U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X] QUARTERLY REPORT UNDER SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
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Commission File No. 0-25546
Mississippi View Holding Company
--------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1795363
- - --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or jurisdiction)
35 East Broadway, Little Falls, Minnesota 56345-3093
----------------------------------------------------
(address of principal executive offices)
(612) 632-5461
--------------
(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 $.10 per share
Outstanding shares at July 31, 1996: 909,714
MISSISSIPPI VIEW HOLDING COMPANY
INDEX TO FORM 10-QSB
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated statements of Financial Condition at June 30,
1996 (unaudited) and September 30, 1995 (audited) 2
Consolidated Statements of Income for the three and six
months ended June 30, 1996 and 1995 (unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 (unaudited) 4
Notes to Condensed Consolidated Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Non-Performing and Problem Assets 13
Capital Compliance 17
Liquidity Resources 18
Key Operating Ratios 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Default Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
Page 1 of 23
MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, September 30,
1996 1995
----------- ---------------
ASSETS (Unaudited) (Audited)
Cash and cash equivalents:
Interest bearing .............................................................................. $ 3,302,005 $ 2,600,438
Non-interest bearing .......................................................................... 321,905 236,632
Debt securities held to maturity (estimated market value of $5,810,375 and 12,260,406) .......... 5,815,726 12,236,729
Mortgage backed securities held to maturity (estimated market value of $3,762,083 and $4,127,451) 3,753,290 4,124,752
Mortgage backed securities available for sale, at market value .................................. 1,596,110 624,870
Securities available for sale, at market value .................................................. 9,804,602 3,870,153
FHLB Stock, at cost ............................................................................. 650,700 637,900
Loans held for sale ............................................................................. 163,979 57,974
Loans receivable, net ........................................................................... 41,975,154 42,989,472
Premises and equipment, net of depreciation ..................................................... 809,057 861,681
Foreclosed real estate (net of allowance for losses of $21,700 and $25,187) ..................... - 29,711
Accrued interest receivable ..................................................................... 512,548 528,925
Deferred tax asset (net of valuation allowance).................................................. 83,810 90,500
Other assets .................................................................................... 533,905 553,065
----------- -----------
Total Assets $69,322,791 $69,442,802
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Passbook / passcard savings .................................................................. 11,322,883 10,595,428
Non-interest checking ........................................................................ 968,673 868,331
NOW / MMDA ................................................................................... 5,693,814 6,697,185
Certificates of deposit ...................................................................... 38,002,903 36,759,387
Advances from borrowers for taxes and insurance ................................................ 68,003 187,698
Accrual for income tax ......................................................................... 9,137 115,222
Other liabilities .............................................................................. 504,936 436,552
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Total Liabilities .......................................................................... 56,570,349 55,659,803
Commitments and contingencies
Stockholders' equity:
Serial Preferred Stock, no par value; 5,000,000 shares authorized; issued and
outstanding, none ........................................................................... - -
Common Stock, $.10 par value, 10,000,000 shares authorized; 1,007,992 shares
issued and 805,236 outstanding, at June 30, 1996, and 932,729 outstanding, at
September 30, 1995 .......................................................................... 100,799 100,799
Paid in Capital ............................................................................... 7,506,793 7,494,971
Treasury Stock (98,278 shares), at cost ....................................................... (1,160,439) -
Retained Earnings, substantially restricted ................................................... 7,184,310 6,697,907
Unearned ESOP shares (68,543 shares, at June 30, 1996, and 75,263 shares, at
September 30, 1995) ......................................................................... (592,707) (644,441)
Unearned Management Stock Bonus Plan shares (35,935 shares), at cost .......................... (406,401) -
Net unrealized gain/(loss) on securities available for sale ................................... 120,087 133,763
------------ ----------
Total Stockholders' Equity.................................................................. 12,752,442 13,782,999
------------ ----------
Total Liabilities and Stockholders' Equity.................................................. $ 69,322,791 69,442,802
============ ==========
See Notes to consolidated financial statements.
Page 2
MISSISSIPPI VIEW HOLDING COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
-----------------------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
INTEREST INCOME
Loans receivable:
First mortgage loans .................... $ 728,469 $ 756,548 $2,260,397 $2,272,183
Consumer and other loans ................ 178,500 143,961 498,331 411,163
Investment securities ..................... 278,884 305,062 855,291 665,885
Mortgage-backed securities ................ 95,087 70,176 273,379 197,187
---------- ---------- ---------- ----------
Total interest income ................ 1,280,940 1,275,747 3,887,398 3,546,418
INTEREST EXPENSE ON DEPOSITS .............. 633,748 574,808 1,892,589 1,628,435
---------- ---------- ---------- ----------
Net interest income ..................... 647,192 700,939 1,994,809 1,917,983
Provision for loan losses ............... 1,451 8,572 3,725 22,684
---------- ---------- ---------- ----------
Net interest income after
provision for loan loss ............ 645,741 692,367 1,991,084 1,895,299
NONINTEREST INCOME
Other fees and service charges .......... 37,720 30,440 76,223 71,135
Gain on sale of loans ................... 4,252 1,542 68,124 4,067
Net gain (loss) on sale of real estate
owned .............................. 9,753 7,008 10,939 42,124
Contingency recovery .................... - - 81,023 -
Other ................................... 26,475 19,096 54,100 34,175
---------- ---------- ---------- ----------
Total noninterest income 78,200 58,086 290,409 151,501
NONINTEREST EXPENSE
Compensation and employee benefits ...... 229,014 221,273 666,689 580,778
Occupancy ............................... 21,501 19,072 67,668 60,420
Insurance premium ....................... 37,065 37,333 111,940 113,198
Data processing ......................... 19,110 24,782 56,034 59,444
Advertising ............................. 7,551 6,906 22,189 17,836
Real estate owned expense, net .......... 826 4,478 5,041 10,982
Other ................................... 104,229 96,672 317,153 254,884
---------- ---------- ---------- ----------
Total noninterest expense 419,296 410,516 1,246,714 1,097,542
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ................ 304,645 339,937 1,034,779 949,258
INCOME TAX EXPENSE ........................ 108,504 138,329 407,460 399,180
---------- ---------- ---------- ----------
NET INCOME ................................ $ 196,141 $ 201,608 $ 627,319 $ 550,078
========== ========== ========== ==========
Dividends Declared Per Share $ 0.08 $ - $ 0.08 $ -
========== ========== ========== ==========
Primary Earnings Per Share $ 0.24 $ 0.22 $ 0.72 $ 0.71
========== ========== ========== ==========
See Notes to consolidated financial statements.
Page 3
MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
June 30,
--------------------------
1996 1995
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OPERATING ACTIVITIES
Interest received on loans and investments ... $3,847,680 $3,411,171
Interest paid ................................ (1,893,534) (1,631,457)
Other fees, commissions, and interest received 220,789 151,506
Cash paid to suppliers, employees and others . (976,737) (998,597)
Contributions to charities ................... (4,429) (1,769)
Income taxes paid ............................ (485,916) (209,900)
Loans originated for sale .................... (1,879,643) (857,626)
Proceeds from sale of loans .................. 3,919,746 751,824
---------- ----------
Net cash provided by (used in)
operating activities ................... 2,747,956 615,152
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INVESTING ACTIVITIES
Loans originations and principal payment on
loans, net................................... (1,013,433) 2,369,660
Proceeds from maturities of:
Debt securities held to maturity ............. 6,845,346 4,077,000
Securities available for sale ................ 1,081,880 -
Mortgage-backed securities held to maturity... 697,618 365,619
Mortgage-backed securities available
for sale.................................... 36,160 -
Proceeds from sale of:
Real estate ................................ 10,939 38,446
Purchase of:
Debt securities held to maturity ........... (2,875,000) (9,007,380)
Securities available for sale .............. (4,556,638) (1,001,172)
Mortgage-backed securities held to maturity (327,532) (969,404)
Mortgage-backed securities available
for sale ................................. (1,041,821) -
Equipment and property improvements ........ (10,204) (12,686)
---------- ----------
Net cash provided by (used in)
investing activities .................. (1,152,685) (4,139,917)
---------- ----------
FINANCING ACTIVITIES
Net increase (decrease) in demand accounts,
passbook accounts, and certificates
of deposit ................................. 1,068,886 (1,809,661)
Net increase (decrease) in mortgage escrow
funds ....................................... (119,695) 53,229
Net increase in common stock .................. - 100,799
Net increase in paid in capital ............... - 7,491,423
Net increase in unearned ESOP shares .......... - (690,472)
Acquisition of treasury stock ................. (1,160,439) -
Acquisition of unearned MSBP shares ........... (456,266) -
Cash dividends paid ........................... (140,917) -
---------- ----------
Net cash provided by (used in)
financing activities (808,431) 5,145,318
---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .......................... 786,840 1,620,553
CASH AND CASH EQUIVALENTS -
Beginning of year ...................... 2,837,070 1,732,005
---------- ----------
CASH AND CASH EQUIVALENTS -
End of period ...................... $3,623,910 $3,352,558
========== ==========
See Notes to consolidated financial statements.
Page 4
MISSISSIPPI VIEW HOLDING COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Nine Months Ended
June 30,
---------------------------
1996 1995
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RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income ............................................................. $ 627,319 $ 550,078
Adjustments:
Provision for losses on loans and other assets ....................... - 30,000
Depreciation ......................................................... 62,828 58,185
Federal Home Loan Bank stock dividends ............................... (12,800) -
Non-cash dividends ................................................... (3,775) (3,758)
ESOP fair value adjustment ........................................... 11,822 -
Amortization of ESOP compensation .................................... 51,733 -
Amortization of MSBP compensation .................................... 49,865 -
Net amortization and accretion of premiums and discounts on
securities ......................................................... 7,746 45,790
Loss (gain) on sales of fixed assets, net ............................ - 5,005
Net (gains) on sale of real estate owned ............................. (10,939) (42,124)
Net loan fees deferred and amortized ................................. 3,147 (7,658)
Net mortgage loan servicing fees deferred and amortized .............. (11,974) -
Contingency recovery ................................................. (81,023) -
(Increase) decrease in:
Loans held for sale ................................................ 2,029,334 (109,869)
Accrued interest receivable ........................................ 16,377 (137,807)
Deferred tax assets................................................. 15,807 9,882
Other assets ....................................................... 31,134 61,829
Increase (decrease) in:
Accrued interest payable ........................................... (944) (3,021)
Accrued income taxes ............................................... (106,085) 179,398
Other liabilities .................................................. 68,384 (20,778)
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Net cash provided by operating activities ................................ $ 2,747,956 $ 615,152
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
Refinancing of sales of real estate owned .................................. $ 37,200 $ 9,000
Transfer of loans to real estate acquired through foreclosure .............. $ 4,989 $ 49,110
Non cash dividends ......................................................... $ 16,575 $ 3,758
Transfer of debt securities to available for sale from securities
held to maturity.......................................................... $ 2,449,446 $ 3,568,247
Transfer of loans to held for sale from loans for portfolio ................ $ 2,135,339 -
See Notes to consolidated financial statements.
Page 5
MISSISSIPPI VIEW HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (Unaudited)
Note 1: PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements as of and for the three
and nine month periods ended June 30, 1996, include the accounts of Mississippi
View Holding Company (the "Company") and its wholly owned subsidiary Community
Federal Savings & Loan Association of Little Falls (the "Association"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Note 2: BASIS OF PRESENTATION
General: The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all information and disclosures required by generally accepted accounting
principles for complete financial statements. The accompanying consolidated
financial statements do not purport to contain all the necessary financial
disclosures required by generally accepted accounting principles that might
otherwise be necessary in the circumstances and should be read with the fiscal
1995 consolidated financial statements and notes of Mississippi View Holding
Company and Subsidiary included in their annual audit report for the year ended
September 30, 1995.
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 and nine month periods ended
June 30, 1996, are not necessarily indicative of the results that may be
expected for the entire fiscal year or any other period.
Reclassification: Certain items previously reported have been
reclassified to conform with the current period's reporting format.
Note 3: EMPLOYEE BENEFITS
The shareholders on September 27, 1995, adopted the Management Stock
Bonus Plan (the Company's "MSBP"). Awards under the MSBP will be made in
recognition of prior and expected future services to the Association by its
directors and executive officers responsible for implementation of the policies
adopted by the Association's Board of Directors and the profitable operation of
the Association. The Association contributed sufficient funds to purchase 4% of
the aggregate number of shares issued in the Conversion (i.e., 40,319 shares of
Common Stock) in the open market on November 17, 1995, for $458,628.
Page 6
Note 4: NEW ACCOUNTING POLICIES ADOPTED
The Company implemented Statement of Financial Accounting Standard
("SFAS") No. 122 "Accounting for Mortgage Servicing Rights, an Amendment of FASB
Statement No. 65" to be applied prospectively beginning October 1, 1995, to
transactions in which mortgage loans are sold with servicing rights retained.
The capitalized mortgage servicing rights ("MSR") is calculated using an
allocation of the total cost of the loan between the loan and MSR based on the
relative fair value of each asset at the date of sale. MSR will be amortized in
proportion to and over the period of estimated servicing income. A valuation
allowance is recognized for impairment in the MSR carrying amount over current
fair value.
The Company adopted Statement of Financial Accounting Standards No.
114, "Accounting for Creditors for Impairment of a Loan," on October 1, 1995.
SFAS No. 114, issued in May 1993, requires measurement of impairment based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral if the loan is
collateral dependent. Regardless of the measurement method, impairment is based
on the fair value of the collateral when the Company determines that foreclosure
is probable. The Company has had no impaired loans during fiscal 1996.
Note 5: SECURITIES RECLASSIFICATION
The Financial Accounting Standards Board issued a special portfolio
classification standard on investments dated November 15, 1995, creating a
window from November 15, 1995, to December 31, 1995, allowing financial
institutions to reassess existing held to maturity securities and transfer them
to either the available for sale or trading category. During this window, the
Company transferred $2.5 million from the held to maturity category to available
for sale. The unrealized holding gain of $25,083, net of tax effect, at the date
of transfer was recognized as a separate component of shareholders' equity.
Note 6: STOCK REPURCHASES
The Company filed two applications with the Office of Thrift
Supervision ("OTS") for approval to waive the regulatory restrictions on stock
repurchases in the first year following conversion to the stock form of
ownership. The OTS approved the repurchase of up to 5% of the outstanding shares
of common stock (i.e., 50,399 shares of Common Stock). The Company repurchased
5% of the outstanding shares in the open market on March 14, 1996, for $606,838.
The OTS approved the second application to repurchase up to 5% of the
outstanding shares of commons stock (i.e., 47,879 shares of Common Stock). The
Company repurchased a second 5% of the outstanding shares in the open market on
May 8, 1996, for $553,601. Repurchased shares became treasury shares and will be
utilized for general corporate and other purposes, including the issuance of
shares in connection with the exercise of stock options.
The Company filed an application with the OTS for approval to waive the
regulatory restrictions on stock repurchases in the second year following
conversion to the stock form of ownership. The OTS approved the repurchase of up
to 10% of the outstanding shares of common stock (i.e., 90,971 shares of Common
Stock) between now and March 23, 1997. The repurchases will be made in
open-market transactions, subject to the availability of the stock, market
conditions, the trading price of the stock and the Company's financial
performance. Repurchased shares will become treasury shares and will be utilized
for general corporate and other purposes, including the issuance of shares in
connection with the exercise of stock options.
Page 7
Management's Discussion and Analysis of Financial Condition
for September 30, 1995 and June 30, 1996
General. Total assets of Mississippi View Holding Company, (the
"Company") decreased by $120,011 from September 30, 1995, to June 30, 1996. The
asset decline was the net result of reduced loans receivable of $908,313, and
reduced other assets of $124,562 offset by increased liquidity and investments
of $786,840 and $126,024 respectively.
Cash and Cash Equivalents. Cash and cash equivalents consisting of
interest-bearing and noninterest bearing deposits, increased $786,840. This
increased liquidity was the result of increased deposits and reduced loan
portfolio, offset by the purchase of investments and common stock of the
Company.
Debt and Mortgage-Backed Securities held to maturity. Debt and
mortgage-backed securities held to maturity decreased $6,792,465, or 41.51%,
from $16,361,481 on September 30, 1995, to $9,569,016 on June 30, 1996. The
Financial Accounting Standards Board issued a special portfolio classification
standard on investments dated November 15, 1995, creating a window from November
15, 1995, to December 31, 1995, allowing financial institutions to reassess
their existing held to maturity securities and transfer them to either the
available for sale or trading category. During this window, the Company
transferred $2.5 million from the held to maturity category to available for
sale. Furthermore, maturities of $3.9 million of debt securities held to
maturity were reinvested in available for sale securities or were held in cash.
Mortgage-backed securities decreased $371,462 due to principal amortization.
Mortgage-Backed Securities, available for sale. Mortgage-backed
securities increased $971,240, from $624,870 on September 30, 1995, to
$1,596,110 on June 30, 1996, due to the purchase of mortgage-backed securities
less principle amortization during this period and reduced mark to market
values.
Securities available for sale. Securities available for sale increased
$5,934,449. This increase was due to the purchase of $4.5 million of debt
securities and a $2.5 million transfer between categories as described above.
This increase was offset by a $1.0 million maturity and the principal reduction
of $81,880 on a Small Business Administration Loan (SBA). From September 30,
1995 to June 30, 1996, mark to market valuations increased the value of such
securities by $8,035. Any increase or decrease in the market value of such
securities will have a corresponding positive or negative effect on
stockholders' equity.
FHLB Stock. Federal Home Loan Bank Stock increased $12,800 from
$637,900 on September 30, 1995, to $650,700 on June 30, 1996, due to a stock
dividend paid by the Federal Home Loan Bank of Des Moines the end of December
1995.
Loans Held for Sale. Loans held for sale increased $106,005 from
$57,974 (3 loans) on September 30, 1995, to $163,979 (3 loans) on June 30, 1996.
This increase is the result of management's decision to sell in the secondary
market lower-yielding fixed rate mortgage loans rather than maintaining them for
portfolio. These loans are pre sold in the secondary market prior to
origination. The balance is the amount sold, yet unfunded as of the period end.
Page 8
Loans Receivable, Net. Loans receivable decreased $1,014,318, or 2.36%,
from $42,989,472 on September 30, 1995, to $41,975,154 on June 30, 1996, due
primarily to $2,135,339 held to maturity loans transferred to loans available
for sale and then sold during this period offset by increased originations.
Premises and Equipment. Premises and equipment, net of depreciation,
decreased $52,624 due to normal depreciation amortized on fixed assets offset by
additions of $10,204.
Foreclosed Real Estate. Foreclosed real estate decreased $29,711 or
100.00%, from $29,711 at September 30, 1995, to $0.0 at June 30, 1996, due to
the sale of REO during the period.
Accrued Interest Receivable. Accrued interest receivable decreased
$16,377 from September 30, 1995, to June 30, 1996, as accrued interest on
Conversion proceed investments were offset by reduced interest rates on
adjustable rate and new fixed rate mortgages, in addition to a reduced loan
portfolio.
Deferred Tax Asset. Deferred tax asset, net of valuation allowance,
decreased $6,690 during this nine month period as a result of the accounting
change made during the November 15, 1995, to December 31, 1995, window for
security transfers.
Other Assets. Other assets decreased $19,160, or 3.46%, from $553,065
as of September 30, 1995, to $533,905 as of June 30, 1996. This decrease was a
result of the repayment of the original investment in a data processing
cooperative ($20,873), reduced accrued income and prepaid expenses ($11,349),
offset by the capitalization of $11,974 of mortgage servicing rights retained
upon the sale of loans.
Deposits. Deposits, after interest credited, increased by $1,067,942 or
1.94%, to $55,988,273 at June 30, 1996, from $54,920,331 at September 30, 1995.
The increase was due to the marketing of a new deposit product and management's
deposit pricing strategy.
Advances from Borrowers for Taxes and Insurance. Advances from
borrowers for taxes and insurance decreased $119,695 from $187,698 on September
30, 1995, to $68,003 on June 30, 1996, due to the cyclical nature of these
payments.
Accrued Income Tax. The income tax accrual decreased by $106,085 from
$115,222 on September 30, 1995, to $9,137 on June 30, 1996, due to tax accruals
based on operating income after estimated tax payments were made.
Other Liabilities. Other liabilities increased by $68,384, or 15.66%,
from $436,552 on September 30, 1995, to $504,936 on June 30, 1996, due to a
total cash dividend of $72,777 declared by the Company payable on August 15,
1996.
Stockholders' Equity. Stockholders' equity decreased by $1,030,557, or
7.48%, from $13,782,999 on September 30, 1995, to $12,752,442 on June 30, 1996.
This decrease is the net effect of the following changes in equity: a paid in
capital increase of $11,822 resulting from the fair market value adjustment to
earned and committed to be released Employee Stock Ownership Plan ("ESOP")
shares, net of taxes; an increase of $51,734 as a result of accounting for
earned ESOP shares; a decrease of $13,676 resulting from market valuation
adjustments on available for sale securities; an increase of
Page 9
$627,319 from net operational income for the nine month period just ended; a
decrease of $406,401 for unearned Management Stock Bonus Plan ("MSBP") shares
resulting from open market purchase of MSBP shares; a decrease of $1,160,439
resulting from open market purchases of common stock of the Company pursuant to
two stock repurchase programs, and a decrease to retained earnings due to a
dividend declared and paid of $140,916.
Comparison of Operating Results for the Three Months Ended
June 30, 1996 and 1995
Net Income. Net income decreased $5,467, or 2.71%, for the three months
ended June 30, 1996, when compared to the three months ended June 30, 1995, due
to increased interest expense on deposits, offset by an increase in the net
yield on higher average balances of interest earning assets with generally lower
rates of interest. Noninterest income increased due to revenue from fees and
service charges, and noninterest expense increased due to operating costs
incurred as a public company.
Total Interest Income. Interest income increased $5,193, or .41%, from
$1,275,747 for the three month period ended June 30, 1995, to $1,280,940 for the
three month period ended June 30, 1996. Interest income from mortgage loans
receivable decreased $28,079 due to the reduction in the average loan balances
along with lower rates paid on such balances over the period and its effect on
adjustable rate mortgage ("ARM") loan repricing. Consumer and other loan income
increased by $34,539 due to increased loan balances. Security investment income
decreased $26,178 due to a reduced investment portfolio with a lower rate of
return. Interest on mortgage backed securities increased by $24,911 due to
increased principal balances attained through purchase activities.
Total Interest Expense. Interest expense increased $58,940, or 10.25%,
for the comparative three month periods ending June 30, 1995 and 1996. This
increase was due to a larger deposit portfolio, particularly certificates of
deposit, earning at a higher average rate of return.
Net Interest Income. Net interest income decreased $53,747, or 7.67%,
from $700,939 for the three months ended June 30, 1995, to $647,192 for the
three month period ended June 30, 1996. This was primarily due to the increased
deposit interest expense from higher deposit balances earning a higher rate of
return offset by interest earned on additional interest earning assets. The
Company's interest rate spread decreased from 3.28% to 2.90% as the cost of
interest-bearing deposits increased at a faster rate than yields earned on
interest-earning assets.
Provision for Loan Losses. The Association currently maintains an
allowance for loan losses based upon management's periodic evaluation of known
and inherent risks in the loan portfolio, the Association's past loss
experience, adverse situations that may affect the borrowers' ability to repay
loans, estimated value of the underlying collateral, and current and expected
market conditions. Provisions for loan losses decreased from $8,572 for the
period ended June 30, 1995, to $1,451 for the period ended June 30, 1996. This
decrease was due to management's assessment of the loan portfolio and market
conditions. While management maintains its allowance for losses at a level which
it considers to be adequate to provide for potential losses, there can be no
assurances that further additions will not be made to the loss allowances and
that such losses will not exceed the estimated amounts.
Page 10
Due to the size of the institution and the minimal amount of
nonperforming loans the percentage of nonperforming loans to allowance for loan
losses will seem high. Movement of even one loan into or out of nonperforming
status per reporting period may result in a large percentage change due to the
size of the portfolio.
Noninterest Income. Noninterest income increased by $20,114, or 34.63%,
during the three month period ended June 30, 1996, as compared to the same
period ended June 30, 1995. This increase was primarily the result of increased
fees and service charges for $7,280, a gain realized on the sale of loans for
$2,710, a gain on the sale of real estate owned $2,745, and other noninterest
income revenue of $7,379.
Noninterest Expense. Noninterest expense increased $8,780, or 2.14%,
from $410,516 to $419,296 during the comparative three month periods ending June
30, 1995 and 1996, respectively. Compensation and employee benefits increased
$7,741 due to director and employee compensation increases and expenses of
amortizing the earned ESOP and the MSBP shares. "Other" noninterest expenses,
including occupancy, legal, consulting, registrar fees, filing fees, auditing
and shareholder meeting expenses, increased $6,711 due to the added costs of
being a public company. These increases were offset by reduced data processing
costs of $5,672.
Income Tax. Income tax expense decreased $29,825, or 21.56%, from
$138,329 for the three month period ended June 30, 1995, to $108,504 for the
three month period ended June 30, 1996.
Comparison of Operating Results for the Nine Months Ended
June 30, 1996 and 1995
Net Income. Net income increased $77,241, or 14.04%, for the nine
months ended June 30, 1996, when compared to the nine months ended June 30,
1995. Net interest income increased due to earnings on equity raised in the
mutual to stock conversion of the Association ("Conversion"), coupled with
increased interest income from loans, offset by increased interest expense on
deposits. Noninterest income increased due to gain on loan sales and a
contingency recovery, offset by increased operating costs as a public company
and increased income tax expense.
Total Interest Income. Interest income increased $340,980, or 9.61%,
from $3,546,418 for the nine month period ended June 30, 1995, to $3,887,398 for
the nine month period ended June 30, 1996. Interest income from mortgage loans
receivable decreased $11,786 due to a reduction in the mortgage loan portfolio
average balance. Consumer and other loan income increased by $87,168 due to
increased loan balances. Security investment income increased $189,406 due
primarily to an increase in average balance of investments as the Company
invested the proceeds from the Conversion. Interest on mortgage backed
securities increased by $76,192 due to increased principal balances attained
through purchase activities.
Total Interest Expense. Interest expense increased $264,154, or 16.22%,
for the comparative nine month periods ending June 30, 1995 and 1996. This
increase was due to the increase in the average balance of deposits,
particularly certificates of deposit, with higher rates paid on specific deposit
products.
Page 11
Net Interest Income. Net interest income increased $76,826, or 4.01%,
from $1,917,983 for the nine months ended June 30, 1995, to $1,994,809 for the
nine month period ended June 30, 1996. This was due to the increased revenue
from interest earned on the interest earning assets ($340,980), offset by
increased deposit interest expense ($264,154), due to increased average
balances. The Company's spread decreased from 3.39% to 2.98% as the cost of
interest-bearing deposits increased at a faster rate than yields on
interest-earning assets.
Provision for Loan Losses. Provisions for loan losses decreased
$18,959, or 83.58%, from $22,684 for the period ended June 30, 1995, to $3,725
for the period ended June 30, 1996. This decrease was due to management's
assessment of the loan portfolio and market conditions. See also "Comparison of
Operating Results for the Three Months Ended June 30, 1996 and 1995."
Noninterest Income. Noninterest income increased by $138,908, or
91.69%, during the nine month period ended June 30, 1996, as compared to the
same period ended June 30, 1995. This increase was primarily the result of a
$81,023 contingency recovery (See "Part II - Item 1 - Legal Proceedings") and an
increase of $61,348 in gains on the sale of loans due to the Association's sale
of $2,135,339 of mortgage loans in December 1995. Furthermore, other fees and
service charges increased $5,088, gain on sale of loans increased $2,709, and
other noninterest income increased $14,921. These noninterest income increases
were offset by a $31,185 decrease in gain on the sale of real estate owned. The
reduction in the gain on real estate owned was due primarily to the Association
recognizing a gain of $32,878 on the sale of a property in December 1994.
Noninterest Expense. Noninterest expense increased $149,172, or 13.59%,
from $1,097,542 to $1,246,714 during the comparative nine month periods ending
June 30, 1995 and 1996, respectively. Compensation and employee benefits
increased $85,911 due to director and employee compensation increases of $9,794
and expenses incurred through the ESOP and the MSBP of $100,511 offset by
reduced benefits of $24,394. Other increases in noninterest expenses were
occupancy of $7,248 and advertising of $4,353, offset by decreases in insurance
premiums of $1,258, data processing of $3,410 and real estate owned expenses of
$5,941 . "Other" noninterest expenses, including legal, consulting, registrar
fees, filing fees, auditing and shareholder meeting expenses, increased $62,269
due to the added costs of being a public company.
Income Tax. Income tax expense increased $8,280, or 2.07%, from
$399,180 for the nine month period ended June 30, 1995, to $407,460 for the nine
month period ended June 30, 1996, due to increased earnings.
Page 12
Nonperforming and Problem Assets
Nonperforming Assets. The following table sets forth information
regarding non-accrual loans, real estate owned, and other repossessed assets,
and loans 90 days or more delinquent but on which the Association was accruing
interest at the date indicated. As of the date indicated, the Association had no
loans categorized as trouble debt restructuring within the meaning of SFAS 15.
At June 30, At September 30,
1996 1995
---------------- ----------------
(In Thousands) (In Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by 1-4 dwelling units ................... $ 92 $ 29
All other mortgages.............................................. 208 -
Non-mortgage loans................................................. 21 -
------ -----
Total.............................................................. 321 29
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans:
Construction loans............................................... - -
Permanent loans secured by 1-4 dwelling units.................... 31 3
All other mortgage loans......................................... - -
Non-mortgage loans:
Consumer loans................................................... - 12
------ -----
Total.............................................................. 31 15
------ -----
Total non-accrual and accrual loans................................ 352 44
------ -----
REO (net).......................................................... - 30
Other non-performing assets........................................ - -
------ -----
Total non-performing assets........................................ $ 352 $ 74
====== =====
Total non-accrual and accrual loans to net loans................... 0.84% 0.10%
Total non-accrual and accrual loans to total assets................ 0.51% 0.06%
Total non-performing assets to total assets........................ 0.51% 0.11%
Interest income that would have been recorded on loans accounted for on a
nonaccrual basis under the original terms of such loans was $14,404 for the nine
month period ended June 30, 1996. No interest income on non-accrual loans was
included in income for the nine month period ended June 30, 1996.
Page 13
Classified Assets. OTS regulations provide for a classification system for
problems assets of insured institutions which covers all problem assets. Under
this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not corrected.
Assets classified as doubtful have all of the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as loss are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets may be designated "special
mention" because of potential weakness that do not currently warrant
classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either substandard or
doubtful, it may establish general allowances for loan losses in amount deemed
prudent by management. General allowances represent loss allowances which have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When an insured institution classifies problem assets
as loss, it is required either to establish a specific allowance for losses
equal to 100% of that portion of the asset so classified or to charge off such
amount. An institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the OTS,
which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included
in determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
At June 30, 1996, The Association's classified assets consisted of special
mention loans of $860,370, substandard loans of $1,156,289, and doubtful loans
of $83,948. A $689,349 general reserve allowance was established for both
classified and unclassified assets. Assets classified as "loss" totaled $209,767
with a $209,767 specific reserve established. The Association had delinquent
loans of 60 days or more of $531,546.
Doubtful loans may be classified due to particular aspects of the loan; such as,
delinquency, high loan-to-value ratio, poor market conditions, future employment
of owner, or environmental issues. The $83,948 doubtful loans were classified
for reasons other than delinquency. Therefore, these loans are not reflected as
nonperforming loans in the prior table.
Page 14
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Association's allowance for loan losses at
the date and for the period indicated.
For The Three Months For The Nine Months
Ended June 30, Ended June 30,
-------------------- --------------------
1996 1995 1996 1995
-------- ------- ------ ---------
(In Thousands) (In Thousands)
Gross loans outstanding (1) ................... $43,242 $43,216 $43,242 $43,216
======= ======= ======= =======
Average loans outstanding ..................... $42,892 $43,669 $43,200 $44,610
======= ======= ======= =======
Allowance balance (at beginning of period) .... $ 880 $ 1,021 $ 962 $ 1,006
------- ------- ------- -------
Provision (credit):
Residential (2) ............................. (17) 20 (14) 56
Commercial real estate ...................... 41 35 39 31
Construction ................................ 1 (1) (3) (7)
Non-mortgage and other (including land) ..... (23) (46) (18) (57)
------- ------- ------- -------
Total Provision ............................... 2 8 4 23
------- ------- ------- -------
Charge-offs:
Residential (2) ............................. 5 - 5 3
Commercial real estate ...................... 2 - 2 -
Non-mortgage and other (including land) ..... - 65 85 67
------- ------- ------- -------
Total Charge-offs ............................. 7 65 92 70
------- ------- ------- -------
Recoveries:
Residential (2) ............................. 2 - 2 3
Commercial real estate ...................... - - - 1
Non-mortgage and other (including land) ..... - - 1 1
------- ------- ------- -------
Total Recoveries .............................. 2 - 3 5
------- ------- ------- -------
Allowance balance (at end of period) .......... $ 877 $ 964 $ 877 $ 964
======= ======= ======= =======
Allowance for loan losses as a percent of gross
loans ....................................... 2.03% 2.23% 2.03% 2.23%
Net loans charged off as a percentage of
average loans outstanding ................... 0.02% 0.15% 0.21% 0.16%
<FN>
-------------------
(1) Includes total loans (including loans held for sale), net of loans
in process.
(2) Includes one-to four-family and multi-family residential real
estate loans.
</FN>
Page 15
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Association's allowance for loan losses by loan category
and the percent of loans in each category to total loans receivable at the date
indicated.
At June 30, 1996 At September 30, 1995
------------------------- ----------------------------
(Dollars in Thousands) (Dollars in Thousands)
Percent of Percent of
Loans to Total Loans to Total
Amount Loans Amount Loans
--------- -------------- -------- --------------
At end of period allocated to:
1-4 family residential
(includes held for sale)................... $ 688 87.93% $ 762 83.52%
Multi-family and commercial
real estate................................ 165 5.39% 101 9.98%
Construction................................. 1 1.57% 4 2.53%
Consumer and other loans..................... 23 5.11% 95 3.97%
------- ------ ------ ------
Total allowance........................... $ 877 100.00% $ 962 100.00%
======= ====== ====== ======
Page 16
Capital Compliance
The following table sets forth the Association's capital position at
June 30, 1996, as compared to the minimum regulatory capital requirements
imposed on the Association by the Office of Thrift Supervision ("OTS") at that
date.
At June 30, 1996
----------------------------
Percentage of
Amount Adjusted Assets
----------- ---------------
GAAP Capital: ......... $10,783,878 15.56%
=========== =====
Tangible Capital: (1)
Regulatory Requirement $ 1,037,792 1.50%
Actual Capital ...... 10,646,424 15.39%
----------- -----
Excess ............ $ 9,608,632 13.89%
=========== =====
Core Capital: (1)
Regulatory Requirement $ 2,075,584 3.00%
Actual Capital ...... 10,646,424 15.39%
----------- -----
Excess ............ $ 8,570,840 12.39%
=========== =====
Risk-Based Capital: (2)
Regulatory Requirement $ 2,680,545 8.00%
Actual Capital ...... 11,068,599 33.03%
----------- -----
Excess ............ $ 8,388,054 25.03%
=========== =====
(1) Regulatory capital reflects modifications from GAAP capital due to valuation
adjustments for available for sale securities and unallowable mortgage servicing
rights.
(2) Based on risk weighted assets of $33,506,814.
Page 17
Liquidity Resources
The Association is required to maintain minimum levels of liquid assets
as defined by the OTS regulations. The OTS minimum required liquidity ratio is
5% and the minimum short term liquidity is 1%. At June 30, 1996, the
Association's total liquidity was 26.92%. Short term liquidity at June 30, 1996,
was 15.16%. The Association adjusts its liquidity levels in order to meet
funding needs for deposit outflows, payment of real estate taxes from escrow
accounts on mortgage loans, loan funding commitments, and repayment of
borrowings, when applicable. The Association adjusts it liquidity level as
appropriate to meet its asset/liability objectives.
The primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities, maturity of investments, and funds
provided from operations. As an alternative to supplement liquidity needs, the
Association has the ability to borrow from the Federal Home Loan Bank of Des
Moines. Scheduled loan amortization and maturing investment securities are a
relatively predictable source of funds, however, deposit flow and loan
prepayments are greatly influenced by, among other things, market interest
rates, economic conditions and competition. The Association's liquidity,
represented by cash, cash equivalents, securities (held to maturity and
available for sale), is a product of its operating, investing, and financing
activities.
Below is a comparative chart identifying the minimum regulatory
liquidity required, the Association's liquidity based on the Association's
unconsolidated assets, and excess of Association liquidity over required
liquidity for short term and total liquidity.
June 30, 1996 June 30, 1995
------------- -------------
Short Term Liquid Assets
Required $ 576,764 1.00% $ 580,070 1.00%
Actual 8,742,396 15.16% 9,037,526 15.58%
--------- ------ --------- ------
Excess $8,165,632 14.16% $8,457,456 14.58%
========== ====== ========== ======
Total Liquid Assets
Required $ 2,883,820 5.00% $ 2,900,351 5.00%
Actual 15,528,974 26.92% 14,524,180 25.04%
----------- ------ ----------- ------
Excess $12,645,154 21.92% $11,623,829 20.04%
=========== ====== =========== ======
Impact of Inflation and Changing Prices
The unaudited consolidated financial statements of the Company and
notes thereto, presented elsewhere herein, have been prepared in accordance with
GAAP, which requires the measurement of financial position and operating results
in terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
financial. As a result, interest rates have a greater impact on the Company's
performance than do the general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
Page 18
Key Operating Ratios
The table below sets forth certain performance ratios of the Company for the
periods indicated.
At or for the Three Months At or for the Nine Months
Ended June 30, Ended June 30,
------------------------- --------------------------
1996 (1) 1995 (1) 1996 (1) 1995 (1)
--------- ---------- ---------- ---------
Performance Ratios:
Return on average assets (net income
divided by average total assets)....... 1.13% 1.17% 1.20% 1.12%
Return on average equity (net income
divided by average equity) (2)......... 6.08% 6.02% 6.16% 7.85%
Average interest earning assets to
average interest bearing liabilities... 124.06% 125.15% 125.04% 117.12%
Net interest rate spread................. 2.90% 3.28% 2.98% 3.39%
Net yield on average interest-earning
assets................................. 3.79% 4.13% 3.90% 3.97%
Net interest income after provision for
loan losses to total other expenses.... 154.01% 168.66% 159.71% 172.69%
Capital Ratios:
Book value per share (2)(3).............. $ 14.02 $ 13.35 $ 14.02 $ 13.35
Average equity to average assets ratio
(average equity divided by average
total assets) (2)..................... 18.60% 19.38% 19.56% 14.24%
Stockholders' equity to assets at
period end (2)......................... 18.40% 19.56% 18.40% 19.56%
<FN>
(1) The ratios for the three and nine month periods are annualized.
(2) There were no shares outstanding prior to consummation of the Company's
initial public offering on March 23, 1995 in connection with the Conversion.
(3) The number of shares outstanding as of June 30, 1996 was 909,714, includes
shares sold to the ESOP and purchased by the Management Stock Bonus Plan
and 1,007,992 as of June 30, 1995, includes shares sold to ESOP.
</FN>
Page 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
FAMCO. On April 18, 1988, the FAMCO Bankruptcy Trustee commenced with
action against numerous entities, including the Association. In Re First
American Mortgage Company, Inc., et al., Debtor, Case No. 85-B-1987, 85-B-2030 -
2049 and 86-B-0106, United States District Court of Maryland. In this action,
the Trustee was seeking the return of loan payments made to the Association by
FAMCO on account of mortgage loans on which payments had not been made from
mortgagors, and on account of mortgage loans not in the possession of the
Association based on theories of fraudulent conveyance and preference. On
October 30, 1995, the Court issued an order approving a settlement in the amount
of $65,000 between the Trustee and the Association (Adv. Pro. No. 88-0084B, Case
No. 85-B-1987). The Association had previously established a $146,023 loss
reserve. As a result of this settlement a contingency recovery of $81,023 was
recorded as noninterest income for the quarter ended December 31, 1995.
At December 31, 1995, the Company and the Association were not engaged
in any legal proceedings of a material nature.
Item 2. Changes in Securities
Not Applicable
Item 3. Default Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Regulatory Oversight and Possible Recapture of Bad Debt Reserve. Bills
have been introduced in U.S. Congress that would consolidate the OTS with the
Office of the Comptroller of the Currency ("OCC"). The resulting agency would
regulate all federally chartered commercial banks and thrift institutions. In
the event that the OTS is consolidated with the OCC, it is possible that the
thrift charter could be eliminated and all thrifts, such as the Association,
could be forced to convert to commercial banks. Under present tax law, without
further action by Congress, this would trigger a recapture of a thrift
institution's bad debt reserve. For the Association, this would result in an
expense after taxes of approximately $300,000 at September 30, 1995. Under
current law and regulations, a unitary savings and loan holding company, such as
the Company, which has only one thrift subsidiary that meets the qualified
thrift lender ("QTL") test, such as the Association, has essentially unlimited
investment authority. Legislation has also been proposed which, if enacted,
would limit the non-banking related activities of the savings and loan holding
company to those activities permitted for bank holding companies.
Page 20
Recent Developments - SAIF Insurance Disparity. The Association is a
member of the Savings Association Insurance Fund ("SAIF") and the deposits of
the Association are insured by the Federal Deposit Insurance Corporation
("FDIC"). The annual insurance premium paid by the Association, and by most
other SAIF members, is currently .23% of total deposits held. Members of the
Bank Insurance Fund ("BIF"), primarily commercial banks whose deposits are also
insured by the FDIC currently pay insurance premiums ranging from .005% to .31%,
with the majority of these institutions paying at or near the legal minimum of
$2,000 a year. This premium differential creates a competitive disadvantage to
SAIF members. Due to the failure of Congress to enact legislation addressing the
SAIF disparity, the Association management is unable to project the future
impact of delaying this issue. Management is researching alternatives to reduce
this disparity between SAIF and BIF insurance premiums.
10% Stock Repurchase. On August 5, 1996 the Company's President Thomas
J. Leiferman announced its intention to repurchase up to 90,971 shares of the
Company's stock. Mr. Leiferman said the Company has been authorized by its Board
of Directors to repurchase up to 10% of its 909,714 outstanding shares of common
stock between now and March 23, 1997. The Company has filed the necessary
regulatory notices to initiate the repurchase program. The Company has completed
two previous 5% repurchase programs.
The repurchases will be made in open market transactions, subject to
the availability of the stock, market conditions, the trading price of the stock
and the Company's financial performance. Such repurchased shares will become
treasury shares and will be utilized for general corporate purposes, including
the issuance of shares in connection with the exercise of stock options.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 11 - Statement re Computation of Per Share
Earnings.
(b) Exhibits - Report on Form 8K - On April 9, 1996, the Company filed
a Form 8-K announcing the adoption of a 5% stock repurchase plan.
Page 21
MISSISSIPPI VIEW HOLDING COMPANY
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.
Mississippi View Holding Company
Date: 08-05-96 By: /s/ Thomas J. Leiferman
---------------------- -------------------------
Thomas J. Leiferman
President and Chief Executive Officer
(Principal Executive Officer)
Date: 08-05-96 By: /s/ Larry D. Hartwig
----------------------- ---------------------
Larry D. Hartwig
Treasurer/Controller
(Principal Accounting and Financial Officer)
Page 22