UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission File Number 0-21298
ST. FRANCIS CAPITAL CORPORATION
-------------------------------
(Exact name of Registrant as Specified in its Charter)
WISCONSIN 39-1747461
----------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13400 BISHOPS LANE, SUITE 350, BROOKFIELD, WISCONSIN 53005-6203
-----------------------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
(262) 787-8700
----------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes x No
--------- ----------
(2) Yes x No
--------- ----------
The number of shares outstanding of the issuer's common stock, $.01 par
value per share, was 9,284,904 at April 30, 2002.
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited):
Consolidated Statements of Financial Condition...................................................... 3
Consolidated Statements of Income................................................................... 4
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income................. 5
Consolidated Statements of Cash Flows............................................................... 6
Notes to Unaudited Consolidated Financial Statements................................................ 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 32
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................................... 32
ITEM 2. Changes In Securities and Use of Proceeds........................................................... 32
ITEM 3. Defaults Upon Senior Securities..................................................................... 32
ITEM 4. Submission of Matters to a Vote of Security Holders................................................. 32
ITEM 5. Other Information................................................................................... 32
ITEM 6. Exhibits and Reports on Form 8-K.................................................................... 32
SIGNATURES ................................................................................................... 33
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
-----------------------------------------------------------------------------------------------------------------------------
March 31, September 30,
2002 2001
----------------- ------------------
(In thousands, except share data)
ASSETS
Cash and due from banks...................................................... $ 36,407 $ 37,989
Federal funds sold and overnight deposits.................................... 509 111
---------------- ------------------
Cash and cash equivalents.................................................... 36,916 38,100
---------------- ------------------
Securities available for sale, at fair value:
Debt and equity securities............................................... 67,907 41,661
Mortgage-backed and related securities................................... 599,599 616,969
Mortgage loans held for sale, at lower of cost or market..................... 26,071 18,974
Securities held to maturity, at amortized cost:
Mortgage-backed and related securities (fair values of $82,366
and $96,237, respectively).............................................. 81,978 95,384
Loans receivable, net........................................................ 1,225,636 1,237,900
Federal Home Loan Bank stock, at cost........................................ 64,183 62,691
Accrued interest receivable.................................................. 9,942 11,115
Foreclosed properties........................................................ 243 401
Real estate held for investment.............................................. 30,501 26,255
Premises and equipment, net.................................................. 29,572 29,128
Goodwill..................................................................... 13,351 13,351
Other assets................................................................. 24,662 14,337
---------------- ------------------
Total assets................................................................. $ 2,210,561 $ 2,206,266
================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits..................................................................... $ 1,411,163 $ 1,449,320
Short term borrowings........................................................ 526,050 497,152
Long term borrowings......................................................... 89,990 74,281
Advances from borrowers for taxes and insurance.............................. 4,021 10,350
Accrued interest payable and other liabilities............................... 12,684 14,688
---------------- ------------------
Total liabilities............................................................ 2,043,908 2,045,791
---------------- ------------------
Commitments and contingencies................................................ - -
Shareholders' equity:
Preferred stock $.01 par value: Authorized, 6,000,000 shares;
None issued............................................................... - -
Common stock $.01 par value: Authorized 24,000,000 shares;
Issued, 14,579,240 shares;
Outstanding, 9,284,904 and 9,208,244 shares, respectively................. 146 146
Additional paid-in-capital................................................... 88,950 88,826
Accumulated other comprehensive income (loss)................................ (1,350) 1,137
Treasury stock at cost (5,294,336 and 5,370,996 shares, respectively)........ (73,430) (74,264)
Retained earnings, substantially restricted.................................. 152,337 144,630
---------------- ------------------
Total shareholders' equity................................................... 166,653 160,475
---------------- ------------------
Total liabilities and shareholders' equity................................... $ 2,210,561 $ 2,206,266
================ ==================
See accompanying Notes to Unaudited Consolidated Financial Statements
3
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
-----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
March 31, March 31,
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------- ------------- -------------
(In thousands, except per share data)
INTEREST AND DIVIDEND INCOME:
Loans....................................................... $44,803 $54,017 $21,769 $26,740
Mortgage-backed and related securities..................... 15,510 26,219 6,973 12,538
Debt and equity securities.................................. 631 5,773 432 2,431
Federal funds sold and overnight deposits .................. 35 72 11 34
Federal Home Loan Bank stock ............................... 1,708 1,169 791 546
Trading account securities.................................. - 8 - 8
------------ ------------- ------------- -------------
Total interest and dividend income............................... 62,687 87,258 29,976 42,297
------------ ------------- ------------- -------------
INTEREST EXPENSE:
Deposits.................................................... 20,156 37,533 9,162 18,365
Advances and other borrowings............................... 15,249 24,330 7,572 10,995
------------ ------------- ------------- -------------
Total interest expense........................................... 35,405 61,863 16,734 29,360
------------ ------------- ------------- -------------
Net interest income before provision for loan losses............. 27,282 25,395 13,242 12,937
Provision for loan losses........................................ 1,820 1,309 909 706
------------ ------------- ------------- -------------
Net interest income.............................................. 25,462 24,086 12,333 12,231
------------ ------------- ------------- -------------
OTHER OPERATING INCOME (EXPENSE), NET:
Loan servicing and loan related fees........................ 2,108 1,670 864 988
Depository fees and service charges......................... 2,772 2,585 1,232 1,238
Securities gains............................................ 734 476 677 199
Gain on sales of loans ..................................... 5,277 2,100 2,074 1,487
Insurance, annuity and brokerage commissions................ 811 601 434 313
Gain (loss) on foreclosed properties........................ 25 (10) 26 1
Income from real estate held for investment................. 1,549 1,506 771 753
Other income................................................ 467 576 275 367
------------ ------------- ------------- -------------
Total other operating income, net................................ 13,743 9,504 6,353 5,346
------------ ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and other employee benefits.................... 13,694 10,389 6,724 5,448
Occupancy expenses, including depreciation.................. 2,398 2,413 1,228 1,325
Furniture and equipment, including depreciation ............ 1,950 2,150 960 1,080
Real estate held for investment expenses.................... 1,553 1,529 780 770
Goodwill amortization....................................... - 617 - 309
Other general and administrative expenses................... 4,315 4,319 2,275 2,225
------------ ------------- ------------- -------------
Total general and administrative expenses........................ 23,910 21,417 11,967 11,157
------------ ------------- ------------- -------------
Income before income tax expense and cumulative effect of
change in accounting principle............................... 15,295 12,173 6,719 6,420
Income tax expense............................................... 4,374 3,045 1,792 1,661
------------ ------------- ------------- -------------
Income before cumulative effect of change in accounting
principle.................................................... $10,921 $ 9,128 $ 4,927 $ 4,759
Cumulative effect of a change in accounting for derivative
instruments and hedging activities (net of income taxes
of $55)...................................................... - (84) - -
------------ ------------- ------------- -------------
Net income....................................................... $10,921 $ 9,044 $ 4,927 $ 4,759
============ ============= ============= =============
Basic earnings per share:
Before cumulative effect of change in accounting
principle................................................. $ 1.19 $ 0.97 $ 0.53 $ 0.51
Cumulative effect of change in accounting principle.......... - (0.01) - -
------------ ------------- ------------- -------------
$ 1.19 $ 0.96 $ 0.53 $ 0.51
============ ============= ============= =============
Diluted earnings per share:
Before cumulative effect of change in accounting
principle................................................ $ 1.13 $ 0.96 $ 0.51 $ 0.50
Cumulative effect of change in accounting principle......... - (0.01) - -
------------ ------------- ------------- -------------
$ 1.13 $ 0.95 $ 0.51 $ 0.50
============ ============= ============= =============
See accompanying Notes to Unaudited Consolidated Financial Statements
4
ST. FRANCIS CAPITAL CORPORATION & SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income
(Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Shares of Other
Common Additional Comprehensive
Stock Common Paid-In Retained Income/ Treasury
Outstanding Stock Capital Earnings (Loss) Stock Total
------------------------------------------------------------------------------------------
(In thousands, except Shares of Common Stock Outstanding and per share data)
Six months ended March 31, 2001
-------------------------------
Balance at September 30, 2000 ........... 9,437,197 $ 146 $ 88,799 $ 130,399 $ (18,923) $ (69,498) $ 130,923
Net income .............................. - - - 9,044 - - 9,044
Change in unrealized loss on securities
available for sale ................. - - - - 26,650 - 26,650
Reclassification adjustment for gains
realized in net income ............. - - - - (476) - (476)
Income taxes ............................ - - - - (10,124) - (10,124)
----------
Comprehensive income .................... 25,094
Cash dividend - $0.20 per share ......... - - - (1,882) - - (1,882)
Purchase of treasury stock .............. (35,076) - - - - (487) (487)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 2001 ............... 9,402,121 $ 146 $ 88,799 $ 137,561 $ (2,873) $ (69,985) $ 153,648
========== ========== ========== ========== ========== ========== ==========
Six months ended March 31, 2002
-------------------------------
Balance at September 30, 2001 ........... 9,208,244 $ 146 $ 88,826 $ 144,630 $ 1,137 $ (74,264) $ 160,475
Net income .............................. - - - 10,921 - - 10,921
Change in unrealized loss on securities
available for sale ................. - - - - (3,458) - (3,458)
Reclassification adjustment for gains
realized in net income ............. - - - - (734) - (734)
Income taxes ............................ - - - - 1,705 - 1,705
----------
Comprehensive income .................... 8,434
Cash dividend - $0.30 per share ......... - - - (2,764) - - (2,764)
Purchase of treasury stock .............. (32,500) - - - - (679) (679)
Exercise of stock options, net .......... 109,160 - 124 (450) - 1,513 1,187
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 2002 ............... 9,284,904 $ 146 $ 88,950 $ 152,337 $ (1,350) $ (73,430) $ 166,653
========== ========== ========== ========== ========== ========== ==========
See accompanying Notes to Unaudited Consolidated Financial Statements
5
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
March 31,
--------------------------
2002 2001
--------- ---------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................................... $ 10,921 $ 9,044
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses .................................................................. 1,820 1,309
Depreciation, accretion and amortization ................................................... 4,146 3,746
Deferred income taxes ...................................................................... 1,299 (5,564)
Securities gains ........................................................................... (734) (476)
Originations of loans held for sale ........................................................ (401,292) (169,332)
Proceeds from sales of loans held for sale ................................................. 399,472 156,287
Gain on sale of loans ...................................................................... (5,277) (2,100)
Stock dividends received on Federal Home Loan Bank stock ................................... (1,492) (1,206)
Other, net ................................................................................. (12,561) (3,069)
--------- ---------
Net cash used in operating activities ............................................................ (3,698) (11,361)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage-backed and related securities held to maturity ......................... (21,720) -
Principal repayments on mortgage-backed and related securities held to maturity .............. 35,126 4,100
Purchases of mortgage-backed and related securities available for sale ....................... (175,087) -
Proceeds from sales of mortgage-backed securities available for sale ......................... 34,748 36,158
Principal repayments on mortgage-backed securities available for sale ........................ 154,309 41,240
Purchases of debt and equity securities available for sale ................................... (61,264) (128)
Proceeds from sales of debt and equity securities available for sale ......................... 9,223 5,676
Proceeds from maturities of debt and equity securities available for sale .................... 25,003 98,967
Purchase of loans ............................................................................ (143,309) (69,715)
Decrease in loans, net of loans held for sale ................................................ 155,573 78,134
Increase in real estate held for investment .................................................. (4,914) (48)
Purchases of premises and equipment, net ..................................................... (2,102) (433)
--------- ---------
Net cash provided by investing activities ........................................................ 5,586 192,745
--------- ---------
See accompanying Notes to Unaudited Consolidated Financial Statements
6
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, continued
(Unaudited)
Six months ended
March 31,
---------------------------
2002 2001
--------- ---------
(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits ........................................................ (39,094) 31,302
Proceeds from advances and other borrowings ................................................ 107,265 481,131
Repayments on advances and other borrowings ................................................ (112,634) (541,864)
Increase (decrease) in securities sold under agreements to repurchase ...................... 49,976 (132,389)
Decrease in advances from borrowers for taxes and insurance ................................ (6,329) (6,129)
Dividends paid ............................................................................. (2,764) (1,882)
Stock option transactions .................................................................. 1,187 -
Purchase of treasury stock ................................................................. (679) (487)
--------- ---------
Net cash used in financing activities .......................................................... (3,072) (170,318)
--------- ---------
Increase (decrease) in cash and cash equivalents .............................................. (1,184) 11,066
Cash and cash equivalents:
Beginning of period ...................................................................... 38,100 34,747
--------- ---------
End of period ............................................................................ $ 36,916 $ 45,813
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ................................................................................. $ 37,087 $ 62,387
Income taxes ............................................................................. 8,062 14,601
Supplemental schedule of noncash investing and financing activities:
The following summarizes significant noncash investing and financing
activities:
Mortgage loans secured as mortgage-backed securities ..................................... $ - $ 1,432
Transfer from loans to foreclosed properties ............................................. 237 176
Transfer of mortgage loans to mortgage loans held for sale ............................... 56,196 41,852
See accompanying Notes to Unaudited Consolidated Financial Statements
7
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
(1) Principles of Consolidation
The consolidated financial statements include the accounts and balances
of St. Francis Capital Corporation (the "Company"), its wholly-owned
subsidiary, St. Francis Bank, F.S.B. (the "Bank"), and the Bank's
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(2) Basis of Presentation
The accompanying interim consolidated financial statements are
unaudited and do not include information or footnotes necessary for a
complete presentation of financial condition, results of operations or
cash flows in accordance with accounting principles generally accepted
in the United States of America. However, in the opinion of management,
all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the consolidated financial statements have been
included. Operating results for the six and three month periods ended
March 31, 2002 are not necessarily indicative of the results which may
be expected for the entire year ending September 30, 2002. For further
information refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K
for the year ended September 30, 2001.
Certain previously reported balances have been reclassified to conform
with current year presentation.
(3) Commitments and Contingencies
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit and involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the
consolidated financial statements. The contractual or notional amounts
of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for the commitments to
extend credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for instruments that
are reflected in the consolidated financial statements.
The contractual or notional amounts of off-balance sheet financial
instruments are as follows:
Contractual or Notional Amount(s)
March 31 September 30,
2002 2001
---------- ------------
(In thousands)
Commitments to extend credit:
Fixed-rate loans....................................... $ 19,782 $ 19,375
Variable-rate loans.................................... 50,138 29,157
Mortgage loans sold with recourse........................ 14,041 15,090
Guarantees under IRB issues.............................. 38,659 38,080
Interest rate swap agreements (notional amount).......... 30,000 80,000
Unused and open-ended lines of credit:
Consumer.............................................. 253,354 232,046
Commercial............................................. 65,726 24,423
Commitments to fund equity investments.................... - 3,811
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates of 45 days
or less or other termination clauses and may require a fee. Fixed rate
loan commitments as of March 31, 2002 have interest rates ranging from
6.25% to 9.75%. Because some commitments expire without being drawn
upon, the total commitment amounts do not necessarily represent cash
requirements. The Company evaluates the creditworthiness of each
customer on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
8
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
management's credit evaluation of the counterparty. The Company
generally extends credit on a secured basis. Collateral obtained
consists primarily of one- to four-family residences and other
residential and commercial real estate and commercial business assets.
Loans sold with recourse represent one- to four-family mortgage loans
that are sold to secondary market agencies, primarily Federal National
Mortgage Association ("FNMA"), with the servicing of these loans being
retained by the Company. The Company's exposure on loans sold with
recourse is the same as if the loans remained in the Company's loan
portfolio. The Company receives a larger servicing spread on those
loans being serviced than it would if the loans had been sold without
recourse.
The Company has entered into agreements whereby, for an initial and
annual fee, it will guarantee payment on letters of credit backing
industrial revenue bond issues ("IRB"). The IRBs are issued by
municipalities to finance real estate owned by a third party. Potential
loss on a guarantee is the notional amount of the guarantee less the
value of the real estate collateral. At March 31, 2002, appraised
values of the real estate collateral exceeded the amount of the
guarantees.
Interest rate swap agreements generally involve the exchange of fixed
and variable rate interest rate payments without the exchange of the
underlying notional amount on which the interest rate payments are
calculated. The notional amounts of these agreements represent the
amounts on which interest payments are exchanged between the
counterparties. The notional amounts do not represent direct credit
exposures. The Company is exposed to credit-related losses in the event
of nonperformance by the counterparties on interest rate payments, but
does not expect any counterparty to fail to meet their obligations.
Interest receivable or payable on interest rate swaps is recognized
using the accrual method. The use of interest rate swaps enables the
Company to synthetically alter the repricing characteristics of
designated interest-bearing assets and liabilities. At March 31, 2002,
the Company had $30 million in fixed receive-floating pay agreements
with maturity dates ranging from 2008 to 2009 and call dates ranging
from June 2002 to July 2002. The agreements have fixed interest rates
ranging from 5.85% to 6.00% and variable interest rates ranging from
1.727% to 1.87%.
The unused and open consumer lines of credit are conditional
commitments issued by the Company for extensions of credit such as home
equity, auto, credit card, or other similar consumer-type financing.
Furthermore, the unused and open commercial lines of credit are also
conditional commitments issued by the Company for extensions of credit
such as working capital, equipment or other similar commercial type
financing. The credit risk involved in extending these lines of credit
is essentially the same as that involved in extending loan facilities
to customers. Collateral held for these commitments may include, but
may not be limited to, real estate, investment securities, equipment,
accounts receivable, inventory and Company deposits.
The commitments to fund equity investments represent amounts St.
Francis Equity Properties, Inc. ("SFEP") is committed to invest in
low-income housing projects which would qualify for tax credits under
Section 42 of the Internal Revenue Code ("the Code"). The investment in
the low-income housing projects is included in the Company's balance
sheet as real estate held for investment.
9
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(4) Securities
The Company's securities available for sale and held to maturity at
March 31, 2002 were as follows:
SECURITIES AVAILABLE FOR SALE
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------- -------- -------- --------
(In thousands)
DEBT AND EQUITY SECURITIES:
U. S. Treasury obligations and obligations
of U.S. Government Agencies ................................ $ 65,007 $ 13 $ (712) $ 64,308
Marketable equity securities ................................. 3,599 - - 3,599
-------- -------- -------- --------
TOTAL DEBT AND EQUITY SECURITIES .............................. $ 68,606 $ 13 $ (712) $ 67,907
======== ======== ======== ========
MORTGAGE-BACKED & RELATED SECURITIES:
Participation certificates:
FNMA ....................................................... $ 25,151 $ - $ (349) $ 24,802
Private issue .............................................. 14,846 - (628) 14,218
REMICs:
FHLMC ...................................................... 55,511 200 (1,233) 54,478
FNMA ....................................................... 16,686 81 (149) 16,618
Private issue .............................................. 488,926 1,883 (1,362) 489,447
CMO residual ................................................. 36 - - 36
-------- -------- -------- --------
TOTAL MORTGAGE-BACKED AND RELATED
SECURITIES .............................................. $601,156 $ 2,164 $ (3,721) $599,599
======== ======== ======== ========
SECURITIES HELD TO MATURITY
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------- ------- ------- -------
(In thousands)
MORTGAGE-BACKED & RELATED SECURITIES:
Participation certificates:
GNMA ................................................... $ 8,757 $ 6 $ - $ 8,763
REMICs:
Private issue .......................................... 73,221 483 (101) 73,603
------- ------- ------- -------
TOTAL MORTGAGE-BACKED AND RELATED
SECURITIES .......................................... $81,978 $ 489 $ (101) $82,366
======= ======= ======= =======
During the six month periods ended March 31, 2002 and 2001, gross
proceeds from the sale of securities available for sale totaled
approximately $44.0 million and $41.8 million, respectively. The gross
realized gains on such sales totaled approximately $735,000 and
$367,000 for the six month periods ended March 31, 2002 and 2001,
respectively. The gross realized losses on such sales totaled
approximately $1,000 and $49,000 for the six month periods ended March
31, 2002 and 2001, respectively.
During the three month periods ended March 31, 2002 and 2001, gross
proceeds from the sale of securities available for sale totaled
approximately $40.3 million and $33.8 million, respectively. The gross
realized gains on such sales totaled approximately $678,000 and
$133,000 for the three month periods ended March 31, 2002 and 2001,
respectively. The gross realized losses on such sales totaled
approximately zero and $49,000 for the three month periods ended March
31, 2002 and 2001, respectively.
At March 31, 2002, $461.9 million of mortgage-related securities were
pledged as collateral for Federal Home Loan Bank ("FHLB") advances.
10
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(5) Loans
Loans receivable are summarized as follows:
March 31, September 30,
2002 2001
-----------------------------------------------------------------------------------------------------------
(In thousands)
First mortgage -- one- to four-family.............................. $ 234,975 $ 298,617
First mortgage -- residential construction.......................... 68,447 68,936
First mortgage -- multi-family..................................... 141,662 126,338
Commercial real estate............................................. 387,003 362,329
Home equity........................................................ 238,354 221,559
Commercial......................................................... 150,005 140,826
Consumer secured by real estate..................................... 64,594 71,325
Interim financing and consumer loans............................... 22,690 18,027
Indirect auto....................................................... 9,783 15,632
Education.......................................................... 3,967 3,253
--------------- ----------------
Total gross loans................................................ 1,321,480 1,326,842
--------------- ----------------
Less:
Loans in process.................................................. 55,338 57,153
Unearned insurance premiums...................................... 107 136
Deferred loan and guarantee fees................................. 716 445
Purchased loan discount.......................................... 477 548
Allowance for loan losses........................................ 13,135 11,686
--------------- ----------------
Total deductions................................................. 69,773 69,968
--------------- ----------------
Total loans receivable............................................. 1,251,707 1,256,874
Less: First mortgage loans held for sale.......................... 26,071 18,974
--------------- ----------------
Loans receivable, net.............................................. $ 1,225,636 $ 1,237,900
=============== ================
(6) Allowance For Loan Losses
Activity in the allowance for loan losses is summarized as follows:
Six months ended Three months ended
March 31, March 31,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- -------------- ------------- --------------
(In thousands)
Beginning balance.................................. $ 11,686 $ 10,404 $ 12,382 $ 10,812
Charge-offs:
Real estate - mortgage........................... (23) (27) - -
Commercial loans................................. (110) (124) (110) (31)
Home equity loans................................ (2) (70) (2) (35)
Consumer........................................ (332) (135) (118) (85)
------------- -------------- ------------- --------------
Total charge-offs.................................. (467) (356) (230) (151)
------------- -------------- ------------- --------------
Recoveries:
Real estate - mortgage........................... 18 - - -
Commercial loans................................. 64 8 64 6
Home equity loans................................ 1 - 1 -
Consumer........................................ 13 14 9 6
------------- -------------- ------------- --------------
Total recoveries................................... 96 22 74 12
------------- -------------- ------------- --------------
Net charge-offs.................................... (371) (334) (156) (139)
------------- -------------- ------------- --------------
Provision.......................................... 1,820 1,309 909 706
------------- -------------- ------------- --------------
Ending balance..................................... $ 13,135 $ 11,379 $ 13,135 $ 11,379
============= ============== ============= ==============
11
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(7) Earnings Per Share
Basic earnings per share of common stock for the six and three month
periods ended March 31, 2002 and 2001, have been determined by dividing
net income for the period by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share
of common stock for the six and three month periods ended March 31,
2002 and 2001, have been determined by dividing net income for the
period by the weighted average number of shares of common stock
outstanding during the period adjusted for the dilutive effect of
outstanding stock options. Book value per share of common stock at
March 31, 2002 and September 30, 2001, have been determined by dividing
total shareholders' equity by the number of shares of common stock
outstanding at period end adjusted for the dilutive effect of
outstanding stock options at the respective dates. Stock options are
regarded as potential common stock and are, therefore, considered in
per share calculations if not considered to be antidilutive.
The computation of earnings per common share is as follows:
Six months ended Three months ended
March 31, March 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Income before cumulative effect of change in
accounting principle ......................................... $ 10,921,000 $ 9,128,000 $ 4,927,000 $ 4,759,000
Cumulative effect of change in accounting principle .............. - (84,000) - -
------------ ------------ ------------ ------------
Net income for the period ........................................ $ 10,921,000 $ 9,044,000 $ 4,927,000 $ 4,759,000
============ ============ ============ ============
Common shares issued ............................................. 14,579,240 14,579,240 14,579,240 14,579,240
Weighted average treasury shares ................................. 5,375,160 5,171,494 5,349,803 5,177,119
------------ ------------ ------------ ------------
Weighted average common shares
outstanding during the period ................................ 9,204,080 9,407,746 9,229,437 9,402,121
Effect of dilutive stock options outstanding ..................... 454,387 122,526 465,128 199,894
------------ ------------ ------------ ------------
Diluted weighted average common shares
outstanding during the period ................................ 9,658,467 9,530,272 9,694,565 9,602,015
============ ============ ============ ============
Basic earnings per share:
Before cumulative effect of change in accounting
principle................................................. $ 1.19 $ 0.97 $ 0.53 $ 0.51
Cumulative effect of change in accounting principle .......... - (0.01) - -
------------ ------------ ------------ ------------
$ 1.19 $ 0.96 $ 0.53 $ 0.51
============ ============ ============ ============
Diluted earnings per share:
Before cumulative effect of change in accounting
principle................................................. $ 1.13 $ 0.96 $ 0.51 $ 0.50
Cumulative effect of change in accounting principle .......... - (0.01) - -
------------ ------------ ------------ ------------
$ 1.13 $ 0.95 $ 0.51 $ 0.50
============ ============ ============ ============
The computation of book value per common share is as follows:
March 31, September 30,
2002 2001
------------------ ------------------
Common shares outstanding at the end of the period............. 9,284,904 9,208,244
Incremental shares relating to dilutive stock
options outstanding at the end of the period................. 478,839 424,891
------------------ ------------------
9,763,743 9,633,135
================== ==================
Total shareholders' equity at the end of the period............ $166,653,000 $160,475,000
Book value per common share.................................... $ 17.07 $ 16.66
12
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(8) Stock Option Plans
The Company has adopted stock option plans for the benefit of directors
and officers of the Company. The option exercise price cannot be less
than the fair value of the underlying common stock as of the date of
the option grant, and the maximum term cannot exceed ten years. Stock
options awarded to directors may be exercised at any time or on a
cumulative basis over varying time periods, provided the optionee
remains a director of the Company. The stock options awarded to
officers are exercisable on a cumulative basis over varying time
periods, depending on the individual option grant terms, which may
include provisions for acceleration of vesting periods.
At March 31, 2002, 60,650 shares were reserved for future grants.
Further information concerning the options is as follows:
Six months ended March 31,
--------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
--------------------------------------------------------------------
Outstanding at beginning of period........ 1,614,898 $15.74 1,700,148 $15.78
Granted................................... - - - -
Canceled.................................. - - (34,850) 18.36
Exercised................................. (109,160) 9.75 - -
------------- --------------- ------------ ----------------
Outstanding at end of period.............. 1,505,738 $16.17 1,665,298 $15.73
============= =============== ============ ================
Options exercisable....................... 1,023,328 $5.00 -- 22.00 883,494 $5.00 -- 22.00
============= =============== ============ ================
(9) Income Taxes
Actual income tax expense differs from the "expected" income tax
expense computed by applying the statutory Federal corporate tax rate
to income before income tax expense, as follows:
Six months ended Three months ended
March 31, March 31,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ----------- ------------
(In thousands)
Federal income tax expense at statutory rate of 35%.. $ 5,253 $ 4,212 $ 2,252 $ 2,247
State income taxes, net of Federal income tax
benefit........................................ 442 64 180 62
Tax exempt interest.................................. (34) (49) (17) (23)
Acquisition intangible amortization.................. - 114 - 57
Affordable housing credits........................... (1,304) (1,304) (652) (652)
Other, net........................................... 17 8 29 (30)
------------ ------------ ----------- ------------
$ 4,374 $ 3,045 $ 1,792 $ 1,661
============ ============ =========== ============
13
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(10) Derivative and Hedging Activities
Effective October 1, 2000, the Company adopted Financial Accounting
Statement 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes new rules for the recognition and
measurement of derivatives and hedging activities. The Company utilizes
derivative hedging instruments in the course of its asset/liability
management. The hedging instruments primarily used by the Company are
interest rate swap agreements which are used to convert fixed-rate
payments or receipts to variable-rate payments or receipts and thus
hedge the Company's fair market value of the item being hedged. The
items being hedged generally expose the Company to variability in fair
value in rising or declining interest rate environments. In converting
the fixed payment or receipt to a variable payment or receipt, the
interest rate swaps effectively reduce the variability of the fair
market value of the items being hedged.
The Company utilizes interest rate swaps to hedge the fair value of
brokered certificates of deposit ("CD's"). Hedges on brokered CD's
account for a significant majority of the Company's hedging activity,
with hedges on other items being relatively nominal. The interest rate
swaps that hedge brokered CD's are matched with the CD as to final
maturity, interest payment dates and call features. The interest rate
swaps are a floating pay-fixed receive instrument and as such, they
convert the fixed rate payment on the brokered CD's to a floating rate
and thus hedge the fair value of the brokered CD's from changes in
interest rates.
The Company measures the effectiveness of its' hedges on a periodic
basis. Any difference between the fair value change of the hedge versus
the fair value change of the hedged item is considered to be the
"ineffective" portion of the hedge. The ineffective portion of the
hedge is recorded as an increase or decrease in the related income
statement classification of the item being hedged. If the
ineffectiveness of a hedge exceeds certain levels, the derivative would
no longer be eligible for hedge treatment and future changes in fair
value of the derivative would be recorded on the income statement.
The Company's commitments to originate mortgage loans held-for-sale are
considered a derivative under the accounting standards. As such, the
change in fair value of such commitments, are recorded as an adjustment
to the gains on the sale of loans.
As of the adoption date of Statement 133, the Company had two interest
rate swap agreements that were not considered hedges under the
accounting standard. Both agreements were terminated during the quarter
ended December 31, 2000. The fair value of the agreements as of October
1, 2000 is included in the cumulative effect of an accounting change
and the change in fair value during the quarter ended December 31, 2000
is included in securities gains (losses) in the income statement.
Upon adoption of Statement 133, the Company recorded the cumulative
effect of an accounting change in an amount equal to the accounting
effects of the statement as of October 1, 2000. The cumulative effect,
net of taxes, was a decrease in net income of $84,000.
At March 31, 2002, the Company had $30.0 million in interest rate swaps
outstanding compared with $80.0 million at September 30, 2001. The
swaps are designed to offset the changing interest payments of certain
of the Company's brokered certificates. Fixed receive-floating pay
swaps totaled $30.0 million at March 31, 2002 and were entered into to
hedge interest rates on fixed rate certificates of deposits. Fixed
receive-floating pay swaps will provide for a lower interest expense
(or interest income) in a falling rate environment while adding to
interest expense in a rising rate environment. During the six month
period ended March 31, 2002, the Company recorded a net reduction of
interest expense of $1.1 million as a result of the Company's interest
rate swap agreements compared with a net reduction of $126,000 for the
six month period ended March 31, 2001.
14
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(11) Current Accounting Developments
The FASB issued SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities"--a replacement
of FASB Statement No. 125. This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on consistent
application of a financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered, and derecognizes liabilities when extinguished.
This Statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. This Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. This Statement is effective for
recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years
ending after December 15, 2001. This Statement is to be applied
prospectively with certain exceptions. Therefore, earlier or
retroactive application of this Statement is not permitted. Adoption of
this standard did not materially effect the results of operations or
financial position of the Company.
(12) Segment Information
The Company's operations include four strategic business segments:
Retail Banking, Commercial Banking, Mortgage Banking and Investments.
Financial performance is primarily based on the individual segments'
direct contribution to Company net income. The segments do not include
the operations of the Company as a holding company, nor the operations
of the Bank's operating subsidiaries. Capital is not allocated to the
segments and thus net interest income related to the free funding
associated with capital is not included in the individual segments. The
Company only charges the segments with direct expenses. Costs
associated with administrative and centralized back-office support
areas of the Bank are not allocated to the segments. Income taxes are
allocated to the segments based on the Bank's effective tax rate prior
to the consolidation with its affordable housing subsidiary.
The Retail Banking segment consists of the Bank's retail deposits,
branch and ATM network, consumer lending operations, annuity and
brokerage services and call center. The segment includes a much higher
level of interest-bearing liabilities than earning assets. The Company
views this segment as a significant funding vehicle for the other
lending segments. The Company's transfer pricing model has the effect
of viewing this segment as a comparison to the cost of wholesale funds.
The Commercial Banking segment consists of the Bank's commercial,
commercial real estate and multifamily lending operations. It also
includes the lending aspects of the Company's affordable housing
subsidiary.
The Mortgage Banking segment consists of the Bank's single-family
mortgage lending operation. Single-family lending consists of three
primary operations: portfolio lending, lending for sale in the
secondary market and loan servicing.
The Investment segment consists of the Company's portfolio of
mortgage-backed and related securities, its debt and equity securities
and other short-term investments. This segment also includes the
Company's wholesale sources of funding including FHLB advances,
brokered certificates of deposits, reverse repurchase agreements and
federal funds purchased.
15
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
------------------------------------------------- ----------- ----------- ----------- ----------- -----------
BUSINESS SEGMENTS Retail Commercial Mortgage Total
Banking Banking Banking Investments Segments
------------------------------------------------- ----------- ----------- ----------- ----------- -----------
(In thousands)
SIX MONTHS ENDED MARCH 31, 2002
Net interest income .............................. $ 7,372 $ 11,810 $ 4,798 $ (1,206) $ 22,774
Provision for loan losses ........................ 756 984 80 - 1,820
Other operating income ........................... 4,236 618 5,227 733 10,815
General and administrative expenses .............. 11,238 1,718 2,739 413 16,108
Income taxes (benefit) ........................... (134) 3,379 2,510 (308) 5,448
----------- ----------- ----------- ----------- -----------
Segment profit (loss) ............................ $ (252) $ 6,347 $ 4,696 $ (578) $ 10,213
=========== =========== =========== =========== ===========
Segment average assets ........................... $ 333,146 $ 651,925 $ 289,549 $ 768,587 $ 2,043,207
=========== =========== =========== =========== ===========
SIX MONTHS ENDED MARCH 31, 2001
Net interest income .............................. $ 11,765 $ 6,970 $ 3,661 $ 1,669 $ 24,065
Provision for loan losses ........................ 443 623 243 - 1,309
Other operating income ........................... 3,586 586 2,421 340 6,933
General and administrative expenses .............. 10,679 1,411 1,814 493 14,398
Income taxes ..................................... 1,149 1,501 1,096 412 4,159
----------- ----------- ----------- ----------- -----------
Segment profit ................................... $ 3,079 $ 4,021 $ 2,928 $ 1,104 $ 11,133
=========== =========== =========== =========== ===========
Segment average assets ........................... $ 320,991 $ 594,584 $ 426,285 $ 1,023,982 $ 2,365,842
=========== =========== =========== =========== ===========
THREE MONTHS ENDED MARCH 31, 2002
Net interest income .............................. $ 3,470 $ 6,314 $ 2,440 $ (925) $ 11,299
Provision for loan losses ........................ 378 492 39 - 909
Other operating income ........................... 2,052 292 1,889 676 4,909
General and administrative expenses .............. 5,722 853 1,379 202 8,156
Income taxes (benefit) ........................... (202) 1,800 987 (154) 2,431
----------- ----------- ----------- ----------- -----------
Segment profit(loss) ............................. $ (376) $ 3,462 $ 1,923 $ (297) $ 4,712
=========== =========== =========== =========== ===========
Segment average assets ........................... $ 335,386 $ 670,890 $ 269,138 $ 755,771 $ 2,031,185
=========== =========== =========== =========== ===========
THREE MONTHS ENDED MARCH 31, 2001
Net interest income .............................. $ 5,293 $ 3,600 $ 1,987 $ 1,141 $ 12,021
Provision for loan losses ........................ 221 361 123 - 706
Other operating income ........................... 1,767 310 1,731 199 4,007
General and administrative expenses .............. 5,452 762 975 264 7,453
Income taxes ..................................... 518 893 784 314 2,509
----------- ----------- ----------- ----------- -----------
Segment profit ................................... $ 868 $ 1,894 $ 1,837 $ 762 $ 5,360
=========== =========== =========== =========== ===========
Segment average assets ........................... $ 322,810 $ 605,717 $ 418,485 $ 977,054 $ 2,324,066
=========== =========== =========== =========== ===========
16
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
RECONCILEMENT OF SEGMENT INFORMATION TO FINANCIAL STATEMENTS
Six months ended March 31, Three months ended March 31,
2002 2001 2002 2001
----------- ----------- ----------- -----------
(In thousands)
NET INTEREST INCOME AND OTHER OPERATING INCOME
Total for segments ......................................... $ 33,589 $ 30,998 $ 16,208 $ 16,028
Unallocated transfer pricing credit (primarily on .......... 5,403 3,124 2,320 1,784
capital)
Income from affordable housing subsidiary .................. 1,549 1,506 771 753
Holding company interest expense ........................... (543) (1,351) (223) (626)
Elimination of intercompany interest income ................ (538) (551) (262) (273)
Other ...................................................... 1,565 1,173 781 617
----------- ----------- ----------- -----------
Consolidated total revenue ................................. $ 41,025 $ 34,899 $ 19,595 $ 18,283
=========== =========== =========== ===========
PROFIT
Total for segments ......................................... $ 10,213 $ 11,133 $ 4,712 $ 5,360
Unallocated transfer pricing credit (primarily on .......... 3,242 1,875 1,392 1,071
capital)
Unallocated administrative and centralized support ......... (2,865) (2,702) (1,364) (1,427)
costs (a)
Holding company net loss ................................... (581) (1,111) (288) (568)
Elimination of intercompany interest income ................ (323) (331) (157) (164)
Affordable housing tax credits ............................. 1,304 1,304 652 652
Other ...................................................... (69) (1,124) (20) (165)
----------- ----------- ----------- -----------
Consolidated net income .................................... $ 10,921 $ 9,044 $ 4,927 $ 4,759
=========== =========== =========== ===========
AVERAGE ASSETS
Total for segments ......................................... $ 2,043,207 $ 2,365,842 $ 2,031,185 $ 2,324,066
Elimination of intercompany loans .......................... (13,946) (13,326) (14,521) (13,314)
Other assets not allocated ................................. 150,167 104,300 156,303 112,547
----------- ----------- ----------- -----------
Consolidated average assets ................................ $ 2,179,428 $ 2,456,816 $ 2,172,967 $ 2,423,299
=========== =========== =========== ===========
--------------------------
(a)After-tax effect of $4.8 million and $4.5 million of general and
administrative expenses for the six month periods ended March 31,
2002 and 2001, respectively. After-tax effect of $2.3 million and
$2.4 million of general and administrative expenses for the three
month periods ended March 31, 2002 and 2001, respectively.
(13) Goodwill and Intangible Assets -- Adoption of SFAS No. 142
Effective October 1, 2001, the Company adopted Financial Accounting
Statement 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142").
SFAS No. 142 provides that intangible assets with finite useful lives
be amortized and that goodwill and intangible assets with indefinite
lives will not be amortized, but will rather be tested at least
annually for impairment. As required under SFAS No. 142, the Company
discontinued the amortization of goodwill with a net carrying value of
$13.4 million at October 1, 2001 and annual amortization of
approximately $1.2 million that resulted from business combinations
prior to the adoption of SFAS No. 141. The Company will evaluate
goodwill for impairment at least annually.
Net income and earnings per share adjusted for the adoption of SFAS
No. 142 is as follows:
Six months ended Three months ended
March 31, March 31,
-------------------------- -------------------------
2002 2001 2002 2001
---------- --------- --------- ---------
(In thousands, except per share data)
Net income, as reported ........................................... $ 10,921 $ 9,044 $ 4,927 $ 4,759
Add back: Goodwill amortization, net of tax benefit ............... - 515 - 258
---------- --------- --------- ---------
Adjusted net income ............................................... $ 10,921 $ 9,559 $ 4,927 $ 5,017
========== ========= ========= =========
BASIC EARNINGS PER SHARE:
Net income, as reported ...................................... $ 1.19 $ 0.96 $ 0.53 $ 0.51
Goodwill amortization, net of tax benefit .................... - 0.06 - 0.03
---------- --------- --------- ---------
Adjusted net income .......................................... $ 1.19 $ 1.02 $ 0.53 $ 0.54
========== ========= ========= =========
DILUTED EARNINGS PER SHARE:
Net income, as reported ...................................... $ 1.13 $ 0.95 $ 0.51 $ 0.50
Goodwill amortization, net of tax benefit .................... - 0.05 - 0.03
---------- --------- --------- ---------
Adjusted net income .......................................... $ 1.13 $ 1.00 $ 0.51 $ 0.53
========== ========= ========= =========
17
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
In addition to goodwill, the Company's other intangible assets consist of
mortgage servicing rights which are included in other assets on the consolidated
balance sheet. Mortgage servicing rights are not subject to SFAS No. 142 but
rather, are amortized over their expected life and subject to periodic
impairment testing. The Company's mortgage servicing rights had total carrying
and market values as follows:
March 31, September 30,
2002 2001
---------------- ----------------
(In thousands)
Mortgage servicing rights, carrying value......................... $ 8,074 $ 6,287
================ ================
Mortgage servicing rights, market value........................... $ 9,279 $ 6,963
================ ================
18
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD-LOOKING STATEMENTS
This Report contains certain forward looking statements with respect to the
financial condition, results of operation and business of St. Francis Capital
Corporation (the "Company"). The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made, and to advise readers that various factors could affect the
Company's financial performance and could cause actual results for future
periods to differ materially from those anticipated or projected. Such factors
include, but are not limited to: (i) general market rates, (ii) general economic
conditions, (iii) legislative/regulatory changes, (iv) monetary and fiscal
policies of the U.S. Treasury and Federal Reserve, (v) changes in the quality or
composition of the Company's loan and investment portfolios, (vi) demand for
loan products, (vii) deposit flows, (viii) competition, (ix) demand for
financial services in the Company's markets, and (x) changes in accounting
principles, policies or guidelines.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
FINANCIAL CONDITION
The Company's total assets at March 31, 2002 were $2.21 billion an increase of
$4.3 million from September 30, 2001. Increases in investment securities were
offset by a decrease in mortgage-backed and related securities and loans. Total
capital increased to $166.7 million at March 31, 2002 compared with $160.5
million at September 30, 2001. The Company's ratio of shareholders' equity to
total assets was 7.45% at March 31, 2002, compared to 7.27% at September 30,
2001. The Company's fully dilutive book value per share was $17.07 at March 31,
2002, compared to $16.66 at September 30, 2001.
The restructuring of the balance sheet continues to be one of the strategic
initiatives of the Company. Since fiscal 2000, the Company continues to reduce
the size of its combined mortgage-backed securities and investment securities
portfolios as repayments, scheduled maturities and sales occur. Funds received
from these repayments, maturities and sales have been and are expected to be
used to grow and diversify the Company's loan portfolio, to reduce the Company's
wholesale debt and as an additional source of liquidity. This restructuring is
part of a long-range plan to make the Company's balance sheet composition more
representative of "community banks" with a greater percentage of assets in our
loan portfolio as opposed to investments. Management anticipates that this
restructuring should improve the Company's margins due to the generally higher
interest rates on loans, and depending on the growth in the loan portfolio, this
will continue to be an ongoing initiative of the Company in fiscal 2002.
Loans receivable, including mortgage loans held for sale, decreased $5.2 million
to $1.25 billion at March 31, 2002 from $1.26 billion at September 30, 2001.
During the six month period ended March 31, 2002, one- to four-family loans
decreased $64.1 million, partially offset by an increase of $15.3 million in
multi-family mortgage loans, an increase of $24.7 million in commercial real
estate loans, an increase of $9.2 million in commercial loans and an increase of
$9.6 million in consumer and interim financing loans. The Company's one- to
four-family mortgage loan portfolio has a significant level of adjustable rate
loans and during periods of declining or generally low interest rates, the
customers generally convert adjustable rate loans to fixed rate loans. However,
fixed rate loans are generally sold in the secondary market and are not
maintained on the Company's balance sheet.
For the six month period ended March 31, 2002, the Company originated
approximately $547.0 million in loans, as compared to $302.4 million for the
same period in the prior year. Of the $547.0 million in loans originated, $282.2
million were first mortgage loans, $93.0 were home equity loans, $57.8 million
were commercial real estate loans, $40.2 million were consumer and interim
financing loans, $38.5 million were commercial loans and $35.3 million were
multi-family loans. For the six month period ended March 31, 2002, the Company
purchased $143.3 million one- to four-family loans, as compared to $69.7 million
for the same period in the prior year. The increase in loans purchased during
the current year is primarily due to the Company's mortgage banking operation in
Illinois. For the six month period ended March 31, 2002, the Company sold $394.2
million one- to four-family loans, as compared to $154.2 million for the same
period in the prior year. During periods of declining or generally low interest
rates, as experienced during the six month period ended March 31, 2002, the
Company originates more fixed rate loans, which are generally sold in the
secondary market.
Mortgage-backed and related securities, including securities available for sale,
decreased $30.8 million to $681.6 million at March 31, 2002 from $712.4 million
at September 30, 2001. The decreases were due to accelerated repayments,
scheduled maturities and sales during the current quarter. The decrease in
mortgage-backed securities was partially offset by purchases of $196.8 million
during the six month period ended March 31, 2002. During the six month period
ended March 31, 2002, the debt and equity securities component of the Company's
combined mortgage-backed securities and investment securities portfolios
19
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
increased $26.2 million to $67.9 million at March 31, 2002 from $41.7 million at
September 30, 2001. The increase resulted from the investment of funds generated
from the sale of fixed rate one- to four-family mortgage loans in the secondary
market during the period. As noted above, in connection with the balance sheet
restructuring program, in fiscal 2000, the Company began reducing the size of
its combined mortgage-backed and investment securities portfolios which
management anticipates will continue to be an ongoing strategic initiative of
the Company in fiscal 2002. As part of this effort since fiscal 2000, the
Company has reduced the size of the mortgage-backed securities and investment
securities portfolios and used the funds generated from the repayment of
principal to grow and diversify the Company's loan portfolio, to reduce the
amount of the Company's wholesale debt and as an additional source of liquidity.
The Company intends to continue to reduce the size of its combined
mortgage-backed securities and investment securities portfolios as necessary to
accommodate growth in the loan portfolio.
Deposits decreased $38.2 million to $1.41 billion at March 31, 2002 from $1.45
billion at September 30, 2001. The decrease in deposits was due primarily to
decreases of $24.3 million in certificates of deposit and $26.0 million in money
market demand account deposits offset by increases of $9.4 million in checking
accounts and $2.7 million in passbook accounts. At March 31, 2002, the Company
had approximately $164.7 million in brokered certificates of deposit compared
with $224.4 million at September 30, 2001. The brokered deposits generally
consist of terms from three months to ten years and include certificates that
are callable at the option of the Company. As part of a continuing strategy, the
Company continues to offer deposit products that compete more effectively with
money market funds and other non-financial deposit products. Such accounts have
generally changed the Company's traditional mix of deposit accounts to one that
is more adjustable to current interest rates such as the money market demand
account. This has resulted in passbook and certificate of deposit accounts
representing a lower percentage of the Company's total deposit portfolio. The
level of deposit flows during any given period is heavily influenced by factors
such as the general level of interest rates as well as alternative yields that
investors may obtain on competing instruments, such as money market mutual
funds. The Company believes that the likelihood for retention of brokered
certificates of deposit is more a function of the rate paid on such accounts, as
compared to retail deposits which may be established due to branch location or
other undefined reasons.
Advances and other borrowings increased by $44.6 million to $616.0 million at
March 31, 2002 from $571.4 million at September 30, 2001. Short term borrowings
increased $28.9 million to $526.1 million at March 31, 2002, compared to $497.2
million at September 30, 2001. At March 31, 2002, $420.0 million of the short
term borrowings were callable FHLB advances with maturities from three to ten
years and are callable by the FHLB during the next fiscal year and quarterly
thereafter. Long-term borrowings increased $15.7 million to $90.0 million at
March 31, 2002, compared to $74.3 million at September 30, 2001. At March 31,
2002, the Company had an additional borrowing capacity of $237.7 million
available from the FHLB.
RESULTS OF OPERATIONS
NET INCOME. Net income for the six month period ended March 31, 2002 increased
to $10.9 million compared with $9.0 million for the six month period ended March
31, 2001. Net income for the three month period ended March 31, 2002 was $4.9
million compared with $4.8 million for the three month period ended March 31,
2001. The results for the prior year's six month period included a reduction in
net income of $84,000 for the cumulative effect of a change in accounting
principle resulting from the adoption of Financial Accounting Statement Number
133, "Accounting for Derivative Instruments and Hedging Activities." The prior
fiscal year also included goodwill amortization of $617,000 and $309,000 for the
six and three month periods ended March 31, 2001. This expense was eliminated
with the Company's adoption of Financial Accounting Standards No. 142 effective
on October 1, 2001. Net income for the six and three month periods ended March
31, 2002 increased primarily due to an increase in net interest income and other
operating income.
The following table shows the return on average assets and return on average
equity ratios for each period:
Six months ended Three months ended
March 31, March 31,
------------------------------- ------------------------------
2002 2001 2002 2001
------------- ------------- ------------ -------------
Return on average assets.................. 1.00% 0.74% 0.92% 0.80%
Return on average equity.................. 13.17% 12.78% 11.91% 12.98%
NET INTEREST INCOME. Net interest income before provision for loan losses
increased $1.9 million to $27.3 million and $305,000 to $13.2 million for the
six and three month periods ended March 31, 2002 compared to $25.4 million and
$12.9 million for the same
20
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
periods in the prior year. The increase in net interest income was due to an
increase in the net interest margin partially offset by a decrease in average
earning assets. The net interest margin increased to 2.66% and 2.62%,
respectively, for the six and three month periods ended March 31, 2002 compared
to 2.16% and 2.26%, respectively, in the prior year. The increase in net
interest margin is largely attributable to the reduction in market interest
rates and to the restructuring of the balance sheet. Generally during times when
market interest rates decline, the Company experiences an improvement in its'
funding costs at a faster pace than the decrease in its' asset yields. In
addition, the Company continued its' long term balance sheet restructuring,
replacing lower-yielding security assets with higher yielding loan assets.
Average earning assets decreased $303.5 million and $272.8 million,
respectively, for the six and three month periods ended March 31, 2002. The
decrease in average earning assets is largely the result of the Company's
restructuring efforts aimed at reducing the amount of investment and
mortgage-backed securities, and a decrease in the portfolio of one- to
four-family loans, which have been refinancing in the recent lower interest rate
environment.
Total interest income decreased $24.6 million or 28.2% to $62.7 million and
$12.3 million or 29.13% to $30.0 million, respectively, for the six and three
month periods ended March 31, 2002, compared to $87.3 million and $42.3 million,
respectively, for the same periods in the prior year. The decrease in interest
income was primarily the result of decreases in interest on loans,
mortgage-backed and related securities and debt and equity securities. The
decrease in interest income on loans was the result of a decrease in the average
balance of loans to $1.28 billion from $1.33 billion for the six month period
ended March 31, 2002 and 2001, respectively, and a decrease in the average yield
on loans to 7.04% from 8.12% for the same periods. The decrease in interest
income on loans for the three month period ended March 31, 2002 compared with
the three month period ended March 31, 2001 was the result of a decrease in the
average balance of loans to $1.28 billion from $1.34 billion, respectively, in
conjunction with a decrease in the average yield on loans to 6.89% from 8.08%
for the same periods. The decrease in the average balance of loans is primarily
due to the aforementioned decrease in the one- to four-family loan portfolio.
The decrease in interest income on mortgage-backed and related securities was
due to a decrease in the average balance of such securities to $682.8 million
from $801.0 million for the six month period ended March 31, 2002 and 2001,
respectively, and a decrease in the average yield on such securities to 4.56%
from 6.56% for the same periods. The decrease in interest income on
mortgage-backed and related securities for the three month period ended March
31, 2002 compared to the three month period ended March 31, 2001 was due to a
decrease in the average balance of such securities to $655.9 million from $782.1
million, and a decrease in the average yield on such securities to 4.31% from
6.50% for the same periods. The decrease in interest on debt and equity
securities was the result of a decrease in the average balance of such
securities to $28.2 million form $189.3 million for the six month periods ended
March 31, 2002 and 2001, respectively, and a decrease in the average yield on
such securities to 4.49% from 6.12% for the same periods. The decrease in
interest income on debt and equity securities for the three month period ended
March 31, 2002 compared to the three month period ended March 31, 2001 was due
to a decrease in the average balance of such securities to $43.4 million from
$161.4 million, and a decrease in the average yield on such securities to 4.04%
from 6.11% for the same periods. See "Financial Condition" for a further
discussion of the Company's balance sheet restructuring activities.
Total interest expense decreased $26.5 million or 42.8% to $35.4 million for the
six month period ended March 31, 2002, compared to $61.8 million for the six
month period ended March 31, 2001. For the three month period ended March 31,
2002, total interest expense decreased $12.6 million or 43.0% to $16.7 million
compared to $29.4 million for the three month period ended March 31, 2001. The
decrease in interest expense was the result of decreases in the cost of deposits
and advances and other borrowings, as well as decreases in the average balances.
The average cost of deposits decreased to 3.00% and 2.80% for the six and three
month periods ended March 31, 2002, respectively, from 5.33% and 5.20% for the
same periods in the prior year. The average balances of deposits decreased to
$1.35 billion and $1.33 billion for the six and three month periods ended March
31, 2002, respectively, as compared to $1.41 billion and $1.43 billion for the
same period in the prior year. See "Financial Condition" for a further
discussion of the Company's deposit base. The average balance of advances and
other borrowings decreased to $567.9 million and $582.3 million for the six and
three month periods ended March 31, 2002, respectively, as compared to $804.4
million and $749.9 million for the same periods in the prior year. The average
cost of advances and other borrowings decreased to 5.38% and 5.27% for the six
and three month periods ended March 31, 2002, respectively, from 6.06% and 5.95%
for the same periods in the prior year. The borrowings are primarily
adjustable-rate FHLB advances, reverse repurchase agreements and Federal Funds
purchased which have repriced to reflect the changes in rate levels associated
with the respective borrowing rate indexes from the same period in the prior
year.
The following table sets forth information regarding: (1) average assets and
liabilities, (2) average yield on assets and average cost on liabilities, (3)
net interest margin, (4) net interest rate spread, and (5) the ratio of earning
assets to interest-bearing liabilities for the six and three month periods ended
March 31, 2002 and 2001, respectively. Tax-exempt investments are not material
and the tax-equivalent method of presentation is not included in the schedule.
21
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
SIX MONTHS ENDED MARCH 31,
------------------------------------------------------------------
2002 2001
------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------------------------------------------------------------
(Dollars in thousands)
ASSETS
Federal funds sold and overnight deposits $ 3,708 $ 35 1.89% $ 2,493 $ 72 5.79%
Trading account securities.............. - - - 196 8 8.19
Debt and equity securities.............. 28,207 631 4.49 189,320 5,773 6.12
Mortgage-backed and related securities.. 682,829 15,510 4.56 801,046 26,219 6.56
Loans:
First mortgage....................... 795,051 29,151 7.35 859,577 33,797 7.89
Home equity........................... 228,983 6,837 5.99 197,904 8,861 8.98
Consumer ............................. 103,968 4,343 8.38 122,538 5,303 8.68
Commercial and agricultural........... 148,795 4,472 6.03 154,405 6,056 7.87
----------- -------- ----------- -------
Total loans....................... 1,276,797 44,803 7.04 1,334,424 54,017 8.12
Federal Home Loan Bank stock............ 63,698 1,708 5.38 31,289 1,169 7.49
----------- -------- ----------- -------
Total earning assets.............. 2,055,239 62,687 6.12 2,358,768 87,258 7.42
Valuation allowances.................... (10,009) -------- (28,973) -------
Cash and due from banks................. 31,254 27,722
Other assets............................ 102,944 99,299
----------- -----------
Total assets...................... $ 2,179,428 $ 2,456,816
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts ......................... $ 87,188 144 0.33 $ 78,207 238 0.61
Money market demand accounts.......... 441,929 3,399 1.54 378,164 9,411 4.99
Passbook.............................. 87,992 389 0.89 87,418 842 1.93
Certificates of deposit.............. 730,005 16,224 4.46 868,488 27,042 6.24
----------- -------- ----------- -------
Total interest-bearing deposits.......... 1,347,114 20,156 3.00 1,412,277 37,533 5.33
Advances and other borrowings............ 567,901 15,243 5.38 804,422 24,323 6.06
Advances from borrowers for taxes and 5,954 6 0.20 6,147 7 0.23
insurance................................
----------- -------- ----------- -------
Total interest-bearing liabilities 1,920,969 35,405 3.70 2,222,846 61,863 5.58
Non interest-bearing deposits............ 75,727 73,994
Other liabilities........................ 16,451 18,102
Shareholders' equity..................... 166,281 141,874
----------- -----------
Total liabilities and shareholders'
equity................................. $ 2,179,428 $ 2,456,816
=========== ===========
Net interest income...................... $27,282 $25,395
======== ========
Net yield on interest-earning assets..... 2.66 2.16
Interest rate spread..................... 2.42 1.84
Ratio of earning assets to 106.99 106.11
interest-bearing liabilities.............
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------
2002 2001
------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------------------------------------------------------------
(Dollars in thousands)
ASSETS
Federal funds sold and overnight deposits $ 2,812 $ 11 1.59% $ 2,601 $ 34 5.30%
Trading account securities.............. - - - 392 8 8.28
Debt and equity securities.............. 43,363 432 4.04 161,383 2,431 6.11
Mortgage-backed and related securities.. 655,902 6,973 4.31 782,129 12,538 6.50
Loans:
First mortgage....................... 789,444 14,209 7.30 863,252 16,838 7.91
Home equity........................... 232,602 3,211 5.60 201,646 4,372 8.79
Consumer ............................. 102,590 2,102 8.31 120,637 2,597 8.73
Commercial and agricultural........... 156,269 2,247 5.83 156,282 2,933 7.61
----------- ------- ----------- -------
Total loans....................... 1,280,905 21,769 6.89 1,341,817 26,740 8.08
Federal Home Loan Bank stock............ 64,142 791 5.00 31,597 546 7.01
----------- ------- ----------- -------
Total earning assets.............. 2,047,124 29,976 5.94 2,319,919 42,297 7.39
------- -------
Valuation allowances.................... (11,067) (20,850)
Cash and due from banks................. 31,169 27,860
Other assets............................ 105,741 96,370
------------ -----------
Total assets...................... $ 2,172,967 $2,423,299
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts ......................... $ 87,878 63 0.29 $ 78,011 118 0.61
Money market demand accounts.......... 422,506 1,220 1.17 381,651 4,467 4.75
Passbook.............................. 86,846 161 0.75 85,147 400 1.91
Certificates of deposit.............. 729,412 7,718 4.29 887,932 13,380 6.11
----------- ------- ----------- --------
Total interest-bearing deposits.......... 1,326,642 9,162 2.80 1,432,741 18,365 5.20
Advances and other borrowings............ 582,338 7,571 5.27 749,929 10,994 5.95
Advances from borrowers for taxes and 2,894 1 0.14 2,989 1 0.14
insurance................................
----------- ------- ----------- --------
Total interest-bearing liabilities 1,911,874 16,734 3.55 2,185,659 29,360 5.45
Non interest-bearing deposits............ 76,978 69,832
Other liabilities........................ 16,362 19,083
Shareholders' equity..................... 167,753 148,725
----------- -----------
Total liabilities and shareholders'
equity................................ $ 2,172,967 $2,423,299
=========== ===========
Net interest income...................... $ 13,242 $ 12,937
======== ========
Net yield on interest-earning assets..... 2.62 2.26
Interest rate spread..................... 2.39 1.95
Ratio of earning assets to
interest-bearing liabilities............. 107.07 106.14
22
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
PROVISION FOR LOAN LOSSES. The following table summarizes the allowance for
loan losses for each period:
Six months ended Three months ended
March 31, March 31,
------------------------------- ------------------------------
2002 2001 2002 2001
------------- ------------- ------------ -------------
(Dollars in thousands)
Beginning balance......................... $ 11,686 $ 10,404 $ 12,382 $ 10,812
Provision for loan losses................. 1,820 1,309 909 706
Recoveries................................. 96 22 74 12
Charge-offs............................... (467) (356) (230) (151)
------------- ------------- ------------ -------------
Ending balance............................ $ 13,135 $ 11,379 $ 13,135 $ 11,379
============= ============= ============ =============
Ratio of allowance for loan losses to
gross loans receivable at the end
of the period........................ 0.99% 0.83% 0.99% 0.83%
Ratio of allowance for loan losses to
total non-performing loans at the
end of the period.................... 149.33% 78.30% 149.33% 78.30%
Ratio of net charge-offs to average
gross loans (annualized)............. 0.06% 0.05% 0.05% 0.04%
The allowance for loan losses is a material estimate that is particularly
susceptible to significant changes in the near term and is established through a
provision for loan losses. The allowance is based upon past loan loss experience
and other factors, which in management's judgement, deserve current recognition
in estimating loan losses. The evaluation includes a review of all loans on
which full collectibility may not be reasonably assured. Such other factors
considered by management include the size and character of the loan portfolio,
concentrations of loans to specific borrowers or industries, existing economic
conditions and historical losses on each portfolio category. In connection with
the determination of the allowance for loan losses, management obtains
independent appraisals for significant properties which collateralize loans.
With respect to loans that are deemed impaired, the calculation of allowance for
loan losses is based upon the discounted present value of expected cash flows
received from the debtor or other measures of market prices or collateral
values.
In general, the level of the allowance for loan losses and changes during each
period is a function of several factors, including but not limited to changes in
the loan portfolio, net charge-offs and non-performing loans. At March 31, 2002,
gross loans receivable were $1.32 billion compared to $1.37 billion at March 31,
2001. Net charge-offs for the six and three month periods ended March 31, 2002
were $371,000 and $156,000, respectively, compared to $334,000 and $139,000 for
the same periods in the prior year. Non-performing loans decreased to $8.8
million or 0.67% of gross loans at March 31, 2002 compared to $10.3 million or
0.77% of gross loans at September 30, 2001. For the six and three month periods
ended March 31, 2002, the provision for loan losses was $1.8 million and
$909,000, respectively, compared to $1.3 million and $706,000 for the same
period in the prior year.
Management believes that the allowance for loan losses at March 31, 2002 is
adequate to absorb probable losses inherent in the portfolio. Management
believes it uses the best information available to make such determinations. If
circumstances differ substantially from the assumptions used in making
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be affected. While the Company
believes it has established its existing allowance for loan losses in conformity
with accounting principles generally accepted in the United States of America,
there can be no assurance that regulators, in reviewing the Bank's loan
portfolio, will not request an increase in the allowance for loan losses.
Because future events affecting the borrowers and collateral cannot be predicted
with certainty, there can be no assurance that increases to the allowance will
not be necessary should the quality of any loans deteriorate as a result of
factors discussed herein.
23
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
OTHER OPERATING INCOME. Other operating income increased by $4.2 million to
$13.7 million and by $1.0 million to $6.4 million for the six and three month
periods ended March 31, 2002, respectively, compared to the same periods in the
prior year. The following table shows the percentage of other operating income
to average assets for each period:
Six months ended Three months ended
March 31, March 31,
------------------------------- ------------------------------
2002 2001 2002 2001
------------- ------------- ------------ -------------
(In thousands)
Other operating income.................... $ 13,743 $ 9,504 $ 6,353 $ 5,346
Percent of average assets (annualized).... 1.26% 0.78% 1.19% 0.89%
The increase for the six and three month periods ended March 31, 2002 was due
primarily to increases in gains on the sale of loans. Gains on the sale of
mortgage loans increased to $5.3 million and $2.1 million for the six and three
month periods ended March 31, 2002, respectively, compared to gains of $2.1
million and $1.5 million for the same periods in the prior year. The Company's
volume of mortgage loan sales were $394.2 million and $172.8 million for the six
and three month periods ended March 31, 2002, compared to $154.2 million and
$107.7 million for the six and three months ended March 31, 2001. The level of
loan sale activity is highly dependent on the interest rate environment and on
the types of mortgage loans originated. In the recent low interest rate
environment, customers are more likely to select or refinance into fixed-rate
mortgages, which the Company then generally sells in the secondary market.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $2.5 million or 11.6% to $23.9 million and $810,000 or 7.3% to
$12.0 million for the six and three month periods ended March 31, 2002,
respectively, compared to the same periods in the prior year. The following
table shows the percentage of general and administrative expenses to average
assets for each period:
Six months ended Three months ended
March 31, March 31,
------------------------------- ------------------------------
2002 2001 2002 2001
------------- ------------- ------------ -------------
(Dollars in thousands)
General and administrative expenses....... $ 23,910 $ 21,417 $ 11,967 $ 11,157
Percent of average assets (annualized).... 2.20% 1.75% 2.23% 1.87%
The increase is primarily due to additional levels of compensation, including
increased commissions and incentive pay related to the Company's increased loan
origination activity, higher benefit costs and normal merit pay increases at the
start of the Company's fiscal year. Including commissions and salaries, mortgage
loan related compensation increased by approximately $1.3 million and $500,000
for the six and three month periods ended March 31, 2002 compared to the prior
year. Retirement plan expenses increased to $944,000 and $357,000 for the six
and three month periods ended March 31, 2002, compared to $323,000 and $271,000
for the same periods in the prior year. The increase in benefit costs in the
current year are the result of lower benefit costs during the prior year
periods. The Company paid off its ESOP loan in June 2000 and reduced the
retirement benefit costs for the remainder of calendar year 2000. Normal
retirement benefit costs resumed on January 1, 2001. The prior fiscal year also
included goodwill amortization of $617,000 and $309,000 for the six and three
month periods ended March 31, 2001. This expense was eliminated with the
Company's adoption of Financial Accounting Standards No. 142 effective on
October 1, 2001.
INCOME TAX EXPENSE. Income tax expense increased to $4.4 million and $1.8
million for the six and three month periods ended March 31, 2002, compared to
$3.0 million and $1.7 million for the same periods in the prior year. The
effective tax rate for the six and three month periods ended March 31, 2002 was
28.60% and 26.67%, respectively, compared with 25.01% and 25.87% for the six and
three month periods ended March 31, 2001. The increase in the effective tax rate
is primarily due to the increased amount of income and an increase in state
taxes of $378,000 and $118,000 for the six and three month periods ended March
31, 2002. The income tax credits received on the Company's affordable housing
investments were $1.3 million and $652,000 for each of the six and three month
periods ended March 31, 2002 and 2001.
24
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
ASSET QUALITY
Total non-performing assets were $9.0 million, or 0.41% of total assets at March
31, 2002, compared with $10.7 million, or 0.48% of total assets at September 30,
2001. Non-performing assets include loans which have been placed on nonaccrual
status and property upon which a judgment of foreclosure has been entered but
prior to the foreclosure sale, as well as property acquired as a result of
foreclosure.
Non-performing assets are summarized as follows:
March 31, September 30,
2002 2001
----------------- -----------------
(Dollars in thousands)
Non-performing loans.............................. $ 8,796 $ 10,262
Foreclosed properties............................. 243 401
----------------- -----------------
Non-performing assets............................. $ 9,039 $ 10,663
================= =================
Non-performing loans to gross loans............... 0.67% 0.77%
Non-performing assets to total assets............. 0.41% 0.48%
Except as disclosed above, there are no material loans about which management is
aware that there exists serious doubts as to the ability of the borrower to
comply with the loan terms. The Company's largest non-performing credit at March
31, 2002 is a $2.9 million commercial credit, which was reduced by $2.3 million
in payments received during the six months ended March 31, 2002. The loan was
restructured during the quarter ended December 31, 2001 with the Company
receiving a new secured term loan (as a participant bank), the aforementioned
cash payments and unregistered shares of the borrower's common stock. No
additional charge-off or provision was required during the quarter in connection
with the loan restructuring.
Impaired loans totaled $8.7 million at March 31, 2002 compared to $7.8 million
at September 30, 2001. These loans had associated impairment reserves of $1.5
million and $1.3 million at March 31, 2002 and September 30, 2001, respectively.
For the six month period ended March 31, 2002, the average balance of impaired
loans was $9.2 million compared to $11.0 million for the year ended September
30, 2001. Interest income on impaired loans for the six month periods ended
March 31, 2002 and 2001 was $120,000 and $95,000, respectively.
ASSET/LIABILITY MANAGEMENT
Asset and liability management is an ongoing process of managing asset and
liability maturities to control the interest rate risk of the Company.
Management attempts to control this risk through pricing of assets and
liabilities and maintaining specific levels of maturities. Generally, the
Company is subject to decreases in the net interest margin in rising rate
environments and increases in the net interest margin in falling interest rate
environments. The Company may utilize the following strategies to mitigate its
interest rate risk, which is generally assumed to be adverse in a rising rate
environment: (i) the Company seeks to originate and hold a variety of ARMs or
other mortgage loans with short- to medium-term average lives and invests in
primarily mortgage-backed and related securities with short- to medium-term
average lives; (ii) the Company seeks to lengthen the maturities of deposits
when deemed cost effective through the pricing and promotion of certificates of
deposit with terms of one to five years, and periodically utilizes deposit
marketing programs offering maturity and repricing terms structured to
complement the repricing and maturity characteristics of the existing
asset/liability mix; (iii) the Company has utilized short term and long term
borrowings, principally secured from the FHLB, as well as, brokered certificates
of deposits with risk characteristics that are similar to the Company's assets;
and (iv) the Company may use off-balance sheet instruments such as interest rate
swaps to hedge the Company's interest rate risk on selected assets or
liabilities.
At March 31, 2002, the Company's estimated cumulative one-year gap between
assets and liabilities was a positive 4.43% of total assets. A positive gap
occurs when a greater dollar amount of interest-earning assets are repricing or
maturing than interest-bearing liabilities. The Company's three-year cumulative
gap as of March 31, 2002 was a negative 6.60% of total assets. A negative gap
occurs when a greater dollar amount of interest-bearing liabilities are
repricing or maturing than interest-earning assets. The change in the Company's
gap position is due to the decline in interest rates during fiscal 2001 and
2002. As interest rates declined, the terms of the Company's assets shortened
and the terms of the liabilities lengthened. The shortening of assets is
primarily due to the prepayments on the Company's mortgage-related assets. The
lengthening of the liabilities is due to both renewals of brokered
25
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
certificates of deposit and to a lesser extent retail deposits, at longer terms
and to the lengthening of the repricing characteristics of the Company's fixed
rate puttable FHLB advances.
With a positive gap position, during periods of rising interest rates it is
expected that the yield of the Company's interest-earning assets will rise more
quickly than the cost on its interest-bearing liabilities, which will have a
positive effect on its net interest income. Although the opposite effect on net
interest income would occur in periods of falling interest rates, the Company
could experience substantial prepayments of its fixed-rate mortgage loans and
mortgage-backed and related securities in periods of falling interest rates,
which would result in the reinvestment of such proceeds at market rates which
are lower than current rates.
The Company's interest rate risk position, as defined by gap, is dynamic as
interest rates change. While static gap analysis may be a useful measure of
determining short-term risk to future net income under certain circumstances, it
does not measure the sensitivity of the market value of assets and liabilities
to changes in interest rates. For example, gap analysis is limited in its
ability to predict trends in future earnings and makes no assumptions about
changes in prepayment tendencies, deposit or loan maturity preferences or
repricing time lags that may occur in response to a change in the market
interest rate environment. In the event market interest rates increase
significantly from the current rates at March 31, 2002, the Company expects that
its one-year positive gap would become negative due to the anticipated
shortening of the term of FHLB puttable advances and to a lesser extent, the
lengthening of the term of mortgage-related assets assuming prepayments slow.
26
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
The following table summarizes the Company's gap position as of
March 31, 2002.
More than More than
Within Four to One Year Three
Three Twelve to Three Years to Over Five
Months Months Years Five Years Years Total
------------------------------------------------------------------------------------
(Dollars in thousands)
INTEREST-EARNING ASSETS: (1)
Loans: (2)
Residential ........................... $ 29,860 $ 65,895 $ 81,895 $ 17,577 $ 32,910 $ 228,137
Commercial ............................ 163,929 136,648 178,907 62,651 116,172 658,307
Consumer .............................. 221,562 22,436 35,869 37,369 21,956 339,192
Mortgage-backed and related securities ..... 10,299 22,380 26,258 12,350 10,691 81,978
Assets available for sale:
Mortgage loans ........................ 26,071 - - - - 26,071
Fixed rate mortgage related ........... 264,529 - - - - 264,529
Variable rate mortgage related ........ 29,554 53,492 103,344 72,222 76,458 335,070
Investment securities ................. 3,598 5,961 43,634 14,714 - 67,907
Other assets ............................... 64,692 - - - - 64,692
---------- ---------- ---------- ---------- ---------- ----------
Total ................................. $ 814,094 $ 306,812 $ 469,907 $ 216,883 $ 258,187 $2,065,883
========== ========== ========== ========== ========== ==========
INTEREST-BEARING LIABILITIES:
Deposits: (3)
NOW accounts .......................... $ 7,555 $ 22,664 $ 33,812 $ 15,178 $ 12,371 $ 91,580
Passbook savings accounts ............. 3,346 10,039 19,103 13,006 45,947 91,441
Money market deposit accounts ......... 101,888 305,664 1,066 1,097 617 410,332
Certificates of deposit ............... 156,599 254,154 251,404 30,798 28,538 721,493
Borrowings (4) ............................. 81,317 49,680 408,451 76,592 - 616,040
Impact of interest rate swaps .............. 30,000 - - - (30,000) -
---------- ---------- ---------- ---------- ---------- ----------
Total ................................. $ 380,705 $ 642,201 $ 713,836 $ 136,671 $ 57,473 $1,930,886
========== ========== ========== ========== ========== ==========
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities ................ $ 433,389 $ (335,389) $ (243,929) $ 80,212 $ 200,714 $ 134,997
========== ========== ========== ========== ========== ==========
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities ................ $ 433,389 $ 98,000 $ (145,929) $ (65,717) $ 134,997
========== ========== ========== ========== ==========
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities as a
percent of total assets ..................... 19.61% 4.43% (6.60%) (2.97%) 6.11%
========== ========== ========== ========== ==========
-------------------------------------------------------------------------
(1) Adjustable and floating rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed rate assets are included in the periods in
which they are scheduled to be repaid based on scheduled amortization, in
each case adjusted to take into account estimated prepayments utilizing the
Company's historical prepayment statistics, modified for forecasted
statistics using the Public Securities Association model of prepayments.
For fixed rate mortgage loans and mortgage-backed and related securities,
annual prepayment rates ranging from 8% to 30%, based on the loan coupon
rate, were used.
(2) Balances have been reduced for undisbursed loan proceeds, unearned
insurance premiums, deferred loan fees, purchased loan discounts and
allowances for loan losses, which aggregated $69.8 million at March 31,
2002.
(3) Although the Company's negotiable order of withdrawal ("NOW") accounts,
passbook savings accounts and money market deposit accounts generally are
subject to immediate withdrawal, management considers a certain portion of
such accounts to be core deposits having significantly longer effective
maturities based on the Company's retention of such deposits in changing
interest rate environments. NOW accounts, passbook savings accounts and
money market deposit accounts are assumed to be withdrawn at annual rates
of 33%, 10% and 98%, respectively, of the declining balance of such
accounts during the period shown. The withdrawal rates used are higher than
the Company's historical rates, but are considered by management to be more
indicative of expected withdrawal rates in a rising interest rate
environment. If all the Company's NOW accounts, passbook savings accounts
and money market deposit accounts had been assumed to be repricing within
one year, the one-year cumulative deficiency of interest-earning assets to
interest-bearing liabilities would have been $44.2 million or 2.0% of total
assets.
(4) Fixed rate puttable FHLB advances are included in the period of their
modified duration rather than in the period in which they are due.
Borrowings includes fixed rate puttable FHLB advances of $370 million
maturing in one to three years and $75 million maturing in three to five
years.
27
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
Assumptions regarding withdrawals and prepayments are based on historical
experience, and management believes such assumptions are reasonable, although
actual withdrawals and repayments of assets and liabilities may vary
substantially. Certain shortcomings are inherent in the method of analysis
presented in the gap table. For example, although certain assets and liabilities
may have similar maturities to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on other types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans and
mortgage-backed and related securities, have features which restrict changes in
interest rates both on a short-term basis and over the life of the asset.
Further, in the event of an actual change in interest rates, actual prepayment
and early withdrawal levels could deviate significantly from those assumed in
calculating the data in the table.
CRITICAL ACCOUNTING POLICES
In the ordinary course of business, the Company has made a number of estimates
and assumptions relating to the reporting of results of operations and financial
condition in the preparation of its financial statements in conformity with
accounting principles generally accepted in the United States of America. Actual
results could differ significantly from those estimates under different
assumptions and conditions. The Company believes that the following discussion
addresses the Company's most critical accounting policies, which are those that
are most important to the portrayal of the Company's financial condition and
results and require management's most difficult, subjective and complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
ALLOWANCE FOR LOAN LOSSES -- The allowance for loan losses is a material
estimate that is particularly susceptible to significant changes in the near
term and is established through a provision for loan losses. The allowance is
based upon past loan loss experience and other factors, which in management's
judgement, deserve current recognition in estimating loan losses. The evaluation
includes a review of all loans on which full collectibility may not be
reasonably assured. Such other factors considered by management include the size
and character of the loan portfolio, concentrations of loans to specific
borrowers or industries, existing economic conditions and historical losses on
each portfolio category. In connection with the determination of the allowance
for loan losses, management obtains independent appraisals for significant
properties which collateralize loans. With respect to loans that are deemed
impaired, the calculation of allowance for loan losses is based upon the
discounted present value of expected cash flows received from the debtor or
other measures of market prices or collateral values.
Management believes it uses the best information available to make such
determinations. If circumstances differ substantially from the assumptions used
in making determinations, future adjustments to the allowance for loan losses
may be necessary and results of operations could be affected. While the Company
believes it has established its existing allowance for loan losses in conformity
with accounting principles generally accepted in the United States of America,
there can be no assurance that regulators, in reviewing the Bank's loan
portfolio, will not request an increase in the allowance for loan losses.
Because future events affecting the borrowers and collateral cannot be predicted
with certainty, there can be no assurance that increases to the allowance will
not be necessary should the quality of any loans deteriorate as a result of
factors discussed herein.
ACCOUNTING FOR INCOME TAXES -- As part of the process of preparing the
consolidated financial statements the Company is required to estimate income
taxes for federal and state purposes. This process involves estimating the
Company's actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as deferred
revenue, for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which are included within the Company's consolidated
balance sheet. Management must then assess the likelihood that the deferred tax
assets will be recovered from future taxable income and to the extent management
believes that recovery is not likely, a valuation allowance must be established.
To the extent the Company establishes a valuation allowance or increase this
allowance in a period, the Company would include an expense within the tax
provision in the statement of operations.
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against net deferred tax assets. A valuation allowance is based on
management's estimates of taxable income by jurisdiction in which the Company
operate and the period over which deferred tax assets will be recoverable. In
the event that actual results differ from these estimates or management adjusts
these estimates in future periods the Company may need to establish an
additional valuation allowance which could materially impact the financial
position and results of operations.
MORTGAGE SERVICING RIGHTS -- The Company recognizes as a separate asset the
rights to service mortgage loans for others. The value of mortgage servicing
rights is amortized in relation to the servicing revenue expected to be earned.
Estimating the fair value of the mortgage servicing rights involves judgment,
particularly of estimated prepayment speeds of the underlying mortgages
28
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
serviced. Net income could be affected if management's estimate of the
prepayment speeds or other factors differ materially from actual prepayments.
The above listing is not intended to be a comprehensive list of all of the
Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by accounting principles
generally accepted in the United States of America, with no need for
management's judgement in their application. There are also areas in which
management's judgement in selecting any available alternative would not produce
a materially different result. For further information refer to footnote 1
included in the Company's annual report on Form 10-K for the year ended
September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's most liquid assets are cash and cash equivalents, which include
investments in highly liquid, short-term investments. The level of these assets
is dependent on the Company's operating, financing and investing activities
during any given period. Cash and cash equivalents totaled $36.9 million and
$38.1 million as of March 31, 2002 and September 30, 2001, respectively.
The Company's primary sources of funds are deposits, including brokered
certificates of deposit, borrowings from the FHLB and proceeds from principal
and interest payments on loans and mortgage-backed and related securities.
Although maturities and scheduled amortization of loans are predictable sources
of funds, deposit flows, prepayments on mortgage loans and mortgage-backed and
related securities are influenced significantly by general interest rates,
economic conditions and competition. Additionally, the Bank is limited by the
FHLB to borrowing up to 35% of its assets. At March 31, 2002, the Company had
additional borrowing capacity of $237.7 million available from the FHLB.
In fiscal 2001 the Company continued to reduce the size of its mortgage-backed
securities and investment securities portfolios as part of a strategy to
decrease the proportion of earnings from that segment of its balance sheet. The
reduction was primarily accomplished through the repayment of principal,
scheduled maturities and the sale of available-for-sale securities. Funds
generated from the repayment of principal, maturities and sales from the
mortgage-backed securities and investment securities portfolios were used to
grow and diversify the Company's loan portfolio, to reduce the Company's
wholesale debt and as an additional source of liquidity. Management anticipates
that this form of "balance sheet restructuring" will be an ongoing strategic
initiative of the Company in fiscal 2002.
The Company is in the midst of a share repurchase program where it may purchase
up to 460,000 shares, or approximately five percent, of its common stock in the
open market. As of March 31, 2002, the Company had purchased 70,300 shares under
the current authorization at an average price of $20.78 per share. The Company
may purchase an additional 389,700 shares under the current authorization. The
Company's share repurchase program is funded through dividends received from the
Bank and the Company's line of credit. Due to the Company's access to liquidity,
shares repurchased have a minimal effect on the Company's liquidity.
Under federal and state laws and regulations, the Company and its wholly-owned
subsidiary are required to meet certain tangible, core and risk-based capital
requirements. Tangible capital generally consists of shareholders' equity minus
certain intangible assets. Core capital generally consists of tangible capital
plus qualifying intangible assets. The risk-based capital requirements presently
address credit risk related to both recorded and off-balance sheet commitments
and obligations.
The Bank is required to follow Office of Thrift Supervision ("OTS") capital
regulations which require savings institutions to meet two capital standards:
(i) "tier 1 core capital" in an amount not less than 4% of adjusted total assets
and (ii) "risk-based capital" of at least 8% of risk-weighted assets.
29
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
The following table summarizes the Bank's capital ratios at the dates indicated:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ------------------------ ------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------- ---------- ----------- ------------- --------- ------------ ---------
(Dollars in thousands)
As of March 31, 2002:
Tangible capital.............. $ 174,086 7.92% >$ 87,941 >4.0% > $109,927 > 5.0%
- - - -
Core capital ................. 174,086 7.92% > 87,941 >4.0% > 109,927 > 5.0%
- - - -
Tier 1 risk-based capital..... 174,086 11.04% > 63,052 >4.0% > 94,577 > 6.0%
- - - -
Risk-based capital............ 186,845 11.85% > 126,103 >8.0% > 157,629 > 10.0%
- - - -
As of September 30, 2001:
Tangible capital.............. $ 178,436 8.14% > $87,666 >4.0% > $109,582 > 5.0%
- - - -
Core capital ................. 178,436 8.14% > 87,666 >4.0% > 109,582 > 5.0%
- - - -
Tier 1 risk-based capital..... 178,436 12.61% > 56,586 >4.0% > 84,879 > 6.0%
- - - -
Risk-based capital............ 189,656 13.41% > 113,172 >8.0% > 141,465 > 10.0%
- - - -
The capital of the Company and the Bank exceed all regulatory capital
requirements.
30
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
The following table sets forth the amounts of estimated cash flows for the
various interest-earning assets and interest-bearing liabilities outstanding at
March 31, 2002.
More than More than More than
Within One Year Two Years Three Years
One Year to Two Years to Three Years To Four Years
------------------ ------------------ ----------------- -------------------
Interest earning assets (Dollars in millions)
Loans:
Residential........ $ 1.5 9.40% $ 1.3 7.84% $ 2.7 7.33% $ 0.2 8.16%
Commercial......... 88.6 5.06% 38.7 6.47% 52.9 6.77% 38.7 6.26%
Consumer........... 35.9 5.27% 40.1 5.66% 100.6 5.56% 111.7 5.66%
Mortgage-backed
securities:
Fixed rate......... 115.7 6.24% 64.8 6.24% 64.8 6.24% 42.3 6.24%
Adjustable rate.... 52.9 2.73% 45.0 2.73% 34.4 2.73% 31.7 2.73%
Debt and equity
securities........... 9.6 3.23% 43.6 4.28% 14.7 4.17% - -
Other.................. 64.7 5.00% - - - - - -
Total interest ------ ------ ------ ------
earning assets........ $368.9 5.08% $233.5 5.14% $270.1 5.54% $224.6 5.46%
====== ====== ====== ======
Interest bearing liabilities
Deposits:
NOW accounts....... $ 30.2 0.25% $ 16.9 0.25% $ 16.9 0.25% $ 7.6 0.25%
Passbooks.......... 13.4 0.35% 9.5 0.35% 9.5 0.35% 6.5 0.35%
Money market....... 407.6 2.95% 0.5 2.95% 0.5 2.95% 0.5 2.95%
Certificates....... 410.8 4.22% 207.6 4.06% 43.8 4.49% 28.3 5.00%
Borrowings
Fixed rate......... 45.0 3.84% 195.0 5.27% 200.0 5.86% 95.3 5.69%
Adjustable rate.... 80.7 1.83% - - - - - -
Total interest
bearing ------ ------ ------- ------
liabilities......... $987.7 3.31% $429.5 4.38% $ 270.7 5.09% $138.2 4.99%
====== ====== ======= ======
More than Fair
Four Years Over Market
to Five Years Five Years Total Value
------------------ ------------------ ----------------- ---------
(Dollars in millions)
Interest earning assets
Loans:
Residential........ $ 15.6 7.09% $ 232.9 7.07% $ 254.2 7.09% $ 255.4
Commercial......... 112.0 7.44% 327.4 7.30% 658.3 6.87% 661.6
Consumer........... 18.9 8.45% 32.0 9.10% 339.2 6.07% 342.6
Mortgage-backed
securities:
Fixed rate......... 42.3 6.24% 87.2 6.24% 417.1 6.24% 417.4
Adjustable rate.... 29.1 2.73% 71.4 2.73% 264.5 2.73% 264.5
Debt and equity
securities........... - - - - 67.9 4.11% 67.9
Other.................. - - - - 64.7 5.00% 64.4
Total interest ------- ------- -------- --------
earning assets........ $ 217.9 6.64% $ 750.9 6.75% $2,065.9 5.96% $2,073.8
======= ======= ======== ========
Interest bearing liabilities
Deposits:
NOW accounts....... $ 7.6 0.25% $ 12.4 0.25% $ 91.6 0.25% $ 87.8
Passbooks.......... 6.5 0.35% 46.0 0.35% 91.4 0.35% 84.8
Money market....... 0.6 2.95% 0.6 2.95% 410.3 2.95% 409.0
Certificates....... 2.5 4.99% 28.5 5.96% 721.5 4.29% 723.6
Borrowings
Fixed rate......... - - - - 535.3 5.45% 559.7
Adjustable rate.... - - - - 80.7 1.83% 80.7
Total interest
bearing -------- -------- -------- --------
liabilities......... $ 17.2 1.06% $ 87.5 2.18% $1,930.8 3.85% $1,945.6
======== ======== ======== ========
31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required herein pursuant to Item 305 of Regulation
S-K is contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
is incorporated herein by reference.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank is involved in any pending legal
proceedings involving amounts in the aggregate which management
believes are material to the financial condition and results of
operations of the Company and the Bank.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On April 19, 2002, the Company announced the declaration of a
dividend of $0.15 per share on the Company's common stock for the
quarter ended March 31, 2002. The dividend is payable on May 20,
2002 to shareholders of record as of May 10, 2002. This will be
the 27th consecutive cash dividend payment since the Company
became publicly-held in June 1993.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Statement Regarding Computation of Earnings Per Share
(See Footnote 7 in "Notes to Unaudited Consolidated
Financial Statements")
(b) No reports on Form 8-K were filed during the quarter for which
this report was filed.
32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ST. FRANCIS CAPITAL CORPORATION
Dated: May 15, 2002 By: /s/ Jon D. Sorenson
-------------- ----------------------------
Jon D. Sorenson
Chief Financial Officer
33