U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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 September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-26510
NCF FINANCIAL CORPORATION
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(Exact name of Registrant as specified in its Charter)
Delaware 61-1285330
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
106A West John Rowan Boulevard, Bardstown, Kentucky 40004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 348-9278
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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
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Class Outstanding
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As of October 31, 1997, there were 792,609 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.
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FINANCIAL INFORMATION Page(s)
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Item I.
Financial Statements
Consolidated Balance Sheets - (Unaudited) as of June 30, 1997
and September 30, 1997 .............................................. 3
Consolidated Statements of Income - (Unaudited) for the three
month periods ended September 30, 1996 and 1997 ..................... 4
Consolidated Statements of Stockholders' Equity (Unaudited) .......... 5
Consolidated Statements of Cash Flows - (Unaudited) for the
three months ended September 30, 1996 and 1997 ...................... 6
Notes to Consolidated Financial Statements (Unaudited) ............... 7-9
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 10-11
PART II.
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OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 12
Item 2. Changes in Securities ....................................... 12
Item 3. Defaults Upon Senior Securities ............................. 12
Item 4. Submission of Matters to a Vote of Security Holders ......... 12
Item 5. Other Information ........................................... 12
Item 6. Exhibits and Reports on Form 8-K ............................ 12
Signatures ........................................................... 13
2
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands)
June 30, September 30,
1997 1997
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Assets
------
Cash and due from banks $ 200 $ 224
Interest-earning deposits 4,995 5,311
Loans receivable, net 27,047 28,069
Mortgage-backed securities
(market value - $153 and $132) 132 112
Real estate owned 724 161
Premises and equipment, net 519 569
Federal Home Loan Bank stock 442 450
Interest receivable 245 219
Deferred tax asset 58 70
Other 41 44
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Total assets $34,403 $35,229
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Liabilities and Stockholders' Equity
------------------------------------
Deposits $21,970 $22,501
Accrued expenses and other liabilities 380 385
Income taxes payable 3 98
Total liabilities 22,353 22,984
Preferred stock ($.01 par value, 100,000 shares
authorized; none issued and outstanding) - -
Common stock ($.10 par value, 1,400,000 shares
authorized; 792,609 shares issued and outstanding) 79 79
Additional paid-in capital 7,581 7,587
Retained earnings, substantially restricted 5,018 5,180
Less unearned compensation:
Employee stock ownership plan (413) (400)
Stock compensation plan (215) (201)
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Total stockholders' equity 12,050 12,245
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Total liabilities and stockholders' equity $34,403 $35,229
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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
September 30,
------------------
1996 1997
---- ----
Interest income:
Loans $575 $638
Investment securities 26 -
Mortgage-backed securities 4 4
Interest-earning deposits 48 78
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Total interest income 653 720
Interest expense:
Deposits 269 263
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Total interest expense 269 263
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Net interest income 384 457
Provision for loan losses 4 4
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Net interest income after provision
for loan losses 380 453
Non-interest income:
Loan fees and service charges 6 6
Non-interest expenses:
Compensation and employee benefits 125 137
Net occupancy expense 7 15
Deposit insurance premiums 167 5
Data processing 11 14
State franchise and other taxes 15 11
Professional fees 19 15
Other 18 30
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Total non-interest expenses 362 227
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Income before income taxes 24 232
Income tax expense - 70
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Net income $ 24 $162
==== ====
Net income per share $.03 $.20
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Cash dividend per share $.00 $.00
==== ====
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, 1996 $77 $7,270 $4,918 $(462) $11,803
Net income - - 328 - 328
Issuance of shares for
stock compensation plan 2 298 - (300) -
Compensation expense under
stock compensation plan - (7) - 85 78
Fair value of shares committed
to be released from ESOP plan - 20 - 49 69
Cash dividends paid - - (228) - (228)
--- ------ ------ ----- -------
Balance, June 30, 1997 79 7,581 5,018 (628) 12,050
Net income three months ended
September 30, 1997 - - 162 - 162
Compensation expense under
stock compensation plan - 1 - 14 15
Fair value of shares committed
to be released from ESOP plan - 5 - 13 18
--- ------ ------ ----- -------
Balance, September 30, 1997 $79 $7,587 $5,180 $(601) $12,245
=== ====== ====== ===== =======
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)
Three Months Ended
September 30,
--------------------
1996 1997
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Operating Activities:
Net income $ 24 $ 162
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 4 7
Provision for loan losses 4 4
Deferred income taxes (benefit) (64) (13)
FHLB dividends received in stock (7) (8)
Amortization of deferred loan origination fees, net - (7)
Accretion of discounts on mortgage-backed securities - -
Increase (decrease) in allowance for uncollectible
interest 14 (44)
(Increase) decrease in interest receivable (62) 70
Decrease (increase) in other assets 8 (3)
Increase in accrued expenses and other liabilities 204 5
(Decrease) increase in current income taxes payable (49) 95
ESOP plan expense 25 33
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Net Cash Provided By Operating Activities 101 301
Investing Activities:
Principal payments on mortgage-backed securities 4 20
Purchase of investment securities held-to-maturity (2,921) -
Net decrease (increase) in loans originated 398 (1,018)
Acquisition of premises and equipment - (57)
Sale of real estate owned - 563
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Net Cash Used In Investing Activities (2,519) (492)
Financing Activities:
Net (decrease) increase in deposits (157) 531
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Net Cash (Used In) Provided By Financing Activities (157) 531
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(Decrease) Increase In Cash and Cash Equivalents (2,575) 340
Cash and Cash Equivalents, beginning of period 5,163 5,195
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Cash and Cash Equivalents, end of period $ 2,588 $ 5,535
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Supplemental Disclosures:
Noncash investing and financing activities:
Cash paid during the period for:
Interest $ 311 $ 242
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Income taxes $ - $ -
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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 holding company of
NCF Bank and Trust Co. ("the Bank"), formerly Nelson County Federal Savings
Bank in connection with the conversion from a mutual to stock form of
ownership. 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.
Effective April 2, 1997, the Bank was approved as a commercial state bank
and changed its name to NCF Bank and Trust Co. The financial statements of
the Bank are presented on a consolidated basis with those of the Company.
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 month
period ended September 30, 1997 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 month period ended September 30,
1996 and 1997 are based on the average number of shares outstanding
throughout the period. 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 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.
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. This opinion also requires
deferred tax accounting if the timing of payment of the assessment is in a
period different than that of the accrual. See further discussion in Note 5
as to the impact on these financial statements.
5. Impact of New Legislation
The Small Business Job Protection Act passed by Congress in August, 1996
included a provision that repealed the percentage of taxable income bad
debt deduction for federal income tax purposes. The Bank used this method
to determine its bad debt deduction when computing federal taxes in
applicable years. This legislation also requires recapture of the excess of
bad debt reserves over the base year reserves (December 31, 1987). For
years subsequent to the base year, deferred taxes have been recorded by the
Bank for an amount equal to the excess of the bad debt reserves over the
base year reserves; thus no additional tax provision is required as a
result of this legislation. Under the legislation, the Bank may use the
experience method to calculate the bad debt deduction for federal income
tax purposes. The legislation is effective for tax years beginning after
December 31, 1995.
8
NCF FINANCIAL CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
5. Impact of New Legislation - (Continued)
---------------------------------------
The Deposit Insurance Funds Act of 1996 was passed by Congress and signed
into law by the President on September 30, 1996. This legislation includes
provisions designed to recapitalize SAIF and required all insured savings
institutions to pay a special assessment of 65.7 cents for every $100
(0.657%) of applicable deposits held as of March 31, 1995. Under FASB EITF
D-47, the Bank took a charge in the quarter ended September 30, 1996 of
$101,000 net of taxes, or $.13 per share, as required by this legislation.
As a result of the recapitalization, the FDIC lowered SAIF premiums for
most institutions from $0.23 per $100 of insured deposits to $0.064 per
$100 of insured deposits, thereby lowering the Bank's federal deposit
insurance rates by 72%, effective January 1, 1997.
9
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, 1997 and September 30, 1997
Total consolidated assets of the Company at September 30, 1997 increased by
approximately $826,000 since June 30, 1997. Total consolidated assets were
approximately $35.2 million and $34.4 million at September 30, 1997 and June 30,
1997, respectively.
The primary change in the balance sheet is the result of the Company's efforts
to offer new consumer loan products to its customers resulting in an increase of
approximately $1 million in Loans Receivable. This loan growth was funded by
both the sale of real estate owned of approximately $563,000 and an increase in
deposits of $531,000. Total deposits were $21,970,000 at June 30, 1997 and
$22,501,000 at September 30, 1997. This increase is a result of management's
effort of expanding customer account services to provide future deposit growth.
Comparison of Results of Operations for the Three Months Ended September 30,
1996 and 1997
Net Income. Net income increased $138,000 for the three months ended September
30, 1997, when compared to the same period for September 30, 1996. However, this
increase is primarily attributed to the accrual for the FDIC special assessment
of approximately $101,000 (net of tax) that occurred in the three months ended
September 30, 1996. Without this special assessment accrual, net income would
have increased by approximately $37,000 or 29.6% for the three month period as
compared to last year. Net income of $162,000 for the three months ended
September 30, 1997 resulted in earnings per share of .20 cents.
Net Interest Income. Net interest income increased $73,000 or 19% from $384,000
for the three months ended September 30, 1996 to $457,000 for the three months
ended September 30, 1997. Approximately $50,000 of this increase was
attributable to the recovery of previously reserved interest income from the
sale of real estate owned. The remaining increase was a result of an increase in
the interest rate spread from 2.85% for the three months ended September 30,
1996 to 3.21% for the three months ended September 30, 1997. One of the factors
contributing to the increase in the interest rate spread is the new consumer
lending efforts of the Company which carry higher interest rates than
traditional mortgage lending.
10
Interest Income. Total interest income increased $67,000 from $653,000 for the
three months ended September 30, 1996 to $720,000 for the three months ended
September 30, 1997. Interest on loans increased $63,000 largely due to the
recovery of $50,000 of previously reserved interest income from the sale of real
estate owned. The remaining increase of $13,000 was due to the average yield on
the loan portfolio increasing from 8.03% during the three months ended September
30, 1996 to 8.45% during the three months ended September 30, 1997.
Interest income on mortgage-backed securities and other interest-earning assets
remained consistent with the prior period.
Interest Expense. Interest expense decreased $6,000 from $269,000 for the three
months ended September 30, 1996 to $263,000 for the three months ended September
30, 1997. Between the three months ended September 30, 1996 and three months
ended September 30, 1997, the average balance of deposits decreased by $68,000,
and average rates decreased from 4.78% to 4.73%. Both of these factors
attributed to the decrease in interest expense.
Provision for Loan Losses. The provision for loan losses for the three months
ended September 30, 1996 was $4,000 compared to $4,000 for the three months
ended September 30, 1997. 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 for the
three months ended September 30, 1996 remained stable when compared to the three
months ended September 30, 1997.
Non-Interest Expense. Non-interest expense decreased by $135,000 from $362,000
for the three months ending September 30, 1996 to $227,000 for 1997. This
decrease is the direct result of the special one-time FDIC assessment accrual of
$153,000 in September, 1996 offset by minor overall increases in operating
expenses of $18,000 or 8.6%.
Income Taxes. The effective tax rate for the three months ending September 30,
1997 was approximately 30% which approximates the federal statutory rate of 34%.
For the three month period ending September 30, 1996, current income tax
provisions of $52,000 were offset by the recording of a deferred tax benefit of
$52,000 as a result of the timing of payment of the FDIC special assessment.
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. Management has no knowledge of any 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.
11
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
September 30, 1997, 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)
12
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 there unto duly authorized.
NCF FINANCIAL CORPORATION
Date: November 11, 1997 By /s/ Dan R. Biggs
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Dan R. Biggs
(Vice President and Principal
Financial Officer and duly
authorized representative)
13