1
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 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
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Commission File Number 0-19783
SUBURBFED FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
Delaware 36-3796361
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(State or other jurisdiction of incorporation or I.R.S. Employer Identification or Number
organization)
3301 W. Vollmer Road, Flossmoor, Illinois 60422
- ----------------------------------------- -----
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 333-2200
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of November 7 ,1997, the Registrant had 1,262,749 shares of common stock
issued and outstanding.
2
SUBURBFED FINANCIAL CORP.
TABLE OF CONTENTS
PAGE
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PART I FINANCIAL INFORMATION 1-11
Item 1 Financial Statements
Consolidated Statements of Financial Condition
September 30, 1997 (Unaudited) and December 31, 1996 1
Consolidated Statements of Income (Unaudited)
Three Months and Nine Months Ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-11
PART II OTHER INFORMATION 12
3
SUBURBFED FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30 DECEMBER 31
1997 1996
(UNAUDITED)
ASSETS
Cash and amounts due from depository institutions $3,027,796 $ 3,545,166
Interest-bearing deposits 3,907,039 5,307,070
-------------------------------
TOTAL CASH AND CASH EQUIVALENTS 6,934,835 8,852,236
-------------------------------
Investment securities held to maturity 5,979,313 3,974,167
(Fair value: 1997 - $5,985,626;1996 - $3,918,125)
Investment securities available for sale, at fair value 2,589,436 3,430,277
Investment securities held for trade 1,607,132 1,361,638
Mortgage-backed securities held to maturity 83,695,407 93,562,881
(Fair value: 1997 - $83,922,004;1996 - $93,408,866)
Mortgage-backed securities available for sale, at fair value 34,308,521 39,923,032
Loans receivable 284,963,993 241,815,183
Real estate owned 25,831 14,076
Stock in Federal Home Loan Bank of Chicago 3,585,000 3,300,000
Office properties and equipment 4,907,814 4,699,195
Accrued interest receivable 2,680,737 2,319,523
Prepaid expenses and other assets 1,184,910 713,523
Deposit base intangible 96,240 126,263
-------------------------------
TOTAL ASSETS 432,559,169 404,091,994
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits 314,821,963 309,581,005
Federal Home Loan Bank advances 71,700,000 55,500,000
Other borrowed money 11,670,000 7,438,000
Advance payments by borrowers for taxes and insurance 1,603,476 2,799,782
Other liabilities 4,067,831 2,519,525
-------------------------------
TOTAL LIABILITIES 403,863,270 377,838,312
-------------------------------
STOCKHOLDERS' EQUITY:
Common stock 13,686 13,653
Additional paid-in capital 8,529,226 8,420,472
Treasury stock (1,615,426) (1,681,562)
Retained earnings, substantially restricted 21,796,349 20,021,403
Unrealized gain (loss) on securities available for sale 75,751 (340,285)
Common stock acquired by ESOP (103,687) (170,530)
Common stock acquired by Bank Incentive Plan 0 (9,469)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 28,695,899 26,253,682
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $432,559,169 $ 404,091,994
===============================
See notes to consolidated financial statements.
1
4
SUBURBFED FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
QUARTER ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
1997 1996 1997 1996
INTEREST INCOME:
Interest on loans $ 5,413,799 $ 4,033,420 $ 15,140,106 $ 10,434,522
Interest on mortgage-backed securities 2,086,942 2,571,720 6,537,550 8,408,634
Interest on investment securities 132,472 104,134 413,674 333,797
Interest on other financial assets 16,481 29,315 79,330 104,664
Dividends on FHLB stock 56,986 54,385 167,446 142,568
-------------------------------------------------------------------------
TOTAL INTEREST INCOME 7,706,680 6,792,974 22,338,106 19,424,185
=========================================================================
INTEREST EXPENSE:
Interest on deposits 3,562,833 3,335,673 10,703,533 9,941,326
Interest on borrowed money 1,148,478 696,636 2,910,345 1,718,176
-------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 4,711,311 4,032,309 13,613,878 11,659,502
-------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 2,995,369 2,760,665 8,724,228 7,764,683
Provision for loan losses 45,000 54,000 135,000 138,680
-------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN 2,950,369 2,706,665 8,589,228 7,626,003
LOSSESS -------------------------------------------------------------------------
NON-INTEREST INCOME:
Loan fees and service charges 209,775 250,575 575,057 688,139
Commission income 161,858 125,203 426,178 352,529
Gain on sale of loans and securities - Net 78,799 62,300 226,512 160,301
Unrealized gain(loss) on securities held for
track- Net 165,462 35,427 312,049 39,775
Loss on sale of real estate owned 0 0 (6,282) 0
Deposit-related fees and other income 377,759 388,204 1,117,837 1,130,454
-------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 993,653 861,709 2,651,351 2,371,198
-------------------------------------------------------------------------
NON-INTEREST EXPENSE:
General and administrative:
Staffing costs 1,641,336 1,441,361 4,637,018 4,153,368
Advertising 70,976 70,919 182,789 204,994
Occupancy and equipment expenses 495,016 450,872 1,478,782 1,398,483
Data processing 79,556 76,631 240,829 231,222
Federal deposit insurance premiums 51,136 1,875,191 149,241 2,201,010
Other 456,393 400,598 1,291,234 1,191,612
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Total General and Administrative Expenses 2,794,413 4,315,572 7,979,893 9,380,689
AMORTIZATION OF DEPOSIT BASE INTANGIBLE 8,792 10,616 30,023 36,406
-------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 2,803,205 4,326,188 8,009,916 9,417,095
-------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 1,140,817 (757,814) 3,230,663 580,106
Provision for (Benefit From) Income Taxes 411,100 (308,500) 1,152,900 181,400
-------------------------------------------------------------------------
NET INCOME (LOSS) $ 729,717 ($449,314) $ 2,077,763 $ 398,706
=========================================================================
Earnings Per Share - - Primary $ 0.54 $ ( 0.34) $ 1.55 $ 0.30
- Fully Diluted $ 0.54 $ ( 0.34) $ 1.53 $ 0.30
Dividends Declared Per Common Share $ 0.08 $ 0.08 $ 0.24 $ 0.24
See notes to consolidated financial statements
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5
SUBURBFED FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,077,763 $ 398,706
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 512,416 502,702
Amortization of intangible 30,023 36,406
Amortization of cost of stock benefit plans 76,312 109,456
Amortization of discount on investment securities (11,250) (15,000)
Provision for loan losses 135,000 138,680
Net gain on sale of loans and securities (226,512) (160,301)
Net (gain) loss on sale of real estate owned 6,282 (13,106)
Unrealized gain on investment securities (312,049) (39,775)
Proceeds from sales of trading account securities 1,006,248 377,117
Purchase of trading account securities (647,913) (248,832)
Net change in:
Accrued interest receivable (361,214) (165,941)
Accrued interest payable 65,781 27,263
Deferred income (324,693) (926,512)
Deferred and accrued income taxes 450,541 (193,804)
Other liabilities 824,401 2,526,006
Prepaid expenses and other assets (452,572) (935,583)
-----------------------------------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 2,848,564 1,417,482
-----------------------------------------
INVESTING ACTIVITIES:
Proceeds from sale of investment securities 1,193,262 2,201,733
Purchases of investment securities (2,235,000) (799,995)
Proceeds from sale of mortgage-backed securities 4,002,299 43,031,971
Proceeds from repayments of mortgage-backed securities 13,919,414 17,991,468
Purchases of mortgage-backed securities (1,968,747) (13,894,597)
Purchase of Federal Home Loan Bank stock (285,000) (1,010,000)
Proceeds from sale of loans 3,261,907 7,373,301
Disbursements for loans (93,925,689) (137,133,539)
Loan repayments 47,678,480 52,284,412
Proceeds from sale of real estate owned 12,794 26,703
Property and equipment expenditures (721,035) (281,764)
-----------------------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (29,067,315) (30,210,307)
-----------------------------------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 31,717 83,944
Dividends paid on common stock (302,817) (301,626)
Sale (purchase) of treasury stock 95,798 (648,937)
Deposit receipts 700,081,896 698,986,080
Deposit withdrawals (704,376,578) (698,116,105)
Interest credited to deposit accounts 9,535,640 8,796,201
Proceeds from borrowed money 213,665,000 174,971,000
Repayment of borrowed money (193,233,000) (157,322,000)
Net (decrease) in advance payments by borrowers for taxes and insurance (1,196,306) (781,687)
-----------------------------------------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 24,301,350 25,666,870
-----------------------------------------
Decrease in Cash and Cash Equivalents (1,917,401) (3,125,955)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,852,236 10,519,464
-----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,934,835 $ 7,393,509
=========================================
CASH PAID DURING THE PERIOD FOR:
Interest $ 13,598,091 $ 11,632,239
Income taxes 893,600 375,204
NON CASH INVESTING ACTIVITIES:
Loans securitized into mortgage-backed securities 0 1,596,500
Transfer of loans to real estate owned $ 25,831 $ 18,926
See notes to consolidated financial statements
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6
SUBURBFED FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Form 10-Q instructions and Article 10 of Regulation S-X, and
in the opinion of management contains all adjustments (all of which are normal
and recurring in nature) necessary to present fairly the financial position as
of September 30, 1997, the results of operations for the three and nine month
periods ended September 30, 1997 and 1996 and cash flows for the nine months
ended September 30, 1997 and 1996. These results have been determined on the
basis of generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The attached consolidated statements are
those of SuburbFed Financial Corp. (the "Company") and its consolidated
subsidiaries Suburban Federal Savings, a Federal Savings Bank (the "Bank"); the
Bank's wholly owned subsidiaries, Suburban Mortgage Services, Inc. and South
Suburban Securities Corporation; and the wholly owned subsidiary of South
Suburban Securities Corporation, Suburban Insurance Resources Agency, Inc. The
results of operations for the three and nine month periods ended September 30,
1997 is not necessarily indicative of the results to be expected for the full
year.
Note B - Stock Conversion
On September 12, 1991 the Board of Directors of Suburban Federal approved a
plan to convert from a federally chartered mutual association to a federally
chartered stock savings bank. The stock conversion plan included, as part of
the conversion, the concurrent formation of a holding company. The stock
offering of the Bank's parent, SuburbFed Financial Corp. (the "Company") was
closed on March 3, 1992 with the sale of 891,250 shares at $10.00 per share.
The Company purchased all the shares of stock of the Bank for $4,023,750 upon
completion of its stock offering.
Note C - Earnings Per Share
Earnings per share of common stock for the three and nine month periods ended
September 30, 1997 and 1996 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. (See Exhibit 11 attached) Stock options are
regarded as common stock equivalents and are therefore considered in both the
primary and fully diluted earnings per share calculations. Common stock
equivalents are computed using the treasury stock method.
Note D - Dividend Declaration
The Company declared a dividend of $.08 per share, representing its
twenty-second consecutive quarterly dividend payable October 15, 1997 to
shareholders of record October 1, 1997. The dividend, totaling $101,001, has
been recorded as of September 30, 1997 as a reduction of retained earnings in
the accompanying consolidated statements of financial condition.
4
7
SUBURBFED FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
During the nine month period ended September 30, 1997, total assets of the
Company increased by $28.5 million. This increase in assets was primarily
funded by $5.2 million of deposit growth plus $20.4 million of additional
borrowed money. Mortgage-backed securities declined by $15.5 million while
loans receivable grew $43.1 million. The strategy of increasing loan
originations, which began in 1995, continued during the first nine months of
1997 and will be pursued for the remainder of the year.
The 1997 increase in loans receivable was the result of loan disbursements of
$93.9 million offset by repayments of $47.7 million and sales of $3.3 million
of one to four family, fixed rate loans to the Federal National Mortgage
Association. Comparable origination and repayment data for the nine month
period ended September 30, 1996 shows disbursements of $137.1 million,
repayments of $52.3 million and sales of $7.4 million.
Mortgage-backed securities ("MBS") held to maturity decreased $9.9 million
during the most recent nine month period due to repayments. Pursuant to the
Company's asset/liability management strategy, the Company's portfolio contains
MBS with adjustable interest rates or short effective terms (2 to 5 year
average lives).
Mortgage-backed securities available for sale decreased $5.6 million due to
repayments of $4.1 million and sales of $4.0 million offset by purchases of
$2.0 million and an increase in market valuation of $500,000 during the nine
month period ended September 30, 1997.
The level of savings deposits is affected primarily by interest rates, the
total amount of funds consumers elect to save, and competition for savings from
alternative investments in the marketplace. Total savings deposit accounts
increased $5.2 million from $309.6 million on December 31, 1996 to $314.8
million on September 30, 1997. The Company experienced a net deposit outflow of
$4.3 million for the nine month period ended September 30, 1997 (before
interest credited). The comparable data for the six month period ended September
30, 1996 was an inflow of $870,000 (before interest credited). Interest
credited was $9.5 million and $8.8 million for the nine months ended September
30, 1997 and 1996, respectively.
During 1997, the Company increased Federal Home Loan Bank advances by $16.2
million and other borrowed money by $4.2 million to assist in funding loan
disbursements.
Stockholders' equity increased $2.4 million during the nine month period ended
September 30, 1997 due in part to earnings of $2.1 million, $96,000 of proceeds
from the sale of treasury stock to fund shares purchased by employees under the
Company's 401(K) retirement plan and an increase in unrealized gains on
securities available for sale of $416,000 offset by dividends paid of $303,000.
5
8
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits from customers into
interest bearing accounts, scheduled monthly repayments and prepayments of
principal and interest on loans and mortgage-backed securities, and borrowings.
Other potential sources of funds available to the Company include borrowings
from the Federal Home Loan Bank of Chicago. While scheduled loan and
mortgage-backed security payments are relatively predictable sources of funds,
the actual mix and amounts of funds from these sources are directly affected by
general interest rates, economic conditions and competition. The primary
business activity of the Company, that of making conventional mortgage loans on
residential housing, is likewise affected by economic conditions.
Current Office of Thrift Supervision regulations require the Bank to maintain
cash and eligible investments in an amount equal to at least 5% of customer
accounts and short-term borrowings to assure its ability to meet demands for
withdrawals and repayment of short-term borrowings. The Bank's average daily
liquidity ratio for the nine monthly periods ending September 30, 1997 ranged
from 5.0% to 5.6%, and it was 5.3% at September 30, 1997. The Bank's daily
liquidity ratio at December 31, 1996 was 5.7%. Liquid assets have been
maintained at a level above regulatory minimums.
The Company uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposits and deposit withdrawals,
repay borrowings, fund existing and continuing loan commitments, maintain its
liquidity and meet operating expenses. As of September 30, 1997, the Company
had approximately $6.8 million in outstanding commitments to originate mortgage
loans. The Company considers its liquidity and capital resources to be adequate
to meet its foreseeable short and long-term needs.
The Company expects to be able to fund or refinance, on a timely basis, its
material commitments and long-term liabilities.
On December 7, 1989, new capital standards were imposed on the thrift industry
as a result of the Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA"). Regulatory standards impose the following capital requirements:
a risk-based capital standard expressed as a percent of risk-adjusted assets, a
leverage ratio of core capital to total adjusted assets, and a tangible capital
ratio expressed as a percent of total adjusted assets. As of September 30,
1997, the Bank exceeded all regulatory capital standards.
At September 30, 1997, the Bank's tangible capital was $25.4 million or 5.9% of
adjusted total assets, which is in excess of the current 1.5% requirement by
$19.0 million. In addition, at September 30, 1997, the Bank had core capital
of $25.5 million or 5.9% of adjusted total assets, which exceeds the current
3.0% requirement by $12.6 million. The Bank had risk-based capital of $26.2
million at September 30, 1997, or 13.6% of risk-adjusted assets which exceeds
the 8.0% risk-based capital requirement by $10.8 million.
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9
ANALYSIS OF OPERATIONS
Net income for the three and nine month periods ended September 30, 1997 was
$730,000 and $2.1 million, respectively compared to a loss of $449,000 and
income of $399,000 for the same periods of the prior year. These increases are
primarily attributable to the special Savings Association Insurance Fund
assessment of $1.7 million and the related tax benefit of $660,000 for a net
effect of $1,045,000, which occurred in the third quarter of 1996, as well as
to increases in net interest income during the periods of $235,000 and $963,000
resulting from increases in average earning assets.
Net interest margin decreased from 2.96% for the three month period ended
September 30, 1996 to 2.87% for the three months ended September 30, 1997. Net
interest margin for the nine month period ended September 30,1997 was 2.86% as
compared to 2.87% for the nine months ended September 30,1996.
Interest income on loans and mortgage-backed securities for the three and nine
month periods ended September 30, 1997 increased $896,000 and $2.8 million from
the same periods in 1996. These increases resulted primarily from the effect of
net increases in average loans and mortgage-backed securities outstanding of
$43.1 million and $43.7 million for the three and nine month periods,
respectively.
Interest expense on deposits increased by $227,000 and $762,000, respectively,
for the three and nine month periods ended September 30, 1997 from the prior
year levels. The additional expense resulted primarily from the effects of the
increases in average deposit account balances of $15.2 million and $19.5
million for the three and nine month periods ended September 30, 1997,
respectively, from the prior year levels. The average cost of deposits for the
three and nine month periods ended September 30, 1997 increased .07% and .05%,
respectively, as compared to the similar 1996 period, indicating rate variances
of $55,000 and $119,000. The higher costs resulted primarily from having a
larger percentage of deposits in higher costing certificate of deposit
accounts.
Interest expense on borrowed money increased $452,000 and $1.2 million,
respectively, for the three and nine month periods ended September 30, 1997
from the same periods in 1996. These increases are primarily attributable to
the effect of increases in average borrowings outstanding of $27.4 million and
$25.1 million for the three and nine month periods ended September 30, 1997 as
compared to the same periods of 1996, respectively.
Management establishes specific reserves for estimated losses on loans when it
determines that losses are anticipated on these loans. The Company calculates
any allowance for possible loan losses based upon its ongoing evaluation of
pertinent factors underlying the types and quality of its loans. These factors
include but are not limited to current and anticipated economic conditions,
historical loan loss experience, a detailed analysis of individual loans for
which full collectability may not be assured, a determination of the existence
and realizable value of the underlying collateral, the ability of the borrower
to repay and the guarantees securing such loans. Management, as a result of
this review process, recorded provisions for loan losses in the amount of
$45,000 and $135,000 for the three and nine month periods ended September 30,
1997 as compared to $54,000 and $139,000 for the three and nine month periods
ended September 30, 1996. During the quarter ended March 31, 1997, the Company
received a final settlement from the bankruptcy trustee for a development loan
that had a balance of $498,000. Settlement of this
7
10
loan has resulted in a $182,000 charge-off which the Company had previously
considered in determining the level of loan loss allowance. Recoveries of
$145,000 from the settlement of other related lawsuits in connection with this
loan have been recorded in prior periods as increases to the loan loss
allowance. The Company's remaining non-accrual loans consisting primarily of
first mortgages secured by 1 to 4 family properties or consumer loans increased
from $1.0 million to $1.4 million during the nine month period ended September
30,1997 as a result of the significant growth in loans receivable over the last
two years.
The Company's general loan loss reserve balance as of September 30, 1997 was
$865,000. The December 31, 1996 general loan loss reserve balance was
$967,000. Including the charge-off mentioned above, net charge-offs for the
three and nine month periods ending September 30, 1997 were $29,000 and
$237,000, respectively, as compared to net recoveries of $55,000 and $27,000 in
the related 1996 periods due primarily to a $70,000 recovery from the
development loan previously discussed.
Loan fees and service charges decreased $41,000 and $113,000, respectively,
during the three and nine month periods ended September 30, 1997 as compared to
the same periods in 1996 due to decreases in loan disbursements of $16.5
million and $43.2 million, respectively, during the three and nine month
periods ended September 30, 1997, as compared to the same periods in 1996.
Commission income from the sale of insurance products and mutual funds for the
three and nine month periods ended September 30, 1997 increased $37,000 and
$74,000, respectively, from the comparable 1996 periods, as sales volumes
increased. Deposit related fees and other income remained relatively constant
for each of the reporting periods.
Net realized and unrealized gains on sale of loans and securities were $244,000
and $539,000 for the three and nine month periods ended September 30, 1997 as
compared to $98,000 and $200,000 for the comparable 1996 periods. The increased
gains are primarily attributable to the Company's trading portfolio of bank and
thrift equity securities.
Total general and administrative expense decreased $1.5 million and $1.4
million during the three and nine month periods ended September 30, 1997,
primarily as a result of the one time special assessment of SAIF premiums as of
September 30, 1996 of $1.7 million. Other general and administrative expenses
increased as compared to the related 1996 period due to additional staffing
costs of $200,000 and $484,000, respectively, consisting primarily of
additional incentive compensation, offset by reductions of $119,000 and
$347,000, respectively, in federal insurance premiums which was the result of
legislation enacted in September 1996 to recapitalize the Savings Association
Insurance Fund. The legislation allowed highly rated institutions, such as the
Bank, to pay substantially reduced deposit premiums beginning January 1, 1997.
The annual premium rate dropped from 23 cents to 6.4 cents per $100 of insured
deposits.
The provision for income taxes for the three and nine month periods ended
September 30, 1997 increased from the comparable 1996 periods due to increased
earnings.
8
11
IMPACT OF THE NEW ACCOUNTING STANDARDS
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. In June 1996, the FASB issued SFAS No. 125 ("SFAS 125"),
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." This statement, among other things, applies a
"financial-components approach" that focuses on control, whereby an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31,1996. The Company has adopted SFAS 125 effective January 1,
1997, resulting in no material impact on its consolidated financial condition
or results of operations.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. In December 1996, the FASB issued Statement of Accounting
Standard No. 127 ("SFAS 127"), "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125". The statement delays for one year the
implementation of SFAS 125, as it relates to (1) secured borrowings and
collateral, and (2) for the transfers of financial assets that are part of
repurchase agreement, dollar-roll, securities lending and similar transactions.
The Company has adopted portions of SFAS 125 (those not deferred by SFAS 127)
effective January 1, 1997. Adoption of these portions did not have a
significant effect on the Company's financial condition or results of
operations. Based on its review of SFAS 125, management does not believe that
adoption of the portions of SFAS 125 which have been deferred by SFAS 127 will
have a material effect on the Company.
Accounting for Earnings Per Share. In February 1997, the FASB issued SFAS No.
128 ("SFAS 128"), "Earnings Per Share". This statement establishes standards
for computing and presenting earnings per share ("EPS") and applies to entities
with publicly held stock. This statement simplifies the standards for computing
EPS previously found in Accounting Principles Board Opinion No. 15, "Earnings
Per Share" and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic EPS and
fully diluted EPS with diluted EPS. It also requires dual presentation of basic
EPS and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted computation.
Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings of a company, similar
to the fully diluted EPS currently used. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997. The following
presentation illustrates pro forma basic and diluted EPS based on the
provisions of SFAS 128:
9
12
Weighted average number of common shares
outstanding used in basic earnings
per share calculation 1,262,190 1,253,380 1,260,200 1,259,670
Add common stock equivalents for shares
issuable under Stock Option Plan 85,709 50,900 76,088 50,426
-----------------------------------------------------------
Weighted average number of shares
outstanding adjusted for common stock
equivalents 1,347,899 1,304,280 1,336,288 1,310,096
===========================================================
Net income $ 729,717 $ (449,314) $2,077,763 $ 398,706
Basic earnings per share $ 0.58 $ (0.36) $ 1.65 $ 0.32
Diluted earnings per share $ 0.54 $ (0.34) $ 1.55 $ 0.30
Disclosure of earnings per share calculated in accordance with Accounting
Principles Board Opinion No. 15,"Earnings Per Share" is contained in Exhibit
11.
Disclosure of Information about Capital Structure.
In February 1997, the FASB issued Statement of Financial Accounting Standard
No. 129, "Disclosure of Information about Capital Structure" ("SFAS No. 129").
This statement establishes standards for disclosing information about an
entity's capital structure. It supersedes specific disclosure requirements of
APB Opinions No. 10, "Omnibus Opinion-1966," and No. 15, "Earnings Per Share,"
and SFAS No. 47, "Disclosure of Long-Term Obligations," and consolidates them
in this statement for ease of retrieval and for greater visibility to nonpublic
entities. This statement is effective for financial statements for periods
ending after December 15, 1997. It contains no changes in disclosure
requirements for entities that were previously subject to the requirements of
Opinions No. 10 and No. 15 and SFAS No. 47, and, therefore, is not expected to
have a significant impact on the consolidated financial condition or results of
operations of the Company.
Reporting Comprehensive Income.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
(revenues, expenses, gains losses) in a full set of general-purpose financial
statements. SFAS 130 is effective for fiscal years beginning after December 15,
1997. The Company has not yet determined the impact of adopting this statement.
Disclosure About Segments of an Enterprise and Related Information.
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") which
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becomes effective for fiscal years beginning after December 15, 1997. SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments and requires enterprises to report selected
information about operating segments in interim financial reports. The Company
has not yet determined the impact of adopting this statement.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Company keeps its
books and records and performs its financial accounting responsibilities. It
is intended only as a summary of some of the recent pronouncements made by the
FASB which are of particular interest to financial institutions.
Stock Repurchase Program
On October 24, 1995, the Company announced that its Board of Directors had
authorized a second stock repurchase program which allows the Company to
repurchase up to 4.9% (62,925 shares) of the common stock outstanding in open
market transactions. As of November 7, 1997, the Company had purchased 43,907
shares.
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SUBURBFED FINANCIAL CORP.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Bank is a party to legal proceedings in the
ordinary course of business, wherein it enforces its security
interest. The Company and the Bank are not engaged in any legal
proceedings of a material nature at the present time.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a)(1) Computation of earnings per share (Exhibit 11 filed herewith.)
(a)(2) Financial Data Schedule (Exhibit 27 filed herewith.)
(b) Not applicable
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SUBURBFED FINANCIAL CORP
------------------------
Registrant
DATE: November 7, 1997 BY:(s) /s/ Daniel P. Ryan
-------------------------
Daniel P. Ryan
Chairman
President and
Chief Executive Officer
DATE: November 7, 1997 BY:(s) /s/ Steven E. Stock
-------------------------
Steven E. Stock
Senior Vice President
Chief Financial and
Accounting Officer
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