|
Item
2.
|
Management’s
Discussion and Analysis of Financial
Condition
and Results of Operations
|
Cautionary
Statement Regarding Forward-Looking Information
This
report in the “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and elsewhere, contains, and other periodic reports and
press releases of the Company may contain, certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1973, as amended,
and
Section 21E of the Securities Exchanged Act of 1934, as amended. The Company
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes
of
invoking these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company are generally identifiable by the words “believe,
intend, anticipate, estimate, project, plan” or similar expressions. The
Company’s ability to predict results or the actual effect of future plans or
strategies is inherently uncertain and actual results may differ from those
predicted. Factors which could have a material adverse effect on the operations
and future prospects of the Company and the subsidiaries include, but are not
limited to changes in interest rates, general national and local economic
conditions, legislative/regulatory changes, monetary and fiscal policies of
the
U.S. Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the Company’s loan or investment
portfolios, demand for loan products, deposit flows, cost and availability
of
borrowings, competition, demand for financial services in the Company’s market
area, real estate values in the Company’s primary market area, the Company’s
stock price, the possible short-term dilutive effect of potential acquisitions,
and tax and financial accounting principles, policies and guidelines. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such
statements.
FINANCIAL
CONDITION AT SEPTEMBER 30, 2007
Total
assets of the Company were $176.3 million at September 30, 2007, a decrease
of
$6.0 million, or 3.3%, from $182.3 million at December 31, 2006. The decrease
in
assets during the nine month period was primarily due to a slowdown in loan
origination activity combined with an increase in loan repayments, resulting
in
decreased loan balances, as well as a decrease in cash and cash equivalents.
Cash
and
short-term investments totaled a combined $7.6 million at September 30, 2007,
a
decrease of $2.1 million, from the combined balance of $9.7 million at December
31, 2006. The Company utilized a portion of these funds to buy back stock and
pay dividends during the period.
Investment
securities, available for sale, decreased by $476,000 to $2.7 million at
September 30, 2007 from $3.2 million at December 31, 2006. The decline was
due
to proceeds from maturing investment securities exceeding security purchases.
The portfolio consists primarily of U.S. government agency obligations. At
September 30, 2007, the Company had an unrealized gain, net of taxes, on
available for sale investment securities of $6,100 compared to an unrealized
loss, net of taxes, of $9,500 at December 31, 2006.
Trading
account securities increased by $2,000 to $341,000 at September 30, 2007 from
$339,000 at December 31, 2006. The increase is attributable to an increase
in
unrealized appreciation in the portfolio. There were no purchases or sales
of
trading account securities during the current period. The trading account
portfolio consists of holdings in small thrift and community bank stocks.
Mortgage-backed
securities, available for sale, decreased by $314,000 to $938,000 at September
30, 2007 from $1.3 million at December 31, 2006. The decline was due to normal
principal repayment activity. There were no new purchases of mortgage-backed
securities over the most recent nine month period. At September 30, 2007, the
Company had an unrealized loss, net of taxes, on available for sale
mortgage-backed securities of $12,500 compared to an unrealized loss, net of
taxes, of $15,000 at December 31, 2006.
Loans
receivable decreased $5.1 million, or 3.4%, to $145.6 million at September
30,
2007 from $150.7 million at December 31, 2006. The Bank originated loans of
$31.4 million and purchased loans totaling $2.6 million, including a $1.2
million participation interest in an adjustable rate construction loan located
in the Chicagoland area, during the nine months ended September 30, 2007,
compared to $36.2 million of originations and $7.5 million of purchases during
the prior year period. The decline in originations was due to lower demand
for
residential mortgage loans as well as our determination to limit fixed rate
portfolio loan originations in view of the possibility of an increase in long
term interest rates. As a result, the Company originated and sold $1.4 million
of fixed rate mortgage loans during the most recent three month period in an
effort to reduce interest rate risk exposure. Offsetting originations and
purchases were amortization and prepayments totaling $38.8 million and $35.4
million for the nine months ended September 30, 2007 and 2006, respectively.
The
allowance for loan losses totaled $883,000 at September 30, 2007, an increase
of
$197,000 from the balance of $686,000 at December 31, 2006. The increase was
primarily due to a $249,000 recovery received during the first quarter of 2007
from a settlement regarding medical lease loans, which had been charged off
in a
prior year. In addition, the Company recorded an $86,000 provision for loan
losses offset by $138,000 in net loan charge-offs. The Company’s allowance for
loan losses to total loans outstanding was 0.60% at September 30, 2007 compared
to 0.45% at December 31, 2006. Non-performing loans increased $60,000 to $2.7
million, or 1.88% of net loans receivable at September 30, 2007 compared to
$2.6
million, or 1.78% of net loans receivable at December 31, 2006. The ratio of
allowance for loan losses to non-performing loans was 32.3% at September 30,
2007 compared to 25.7% at December 31, 2006.
At
September 30, 2007, the Bank had $504,000 of other real estate owned compared
to
$1.1 million at December 31, 2006. During the most recent nine month period,
the
Bank transferred two one-to four-family residential loans in the amount of
$190,000 to this category while selling five other real estate owned properties.
The remaining properties consist of one non-residential parcel of real estate
owned totaling $404,000 and one two-unit parcel of real estate owned totaling
$100,000. Both parcels are located in the Company’s market area and are valued
at the lower of cost or managements’ estimate of net realizable
value.
Net
office properties and equipment increased $2.3 million to $5.2 million at
September 30, 2007 compared to $2.9 million at December 31, 2006. The increase
is due primarily to the construction of a branch office located in St. John,
Indiana. This full service banking center is anticipated to open during the
first quarter of 2008.
Real
estate held for development increased $51,000 to $1.9 million at September
30,
2007. The Company has acquired, in conjunction with an agreement with a local
builder, seven vacant lots on which to construct single-family residences.
During the nine month period, proceeds from sales totaled $463,000, resulting
in
income of $34,000, while improvements totaled $480,000. At September 30, 2007,
there were three completed properties listed for sale along with four vacant
lots available for future construction. All of the properties are located within
the local community of the Bank.
Deposits
decreased $3.1 million to $121.7 million at September 30, 2007. The decrease
in
deposits is primarily attributable to increased competition for deposit accounts
in a flat yield curve environment. The decrease in deposits is the result of
a
$1.1 million decrease in NOW and money market demand accounts, a $1.8 million
decrease in certificates of deposit and a $216,000 decrease in passbook
accounts. At September 30, 2007, the Bank’s non-certificate accounts (passbook,
money market, and demand accounts) comprised $42.6 million, or 35.0% of deposits
compared to $43.9 million, or 35.2% of deposits, at December 31, 2006.
Borrowed
money, which consisted primarily of FHLB of Indianapolis advances, decreased
by
$2.1 million to $32.2 million at September 30, 2007. There are currently $15.0
million of FHLB of Indianapolis advances and $2.0 million of other borrowings
maturing over the next twelve month period at a weighted average interest rate
of 5.17%. As of September 30, 2007, the weighted average rate and term to
maturity of borrowed money was 5.34% and 2.1 years compared to 5.16% and 2.2
years at December 31, 2006. Also, during the first quarter of 2007, the Company
repaid its $5.0 million trust preferred issue and replaced it with a new $3.0
million trust preferred security issue at a reduced interest rate and $2.0
million in borrowings from another financial institution.
Total
stockholders’ equity of the Company decreased by $593,000 to $14.1 million, or
7.98% of total assets, at September 30, 2007, compared to $14.7 million, or
8.04% of total assets at December 31, 2006. The decrease was due to stock
repurchases during the nine months of $420,000 as well as the payment of
$270,000 in cash dividends, offset by net income of $71,000, unrealized gains
on
available for sale securities, net of tax, of $18,000, and activities associated
with our stock option plan of $8,000. The Company may, from time to time
depending on market conditions, our capital need, opportunities, and other
factors, continue modest repurchases of stock.
Comparison
of the Results of Operations for the Three Months Ended September 30, 2007
and
2006
General
- Net
income for the three months ended September 30, 2007 was $3,500, or $0.00 per
diluted share, compared to net income of $181,000, or $0.18 per diluted share
for the three months ended September 30, 2006. Return on average equity and
return on average assets were 0.10% and 0.01%, respectively, in the current
quarter compared to 4.99% and 0.41% in last year’s comparable period. The
decrease in earnings is primarily due to a decrease in both net interest income
and non-interest income, as well as an increase in non-interest expense, offset
in part by a reduction in both the loan loss and income tax
provisions.
Interest
income
- Total
interest income decreased by $86,000, or 3.3%, to $2.5 million for the three
months ended September 30, 2007 compared to the prior year’s quarter. This
decrease was the result of a $2.3 million decline in the balance of average
interest-earning assets outstanding and a 12 basis point decline in the average
yield on interest-earning assets outstanding. Average interest earning assets
totaled $154.4 million for the quarter ended September 30, 2007 as compared
to
$156.7 million for the quarter ended September 30, 2006. The average yield
declined to 6.50% at September 30, 2007, as compared to 6.62% for the prior
quarter ended September 30, 2006.
Interest
income on loans receivable, the most significant portion of interest income,
decreased $101,000, totaling $2.4 million for the current quarter compared
to
the prior year’s quarter. The decrease in interest income on loans was the
result of a $3.3 million decrease in the average balance of loans receivable
outstanding due to a slowdown in loan origination activity and a decrease in
average yield to 6.62% for the three months ended September 30, 2007, from
6.74%
for the same period in 2006, due to loan principal prepayments on higher
yielding loans being partially replaced with loans having relatively lower
yields. Interest income on interest-bearing cash deposits rose by $20,000,
or
63.8%, to $51,000 for the three months ended September 30, 2007 from $31,000
in
the year ago quarter. The increase was primarily due to a $1.7 million increase
in the average balance of cash maintained in interest-bearing deposits for
the
three months ended September 30, 2007, compared to the same period in 2006.
Interest
Expense
- Total
interest expense increased by $78,000, or 5.2%, to $1.6 million for the three
months ended September 30, 2007 compared to $1.5 million for the three months
ended September 30, 2006. The cost of interest-bearing liabilities increased
22
basis points to 4.08% for the quarter ended September 30, 2007, compared to
3.86% for the quarter ended September 30, 2006 as higher short-term interest
rates and competitive pricing pressures forced management to raise its cost
of
funds.
Interest
expense on deposits increased $89,000, or 8.8%, to $1.1 million for the three
months ended September 30, 2007, compared to $1.0 million for the three months
ended September 30, 2006. The increase reflects a 34 basis point increase in
the
average rate paid on deposits to 3.65% for the three months ended September
30,
2007, from 3.31% for the same period in 2006 while the balance of average
interest-bearing deposits declined by $1.3 million to $120.4 million for the
three months ended September 30, 2007, from $121.7 million for the same period
in 2006. The increase in net interest expense is attributable to the continuing
shift of funds out of lower cost core deposits, including money market accounts,
and into higher rate certificates of deposit, as well as higher market rates
on
such certificates of deposit accounts.
Interest
expense on borrowings decreased by $11,000, or 2.2%, to $488,000 for the three
months ended September 30, 2007, compared to $499,000 for the three months
ended
September 30, 2006. The average balance of borrowings, including the Company’s
subordinated debentures, increased by $600,000 to $35.0 million for the quarter
ended September 30, 2007, from $34.4 million for the 2006 quarter. The average
cost of borrowed funds declined by 23 basis points to 5.57% in the 2007 quarter
from 5.80% in the 2006 quarter. During the first quarter of 2007, the Company
repaid its $5.0 million trust preferred issue and replaced it with a new $3.0
million offering at a reduced rate and a $2.0 million borrowing that is
scheduled to mature annually.
Provision
for Loan Losses
- The
Company establishes provisions to the allowance for loan losses, which are
charged to operations in order to maintain the allowance for loan losses at
a
level considered necessary to absorb probable incurred losses in the loan
portfolio. In determining the level of the allowance for loan losses, management
considers past and current loss experience, evaluations of collateral, current
economic conditions, volume and type of lending, adverse situations that may
affect a borrower’s ability to repay a loan and the levels of non-performing and
the other classified assets. The amount of the allowance is based on estimates
and the ultimate losses may vary from such estimates as more information becomes
available or later events change. The allowance for loan losses is reviewed
on a
quarterly basis and if needed, provisions for loan losses are made to maintain
the allowance.
Based
on
management’s assessment of the adequacy of the loan loss reserve, the Company
recorded a provision for loan losses of $31,000 during the three month period
ended September 30, 2007 as compared to a $59,000 provision in the prior year
period. There were no changes in estimation method or assumptions that impacted
the provision for loan losses during the quarter. The higher provision during
the prior year’s quarter was primarily the result of the Company authorizing
$33,000 of additional provision against a non-residential loan account, which
was subsequently charged-off. During the current quarter, the Bank recorded
$92,000 of net consumer loan charge-offs and $20,000 in net mortgage loan
charge-offs.
Non-Interest
Income
-
Non-interest income decreased to $312,000 in the current quarter, compared
to
$367,000 reported in last year’s third quarter. The decrease in non-interest
income was due in part to lower loan service fee income of $50,000 relating
primarily to reduced mortgage release service fees that were received in the
prior year from an out of state condominium conversion loan which subsequently
paid off during the third quarter of 2006, a $26,000 reduction in trading
securities income and an $18,000 loss increase related to an investment in
a
low-income housing joint venture. Partially offsetting these decreases was
an
increase of $11,000 from the NOW account overdraft protection program, due
to
higher volumes of overdraft activity, and a $15,000 increase in gains on the
sale of mortgage loans as the Company began selling a portion of newly
originated long-term fixed rate loans to the Federal Home Loan Bank of
Indianapolis in an effort to reduce interest rate risk exposure.
Non-Interest
Expense
-
Non-interest expense increased by $35,000 to $1.2 million in the current quarter
compared to last year’s third quarter. The increase was due in part to data
processing costs, which increased by $9,000, primarily related to internet
banking activity. Professional fees increased by $61,000 due to legal fee
increases of $23,000 related to lending activities and increased consulting
fees
of $33,000. Other operating expenses increased by $34,000 due primarily to
a
$30,000 loss incurred on a fraudulent check. Offsetting these increases was
an
$11,000 reduction in compensation expense due in part to a decrease in benefit
expenses, a $51,000 reduction in advertising expenses as the Company did not
undertake as many promotions during the current quarter as opposed to the year
ago period, and a $7,000 decline in occupancy and equipment expenses primarily
related to reduced repair and maintenance charges.
Income
Taxes
- The
Company recorded an income tax benefit of $8,000 for the quarter ended September
30, 2007 compared to a tax expense of $41,000 in the year ago quarter. The
current quarter’s tax benefit was generated by favorable permanent tax
adjustments. The prior year’s tax expense was positively impacted by the
recognition of approximately $35,000 in low-income housing tax credits. No
low-income housing tax credit was recorded in the current quarter due to no
book
taxable income to offset, however, if in future quarters, sufficient book
taxable income is evident, the tax credits will be utilized which will have
the
effect of lowering the effective tax rate.
Comparison
of the Results of Operations for the Nine Months Ended September 30, 2007 and
2006
General
- Net
income for the nine months ended September 30, 2007 was $71,000, or $0.07 per
diluted share, compared to net income of $585,000, or $0.58 per diluted share
for the nine months ended September 30, 2006. Return on average equity and
average assets for the nine months ended September 30, 2007 was 0.65% and 0.05%,
respectively, compared to 5.41% and 0.45%, respectively, for the nine months
ended September 30, 2006. The decrease in earnings is primarily due to a decline
in net interest income of $522,000 and a reduction in non-interest income of
$342,000 compared to the year ago period. These decreases in income were offset
in part by lower provisions for loan losses of $127,000 and income taxes of
$169,000 compared to the year ago period.
Interest
income
- Total
interest income increased by $114,000, or 1.5%, to $7.6 million for the nine
months ended September 30, 2007. This increase was the result of an increase
of
$2.0 million in the average balance of interest-earning assets to $157.9 million
for the nine months ended September 30, 2007 from $155.9 million for the nine
months ended September 30, 2006 and, to a lesser extent, an increase in the
average yield on interest-earning assets to 6.40% for the nine months ended
September 30, 2007 from 6.38% for the same period in 2006. The increase in
the
average balance of interest-earning assets was primarily due to increases in
the
average balance of interest-bearing deposits, which increased by $2.9 million
between the periods.
Interest
income on loans receivable increased by $3,000, to $7.1 million for the current
nine month period compared to the same period in 2006. The increase in interest
income on loans was the result a two basis point increase in the average yield
to 6.52% for the nine months ended September 30, 2007 from 6.50% for the nine
months ended September 30, 2006, offset by a $410,000 reduction in average
loan
receivable balance outstanding. Interest income on mortgage-backed securities
decreased by $16,000 due to a decrease in both the average balance and average
yield of the portfolio. Interest income on the investment portfolio increased
by
$8,000 due to the overall increase in short-term rates between the periods.
Interest income on interest-bearing cash deposits increased by $123,000, or
114.1%, to $231,000 for the nine months ended September 30, 2007 from $108,000
in the same period for 2006. This increase was primarily due to the
aforementioned $2.9 million increase in the average balance of cash maintained
in interest-bearing deposits as well as a 56 basis point increase in the average
yield on interest-bearing deposits to 5.03% for the 2007 period compared to
4.47% for the prior year period.
Interest
Expense
- Total
interest expense increased by $636,000, or 15.1%, to $4.8 million for the nine
months ended September 30, 2007 compared to $4.2 million for the same period
in
2006. The cost of average interest-bearing liabilities increased 47 basis points
to 4.09% for the nine months ended September 30, 2007 from 3.62% for the same
period in 2006. Average interest-bearing liabilities also rose by $2.8 million
to $158.3 million for the nine months ended September 30, 2007 compared to
$155.5 million for the same period in 2006.
Interest
expense on deposits increased by $385,000, or 13.2%, to $3.3 million for the
nine months ended September 30, 2007 compared to $2.9 million for the nine
months ended September 30, 2006. The increase reflected a 50 basis point
increase in the average rate paid on deposits to 3.62% for the nine months
ended
September 30, 2007, from 3.12% for the same period in 2006. This increase was
offset by a $3.2 million decrease in average interest-bearing deposits to $121.7
million for the nine months ended September 30, 2007, from $124.9 million for
the same period in 2006.
Interest
expense on borrowings increased by $252,000, or 19.5%, to $1.5 million for
the
nine months ended September 30, 2007 compared to $1.3 million for the nine
months ended September 30, 2006. The average balance of borrowings, including
the Company’s subordinated debentures, increased by $6.0 million to $36.6
million for the nine months ended September 30, 2007, from $30.6 million for
the
same period in 2006. The increase in borrowings between the periods was used
in
part to fund the $3.2 million decline in average deposit balances between the
two periods as well as to fund the $2.9 million increase in average interest
bearing deposits outstanding. The average cost of borrowed funds remained
unchanged at 5.64% during both periods.
Provision
for Loan Losses
- Based
on management’s assessment for the adequacy of the loan loss reserve, the
Company recorded a provision for loan losses of $86,000 during the nine month
period ended September 30, 2007 as compared to a $213,000 provision in the
prior
year period. The prior year period includes $108,000 of additional provision
for
establishing a loan loss reserve against a non-residential loan as discussed
above. Net loan charge-offs for the nine months ended September 30, 2007
(exclusive of the aforementioned $249,000 loan loss recovery), were $138,000,
including $37,000 in one-to-four family residential loans and $101,000 in
consumer loans.
Management
believes that the total general loan loss allowance of $883,000 on total loans
of $145.6 million at September 30, 2007 is adequate to cover probable accrued
losses given the area economic conditions, the level of impaired and
non-performing loans, and the composition of the loan portfolio. At September
30, 2007, the Company was aware of no regulatory directives that the Bank make
additional provisions for losses on loans. Although the Bank believes it
maintains its allowance for loan losses at a level that it considers adequate,
there can be no assurance that future losses will not exceed estimated amounts
or that additional provisions for loan losses will not be required in the
future.
Non-Interest
Income
-
Non-interest income decreased $342,000, or 28.6%, to $850,000 for the nine
months ended September 30, 2007, compared to $1.2 million for the same period
in
2006. The decrease in non-interest income was due in part to a $177,000 decline
in service fee income, primarily in accounts receivable and mortgage release
service fees and a $126,000 decrease in income on the sale of real estate owned
properties. In addition, the Company recorded a $39,000 gain on the sale of
stock in the Bank’s data processing provider during the prior year period.
Non-Interest
Expense
-
Non-interest expense decreased by $54,000 to $3.4 million for the nine months
ended September 30, 2007 compared to the prior year. The decrease resulted
primarily from a decline in staffing costs of $58,000 due to a reduction in
the
bonus accrual and decreased advertising costs of $91,000 due to lower
promotional campaign activity during the current period as compared to the
2006
period. Partially offsetting these decreases was a $56,000 increase in
professional fees, discussed above.
Income
Taxes
- The
Company recorded an income tax benefit of $16,000 for the nine months ended
September 30, 2007 compared to a tax expense of $153,000 in the year ago period.
The current period tax benefit includes a $7,000 refund as a result of amending
a prior years’ income tax return as well as a $9,000 benefit generated by
favorable permanent tax adjustments. The prior year’s tax expense was positively
impacted by the recognition of approximately $105,000 in low-income housing
tax
credits. No low-income housing tax credit was recorded in the 2007 period due
to
no book taxable income to offset, however, if in future periods, sufficient
book
taxable income is evident, the tax credits will be utilized which will have
an
effect of lowering the effective tax rate.
Regulation
and Supervision
Capital
Standards
As
a
federally chartered savings bank, the Bank’s deposits are insured up to the
applicable limits by the Federal Deposits Insurance Corporation (“FDIC”). The
Bank is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis, which
is one of the twelve regional banks comprising the FHLB system. The Bank is
regulated by the Office of Thrift Supervision (“OTS”) and the FDIC. The Bank is
further regulated by the Board of Governors of the Federal Reserve System as
to
reserves required to be maintained against deposits and certain other matters.
Such regulation and supervision establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily for
the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities. Any change in such regulation, whether
by the OTS, the FDIC or Congress could have a material impact on the Company
and
its operations.
Savings
associations must meet three capital requirements: core and tangible capital
to
total assets ratios as well as a regulatory capital to total risk-weighted
assets ratio.
Core
Capital Requirement
The
core
capital requirement, or the required “leverage limit”, currently requires a
savings institution to maintain core capital of not less than 3% of adjusted
total assets. For the Bank, core capital generally includes common stockholders’
equity (including retained earnings), and minority interests in the equity
accounts of fully consolidated subsidiaries, less intangibles other than certain
servicing rights. Investments in and advances to subsidiaries engaged in
activities not permissible for national banks are also required to be deducted
in computing core total capital.
Tangible
Capital Requirement
Under
OTS
regulation, savings institutions are required to meet a tangible capital
requirement of 1.5% of adjusted total assets. Tangible capital is defined as
core capital less any intangible assets, plus purchased mortgage servicing
rights in an amount includable in core capital.
Risk-Based
Capital Requirement
The
risk-based capital requirement provides that savings institutions maintain
total
capital equal to not less than 8% of total risk-weighted assets. For purposes
of
the risk-based capital computation, total capital is defined as core capital,
as
defined above, plus supplementary capital, primarily general loan loss reserves
(limited to a maximum of 1.25% of total risk-weighted assets.) Supplementary
capital included in total capital cannot exceed 100% of core
capital.
Capital
Requirement
At
September 30, 2007, the Bank was in compliance with all of its capital
requirements as follows:
|
|
|
September
30, 2007
|
|
December
31, 2006
|
|
|
|
|
|
|
Percent
of
|
|
|
|
Percent
of
|
|
|
|
|
Amount
|
|
Assets
|
|
Amount
|
|
Assets
|
|
|
Stockholders'
equity of the Bank
|
|
$
|
15,273,091
|
|
|
8.87
|
%
|
$
|
15,550,243
|
|
|
8.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
capital
|
|
|
15,279,513
|
|
|
8.87
|
%
|
$
|
15,574,893
|
|
|
8.74
|
%
|
|
Tangible
capital requirement
|
|
|
2,584,251
|
|
|
1.50
|
|
|
2,672,000
|
|
|
1.50
|
|
|
Exess
|
|
$
|
12,695,262
|
|
|
7.37
|
%
|
$
|
12,902,893
|
|
|
7.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
capital
|
|
|
15,279,513
|
|
|
8.87
|
%
|
$
|
15,574,893
|
|
|
8.74
|
%
|
|
Core
capital requirement
|
|
|
5,168,310
|
|
|
3.00
|
|
|
5,344,000
|
|
|
3.00
|
|
|
Excess
|
|
$
|
10,111,203
|
|
|
5.87
|
%
|
$
|
10,230,893
|
|
|
5.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
and supplementary capital
|
|
|
16,162,313
|
|
|
14.85
|
%
|
$
|
16,261,360
|
|
|
14.93
|
%
|
|
Risk-based
capital requirement
|
|
|
8,707,920
|
|
|
8.00
|
|
|
8,712,000
|
|
|
8.00
|
|
|
Exess
|
|
$
|
7,454,393
|
|
|
6.85
|
%
|
$
|
7,549,360
|
|
|
6.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Bank assets
|
|
$
|
172,277,000
|
|
|
|
|
$
|
178,121,000
|
|
|
|
|
|
Adjusted
total Bank assets
|
|
|
172,283,000
|
|
|
|
|
$
|
178,146,000
|
|
|
|
|
|
Total
risk-weighted assets
|
|
|
108,849,000
|
|
|
|
|
$
|
108,906,000
|
|
|
|
|
A
reconciliation of consolidated stockholders’ equity of the Bank for financial
reporting purposes to capital available to the Bank to meet regulatory capital
requirements is as follows:
|
|
|
September
30, 2007
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity of the Bank
|
|
$
|
15,273,091
|
|
$
|
15,550,243
|
|
|
Regulatory
capital adjustment
|
|
|
|
|
|
|
|
|
for
available for sale securities
|
|
|
6,422
|
|
|
24,650
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
and core capital
|
|
$
|
15,279,513
|
|
$
|
15,574,893
|
|
|
General
loan loss reserves
|
|
|
882,800
|
|
|
686,467
|
|
|
|
|
|
|
|
|
|
|
|
Core
and supplementary capital
|
|
$
|
16,162,313
|
|
$
|
16,261,360
|
|
Non-Performing
Assets
The
following table sets forth the amounts and categories of non-performing assets
in the Company’s portfolio. Loans are reviewed monthly and any loan whose
collectivity is doubtful is placed on non-accrual status. Loans are placed
on
non-accrual status when principal and interest is 90 days or more past due,
unless, in the judgment of management, the loan is well collateralized and
in
the process of collection. Interest accrued and unpaid at the time a loan is
placed on non-accrual status is charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded
as
interest income, depending on the assessment of the ultimate collectivity of
the
loan.
|
|
|
September
30,
|
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
(Dollars
in thousands)
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
Non-
accruing loans:
|
|
|
|
|
|
|
One
to four family
|
|
|
1,469
|
|
|
1,142
|
|
|
Multi-
family
|
|
|
—
|
|
|
—
|
|
|
Non-
residential
|
|
|
259
|
|
|
339
|
|
|
Land
|
|
|
534
|
|
|
—
|
|
|
Commercial
business
|
|
|
—
|
|
|
26
|
|
|
Construction
|
|
|
271
|
|
|
1,108
|
|
|
Consumer
|
|
|
201
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,734
|
|
|
2,676
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets:
|
|
|
|
|
|
|
|
|
One
to four family
|
|
|
100
|
|
|
678
|
|
|
Multi-family
|
|
|
—
|
|
|
—
|
|
|
Non-residential
|
|
|
404
|
|
|
403
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
Consumer
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
504
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
Total
non- performing assets
|
|
|
3,238
|
|
|
3,757
|
|
|
|
|
|
|
|
|
|
|
|
Total
as a percentage of total assets
|
|
|
1.84
|
%
|
|
2.06
|
%
|
Non-performing
assets decreased during the past nine months, totaling $3.2 million or 1.84%
of
total assets at September 30, 2007 compared to $3.8 million or 2.06% of total
assets at December 31, 2006. The decrease in the nine month period related
to a
paid off $1.1 million multi-unit residential construction loan located in
Merrillville, Indiana as well as the sale of real estate owned totaling
$578,000. This decline in total non-performing assets was partially offset
by
the addition of a $534,000 loan for developing real estate in Greenwood,
Indiana, of which the Company is pursuing deed-in-lieu of foreclosure and a
$271,000 construction loan on a single family residence located in Merrillville,
Indiana.
For
the
nine month period ended September 30, 2007, gross interest, which would have
been recorded, had the non-accruing loans been current in accordance with their
original terms amounted to $136,000.
At
September 30, 2007, the Bank had $504,000 of other real estate owned, which
consisted of one non-residential parcel of real estate owned totaling $404,000
and one two-unit parcel of real estate owned totaling $100,000. Both parcels
are
located in the Company’s market area and are valued at the lower of cost or
managements’ estimate of net realizable value.
In
addition to the non-performing assets set forth in the table above, as of
September 30, 2007, there were no loans with respect to which known information
about the possible credit problems of the borrowers or the cash flows of the
security properties have caused management to have concerns as to the ability
of
the borrowers to comply with present loan repayment terms and which may result
in the future inclusion of such items in the non-performing asset
categories.
Management
has considered the Company’s non-performing and “of concern” assets in
establishing its allowance for loan losses.
Liquidity
and Capital Resources
The
Company’s principal sources of funds are cash dividends paid by the Bank and
liquidity generated by investments or borrowings. The Company’s principal uses
of funds are cash dividends to shareholders as well as investment security
purchases and stock repurchases.
The
Bank’s principal sources of funds are deposits, advances from the FHLB of
Indianapolis, principal repayments on loans and mortgage-backed securities,
proceeds from the sale or maturity of investment securities and funds provided
by operations. While scheduled loan and mortgage-backed securities amortization
and maturing investment securities are a relatively predictable source of funds,
deposit flows and loan and mortgage-backed securities prepayments are greatly
influenced by economic conditions, the general level of interest rates and
competition. The Bank utilizes particular sources of funds based on comparative
costs and availability. The Bank generally manages the pricing of its deposits
to maintain a steady deposit balance, but has from time to time decided to
increase rates on deposits, and when necessary, to supplement deposits with
longer term and/or less expensive alternative sources of funds in order to
achieve a desired funding level.
Recent
Developments
On
October 24, 2007 the Company declared a cash dividend of $.09 per share, payable
on November 21, 2007 to shareholders of record on November 7, 2007.
