U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] 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 0-26510
NCF FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 61-1285330
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
119 E. Stephen Foster Avenue, Bardstown, Kentucky 40004
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 348-9278
--------------
Indicate by check mark 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.
X Yes No
----
Class Outstanding
----- -----------
As of January 21, 1997, there were 770,500 shares of the Registrant's
common stock, par value $0.10 per share, outstanding. The Registrant has no
other classes of common equity outstanding.
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Bardstown, Kentucky
Index
PART I.
FINANCIAL INFORMATION Page(s)
Item I.
Financial Statements
Consolidated Balance Sheets - (Unaudited) as of June 30, 1996
and December 31, 1996 ............................................... 3
Consolidated Statements of Income - (Unaudited) for the three
month periods ended December 31, 1995 and 1996 and six
month periods ended December 31, 1995 and 1996 ...................... 4
Consolidated Statements of Stockholders' Equity (Unaudited) .......... 5
Consolidated Statements of Cash Flows - (Unaudited) for the
six months ended December 31, 1995 and 1996 ......................... 6
Notes to Consolidated Financial Statements (Unaudited) ............... 7-11
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 12-14
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 15
Item 2. Changes in Securities ....................................... 15
Item 3. Defaults Upon Senior Securities ............................. 15
Item 4. Submission of Matters to a Vote of Security Holders ......... 15
Item 5. Other Information ........................................... 15
Item 6. Exhibits and Reports on Form 8-K ............................ 15
Signatures ........................................................... 16
2
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands)
June 30, December 31,
1996 1996
-------- ------------
Assets
------
Cash and due from banks $ 195 $ 192
Interest-earning deposits 4,968 2,403
Loans receivable, net 28,861 27,882
Investment securities
(market value - $-0- and $2,987) - 2,921
Mortgage-backed securities
(market value - $165 and $161) 143 138
Premises and equipment, net 51 95
Federal Home Loan Bank stock 412 427
Interest receivable 220 299
Deferred tax asset 4 16
Prepaid income tax - 36
Other 51 20
------- -------
Total assets $34,905 $34,429
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Deposits $22,741 $22,363
Accrued expenses and other liabilities 247 198
Income taxes payable 114 -
------- -------
Total liabilities 23,102 22,561
Preferred stock ($.01 par value, 100,000 shares
authorized; none issued and outstanding) - -
Common stock ($.10 par value, 1,400,000 shares
authorized; 770,500 shares issued and outstanding) 77 77
Additional paid-in capital 7,270 7,278
Retained earnings, substantially restricted 4,918 4,950
Less unearned compensation:
Employee stock ownership plan (462) (437)
------- -------
Total stockholders' equity 11,803 11,868
------- -------
Total liabilities and stockholders' equity $34,905 $34,429
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1995 1996 1995 1996
---- ---- ----- ----
Interest income:
Loans $562 $571 $1,106 $1,146
Investment securities - 40 - 66
Mortgage-backed securities 6 4 11 8
Interest-earning deposits 75 38 115 86
---- ---- ------ ------
Total interest income 643 653 1,232 1,306
Interest expense:
Deposits 277 264 566 533
Federal Home Loan Bank advances - - 18 -
---- ---- ------ ------
Total interest expense 277 264 584 533
---- ---- ------ ------
Net interest income 366 389 648 773
Provision for loan losses 4 4 8 8
---- ---- ------ ------
Net interest income after provision
for loan losses 362 385 640 765
Non-interest income:
Loan fees and service charges 5 6 11 12
Non-interest expenses:
Compensation and employee benefits 102 111 178 236
Net occupancy expense 5 7 11 14
Deposit insurance premiums 12 14 25 181
Data processing 8 8 18 19
State franchise and other taxes 7 14 14 29
Professional fees 16 17 19 36
Other 17 22 32 40
---- ---- ------ ------
Total non-interest expenses 167 193 297 555
---- ---- ------ ------
Income before income taxes 200 198 354 222
Income tax expense 68 82 124 82
---- ---- ------ ------
Net income $132 $116 $ 230 $ 140
==== ==== ====== ======
Net income per share $.18 $.16 $ .32 $ .19
==== ==== ====== ======
Cash dividend per share $.00 $.15 $ .00 $ .15
==== ==== ====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
4
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(Unaudited)
(in thousands)
Additional
Common Paid-in Retained Unearned
Stock Capital Earnings Compensation Total
------ ---------- -------- ------------ -----
Balance, June 30, 1995 $ - $ - $4,636 $ - $ 4,636
Net income - - 398 - 398
Net proceeds from sale
of common stock 77 7,259 - (500) 6,836
Fair value of shares committed
to be released from ESOP plan - 11 - 38 49
Cash dividend paid - - (116) - (116)
----- ------ ------ ------ -------
Balance, June 30, 1996 77 7,270 4,918 (462) 11,803
Net income six months ended
December 31, 1996 - - 140 - 140
Fair value of shares committed
to be released from ESOP plan - 8 - 25 33
Cash dividend paid - - (108) - (108)
----- ------ ------ ------ -------
Balance, December 31, 1996 $ 77 $7,278 $4,950 $ (437) $11,868
===== ====== ====== ====== =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended
December 31,
----------------
1995 1996
---- -----
Operating Activities:
Net income $ 230 $ 140
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 7 7
Provision for loan losses 8 8
Deferred income taxes (benefit) - (12)
FHLB dividends received in stock (13) (14)
Amortization of deferred loan origination fees, net - -
Accretion of discounts on mortgage-backed securities - -
Increase in allowance for uncollectible interest 6 55
Increase in interest receivable (73) (134)
Decrease in other assets 48 31
Decrease in accrued expenses and other liabilities (124) (49)
Increase (decrease) in current income taxes payable 51 (150)
ESOP plan expense 16 41
------- -------
Net Cash Provided By (Used In) Operating Activities 156 (77)
Investing Activities:
Principal payments on mortgage-backed securities 13 5
Purchase of investment securities held-to-maturity - (2,921)
Net (increase) decrease in loans originated (1,883) 971
Acquisition of premises and equipment - (52)
------- -------
Net Cash Used In Investing Activities (1,870) (1,997)
Financing Activities:
Net decrease in deposits (1,391) (378)
Repayments of FHLB advances (700) -
Stock conversion cost (239) -
Common stock issued 7,705 -
ESOP loan (500) -
Dividends paid - (116)
------- -------
Net Cash Provided By (Used In) Financing Activities 4,875 (494)
------- -------
Increase (Decrease) In Cash and Cash Equivalents 3,161 (2,568)
Cash and Cash Equivalents, beginning of period 1,201 5,163
------- -------
Cash and Cash Equivalents, end of period $ 4,362 $ 2,595
======= =======
Supplemental Disclosures:
Noncash investing and financing activities:
Cash paid during the period for:
Interest $ 695 $ 614
======= =======
Income taxes $ 72 $ 244
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. NCF Financial Corporation
-------------------------
NCF Financial Corporation (the "Company") was incorporated under the laws
of the State of Delaware for the purpose of becoming the savings and loan
holding company of Nelson County Federal Savings and Loan Association
(the "Association") in connection with the Association's conversion from a
federally-chartered mutual savings and loan association to a
federally-chartered stock savings and loan association, pursuant to its
Plan of Conversion. The Company commenced on August 24, 1995, a
Subscription Offering of its shares in connection with the conversion of
the Association (the "Conversion"). At October 12, 1995, the Conversion was
complete. The financial statements of the Association are presented on a
consolidated basis with those of the Company. In July, 1996, the
Association changed its name to Nelson County Federal Savings Bank (the
"Bank").
The consolidated financial statements included herein are for the Company,
the Bank and the Bank's wholly owned subsidiary, Nelson Service
Corporation. The impact of Nelson Service Corporation (NSC) on the
consolidated financial statements is insignificant. NSC has no operating
activity other than to own stock in the third-party service bureau.
2. Basis of Preparation
--------------------
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and therefore, do not
include all disclosures necessary for a complete presentation of the
consolidated statements of financial condition, consolidated statements of
income, consolidated statements of stockholders' equity, and consolidated
statements of cash flows in conformity with generally accepted accounting
principles. However, all adjustments which are, in the opinion of
management, necessary for the fair presentation of the interim financial
statements have been included. The statement of income for the three and
six month periods ended December 31, 1996 is not necessarily indicative of
the results which may be expected for the entire year.
3. Earnings Per Share
------------------
Earnings per share amounts for the three and six month periods ended
December 31, 1995 and 1996 are based on the average number of shares
outstanding throughout the period, except that the initial issue of
common stock has been given an effective date of October 12, 1995.
Unallocated ESOP shares are not considered as outstanding for this
calculation.
7
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
4. New Accounting Standards
------------------------
In November, 1992, FASB issued SFAS No. 112 "Employers' Accounting for
Postemployment Benefits." SFAS No. 112 requires recognition of the
obligations to provide postemployment benefits to former or inactive
employees after employment, but before retirement. The effective date for
this statement is for fiscal years beginning after December 15, 1993. At
September 30, 1996, the statement has no material impact on the
consolidated financial statements.
In November, 1993, the American Institute of Certified Public Accountants
issued Statement of Position 93-6 "Employers' Accounting for Employee Stock
Ownership Plans." This statement is effective for fiscal years beginning
after December 15, 1993. This statement changes the way employers report
transactions with a leveraged employee stock ownership plan ("ESOP"). It
requires, among other things, that: (1) for ESOP shares committed to be
released in a period to compensate employees directly, employers should
recognize compensation cost equal to the fair value of the shares committed
to be released, and (2) for earnings-per-share computations, ESOP shares
that have been committed to be released should be considered outstanding.
ESOP shares that have not been committed to be released should not be
considered outstanding.
In November, 1995, the FASB's Emerging Issues Task Force (EITF) issued EITF
D-47 concerning the accounting for special assessments of FDIC insurance
premiums for SAIF member institutions. This opinion requires recognition of
an accrual for the FDIC special assessment in the period when legislation
was enacted to provide for such assessment. This opinion does not allow the
charge to earnings to be recorded as an extraordinary item and should be
recorded as a component of operating income. See further discussion in note
6 as to the impact on these financial statements.
In October, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). This statement must be adopted on a prospective
basis by July 1, 1996. SFAS 123 encourages, but does not require, the
adoption of a fair value method of accounting for employee stock-based
compensation transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," but would be
required to disclose in a note to the financial statements proforma net
income and earnings per share as if the new method of accounting had been
applied. Management has elected to continue to account for employee
stock-based compensation transactions under APB Opinion No. 25 and will
disclose the proforma data required by SFAS 123. Management has determined
that SFAS 123 will not have a material effect on the consolidated financial
statements.
8
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
5. Plan of Conversion
------------------
On April 27, 1995, the Bank's Board of Directors formally approved a plan
("Plan") to convert from a federally-chartered mutual savings and loan to a
federally-chartered stock savings and loan which was approved by the Bank's
members on July 31, 1995. The Plan, which includes formation of a holding
company, was approved by the Office of Thrift Supervision (OTS) and
included the filing of a registration statement with the Securities and
Exchange Commission.
NCF Financial Corporation was formed on June 19, 1995, as the holding
company for Nelson County Federal Savings and Loan Association in
connection with Association's conversion from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings and
loan association ("Conversion").
On October 12, 1995, the Company issued and sold 770,500 shares of common
stock at $10 per share in its initial public offering, including 50,000
shares to the Bank's ESOP. The net proceeds to the Company after
recognizing approximately $374,000 of expenses and underwriting costs and
$500,000 of employee compensation plans were approximately $6.8 million.
The Company used $3.7 million of the net proceeds to purchase all of the
outstanding capital stock of the Bank and invested virtually all of the
remaining proceeds in short-term investments (after loaning $500,000 to the
Bank's ESOP).
The Bank may not declare or pay a cash dividend if the effect thereof would
cause its net worth to be reduced below either the amounts required for
the liquidation account discussed below or the regulatory capital
requirements imposed by the OTS.
At the time of conversion, the Bank established a liquidation account in an
amount equal to its retained earnings as reflected in the latest
consolidated balance sheet used in the final conversion prospectus. The
liquidation account will be maintained for the benefit of eligible account
holders who continue to maintain their deposit accounts in the Bank after
conversion. In the event of a complete liquidation of the Bank (and only in
such an event), eligible depositors who continue to maintain accounts shall
be entitled to receive a distribution from the liquidation account before
any liquidation may be made with respect to common stock.
9
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
6. Deposit Insurance Premiums
--------------------------
Prior to September 30, 1996, the Bank paid an insurance premium to the
Federal Deposit Insurance Corporation (FDIC) equal to at least .23% of its
total deposits as a member of the Savings Association Insurance Fund
(SAIF). Effective January 1, 1996, the FDIC lowered the annual insurance
premium for members of the Bank Insurance Fund (BIF) to $2,000 minimum. The
disparity in insurance premiums between BIF and SAIF created a competitive
disadvantage for SAIF members by enabling BIF members to attract and retain
deposits at a lower effective cost than that possible for the Bank and put
competitive pressure on the Bank to raise its interest rates paid on
deposits, thus increasing its cost of funds and possibly reducing net
interest income. The resultant competitive disadvantage could have resulted
in the Bank losing deposits to BIF members who had a lower cost of funds
and were therefore able to pay higher rates of interest on deposits.
Although the Bank had other sources of funds, these other sources may have
had higher costs than those of deposits.
In order to allow SAIF members to enjoy the same premium levels as BIF
members, legislation was enacted on September 30, 1996. This legislation
required a special one-time premium assessment of 65.7 cents per $100 of
deposits. Under FASB EITF D-47, the Company has incurred an assessment of
approximately $153,000 and has recorded this charge to normal operating
expense during the quarter ended September 30, 1996. This charge to
earnings was offset by approximately $52,000 in tax benefits.
Beginning January 1, 1997, deposit insurance assessments for SAIF members
are expected to be reduced to approximately .064% of deposits on an annual
basis through the end of 1999. During this same period, BIF members are
expected to be assessed approximately .013% of deposits. Thereafter,
assessments for BIF and SAIF members should be the same and SAIF and BIF
may be merged. It is expected that these continuing assessments for both
SAIF and BIF members will be used to repay outstanding Financing
Corporation bond obligations. As a result of these changes, beginning
January 1, 1997, the rate of deposit insurance assessed the Bank will
decline by approximately 70%. In addition, there is certain legislation
that allows for the conversion of the thrift charter into a bank charter.
The tax impact of elimination of the thrift charter could have resulted in
recapture of existing bad debt reserves for income tax purposes in excess
of those allowed for banks. However, this potential tax implication has
generally been eliminated. As a result of this legislation, the Bank is
currently filing applications to obtain a commercial state bank charter,
however, final approval has not been received.
10
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
7. Employee Stock Ownership Plan (ESOP)
------------------------------------
The Bank has established for eligible employees an Employee Stock Ownership
Plan ("ESOP"). The ESOP borrowed $500,000 from the Holding Company and
purchased 50,000 common shares issued in the offering. The Bank is expected
to make scheduled cash contributions to the ESOP sufficient to service the
amount borrowed. The $500,000 in stock issued by the Holding Company is
reflected in the accompanying consolidated financial statements as a
charge to unearned compensation and a credit to common stock and paid-in
capital. In accordance with GAAP, the unpaid balance of the ESOP loan has
been eliminated in consolidation and the unamortized balance of unearned
compensation is shown as a deduction of stockholders' equity.
For the three and six months ending December 31, 1996, compensation from
the ESOP of approximately $25,105 and $33,862, respectively, was expensed.
Compensation is recognized at the average fair value of the ratably
released shares during the accounting period as the employees performed
services. At December 31, 1996, the ESOP had approximately 6,250 allocated
shares and 43,750 unallocated shares. The fair value of the unallocated
shares at December 31, 1996, was approximately $639,844.
The Plan administrators will determine whether dividends on allocated and
unallocated shares will be used for debt service. Any allocated dividends
used will be replaced with common stock of equal value. For the purpose of
computing earnings per share, all ESOP shares committed to be released have
been considered outstanding.
11
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following discussion and analysis is intended to assist in understanding the
financial condition and the results of operations of the Company. References to
the "Company" include NCF Financial Corporation and/or Nelson County Federal
Savings Bank, as appropriate.
Comparison of Financial Condition at June 30, 1996 and December 31, 1996
Total consolidated assets of the Company at December 31, 1996 have decreased by
approximately $476,000 since June 30, 1996. Total consolidated assets were
approximately $34.4 million and $34.9 million at December 31, 1996 and June 30,
1996, respectively.
The primary change in the balance sheet is the Company's efforts to maximize
interest earnings on liquid assets by repositioning interest-earning deposits
into Investment Securities consisting of FHLB Discount Notes of approximately $3
million. The Company also experienced some prepayment of mortgage loans which
resulted in a decline in Loans Receivable of approximately $979,000 from June
30, 1996 to December 31, 1996.
There was a decrease in deposits of approximately $378,000 or 1.7% from
$22,741,000 at June 30, 1996 to $22,363,000 at December 31, 1996. Although this
is only a small decline due to normal customer balance maintenance, management
is looking at expanding customer account services to provide future deposit
growth.
Comparison of Results of Operations for the Three Months Ended December 31, 1995
and 1996 and the Six Months Ended December 31, 1995 and 1996
Net Income. Net income decreased $16,000 from $132,000 for the three months
ended December 31, 1995 to $116,000 for the three months ended December 31, 1996
primarily because of increases in non-interest expense. Net income decreased
$90,000 for the six months ended December 31, 1996 when compared to the same
period for December 31, 1995. However, this decrease for the six month period is
primarily attributed to the payment of the FDIC special assessment of
approximately $101,000 (net of tax). Without this special assessment accrual,
net income would have increased by approximately $11,000 or 4.78% for the six
month period as compared to last year. Net income of $140,000 for the six months
ended December 31, 1996 resulted in earnings per share of .19 cents.
Net Interest Income. Net interest income increased $23,000 or 6.3% from $366,000
for the three months ended December 31, 1995 to $389,000 for the three months
ended December 31, 1996. Net interest income increased $125,000 or 19.29% from
$648,000 for the six months ended December 31, 1995 to $773,000 for the six
months ended December 31, 1996. The improvement in net interest income primarily
reflects an increase in average interest-earning assets over average
interest-bearing liabilities for the Bank of $1.9 million or 18.9% for the six
months ended December 31, 1996 as compared to 1995, enhanced by an increase in
the interest rate spread from 2.8% for the six months ended December 31, 1995 to
2.91% for the six months ended December 31, 1996. One of the factors
contributing to the increase in the interest rate spread is the repayment of
FHLB advances.
12
Interest Income. Total interest income increased $10,000 from $643,000 for the
three months ended December 31, 1995 to $653,000 for the three months ended
December 31, 1996. Interest on loans increased $9,000. Total interest income
increased $74,000 from $1,232,000 for the six months ended December 31, 1995 to
$1,306,000 for the six months ended December 31, 1996. Interest on loans
increased $40,000 or 3.6%. An increase of $28,000 was attributable to a 1.3%
rise in the average balance of loans outstanding and $12,000 of the increase was
due to the average yield on the loan portfolio increasing from 8.00% during the
six months ended December 31, 1995 to 8.06% during the six months ended December
31, 1996.
Interest income on mortgage-backed securities decreased by $2,000 for the three
months ended December 31, 1996 when compared to the same period for December 31,
1995. Interest income on mortgage-backed securities decreased $3,000 from
$11,000 for the six months ended December 31, 1995 to $8,000 for the six months
ended December 31, 1996. This decrease was solely due to the principal
repayments on the existing portfolio.
Interest income from other interest-earning assets remained substantially level
for the three months ended December 31, 1996 compared to the three months ended
December 31, 1995. Interest income from other interest-earning assets increased
$37,000 from $115,000 for the six months ended December 31, 1995 to $152,000 for
the six months ended December 31, 1996. The average balance of other
interest-earning assets for the Bank increased $618,000 or 12.6% for the six
months ended December 31, 1996. In addition, the average yield continued to
increase for the six months ended December 31, 1996 from 5.27% to 5.51% which in
combination with the volume increase resulted in the overall increase.
Interest Expense. Interest expense decreased $13,000 from $277,000 for the three
months ended December 31, 1995 to $264,000 for the three months ended December
31, 1996. Interest expense decreased $51,000 from $584,000 for the six months
ended December 31, 1995 to $533,000 for the six months ended December 31, 1996.
The decrease for the six months ended December 31, 1996 was the result of a
$18,000 decrease in interest on advances that were outstanding in 1995 but not
in 1996. Between the six months ended December 31, 1995 and six months ended
December 31, 1996, the average balance of deposits decreased by $905,000, and
average rates decreased from 4.82% to 4.76%. Both of these factors attributed to
the decrease in interest expense.
Provision for Loan Losses. The provision for loan losses for the three months
and six months ended December 31, 1995 was $4,000 and $8,000, respectively, and
was the same for the three months and six months ended December 31, 1996.
Historically, management has emphasized the Company's loss experience over other
factors in establishing provisions for loan losses. However, management has
reviewed the allowance for loan losses in relation to the Company's composition
of its loan portfolio and observations of the general economic climate and loan
loss expectations.
Non-Interest Income. Fee income and other service charges of $6,000 and $12,000,
respectively, for the three months and six months ended December 31, 1996
remained relatively stable when compared to the three months and six months
ended December 31, 1995.
13
Non-Interest Expense. Non-interest expense increased by $26,000 from $167,000
for the three months ended December 31, 1995 to $193,000 for the three months
ended December 31, 1996. Non-interest expense increased by $258,000 from
$297,000 for the six months ending December 31, 1995 to $555,000 for the six
months ended December 31, 1996. These increases are the direct result of the
special one-time FDIC assessment accrual, additional operating expense as a
public company and the effect of increased compensation from the recognition of
allocated ESOP shares at fair market value and increased compensation from the
recognition of the Directors Consultation and Retirement Plan (Directors Plan)
agreement. During the six month period ended December 31, 1996, the Company
recognized a $153,000 expense accrual for the FDIC special assessment. During
the six month period ending December 31, 1996, the Company recognized $34,000 of
compensation expense related to the Employee Stock Ownership Plan compared to
$16,000 of compensation expense for the six months ended December 31, 1995.
During the six month period ending December 31, 1996, the Company recognized
approximately $43,000 of compensation expense related to the Directors Plan
agreement. Other non-interest expense items remained relatively stable with
minor percentage changes.
Income Taxes. The effective tax rate for the three months ending December 31,
1995 and 1996 and the six months ending December 31, 1996 and 1995 was
approximately 34%. Since there are no state income taxes imposed on the Bank,
the effective tax rate remained at approximately the statutory percentage.
Liquidity and Capital Resources. The Company's primary sources of funds are
deposits and proceeds from principal and interest payments on loans and
investment securities. While maturities and scheduled amortization of loans and
investment securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition. The Company's primary investing activity is loan
originations. The Company maintains liquidity levels adequate to fund loan
commitments, investment opportunities, deposit withdrawals and other financial
commitments. At December 31, 1996, the Bank has a commitment for the
construction of a new bank location with an anticipated cost of approximately
$500,000. The Bank has applied to convert its charter to that of a commercial
bank chartered by the Commonwealth of Kentucky. The Company expects to apply to
the Board of Governors of the Federal Reserve System ("FRB") for authority to
act as a bank holding company. Although no assurances can be given, it is
expected that these events will occur during 1997 and, if they occur, each of
the Bank and the Company will be subject to capital and other requirements
imposed by these regulators as well as by the FDIC. Currently, the Company is
primarily regulated by the Office of Thrift Supervision ("OTS") and, to a lesser
extent, the FDIC and is not required to maintain any capital levels. The Bank is
currently subject to regulation primarily by the Office of Thrift Supervision
and the FDIC. Following these events, the Company will be regulated primarily by
the FRB and, to a lesser extent, the FDIC and the Bank will be primarily
regulated by the Commonwealth of Kentucky and the FDIC. However, it is not
expected that the change in regulators or the imposition of new capital
requirements will have a material adverse impact on the liquidity or capital
resources of the Company or the Bank. Management also does not believe, based on
its discussion with these regulators, that the change in regulators will have a
material adverse impact on the operations of the Company or the Bank. Management
has no knowledge of any other trends, events or uncertainties that will have or
are reasonably likely to have material effects on the liquidity, capital
resources or operations of the Company. Further, management is not aware of any
current recommendations by the regulatory authorities which, if implemented,
would have such an effect.
14
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and any subsidiaries may be a party to
various legal proceedings incident to its or their business. At
December 31, 1996, there were no legal proceedings to which the
Company or any subsidiary was a party, or to which of any of their
property was subject, which were expected by management to result in a
material loss.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits: Exhibit 27 (financial data schedule)
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
15
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.
NCF FINANCIAL CORPORATION
Date: February 12, 1997 By /s/ Dan R. Biggs
----------------- ----------------
Dan R. Biggs
(Vice President and Principal
Financial Officer and duly
authorized representative)
16