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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-19829
CALUMET BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3785272
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1350 EAST SIBLEY BOULEVARD, DOLTON, ILLINOIS 60419
(Address of principal executive offices) (Zip Code)
(708) 841-9010
(Registrant's telephone number, including area code)
Indicate by check mark whether 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. Yes X No
- -
As of November 3, 1997, the Company has 3,166,569 (split adjusted) shares
of $0.01 par value common stock issued and outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS PAGE NO.
Consolidated Statements of Financial Condition
as of September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
for the three months ended September 30, 1997 and 1996,
and for the nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997 and 1996 5
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 15
ITEM 2 - CHANGES IN SECURITIES 15
ITEM 3 - DEFAULT UPON SENIOR SECURITIES 15
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5 - OTHER INFORMATION 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURE PAGE 16
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CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands) September 30, December 31,
1997 1996
ASSETS: ------------------------------------
Cash $ 2,373 $ 3,021
Interest bearing deposits 691 6,154
------------------------------------
CASH AND CASH EQUIVALENTS 3,064 9,175
Securities available-for-sale 47,376 57,362
Securities held-to-maturity 20,136 27,970
Loans receivable, net 380,208 381,200
Investment in limited partnerships 26,692 24,458
Real estate held for sale acquired through foreclosure 2,637 1,665
Office properties and equipment, net 4,230 4,320
Other assets 4,003 4,067
------------------------------------
TOTAL ASSETS $488,346 $510,217
====================================
LIABILITIES:
Deposits $345,569 $357,330
Federal Home Loan Bank advances and other borrowings 53,160 59,850
Advance payments by borrowers for taxes and insurance 2,108 3,124
Income taxes 1,106 742
Other liabilities 7,213 7,407
------------------------------------
TOTAL LIABILITIES 409,156 428,453
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized - -
Common stock, $.01 par value, 4,200,000 shares authorized
3,615,841 (1997) and 3,614,341 (1996) shares issued 36 36
Additional paid-in capital 35,189 35,090
Unrealized gains on securities available for sale,
net of income tax expense of $452 and $149 762 239
Retained earnings - substantially restricted 54,316 73,817
Unearned ESOP shares (424) (849)
Stock held for management recognition plan (34) (137)
Treasury stock (449,645 shares (1997); 1,237,313 shares (1996)) (10,655) (26,432)
------------------------------------
TOTAL STOCKHOLDERS' EQUITY 79,190 81,764
------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $488,346 $510,217
====================================
See notes to consolidated financial statements.
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CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------
1997 1996 1997 1996
--------------------------------------
INTEREST AND DIVIDEND INCOME:
Loans $8,582 $8,076 $25,421 $24,552
Securities and deposits 1,175 1,540 3,868 4,698
--------------------------------------
Total interest and dividend income 9,757 9,616 29,289 29,250
INTEREST EXPENSE:
Deposits 4,493 4,606 13,225 13,749
Federal Home Loan Bank advances
and other borrowings 837 621 2,615 1,955
--------------------------------------
Total interest expense 5,330 5,227 15,840 15,704
--------------------------------------
NET INTEREST INCOME 4,427 4,389 13,449 13,546
Provision for losses on loans 200 200 600 600
Net interest income after provision --------------------------------------
for losses on loans 4,227 4,189 12,849 12,946
OTHER INCOME:
Gain on loans sold 55 77 126 182
Gain (loss) on sales of real estate 16 (62) 54 (4)
Gain (loss) on sales of securities (59) (15) 41 5
Income from limited partnerships 218 174 1,748 1,228
Insurance commissions 62 29 125 139
Other 204 438 437 741
--------------------------------------
Total other income 496 641 2,531 2,291
OTHER EXPENSES:
Compensation and benefits 1,242 1,179 4,254 4,065
Office occupancy and equipment 331 319 945 966
Federal insurance premiums 55 212 174 635
FDIC special assessment for SAIF - 2,316 - 2,316
Advertising and promotion 99 109 235 230
Data processing 133 107 386 328
Other 387 430 1,186 1,337
--------------------------------------
Total other expenses 2,247 4,672 7,180 9,877
--------------------------------------
Income before income taxes 2,476 158 8,200 5,360
Income taxes 800 (49) 2,688 1,650
--------------------------------------
NET INCOME $1,676 $207 $5,512 $3,710
======================================
EARNINGS PER SHARE $0.49 $0.05 $1.57 $0.92
======================================
See notes to consolidated financial statements.
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CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
Nine Months Ended
September 30,
------------------------------
1997 1996
------------------------------
OPERATING ACTIVITIES:
Net income $5,512 $3,710
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans 600 600
Provision for depreciation 259 241
Amortization of deferred loan and commitment fees (638) (769)
Amortization and accretion of premiums and discounts 157 180
Amortization and allocation of stock based benefits 528 526
Gain on sales of securities available-for-sale (41) (5)
Equity in income from limited partnerships (1,748) (1,228)
Net (gain) loss on sale of real estate (54) 4
Originations of loans held for sale (5,363) (5,031)
Gain on loans sold (126) (77)
Proceeds from loans sold 5,489 5,108
( Increase) decrease in interest receivable (272) 184
Decrease in interest payable (71) (45)
Change in operating assets and liabilities:
Decrease in other assets 336 364
Increase (decrease) in income taxes payable 145 (373)
Increase (decrease) in other liabilities (123) 3,145
------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,590 6,534
INVESTING ACTIVITIES:
Securities available-for-sale:
Purchases (40,733) (26,600)
Proceeds from sale 48,892 32,888
Repayments and maturities 2,693 3,397
Securities held-to-maturity:
Purchases (10) 0
Repayments and maturities 7,688 4,138
Principal and fees collected on loans 68,463 67,180
Loans originated (67,081) (58,516)
Loans purchased (1,642) (3,567)
Investments in limited partnerships (3,732) (3,387)
Return of investment in limited partnerships 3,246 2,387
Proceeds from sales of real estate 372 289
Purchases of office property and equipment (169) (265)
------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 17,987 17,944
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands) (Unaudited)
Nine Months Ended
September 30,
-------------------------------
1997 1996
-------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in demand and passbook accounts ($3,896) $1,145
Net increase (decrease) in certificates of deposit (7,865) 4,238
Proceeds of Federal Home Loan Bank advances
and other borrowings 58,385 41,675
Repayment of Federal Home Loan Bank advances
and other borrowings (65,075) (59,965)
Net decrease in advance payments by
borrowers for taxes and insurance (1,016) (1,224)
Net proceeds from exercise of stock options 15 251
Purchase of treasury stock (9,236) (8,687)
-------------------------------
NET CASH USED IN FINANCING ACTIVITIES (28,688) (22,567)
-------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,111) 1,911
Cash and cash equivalents at beginning of period 9,175 8,657
-------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,064 $10,568
-------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest on deposits $13,268 $13,722
Cash paid during the period for interest on notes payable 2,643 2,027
-------------------------------
$15,911 $15,749
===============================
Cash paid during the period for income taxes $2,147 $2,375
===============================
Noncash transactions:
Loans to facilitate sales of real estate owned $88 $685
Loans transferred to real estate owned 1,378 436
See notes to consolidated financial statements.
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CALUMET BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands) (Unaudited)
Nine Months Ended
September 30,
--------------------------
1997 1996
--------------------------
COMMON STOCK:
Beginning and end of period $ 36 $ 36
--------------------------
ADDITIONAL PAID-IN CAPITAL:
Beginning of period 35,090 34,665
Proceeds of option stock issued 15 251
Tax benefits of MRP/option deductions 84 155
--------------------------
End of period 35,189 35,071
--------------------------
UNREALIZED GAINS ON SECURITIES AVAILABLE FOR SALE:
Beginning of period, net of income tax expense
of $149 and $217 239 423
Change in unrealized gains, net of income tax
(expense) benefit of ($303) and $243 523 (482)
--------------------------
End of period 762 (59)
--------------------------
RETAINED EARNINGS:
Beginning of period 73,817 68,418
Net income 5,512 3,710
Common stock split from treasury stock (25,013) -
--------------------------
End of period 54,316 72,128
--------------------------
LESS UNEARNED ESOP SHARES:
Beginning of period (849) (1,414)
Shares to be released 425 424
--------------------------
End of period (424) (990)
--------------------------
LESS STOCK HELD FOR MRP:
Beginning of period (137) (273)
Amortization 103 102
--------------------------
End of period (34) (171)
--------------------------
LESS TREASURY STOCK:
Beginning of period (26,432) (17,745)
Purchases (9,236) (8,687)
Common stock split from treasury stock 25,013 -
--------------------------
End of period (10,655) (26,432)
--------------------------
TOTAL STOCKHOLDERS' EQUITY $79,190 $79,583
==========================
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. The results of
operations for the three months and the nine months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. Certain 1996 amounts have been reclassified to
conform to the 1997 presentation. For further information, refer to the
consolidated financial statements and notes thereto included in the Calumet
Bancorp, Inc. (the "Company") Annual Report on Form 10-K for the year ended
December 31, 1996.
NOTE B - EARNINGS PER SHARE
On October 21, 1997 the Board of Directors of Calumet Bancorp declared a
three-for-two stock split, in the form of a 50% common stock dividend, to be
distributed on November 17, 1997 to stockholders of record on November 3, 1997.
All share and per share data have been adjusted to reflect the effect of the
three-for-two split in the September 30, 1997 financial statements, and all
prior periods presented.
Earnings per share of common stock outstanding for the three months and
the nine months ended September 30, 1997 and 1996, respectively, have been
determined by dividing net income for the period by the weighted average number
of shares of common stock and common stock equivalents outstanding. Common
stock equivalents assume the exercise of stock options and use of proceeds to
purchase Treasury Stock at the average market price for the period. The
weighted average number of shares of common stock and common stock equivalents
outstanding used for this calculation were 3,417,244 and 3,778,116 for the
three months ended September 30, 1997 and 1996, and 3,512,129 and 4,015,166 for
the nine months ended September 30, 1997 and 1996, respectively. The average
number of uncommitted (unearned) shares held for the Company's Employee Stock
Ownership Plan ("ESOP") and included in the weighted average shares outstanding
for these same periods were 74,261, 159,132, 95,479 and 180,350, respectively.
Shares committed to be released to the ESOP are expensed during the period
based on original cost.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." The
overall objective of SFAS No. 128 is to simplify the calculation of earnings
per share (EPS). Under this statement, primary EPS computed in accordance with
APB Opinion No. 15 will be replaced with a new, simpler calculation called
basic EPS. Basic EPS will be calculated by dividing income available to common
shareholders (i.e., net income less
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preferred stock dividends, if applicable) by the weighted average common shares
outstanding without consideration for common stock equivalents such as options,
warrants and convertible securities. Fully diluted EPS will not change
significantly but has been renamed diluted EPS.
SFAS No. 128 is effective for both interim and annual financial statements
for periods ending after December 15, 1997. Earlier application is not
permitted. Upon adoption, the Company will be required to change the method
currently used to compute EPS and to restate all prior periods. The impact of
SFAS No. 128 on the calculation of primary and fully diluted EPS is not
expected to be material.
NOTE C - COMMITMENTS AND CONTINGENCIES
At September 30, 1997, the Company had approved loan commitments totalling
$10.3 million to originate loans, $3.5 million to purchase loans, $2.3 million
to sell loans, $7.0 million in undisbursed loans-in-process, $15.2 million in
unused lines of credit, and $10.6 million in credit enhancement arrangements.
Commitments to fund loans and those under credit enhancement arrangements have
credit risk essentially the same as that involved in extending loans to
customers and are subject to the Company's normal credit policies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Calumet Bancorp, Inc. completed its initial public offering of Common
Stock on February 20, 1992. It owns all of the outstanding Common Stock of
Calumet Federal Savings and Loan Association of Chicago (the "Association"), a
federally chartered stock savings and loan association which operates five
financial services offices in the Chicago area -- in Dolton, Lansing, Sauk
Village, and two in southeastern Chicago. The Association owns two first tier
subsidiaries, Calumet Savings Service Corporation and Calumet Residential
Corporation, both wholly owned. Calumet Residential Corporation owns 51% of a
second tier subsidiary, Calumet United Limited Liability Company. Calumet
Savings Service Corporation owns two second tier subsidiaries, Calumet Mortgage
Corporation of Idaho and Calumet Financial Corporation (of Illinois), both
wholly owned.
The Company's business activities currently consist of investment in
equity securities, participation as a limited partner in real estate investment
and loan servicing partnerships, and operation of the Association. The
Association's principal business consists of attracting deposits from the
public and investing these deposits, together with funds generated from
operations and borrowings, primarily in residential mortgage loans. The
Association's deposit accounts are insured to the maximum allowable by the
Federal Deposit Insurance Corporation (FDIC).
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The Association's results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
its loan and investment securities portfolios and its cost of funds, consisting
of interest paid on its deposits and borrowings. The Association's operating
results are also affected by the sale of insurance, annuities and real estate
through its second tier subsidiaries, and to a lesser extent, loan commitment
fees, customer service charges and other income. Operating expenses of the
Association are primarily employee compensation and benefits, equipment and
occupancy costs, federal insurance of accounts premiums, advertising, data
processing, and other administrative expenses. The Association's results of
operations are further affected by economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
FINANCIAL CONDITION
Total assets decreased $21.8 million, or 4.3%, to $488.3 million at
September 30, 1997, from $510.2 million at December 31, 1996. Net loans
receivable decreased $1.0 million, or 0.26%, to $380.2 million at September 30,
1997, from $381.2 million at December 31, 1996, with originations and purchases
of $68.8 million during the first nine months of 1997.
The Company's lending activities have been concentrated primarily in
residential real estate secured by first liens. At September 30, 1997,
approximately 57.9% of the Company's mortgage loans were secured by one-to-four
family residential properties, 12.4% by multifamily income producing
properties, and 29.7% by commercial properties and land. At December 31, 1996,
these concentrations were 57.1%, 14.3%, and 28.6%, respectively. At September
30, 1997, the Company's mortgage loan portfolio was geographically distributed
primarily in Illinois (34.0%), Colorado (24.8%), Idaho (20.3%), and New Mexico
(14.1%). At December 31, 1996, these distributions were 35.0%, 26.4%, 18.5%,
and 13.7%, respectively.
Deposits decreased $11.8 million, or 3.3%, to $345.6 million at September
30, 1997, from $357.3 million at December 31, 1996. Funds generated from
operations and asset reductions were used to pay down Federal Home Loan Bank
advances as they became due, reducing advances by $6.7 million, or 11.2%, to
$53.2 million at September 30, 1997, from $59.9 million at December 31, 1996.
Stockholders' equity decreased $2.6 million, or 3.2%, to $79.2 million at
September 30, 1997, from $81.8 million at December 31, 1996. The decrease came
primarily from treasury stock purchases of $9.2 million, offset by earnings of
$5.5 million, $612,000 in credits from employee benefit plans, and $523,000 in
net unrealized gains on securities. During the first nine months of 1997 the
Company repurchased 401,596 shares of its stock at an average price of $23.00
per share. The Company has
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3,166,196 shares of common stock (including 63,653 unearned ESOP shares)
outstanding on September 30, 1997, with a book value of $25.01 per share.
ASSET QUALITY
The allowance for losses on loans increased to 1.57% of net loans
receivable at September 30, 1997, from 1.48% of net loans receivable at
December 31, 1996. Nonperforming loans to net loans receivable decreased to
0.93% at September 30, 1997, from 1.66% at December 31, 1996 , while
nonperforming assets to total assets decreased to 1.27% at September 30, 1997,
from 1.57% at December 31, 1996. The allowance for losses on loans amounted to
168.50% of nonperforming loans at September 30, 1997, increased from 88.89% at
December 31, 1996. The significant decrease in nonperforming loans at
September 30, 1997, was due to the recent improvement in several large loans
which have had periodic performance problems in recent years.
RESULTS OF OPERATIONS
The Company reported net income of $1.7 million for the third quarter of
1997, compared to $207,000 for the third quarter of 1996. During the third
quarter of 1996 the Company provided $2.3 million to pay the FDIC special
assessment to recapitalize the SAIF pursuant to the legislation signed by
President Clinton on September 30, 1996. Without the special assessment,
earnings would have been $1.7 million for the third quarter of 1996,
approximately the same as 1997. Net income for the nine months ended September
30, 1997 was $5.5 million, compared to $3.7 million for the nine months ended
September 30, 1996, or approximately $5.2 million without the special
assessment.
Earnings per share of common stock for the third quarter of 1997 was
$0.49, compared to $0.05 for the third quarter of 1996.
The FDIC special assessment, net of income tax benefit, reduced earnings
by $0.40 per share for the third quarter of 1996. Earnings per share increased
to $1.57 for the first nine months of 1997, from $0.92 for the first nine
months of 1996. The FDIC special assessment reduced earnings per share by
$0.38 for the nine months ended September 30,1996
Return on average assets increased to 1.36% for the third quarter of 1997,
from 0.17% (1.38% adjusted) for the same quarter last year. Return on average
stockholders' equity for the third quarter of 1997 was 8.66%, compared to 1.04%
(8.55% adjusted) for the same quarter last year. Return on average assets
increased to 1.48% for the first nine months of 1997, from 0.99% (1.41%
adjusted) in the first nine months of 1996. Return on average stockholders'
equity for the first nine months of 1997 was 9.44%, compared to 5.99% (8.55%
adjusted) in 1996.
NET INTEREST INCOME
Net interest income was $4.4 million for the third quarter of both 1997
and 1996. The net interest margin for the third quarter of 1997 increased to
3.89%, compared to 3.76% for the third quarter of 1996. The average yield on
interest earning assets
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increased to 8.58% during the third quarter of 1997, from 8.24% in 1996, while
the average cost of funds increased to 5.30%, from 5.24% for these same
periods, resulting in an increase in the rate spread to 3.28% in 1997, from
3.00% in 1996.
The increase in the rate on interest earning assets resulted in an
increase of approximately $260,000 in interest income, but was offset by a
decrease of approximately $119,000 in interest income due to a $12.0 million
decrease in the volume of average interest earning assets. The increase in the
cost of funds was due to both rate and volume increases of approximately
$37,000 and $66,000, respectively.
Net interest income was $13.5 million during the first nine months of both
1997 and 1996. The net interest margin for the first nine months of 1997
increased to 3.89%, from 3.84% for the first nine months of 1996. The average
yield on interest earning assets increased to 8.48% during the first nine
months of 1997, compared to 8.29% for the first nine months of 1996, while the
average cost of funds remained at 5.21% for both 1997 and 1996, resulting in an
increase in the rate spread to 3.27%, compared to 3.08% last year.
The increased yield on interest earning assets added approximately
$386,000 to interest income, but a $9.7 million reduction in the volume of
interest earning assets reduced interest income by approximately $347,000. The
increased volume of borrowings added approximately $681,000 to the cost of
funds, while rate reduced the cost of borrowings by $21,000, and both rate and
volume decreases reduced the cost of deposits by approximately $524,000.
PROVISION FOR LOAN LOSSES
The allowance for losses on loans is established through a provision for
losses on loans based on management's evaluation of the risk inherent in its
loan portfolio and general economic conditions. Management's evaluation
includes a review of all loans on which full collectibility may not be
reasonably assured, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience and the Company's internal
credit review process. The provision for losses on loans has been maintained at
$200,000 per quarter for 1997 and 1996. Chargeoffs of $301,000 for 1997
compare to chargeoffs of $73,000 during 1996. Chargeoffs were partially offset
by recoveries of $46,000 during the first nine months of 1997, while recoveries
of $73,000 completely offset chargeoffs in 1996.
OTHER INCOME
Other income decreased $145,000, to $496,000 during the third quarter of
1997, from $641,000 in the third quarter of 1996, primarily due to a $250,000
one time release fee credited to miscellaneous income in 1996, offset in part
by a $78,000 change from losses to gains on sales of real estate acquired
through foreclosure. Other income increased $240,000, to $2.5 million during
the first nine months of 1997, from $2.3
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million during the first nine months of 1996, primarily due to a $520,000
increase in income from limited partnerships, a $58,000 reversal from losses to
gains on sales of real estate acquired through foreclosure, and a $36,000
increase in gains on sales of securities, offset in part by the one time
release fee of $250,000 credited to miscellaneous income in 1996. Gain on
loans sold decreased $56,000, to $126,000 in the first nine months of 1997,
from $182,000 in the first nine months of 1996, primarily due to a decrease in
loans sold in the secondary market.
The $520,000 increase in income from limited partnerships was primarily
the result of a $523,000 increase in mortgage loan servicing income and a
$312,000 gain on the sale of a residential rental property, which was offset by
a $186,000 decrease in income from residential construction and sale and a
$179,000 settlement of litigation to facilitate the sale of a 288 unit
residential rental property. That property was under contract for sale and
scheduled to close in the fourth quarter of 1997. Under the terms of the
contract the Company would have recovered approximately $1.8 million previously
written off and an additional $1.5 million in gain on sale. However, certain
terms of the contract were not met and the contract has been terminated. The
partnership is currently negotiating for the sale of the property with other
potential purchasers.
OPERATING EXPENSES
Operating expenses decreased $2.4 million, to $2.2 million during the
third quarter of 1997, from $4.7 million during the third quarter of 1996,
primarily as the result of the $2.3 million FDIC special assessment in 1996. A
reduction in the rate assessed for Federal insurance of accounts also reduced
the premium by $157,000, to $55,000 in the third quarter of 1997, from $212,000
in the third quarter of 1996. Compensation expense increased $63,000, or 5.34%
for the third quarter of 1997, compared to the third quarter of 1996. Legal
expense decreased $51,000, to $28,000 in the third quarter of 1997, from
$79,000 in the third quarter of 1996. Operating expenses as a percent of
average assets decreased to 1.82% in the third quarter of 1997, from 3.78%
(1.90% without the FDIC special assessment) in 1996. The Company's efficiency
ratio was 47.6% for the third quarter of 1997, compared to 48.8% (adjusted) in
1996.
Operating expenses decreased $2.7 million, to $7.2 million during the
first nine months of 1997, from $9.9 million in the first nine months of 1996,
primarily due to the $2.3 million FDIC special assessment. A reduction in the
rate assessed for Federal insurance of accounts also reduced the premium by
$461,000, to $174,000 in 1997, from $635,000 in 1996. Compensation expense
increased $189,000, or 4.65% for 1997, compared to 1996. Legal expense
decreased $150,000, to $54,000 in 1997, compared to $204,000 in 1996.
Operating expenses as a percent of average assets decreased to 1.92% in the
first nine months of 1997, from 2.64% in the first nine months of 1996 (2.02%
without the FDIC special assessment). The Company's efficiency ratio was 46.7%
for the first nine months of 1996, compared to 49.6% (adjusted) in 1996.
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INCOME TAXES
During the third quarter of 1997 the Company's effective income tax rate
was 32.3%, benefiting from the dividends received deduction and low income
housing credits. During the third quarter of 1996 the Company accrued low
income housing tax credits in the amount of $62,000, and a dividends received
deduction in the amount of $136,000, which resulted in a net income tax benefit
for the quarter. For the first nine months of 1997 and 1996 the effective
income tax rates of 32.8% and 30.8%, respectively, reflect the benefits of both
low income housing tax credits and the dividends received deduction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds include deposits and Federal Home
Loan Bank advances, principal and interest payments on loans and securities,
maturing investment securities, and sales of securities from the
available-for-sale portfolio. While maturities and scheduled amortization of
loans and mortgage-backed securities are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by interest rates,
general economic conditions, and competition.
The primary investing activity of the Company is the origination and
purchase of mortgage loans and the purchase of securities. During the first
nine months of 1997 the Company originated and purchased mortgage loans in the
amount of $68.8 million, compared to $62.1 million during the first nine months
of 1996. Loan repayments of $68.2 million in 1997 compare to $67.2 million in
1996. During the first nine months of 1997 the Company purchased securities in
the amount of $40.7 million, compared to $26.6 million during the first nine
months of 1996. The Company sold $48.9 million of securities during the first
nine months of 1997, compared to $32.9 million during 1996. The Company also
invested an additional $3.7 million in 1997 in limited partnerships developing
residential and commercial properties in Illinois, compared to $3.4 million in
1996. Net proceeds from the reduction in loans and investments was used
primarily to fund a $11.8 million decrease in deposits (primarily due to better
rates available to customers in other types of financial instruments and the
continuing success of the stock market) and to repay a net $6.7 million in
borrowings.
Federal regulations require a savings institution to maintain an average
daily balance of liquid assets equal to at least 5% of the average daily
balance of its net withdrawable deposits and short term borrowings. In
addition, short term liquid assets must constitute 1% of net withdrawable
deposits and short term borrowings. Management has consistently maintained
levels in excess of the regulatory requirement. The Association's average
liquidity ratios for the first nine months of 1997 and 1996 were 8.5% and 7.9%,
respectively. The Association's average short term liquidity ratios for these
same periods were 2.9% and 2.1%, respectively.
The Association is also required to maintain specific amounts of capital
pursuant to federal regulations. As of September 30, 1997, the Association was
in compliance
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with all regulatory capital requirements, with tangible and core capital of
9.9%, and risk-based capital of 16.2%, well above the requirements of 1.5%,
3.0%, and 8.0%, respectively.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Holding Company and the Association are not engaged in any legal
proceedings of a material nature at the present time.
ITEM 2. CHANGES IN SECURITIES
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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On October 22, 1997, the Company filed Form 8-K to report that on October
21, 1997 the Company declared a three-for-two stock split in the form of a 50%
stock dividend on its common stock, payable November 17, 1997 to stockholders
of record on November 3, 1997. Cash will be distributed in lieu of fractional
shares.
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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 thereto duly authorized.
DATE: NOVEMBER 3, 1997 CALUMET BANCORP, INC.
/S/THADDEUS WALCZAK
-------------------------
THADDEUS WALCZAK,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
DATE: NOVEMBER 3, 1997 /S/JOHN GARLANGER
-------------------------
JOHN GARLANGER,
CHIEF FINANCIAL OFFICER
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