10-Q 1 d10q5-701.txt BIG FOOT FINANCIAL CORP. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-21491 Big Foot Financial Corp. (Exact name of registrant as specified in its charter) ILLINOIS 36-410848-0 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1190 RFD, Long Grove, IL 60047-7304 (Address of principal executive offices) (Zip Code) (847) 634-2100 (Registrant's telephone number including area code) NA (Former name, former address and former fiscal year, if changed from last Report) 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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No ----- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. OUTSTANDING AT CLASS MAY 8, 2001 ----- --------------- Common Stock, Par Value $.01 1,575,668 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OF BIG FOOT FINANCIAL CORP. Consolidated Statements of Financial Condition (Unaudited) March 31, 2001 and June 30, 2000.............................. Page 3 Consolidated Statements of Earnings (Unaudited) - Three months and Nine months ended March 31, 2001 and 2000.... Page 4 Consolidated Statements of Cash Flows (Unaudited) - Nine months ended March 31, 2001 and 2000................................. Page 5 Notes to Unaudited Consolidated Financial Statements.......... Page 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................... Page 8 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... Page 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS............................................. Page 14 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................... Page 14 ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................... Page 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... Page 15 ITEM 5. OTHER INFORMATION............................................. Page 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. Page 15 SIGNATURES

(See accompanying notes to unaudited consolidated financial statements)

(See accompanying notes to unaudited consolidated financial statements)

(See accompanying notes to unaudited consolidated financial statements) BIG FOOT FINANCIAL CORP. AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of Big Foot Financial Corp. (the "COMPANY") and its wholly-owned subsidiary, Fairfield Savings Bank, F.S.B. (the "Bank") as of March 31, 2001 and June 30, 2000 and for the three and nine month periods ended March 31, 2001 and 2000. Material intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management the unaudited consolidated financial statements include all necessary adjustments, consisting of normal recurring accruals, necessary for a fair presentation for the periods presented. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2000, and the notes thereto included in the Company's 2000 Annual Report on Form 10-K. The Company believes that the disclosures are adequate to make the information presented not misleading; however, the results for the periods presented are not necessarily indicative of results to be expected for the entire 2001 fiscal year. (2) EARNINGS PER SHARE Basic earnings per share is calculated by dividing income available to common stock-holders by the weighted average number of common shares outstanding. Diluted earnings per share is calculated by dividing income available to common stockholders by the weighted average number of common shares adjusted for the dilutive effect of outstanding stock options. ESOP shares are only considered outstanding for earnings per share calculations when they are committed to be released. Presented below are the calculations for basic and diluted earnings per share:

(3) COMPREHENSIVE INCOME The Company's comprehensive income (loss) for the three and nine month periods ended March 31, 2001 and 2000 is as follows:

(4) DIVIDEND DECLARATION On February 20, 2001, the Board of Directors declared a quarterly dividend of $.05 per share, which was paid on March 15, 2001 to stockholders of record on February 28, 2001. (5) STOCK REPURCHASE PROGRAM In February 2001, the Board of Directors approved the repurchase of an additional 150,000 shares of the Company's outstanding common stock. The shares of common stock available for repurchase under the current repurchase program, together with shares of common stock previously repurchased, total approximately 40% of the total shares issued by the Company in the initial public offering. Repurchases will be made from time to time at the discretion of management. At March 31, 2001, 808,082 shares had been repurchased under all of the repurchase programs at an average cost of $12.47 per share and 208,017 shares remain to be repurchased under the current programs. Management continues to believe that stock repurchase programs are an effective capital management tool and provide enhanced value to both the Company and its stockholders. ITEM 2 ------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains certain forward looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include: changes in general, economic and market conditions; the development of an adverse interest rate environment that adversely affects the interest rate spread or other income anticipated from the Company's operations and investments; and depositor and borrower preferences. The Company disclaims any obligation to publically announce future events or developments which may affect the forward-looking statements contained herein. RECENT DEVELOPMENTS Effective March 31, 2001, George M. Briody, President and Chief Executive Officer, and F. Gregory Opelka, Executive Vice President, retired from the Company and the Bank. Mr. Briody will serve as the Chairman of the Board of Directors for both the Company and the Bank. Mr. Opelka will serve as a director for both the Company and the Bank. Effective March 31, 2001, the Company also entered into consulting agreements with Messrs. Briody and Opelka. Copies of the consulting agreements are attached as Exhibits 10.13 and 10.14, respectively to this Form 10-Q. Effective March 31, 2001, Timothy L. McCue was appointed the President and Chief Executive Officer of the Company and the Bank. Mr. McCue formerly served as the Senior Vice President and Chief Financial Officer of the Company and the Bank. In connection with Mr. McCue's appointment as President and Chief Executive Officer, the Company also adopted a Supplemental Pension Plan, a copy of which is attached as Exhibit 10.15 to this Form 10-Q. Effective March 31, 2001, Michael J. Cahill was appointed the Senior Vice President and Chief Financial Officer of the Company and the Bank. Mr. Cahill formerly served as the Vice President, Controller of the Company and the Bank. GENERAL The Company's principal business is its investment in the Bank, which is a community-oriented financial institution providing a variety of financial services to the communities which it serves. The Bank's principal business consists of gathering savings deposits from the general public within its market area and investing those funds primarily in mortgage loans secured by one- to four-family owner occupied properties, mortgage-backed securities and obligations of the U.S. Government. To a lesser extent, the Bank makes multifamily residential loans, commercial real estate loans, land, construction and development loans, consumer loans and commercial lines of credit. The Bank's revenues are derived principally from interest on mortgage loans and interest and dividends on investments, mortgage-backed securities and, to a much lesser extent, short-term investments. The Bank also derives income from fees and service charges. The Bank's primary sources of funds are savings deposits and, to a lesser extent, advances from the Federal Home Loan Bank of Chicago (the "FHLB"). The Bank does not have any subsidiaries. The selected financial ratios and other data of the Company set forth in the table on the next page are derived in part from, and should be read in conjunction with, the Unaudited Consolidated Financial Statements of the Company presented elsewhere in this report.

(1) Fairfield Savings Bank, FSB only. (2) Three and nine month results have been annualized. COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND JUNE 30, 2000 Total assets increased $2.1 million from $215.7 million at June 30, 2000 to $217.8 million at March 31, 2001. The components of the Company's asset base also changed from June 30, 2000 to March 31, 2001. Mortgage-backed securities ("MBS") (including both held-to-maturity and available-for-sale portfolios) decreased $13.1 million from $37.4 million at June 30, 2000 to $24.3 million at March 31, 2001. This decrease was primarily due to the receipt of $13.8 million in principal repayments during the nine month period. An increase of $7.6 million in loans receivable was the result of loan originations of $20.5 million which exceeded the $12.9 million of loan repayments. Interest earning deposits increased $6.2 million from $3.4 million at June 30, 2000 to $9.6 million at March 31, 2001, primarily from increased savings deposits. Investments securities are recorded at fair value and increased $1.3 million from $7.5 million at June 30, 2000 to $8.8 million at March 31, 2001. This increase was due to the purchase of $1.4 million of securities, and an increase of $1.0 million in market value which were offset by the sale of $1.1 million of securities. The net unrealized gain/(loss) in this portfolio is included as a component of accumulated other comprehensive income/(loss). The allowance for loan losses at March 31, 2001 and June 30, 2000 was $300,000. Management believes that the allowance for loan losses is adequate to cover any probable losses, and any losses reasonably expected in the loan portfolio. While management estimates loan losses using the best available information, no assurance can be made that future additions to the allowance will not be necessary. The ratio of the allowance for loan losses to total loans was 0.18% and 0.19% at March 31, 2001 and June 30, 2000, respectively. At March 31, 2001 and June 30, 2000, the ratio of the allowance for loan losses to non-performing loans was 267.86% and 120.48%, respectively. The Bank had one non-performing loan totaling approximately $112,000 at March 31, 2001 and two non-performing loans totaling approximately $249,000 at June 30, 2000. There were no loan chargeoffs during the nine month periods ended March 31, 2001 and 2000. Savings deposits increased $10.2 million from June 30, 2000 to March 31, 2001; during this time, borrowed funds decreased by $9.0 million. Interest bearing NOW accounts declined $884,000 primarily due to a $1.7 million decrease in government entity deposits, as such balances tend to fluctuate during the year. Passbook savings were $37.3 million at March 31, 2001 compared to $37.4 million at June 30, 2000. Certificates of deposit accounts increased $13.0 million to $64.8 million at March 31, 2001. During the year, the Bank offered a special CD program which attracted approximately $11.5 million of new certificates of deposit. Stockholders' equity at March 31, 2001 was $30.0 million or $1.4 million greater than at June 30, 2000. This increase includes net income of $632,000 and an increase in value of the available-for-sale portfolio of $1.2 million (net of tax) which were offset by treasury stock purchases of $513,000 and dividends declared of $238,000. The Company's book value was $17.58 per share at March 31, 2001 compared to $16.40 per share at June 30, 2000, an increase of $1.18. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 GENERAL. For the three months ended March 31, 2001, net income was $275,000 or $0.17 basic and diluted earnings per share, compared to $119,000 or $0.06 basic and diluted earnings per share for the three months ended March 31, 2000. INTEREST INCOME. Interest income was $3.6 million for the three months ended March 31, 2001 compared to $3.4 million for the three months ended March 31, 2000. The average balance of interest-earning assets increased $8.2 million from $201.4 million for the three months ended March 31, 2000 to $209.6 million for the three months ended March 31, 2001. The average yield on the Bank's interest-earning assets increased 13 basis points from 6.78% for the three months ended March 31, 2000 to 6.91% for the three months ended March 31, 2001. INTEREST EXPENSE. Interest expense increased $278,000 and was $2.1 million for the three months ended March 31, 2001 compared to $1.8 million for the three months endend March 31, 2000. The average rate paid on interest-bearing liabilities increased 48 basis points from 4.41% for the three months ended March 31, 2000 to 4.89% for the three months ended March 31, 2001. The average balance of interest-bearing liabilities increased $7.9 million to $176.9 million for the three months ended March 31, 2001 from $169.0 million for the three months ended March 31, 2000. The increase in the cost of average interest-bearing liabilities resulted primarly from the renewal of maturing certificates of deposit and borrowed funds at higher rates. NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income before provision for loan losses was $1.5 million for the three months ended March 31, 2001 and $1.6 million for the three months ended March 31, 2000. The average interest rate spread decreased 35 basis points from 2.37% for the three months ended March 31, 2000 to 2.02% for the comparable period in 2001. Net interest margin decreased 30 basis points and was 2.78% for the three months ended March 31, 2001. PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the three months ended March 31, 2001 or for the comparable period in 2000. See "Comparison of Financial Condition at March 31, 2001 and June 30, 2000." NONINTEREST INCOME. Noninterest income was $232,000 for the three months ended March 31, 2001, compared to $65,000 for the three months ended March 31, 2000. The increase was primarly due to a $149,000 gain on the sale of available-for-sale investment securities during the quarter ended March 31, 2001. NONINTEREST EXPENSE. Noninterest expense decreased $102,000 from $1.4 million for the three months ended March 31, 2000 to $1.3 million for the three months ended March 21, 2001. Compensation and benefits expense decreased $8,000 to $767,000 for the quarter ended March 31, 2001 due to decreased staffing levels which was partially offset by increased salaries of all employees and increased costs of stock incentive employee benefits. Professional services expense for the quarter ended March 31, 2001 was $107,000 as compared to $212,000 for the quarter ended March 31, 2000. This decrease was primarily due to a reduction in legal fees incurred in a suit to recover damages in a real estate development known as The Trails of Olympia Fields. A trial date has been set for May, 2001. INCOME TAX EXPENSE. Income tax expense increased $42,000 from $65,000 for the three months ended March 31, 2000 to $107,000 for the three months ended March 31, 2001.This increase was partially due to an increase of $198,000 in pre-tax income. The effective tax rate was 28.0% for the three months ended March 31, 2001 and 35.3% for the three month period ended March 31, 2000. The decrease in the effective tax rate was primarily due to an increase in the dividends received deduction recorded in fiscal year 2001 for dividends received on certain of the Company's investments in preferred stock. COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 2001 AND 2000 GENERAL. For the nine months ended March 31, 2001, net income was $632,000 or $0.39 basic and diluted earnings per share, compared to $409,000 or $0.20 basic and diluted earnings per share for the nine months ended March 31, 2000. INTEREST INCOME. Interest income was $10.8 million for the nine months ended March 31, 2001, compared to $10.2 million for the nine months ended March 31, 2000. The average balance of interest-earning assets increased $3.9 million from $203.1 million for the nine months ended March 31, 2000 to $207.0 million for the nine months ended March 31, 2001. The average yield on the Bank's interest-earning assets increased 27 basis points from 6.69% for the nine months ended March 31, 2000 to 6.96% for the nine months ended March 31, 2001. INTEREST EXPENSE. Interest expense increased $859,000 to $6.3 million for the nine months ended March 31, 2001 as compared to $5.5 million for the same period in 2000. The average rate paid on interest-bearing liabilities increased 50 basis points from 4.33% for the nine months ended March 31, 2000 to 4.83% for the nine months ended March 31, 2001. The average balance of interest-bearing liabilities increased $6.8 million to $175.2 million for the nine months ended March 31, 2001 from $168.4 million for the nine months ended March 31, 2000. The increase in the cost of average interest-bearing liabilities resulted primarily from the renewal of maturing certificates of deposit and borrowed funds at higher rates. NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income before provision for loan losses decreased $254,000 and was $4.5 million for the nine months ended March 31, 2001 and $4.7 million for the comparable period in 2000. The average interest rate spread decreased 23 basis points from 2.36% for the nine months ended March 31, 2000 to 2.13% for the nine months ended March 31, 2001. Net interest margin decreased 22 basis points from 3.09% for the nine months ended March 31, 2000 to 2.87% for the nine months ended March 31, 2001. PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the nine months ended March 31, 2001 and for the comparable period in 2000. See "Comparison of Financial Condition at March 31, 2001 and June 30, 2000." NONINTEREST INCOME. Noninterest income was $397,000 for the nine months ended March 31, 2001 compared to $228,000 for the nine months ended March 31, 2000. The increase was primarly due to a $149,000 gain on the sale of certain available-for-sale investment securities during the nine months ended March 31, 2001. NONINTEREST EXPENSE. Noninterest expense decreased $295,000 from $4.3 million for the nine months ended March 31, 2000 to $4.0 million for the nine months ended March 31, 2001. Compensation and benefits expense decreased $97,000 to $2.2 million for the nine months ended March 31, 2001 due to decreased staffing levels which was partially offset by increased salaries of all employees and increased costs of stock incentive employee benefits. Professional services expense for the nine months ended March 31, 2001 was $414,000 as compared to $540,000 for the nine months ended March 31, 2000. This decrease was primarily due to a reduction in legal fees incurred in a suit to recover damages in a real estate development known as The Trails of Olympia Fields. A trial date has been set for May, 2001. Office occupancy expense was $795,000 for the nine months ended March 31, 2001, compared to $848,000 for the same period in 2000. This decrease was primarily due to a decrease in depreciation expense in the current fiscal year due to some equipment being fully depreciated. INCOME TAX EXPENSE. Income tax expense decreased $13,000 from $232,000 for the nine months ended March 31, 2000 to $219,000 for the nine months ended March 31, 2001. The effective tax rate was 25.7% for the nine months ended March 31, 2001 and 36.2% for the nine month period ended March 31, 2000. The decrease in the effective tax rate was primarily due to an increase in the dividends received deduction recorded in fiscal year 2001 for dividends received on certain of the Company's investments in preferred stock. LIQUIDITY AND CAPITAL RESOURCES The Bank's primary sources of funds are savings deposits, principal and interest payments on loans and mortgage-backed securities, and borrowings from the Federal Home Loan Bank ("FHLB"). While maturities and scheduled amortization of loans and mortgage-backed securities provide an indication of the timing of the receipt of funds, changes in interest rates, economic conditions and competition strongly influence mortgage prepayment rates and savings deposit flows, reducing the predictability of the timing of sources of funds. Congress eliminated the statutory liquidity which required federal savings associations to maintain a minimum amount of liquid assets of between four and ten percent, as determined by the Director of the Office of Thrift Supervision ("OTS"), the Bank's primary federal regulator. The OTS recently conformed its implementing regulations to reflect this statutory change. Under the revised regulations, which became effective March 15, 2001, the Bank is required to maintain sufficient liquidity to ensure its safe and sound operation. At March 31, 2001, the Bank's liquidity ratio was 26.31%. The Bank's liquidity ratio is high due to the amount of mortgage-backed-securities held in the Bank's investment portfolio with a stated maturity of less than five years. The levels of the Bank's short-term liquid assets are dependent on the Bank's operating, financing and investing activities during any given period. The primary investing activities of the Bank during the nine months ended March 31, 2001 were the origination of mortgage and other loans. See the "Consolidated Statements of Cash Flows" in the Unaudited Consolidated Financial Statements included in this Form 10-Q for the sources and uses of cash flows for operating activities and financing activities for the nine months ended March 31, 2001 and 2000. At March 31, 2001, the Bank had outstanding loan origination commitments of $4.1 million and unused lines of consumer credit of $628,000. The Bank anticipates that it will have sufficient funds available to meet its current origination and other lending commitments. Certificates of deposit scheduled to mature in one year or less from March 31, 2001 totaled $31.1 million. Based upon the Bank's most recent pricing strategy, management believes that a significant portion of such deposits will remain with the Bank. Management believes it will have adequate resources to fund all commitments on a short term and long term basis in accordance with its business strategy. At March 31, 2001, the Bank exceeded all of its regulatory capital requirements with a tangible capital level of $22.1 million, or 10.43% of total adjusted assets, which is above the required level of $3.2 million or 1.50%; core capital of $22.1 million, or 10.43% of total adjusted assets, which is above the required level of $6.3 million or 3.00%; and total risk-based capital of $22.4 million, or 22.78% of risk-weighted assets, which is above the required level of $7.9 million, or 8.00%. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There has been no material change in market risk since that disclosed in Item 7A of the Company's Form 10-K for the year ended June 30, 2000. PART II OTHER INFORMATION ITEM 1. Legal Proceedings None 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 None ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibit No. 10.13 Consulting Agreement between Big Foot Financial Corp. and George M. Briody 10.14 Consulting Agreement between Big Foot Financial Corp. and F. Gregory Opelka 10.15 Supplemental Pension Plan of Big Foot Financial Corp. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K with the Securities and Exchange Commission on March 20, 2001 to report, under Item 5 - Other Events, the retirement of George M. Briody and F. Gregory Opelka, the Company's and the Bank's President and Chief Executive Officer; and Executive Vice President, respectively, effective March 31, 2001. The Company also reported the appointment of Timothy L. McCue as the Company's and the Bank's President and Chief Executive Officer and Michael Cahill as the Company's and the Banks's Senior Vice President and Chief Financial Officer. No financial statements were filed with this Form 8-K. SIGNATURES 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. BIG FOOT FINANCIAL CORP. (Registrant) By: /s/Michael J. Cahill ----------------------------- Michael J. Cahill Senior Vice President and Chief Financial Officer May 8, 2001

BIG FOOT FINANCIAL CORP 10-Q