SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
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 number 0-24648
FSF FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Minnesota 41-1783064
(State or other jurisdiction (IRS employer identification no.)
of incorporation or organization)
201 Main Street South, Hutchinson, Minnesota 55350-2573
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (320) 234-4500
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicated the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date January 31, 2001.
----------------
Class Outstanding
----- -----------
$.10 par value common stock 2,396,674 shares
FSF FINANCIAL CORP. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2000
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Materially Important Events 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, September 30,
2000 2000
------------------------------------
(in thousands)
ASSETS
------
Cash and cash equivalents $ 15,320 $ 8,482
Securities available for sale, at fair value:
Equity securities 18,321 18,246
Mortgage-backed and related securities 15,527 15,369
Debt securities 12,975 12,728
Securities held to maturity, at amortized cost:
Debt securities (fair value of $17,579 and $16,974) 18,400 18,393
Mortgage-backed and related securities (fair value of $25,963 and $25,145) 26,873 26,986
Loans held for sale 6,616 3,191
Loans receivable, net 338,465 341,813
Foreclosed real estate 321 321
Accrued interest receivable 4,549 4,432
Premises and equipment 5,491 5,514
Other assets 11,047 11,040
------------------------------------
Total assets $ 473,905 $ 466,515
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Demand deposits $ 43,350 $ 36,964
Savings accounts 81,585 80,087
Certificates of deposit 182,612 177,772
------------------------------------
Total deposits 307,547 294,823
Federal Home Loan Bank borrowings 121,500 127,500
Advances from borrowers for taxes and insurance 387 658
Other liabilities 4,004 3,769
------------------------------------
Total liabilities 433,438 426,750
------------------------------------
Stockholders' equity:
Serial preferred stock, no par value 5,000,000 shares
authorized, no shares issued - -
Common stock, $.10 par value 10,000,000 shares authorized,
4,501,277 and 4,501,277 shares issued 450 450
Additional paid in capital 43,143 43,391
Retained earnings, substantially restricted 29,454 28,925
Treasury stock at cost (2,091,603 and 2,094,822 shares) (29,485) (29,504)
Unearned ESOP shares at cost (118,060 and 126,823 shares) (1,181) (1,268)
Unearned MSP stock grants at cost (42,964 and 42,964 shares) (458) (458)
Accumulated comprehensive loss (1,456) (1,771)
------------------------------------
Total stockholders' equity 40,467 39,765
------------------------------------
Total liabilities and stockholders' equity $ 473,905 $ 466,515
====================================
See Notes to Unaudited Consolidated Financial Statements
1
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For Three Months
Ended December 31,
------------------------------------
2000 1999
------------------------------------
(In thousands, except per share
data)
Interest income:
Loans receivable $ 7,856 $ 6,110
Mortgage-backed and related securities 621 655
Investment securities 739 769
------------------------------------
Total interest income 9,216 7,534
Interest expense:
Deposits 4,008 2,460
Borrowed funds 1,905 1,926
------------------------------------
Total interest expense 5,913 4,386
------------------------------------
Net interest income 3,303 3,148
Provision for loan losses 90 54
------------------------------------
Net interest income after provision for loan losses 3,213 3,094
Non-interest income:
Gain on sale of loans, net 372 346
Other service charges and fees 166 202
Service charges on deposit accounts 395 311
Commission income 270 240
Other 112 97
------------------------------------
Total non-interest income 1,315 1,196
------------------------------------
Non-interest expense:
Compensation and benefits 1,882 1,833
Occupancy and equipment 366 298
Deposit insurance premiums 14 34
Data processing 183 163
Professional fees 99 74
Other 587 544
------------------------------------
Total non-interest expense 3,131 2,946
------------------------------------
Income before provision for income taxes 1,397 1,344
Income tax expense 540 523
------------------------------------
Net income $ 857 $ 821
====================================
Basic earnings per share $ 0.38 $ 0.32
Diluted earnings per share $ 0.37 $ 0.31
Cash dividend declared per common share $ 0.150 $ 0.125
Comprehensive income $ 1,172 $ 742
====================================
See Notes to Unaudited Consolidated Financial Statement
2
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months
Ended
December 31,
------------------------------------
2000 1999
------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $ 857 $ 821
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 151 139
Net amortization of discounts and premiums on securities
held to maturity (8) (18)
Provision for loan losses 90 54
Net market value adjustment on ESOP shares 27 18
Amortization of ESOP and MSP stock compensation 88 154
Amortization of intangibles 29 27
Net gain on sale of assets - (36)
Net loan fees deferred and amortized (27) (5)
Loans originated for sale (22,802) (14,024)
Loans sold 19,377 14,948
(Increase) decrease in:
Accrued interest receivable (117) 28
Other assets (102) 183
Increase (decrease) in other liabilities 139 244
------------------------------------
Net cash provided by operating activities (2,298) 2,533
------------------------------------
Cash flows from investing activities:
Loan originations and principal payments on loans, net 10,990 (1,318)
Purchase of loans (7,706) (8,533)
Principal payments on mortgage-related securities held to maturity 114 218
Proceeds from maturities of securities held to maturity - 570
Investments in foreclosed real estate - (6)
Proceeds from sale of REO - 240
Purchases of equipment and property improvements (129) (99)
------------------------------------
Net cash provided by (used in) investing activities $ 3,269 $ (8,928)
------------------------------------
See Notes to Unaudited Consolidated Financial Statements
3
FSF FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months
Ended
December 31,
------------------------------------
2000 1999
------------------------------------
(in thousands)
Cash flows from financing activities:
Net increase in deposits $ 12,724 $ 896
FHLB advances 20,000 70,500
Payments on FHLB advances (26,000) (70,548)
Net short term borrowings - (200)
Net decrease in mortgage escrow funds (271) (296)
Treasury stock purchased (444) (790)
Proceeds from exercise of stock options 188 -
Dividends on common stock (330) (325)
------------------------------------
Net cash provided by (used in) financing activities 5,867 (763)
------------------------------------
Net (decrease) increase in cash and cash equivalents 6,838 (7,158)
Cash and cash equivalents
Beginning of period 8,482 19,265
------------------------------------
End of period $ 15,320 $ 12,107
====================================
Supplemental disclosures of cash flow information: Cash payments for:
Interest on advances and other borrowed money $ 1,902 $ 1,928
Interest on deposits 4,230 2,629
Income taxes 237 238
Supplemental schedule of non-cash investing and financing activities:
Reinvested amounts of capital gains and dividends
from mutual fund investments 27 8
See Notes to Unaudited Consolidated Financial Statements
4
FSF FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1- PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements as of and for the three
months ended December 31, 2000, include the accounts of FSF Financial
Corp. (the "Corporation") and its wholly owned subsidiaries, Insurance
Planners of Hutchinson, Inc. (the "Agency") and First Federal fsb (the
"Bank"), with its wholly owned subsidiaries, Firstate Services and
Homeowners Mortgage Corporation ("HMC"). All significant inter-company
accounts and transactions have been eliminated in consolidation.
NOTE 2- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and therefore,
do not include information or footnotes necessary for a complete
presentation of consolidated financial condition, results of operations
and cash flows in conformity with Generally Accepted Accounting
Principles. However, all adjustments consisting of normal recurring
accruals, which in the opinion of management are necessary for fair
presentation of the consolidated financial statements, have been
included. The results of operations for the three month period ended
December 31, 2000 are not necessarily indicative of the results which
may be expected for the entire fiscal year or any other future period.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Corporation's Annual Report of
Form 10-K for the year ended September 30, 2000.
NOTE 3- BUSINESS SEGMENTS
The Corporation's reportable business segments are business units that
offer different products and services that are marketed through various
channels. The Corporation has identified its wholly owned subsidiaries,
the Bank and HMC, as reportable business segments. Both segments
operate and are managed independently. Firstate Services, the Agency
and FSF Financial Corp. (the "Holding Company") did not meet the
quantitative thresholds for determining reportable segments and
therefore are included in the "other" category.
Bank HMC Consolidated
Stand-alone Stand-alone Other Eliminations Total
--------------------------------------------------------------
As of and for the three months ended December 31, 2000
From operations:
Interest income from external sources $ 9,152 $ 37 $ 27 $ - $ 9,216
Non-interest income from external sources 834 248 233 - 1,315
Inter-segment interest income 17 - 34 (51) -
Interest expense 5,917 17 - (21) 5,913
Provisions for loan losses 90 - - - 90
Depreciation and amortization 139 31 11 - 181
Other non-interest expense 2,417 627 300 (213) 3,131
Income tax expense (benefit) 601 (62) 1 - 540
Net income (loss) $ 978 $ (115) $ (6) $ - $ 857
==============================================================
Total Assets $ 472,422 $ 4,761 $ 41,657 $ (44,935) $ 473,905
==============================================================
As of and for the three months ended December 31, 1999
From operations:
Interest income from external sources $ 7,455 $ 53 $ 26 $ - $ 7,534
Non-interest income from external sources 630 347 219 - 1,196
Inter-segment interest income 56 - 3,036 (3,092) -
Interest expense 4,384 61 - (59) 4,386
Provisions for loan losses 54 - - - 54
Depreciation and amortization 157 7 2 - 166
Other non-interest expense 2,249 530 293 (126) 2,946
Income tax expense (benefit) 556 (31) (2) - 523
Net income (loss) $ 897 $ (68) $ 2,992 $ (3,000) $ 821
==============================================================
Total Assets $ 411,495 $ 5,804 $ 44,377 $ (43,234) $ 418,442
==============================================================
5
NOTE 4- EARNINGS PER SHARE
The earnings per share amounts were computed using the weighted average
number of shares outstanding during the periods presented. For the
three month period ended December 31, 2000, the weighted average number
of shares outstanding for basic and diluted earnings per share
computations were 2,237,370 and 2,328,713, respectively. For the three
month period ended December 31, 1999, the weighted average number of
shares outstanding for basic and diluted earnings per share computation
were 2,590,702 and 2,649,635, respectively. The difference between the
basic and diluted earnings per share denominator is the effect of stock
based compensation plans.
FSF FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates", "contemplates", "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of integrating newly
acquired businesses, the ability to control costs and expenses and general
economic conditions. The Corporation undertakes no obligation to publicly
release the results of any revisions to those forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
General
The Corporation's total assets at December 31, 2000 and September 30, 2000
totaled $473.9 million and $466.5 million. This increase of $7.4 million was a
result of an increase in loans held for sale, cash and cash equivalents.
Cash and cash equivalents increased $6.8 million from $8.5 million at September
30, 2000 to $15.3 million at December 31, 2000. The Corporation utilized excess
liquidity to fund the purchase of treasury shares and loan originations;
however, the increase was mainly a result of an increase in deposits.
Securities available for sale increased $480,000 between December 31, 2000 and
September 30, 2000, as a result of market value changes.
Loans held for sale increased $3.4 million to $6.6 million at December 31, 2000
from $3.2 million at September 30, 2000. As of December 31, 2000, the Bank and
HMC had forward commitments to sell all of their loans held for sale in the
secondary market. Payment for these loans usually occurs within fourteen days of
funding.
Loans receivable decreased $3.3 million or 1.0% to $338.5 million at December
31, 2000 from $341.8 million at September 30, 2000. Total residential real
estate and construction loan originations decreased by $2.0 million and when
combined with the sale and prepayments of residential mortgages, resulted in a
decrease in one-to-four family residential mortgages and construction loans of
$10.3 million. Agricultural loans increased by $1.5 million. To supplement
originations, the Bank purchased $7.7 million of commercial business loans and
consumer loans increased by $1.5 million. The commercial loans purchased that
meet the risk profile established by the Bank generally have interest rates that
are based on the "Prime" rate as published in The Wall Street Journal and
provide the Bank with the opportunity to continue to diversify the composition
of and shorten the length of maturity of the loan portfolio.
6
The following table sets forth information on loans originated and purchased for
the periods indicated:
Three Months
Ended December 31,
------------------------------------
2000 1999
------------------------------------
(in thousands)
Loans originated:
1-4 family residential mortgages $ 14,244 $ 16,136
1-4 family construction loans 21,703 21,790
Land 237 468
Agriculture 6,202 4,916
Commercial business & real estate 3,740 4,111
Consumer 6,017 8,559
------------------------------------
Total loans originated 52,143 55,980
------------------------------------
Loans purchased:
Commercial business 7,706 8,533
------------------------------------
Total new loans $ 59,849 $ 64,513
====================================
Total loans sold $ 19,377 $ 14,948
====================================
The following table sets forth the composition of the Bank's loan portfolio in
dollars and in percentages of total loans at the dates indicated:
December 31, Septembe 30,
2000 2000
--------------------------------------------------------------------
Amount % Amount %
--------------------------------------------------------------------
(dollars in thousands)
Residential real estate:
One-to-four family (1) $ 101,133 26.8 $ 101,034 26.3
Residential construction 71,998 19.0 82,408 21.5
Multi-family 5,539 1.5 4,737 1.2
--------------------------------------------------------------------
178,670 47.3 188,179 49.0
Agricultural loans 45,375 12.0 43,829 11.4
Land and commercial real estate 51,357 13.6 50,970 13.3
Commercial business 29,676 7.9 29,831 7.7
--------------------------------------------------------------------
126,408 33.5 124,630 32.4
Consumer loans:
Home equity and second mortgages 30,240 8.0 28,106 7.3
Automobile loans 13,067 3.5 13,255 3.5
Other 29,484 7.7 29,943 7.8
--------------------------------------------------------------------
Total consumer loans 72,791 19.2 71,304 18.6
--------------------------------------------------------------------
Total loans 377,869 100.0 384,113 100.0
===== =====
Less:
Loans in process (30,554) (36,864)
Deferred fees (684) (711)
Allowance for loan losses (1,550) (1,534)
-------------------- --------------------
Total loans, net $ 345,081 $ 345,004
==================== ====================
- --------------------------------------------------
1. Includes loans held for sale in the amount of $6.6 million and $3.2 million
as of December 31, 2000 and September 30, 2000, respectively.
7
Deposits, after interest credited, increased from $294.8 million at September
30, 2000 to $307.5 million at December 31, 2000, an increase of $12.7 million or
4.3%. Overall cost of funds on deposits during the period increased 112 basis
points (100 basis points equals 1%) as the Bank attempted to maintain deposit
rates consistent with market place competitors. Demand deposits increased $6.4
million or 17.3% from September 30, 2000, when compared to December 31, 2000,
mainly due to year end deposits on business accounts. Savings accounts increased
1.9% during the same periods due to increasing balances in the Bank's First
Prime Savings account. Certificates of deposit increased $4.8 million. The Bank
utilized the increase in deposits to fund the continued loan growth and reduce
Federal Home Loan Bank ("FHLB") borrowings.
The Corporation completed the repurchase of 56,692 shares of common stock, which
when netted against 59,911 shares issued in connection with the exercise of
stock options, decreased the number of treasury shares to 2,091,603 at December
31, 2000. Treasury shares are to be used for general corporate purposes,
including the issuance of shares in connection with the exercise of stock
options. Total stockholders' equity has increased $702,000 since September 30,
2000, due to net income and a decrease in accumulated comprehensive loss. Book
value per share increased from $17.78 at September 30, 2000 to $18.00 at
December 31, 2000.
Loans are reviewed on a regular basis and are placed on non-accrual status when,
in the opinion of management, the collection of additional interest is doubtful.
Loans are generally placed on non-accrual status when either principal or
interest is 90 days or more past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
The following table sets forth information with respect to the Bank's
non-performing assets for the periods indicated:
December 31, September 30,
2000 2000
----------------------------------------
(in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Residential construction loans $ 614 $ 323
Permanent loans secured by one-to-four family units 132 55
Permanent loans secured by non-residential real estate - -
Other - -
Non-mortgage loans:
Commercial and agricultural 580 452
Consumer 208 159
----------------------------------------
Total non-accrual loans 1,534 989
Foreclosed real estate 321 321
----------------------------------------
Total non-performing assets $ 1,855 $ 1,310
========================================
Total non-performing loans to net loans 0.44% 0.29%
========================================
Total non-performing loans to total assets 0.32% 0.21%
========================================
Total non-performing assets to total assets 0.39% 0.28%
========================================
8
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
The following table sets forth information with respect to the Corporation's
average balance sheet, interest and dividends earned or paid and related yields
and rates (dollars in thousands):
Three Months Ended December 31,
----------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------
Interest Interest
Average Yields & Average Yields &
Balance Interest Rates (1) Balance Interest Rates (1)
----------------------------------------------------------------------------
Assets:
Loans receivable (2) $ 343,899 $ 7,856 9.14 % $ 288,856 $ 6,110 8.46 %
Mortgage-backed securities 42,313 621 5.87 43,459 655 6.03
Investment securities (3) 56,862 739 5.20 58,402 769 5.27
----------------------- -----------------------
Total interest-earning assets 443,074 9,216 8.32 390,717 7,534 7.71
--------------------- ----------------------
Other assets 23,792 22,760
------------- -------------
Total assets $ 466,866 $ 413,477
============= =============
Liabilities:
Interest-bearing deposits $ 296,496 $ 4,008 5.41 % $ 229,578 $ 2,460 4.29 %
Borrowings 125,174 1,905 6.09 137,308 1,926 5.61
----------------------- -----------------------
Total interest-bearing 421,670 5,913 5.61 % 366,886 4,386 4.78 %
--------------------- ----------------------
Other liabilities 5,080 4,367
------------- -------------
Total liabilities 426,750 371,253
Stockholders' equity 40,116 42,224
------------- -------------
Total liabilities and stockholders'
equity $ 466,866 $ 413,477
============= =============
Net interest income $ 3,303 $ 3,148
Net spread (4) 2.71 % 2.93 %
Net margin (5) 2.98 % 3.22 %
Ratio of average interest-earning assets
to average interest-bearing
liabilities 1.05X 1.06X
1. Annualized.
2. Average balances include non-accrual loans and loans held for sale.
3. Includes interest-bearing deposits in other financial institutions.
4. Net spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
5. Net margin represents net interest income as a percentage of
interest-earning assets.
Net Income
The Corporation recorded net income of $857,000 for the three months ended
December 31, 2000, as compared to net income of $821,000 for the three month
period ended December 31, 1999. This increase in net income was $36,000 or 4.4%.
Total Interest Income
Total interest income increased by $1.7 million or 22.7% to $9.2 million for the
three months ended December 31, 2000. The average yield on loans increased to
9.14% for the quarter ended December 31, 2000 from 8.46% for the quarter ended
December 31, 1999. During the same period, the average yield on mortgage-backed
securities decreased 16 basis points. The average balance of investment
securities decreased to $56.9 million for the quarter ended December 31, 2000
from $58.4 million for the quarter ended December 31, 1999, as a result of a
reduction in the Bank's liquidity. The average yield decreased from 5.27% for
the three months ended December 31, 1999 to 5.20% for the same period in 2000.
9
Total Interest Expense
Total interest expense increased to $5.9 million for the three months ended
December 31, 2000 from $4.4 million for the same period in 1999. The average
balance of interest-bearing deposits increased from $229.6 million for the three
months ended December 31, 1999 to $296.5 million for the three months ended
December 31, 2000, mainly due to an increase in certificates of deposit
accounts. The average cost of deposits increased 112 basis points from 4.29% for
the three month period ended December 31, 1999 to 5.41% for the same period in
2000, as the rates offered by the Bank increased. No assurance can be made that
deposits can be maintained in the future without further increasing the cost of
funds if interest rates increase. The average balance of borrowings decreased
$12.1 million to $125.2 million for the three months ended December 31, 2000
from $137.3 million for the three months ended December 31, 1999. The cost of
such borrowings increased by 48 basis points to 6.09% for the three months ended
December 31, 2000 from 5.61% for the same period in 1999. Borrowings decreased
as the Bank utilized repayments of loans and the increase in deposits to meet
liquidity needs.
Net Interest Income
Net interest income increased from $3.1 million for the three months ended
December 31, 1999 to $3.2 million for the same period ended December 31, 2000.
Average interest-earning assets increased $52.4 million from $390.7 million for
the three months ended December 31, 1999 to $443.1 million for the three months
ended December 31, 2000, while the average yield on those interest-earning
assets increased from 7.71% for 1999 to 8.32% for 2000. Average interest-bearing
liabilities increased by $54.8 million to $421.7 million for the three months
ended December 31, 2000 from $366.9 million for the three months ended December
31, 1999, while the cost of those interest-bearing liabilities increased from
4.78% in 1999 to 5.61% in 2000.
Provision for Loan Losses
The Corporation's provision for loan losses was $90,000 for the three months
ended December 31, 2000, as compared to $54,000 for the same period in 1999.
Management believes, based on a detailed review of the loan portfolio, historic
loan losses, current economic conditions and other factors, that the current
level of provision for loan losses and the resulting level of the allowance for
loan losses reflects an adequate reserve against potential losses from the loan
portfolio. The allowance for loan losses is established through a provision for
loan losses charged to expense. While the Corporation maintains its allowance
for losses at a level which it considers to be adequate, there can be no
assurance that further additions will not be made to the loss allowances or that
such losses will not exceed the estimated amounts.
10
The following table sets forth information with respect to the Bank's allowance
for loan losses at the dates indicated:
For the Three Months
At December 31,
----------------------------------------
2000 1999
----------------------------------------
(in thousands)
Average loans outstanding $ 343,899 $ 288,856
========================================
Allowance balance (beginning of period) $ 1,534 $ 1,387
========================================
Provision (credit):
Residential - -
Land and commercial real estate 25 20
Commercial & agricultural business 65 34
Consumer - -
----------------------------------------
Total provision 90 54
Charge-offs:
Residential - -
Commercial and agricultural business 39 -
Consumer 40 24
----------------------------------------
Total charge-offs 79 24
Recoveries:
Residential - -
Land and commercial real estate - -
Consumer 5 9
----------------------------------------
Total recoveries 5 9
----------------------------------------
Net charge-offs 74 15
----------------------------------------
Allowance balance (end of period) $ 1,550 $ 1,426
========================================
Allowance as percent of total loans 0.45% 0.49%
Net loans charged off as a percent of average 0.02% 0.01%
loans
Non-interest Income
Total non-interest income increased $119,000 during the three-month period ended
December 31, 2000 to $1.3 million, as compared with the same period in 1999.
Gains on loans sold increased from $346,000 at December 31, 1999 to $372,000 at
December 31, 2000. Commission income increased from $240,000 for the quarter
ended December 31, 1999 to $270,000 for the quarter ended December 31, 2000.
Other service charges and fees decreased from $202,000 for the three months
ended December 31, 1999 to $166,000 for the three months ended December 31,
2000, as a result of reduced mortgage loan originations. Other income increased
$15,000 for the three months ended December 31, 2000.
Non-interest Expense
Total non-interest expense increased $185,000 or 6.3% over the periods compared.
Data processing expense increased $20,000 to $183,000 for the period ended
December 31, 2000, due to processing expenses associated with the increased
delivery of electronic services to customers. Professional fees increased from
$74,000 for the first quarter of fiscal 2000 to $99,000 for the first quarter of
fiscal 2001, due to the use of outsourcing for some services related to
personnel changes and additional audit requirements.
Income Tax Expense
Income taxes increased by $17,000 to $540,000 for the three month period ended
December 31, 2000 from $523,000 for the same period in 1999, which was primarily
due to an increase of $53,000 in income before tax. The effective tax rate
decreased by 1.5% for the same periods as the result of an increase in tax
exempt income of $75,000.
11
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds are deposits, borrowings, principal
and interest payments on loans, investments and mortgage-backed securities,
sales of mortgage loans and funds provided by operations. While scheduled
payments on loans, mortgage-backed securities and short-term investments are
relatively predictable sources of funds, deposit flows and early loan repayments
are greatly influenced by general interest rates, economic conditions and
competition.
The Bank is required under federal regulations to maintain certain specified
levels of "liquid investments", which include certain United States Government
obligations and other approved investments. Federal regulations reduced the
requirement for Banks to maintain liquid assets at 5%, to not less than 4% of
its net withdrawable accounts plus short-term borrowings and eliminated the
requirement to maintain not less than 1% of short-term liquid assets of such
accounts and borrowings. The Bank's regulatory liquidity was 7.3% at December
31, 2000.
The amount of certificate accounts that are scheduled to mature during the
twelve months ending December 31, 2001 is approximately $134.1 million. To the
extent that these deposits do not remain upon maturity, the Bank believes that
it can replace these funds with new deposits, excess liquidity and FHLB advances
or outside borrowings. It has been the Bank's experience that substantial
portions of such maturing deposits remain at the Bank.
At December 31, 2000, the Bank and HMC had outstanding loan commitments of $1.3
million. Funds required to meet these commitments are derived primarily from
current excess liquidity, loan sales, advances, deposit inflows or loan and
security repayments.
OTS regulations require the Bank to maintain core capital of 4.0% of assets, of
which 2.0% must be tangible equity capital, excluding goodwill. The Bank is also
required to maintain risk-based capital equal to 8.0% of total risk-based
assets. The Bank's regulatory capital exceeded its tangible equity, tier 1
(risk-based), tier 1 (core) and risk-based capital requirements by 6.4%, 3.9%,
7.2% and 3.1%, respectively.
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates, could adversely affect future
earnings and, as a result, the ability of the Bank to meet its future minimum
capital requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information regarding market risk
disclosed under the heading "Asset and Liability Management" in the
Corporation's Annual Report for the year ended September 30, 2000.
12
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries were
engaged in any legal proceedings of a material nature at
December 31, 2000. From time to time, the Corporation is a
party to legal proceedings in the ordinary course of business
wherein it enforces its security interest in loans.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report.
3.1 Articles of Incorporation of FSF Financial Corp. *
3.2 Bylaws of FSF Financial Corp. *
4.0 Stock Certificate of FSF Financial Corp. *
10.1 Form of Employment Agreement with Donald A. Glas, George B. Loban
and Richard H. Burgart *
10.2 First Federal fsb Management Stock Plan **
10.3 FSF Financial Corp. 1996 Stock Option Plan **
10.4 FSF Financial Corp. 1998 Stock Compensation Plan ***
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* Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement initially filed with the Commission on
June 1, 1994. Registration No. 33-79570.
** Incorporated herein by reference into this document from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on January 17,
1996 and filed with the Commission on December 13, 1995.
*** Incorporated herein by reference into this document from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on January 20,
1998 and filed with the Commission on December 10, 1997.
13
FSF FINANCIAL CORP. AND SUBSIDIARIES
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.
FSF FINANCIAL CORP.
Date: February 2, 2001 By: /s/ Donald A. Glas
- ------------------------- ------------------
Donald A. Glas
Chief Executive Officer
Date: February 2, 2001 By: /s/ Richard H. Burgart
- ------------------------- ----------------------
Richard H. Burgart
Chief Financial Officer
14