UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[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
[ ] 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: 333-29223
FIRST NATIONAL BANCORP OF RIVER FALLS, INC.
(Exact name of small business issuer as specified in its charter)
WISCONSIN 39-1895464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 E. LOCUST STREET, RIVER FALLS, WISCONSIN 54022
(Address of principal executive offices) (zip code)
(715) 425-2401
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: COMMON STOCK, $110.00 PAR VALUE,
10,000 SHARES OUTSTANDING AS OF NOVEMBER 10, 1997.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 7
Part II. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
2
PART I. FINANCIAL STATEMENTS
FIRST NATIONAL BANCORP OF RIVER FALLS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS (Unaudited)
-----------
9/30/97 12/31/96
------- --------
Cash and due from banks $ 4,039 $ 5,904
Available for sale securities 43,627 43,925
Loans receivable:
a. Loans 101,342 96,215
b. LESS: Allowance for loan losses (1,327) (1,443)
---------- ----------
Total Loans - net 100,015 94,772
Premises and equipment - net 2,750 1,658
Other assets 1,695 1,901
---------- ----------
TOTAL ASSETS $ 152,126 $ 148,160
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 15,156 $ 14,943
Interest bearing:
a. NOW accounts 12,561 12,272
b. Savings accounts 11,788 12,912
c. Money market deposit accounts 12,383 8,703
d. Time certificates of deposit 76,300 76,280
---------- ----------
Total Deposits 128,188 125,110
Short-term borrowings 5,215 5,136
Accounts payable and accrued liabilities 1,344 1,650
---------- ----------
Total Liabilities 134,747 131,896
---------- ----------
STOCKHOLDERS EQUITY
Common Stock - $110 par value, 10,000 shares 1,100 1,000
authorized, issued and outstanding
Surplus 1,020 1,000
Retained Earnings 14,357 13,548
Net unrealized gain on available-for-sale 902 716
---------- ----------
Total Stockholders Equity 17,379 16,264
---------- ----------
TOTAL LIABILITIES AND EQUITY $ 152,126 $ 148,160
---------- ----------
---------- ----------
See Notes to Consolidated Financial Statements
3
FIRST NATIONAL BANCORP OF RIVER FALLS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (Unaudited)
----------- -----------
(Dollars in Thousands, except per share amounts) Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
INTEREST INCOME 1997 1996 1997 1996
---- ---- ---- ----
Interest and fees on loans $ 2,241 $ 2,096 $ 6,493 $ 6,100
Interest on investment securities 777 754 2,382 2,351
Interest on federal funds sold 16 12 64 113
-------- -------- -------- --------
Total Interest Income 3,034 2,862 8,939 8,564
-------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits 1,418 1,330 4,097 3,911
Interest on federal funds purchased and 71 65 255 218
securities sold under repurchase
agreements
Interest on other short-term borrowings 12 15 41 30
-------- -------- -------- --------
Total Interest Expense 1,501 1,410 4,393 4,159
-------- -------- -------- --------
Net Interest Income 1,533 1,452 4,546 4,405
PROVISIONS FOR POSSIBLE LOAN LOSSES 215 85 305 250
-------- -------- -------- --------
Net Interest Income After Provision Expense 1,318 1,367 4,241 4,155
-------- -------- -------- --------
NON INTEREST INCOME
Service charges on deposit accounts 123 111 361 348
Other fee income 79 68 250 224
Gains on sales of loans 51 40 132 104
Investment securities gains(losses) ---- 1 11 19
All other non interest income 40 17 61 28
-------- -------- -------- --------
Total Non Interest Income 293 237 815 723
-------- -------- -------- --------
NON INTEREST EXPENSE
Salaries and employee benefits 647 664 2,087 2,035
Premises and fixed assets, net 155 127 404 385
Other non interest expenses 246 192 1,032 769
-------- -------- -------- --------
Total Non Interest Expense 1,048 983 3,523 3,189
-------- -------- -------- --------
Income Before Income Taxes 563 621 1,533 1,689
INCOME TAXES 115 115 274 325
-------- -------- -------- --------
NET INCOME $ 448 $ 506 $ 1,259 $ 1,364
-------- -------- -------- --------
-------- -------- -------- --------
Net Income Per Common Share $ 4.80 $ 50.60 $ 125.90 $ 136.40
-------- -------- -------- --------
-------- -------- -------- --------
Weighted Common Shares Outstanding 10,000 10,000 10,000 10,0000
-------- -------- -------- --------
-------- -------- -------- --------
See Notes to Consolidated Financial Statements
4
FIRST NATIONAL BANCORP OF RIVER FALLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
-----------
Nine Months Ended September 30,
1997 1996
---- ----
Cash Flows From Operating Activities
Net Income $ 1,259 $ 1,364
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Securities (gains)losses, net (11) (49)
Net amortization and accretion of bond 105 130
premiums and discounts
(Gain) Loss on loans held for sale (16) 74
Impairment write-off on branch building 213 ----
Provision for loan losses 305 250
Depreciation 204 205
Other (100) (873)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,959 1,101
-------- --------
Cash Flows From Investing Activities
Cash flows from securities 390 (1,151)
Net (increase) decrease in federal funds sold ---- 3,500
Net (increase) decrease in loans (5,532) (7,450)
Purchases of premises and equipment (1,509) (175)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (6,651) (5,276)
-------- --------
Cash Flows From Financing Activities
Net increase (decrease) in deposits 3,078 2,543
Increase (decrease) in short-term borrowings 79 831
Proceeds from the issuance of common stock 120 ----
Cash dividends paid (450) (450)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,827 2,924
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,865) (1,251)
Cash and Cash Equivalents
Beginning 5,904 5,033
-------- --------
Ending $ 4,039 $ 3,782
-------- --------
-------- --------
See Notes to Consolidated Financial Statements
5
FIRST NATIONAL BANCORP OF RIVER FALLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1.
The consolidated condensed balance sheet as of September 30, 1997, and the
consolidated statements of income for the three-month and nine-month periods
ended September 30, 1997 and September 30, 1996, and the consolidated statements
of cash flows for the nine-month periods then ended have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
consolidated financial statements in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Registration Statement
on Form S-4 filed by First National Bancorp of River Falls, Inc. with the
Securities and Exchange Commission. In the opinion of management, the unaudited
financial statements contained herein contain all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of First National
Bancorp of River Falls, Inc. at September 30,1997 and for all periods presented.
The operating results for the periods ended September 30, 1997 and 1996, are not
necessarily indicative of the operating results to be expected for the full
fiscal year.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
EARNINGS SUMMARY
First National Bancorp of River Falls, Inc. (the "Company") recorded net income
of $448,000 for the third quarter of 1997, a 11.5% decrease from the $506,000
earned in the third quarter of 1996. On a year-to-date basis, earnings were
$1,259,000, down 7.7% or $105,000 from the $1,364,000 earned in the first nine
months of 1996. Contributing positively to earnings in the first nine months of
1997 was a 3.2% or $141,000 increase in net interest income coupled with an
increase in non-interest income of 12.7% or $92,000. Offsetting these positive
increases were a 10.5% or $334,000 increase in non-interest expenses and a
$55,000 increase in the provision for loan losses.
Return on average assets (ROA) was 1.10% for the first nine months of 1997,
compared to 1.26% for the same period in 1996. Return on average equity (ROE)
was 9.95% for the first nine months of 1997, compared to 11.50% for the same
period of 1996.
SHAREHOLDER'S EQUITY AND DIVIDENDS
Shareholder's equity totaled $17,379,000 at September 30,1997, representing a
book value per share of $1,738, a 6.9% increase from $1,626 at December 31,
1996. Dividends paid per share of $45 in the second quarter of 1997 remained
unchanged from the fourth quarter of 1996. The Company maintains a very strong
capital position compared to industry standards. Table II presents various
regulatory capital ratios.
Statement of Financial Accounting Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS No.115), requires the market
value of securities available for sale to be recorded on the Company's balance
sheet, with unrealized gains or losses, net of tax, included in equity. This
accounting standard had the effect of increasing the book value per share by $90
as of September 30, 1997 and increasing the book value per share by $72 as of
December 31, 1996.
NET INTEREST INCOME
Tax-equivalent net interest income for the third quarter of 1997 was $1,533,000,
an increase of $81,000 or 5.6% from the third quarter of 1996. On a
year-to-date basis, tax-equivalent net interest income was $4,546,000, an
increase of $141,000 or 3.2% over the $4,405,000 realized in the first nine
months of 1996.
The Company uses gap reports and a basic simulation model to assess its current
interest rate sensitivity position. While the Company's traditional gap report
indicated a liability sensitive position at September 30, 1997, simulation
modeling results indicated the amount of net interest income at risk as a result
of any substantial change in market interest rates was within the Company's
acceptable policy limits.
7
NON-PERFORMING ASSETS
Table VI shows the details of non-performing assets at September 30, 1997 and
December 31, 1996. Non-performing assets, which include non-performing loans
and other real estate owned (OREO), were $1,165,000 at September 30, 1997. This
total represents a decrease of $670,000 from December 31, 1996. Non-performing
assets as a percentage of total loans and OREO declined to 1.16% as of September
30, 1997 from 1.94% as of December 31, 1996.
Non-performing loans, which include non-accrual and restructured loans, were
$1,165,000 at September 30, 1997, a decrease of $670,000 from December 31, 1996.
The ratio of non-performing loans to total loans improved to 1.16% at September
30, 1997 from 1.94% as of December 31, 1996. The ratio of non-performing assets
and past due loans to total loans and OREO increased from 2.54% at December 31,
1996 to 3.93% at September 30, 1997. The level of at-risk performing loans
(with an internal loan review rating of either substandard, doubtful or loss)
increased $3,140,000 or 73% from $4,295,000 at December 31, 1996 to $7,435,000
at September 30, 1997. The ratio of classified loans to total loans has
increased from 4.53% at December 31, 1996 to 7.36% at September 30, 1997. Total
loans grew 6.5% during the same period. Net charge-offs were $421,000 for the
first nine months of 1997 as compared to net charge-offs of $102,000 in the same
period in 1996.
There was no other real estate owned at September 30, 1997 or at December 31,
1996.
RESERVES FOR LOAN LOSSES
The Company's reserve for loan losses was 113.91% of nonperforming loans at
September 30, 1997 compared to 78.64% at December 31, 1996.
The reserve for loan losses decreased from $1,443,000 at December 31, 1996 to
$1,327,000 at September 30, 1997.
NON INTEREST INCOME
As presented in Table VIII, non-interest income was $293,000 for the third
quarter of 1997 compared to $237,000 for the third quarter of 1996, representing
a $56,000 or 23.6% improvement. On a year-to-date basis, non-interest income
was $815,000 compared to $723,000 in 1996, an increase of $92,000 or 12.7%. On
a year-to-date basis, operating non-interest income, which excludes investment
securities gains and losses, increased 14.2% over 1996. The gains were due
primarily to increases of $15,000 in loan servicing and $46,000 in SBA loan
sales.
NON INTEREST EXPENSE
As presented in Table IX, non-interest expense increased $65,000 or 6.6% in the
third quarter compared to the third quarter of 1996. On a year-to-date basis,
non-interest expense increased $334,000 or 10.5% compared to the first nine
months of 1996. For the nine month period,
8
$195,000 of the increase was due to loss on sale of the Prescott branch
building. This building was replaced by a new building costing $1,050,000 in
August,1997.
A common industry statistic used to measure the productivity of banking
organizations is the efficiency ratio. The efficiency ratio measures the cost
required to generate each dollar of revenue and is calculated by dividing
recurring non-interest expense by tax-equivalent net interest income and
recurring non-interest income. The Company's efficiency ratio was 62.08% for
the nine months ending September 30, 1997 compared to 62.19% for the same period
in 1996.
TAXES
Comparing the first nine months of 1997 to the first nine months of 1996, the
Company's effective tax rate decreased from 19.2% to 17.9%. This results from
proportionately more tax-exempt income during the first nine months of 1997
compared to the same period in 1996.
BALANCE SHEET GROWTH
ASSETS
Average total assets increased $8,436,000 or 5.8% from the first nine months of
1996 to the first nine months of 1997.
LOANS
From the first nine months of 1996 to the first nine months of 1997, average
loans increased $5,809,000 or 6.1%, driven by increases in real estate loans.
SECURITIES
Average securities increased $810,000 or 3.4% from the first nine months of 1996
to the first nine months of 1997. The average duration of the $43,627,000
securities portfolio was 5.25 as of September 30, 1997 and the average tax
equivalent yield was 7.89%. Gains or losses on the $50,000 of securities held
to maturity are not material. In accordance with FAS No.115, the available for
sale securities are recorded inclusive of any unrealized gain or loss.
LIABILITIES
Total deposits increased $3,078,000 or 2.5% in the first nine months of 1997,
due primarily to a new money market account that is tied to the 90 day T-bill
rate. Securities sold under agreements to repurchase decreased $13,000 or 0.3%.
Accounts payable and accrued liabilities decreased $306,000 or 18.5%, due
primarily to the $450,000 dividend payable at December 31, 1996 compared to none
at September 30, 1996. Other short-term borrowings increased $92,000 or 27.5%.
9
FIRST NATIONAL BANCORP OF RIVER FALLS, INC.
FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts) Nine Months Ended September 30
------------------------------
1997 1996 Change
---- ---- ------
Operating Results
Total interest income $ 8,939 $ 8,564 $ 375
Net interest income (1) 4,546 4,405 141
Provision for loan losses 305 250 55
Non-interest income 815 723 92
Non-interest expense 3,523 3,189 334
Net Income 1,259 1,364 (105)
Dividends 450 450 --
Average Balances
Assets $152,547 $144,111 $ 8,436
Loans 100,937 95,128 5,809
Securities 42,845 42,035 810
Deposits 114,940 109,292 5,648
Shareholder's Equity 16,822 15,773 1,049
Period - End Balances
Assets $152,126 $144,235 $ 7,891
Loans 100,015 94,412 5,603
Securities 43,627 42,191 1,436
Deposits 128,188 122,209 5,979
Shareholder's Equity 17,379 15,868 1,511
Financial Ratios
Return on assets 1.10 1.26 (.16)
Return on equity 9.95 11.50 (1.55)
Average equity/assets 11.03 11.01 0.02
Dividend payout 35.77 32.99 2.78
Net interest margin (1) 3.96 4.06 (.10)
Net charge-offs/average loans 0.42 0.11 0.31
Reserve/period-end loans 1.33 1.53 (.20)
Per Share of Common Stock
Net income $ 126 $ 136 $ (10)
Dividends paid 45 45 --
Period-end book value 1,738 1,587 151
(1) Tax-equivalent basis (TEB).
10
CAPITAL RATIOS TABLE II
September 30
------------
1997 1996
---- ----
Equity to assets (1) 11.42% 11.00%
Equity to tangible assets (1) 11.42 11.00
Tier I capital (2) 11.69 11.76
Tier I and tier II capital (2) 11.69 11.76
Leverage ratio (2) 5.75 5.95
(1) Computed in accordance with generally accepted accounting principles,
including the unrealized market value adjustment of securities available
for sale.
(2) Computed exclusive of the unrealized market value adjustment of securities
available for sale.
NON-PERFORMING ASSETS TABLE VI
(dollars in thousands) 9/30/97 12/31/97
------- --------
Non-accrual loans $ 1,162 $1,835
Restructured loans 3 -0-
Total non-performing loans 1,165 1,835
Other real estate owned (OREO) -0- -0-
Total non-performing assets 1,165 1,835
Past due loans * 2,765 570
Ratios
Non-performing loans to total loans 1.16 1.94
Non-performing assets to total loans and OREO 1.16 1.94
Non-performing assets and past due loans* to
total loans and OREO 3.93 2.54
Reserve to non-performing loans 113.91 78.64
Reserve to total loans 1.33 1.52
*Past due loans include accruing loans 90 days or more past due.
11
RESERVE FOR LOAN LOSSES TABLE VII
(In thousands) Nine Months Ended September 30
1997 1996
---- ----
Beginning of period $ 1,443 $ 1,296
Charge-offs (438) (121)
Recoveries 17 19
Net Charge-offs (421) (102)
Provision for loan losses 305 250
------- -------
End of Period $ 1,327 $ 1,444
------- -------
------- -------
NON INTEREST INCOME TABLE VIII
(In thousands) Nine Months Ended September 30
1997 1996 Change
---- ---- ------
Service Charges $ 361 $ 348 $ 13
Other 443 346 87
------ ------ ------
Operating Non-interest income 804 704 100
Gain/(loss) on sale of securities 11 19 (8)
------ ------ ------
Total $ 815 $ 723 $ 92
------ ------ ------
------ ------ ------
Three Months Ended September 30
1997 1996 Change
---- ---- ------
Services Charges $ 123 $ 111 $ 12
Other 170 125 45
------ ------ ------
Operating Non-interest income 293 236 57
Gain on sale of securities -0- 1 (1)
------ ------ ------
Total $ 293 $ 237 $ 56
------ ------ ------
------ ------ ------
12
NON-INTEREST EXPENSE TABLE IX
Nine Months Ended September 30
1997 1996 Change
---- ---- ------
Salaries and wages $ 2,087 $ 2,035 $ 52
Occupancy 404 385 19
Other 1,032 769 263
------- ------- ------
Total $ 3,523 $ 3,189 $ 334
------- ------- ------
------- ------- ------
Three Months Ended September 30
1997 1996 Change
---- ---- ------
Salaries and wages $ 647 $ 664 $ (17)
Occupancy 155 127 28
Other 246 192 54
------- ------ ------
Total $ 1,048 $ 983 $ 65
------- ------ ------
------- ------ ------
13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are being filed as part of this Quarterly Report on
Form 10-QSB.
(b) No Current Reports on Form 8-K were filed during the quarter ended
September 30, 1997 or during the period from September 30, 1997 to the date
of this Quarterly Report on Form 10-QSB.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 21, 1997
First National Bancorp of River Falls, Inc.
/s/ Philip Betzel
- -----------------------------------
By: Philip Betzel, President
(Principal Executive Officer)
/s/ Dellene Hirstein
- -----------------------------------
By: Dellene Hirstein, Vice President and Cashier
(Chief Accounting Officer)
14