U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------------
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ________________ to ________________
Commission File Number 0-24304
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FORREST CITY FINANCIAL CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 71-0756156
- -------------------- ---------------
(State or other jurisdiction (IRS Employer
of incorporation or Identification
organization) Number)
715 North Washington Street, Forrest City, AR 72335
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(Address of principal executive offices)
(870) 633-1525
----------------
(Registrant's telephone number)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 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 registrant's classes of
common equity, as of the latest practicable date: As of May 8, 1997, there were
193,303 shares of the registrant's common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ ]
FORREST CITY FINANCIAL CORPORATION
AND SUBSIDIARY
INDEX
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PART I. FINANCIAL INFORMATION (unaudited) PAGE NO.
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Statements of Financial
Condition March 31, 1997 and June 30, 1996 3
Consolidated Condensed Statements of Operations
for the Three and Nine Months Ended
March 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended March 31, 1997
and 1996 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 17
Signature Page 18
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FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
FORREST CITY, ARKANSAS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, June 30,
1997 1996
----------- -----------
ASSETS
Cash and Cash Equivalents
Cash and amounts due from depository institution $ 256,370 $ 213,514
Interest-bearing deposits in other banks 1,416,191 1,039,850
----------- -----------
Total cash and cash equivalents $ 1,672,561 $ 1,253,364
Securities available for sale, at fair value 7,475,062 8,324,402
Securities held to maturity (fair value $8,296,542
at March 31, 1997 and $9,465,167 at
June 30, 1996) 8,559,740 9,759,519
Loans receivable, net 33,385,229 30,418,821
Office properties and equipment, net 487,722 458,577
Stock in FHLB and FRB, at cost 1,219,100 982,000
Accrued interest receivable 322,325 330,382
Foreclosed real estate, net 168,747 146,000
Other assets 203,562 227,711
----------- -----------
Total Assets $53,494,048 $51,900,776
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $31,569,576 $26,955,716
Borrowed Funds 16,100,198 19,311,770
Advances from borrowers for taxes and insurance 265,315 132,517
Accrued expenses and other liabilities 529,409 435,093
Income taxes 81,759 81,759
----------- -----------
Total Liabilities $48,546,257 $46,916,855
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 100,000
shares authorized; none issued $ - $ -
Common Stock, $.01 par value; 500,000 shares
authorized; 236,109 issued; 192,157 and
201,699 outstanding respectively 2,361 2,361
Additional Paid In Capital 3,217,420 3,217,493
Retained Earnings - substantially restricted 2,594,531 2,491,914
Unrealized loss on securities available-for-sale (22,944) (27,657)
Less common stock acquired by:
Employee Stock Ownership Plan (123,782) (165,042)
Management Recognition & Retention Plan ( 53,289) ( 68,760)
Treasury Stock - 42,578 and 33,036 shares, at cost (666,506) (466,388)
----------- -----------
Total Stockholders' Equity $ 4,947,791 $ 4,983,921
----------- -----------
Total Liabilities and Stockholders' Equity $53,494,048 $51,900,776
=========== ===========
See accompanying Notes to Consolidated Condensed Financial Statements.
- 3 -
FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
FORREST CITY, ARKANSAS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
INTEREST INCOME
Interest on loans $ 709,358 $541,293 $2,129,905 $1,517,735
Interest on mortgage-backed securities 241,014 267,390 768,280 886,632
Interest on investment securities 67,190 59,711 199,780 191,237
---------- -------- ---------- ----------
Total interest income $1,017,562 $868,394 $3,097,965 $2,595,604
---------- -------- ---------- ----------
INTEREST EXPENSE
Savings and time deposits $ 373,527 $331,890 $1,028,084 $1,014,386
Borrowed Funds 267,617 208,536 859,967 669,212
---------- -------- ---------- ----------
Total interest expense $ 641,144 $540,426 $1,888,051 $1,683,598
---------- -------- ---------- ----------
Net interest income $ 376,418 $327,968 $1,209,914 $ 912,006
PROVISION FOR LOAN LOSSES 44,265 - 88,683 -
---------- -------- ---------- ----------
Net interest income after provision
for loan losses $ 332,153 $327,968 $1,121,231 $ 912,006
---------- -------- ---------- ----------
OTHER INCOME
Loan fees and service charges $ 19,084 $ 5,779 $ 52,590 $ 21,896
Gain on sale of securities 4,773 8,422 12,614 32,348
Other operating income 50,780 16,842 157,124 51,388
---------- -------- ---------- ----------
Total other income $ 74,637 $ 31,043 $ 222,328 $ 105,632
---------- -------- ---------- ----------
OTHER EXPENSE
Compensation and benefits $ 168,863 $142,929 $ 483,424 $ 416,638
Occupancy expense 14,525 13,857 42,657 43,930
Federal insurance premiums (8,612) 19,789 218,749 57,205
Data processing expense 25,579 19,902 71,637 51,624
Professional Fees 30,808 11,392 91,004 51,496
Net cost of operations of foreclosed
real estate 853 (936) (642) (727)
Other operating expenses 78,793 57,739 213,113 149,043
---------- -------- ---------- ---------
Total other expense $ 310,809 $264,672 $1,119,942 $ 769,209
---------- -------- ---------- ---------
Income before income tax expense $ 95,981 $ 94,339 $ 223,617 $ 248,429
INCOME TAX EXPENSE 24,500 31,504 121,000 82,087
--------- -------- ---------- ---------
NET INCOME $ 71,481 $ 62,835 $ 102,617 $ 166,342
========== ======== ========== =========
Earnings per common share $ .36 $ .29 $ .51 $ .76
========== ======== ========== =========
See accompanying Notes to Consolidated Condensed Financial Statements.
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FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
FORREST CITY, ARKANSAS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
-------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 102,617 $ 166,342
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 24,813 26,949
Amortization of deferred compensation 56,731 56,731
Amortization of deferred loan fees (19,285) (36,701)
Premium amortization, net of discount accretion 28,178 45,358
Provision for losses on loans and real estate 88,683 -
Net realized gains on available for sale securities (12,614) (32,348)
Decrease (increase) in accrued interest 8,057 (11,014)
Decrease (increase) in other assets 40,970 47,776
Decrease (increase) in cash value life insurance (16,821) (16,821)
Increase (decrease) in accrued expenses 94,316 42,317
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Net cash provided by operating activities $ 395,645 $ 288,589
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CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans made to customers $(3,035,806) $(5,146,037)
Purchase of office property and equipment (53,958) (9,759)
Purchase of FHLB and FRB Stock (237,100) (358,300)
Purchase of held-to-maturity securities - (2,690,094)
Proceeds from maturities of held-to-maturity securities 1,163,062 4,368,381
Purchases of available-for-sale securities (1,753,455) (1,313,457)
Proceeds from sales of available-for-sale securities 1,490,908 2,669,018
Proceeds from maturities of available-for-sale securities 1,137,753 -
Investment in foreclosed real estate (22,747) -
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Net cash used in investing activities $(1,311,343) $(2,480,248)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 4,613,860 $ 1,531,536
Net increase (decrease) in short-term from FHLB (8,000,000) 10,000,000
Net decrease in short-term borrowings of securities
sold under agreements to repurchase - (14,000,000)
Proceeds from long-term Federal Home Loan Bank advances 5,500,000 5,000,000
Payment on long-term Federal Home Loan Bank advances (711,572) (107,573)
Purchase of treasury stock (206,603) (325,978)
Proceeds from reissuance of treasury stock 6,412 -
Net increase in advances from borrowers for taxes
and insurance 132,798 72,192
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Net cash provided by financing activities $ 1,334,895 $ 2,170,177
----------- -----------
Net increase (decrease) in cash $ 419,197 $ (21,482)
Cash - beginning of year 1,253,364 1,348,415
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Cash - end of year $ 1,672,561 $ 1,326,933
=========== ===========
CASH PAID DURING THE PERIOD FOR:
Interest $ 1,165,427 $ 992,267
Income Taxes 158,000 6,500
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Increase (decrease) in unrealized loss on
securities available-for-sale (4,713) 6,106
Acquisition of real estate in settlement of loans 141,335 -
See accompanying Notes to Consolidated Condensed Financial Statements.
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FORREST CITY FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
The accompanying consolidated financial statements include the accounts
of Forrest City Financial Corporation (the "Holding Corporation") and
its wholly-owned subsidiary, Forrest City Bank, NA (the "Bank"). All
significant intercompany transactions have been eliminated in
consolidation. The accompanying financial statements for the interim
periods are unaudited. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments (consisting
of normal recurring adjustments) which are necessary for a fair
presentation of the results of operations for such periods but should
not be considered as indicative of results for a full year.
2. CONVERSION
----------
The Bank completed a conversion from a mutual to a stock savings and
loan association on July 28, 1994. Simultaneous with the conversion was
the formation of the Holding Corporation, incorporated in the State of
Delaware. The initial issuance of shares of common stock in the Holding
Corporation on July 28, 1994 was 229,233 shares at $15 per share,
resulting in net proceeds of $3,116,713 and was accomplished through a
subscription and community offering. Costs associated with the
conversion and stock offering amounted to $322,000 and was accounted
for as a reduction of the proceeds from the issuance of common stock of
the Holding Corporation. Upon closing of the stock offering, the
Holding Corporation purchased all common shares issued by the Bank.
This transaction was accounted for in a manner similar to the pooling
of interests method.
Federal regulations require that, upon conversion from a mutual to
stock form of ownership, a "liquidation account" be established by
restricting a portion of net worth for the benefit of eligible savings
account holders who maintain their savings accounts with the Bank after
conversion.
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FORREST CITY FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In the event of complete liquidation (and only in such event), each
savings account holder who continues to maintain his savings account
shall be entitled to receive a distribution from the liquidation
account after payment to all creditors, but before any liquidation
distribution with respect to capital stock. This account will be
proportionately reduced for any subsequent reduction in the eligible
holders' savings accounts.
Federal regulations imposes limitations on the payment of dividends and
other capital distributions, including, among other, that the Bank may
not declare or pay a cash dividend on any of its stock if the effect
thereof would cause the Bank's capital to be reduced below the amount
required for the liquidation account or the capital requirements
imposed by the Financial Institutions Reform Recovery and Enforcement
Act (FIRREA).
3. EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
The Holding Corporation has established an employee stock ownership
plan ("ESOP"). At the date of the conversion described in Note 2, the
ESOP purchased 18,338 shares of common stock of the Holding Corporation
financed by a loan to the ESOP from the Holding Corporation. The
balance of the loan was $124,000 at March 31, 1997 and is reflected as
a reduction of consolidated stockholders' equity although the borrowing
is not guaranteed by the Holding Corporation or the Bank and does not
constitute a legally binding contribution commitment. The borrowing is
payable in quarterly principal payments of $13,754 over a five year
period plus interest. All full-time employees are eligible to
participate in the ESOP after attaining age 21 and completing one year
of service during which they worked at least 1,000 hours.
4. MANAGEMENT RECOGNITION AND RETENTION PLAN
-----------------------------------------
The Holding Corporation has established a Management Recognition and
Retention Plan ("MRP") as a method of providing key officers with a
proprietary interest in the Holding Corporation in a manner designed to
encourage such individuals to remain with the Holding Corporation or
- 7 -
FORREST CITY FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Bank. The awards vest at a rate of 20% per year, with the first
installment vesting October 25, 1995, and annually thereafter.
Pursuant to the MRP, restricted stock awards for shares of the
Corporation's common stock aggregating 3% or 6,876 shares of common
stock issued during conversion were reserved from authorized but
unissued shares. The Corporation has granted 6,702 shares as of March
31, 1997. Consolidated stockholder's equity was reduced by the unearned
compensation in the amount of $103,140. The balance of the unvested
portion was approximately $53,000 at March 31, 1997.
5. EARNINGS PER COMMON SHARE
-------------------------
Earnings per share of common stock is computed by dividing the
weighted average number of shares of common stock and common stock
equivalents outstanding during the periods ended. The weighted average
number of shares used in the earnings per share computation were
196,860 and 199,893 for the three-month and nine-month periods ended
March 31, 1997 respectively.
On October 25, 1994, shareholders of the Corporation ratified
the adoption of the Corporation's 1994 Stock Option and Incentive Plan.
Pursuant to the Stock Option and Incentive Plan, 22,923 shares of the
Corporation's common stock has been reserved for issuance from
authorized but unissued shares, of which the Corporation has granted
options on 21,269 shares at a price of $14 per share on 18,337 shares,
$16 on 2,292 shares, and $17.50 on 1,000 shares. As of March 31, 1997,
options on 22,465 shares of the Corporation common stock remain
unexercised.
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FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
Forrest City Financial Corporation (the "Holding Corporation") was
incorporated under the laws of the State of Delaware to become a savings and
loan holding company with Forrest City Bank, FSB (the "Bank") as its subsidiary.
The Holding Corporation was incorporated at the direction of the Board of
Directors of the Bank and on July 28, 1994 acquired all of the capital stock of
the Bank upon its conversion from mutual to stock form (the "Conversion"). Prior
to the Conversion, the Holding Corporation did not engage in any material
operations and had no significant assets.
The Bank is principally engaged in the business of attracting retail
savings deposits from the general public and investing those funds in first
mortgage loans on owner occupied, single-family residential loans, multi-family
loans, investment and mortgage-backed securities. To a lesser extent, the Bank
offers secured consumer loans, including home equity loans, loans secured by
savings deposits and unsecured consumer credit. The Bank currently originates
all of its consumer loans in its primary market area. The Bank originates
consumer loans on a direct basis by extending credit directly to the borrower.
At March 31, 1997, approximately $112,000 of the consumer loan portfolio was not
performing. There can be no assurance that additional delinquencies will not
occur in the future.
The Corporation's results of operations are primarily dependent upon
the difference (or "spread") between the average yield earned on loans,
mortgage-backed securities and other investments and the average rate paid on
deposits and borrowings. The interest rate spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand and
deposit flows. The Corporation had experienced a decline in this spread as a
result of increases in interest rates paid on interest-bearing liabilities as
compared to interest earned on interest-earning assets due to repricing. The
Corporation has seen recent improvement in the spread with the stabilization of
short-term rates and repricing of rate sensitive assets.
The Corporation commenced a stock repurchase program whereby the
Corporation may repurchase its common stock in the open market. At March 31,
1997, the Corporation had repurchased and held 42,578 shares as treasury stock
at a cost of $666,506.
- 9 -
FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Effective January 1, 1997, Forrest City Bank, FSB converted to a
national-chartered bank and changed its name to Forrest City Bank, N.A. In
conjunction with this conversion, Forrest City Financial Corporation has
converted its charter to a national bank holding company.
FINANCIAL CONDITION
- -------------------
Total assets of the Corporation increased $1.6 million, or 3.2% to
$53.5 million at March 31, 1997 compared to $51.9 million at June 30, 1996. This
increase was primarily reflected in an increase in net loans receivable and cash
in banks.
Securities available for sale decreased $.8 million, or .10% to $7.5
million at March 31, 1997 compared to $8.3 million at June 30, 1996. The net
decrease results from purchases of $1.8 million offset by sales and maturities
of $2.6 million. Realized gains on sales was approximately $4,700 for the
quarter ended March 31, 1997.
Securities held to maturity decreased $1.2 million, or 12.3% to $8.5
million at March 31, 1997 compared to $9.7 million at June 30, 1996. This
decrease is due to maturities and principal payments received for assets in this
classification. There were no purchases of securities under the held to maturity
category for the quarter ended March 31, 1997.
Loans receivable increased $3.0 million, or 9.8% to $33.4 million at
March 31, 1997 compared to $30.4 million at June 30, 1996. This increase was
primarily due to an increase in first mortgage loans. Stock in the Federal Home
Loan and Federal Reserve Banks increased $237,100, or 24.1% to $1,219,100 at
March 31, 1997 compared to $982,000 at June 30, 1996. This increase is due to
required purchases as a result of increased borrowings and total assets.
Total deposits increased $4.6 million or 17.1% to $31.6 million at
March 31, 1997 compared to $27.0 million at June 30, 1996. Management believes
the increase in deposit base to be attributable to the stabilization of interest
rates in the market area and an increase in its efforts in checking account
services offered by the Bank. These factors have had a direct impact on both the
number of transaction accounts and the resulting increase in deposit account
balances.
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FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Borrowed funds decreased $3.2 million, or 16.6% to $16.1 million at
March 31, 1997 compared to $19.3 million at June 30, 1996. The decrease in
borrowed funds reflects the effect of increased deposits which resulted in a
reduction in borrowings as a source of funding operations.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997
- ---------------------------------------------------------
COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
- ---------------------------------------------
Net income increased by $8,000 to $71,000 for the quarter ended March
31, 1997 compared to $63,000 for the quarter ended March 31, 1996. The increase
was primarily due to a greater increase in net interest income and account
service fees over increases in other operating expenses for the quarter ended
March 31, 1997 compared to the same period ended March 31, 1996. Further
discussion of changes in these and other items are discussed below.
Net Interest Income. Net interest income increased $48,000 or 14.8%
from $328,000 to $376,000 for the quarter ended March 31, 1997. This increase
reflects an improved interest rate spread and an increase in average interest
earnings assets over interest bearing liabilities for the period. The impact of
repricing and lower cost of funds as a result of increases in transaction
account deposits has had a positive effect on the interest rate spread.
Interest Income. Interest income increased $149,000 or 17.2% to
$1,017,000 for the quarter ended March 31, 1997 compared to $868,000 for the
same period ended March 31, 1996. The increase was primarily due to increases in
interest earned on loans. Interest income on loans increased $168,000 for the
quarter ended March 31, 1997 compared to the quarter ended March 31, 1996. This
increase is primarily attributable to higher balances invested int he portfolio
as well as a slight increase in yields.
Interest Expense. Interest expense increased by $101,000 or 18.6% to
$641,000 for the quarter ended March 31, 1997 compared to $540,000 for the
quarter ended March 31, 1996. The increase in Federal Home Loan Bank borrowings
for the quarter ended March 31, 1997 compared to March 31, 1996 resulted in an
increase in interest expense of $59,000 or 28.3% to $268,000 for the quarter
ended March 31, 1997 compared to $209,000 for the same period ended March 31,
1996. Interest expense on savings and time deposits increased by $42,000 or
12.5% to $374,000 for the quarter ended March 31, 1997 compared to $332,000 for
the quarter
- 11 -
FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ended March 31, 1996. While the cost of these funds are comparatively lower, the
increase in expense is primarily related to higher balances outstanding for the
quarter ended March 31, 1997 compared to the same period ended March 31, 1996.
Provision for Loan Losses. The Bank's provision for loan losses was
$44,000 for the quarter ended March 31, 1997 compared to no provision for the
same period ended March 31, 1996. Management continues to monitor its allowance
for loan losses and may make future additions to the allowance through the
provision for loan losses as economic and regulatory conditions dictate.
Although the Bank maintains its allowance for loan losses at a level which it
considers to be adequate to provide for potential losses, there can be no
assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods. In
addition, the Bank's determination as to the amounts of the allowance for loan
losses is subject to review by regulatory agencies which can order the
establishment of additional general or specific allowances.
Non-Interest Income. Non-interest income increased $44,000 for the
quarter ended March 31, 1997 compared to the quarter ended March 31, 1996. This
increase is primarily due to an increase in service fee income relative to the
Bank's transaction account customers.
Non-Interest Expense. Non-interest expense increased $46,000 or 17.4%
to $311,000 for the three months ended March 31, 1997 compared to $265,000 for
the same period ended March 31, 1996. Compensation and employee benefits
increased $26,000 due to added personnel to handle the increased transaction
volume of the Bank. Other operating expenses for supplies, postage, processing
and servicing fees have increased due to the increase in transaction volume and
new accounts. Professional fees increased by $19,000 for the quarter ended March
31, 1997 compared to March 31, 1996 as a result of increased legal and
accounting fees incurred relative to the Bank's conversion to a national bank
charter.
Income Tax Expense. Income tax expense was $25,000 for the quarter
ended March 31, 1997 compared to $32,000 for the quarter ended March 31, 1996.
The current income tax expense represents estimated tax on an annualized basis
based on management's estimated earnings for the period.
- 12 -
FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 1997 COMPARED
- -----------------------------------------------------------------
TO NINE MONTHS ENDED MARCH 31, 1996.
- ------------------------------------
Net income decreased by $63,000 to $103,000 for the nine-month period ended
March 31, 1997 compared to $166,000 for the nine-month period ended March 31,
1996. The decrease was primarily attributable to the one-time charge to
recapitalize the Savings Association Insurance Fund during the first quarter of
the Bank's fiscal year of approximately $168,000. Further discussion of changes
in this and other items are discussed below.
Net Interest Income. Net interest income increased $298,000 or 32.7%
from $912,000 to $1,210,000 for the nine-month period ended March 31, 1997. This
increase reflects an improved interest rate spread and an increase in average
interest earnings assets over interest bearing liabilities for the period. The
impact of repricing and lower cost of funds as a result of increases in
transaction account deposits has had a positive effect on the interest rate
spread.
Interest Income. Interest income increased $502,000 or 19.3% to
$3,098,000 for the nine-month period ended March 31, 1997 compared to $2,596,000
for the same period ended March 31, 1996. The increase was primarily due to
increases in interest earned on loans. Interest income on loans increased
$612,000 for the nine-month period ended March 31, 1997 compared to the same
period ended March 31, 1996. The increase is primarily attributable to higher
balances invested in the portfolio as well as a slight increase in yields.
Interest Expense. Interest expense increased by $204,000 or 12.1% to
$1,888,000 for the nine-month period ended March 31, 1997 compared to $1,684,000
for the nine-month period ended March 31, 1996. The increase in Federal Home
Loan Bank borrowings for the nine-month period ended March 31, 1997 compared to
March 31, 1996 resulted in an increase in interest expense of $191,000 or 28.5%
to $860,000 for the nine-month period ended March 31, 1997 compared to $669,000
for the same period ended March 31, 1996. Interest expense on savings and time
deposits increased by $14,000 or 1.4% to $1,028,000 for the nine-month period
ended March 31, 1997 compared to $1,014,000 for the nine-month period ended
March 31, 1996. While the cost of these funds are comparatively lower, the
increase in expense is primarily related to higher balances outstanding for the
nine-month period ended March 31, 1997 compared to the same period ended March
31, 1996.
- 13 -
FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Provision for Loan Losses. The bank's provision for loan losses was
$89,000 for the nine-month period ended March 31, 1997 compared to no provision
for the same period ended March 31, 1996. Management continues to monitor its
allowance for loan losses and may make future additions to the allowance through
the provision for loan losses as economic and regulatory conditions dictate.
Although the Bank maintains its allowance for loan losses at a level which it
considers to be adequate to provide for potential losses, there can be no
assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods. In
addition, the Bank's determination as to the amounts of the allowance for loan
losses is subject to review by regulatory agencies which can order the
establishment of additional general or specific allowances.
Non-Interest Income. Non-interest income increased $117,000 for the
nine-month period ended March 31, 1997 compared to the nine-month period ended
March 31, 1996. This increase is primarily due to an increase in service fee
income relative to the Bank's transaction account customers.
Non-Interest Expense. Non-interest expense increased $351,000 or 45.6%
to $1,120,000 for the nine months ended March 31, 1997 compared to $769,000 for
the same period ended March 31, 1996. Compensation and employee benefits
increased $67,000 due to the added personnel to handle the increased transaction
volume of the Bank. Other operating expenses for supplies, postage, processing
and servicing fees have increased due to the increase in transaction volume and
new accounts. Federal insurance premiums and assessments increased by $161,000
for the nine-month period ended March 31, 1997 compared to the same period ended
March 31, 1996. This increase was primarily due to the payment of the special
assessment in the first quarter of the fiscal year. Professional fees increased
by $39,000 for the nine-month period ended March 31, 1997 compared to March 31,
1996 as a result of increased legal and accounting fees incurred relative to the
Bank's conversion to a national bank charter.
Income Tax Expense. Income tax expense was $121,000 for the nine-month
period ended March 31, 1997 compared to $82,000 for the nine-month period ended
March 31, 1996. The current income tax expense represents estimated tax on an
annualized basis based on management's estimated earnings for the period.
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FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NON-PERFORMING ASSETS AND LOAN LOSS PROVISION
- ---------------------------------------------
The allowance for loan losses was $304,000 or .91% of loans receivable,
net at March 31, 1997 as compared to .86% of loans receivable, net at June 30,
1996.
The ratio of non-performing assets to total assets is one indicator of
the exposure to credit risk. Non-performing assets of the Company may consist of
non-accruing loans, accruing loans delinquent 90 days or more and foreclosed
assets which have been acquired as a result of foreclosure, deed-in-lieu of
foreclosure or deemed foreclosed.
The table below sets forth the amounts and categories of non-performing
assets in the Bank's loan portfolio.
March 31, June 30,
1997 1996
---- ----
Non-accruing loans:
One- to four-family $ 52,073 $ 124,209
Commercial - -
Consumer 111,993 186,369
-------- --------
Total $ 164,066 $ 310,578
-------- --------
Foreclosed assets:
One- to four-family $ 168,747 $ 69,500
Multi-family - -
Commercial real estate - 76,500
-------- --------
Total $ 168,747 $ 146,000
-------- --------
Total non-performing assets $ 332,813 $ 456,578
======== ========
Total as a percentage of total assets .62% .88%
=== ===
Total non-performing assets decreased to $332,813 or .62% of total
assets at March 31, 1997 from $456,578 or .88% of total assets at June 30, 1996.
The decrease in non-performing assets was primarily due to a decrease in
non-accruing loans which were delinquent greater than 90 days at March 31, 1997
as compared to June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Bank's primary sources of funds are deposits and repayment of loans
and mortgage-backed securities and interest earned on investments. While
scheduled loan repayments and
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FORREST CITY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
maturing investments are relatively predictable, deposit flows and early loan
repayments are more influenced by interest rates, general economic conditions
and competition. The Bank has been selective with regard to deposit rates on
certain savings products, and, when necessary, has supplemented deposits with
longer term and/or less expensive alternative sources of funds.
Other potential sources of funds available to the Bank include
borrowings from the Federal Home Loan Bank of Dallas. At March 31, 1997, the
Bank had $16.1 million of Federal Home Loan Bank borrowings outstanding. The
Bank uses its liquid resources principally to meet on-going commitments, to fund
maturing certificates of deposit and deposit withdrawals, to invest, to fund
existing and future loan commitments, to maintain liquidity and to meet
operating expenses. The Bank anticipates that it will have sufficient funds
available to meet current loan commitments. At March 31, 1997, the Bank had
outstanding commitments to extend credit amounting to approximately $2.4
million. Management believes that loan repayments and other sources of funds
will be adequate to meet the Bank's foreseeable liquidity needs.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory---and possibly additional
discretionary---actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets,liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. The table below presents the
capital position at March 31, 1997 (in thousands).
Actual Required Excess
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Risk-based capital:
Tier 1 capital 4,012 13.7% 1,166 4.00% 2,846 9.7%
Total capital 4,327 14.8% 2,332 8.00% 1,995 6.8%
Tier 1 leverage ratio 4,012 7.3% 1,166 4.00% 2,846 3.3%
- 16 -
FORREST CITY FINANCIAL CORPORATION
AND SUBSIDIARY
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
Not Applicable
Item 2: Changes in Securities
Not Applicable
Item 3: Defaults Upon Senior Securities
Not Applicable
Item 4: Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5: Other Information
Not Applicable
Item 6: Exhibits and Reports on Form 8-K
Not Applicable
- 17 -
SIGNATURES
Pursuant to the requirement 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.
FORREST CITY FINANCIAL CORPORATION
Registrant
Date: May 8, 1997 /s/ John R. Stipe
----------------- -----------------------------------
John R. Stipe
President & Chief Executive Officer
Date: May 8, 1997 /s/ Kevin S. Jumper
----------------- -----------------------------------
Kevin S. Jumper
Treasurer & Chief Financial Officer
- 18 -