1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1999 Commission File Number 0-22224
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LEDGER CAPITAL CORP.
(formerly known as Hallmark Capital Corp.)
(Exact name of registrant as specified in its charter)
Wisconsin 39-1762467
(State of Incorporation) (I.R.S. Employer Identification No.)
5555 N. Port Washington Road
Glendale, Wisconsin 53217
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (414) 290-7900
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.
(1) Yes [X] No [ ]
(2) Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, par value $1.00
per share, was 2,649,241 at February 11, 2000, the latest practicable date.
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2
LEDGER CAPITAL CORP. AND SUBSIDIARY
FORM 10-Q/A
Part I. Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Statements of Financial Condition
as of December 31, 1999 and June 30, 1999 (unaudited)................................ 1
Consolidated Statements of Income for the Three and Six Months
ended December 31, 1999 and 1998 (unaudited)......................................... 2
Consolidated Statements of Shareholders' Equity for the Six
Months ended December 31, 1999 and 1998 (unaudited).................................. 3
Consolidated Statements of Cash Flows for the Six Months
ended December 31, 1999 and 1998 (unaudited)......................................... 4
Notes to Consolidated Financial Statements (unaudited).................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................ 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk............................... 31
Part II. Other Information
Item 1. Legal Proceedings....................................................................... 32
Item 2. Changes in Securities and Use of Proceeds............................................... 32
Item 3. Defaults Upon Senior Securities......................................................... 32
Item 4. Submission of Matters to a Vote of Security Holders..................................... 32
Item 5. Other Information....................................................................... 32
Item 6. Exhibits and Reports on Form 8-K........................................................ 32
Signature Page.......................................................................... 33
3
LEDGER CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
(Unaudited)
DECEMBER 31, JUNE 30,
1999 1999
------------ --------
(Restated)
ASSETS
Cash and non-interest bearing deposits..................................... $ 3,669 $ 3,582
Interest-bearing deposits.................................................. 6,249 5,017
-------- --------
Cash and cash equivalents.................................................. 9,918 8,599
Securities available-for-sale (at fair value):
Investment securities.................................................... 38,664 44,902
Mortgage-backed and related securities................................... 30,923 55,566
Securities held-to-maturity:
Mortgage-backed and related securities (fair value -
$54,309 at December 31, 1999; $54,854 at June 30, 1999)................. 54,522 54,618
Loans held for sale, at lower of cost or market............................ 12,920 6,437
Loans receivable, net...................................................... 350,161 281,120
Investment in Federal Home Loan Bank stock, at cost....................... 7,627 6,527
Foreclosed properties, net................................................. 960 621
Office properties and equipment............................................ 5,637 5,771
Prepaid expenses and other assets.......................................... 6,656 5,498
-------- --------
Total assets..................................................... $517,988 $469,659
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits................................................................. $318,215 $288,714
Notes payable and other borrowings....................................... 160,784 129,519
Advance payments by borrowers for taxes and insurance.................... 288 3,225
Accrued interest on deposit accounts and other borrowings................ 2,949 2,006
Accrued expenses and other liabilities................................... 1,991 11,699
-------- --------
Total liabilities................................................ $484,227 $435,163
Shareholders' Equity:
Preferred stock, $1.00 par value; authorized 2,000,000 shares;
none outstanding....................................................... - -
Common stock, $1.00 par value; authorized 6,000,000 shares;
issued 3,162,500 shares; outstanding 2,697,941 shares at
December 31, 1999 and 2,839,941 shares at June 30, 1999................ 3,162 3,162
Additional paid-in capital............................................... 10,073 9,937
Unearned ESOP compensation............................................... (345) (405)
Unearned restricted stock awards......................................... (74) (78)
Accumulated other comprehensive loss..................................... (1,908) (1,089)
Treasury stock, at cost: 464,559 shares at December 31, 1999
and 322,559 shares at June 30, 1999.................................... (4,509) (2,796)
Retained earnings, substantially restricted.............................. 27,362 25,765
-------- --------
Total shareholders' equity....................................... $ 33,761 $ 34,496
-------- --------
Total liabilities and shareholders' equity....................... $517,988 $469,659
======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited)
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LEDGER CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except for per share data)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- -----------------------
1999 1998 1999 1998
---------- -------- ---------- --------
(Restated) (Restated)
INTEREST INCOME:
Loans receivable.................................................. $7,091 $5,970 $13,291 $11,871
Securities and interest-bearing deposits.......................... 1,522 2,112 3,097 4,179
Mortgage-backed and related securities............................ 1,142 803 2,241 1,195
------ ------ ------- -------
Total interest income................................... 9,755 8,885 18,629 17,245
INTEREST EXPENSE:
Deposits.......................................................... 3,998 4,018 7,632 7,716
Advance payments by borrowers for taxes and insurance............. 26 29 51 55
Notes payable and other borrowings................................ 2,393 1,937 4,496 3,776
------ ------ ------- -------
Total interest expense.................................. 6,417 5,984 12,179 11,547
------ ------ ------- -------
Net interest income............................................... 3,338 2,901 6,450 5,698
Provision for losses on loans..................................... 170 210 290 340
------ ------ ------- -------
Net interest income after provision for losses on loans........... 3,168 2,691 6,160 5,358
NON-INTEREST INCOME:
Service charges on loans.......................................... 101 57 158 135
Service charges on deposit accounts............................... 119 121 241 234
Loan servicing fees, net.......................................... 12 (1) 24 13
Insurance commissions............................................. 38 10 50 29
Gain on sale of securities and
mortgage-backed and related securities, net................... 8 35 62 35
Gain on sale of loans............................................. 57 438 153 652
Other income...................................................... 52 46 106 88
------ ------ ------- -------
Total non-interest income............................... 387 706 794 1,186
NON-INTEREST EXPENSE:
Compensation and benefits......................................... 1,255 1,283 2,625 2,522
Marketing......................................................... 149 98 202 164
Occupancy and equipment........................................... 424 384 817 793
Deposit insurance premiums........................................ 43 40 88 82
Other non-interest expense........................................ 329 386 664 704
------ ------ ------- -------
Total non-interest expense.............................. 2,200 2,191 4,396 4,265
------ ------ ------- -------
Income before income taxes........................................ 1,355 1,206 2,558 2,279
Income taxes...................................................... 431 417 826 772
------ ------ ------- -------
Net income................................................... $ 924 $ 789 $ 1,732 $ 1,507
====== ====== ======= =======
Earnings per share - (basic) ................................ $ 0.36 $ 0.28 $ 0.66 $ 0.54
====== ======= ======= =======
Earnings per share - (diluted) .............................. $ 0.35 $ 0.27 $ 0.64 $ 0.52
====== ======= ======= =======
See accompanying Notes to Consolidated Financial Statements (unaudited)
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LEDGER CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
ADDITIONAL UNEARNED UNEARNED
COMMON PAID-IN ESOP RESTRICTED
STOCK CAPITAL COMPENSATION STOCK
------- ---------- ------------ ----------
SIX MONTHS ENDED DECEMBER 31, 1999
Balance at June 30, 1999........................... $3,162 $ 9,937 ($405) ($78)
Net income......................................... - - - -
Accumulated other comprehensive income:
Unrealized holding loss arising during period- - - - -
Re-classification adjustment for gains
realized in income........................... - - - -
Income tax effect.............................. - - - -
Comprehensive income............................... - - - -
Cash Dividends ($.05 per share).................... - - - -
Amortization of unearned ESOP and
restricted stock award compensation.............. - 136 60 4
Purchase of treasury stock (142,000 shares)........ - - - -
------ ------- ----- -----
Balance at December 31, 1999....................... $3,162 $10,073 ($345) ($ 74)
====== ======= ===== =====
SIX MONTHS ENDED DECEMBER 31, 1998
Balance at June 30, 1998........................... $3,162 $ 9,512 ($532) ($124)
Net income......................................... - - - -
Accumulated other comprehensive income:
Unrealized holding gain arising during period- - - - -
Re-classification adjustment for gains
realized in income........................... - - - -
Income tax effect.............................. - - - -
Comprehensive income............................... - - - -
Amortization of unearned ESOP and
restricted stock award compensation.............. - 138 54 42
Purchase of treasury stock (66,900 shares)......... - - - -
Exercise of stock options (13,624 shares).......... - 44 - -
------ ------- ----- -----
Balance at December 31, 1998....................... $3,162 $ 9,694 ($478) ($82)
====== ======= ===== =====
ACCUMULATED
OTHER TOTAL
RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS'
EARNINGS STOCK LOSS EQUITY
---------- -------- ------------ ------------
(Restated) (Restated)
SIX MONTHS ENDED DECEMBER 31, 1999
Balance at June 30, 1999........................... $25,765 ($2,796) ($1,089) $34,496
Net income......................................... 1,732 - - 1,732
Accumulated other comprehensive income:
Unrealized holding loss arising during period- - (1,285) (1,285)
Re-classification adjustment for gains
realized in income........................... - - (62) (62)
Income tax effect.............................. - - 528 528
-------
Comprehensive income............................... - - - 913
Cash Dividends ($.05 per share).................... (135) - - (135)
Amortization of unearned ESOP and
restricted stock award compensation.............. - - - 200
Purchase of treasury stock (142,000 shares)........ - (1,713) - (1,713)
------- ------- ------- -------
Balance at December 31, 1999....................... $27,362 ($4,509) ($1,908) $33,761
======= ======= ======= =======
SIX MONTHS ENDED DECEMBER 31, 1998
Balance at June 30, 1998........................... $22,847 ($1,385) ($27) $33,453
Net income......................................... 1,507 - - 1,507
Accumulated other comprehensive income:
Unrealized holding gain arising during period- - 71 71
Re-classification adjustment for gains
realized in income........................... - - (35) (35)
Income tax effect.............................. - - (14) (14)
-------
Comprehensive income............................... - - - 1,529
Amortization of unearned ESOP and
restricted stock award compensation.............. - - - 234
Purchase of treasury stock (66,900 shares)......... - (855) - (855)
Exercise of stock options (13,624 shares).......... (35) 96 - 105
------- ------- ------- -------
Balance at December 31, 1998....................... $24,319 ($2,144) ($5) $34,466
======= ======= ======= =======
See accompanying Notes to Consolidated Financial Statements (unaudited)
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LEDGER CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
DECEMBER 31,
------------------------------------
1999 1998
-------------- -----------
(Restated)
(IN THOUSANDS)
OPERATING ACTIVITIES
Net Income.................................................................. $ 1,732 $ 1,507
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Provision for losses on loans............................................. 290 340
Provision for depreciation and amortization............................... 407 211
Net gain on sales of investments and
mortgage-backed and related securities.................................. (62) (35)
Net gain on sale of loans................................................. (153) (652)
Amortization of unearned ESOP and restricted stock awards................. 200 234
Loans originated for sale................................................. (13,272) (36,797)
Sales of loans originated for sale........................................ 6,789 36,004
Increase in prepaid expenses and other assets............................. (1,158) (768)
Decrease in payables for investments purchased........................... (9,909) (6,273)
Increase in accrued expenses and other liabilities........................ 1,144 299
Other adjustments......................................................... 867 346
-------- --------
Net cash used in operating activities....................................... (13,125) (5,584)
-------- --------
INVESTING ACTIVITIES
Proceeds from the sale of securities available-for-sale..................... 44,770 5,535
Proceeds from the maturity of securities available-for-sale................. 4,000 6,090
Purchases of securities available-for-sale.................................. (34,737) (85,389)
Proceeds from maturities of securities held-to-maturity..................... - 572
Purchases of mortgage-backed and related securities......................... (8,096) (8,116)
Principal collected on mortgage-backed and related securities............... 23,590 52,306
Net increase in loans receivable............................................ (70,836) (5,189)
Proceeds from sales of foreclosed properties................................ 980 -
Purchase of Federal Home Loan Bank stock.................................... (1,100) (749)
Purchases of office properties and equipment, net........................... (108) (341)
-------- --------
Net cash used in investing activities....................................... (41,537) (35,472)
-------- --------
FINANCING ACTIVITIES
Net increase in deposits.................................................... 29,501 32,845
Proceeds from long-term notes payable to Federal Home Loan Bank............. 65,000 20,000
Repayment of long-term notes payable to Federal Home Loan Bank.............. (41,500) (8,000)
Net increase in short-term notes payable and other borrowings............... 7,765 5,875
Exercise of stock options................................................... - 105
Purchase of treasury stock.................................................. (1,713) (855)
Cash dividends.............................................................. (135) -
Net increase in advance payments by borrowers for
taxes and insurance....................................................... (2,937) (2,997)
-------- --------
Net cash provided by financing activities................................... 55,981 46,973
-------- --------
Increase in cash and cash equivalents....................................... 1,319 5,917
Cash and cash equivalents at beginning of period............................ 8,599 8,184
-------- --------
Cash and cash equivalents at end of period.................................. $9,918 $14,101
======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited)
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LEDGER CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
-------------------------------
1999 1998
-------------- ------------
(IN THOUSANDS)
Supplemental disclosures of cash flow information:
Interest paid (including amounts credited to deposit accounts) .............. $11,256 $11,234
Income taxes paid ........................................................... $1,044 $844
Non-cash transactions:
Loans transferred to foreclosed properties .................................. $1,319 -
See accompanying Notes to Consolidated Financial Statements (unaudited)
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LEDGER CAPITAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America ("GAAP") for interim financial information and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the results
for the interim periods have been included.
The results of operations and other data for the three and six months ended
December 31, 1999 are not necessarily indicative of results that may be expected
for the entire fiscal year ending June 30, 2000.
The unaudited consolidated financial statements include the accounts of Ledger
Capital Corp. (formerly known as Hallmark Capital Corp.) (the "Company") and its
wholly-owned subsidiary, West Allis Savings Bank and subsidiaries (the "Bank")
as of and for the three and six months ended December 31, 1999. All material
intercompany accounts and transactions have been eliminated in consolidation.
(2) STOCK BENEFITS AND INCENTIVE PLANS
At December 31, 1999, the Company has reserved 375,642 shares of common stock
for a non-qualified stock option plan for employees and directors. With respect
to options, which have not been granted, the option exercise price cannot be
less than the fair market value of the underlying common stock as of the date of
option grant, and the maximum term cannot exceed ten years. At December 31, 1999
there were 279,480 shares outstanding. No options were exercised, cancelled or
granted during the six months ended December 31, 1999.
(3) EARNINGS PER SHARE
Basic earnings per share of common stock for the three and six months ended
December 31, 1999 and December 31, 1998 have been computed by dividing net
income for the period by the weighted average number of shares of common stock
reduced by ungranted restricted stock and uncommitted ESOP shares. Diluted
earnings per share is calculated by dividing net income by the sum of the
weighted average shares used in the basic earnings per share calculation plus
the effect of dilutive stock options. The effect of dilutive stock options is
calculated using the treasury stock method. The computation of earnings per
share is as follows:
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(3) EARNINGS PER SHARE (CONT.)
For the Three Months For the Three Months
Ended December 31, 1999 Ended December 31, 1998
---------------------------- -----------------------------
Basic Diluted Basic Diluted
----------- --------------- ----------- ---------------
Weighted average common shares outstanding........... 2,702,452 2,702,452 2,903,558 2,903,558
Ungranted restricted stock........................... (18,462) (18,462) (18,462) (18,462)
Uncommitted ESOP shares.............................. (101,200) (101,200) (126,500) (126,500)
Common stock equivalents due to
dilutive effect of stock options.................. - 74,018 - 101,616
---------- ---------- ---------- ----------
Total weighted average common shares
and equivalents outstanding.................. 2,582,790 2,656,808 2,758,596 2,860,212
========== ========== ========== ==========
Net income for period........................ $924,000 $924,000 $789,000 $789,000
Earnings per share........................... $0.36 $0.35 $0.28 $0.27
========== ========== ========== ==========
For the Six Months For the Six Months
Ended December 31, 1999 Ended December 31, 1998
---------------------------- -----------------------------
Basic Diluted Basic Diluted
----------- --------------- ----------- ---------------
Weighted average common shares outstanding...... 2,744,762 2,744,762 2,919,724 2,919,724
Ungranted restricted stock...................... (18,462) (18,462) (18,462) (18,462)
Uncommitted ESOP shares......................... (101,200) (101,200) (126,500) (126,500)
Common stock equivalents due to
dilutive effect of stock options............. - 78,548 - 106,303
---------- ---------- ---------- ----------
Total weighted average common shares
and equivalents outstanding.................. 2,625,100 2,703,648 2,774,762 2,881,065
========== ========== ========== ==========
Net income for period........................ $1,732,000 $1,732,000 $1,507,000 $1,507,000
Earnings per share........................... $0.66 $0.64 $0.54 $0.52
========== ========== ========== ==========
(4) COMMITMENTS AND CONTINGENCIES
Commitments to originate mortgage loans of $3.7 million at December 31, 1999
represent amounts which the Bank expects to fund during the quarter ending March
31, 2000. There were no commitments to sell fixed-rate mortgage loans at
December 31, 1999. The Bank had unissued credit under existing home equity
line-of-credit loans and credit card lines of $12.0 million and $7.1 million,
respectively, as of December 31, 1999. Also, the Bank had unused credit under
existing commercial line-of-credit loans of $10.4 million at December 31, 1999.
The Bank had no commitments to purchase fixed-rate mortgage related securities
as of December 31, 1999.
(5) REGULATORY CAPITAL ANALYSIS
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 and 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
also are subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
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(5) REGULATORY CAPITAL ANALYSIS (CONT.)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). As of December 31, 1999, Management believes that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the Bank is well capitalized as defined by regulatory
standards. To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in
the table below. There are no conditions or events since that notification that
management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are presented in the tables below.
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
As of December 31, 1999:
Tier I Capital Leverage (to Average Assets):
Consolidated........................ $35,303 6.72% $15,751 3.00% N/A N/A
West Allis Savings Bank............. 32,427 6.19 15,718 3.00 26,196 5.00
Tier I Capital (to Risk-Weighted Assets):
Consolidated........................ 35,303 10.84 13,029 4.00 N/A N/A
West Allis Savings Bank............. 32,427 9.94 13,049 4.00 19,574 6.00
Total Capital (to Risk-Weighted Assets):
Consolidated........................ 38,213 11.73 26,058 8.00 N/A N/A
West Allis Savings Bank............. 35,337 10.83 26,099 8.00 32,624 10.00
As a state-chartered savings bank, the Bank also is subject to a minimum
regulatory capital requirement of the State of Wisconsin. At December 31, 1999,
on a fully-phased-in basis of 6.0%, the Bank had actual capital of $33,761,000
with a required amount of $31,300,000, for excess capital of $2,461,000. There
is no requirement to calculate the amount to be well capitalized under prompt
corrective action provisions on a consolidated basis.
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(6) LOANS RECEIVABLE
Loans receivable are summarized as follows:
DECEMBER 31, JUNE 30,
1999 1999
------------------ ------------------
(IN THOUSANDS)
Increase
Amount Percent Amount Percent (Decrease)
------ ------- ------ ------- ----------
Real estate mortgage loans:
Residential one-to-four family................... $181,571 48.4% $147,960 49.5% $33,611
Home equity...................................... 20,046 5.3% 20,457 6.8% (411)
Residential multi-family......................... 40,961 10.9% 36,320 12.2% 4,641
Commercial real estate........................... 62,167 16.6% 42,366 14.2% 19,801
Residential construction......................... 16,129 4.3% 12,673 4.2% 3,456
Other construction and land...................... 28,588 7.6% 17,056 5.7% 11,532
-------- ------- -------- ------- --------
Total real estate mortgage loans............ 349,462 93.1% 276,832 92.6% 72,630
Consumer-related loans:
Automobile....................................... 306 0.1% 444 0.2% (138)
Credit card...................................... 2,430 0.7% 2,372 0.8% 58
Other consumer loans............................. 935 0.3% 1,030 0.3% (95)
-------- ------- -------- ------- --------
Total consumer-related loans................ 3,671 1.1% 3,846 1.3% (175)
-------- ------- -------- ------- --------
Commercial loans..................................... 21,778 5.8% 18,254 6.1% 3,524
-------- ------- -------- ------- --------
Gross loans................................. 374,911 100.0% 298,932 100.0% 75,979
Accrued interest receivable.......................... 2,198 1,664
Less:
Undisbursed portion of loan proceeds............. (23,269) (16,279)
Deferred loan fees............................... (619) (490)
Deferred interest on sale of REO................. (62) -
Deferred gain on sale of REO..................... (13) -
Unearned interest................................ (75) (59)
Allowances for loan losses....................... (2,910) (2,648)
--------- --------
$350,161 $281,120
========= ========
Loans serviced for investors totaled $38.8 million and $29.2 million at December
31, 1999 and June 30, 1999, respectively.
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(7) NOTES PAYABLE AND OTHER BORROWINGS
Notes payable and other borrowings are summarized as follows (dollars in
thousands):
DECEMBER 31, 1999 JUNE 30, 1999
--------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
MATURITY AMOUNT RATE AMOUNT RATE
-------- ------ -------- ------ --------
Advances from
Federal Home Loan Bank 1999 $ - -% $ 7,000 6.55%
2000 25,002 6.06 27,002 5.98
2001 3,000 5.91 3,000 5.91
2002 15,000 5.95 28,500 5.61
2003 3,042 5.60 8,042 5.13
2004 65,000 5.58 5,000 6.32
2005 5,000 5.33 5,000 5.33
2007 6,500 6.52 6,500 6.52
2008 15,000 4.79 30,000 4.79
2009 5,000 5.02 - -
-------- --------
$142,544 5.64% $120,044 5.59%
===== =====
Securities sold under
Agreements to repurchase 1999 $ - -% $ 9,475 5.25%
2004 18,240 5.55 - -
-------- --------
$ 18,240 5.55% $ 9,475 5.25%
-------- ===== -------- =====
$160,784 $129,519
======== =========
FHLB advances totaled $142.5 million, or 88.7%, and $120.0 million, or 92.7%, of
total borrowings at December 31, 1999 and June 30, 1999, respectively. The
Company is required to maintain as collateral unencumbered one-to-four family
mortgage loans in its portfolio such that the outstanding balance of FHLB
advances does not exceed 60% of the book value of this collateral. The Company
had delivered mortgage-backed securities with a carrying value of $62.1 million
and $51.9 million at December 31, 1999 and June 30, 1999, respectively. In
addition, all FHLB advances are collateralized by all Federal Home Loan Bank
stock and are subject to prepayment penalties. The Company's unused advance line
with the Federal Home Loan Bank was $15.2 million based upon collateral pledged
at December 31, 1999. FHLB variable rate term borrowings consist of $7.0 million
tied to the one-month LIBOR index.
The Company enters into sales of mortgage-backed securities with agreements to
repurchase identical securities (reverse repurchase agreements) and
substantially identical securities (dollar reverse repurchase agreements). These
transactions are treated as financings with the obligations to repurchase
securities reflected as a liability. The dollar amount of securities underlying
the agreements remains in the asset accounts. The securities underlying the
agreements are delivered to the counterparty's account. Securities sold under
agreements to repurchase were $18.2 million and $9.5 million at December 31,
1999 and June 30, 1999, respectively.
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(8) EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan (ESOP) was adopted covering all
full-time employees of the Company who have attained age 21 and completed one
year of service during which they work at least 1,000 hours. The ESOP initially
borrowed $1.0 million from the Company and purchased 253,000 common shares
issued in the conversion. The debt bears a variable interest rate based on the
borrower's prime lending rate which was 8.50% at December 31, 1999. The balance
of this loan was $506,000 and $607,000 at December 31, 1999 and 1998,
respectively. The Bank makes annual contributions to the ESOP equal to the
ESOP's debt service. All dividends received by the ESOP are paid to the ESOP
cash accounts. As the debt is repaid, shares are released from collateral and
allocated to active employees, based on the proportion of debt service paid in
the year. The Company accounts for its ESOP in accordance with Statement of
Position 93-6. Accordingly, the debt of the ESOP is recorded as debt and the
shares pledged as collateral are reported as unearned ESOP shares in the
statement of financial position. As the shares are released from collateral, the
Company reports compensation expense equal to the current market price of the
shares. The excess of the current market price of shares released over the cost
of those shares is credited to additional paid-in-capital. As shares are
released they become outstanding for earnings-per-share computations. Dividends
on allocated ESOP shares are recorded as a reduction of shareholders' equity;
dividends on unallocated ESOP shares are recorded as compensation expense. ESOP
compensation expense for the six months ended December 31, 1999 and 1998 was
$197,000 and $192,000, respectively.
The following is a summary of ESOP shares at December 31, 1999 and 1998:
Shares
---------------------------
1999 1998
---------- -----------
Allocated shares.............................................. 114,799 109,248
Shares committed to be released............................... 24,133 26,183
Unreleased shares............................................. 83,308 107,441
---------- -----------
Total ESOP shares............................................. 222,240 242,872
========== ===========
Fair value of unreleased shares at December 31,............... $ 750,000 $ 1,182,000
========== ===========
(9) RESTATEMENT OF FINANCIAL STATEMENTS
In April, 2001 the Company discovered a mathematical error in the way in which
interest income was being accrued on certain purchased commercial real estate
mortgage and multi-family residential mortgage loans. The error resulted from an
inadvertent erroneous set-up of the loans in the Company's outsourced data
processing system. The error resulted in the under accrual of interest income on
these loans of $61,263 and $183,558 for the three and six months ended December
31, 1999, respectively. Interest income has been restated to correct that error.
As a result of increased earnings in 2000 from the correction of this error,
additional compensation of $36,500 and $73,000 for the three and six months
ended December 31, 1999, respectively, is required to be accrued under the
Company's Annual Incentive Plan. The Company's 2000 consolidated financial
statements have, therefore, been restated to accrue the additional interest
income and the additional compensation expense as well as the income tax expense
of $9,732 and $43,449 related to the $24,763 and $110,558 net effect of the
corrections on income before taxes for the three and six months ended December
31, 1999, respectively. The effect of the restatement increased net income by
$15,031 and $67,109, basic earnings per share by $.01 and $.03 and diluted
earnings per share by $.01 and $.02 for the three and six months ended December
31, 1999, respectively.
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LEDGER CAPITAL CORP. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-Q/A or future filings with the
Securities and Exchange Commission, in annual reports or press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, various words or phrases are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include words and phrases such as: "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," "intends
to" or similar expressions and various other statements indicated herein with an
asterisk after such statements. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made, and to advise readers that various factors could affect the
Company's financial performance and could cause actual results for future
periods to differ materially from those anticipated or projected. Such factors
include, but are not limited to: (i) general market rates, (ii) general economic
conditions, (iii) legislative/regulatory changes, (iv) monetary and fiscal
policies of the U.S. Treasury and Federal Reserve, (v) changes in the quality or
composition of the Company's loan and investment portfolios, (vi) demand for
loan products, (vii) deposit flows, (viii) competition, (ix) demand for
financial services in the Company's markets, and (x) changes in accounting
principles, policies or guidelines.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
In April, 2001 the Company discovered a mathematical error in the way in which
interest income was being accrued on certain purchased commercial real estate
mortgage and multi-family residential mortgage loans. The error resulted from an
inadvertent erroneous set-up of the loans in the Company's outsourced data
processing system. The error resulted in the under accrual of interest income on
these loans of $61,263 and $183,558 for the three and six months ended December
31, 1999, respectively. Interest income has been restated to correct that error.
As a result of increased earnings in 2000 from the correction of this error,
additional compensation of $36,500 and $73,000 for the three and six months
ended December 31, 1999, respectively, is required to be accrued under the
Company's Annual Incentive Plan. The Company's 2000 consolidated financial
statements have, therefore, been restated to accrue the additional interest
income and the additional compensation expense as well as the income tax expense
of $9,732 and $43,449 related to the $24,763 and $110,558 net effect of the
corrections on income before taxes for the three and six months ended December
31, 1999, respectively. The effect of the restatement increased net income by
$15,031 and $67,109, basic earnings per share by $.01 and $.03 and diluted
earnings per share by $.01 and $.02 for the three and six months ended December
31, 1999, respectively.
GENERAL
The Company's primary strategy since the Conversion has been to focus on
effectively utilizing the capital acquired in the Conversion through asset
growth and asset portfolio diversification into higher-yielding assets. This
strategy resulted in an increase in the Company's asset size from $179.6 million
at June 30, 1994 to $518.0 million at December 31, 1999. The Company's asset
growth has come primarily through (i) the origination and purchase of mortgage
loans (principally loans secured by one-to-four family owner-occupied homes)
within and outside of the Company's primary lending area, (ii) the purchase of
mortgage-backed and related securities, and (iii) the origination and purchase
of commercial real-estate and business loans within and outside of the Company's
primary lending area. This asset growth was funded through significant increases
in Federal Home Loan Bank ("FHLB") advances and other borrowings, and increases
in deposits consisting primarily of brokered and non-brokered wholesale
deposits. The
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Company's asset portfolio diversification has been, and continues to be,
achieved by altering the composition of loans and securities originated,
purchased, sold and held in the total asset portfolio. In particular, the
Company has focused on originating and purchasing higher-yielding multi-family,
commercial real estate and commercial business loans secured by properties or
assets located within the Company's primary lending area (as defined herein), to
either replace or supplement lower-yielding one-to-four family mortgage loans
and principal run-off from the mortgage securities portfolio.* As part of its
asset portfolio diversification strategy, the Company established a new
commercial lending division in fiscal 1997 to originate commercial/industrial
real estate term loans, construction loans, equipment leasing,
inventory/equipment/receivables financing, lines of credit, letters of credit
and government loan programs both within and outside of the Company's primary
lending area. In fiscal 2000, the Company intends to continue its asset
portfolio diversification strategy while maintaining a steady rate of growth of
its asset base. The Company expects asset growth of $25 million in the second
half of fiscal year 2000.*
Loan purchases of $68.3 million contributed to the asset growth during the six
months ended December 31, 1999. The loans purchased were higher yielding,
non-conforming one-to-four family, multi-family, commercial real estate and
commercial loans. The loans are secured by properties located outside the
Company's primary lending area. The sale and maturities of securities
available-for-sale and principal repayments on loans offset the asset growth
related to the loan purchases.
In fiscal 2000, the Company's business strategy is to continue its focus on
increasing net interest income and generating additional non-interest income
from existing and new revenue sources.* In order to increase net interest
income, the Company intends to continue to utilize its asset portfolio
diversification strategy of selling lower-yielding assets such as securities and
one-to-four family mortgage loans that conform to Federal Home Loan Mortgage
Corporation ("FHLMC") and Federal National Mortgage Association ("Fannie Mae")
guidelines in the secondary market to provide liquidity to fund higher-yielding
one-to-four family non-conforming mortgage, multi-family, commercial real estate
and commercial business loan originations and purchases, increase non-interest
income and maintain adequate levels of capital.* The Company anticipates that
increased sales of one-to-four family conforming mortgage loans will decrease
the proportion of the gross loan portfolio represented by such loans and will
increase non-interest income as a result of increased gains on the sales of such
loans.*
Portfolio diversification in fiscal 2000 also will include an increased level of
purchases of loans or participation interests in loans originated by other
lenders both within and outside the Company's primary lending area.* The Company
anticipates that slightly over half of the asset growth in fiscal 2000 will come
from residential and commercial loan and participation interest purchases
outside of its primary lending area.* Loans purchased, or participation
interests purchased, which relate to properties or business assets located
outside of the Company's primary lending area will primarily consist of
higher-yielding non-conforming one-to-four family, multi-family, commercial real
estate, multi-family construction, commercial real estate construction and
commercial business loans.* Of the $68.3 million in higher yielding loans
purchased for the Company's portfolio during the six month period ended December
31, 1999, $33.4 million were one-to-four family loans and $24.0 million were
commercial real estate loans, none of which conformed to FHMLC and Fannie Mae
secondary market guidelines. Such loans are secured by properties located
primarily in the midwest region of the country outside of the Company's primary
lending area.
In fiscal 2000, the Company projects total loan and participation interest
purchases which relate to residential and commercial properties or business
assets to be approximately $90 million compared to $56.9 million in fiscal
1999.* The Company anticipates that approximately $50 million of such amount
will relate to one-to-four family non-conforming mortgage loans secured by
properties located outside of the Company's primary lending area and the balance
(approximately $40 million) will relate to the purchase of multi-family,
multi-family construction, commercial real estate, commercial construction and
commercial business loans secured by properties and assets located both inside
and outside its primary lending area.* In deciding whether or not to purchase a
loan or participation interest in a loan secured by properties or
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business assets located outside of the Company's primary lending area,
management of the Company has applied, and will continue to apply, underwriting
guidelines at least as strict as those applicable to the origination of similar
loans within its primary lending area.*
In fiscal 2000, the Company will evaluate opportunities to purchase one-to-four
family mortgage loans which conform to FHMLC and Fannie Mae underwriting
guidelines and non-conforming portfolio loans which are not sold in the
secondary agency market due to underwriting characteristics that do not conform
to the secondary agency market.* Purchases of conforming and non-conforming
one-to-four family mortgage loans will include lending opportunities on a
national basis. One-to-four family non-conforming loans also will be originated
by the Company within its primary lending area. For the six months ended
December 31, 1999, the Company purchased $33.4 million of non-conforming
one-to-four family mortgage loans.
In fiscal 2000, the Company also intends to continue increasing the activities
of its commercial lending division as another element of its overall portfolio
diversification strategy.* The focus of the Company's commercial lending
operation will be the origination and purchase of small business loans and
leases.* During fiscal 1999, the Company originated and purchased $137.7 million
of multi-family, commercial real estate, multi-family construction, commercial
construction and commercial business loans, lines of credit and leases. For the
six months ended December 31, 1999 the Company originated and purchased $70.6
million of multi-family, commercial real estate, multi-family construction,
land, commercial construction and commercial business loans, lines of credit and
leases. Management currently projects that the commercial lending division will
increase its level of originations and purchases to approximately $150 million
in new commercial loans, lines of credit and leases during fiscal 2000.*
Management believes the commercial lending component of its operations will
benefit the Company longer term and contribute to a long-term increase in net
income and return on equity.* The commercial lending division also has enhanced
the Company's core deposit base, through the establishment of new deposit
relationships with the commercial lending division's customers.
The Company also intends to enhance earnings in fiscal 2000 through non-interest
fee income generated from the Company's new mortgage banking subsidiary, Ledger
Financial, Inc. (d/b/a Major Finance).* Major Finance was established at the end
of fiscal 1999 to provide lending activities involving higher credit risk
financial services (also known as subprime lending). Major Finance currently
acts as a broker of non-conforming subprime residential and commercial mortgage
loans. The Company anticipates that the majority of Major Finance's subprime
lending activity will relate to residential mortgage loans as opposed to
commercial real estate loans in fiscal 2000.* As a broker, Major Finance
interviews prospective borrowers, completes a loan application, collects and
verifies financial data on the borrower and submits the loan file to a potential
lender or investor. The lender or investor makes the final underwriting decision
and closes the loan in their own name. Major Finance receives a fee directly
from the lender or investor for its brokering services but Major Finance does
not fund or retain the loan in its portfolio. For the six months ended December
31, 1999, Major Finance brokered approximately $1.2 million in subprime loans,
generating $49,300 in fee income on such subprime loans. The Company intends to
evaluate opportunities to broker subprime loans both within and outside of its
primary market area. Management estimates that Major Finance will broker
approximately $2.5 million in subprime loans, generating approximately $100,000
in fee income on such subprime loans in fiscal 2000.* The borrowers on such
loans typically have credit deficiencies on their credit history, such as late
mortgage loan payments, low credit scores, foreclosures or bankruptcies. Other
non-conforming factors which may result in a loan being classified as subprime
include higher debt-to-income ratios, no down payment, limited documentation,
high cash-out refinances or no verification of the borrower's income or assets.
A secondary market of private investors and mortgage bankers provides a
mechanism for the underwriting, funding, sale and servicing of subprime loans.
Due to the higher degree of credit risk inherent in this type of lending,
subprime residential mortgage loan rates generally are higher yielding compared
to conventional one-to-four family mortgage rates, and if sold in the secondary
market, a higher origination fee and yield spread premium are generally paid in
connection with such loans.
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The Company currently intends to broker all subprime loans originated by Major
Finance on a service released basis in fiscal 2000.* However, in the event
management decides to originate, service and retain any subprime loans in its
portfolio in fiscal 2000, instead of solely brokering such loans, a risk
assessment and risk management policy would be established in advance and
approved by the Company's Board of Directors.
During fiscal 2000, the Company also intends to increase its non-interest income
by expanding the residential lending and commercial banking fee income producing
divisions.* The Company expects one-to-four family mortgage loan originations to
remain strong despite the generally higher level of market interest rates.* It
is currently anticipated that substantially all of the 30-year fixed rate
conforming one-to-four family mortgage loans originated in fiscal 2000 will be
sold in the secondary market resulting in income from gains on loans sold.*
During the six months ended December 31, 1999, the Company originated and sold
$6.7 million in such loans, resulting in $153,000 income from gains on loans
sold. The Company also expects increased fee income from the commercial banking
division resulting from a growth in business deposit relationships and loan
originations.* The Company expects its insurance subsidiary, Ledger Planning
Services, Inc., to continue to generate fee income from investment product and
annuity sales.* The Company also has recently implemented a program for mortgage
contract cash processing within the commercial lending division, a service
intended to generate fee income.* The Bank acts as a partial sub-servicer,
providing a cash/processing function for nationally-originated commercial real
estate loans.
The Company also intends to expand its community "relationship banking" focus by
targeting cross sales opportunities to individuals and businesses through
customer segmentation and database marketing, planning the opening of a new
retail location at the Company's headquarters in Glendale, Wisconsin, and
expanding the delivery of products and services through the Internet.*
NEW FINANCIAL SERVICES ACT
On November 12, 1999 the Gramm-Leach-Bliley Act of 1999 (the "Financial Services
Modernization Act" or "Act") was signed into law. The new law does a number of
things intended to increase competition in the financial services area,
including repealing sections of the 1933 Glass-Steagall Act so that financial
firms, such as banks, securities and insurance firms can affiliate with each
other, through the formation of financial holding companies. It also appoints
the Federal Reserve as the "umbrella" regulator. The law creates a restriction
on the chartering and transferring of unitary thrift holding companies, although
it does not restrict the operations of unitary holding companies which were in
existence prior to May 4, 1999, and which continue to meet the Qualified Thrift
Lender test ("QTL") and control only a single savings institution. The Company
is a unitary holding company and it and the Bank presently meets the QTL
requirements. The Act also adopts a number of consumer protections, including
provisions aimed at protecting privacy of information and requiring disclosure
of ATM usage charges. Many of the Act's provisions require regulatory action,
including the promulgation of regulations, to become effective and it is too
early to assess the eventual impact of the Act on either the financial services
industry in general or on the specific operations of the Company and the Bank.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are retail and wholesale brokered
deposits, proceeds from principal and interest payments on loans, principal and
interest payments on mortgage-backed and related securities, FHLB-Chicago
advances and reverse repurchase agreements. Alternative funding sources are
evaluated and utilized based upon factors such as interest rates, availability,
maturity, administrative costs and retention capability. Although maturity and
scheduled amortization of loans are predictable sources of funds, deposit flows,
mortgage prepayments and prepayments on mortgage-backed and related securities
are influenced significantly by general interest rates, economic conditions and
competition. Mortgage loans and mortgage securities prepayments increased in
fiscal 1999 overall as interest rates declined significantly during the first
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18
half of the fiscal year before increasing in the last half of the fiscal year.
During fiscal years 1997 and 1998, prepayments increased as interest rates
decreased in the second half of both fiscal years. The upward trend in interest
rates extended through the six month period ending December 31, 1999 keeping the
mortgage loan and mortgage securities prepayments and gain on sales of loans
low.
The primary investing activity of the Company is the origination and purchase of
loans and the purchase of mortgage-backed and related securities. For the six
months ended December 31, 1999, the Company originated and purchased loans
totaling $65.9 million and $68.3 million, respectively, as compared to the six
months ended December 31, 1998 when originated and purchased loans totaled
$106.2 million and $5.0 million, respectively. Purchases of mortgage-backed and
related securities held-to-maturity for the six months ended December 31, 1999
and 1998 totaled $8.1 million and $8.1 million, respectively. There were no
purchases of investment securities held-to-maturity for the six months ended
December 31, 1999 and 1998. For the six months ended December 31, 1999 and 1998,
these activities were funded primarily by principal repayments on loans of $60.1
million and $68.4 million, respectively; principal repayments on mortgage-backed
and related securities of $23.6 million and $52.3 million, respectively;
proceeds from the sale of mortgage loans of $6.8 million and $36.0 million,
respectively; net proceeds from notes payable to the FHLB-Chicago of $22.5
million and $13.0 million, respectively; and a net increase in deposits of $29.5
million during the 1999 period. Purchases of securities available-for-sale
totaled $34.7 million and sales were $44.8 for the six months ended December 31,
1999, compared to purchases of $85.4 million and sales of $5.5 million for the
six months ended December 31, 1998.
The Company is required to maintain minimum levels of liquid assets under the
regulations of the Wisconsin Department of Financial Institutions, Division of
Savings and Loan for state-chartered stock savings banks. Savings banks are
required to maintain an average daily balance of liquid assets (including cash,
certain time deposits, certain bankers acceptances, certain corporate debt
securities, securities of certain mutual funds and specified United States
government, state or federal agency obligations) of not less than 8.0%. The
Company's liquidity ratio was 15.1% at December 31, 1999. The Company adjusts
its liquidity levels to meet various funding needs and to meet its asset and
liability management objectives.
The Company's most liquid assets are cash and cash equivalents, which include
investments in highly-liquid, short-term investments. The levels of these assets
are dependent on the Company's operating, financing, lending and investing
activities during any given period. At December 31, 1999 and June 30, 1999, cash
and cash equivalents were $9.9 million and $8.6 million, respectively. The
increase in cash and cash equivalents was due to an increase in deposits,
FHLB-Chicago advances, and securities sold under agreements to repurchase.
Management believes that the strategy of leveraging the capital acquired in the
Conversion to achieve the targeted asset size established by the Board of
Directors within a three-to-five year period following the Conversion, could not
have been achieved solely through the use of retail deposits from the local
market. Management also believes that the costs, overhead and interest expense
of achieving comparable retail deposit growth would have exceeded the costs
related to the use of FHLB-Chicago advances and wholesale brokered deposits as a
funding source. However, management recognizes that the likelihood for retention
of brokered certificates of deposit is more a function of the rate paid on such
accounts as compared to retail deposits which may be established due to Bank
location or other intangible reasons. The Company maintains a $10.0 million
backup credit facility for contingency purposes to replace funds from wholesale
brokered deposits should retention of those deposits diminish due to
extraordinary events in the financial markets. The Company's overall cost of
funds has increased in recent years due primarily to a much greater percentage
of the deposits being in certificates, both wholesale brokered and retail, as
opposed to passbooks, money market accounts and checking accounts. Management
believes that a significant portion of its retail deposits will remain with the
Company and, in the case of wholesale brokered deposits, may be replaced with
similar type accounts should the level of interest rates change.* However, in
the event of a significant increase in market interest rates, the cost of
obtaining replacement brokered deposits would increase as well.
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At December 31, 1999, retail and wholesale certificates of deposit totaled $59.6
million and $196.9 million, respectively. Management believes that a significant
portion of its retail deposits will remain with the Company and, in the case of
wholesale brokered deposits, may be replaced with similar type accounts should
the level of interest rates change.* However, in the event of a significant
increase in market interest rates, the cost of obtaining replacement wholesale
deposits and FHLB advances would increase as well.
The Bank's Board of Directors has set a maximum limitation of total borrowings
equal to 32% of total assets. The internal limitation is 3% below the allowable
borrowing limit (for all borrowings including FHLB advances and reverse
repurchase agreements) of 35% of total assets established by the FHLB-Chicago.
At December 31, 1999, FHLB advances totaled $142.5 million or 27.5% of the
Bank's total assets. At December 31, 1999, securities sold under agreements to
repurchase were $18.3 million or 3.5% of the Bank's total assets. At December
31, 1999, the Bank had unused borrowing authority under the borrowing
limitations established by the Board of Directors of $5.2 million and $20.7
million under the FHLB total asset limitation. The Bank has and intends to
continue to fund asset portfolio diversification in fiscal 2000 through modest
increases in FHLB advances and reverse repurchase agreements. Management and the
Bank's Board of Directors are currently evaluating the internal 3% excess
borrowing capacity limitation. A decrease in this limitation would provide the
Bank greater borrowing authority to fund future loan growth.
Liquidity management for the Company is both an ongoing and long-term function
of the Company's asset/liability management strategy. Excess funds generally are
invested in short-term investments such as federal funds or overnight deposits
at the FHLB-Chicago. Whenever the Company requires funds beyond its ability to
generate them internally, additional sources of funds usually are available and
obtainable from the wholesale brokered and non-brokered market as well as the
unused credit line from the FHLB-Chicago, and funds also may be available
through reverse repurchase agreements wherein the Company pledges investment,
mortgage-backed or related securities. The Company maintains a $10.0 million
contingent backup credit facility with a major correspondent bank to replace a
portion of its interest rate sensitive liabilities, such as borrowings and
wholesale brokered and non-brokered deposits should such funding sources become
difficult or impracticable to obtain or retain due to a changing interest rate
environment. The Company also has a federal funds open line of credit in the
amount of $10.0 million with a correspondent bank which does not require the
direct pledging of any assets. In addition, the Company maintains a relatively
high level of liquid assets such as investment securities and mortgage-backed
and related securities available-for-sale in order to ensure sufficient sources
of funds are available to meet the Company's liquidity needs.
The Company has various unfunded commitments at December 31, 1999 which
represent amounts the Company expects to fund during the quarter ended March 31,
2000. For a summary of such commitment see discussion under footnote (4)
"Commitments and Contingencies" contained in the section entitled, "Notes to
Consolidated Financial Statements." The Company anticipates it will have
sufficient funds available to meet its current loan commitments, including loan
applications received and in process to the issuance of firm commitments.
CHANGE IN FINANCIAL CONDITION
Total assets increased $48.1 million, or 10.3%, from $469.7 million at June 30,
1999 to $517.8 million at December 31, 1999. This increase is primarily
reflected in an increase in loans receivable and loans held for sale, funded
primarily by an increase in deposits, FHLB-Chicago advances, securities sold
under agreements to repurchase and decreases in securities available-for-sale.
Cash and cash equivalents were $9.9 million and $8.6 million at December 31,
1999 and June 30, 1999, respectively. The increase in cash and cash equivalents
was due to an increase in deposits, FHLB-Chicago advances, securities sold under
agreements to repurchase.
Loans receivable increased to $350.2 million at December 31, 1999 compared to
$281.1 million at June 30, 1999. The increase at December 31, 1999 compared to
June 30, 1999 is primarily the result of the purchase of non-conforming
one-to-four family, multi-family and commercial real estate loans secured by
properties
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located out of the Company's primary lending area, as such loans carried higher
yields than comparable mortgage-backed and related securities during the six
months ended December 31, 1999. Total mortgage loans originated and purchased
amounted to $115.6 million ($62.8 million of which were purchased mortgage
loans) and $99.6 million ($3.5 million of which were purchased mortgage loans)
for the six months ended December 31, 1999 and 1998, respectively. The Company
originated $27.3 million of conforming one-to-four family mortgage and
construction loans within the primary lending area and purchased $33.4 million
of non-conforming one-to-four family mortgage loans outside of the primary
lending area. Sales of fixed-rate mortgage loans totaled $6.0 million and $36.8
million for the six months ended December 31, 1999 and 1998, respectively. The
Company originated $10.0 million of non-conforming multi-family loans within the
primary lending area and purchased $4.9 million of non-conforming multi-family
loans outside of the primary lending area for the period ending December 31,
1999. Total commercial real estate mortgage loans originated and purchased
totaled $37.9 million and $19.3 million for the six months ended December 31,
1999 and 1998, respectively. Of the $37.9 million commercial real estate
mortgage loans originated and purchased, $13.9 million were originations of
non-conforming commercial real estate loans within the Company's primary lending
area, while $22.5 million were purchases of non-conforming commercial real
estate loans outside the Company's primary lending area and $1.5 million were
purchased non-conforming commercial real estate loans within the Company's
primary lending area. The Company originated $10.2 million of non-conforming
commercial loans within the primary lending area and purchased $5.5 million of
non-conforming commercial loans outside of the primary lending area.
Securities available-for-sale decreased to $69.6 million at December 31, 1999
compared to $100.5 million at June 30, 1999. Mortgage-backed and related
securities held-to-maturity decreased to $54.5 million at December 31, 1999
compared to $54.6 million at June 30, 1999. The decrease in securities
available-for-sale was the result of management's decision to sell securities to
fund loan purchases and originations which carry higher yields than securities.
Deposits increased $29.5 million to $318.2 million at December 31, 1999 from
$288.7 million at June 30, 1999. The increase in deposits was primarily due to
the Company's increase in wholesale brokered deposits. Brokered certificates of
deposit totaled $172.1 million at December 31, 1999, representing 54.1% of total
deposits as compared to $101.2 million, or 35.0% of total deposits, at June 30,
1999. Non-brokered wholesale deposits totaled $24.8 million at December 31,
1999, representing 7.8% of total deposits as compared to $55.2 million, or 19.1%
of total deposits at June 30, 1999. Deposits are the Company's primary source of
externally generated funds. The level of deposits is heavily influenced by such
factors as the general level of short- and long-term interest rates as well as
alternative yields that investors may obtain on competing investment securities
such as money market mutual funds.
FHLB-Chicago advances increased to $142.5 million at December 31, 1999 compared
to $120.0 million at June 30, 1999. At December 31, 1999, securities sold under
agreements to repurchase were $18.3 million compared to $9.5 million at June 30,
1999. The Company has increased its use of FHLB-Chicago advances and securities
sold under agreements to repurchase as a funding source due to attractive rates
offered in relation to deposit funds obtainable in the Company's local market.
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ASSET/LIABILITY MANAGEMENT
The Company closely monitors interest rate risk in an attempt to manage the
extent to which net interest income is significantly affected by changes in
market interest rates. In managing the Company's interest rate risk during the
six months ended December 31, 1999, the Company utilized wholesale brokered and
non-brokered deposits and FHLB-advances to fund increases in the Company's
interest-bearing assets due primarily to the attractive rates offered on
wholesale deposits and FHLB advances. At December 31, 1999, the Company's
estimated cumulative one-year gap between assets and liabilities was a negative
37.9% of total assets as compared to a negative 25.6% at June 30, 1999. The
increase in the Company's negative one-year gap reflects the increased use of
shorter-term maturity deposits and FHLB advances to fund a larger portfolio of
fixed-rate mortgage, mortgage related securities and investment securities.
Beginning in January 2000 and in conjunction with the increased negative gap
position of the Company, management with the approval of the Board of Directors
has started to manage the interest rate risk on the Company's short-term
wholesale certificates of deposit using interest rate caps to manage the
Company's exposure to rising interest rates. At December 31, 1999, the notional
amount of the interest rate cap was $25 million with a maturity date of January
3, 2002. The interest rate cap is tied to the 3-month LIBOR interest rate with a
7.0% strike rate. Payments will be received by the Bank if the 3-month LIBOR
increases over the 7.0% strike rate. The unamortized cost of the interest rate
cap at December 31, 1999 is $140,000 with a market value of $128,000. There are
certain risks associated with interest rate caps, including the risk that the
counterparty may default and that there may not be an exact correlation between
the indices on which the interest rate cap agreements are based and the terms of
the hedged liabilities. In order to offset these risks, the company generally
enters into interest rate cap agreements only with nationally recognized
securities firms and monitors the credit status of counterparties, the level of
collateral for such caps and the correlation between the hedged liabilities and
the indices utilized. During periods of rising interest rates, a positive
interest rate sensitivity gap would tend to positively affect net interest
income, while a negative interest rate sensitivity gap would adversely affect
net income. Although the opposite effect on net income would occur in periods of
falling interest rates, the Company could experience substantial prepayments of
its fixed rate mortgage loans and mortgage-backed and related securities, which
would result in the reinvestment of such proceeds at market rates which are
lower than current rates.*
19
22
ASSET/LIABILITY MANAGEMENT SCHEDULE
The following table sets forth at December 31, 1999 the amounts of
interest-earning assets and interest-bearing liabilities maturing or repricing
within the time periods indicated, based on the information and assumptions set
forth in the notes thereto.
AMOUNT MATURING OR REPRICING
-------------------------------------------------------------------
MORE THAN MORE THAN
WITHIN FOUR TO ONE YEAR THREE YEARS
THREE TWELVE TO THREE TO FIVE OVER FIVE
MONTHS MONTHS YEARS YEARS YEARS TOTAL
------- ------- --------- ----------- ---------- -----
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS(1):
Mortgage loans(2):
Fixed rate.................................... $ 12,752 $ 29,645 $ 54,603 $ 66,453 $ 71,582 $235,035
Adjustable rate............................... 26,914 40,082 26,914 4,783 2,707 101,400
Consumer loans(2).................................. 259 2,769 423 - - 3,451
Commercial loans(2)................................ 2,002 9,479 6,181 3,486 - 21,148
Mortgage-backed and related securities:
Fixed rate and securities available-for-sale.. 1,664 4,540 9,417 6,604 10,901 33,126
Adjustable rate............................... 40,098 12,221 - - - 52,319
Investment securities and
securities available-for-sale ................... 14,268 728 - 9,633 27,911 52,540
--------- --------- --------- --------- -------- --------
Total interest-earning assets................ $ 97,957 $ 99,464 $ 97,538 $ 90,959 $113,101 $499,019
========= ========= ========= ========= ======== ========
INTEREST-BEARING LIABILITIES:
Deposits(3):
NOW accounts.................................. $ 213 $ 639 $ 1,014 $ 497 $ 478 $ 2,841
Money market deposit accounts................. 4,664 13,991 10,447 1,672 318 31,092
Passbook savings accounts..................... 1,463 4,389 6,963 3,412 3,278 19,505
Certificates of deposit...................... 112,071 127,750 14,367 2,307 - 256,495
Escrow deposits............................... - 288 - - - 288
Borrowings(4)
FHLB advances and other borrowings............ 73,240 55,002 13,042 8,000 11,500 160,784
--------- --------- --------- --------- -------- --------
Total interest-bearing liabilities............ $191,651 $ 202,059 $ 45,833 $ 15,888 $ 15,574 $471,005
========= ========= ========= ========= ======== ========
Excess (deficiency) of interest-earning assets over
interest-bearing liabilities..................... ($93,694) ($102,595) $ 51,705 $ 75,071 $ 97,527 $ 28,014
========= ========= ========= ========= ======== ========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities......... ($93,694) ($196,289) ($144,584) ($ 69,513) $ 28,014 $ 28,014
========= ========= ========= ========= ======== ========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities
as a percent of total assets..................... (18.1)% (37.9)% (27.9)% (13.4)% 5.4% 5.4%
========= ========= ======== ========= ======== ========
- -------------------
(1) Adjustable- and floating-rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed-rate assets are included in the periods in
which they are scheduled to be repaid based on scheduled amortization, in
each case adjusted to take into account estimated prepayments utilizing the
Company's historical prepayment statistics modified for forecasted
statistics using annual prepayment rates ranging from 5% to 20%, based on
the loan type.
(2) Balances have been reduced for undisbursed loan proceeds, unearned credit
insurance premiums, deferred loan fees, purchased loan discounts and the
allowance for loan losses, which aggregated $26.8 million at December 31,
1999.
(3) Although the Company's negotiable order of withdrawal ("NOW") accounts,
passbook savings accounts and money market deposit accounts generally are
subject to immediate withdrawal, management considers a certain historical
amount of such accounts to be core deposits having significantly longer
effective maturities and times to repricing based on the Company's
historical retention of such deposits in changing interest rate
environments. NOW accounts, passbook savings accounts and money market
deposit accounts are assumed to be withdrawn at annual rates of 30%, 30%
and 60%, respectively, of the declining balance of such accounts during the
period shown. The withdrawal rates used are higher than the Company's
historical rates but are considered by management to be more indicative of
expected withdrawal rates currently. If all of the Company's NOW accounts,
passbook savings accounts and money market deposit accounts had been
assumed to be subject to repricing within one year, the one-year cumulative
deficiency of interest-earning assets over interest-bearing liabilities
would have been $224.4 million or 43.3% of total assets.
(4) Adjustable- and floating-rate borrowings are included in the period in
which their interest rates are next scheduled to adjust rather than in the
period in which they are due.
20
23
ASSET QUALITY
The Company and the Bank regularly review assets to determine proper valuation.
The review consists of an update of the historical loss experience, valuation of
the underlying collateral and the outlook for the economy in general as well as
the regulatory environment.
The following table sets forth information regarding the Bank's non-accrual
loans and foreclosed properties at the dates indicated:
THREE MONTHS ENDED
---------------------------------------------------------
DEC 31 SEP 30 JUN 30 MAR 31 DEC 31
1999 1999 1999 1999 1998
------ ------ ------ ------ ------
Non-accrual mortgage loans............................ $2,100 $1,100 $2,118 $2,266 $3,238
Non-accrual consumer loans............................ 65 49 88 129 136
------ ------ ------ ------ ------
Total non-accrual loans............................... $2,165 $1,149 $2,206 $2,395 $3,374
====== ====== ====== ====== ======
Loans 90 days or more
delinquent and still accruing....................... 118 82 219 54 52
------ ------ ------ ------ ------
Total non-performing loans............................ $2.283 $1.231 $2,425 $2.449 $3,426
====== ====== ====== ====== ======
Non-accrual investment securities..................... - 235 235 233 233
Total foreclosed real estate net of
related allowance for losses ....................... 960 1,893 621 512 11
------ ------ ------ ------ ------
Total non-performing assets........................... $3,243 $3,359 $3,281 $3,194 $3,670
====== ====== ====== ====== ======
Non-performing loans to
gross loans receivable.............................. 0.61% 0.34% 0.81% 0.83% 1.14%
====== ====== ====== ====== ======
Non-performing assets to
total assets ....................................... 0.63% 0.64% 0.70% 0.67% 0.76%
====== ====== ====== ====== ======
At December 31, 1999, non-performing loans decreased to $2.3 million from $2.4
million at June 30, 1999. The decrease is due primarily to the decrease in loans
90 days or more delinquent and still accruing, which consist primarily of credit
card loans. Impaired loans decreased to $0 at December 31, 1999 from $1.1
million at June 30, 1999. Impaired loans consist primarily of commercial and
commercial real estate loans which, based on current information and events, it
is probable that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Management believes that these
loans are adequately collateralized and/or have specific loan loss reserves
established which are adequate to absorb probable losses related to resolution.
Potential problem loans are loans where known information about possible credit
problems of borrowers causes management to have doubts as to the ability of such
borrowers to comply with the present loan repayment terms. The decision by
management to categorize a loan as a potential problem loan does not necessarily
indicate that the Company expects losses to occur, but that management
recognizes there is a higher degree of risk associated with these performing
loans. At December 31, 1999, the bank had a potential problem loan with a
balance of $2.9 million secured by 21 first lien one-to-four family mortgages
held in trust for the benefit of the Bank and a secondary payee under the loan
obligation. The original balance of the loan was $4.1 million. At December 31,
1999, the loan was current as to payment of principal and interest. Proceeds
from payments made to the trustee from potential homeowners (occupying the
properties under 2-year leases with an option to purchase at an agreed upon
price upon expiration of the lease-term), or from any other eventual sale of the
one-to-four family residences securing the obligation, are to be applied by the
trustee first to the repayment of the total of all principal and interest due
the Bank, with any excess over such amounts becoming due to the secondary payee.
The Bank assumed responsibility for receipt and servicing of payments from the
potential homeowners upon the
21
24
secondary payee's filing of bankruptcy in June 1999. The Bank also removed a
third party bank as the bond trustee and has appointed itself as trustee in
December 1999. The one-to-four family properties securing the obligation are
located in the Bank's primary lending area and management believes the
underlying value of the properties and the Bank's first lien status are
sufficient to prevent any significant loss from this credit.
ALLOWANCE FOR LOAN LOSSES
The following table sets forth an analysis of the Bank's allowance for loan
losses:
SIX MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED
DEC. 31, 1999 JUNE 30, 1999 DEC. 31, 1998
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
Balance at beginning of period..................... $ 2,648 $ 2,329 $ 2,329
Additions charged to expense:
Multi-family and commercial real estate.......... 197 310 230
Consumer......................................... 55 120 50
Commercial....................................... 38 50 60
--------- ---------- ---------
290 480 340
Recoveries:
Consumer........................................ 14 15 6
Charge-offs:
One- to four-family............................. (30) (11) (11)
Multi-family & commercial real estate........... - (34) -
Consumer........................................ (12) (131) (29)
--------- ---------- ---------
(42) (176) (40)
--------- ---------- ---------
Net charge-offs.................................... (28) (161) (34)
--------- ---------- ---------
Balance at end of period........................... $ 2,910 $ 2,648 $ 2,635
--------- ---------- ---------
Allowance for loan losses to
non-performing loans at end
of the period.................................... 127.49% 109.19% 76.91%
========= ========== =========
Allowance for loan losses to
total loans at end of the period................. 0.78% 0.89% 0.88%
========= ========== =========
The level of allowance for loan losses at December 31, 1999, reflects the
continued low level of charged off loans. Management believes that the allowance
for loan losses is adequate as of December 31, 1999.
22
25
RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1999
AND 1998
GENERAL
Net income for the three months ended December 31, 1999 increased to $924,000
from $789,000 for the comparable 1998 period. The increase in net income was
primarily due to an increase in net interest income. Return on average equity
increased to 10.88% for the three months ended December 31, 1999 from 9.17% for
the comparable 1998 period. Return on average assets increased to 0.70% for the
three months ended December 31, 1999 from 0.66% for the comparable 1998 period.
NET INTEREST INCOME
The following table presents certain information related to average
interest-earning assets and liabilities, net interest rate spread and net
interest margin:
FOR THE THREE MONTHS ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998
----------------------------- ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Mortgage loans.......................... $319,142 $6,435 8.07% $264,591 $5,492 8.30%
Consumer loans.......................... 3,480 118 13.56 4,257 139 13.06
Commercial loans........................ 21,566 538 9.98 14,135 339 9.59
-------- ------ -------- ------
Total loans.......................... 344,188 7,091 8.24 282,983 5,970 8.44
Securities held-to-maturity:
Mortgage-backed securities............ 8,784 137 6.24 16,460 256 6.22
Mortgage related securities........... 45,185 731 6.47 40,684 751 7.38
-------- ------ -------- ------
Total mortgage-backed
and related securities............. 53,969 868 6.43 57,144 1,007 7.05
Investment and other securities......... 9,171 133 5.80 28,442 384 5.40
Securities available-for-sale........... 89,106 1,524 6.84 91,003 1,413 6.21
Federal Home Loan Bank stock............ 7,407 139 7.51 6,619 111 6.70
-------- ------ -------- ------
Total interest-earning assets......... 503,841 9,755 7.74 466,191 8,885 7.62
Non-interest earning assets............... 23,088 9,074
-------- --------
Total assets.......................... $526,929 $475,265
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
NOW accounts............................ $ 2,866 13 1.81% $ 2,834 12 1.69%
Money market deposit accounts........... 33,004 362 4.39 41,175 528 5.13
Passbook accounts....................... 20,130 147 2.92 21,294 156 2.93
Certificates of deposit................. 252,085 3,476 5.52 228,555 3,322 5.81
-------- ------ -------- ------
Total deposits........................ 308,085 3,998 5.19 293,858 4,018 5.47
Advance payments by borrowers
for taxes and insurance................ 4,526 26 2.39 3,868 29 3.00
Borrowings................................ 168,755 2,393 5.67 131,527 1,937 5.89
-------- ------ -------- ------
Total interest-bearing liabilities.... 481,366 6,417 5.33 429,253 5,984 5.58
Non-interest bearing deposits
and liabilities......................... 11,604 11,607
Shareholders' equity...................... 33,959 34,405
-------- --------
Total liabilities and
shareholders' equity................ $526,929 $475,265
======== ========
Net interest income/interest rate spread.. $3,338 2.41% $2,901 2.04%
====== ===== ====== =====
Net earning assets/net interest margin.... $ 22,475 2.65% $ 36,938 2.49%
======== ===== ======== =====
23
26
Net interest income before provision for losses on loans increased $437,000, or
15.1%, to $3.3 million for the three months ended December 31, 1999 from $2.9
million for the comparable 1998 period. Interest income increased $870,000 for
the three months ended December 31, 1999, partially offset by an increase in
interest expense of $434,000. The level of net interest income primarily
reflects a 8.1% increase in average interest-earning assets to $503.8 million
for the three months ended December 31, 1999 from $466.2 million for the
comparable 1998 period, an increase in interest rate spread to 2.41% for the
three months ended December 31, 1999 from 2.04% for the comparable 1998 period,
partially offset by a 39.2% decrease in the excess of the Company's average
interest-earning assets over average interest-bearing liabilities to $22.5
million for the three months ended December 31, 1999 from $36.9 million for the
comparable 1998 period. The increase in interest rate spread was primarily due
to lower costing deposits and borrowings in the 1999 period as compared to the
1998 period. The interest rates on deposits and borrowings obtained in the
quarter ending December 31, 1999 are increasing but the effect of the increasing
rate environment is not yet fully reflected in the interest rate spread.
INTEREST INCOME
Interest income increased 9.8% to $9.8 million for the three months ended
December 31, 1999 from $8.9 million for the comparable 1998 period. The increase
in interest income was the result of an increase in average interest-earning
assets of 8.1% to $503.8 million for the three months ended December 31, 1999
from $466.2 million for the comparable 1998 period and an increase of 12 basis
points in the yield on interest-earning assets to 7.74% for the three months
ended December 31, 1999 from 7.62% for the comparable 1998 period. Interest
income on loans increased 18.8% to $7.1 million for the three months ended
December 31, 1999, from $6.0 million for the comparable 1998 period. The
increase was the result of an increase in the Company's average gross loans of
21.6% to $344.2 million for the three months ended December 31, 1999 from $283.0
million for the comparable 1998 period, partially offset by a decrease in
average yield to 8.24% for the 1999 period from 8.44% for the comparable 1998
period. Gross loans increased primarily as a result of the Company purchasing
more loans in the secondary market and increases in multi-family and commercial
components of the portfolio and retaining substantially all of its adjustable
and short-term fixed rate loan originations. See "Change in Financial Condition"
for a discussion of the increase in gross loans. The decrease in yield is
attributable to the increase in loans originated and purchased at lower interest
rates since the period ending December 31, 1998. The interest rates on loans
originated and purchased in the quarter ending December 31, 1999 are increasing
but the effect of the increasing rate environment is not yet reflected in the
yield. At December 31, 1999, the multifamily and commercial components of the
Company's loan portfolio totaled $144.1 million, or 41.0% of the total loan
portfolio, compared to $113.5 million, or 37.7% of the total loan portfolio at
December 31, 1998.
Interest income on mortgage-backed securities decreased 46.5% to $137,000 for
the three months ended December 31, 1999 from $256,000 for the comparable 1998
period. The decrease was primarily due to a decrease in average balances to $8.8
million for the three months ended December 31, 1999 from $16.5 million for the
comparable 1998 period, partially offset by an increase in average yield to
6.24% for the 1999 period from 6.22% for the 1998 period. The increase in
average yield on mortgage-backed securities was primarily due to the accelerated
amortization of purchase premiums on mortgage-backed securities due to faster
than projected principal repayments in the 1998 period. Interest income on
mortgage-related securities decreased 2.7% to $731,000 for the three months
ended December 31, 1999 from $751,000 for the comparable 1998 period. The
decrease was primarily due to a decrease in average yield to 6.47% for the three
months ended December 31, 1999 from 7.38% for the comparable 1998 period. The
decrease was partially offset by an increase in average balances to $45.2
million for the three months ended December 31, 1999 from $40.7 million for the
comparable 1998 period. The decrease in average yield on mortgage-related
securities was primarily due to accelerated amortization of purchase premiums on
mortgage related securities due to faster than projected principal repayments
during the 1999 period. The increase in average balances of mortgage- related
securities is due to management's decision to replace securities that repaid.
Interest income on investment securities and securities available-for-sale and
investment and other securities decreased 7.8% to $1.7 million for the three
months ended December 31, 1999 from $1.8 million for the comparable 1998 period.
The decrease was primarily due to an decrease in average balance to $98.3
24
27
million for the three months ended December 31, 1999 from $119.4 million for the
1998 period, offset by an increase in average yield to 6.74% for the three
months ended December 31, 1999 from 6.02% for the comparable 1998 period. The
decrease in securities available-for-sale was due to management's decision to
sell securities during the 1999 period to fund loan originations and purchases.
The increased average yield was primarily attributable to the increase in
average maturity of the available-for-sale investments during the 1999 period.
INTEREST EXPENSE
Interest expense increased 7.3% to $6.4 million for the three months ended
December 31, 1999 from $6.0 million for the comparable 1998 period. The increase
was the result of an 12.1% increase in the average amount of interest-bearing
liabilities to $481.4 million for the three months ended December 31, 1999
compared to $429.3 million for the comparable 1998 period, partially offset by a
decrease in the average rate paid on interest-bearing liabilities to 5.33% for
the 1999 period from 5.58% for the 1998 period. The increased balances of
certificate of deposit accounts, money market deposit accounts and borrowings at
lower average interest rates was the primary reason for the decrease in the
average rate paid on the interest-bearing liabilities for the three months ended
December 31, 1999 as compared to the comparable 1998 period. Interest expense on
deposits decreased .5% to $3.999 million for the three months ended December 31,
1999 from $4.018 million for the comparable 1998 period. The decrease was the
result of a decrease in the average rate paid to 5.19% for the 1999 period from
5.47% for the 1998 period. The decrease was partially offset by an increase in
average balances of 4.8% to $308.1 million for the three months ended December
31, 1999 from $293.9 million for the comparable 1998 period. The increase in
deposits was primarily due to an increase of 10.3% in certificates of deposit
accounts to $252.1 million for the three months ended December 31, 1999 from
$228.6 million for the comparable 1998 period, with a decrease in the average
rate paid to 5.52% for the 1999 period from 5.81% for the 1998 period. NOW
accounts increased 1.1% to $2.9 million for the three months ended December 31,
1999 from $2.8 million for the comparable 1998 period, offset by an increase in
average rate paid to 1.81% for the 1999 period from 1.69% for the 1998 period.
Offsetting the increases in deposits was a decrease in money market deposit
accounts of 19.8% to $33.0 million for the three months ended December 31, 1999
from $41.2 million for the comparable 1998 period, with a decrease in the
average rate paid on such accounts to 4.39% for the 1999 period from 5.13% for
the 1998 period. Money market deposit accounts decreased primarily due to higher
rates offered in the Company's local market during the three months ended
December 31, 1999. The Company's increase in certificates of deposit was the
result of aggressive marketing and pricing and the use of brokered certificates
of deposit. Of the $252.1 million in the average balance of certificates of
deposit for the three months ended December 31, 1999, $166.4 million, or 66.0%,
represented brokered certificates of deposit compared to $98.0 million, or
42.9%, for the 1998 period. The average rate paid on brokered certificates of
deposit decreased to 5.48% for the three months ended December 31, 1999 from
5.73% for the comparable 1998 period. The decrease was primarily due to the
longer average maturity of the brokered deposits in the 1998 period. Interest on
borrowings (FHLB advances and reverse repurchase agreements) increased 23.5% to
$2.4 million for the three months ended December 31, 1999 from $1.9 million for
the comparable 1998 period. The increase was primarily due to the increase in
average balances of FHLB advances and reverse repurchase agreements of 28.3% to
$168.8 million for the three months ended December 31, 1999 from $131.5 million
for the comparable 1998 period, with a decrease in the average rate paid to
5.67% for the 1999 period from 5.89% for the 1998 period.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans decreased 19.0% to $170,000 for the three
months ended December 31, 1999 from $210,000 for the comparable 1998 period. The
level of allowance for losses on loans generally is determined by the Bank's
historical loan loss experience, the condition and composition of the Bank's
loan portfolio, and existing general economic conditions. Management anticipates
that as the Company's volume of multi-family and commercial/non-residential real
estate lending activity continues to increase, the Company will continue to
build a higher level of allowance for loan losses established through a
provision for loan losses.* Based on management's evaluation of the loan
portfolio and the increase in gross loans during the
25
28
three months ended December 31, 1999, the allowance for losses on loans
increased 9.9% to $2.9 million at December 31, 1999 compared to $2.6 million at
June 30, 1999. While the allowance for losses on loans increased, the allowance
for loan losses as a percentage of gross loans decreased to 0.78% at December
31, 1999 from 0.89% at June 30, 1999 reflecting the continued low level of loans
charged off. The amount of non-performing loans at December 31, 1999 was $2.3
million, or 0.61% of gross loans, compared to $2.4 million, or 0.81% of gross
loans, at June 30, 1999 and $3.4 million or 1.14% of gross loans at December 31,
1998. Management believes that these loans are adequately collateralized and/or
have specific loan loss reserves established which are adequate to absorb
probable losses related to resolution.
NON-INTEREST INCOME
Non-interest income decreased 45.0% to $388,000 for the three months ended
December 31, 1999 from $706,000 for the comparable 1998 period. The largest
components of the decrease were a decrease in gains on the sale of loans to
$57,000 for the three months ended December 31, 1999 from $438,000 for the
comparable 1998 period, a decrease in gains on the sale of securities and
mortgage-backed and related securities to $9,000 for the three months ended
December 31, 1999 from $35,000 for the comparable 1998 period and a decrease in
service charges on deposit accounts to $119,000 for the three months ended
December 31, 1999 from $121,000 for the comparable 1998. Partially offsetting
the decreases in non-interest income was an increase in service charges on loans
to $100,000 for the three months ended December 31, 1999 from $57,000 for the
comparable 1998 period, an increase in insurance commissions to $39,000 for the
three months ended December 31, 1999 from $10,000 for the comparable 1998 period
and an increase in loan servicing fees to $12,000 for the three months ended
December 31, 1999 from ($1,000) for the comparable 1998 period. The decrease in
gains on the sale of loans reflects the decrease in long-term fixed rate loans
sold into the secondary market during the 1999 period as compared to the 1998
period due to the higher level of interest rates that led to a lower level of
mortgage loans refinanced in the 1999 period as compared to the 1998 period.
NON-INTEREST EXPENSE
Non-interest expense increased 0.1% to $2.200 million for the three months ended
December 31, 1999 from $2.191 million for the comparable 1998 period. The
increase was primarily due to an increase in occupancy and equipment expense of
$40,000 to $424,000 for the three months ended December 31, 1999 from $384,000
for the comparable 1998 period and an increase in marketing expense of $51,000
to $149,000 for the three months ended December 31, 1999 from $98,000 for the
comparable 1998 period. Offsetting the increase was a decrease in compensation
and benefits expense of $28,000 to $1.255 million for the three months ended
December 31,1999 from $1.283 million for the comparable 1998 period and a
decrease in other non-interest expense of $57,000 to $329,000 for the three
months ended December 31, 1999 from $386,000 for the comparable 1998 period. The
decrease in compensation and benefits expense primarily relates to a lower
number of full time equivalent employees. The decrease in other non-interest
expense is primarily due to increases in printing, office supplies, organization
dues, legal and other miscellaneous expenses. The increase in marketing expense
relates to a new brand development and strategic retail marketing program for
the Bank's local market area. The increase in occupancy and equipment expense
relates to an increase in bank furniture, fixtures and equipment.
26
29
RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
1998
GENERAL
Net income for the six months ended December 31, 1999 increased to $1.7 million
from $1.5 million for the comparable 1998 period. The increase in net income was
primarily due to an increase in net interest income. Return on average equity
increased to 10.19% for the six months ended December 31, 1999 from 8.83% for
the comparable 1998 period. Return on average assets decreased to 0.68% for the
six months ended December 31, 1999 from 0.66% for the comparable 1998 period.
NET INTEREST INCOME
The following table presents certain information related to average
interest-earning assets and liabilities, net interest rate spread and net
interest margin:
FOR THE SIX MONTHS ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998
----------------------------- ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Mortgage loans.......................... $298,130 $12,039 8.08% $263,579 $10,955 8.31%
Consumer loans.......................... 3,548 244 13.75 4,429 294 13.28
Commercial loans........................ 20,092 1,008 10.03 13,480 622 9.23
-------- ------- -------- -------
Total loans.......................... 321,770 13,291 8.26 281,488 11,871 8.43
Securities held-to-maturity:
Mortgage-backed securities............ 9,483 298 6.28 18,716 630 6.73
Mortgage related securities........... 44,521 1,432 6.43 41,735 1,509 7.23
-------- ------- -------- -------
Total mortgage-backed
and related securities............. 54,004 1,730 6.41 60,451 2,139 7.08
Investment and other securities......... 8,747 245 5.60 18,332 512 5.59
Securities available-for-sale........... 95,345 3,111 6.52 77,632 2,507 6.46
Federal Home Loan Bank stock............ 7,055 252 7.14 6,416 216 6.73
-------- ------- -------- -------
Total interest-earning assets......... 486,921 18,629 7.65 444,319 17,245 7.76
Non-interest earning assets............... 22,578 13,697
-------- --------
Total assets.......................... $509,499 $458,016
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
NOW accounts............................ $ 2,841 25 1.76% $ 2,746 24 1.75%
Money market deposit accounts........... 34,432 761 4.42 35,081 897 5.11
Passbook accounts....................... 20,414 298 2.92 21,309 311 2.92
Certificates of deposit................. 241,593 6,548 5.42 222,240 6,484 5.84
-------- ------- -------- -------
Total deposits........................ 299,280 7,632 5.10 281,376 7,716 5.48
Advance payments by borrowers
for taxes and insurance................ 4,277 51 2.38 3,897 55 2.82
Borrowings................................ 158,552 4,496 5.67 127,043 3,776 5.94
-------- ------- -------- -------
Total interest-bearing liabilities.... 462,109 12,179 5.27 412,316 11,547 5.60
Non-interest bearing deposits
and liabilities......................... 13,388 11,581
Shareholders' equity...................... 34,002 34,119
-------- --------
Total liabilities and
shareholders' equity................ $509,499 $458,016
======== ========
Net interest income/interest rate spread.. $ 6,450 2.38% $ 5,698 2.16%
======= ===== ======= =====
Net earning assets/net interest margin.... $ 24,812 2.65% $ 32,003 2.56%
======== ===== ======== =====
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Net interest income before provision for losses on loans increased $752,000 or
13.2% to $6.5 million for the six months ended December 31, 1999 from $5.7
million for the comparable 1998 period. Interest income increased $1.4 million
for the six months ended December 31, 1999, partially offset by an increase in
interest expense of $632,000. The level of net interest income primarily
reflects a 9.6% increase in average interest-earning assets to $486.9 million
for the six months ended December 31, 1999 from $444.3 million for the
comparable 1998 period and an increase in interest rate spread to 2.38% for the
six months ended December 31, 1999 from 2.16% for the comparable 1998 period,
offset by a 22.5% decrease in the excess of the Company's average
interest-earning assets over average interest-bearing liabilities to $24.8
million for the six months ended December 31, 1999 from $32.0 million for the
comparable 1998 period.
INTEREST INCOME
Interest income increased 8.0% to $18.6 million for the six months ended
December 31, 1999 from $17.2 million for the comparable 1998 period. The
increase in interest income was the result of an increase in average
interest-earning assets of 9.6% to $486.9 million for the six months ended
December 31, 1999 from $444.3 million for the comparable 1998 period, partially
offset by a decrease of 11 basis points in the yield on interest-earning assets
to 7.65% for the six months ended December 31, 1999 from 7.76% for the
comparable 1998 period. Interest income on loans increased 12.0% to $13.3
million for the six months ended December 31, 1999 from $11.9 million for the
comparable 1998 period. The increase was the result of an increase in average
gross loans of 14.3% to $321.8 million for the six months ended December 31,
1999 from $281.5 million for the comparable 1998 period, partially offset by a
decrease in average yield to 8.26% for the six months ended December 31, 1999
from 8.43% for the comparable 1998 period. Gross loans increased primarily as a
result of the Company retaining substantially all of its adjustable and
short-term fixed rate loan originations and purchasing more loans in the
secondary market. The decrease in yield is attributable to the increase in loans
refinanced at lower interest rates in fiscal 1999. Interest income on
mortgage-backed securities decreased 52.7% to $298,000 for the six months ended
December 31, 1999 from $630,000 for the comparable 1998 period. The decrease was
primarily due to a decrease in average balances to $9.5 million for the six
months ended December 31, 1999 from $18.7 million for the comparable 1998 and a
decrease in average yield to 6.28% for the 1999 period from 6.73% for the 1998
period. Interest income on mortgage-related securities decreased 5.1% to $1.4
million for the six months ended December 31, 1999 from $1.5 million for the
comparable 1998 period. The decrease was primarily due to a decrease in average
yield to 6.43% for the six months ended December 31, 1999 from 7.23% for the
comparable 1998 period, offset by an increase in average balances to $44.5
million for the six months ended December 31, 1999 from $41.7 million for the
comparable 1998 period. The decrease in average yield on mortgage-backed
securities and mortgage-related securities was primarily due to the adjustment
in the adjustable rate securities portion of this portfolio which decreased due
to lower interest rates and the accelerated amortization of purchase premiums on
mortgage-backed securities due to faster than projected principal repayments
during the 1999 period. The decline in average balances of mortgage-backed
securities is due to management's decision to increase the securities
available-for-sale portfolio. Interest income on investment securities and
securities available-for-sale increased 11.2% to $3.4 million for the six months
ended December 31, 1999 from $3.0 million for the comparable 1998 period. The
increase was primarily due to an increase in average balance to $104.1 million
for the six months ended December 31, 1999 from $96.0 million for the 1998
period and an increase in average yield to 6.45% for the 1999 period from 6.29%
for the 1998 period. The higher average yield was primarily attributable to the
increase in the average maturity of the securities in this portfolio.
INTEREST EXPENSE
Interest expense increased 5.5% to $12.2 million for the six months ended
December 31, 1999 from $11.5 million for the comparable 1998 period. The
increase was the result of an 12.1% increase in the average amount of
interest-bearing liabilities to $462.1 million for the six months ended December
31, 1999 compared to $412.3 million for the comparable 1998 period, partially
offset by a decrease in the average rate paid on interest-bearing liabilities to
5.27% for the 1999 period from 5.60% for the 1998 period. The increased balances
of certificates of deposit (including brokered deposits), NOW accounts and
borrowings at lower average interest rates was the primary reason for the
decrease in the average rate paid on the interest-
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bearing liabilities for the six months ended December 31, 1999 as compared to
the comparable 1999 period. Interest expense on deposits decreased 1.1% to $7.6
million for the six months ended December 31, 1999 from $7.7 million for the
comparable 1998 period. The decrease was the result of a decrease in the average
rate paid to 5.10% for the six months ended December 31, 1999 from 5.48% for the
1998 period, partially offset by an increase in average balances of 6.4% to
$299.3 million for the six months ended December 31, 1999 from $281.4 million
for the comparable 1998 period. The increase in deposits was primarily due to an
increase of 8.7% in certificates of deposit (including brokered deposits) to
$241.6 million for the six months ended December 31, 1999 from $222.3 million
for the 1998 period, with a decrease in the average rate paid on such deposits
to 5.42% for the 1999 period from 5.84% for the 1998 period. NOW accounts
increased 3.5% to $2.8 million for the six months ended December 31, 1999 from
$2.7 million for the comparable 1998 period, with an increase in average rate
paid to 1.76% for the 1999 period from 1.75% for the 1998 period. The increases
in certificates of deposit and NOW accounts were offset by a decrease in money
market deposit accounts of 1.9% to $34.4 million for the six months ended
December 31, 1999 from $35.1 million for the comparable 1998 period, with a
decrease in the average rate paid on such deposits to 4.42% for the 1999 period
from 5.11% for the 1998 period and a decrease in passbook accounts of 4.2% to
$20.4 million for the six months ended December 31, 1999 from $21.3 million for
the comparable 1998 period. Money market deposit accounts decreased primarily
due to higher rates offered in the Company's local market during the six months
ended December 31, 1999. The Company's increase in certificates of deposit was
the result of aggressive marketing and pricing and the use of brokered
certificates of deposit. Of the $241.6 million in the average balance of
certificates of deposit for the six months ended December 31, 1999, $139.0
million, or 57.5%, represented brokered certificates of deposit compared to
$91.5 million, or 41.2%, for the 1998 period. The average rate paid on brokered
certificates of deposit decreased to 5.48% for the six months ended December 31,
1999 from 5.85% for the comparable 1998 period. The decrease was primarily due
to the longer average maturity of the brokered deposits in the 1998 period.
Interest on borrowings (FHLB advances and reverse repurchase agreements)
increased 19.1% to $4.5 million for the six months ended December 31, 1999 from
$3.8 million for the comparable 1998 period. The increase was primarily due to
the increase in average balance to $158.6 for the six months ended December 31,
1999 from $127.0 for the comparable 1998 period, partially offset by a decrease
in average rate paid to 5.67% for the six months ended December 31, 1999 from
5.94% for the 1998 period.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans decreased 14.7% to $290,000 for the six months
ended December 31, 1999 from $340,000 for the comparable 1998 period. For a
discussion of the factors considered by management in determining the
appropriate level of allowance for losses on loans to be established through a
provision for losses on loans, see comments under "Provision for Losses on
Loans" contained in the section entitled, "Results of Operations - Comparison of
the Three Months Ended December 31, 1999 and 1998."
NON-INTEREST INCOME
Non-interest income decreased 33.1% to $794,000 for the six months ended
December 31, 1999 from $1.2 million for the comparable 1998 period. The largest
component of the decrease was a decrease in gains on the sale of loans to
$153,000 for the six months ended December 31, 1999 from $652,000 for the
comparable 1998 period. Partially offsetting the decreases in non-interest
income was an increase in gains on the sale of securities and mortgage-backed
and related securities to $62,000 for the six months ended December 31, 1999
from $35,000 for the comparable 1998 period, an increase in service charges on
deposit accounts to $241,000 for the six months ended December 31, 1999 from
$234,000 for the comparable 1998, an increase in service charges on loans to
$158,000 for the six months ended December 31, 1999 from $135,000 for the
comparable 1998 period, an increase in insurance commissions to $50,000 for the
six months ended December 31, 1999 from $29,000 for the comparable 1998 period,
an increase in other non-interest income to $106,000 for the six months ended
December 31, 1999 from $88,000 for the comparable 1998 period and an increase in
loan servicing fees to $24,000 for the six months ended December 31, 1999 from
$13,000 for the comparable 1998 period. The decrease in gains on the sale of
loans reflects the decrease in long-term fixed rate loans sold into the
secondary market during the 1999 period as compared to
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the 1998 period due to the higher level of interest rates that led to a lower
level of mortgage loans refinanced in the 1999 period as compared to the 1998
period.
NON-INTEREST EXPENSE
Non-interest expense increased 3.1% to $4.4 million for the six months ended
December 31, 1999 from $4.3 million for the comparable 1998 period. The increase
was primarily due to an increase in compensation and benefits expense of
$103,000 to $2.6 million for the six months ended December 31, 1999 from $2.5
million for the comparable 1998 period, an increase in occupancy and equipment
expense of $24,000 to $817,000 for the six months ended December 31, 1999 from
$793,000 for the comparable 1998 period, an increase in marketing expense of
$38,000 to $202,000 for the six months ended December 31, 1999 from $164,000 for
the comparable 1998 period. Partially offsetting the increases in non-interest
income was a decrease in other non-interest expense of $40,000 to $664,000 for
the six months ended December 31, 1999 from $704,000 for the comparable 1999
period. The increase in compensation and benefits expense primarily relates to
higher salary levels in the 1999 period. The increase in marketing expense
relates to a new brand development and strategic retail marketing program for
the Bank's local market area. The increase in occupancy and equipment expense
primarily relates to increased purchases of bank equipment. The decrease in
other non-interest income is primarily due to decreases in printing, office
supplies, organization dues, legal and other miscellaneous expenses.
IMPACT OF YEAR 2000
The Company addressed a potential problem that faced all users of automated
systems including information systems. Many computer systems process
transactions based on two digits representing the year of transaction, rather
than four digits. These computer systems may not have operated properly when the
last two digits become "00", as occurred on January 1, 2000. The problem could
have affected a wide variety of automated information systems, such as mainframe
applications, personal computers, communication systems, environmental systems
and other information systems.
The Company identified areas of operations critical for the delivery of its loan
and deposit products. The majority of the Company's applications used in
operations were purchased from outside vendors. The vendors providing the
software were responsible for maintenance of the systems and modifications to
enable uninterrupted usage after December 31, 1999. The Company's plan included
obtaining certification of compliance from third parties and testing all of the
impacted applications (both internally developed and third party provided).
Testing of the system and conversion activities were completed as of June 30,
1999. There were no mission critical systems which were non-compliant. The
Company developed and finalized contingency plans for any adverse situations
that may have arisen related to Year 2000. The Company's plan also included
reviewing any potential risks associated with loan and deposit data base
information due to the Year 2000 issue.
The Company has successfully transitioned into the year 2000. All computer
systems continue to function as expected and has not affected the ability of the
Company to deliver its products and services to date. As always, management
continues to monitor computer systems for problems or errors associated with
their operation. Based on currently available information, management does not
anticipate that the cost to address the Year 2000 issues will have a material
adverse impact on the Company's financial position.* Direct expenditures in
fiscal year 1999, and for the six months ended December 31, 1999 for the Year
2000 project totaled $37,800 and $13,100, respectively. Direct expenditures
included capital expenditures for compliant equipment and software, write-offs
of non-compliant equipment and software upgrades. The expenditures were funded
by increases in the Company's non-interest expense budget.
The Company also made inquiries and reviewed plans of certain third parties,
such as commercial loan customers, where Year 2000 failures could have resulted
in a significant adverse impact on the Company. The Company had completed the
inquiry and review process and was satisfied the Bank would not be subject to
significant adverse impact. Based on information available, the Bank has not
experienced any difficulties with third parties related to the Year 2000 issue.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A derivative financial instrument includes futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. The Company currently does not enter into futures, forwards,
swaps or options but has decided to purchase interest rate caps to manage the
interest rate risk on the Company's short-term wholesale certificates of
deposit. The Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments consist primarily of commitments to
extend credit. These instruments involve to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
balance sheets. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates and may require
collateral from the borrower if deemed necessary by the Company.
The information required herein pursuant to Item 305 of Regulation S-K is
incorporated by reference in sections entitled "Liquidity and Capital Resources"
from pages 14 to 16 and "Asset/Liability Management" from pages 18 to 19 hereof.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company and the Bank are parties to legal
proceedings arising out of its lending activities and other operations.
However, there are no pending legal proceedings of which the Company or
the Bank is a party which, if determined adversely to the Company or
the Bank, would have a material adverse effect on the consolidated
financial position of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
On January 24, 2000, the Company announced it had declared a dividend
of $0.05 per share on the common stock of the Company. The dividend
will be payable on February 24, 2000 to shareholders of record as of
February 10, 2000.
On February 1, 2000, the Company announced it had adopted a share
repurchase program for its common stock to purchase up to 5%, or
approximately 135,000 shares. The repurchased shares will become
treasury shares and will be used for general corporate purposes. As of
February 11, 2000, the Company had purchased 48,700 shares of common
stock pursuant to the repurchase program and has the ability to
repurchase approximately 86,300 additional shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
11 Computation of Earnings per Share - See Note 2 to the
unaudited Consolidated Financial Statements
No reports on Form 8-K were filed during the quarter for which this
report was filed.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
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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.
Ledger Capital Corp.
--------------------
(Registrant)
Date: April 27, 2001 /s/ James D. Smessaert
-----------------------------------
James D. Smessaert
Chairman of the Board
Chief Executive Officer
Date: April 27, 2001 /s/ Arthur E. Thompson
-----------------------------------
Arthur E. Thompson
Chief Financial Officer
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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.
Ledger Capital Corp.
--------------------
(Registrant)
Date: April 27, 2001
-----------------------------------
James D. Smessaert
Chairman of the Board
Chief Executive Officer
Date: April 27, 2001
-----------------------------------
Arthur E. Thompson
Chief Financial Officer
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