons, and
independent appraisals. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to provide additions to the
allowance based upon judgments different from management. Assessment of the
adequacy of the allowance for credit losses involves subjective judgments
regarding future events, and thus, there can be no assurance that additional
provisions for credit losses will not be required in future periods. Although
management uses the best information available, future adjustments to the
allowance may be necessary due to economic, operating, regulatory and other
conditions that may be beyond the Bank's control. Any increase or decrease in
the provision for loan losses has a corresponding negative or positive effect on
net income.
Non-Interest Income. Non-interest income increased $19,000 for the three months
ended March 31, 2001, as compared to the same period in 2000 as the result of
several factors. During the three months ended March 31, 2001, the Bank recorded
$82,000 in gains on sale of loans. This gain is the result of the Bank's
activity in underwriting mortgage loans for sale in the secondary market. There
were only nominal sales to the secondary market during the three month period
ended March 31, 2000.
During the three months ended March 31, 2000, the Bank had $49,000 in gain on
the sale of investments as compared to no sales of securities for the comparable
period in 2001.
Insurance commissions received from Dime are the largest component of
non-interest income. Insurance commissions of $130,000 and $123,000 were
received for the three months ended March 31, 2001 and 2000, respectively.
Non-Interest Expense. Total non-interest expense increased $202,000 or 23.8% for
the three months ended March 31, 2001, compared to the same period in 2000.
Included in this increase is an $82,000 increase in compensation expense which
is primarily related to the additional salaries and benefits for the employees
at the new branch in Billings and the Missoula loan production office. Occupancy
expense also increased from $112,000 for the three months ended March 31, 2000
to $162,000 for the comparable period in 2001 primarily as the result of
additional cost associated with the new branch facility.
Additional net increases in other non-interest expense amounting to $57,000 were
primarily the result of increased legal, data processing and auditing costs as
well as additional costs associated with the branch office in Billings and the
loan production office in Missoula.
Income Taxes. Effective income tax rates were approximately the same for the
three months ended March 31, 2001 and 2000. The effective combined federal and
state tax rate was 39.4% and 38.8% for the three months ended March 31, 2001 and
2000, respectively.
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the
registrant or its subsidiaries are a party.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Empire Federal Bancorp, Inc. (1)
3.2 Bylaws of Empire Federal Bancorp, Inc. (1)
10.1 Employment Agreement with Kenneth P. Cochran(4)
10.2 Employment Agreement with William H. Ruegamer (3)
10.3 Employee Stock Ownership Plan (1)
10.4 Management Recognition and Development Plan (2)
10.5 Stock Option Plan (2)
10.6 Financial Institution's Thrift Plan 401(k)(3)
21 Subsidiaries of the Registrant (3)
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-1, as amended (File No. 333-12653).
(2) Incorporated by reference to the Company's Annual Meeting Proxy
Statement dated March 16, 1998.
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1999.
(4) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the three months ended March 31, 2000.
(b) Report on Form 8-K
No Form 8-K's were filed during the quarter ended March 31, 2001.
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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.
Empire Federal Bancorp, Inc.
By s/s William H. Ruegamer May 10, 2001
-------------------------------------------------- ------------
William H. Ruegamer Date
President & Chief Executive Officer
(Principal Executive Officer)
By s/s Linda M. Alkire May 10, 2001
------------------------------------------------- ------------
Linda M. Alkire Date
Treasurer & Chief Financial Officer
13