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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-24694
ENTERPRISE FEDERAL BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1396726
- ---------------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7810 Tylersville Square Drive
West Chester, Ohio 45069
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(Address or principal executive office) (Zip Code)
(513) 755-4600
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(Registrant's telephone number, including area code)
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 report), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of February 1,
1998, there were issued and outstanding 1,985,828 shares of the Registrant's
Common Stock, par value $.01 per share.
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ENTERPRISE FEDERAL BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information Page
- ------- --------------------- ----
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition 1
(as of December 31, 1997 (unaudited) and September 30, 1997)
Consolidated Statements of Earnings for the three months 2
ended December 31, 1997 (unaudited) and 1996 (unaudited)
Consolidated Statements of Cash Flows for the three months 3
ended December 31, 1997 (unaudited) and 1996 (unaudited)
Notes to unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations
Part II. Other Information
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Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Securities Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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Enterprise Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
DECEMBER 31, 1997 SEPTEMBER 30, 1997
----------------- ------------------
(Unaudited)
ASSETS
Cash and due from banks $ 689 $ 811
Federal funds sold 15,175 8,000
Interest-bearing deposits in other financial institutions 2,896 2,330
----- ------
Cash and cash equivalents 18,760 11,141
Investment securities available for sale - at market 1,016 698
Mortgage-backed securities available for sale - at market 74,932 61,457
Loans receivable - net 195,372 191,096
Office premises and equipment-at depreciated cost 3,548 3,544
Federal Home Loan Bank stock - at cost 6,000 5,500
Accrued interest receivable on loans 729 608
Accrued interest receivable on mortgage-backed securities 416 409
Accrued interest receivable on interest-bearing deposits 102 96
Goodwill and other intangible assets 13 20
Prepaid expenses and other assets 355 290
Prepaid federal income taxes 18 29
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Total assets $301,261 $274,888
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $147,026 $146,297
Advances from the Federal Home Loan Bank 120,000 95,000
Accrued interest payable 746 636
Other liabilities 799 1,365
Deferred federal income taxes 303 166
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Total liabilities 268,874 243,464
Commitments --- ---
Stockholders' equity
Preferred stock, no par value, 1,000,000 shares
authorized, none issued and outstanding --
Common stock, $.01 par value, 4,000,000 shares authorized,
2,268,596 issued 23 23
Additional paid-in capital 23,432 23,082
Less 282,768 and 199,268 shares of treasury stock - at cost (4,386) (4,386)
Less shares acquired by stock benefit plans (1,601) (1,927)
Retained earnings - restricted 14,601 14,581
Unrealized gains on securities designated as available
for sale, net of related tax effects 318 51
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Total stockholders' equity 32,387 31,424
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Total liabilities and stockholders' equity $301,261 $274,888
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The accompanying notes are an integral part of these statements.
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Enterprise Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except share data)
(unaudited)
Three Months Ended December 31,
----------------------------------------------
1997 1996
------------------- -------------------
Interest income:
Loans $4,138 $3,275
Mortgage-backed securities 1,080 998
Interest-bearing deposits and other 227 189
------------------- -------------------
Total interest income 5,445 4,462
Interest expense:
Deposits 1,884 1,771
Borrowings 1,588 879
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Total interest expense 3,472 2,650
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Net interest income 1,973 1,812
Provision for losses on loans 45 30
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Net interest income after provision for losses on loans 1,928 1,782
------------------- -------------------
Other operating income:
Gain on sale of securities 23 299
Other operating income 45 28
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Total other income 68 327
------------------- -------------------
Operating expenses:
Employee compensation and benefits 807 657
Occupancy and equipment 96 96
Federal deposit insurance premiums 23 71
Franchise taxes 106 113
Data processing 34 22
Amortization of intangible assets 8 8
Other 135 104
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Total operating expenses 1,209 1,071
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Earnings before income taxes 787 1,038
Federal income taxes 271 348
------------------- -------------------
Net earnings $ 516 $ 690
=================== ===================
Earnings per share:
Basic $.27 $.36
=================== ===================
Diluted $.25 $.34
=================== ===================
The accompanying narrative is an integral part of these statements.
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Enterprise Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share data)
(unaudited)
Three Months Ended December 31,
--------------------------------------
1997 1996
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Cash flows from operating activities:
Net earnings for the period $ 516 $ 690
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities - net 2 12
Amortization of deferred loan origination fees (87) (84)
Depreciation and amortization 43 41
Provision for losses on loans 45 30
Federal Home Loan Bank Stock dividends (103) (53)
Gains on sales of securities (23) (299)
Amortization of expense related to stock benefit plans 676 377
Increase (decrease) in cash due to change in:
Accrued interest receivable (134) (213)
Prepaid expenses and other assets (65) (81)
Accrued interest payable 110 32
Other liabilities (566) (960)
Federal income taxes
Current 11 19
Deferred 137 209
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Net cash provided by operating activities 562 (280)
Cash flows provided by (used in) investing activities:
Purchase of investment securities (318) ---
Purchase of mortgage-backed securities (15,676) (26,276)
Principal repayments of mortgage-backed securities 916 1,216
Sale of mortgage-backed securities 1,573 20,307
Purchase of FHLB Stock (397) (447)
Loan principal repayments 6,605 4,054
Loan disbursements (10,839) (16,640)
Purchase of office premises and equipment (40) ---
----------------- -----------------
Net cash used in investing activities (18,176) (17,786)
----------------- -----------------
Net cash used in operating and investing
activities (subtotal carried forward) $(17,614) $(18,066)
----------------- -----------------
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Enterprise Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share data)
(unaudited)
Three Months Ended December 31,
-----------------------------------------
1997 1996
--------------- ---------------
Net cash used in operating and investing
activities (subtotal carried forward) $ (17,614) $ (18,066)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 729 3,600
Escrow deposits --- 184
Proceeds from Federal Home Loan Bank advances 25,000 20,000
Repayment of Federal Home Loan Bank advances --- (10,000)
Distribution to stockholders (496) (2,025)
Purchase of Treasury shares --- (649)
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Net cash provided by financing activities 25,233 11,110
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Net increase (decrease) in cash and cash equivalents 7,619 (6,956)
Cash and cash equivalents at beginning of period 11,141 12,938
--------------- ---------------
Cash and equivalents at end of period $18,760 $ 5,982
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 260 $ ---
=============== ===============
Interest on deposits and borrowings $ 3,362 $ 2,618
=============== ===============
The accompanying narrative is an integral part of these statements.
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ENTERPRISE FEDERAL BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation
Enterprise Federal Bancorp, Inc. (the "Corporation") was
incorporated under Ohio law in April 1994 by Enterprise Federal Savings and
Loan Association (the "Association") in connection with the conversion of the
Association from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank, to be known as Enterprise Federal
Savings Bank (the "Savings Bank"), the issuance of the Association's stock to
the Corporation and the offer and sale of the Corporation's common stock by the
Corporation (the "Conversion"). Upon consummation of the Conversion on October
14, 1994, the Corporation became the unitary holding company for the Savings
Bank.
The accompanying unaudited consolidated financial statements of the Corporation
have been prepared in accordance with instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three months ended December 31, 1997 are not
necessarily indicative of the results to be expected for the year ending
September 30, 1998. The unaudited consolidated financial statements and notes
hereto should be read in conjunction with the audited financial statements and
notes thereto for the year ending September 30, 1997, contained in the
Corporation's 1997 Annual Report.
Note 2 - Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Corporation and the Savings Bank. All significant intercompany
items have been eliminated.
Note 3 - Earnings Per Share
Basic earnings per share for the three month periods ended
December 31, 1997 and 1996 were calculated assuming 1,895,000 and 1,943,000
shares were issued and outstanding during the respective periods.
Diluted earnings per share for the three month periods ended
December 31, 1997 and 1996 were calculated assuming 2,045,000 and 2,029,000
shares were issued and outstanding during the respective periods.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Corporation's assets totaled $301.3 million at December 31, 1997
compared to $274.9 million at September 30, 1997. This $26.4 million or 9.6%
increase was primarily due to a $7.6 million or 68.4% increase in cash and cash
equivalents, a $4.3 million or 2.2% increase in loans receivable, net and a
$13.4 million or 21.9% increase in mortgage-backed securities. Total
liabilities amounted to $268.9 million at December 31, 1997 compared to $243.4
million at September 30, 1997. This increase was primarily due to a $25.0
million or 26.3% increase in advances from the Federal Home Loan Bank ("FHLB")
of Cincinnati. Total stockholders' equity increased $1.0 million or 3.1% to
$32.4 million at December 31, 1997 compared to $31.4 million at September 30,
1997. The funds from the increase in FHLB advances were used to fund loan
originations and purchase mortgage-backed securities. The increase in
stockholders' equity was primarily due to net earnings of $516,000, stock
benefit allocations of $676,000, and increased unrealized gains on available
for sale securities of $267,000 which were partially offset by dividend
distributions of $496,000.
YEAR 2000. The Company outsources its primary data processing
functions. A challenging problem exists as the millennium ("year 2000")
approaches as many computer systems worldwide do not have the capability of
recognizing the year 2000 or years thereafter. To date, the company has
received confirmations from its primary vendors that plans have been developed
by them to address and correct the issues associated with the year 2000
problem.
RESULTS OF OPERATIONS
NET EARNINGS. The Corporation's net earnings amounted to $516,000
for the three months ended December 31, 1997 compared to $690,000 for the
comparable period in 1996. The $174,000 or 25.2% decrease was due primarily to
a $276,000 decrease in profits on sales of securities and a $138,000 increase
in operating expenses which were partially offset by a $146,000 increase in net
interest income and a $77,000 decrease in federal income taxes.
NET INTEREST INCOME. Net interest income before provision for loan
losses increased $161,000 or 8.9% to $2.0 million for the three months ended
December 31, 1997 compared to the same period in 1996. Net interest income is
determined by the Corporation's interest rate spread (i.e., the difference
between the yields earned on its interest-earning assets and the rates paid on
its interest-bearing liabilities) and the relative amounts of interest-earning
assets and interest-bearing liabilities. The increase in net interest income
was due to the increase in the interest-earning assets for the 1997 period
compared to the 1996 period. The increase in interest-earning assets was
primarily due to
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the leveraging of the Corporation's capital and the increased origination of
loans and purchases of mortgage-backed securities.
INTEREST INCOME. Interest income amounted to $5.4 million for the
three months ended December 31, 1997 compared to $4.5 million for the same
period in 1996. The increase of $983,000 or 22.0% was primarily due to an
increase of $863,000 in interest income on loans. Such increase was primarily
due to an increase in the average balance of such assets due to increased loan
demand.
INTEREST EXPENSE. Interest expense increased $822,000 or 31.0% to
$3.5 million for the three months ended December 31, 1997 compared to the same
period in 1996 as a result of an increase in interest expense on both deposits
and borrowed money. Interest expense on deposits increased $113,000 or 6.4% due
to an increase in the average balance of deposits while interest expense on
borrowed money increased $709,000 or 80.7% due to an increase in the average
balance of borrowed money.
OTHER INCOME. Other income amounted to $68,000 and $327,000 during
the three months ended December 31, 1997 and 1996, respectively. The $259,000
decrease from the 1996 period to the 1997 period was primarily due to a
$276,000 decrease in gains on sales of securities as a result of decreased
sales activity.
OPERATING EXPENSES. Operating expenses increased $138,000 or 12.9%
to $1.2 million for the three months ended December 31, 1997 compared to $1.1
million for the three months ended December 31, 1996. Such increase was
primarily due to a $150,000 or 22.8% increase in employee compensation and
benefits associated with increased stock benefit plan costs.
FEDERAL INCOME TAXES. Federal income taxes amounted to $271,000 and
$348,000 for the three months ended December 31, 1997 and 1996, respectively,
resulting in effective tax rates of 34.4% and 33.5%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds are deposits, repayments,
prepayments and maturities of outstanding loans and mortgage-backed securities
and funds provided from operations. While scheduled loan and mortgage-backed
securities repayments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by the movement of interest
rates in general, economic conditions and competition. The Corporation manages
the pricing of its deposits to maintain a deposit balance deemed appropriate
and desirable. In addition, the Corporation invests excess funds in FHLB
overnight deposits and other short-term interest-earning assets which provide
liquidity to meet lending requirements. As an additional source of funds, the
Corporation has borrowed funds from the FHLB of Cincinnati and has access to
the Federal Reserve Bank discount window. At December 31, 1997, the Corporation
had $120.0 million of FHLB advances outstanding.
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Liquidity management is both a daily and long term function. Excess
liquidity is generally invested in short-term investments such as FHLB of
Cincinnati overnight deposits. On a longer-term basis, the Corporation
maintains a strategy of investing in various mortgage-backed securities and
lending products. During the three month periods ended December 31, 1997 and
1996, the Corporation used its sources of funds primarily to meet its ongoing
commitments to pay maturing savings certificates and savings withdrawals, fund
loan commitments and maintain its portfolio of mortgage-backed securities. At
December 31, 1997, the total approved loan commitments outstanding amounted to
$1.9 million. At the same time, the Corporation had $10.8 million of
commitments under unused lines and letters of credit and the unadvanced portion
of construction loans approximated $6.5 million. Certificates of deposit
scheduled to mature in one year or less at December 31, 1997 totaled $52.7
million. Management of the Corporation believes that the Corporation has
adequate resources, including principal prepayments and repayments of loans and
mortgage-backed securities, to fund all of its commitments to the extent
required. In addition, although the Corporation has extended commitments to
fund loans or lines and letters of credit, historically, the Corporation has
not been required to fund all of its outstanding commitments. Management
believes that a significant portion of maturing deposits will remain with the
Corporation.
The Savings Bank is required by the Office of Thrift Supervision
("OTS") to maintain average daily balances of liquid assets and short-term
liquid assets (as defined) in amounts equal to 5% and 1% respectively, of net
withdrawal deposits and borrowings payable in one year or less to assure its
ability to meet demand for withdrawals and repayments of short-term borrowings.
The liquidity requirements may vary from time to time at the direction of the
OTS depending upon economic conditions and deposit flows. The Savings Bank
generally maintains a liquidity ratio of between 5% and 10% of its net
withdrawable deposits and borrowings payable in one year or less. The Savings
Bank's average monthly liquidity ratio and short-term liquid assets ratio for
December 1997 was 8.1%. As of December 31, 1997, the Savings Bank's regulatory
capital substantially exceeded all regulatory capital requirements as
demonstrated in the table below.
Regulatory Capital
-----------------------------------------------------------------------------------------
Tangible Core Risk-based
Capital Percent Capital Percent Capital Percent
--------- ------------ -------------- ----------- --------------- ------------
(Dollars in Thousands)
Capital under generally accepted
accounting principles $30,233 $30,233 $30,233
Goodwill (13) (13) (13)
Unrealized gain on securities (318) (318) (318)
------ ------ ------
General valuation allowances --- --- 620
------ ------ ------
Regulatory capital computed 29,902 10.0 29,902 10.0 30,522 18.1
Minimum capital requirement 4,500 1.5 9,000 3.0 13,471 8.0
------ ---- ------ ---- ------ ----
Regulatory capital - excess $25,402 8.5 $20,902 7.0 $17,051 10.1
====== ==== ====== ==== ====== ====
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ENTERPRISE FEDERAL BANCORP, INC. AND SUBSIDIARY
PART II
Item 1. Legal Proceedings
Neither the Corporation nor the Savings Bank is involved in any
pending legal proceedings other than non-material legal proceedings
occurring in the ordinary course of business.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not required.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTERPRISE FEDERAL BANCORP, INC.
Date: February 4, 1998 By: /s/ Otto L. Keeton
------------------------------------------
Otto L. Keeton
President & Chief Executive Officer
Date: February 4, 1998 By: /s/ Thomas J. Noe
------------------------------------------
Thomas J. Noe
Vice President and Chief Financial Officer
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