SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------- ----------
Commission File No. 0-27606
WHG Bancshares Corporation
--------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 52-1953867
- ----------------------- ----------
(State of incorporation (I.R.S. employer
or organization) identification no.)
1505 York Road, Lutherville, Maryland 21093
- ------------------------------------- ----------
(Address of principal executive offices) (zip code)
(410) 583-8700
--------------
Issuer"s telephone number, including area code
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock outstanding as of July 29, 1997: 1,462,107
Transitional Small Business Disclosure Format (check one)
YES NO X
--- ---
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
Contents
--------
<TABLE>
<CAPTION>
Pages
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PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements.........................................................................................3
Consolidated statements of financial condition at June 30, 1997
(unaudited) and September 30, 1996...............................................................................3
Consolidated statements of operations (unaudited) for six months and three months
Ended June 30, 1997 and June 30, 1996............................................................................4
Consolidated statements of cash flows (unaudited) for the six months
Ended June 30, 1997 and June 30, 1996..........................................................................5-6
Notes to financial statements..................................................................................7-8
Item 2. Management's Discussion and Analysis or Plan of Operation.................................................9-18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...........................................................................................19
Item 2. Changes in Securities.......................................................................................19
Item 3. Defaults upon Senior Securities.............................................................................19
Item 4. Submission of Matters to a Vote of Security-Holders.........................................................19
Item 5. Other Information...........................................................................................19
Item 6. Exhibits and Reports on Form 8-K............................................................................19
Signatures.................................................................................................................20
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
June 30 September 30,
------- -------------
1997 1996
---- ----
(Unaudited)
Assets
------
<S> <C> <C>
Cash $ 617,600 $ 1,583,482
Interest bearing deposits in other banks 3,215,642 4,076,776
Federal funds sold 4,455,528 2,427,851
Securities purchased under agreements to resell - 2,000,000
Other investments - fair value ($4,442,189 and
$2,385,000, respectively) 4,500,000 2,500,000
Mortgage backed securities - fair value ($2,830,145
and $2,884,212, respectively) 2,908,822 3,021,998
Loans receivable - net 79,454,062 75,736,786
Accrued interest receivable - loans 390,216 373,792
- investments 122,516 62,755
- mortgage backed
securities 16,366 17,030
Premises and equipment - net 705,535 734,443
Federal Home Loan Bank of Atlanta stock, at cost 753,200 682,800
Investment in and loans to affiliated corporation 2,875,000 2,825,000
Prepaid income taxes 5,198 5,198
Deferred income taxes 71,431 273,589
Other assets 144,222 206,614
----------- -----------
Total assets $100,235,338 $ 96,528,114
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- -----------
Deposits $ 73,431,719 $ 72,100,572
Federal Home Loan Bank advance 4,000,000 -
Advance payments by borrowers for taxes
and insurance 1,954,662 322,610
Income taxes payable 35,112 237,456
Other liabilities 110,135 621,419
----------- -----------
Total liabilities 79,531,628 73,282,057
Commitments and contingencies
Stockholders' Equity
- --------------------
Common stock $.10 par value; authorized
shares; issued and outstanding 1,462,107 and
1,620,062 shares 146,211 162,006
Additional paid-in capital 12,407,093 15,403,857
Retained earnings (substantially restricted) 9,284,441 8,911,434
----------- -----------
21,837,745 24,477,297
Employee Stock Ownership Plan Obligation (1,134,035) (1,231,240)
----------- -----------
Total stockholders' equity 20,703,710 23,246,057
----------- -----------
Total liabilities and stockholders' equity $100,235,338 $ 96,528,114
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-3-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
Lutherville, Maryland
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For Nine Months Ended For Three Months Ended
--------------------- ----------------------
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and fees on loans $4,432,860 $4,313,117 $1,507,575 $1,456,782
Interest on mortgage backed securities 150,645 97,509 49,536 52,288
Interest and dividends on investment
securities 283,001 110,360 112,811 56,077
Other interest income 396,261 420,459 131,166 199,857
--------- --------- --------- ---------
Total interest income 5,262,767 4,941,445 1,801,088 1,765,004
Interest on deposits 2,381,083 2,566,388 801,418 811,486
Interest on short-term borrowings 106,359 24,592 62,210 2,764
--------- --------- --------- ---------
Total interest expense 2,487,442 2,590,980 863,628 814,250
--------- --------- --------- ---------
Net interest income 2,775,325 2,350,465 937,460 950,754
Provision for loan losses 45,644 41,786 15,000 15,000
--------- --------- --------- ---------
Net interest income after provision for
loan losses 2,729,681 2,308,679 922,460 935,754
Non-Interest Income
- -------------------
Fees and charges on loans 22,464 21,921 7,842 8,381
Fees on transaction accounts 34,812 37,830 12,491 13,713
Other income 33,627 45,861 9,513 11,591
--------- --------- --------- ---------
Total non-interest income 90,903 105,612 29,846 33,685
Non-Interest Expenses
- ---------------------
Salaries and related expenses 1,160,888 879,563 358,313 304,354
Occupancy 122,256 108,638 37,961 36,757
SAIF deposit insurance premium 56,477 131,069 11,624 42,736
Depreciation of equipment 35,849 53,744 11,960 16,225
Advertising 32,706 33,316 15,831 8,610
Data processing costs 56,662 57,795 18,408 18,430
Other expenses 377,205 266,774 120,574 99,072
--------- --------- --------- ---------
Total non-interest expenses 1,842,043 1,530,899 574,671 526,184
--------- --------- --------- ---------
Income before tax provision 978,541 883,392 377,635 443,255
Provision for income taxes 389,214 337,565 146,325 167,583
--------- --------- --------- ---------
Net income $ 589,327 $ 545,827 $ 231,310 $ 275,672
========= ========= ========= ==========
Net income per share $ .41 $ N/A $ .17 $ N/A
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral partof these statements.
-4-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
For Nine Months Ended
---------------------
June 30, June 30,
-------- --------
1997 1996
---- ----
<S> <C> <C>
Operating Activities
- --------------------
Net income $ 589,327 $ 545,827
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
-------------------------------------
Amortization of discount on mortgage backed
securities (619) (386)
Amortization of deferred loan fees (134,094) (134,670)
Loan fees deferred 64,491 193,337
Decrease in discount on loans purchased (15,749) (20,349)
Other amortization - (30,675)
Provision for loan losses 45,644 41,786
Non-cash compensation under stock-based
benefit plans 248,806 -
Increase in accrued interest receivable (75,521) (85,255)
Provision for depreciation 45,185 61,438
(Increase) decrease in deferred income tax 202,158 (16,603)
Increase in prepaid income taxes - (16,699)
Decrease in other assets 62,392 52,879
Decrease in accrued interest payable (1,647) (3,167)
(Decrease) increase in income taxes payable (202,344) 20,368
Decrease in other liabilities (511,284) (21,170)
---------- ----------
Net cash provided by operating activities 316,745 586,661
Cash Flows from Investment Activities
- -------------------------------------
Proceeds from maturing interest bearing deposits 683,000 1,076,000
Purchases of interest bearing deposits (295,000) (392,000)
Decrease in securities purchased under an
agreement to resell 2,000,000 -
Proceeds from maturing other investments 1,000,000 525,000
Purchase of other investments (3,000,000) (8,469,375)
Purchase of mortgage backed securities - (2,614,902)
Principal collected on mortgage backed securities 113,795 94,163
Net increase in shorter term loans (126,398) (246,571)
Longer term loans originated or acquired (8,317,894) (16,319,043)
Principal collected on longer term loans 4,766,724 11,881,343
Investment in premises and equipment (16,277) (1,653)
Purchase of stock in Federal Home Loan Bank
of Atlanta (70,400) (3,000)
(Increase) decrease on investment in and loans
to joint ventures (50,000) 150,000
---------- ----------
Net cash used by investment activities (3,312,450) (14,320,038)
</TABLE>
-5-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
For Nine Months Ended
---------------------
June 30, June 30,
-------- --------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Financing Activities
- ------------------------------------
Net increase in demand deposits, money
market, passbook accounts and advances by
borrowers for taxes and insurance $ 1,403,341 $ 952,443
Net increase (decrease) in certificates of deposit 1,561,501 (3,215,973)
Net increase in short-term borrowings 4,000,000 -
Sale of common stock - 15,561,004
Employee Stock Ownership Plan Obligation - (1,296,040)
Management Stock Bonus Plan (882,927) -
Dividends on stock (216,315) -
Stock redemption (2,281,234) -
---------- ----------
Net cash provided by financing activities 3,584,366 12,001,434
---------- ----------
Increase (decrease) in cash and cash equivalents 588,661 (1,731,943)
Cash and cash equivalents at beginning of period 7,305,109 7,880,281
---------- ----------
Cash and cash equivalents at end of period $ 7,893,770 $ 6,148,338
========== ==========
The following is a Summary of Cash and Cash Equivalents:
- --------------------------------------------------------
Cash $ 617,600 $ 1,120,890
Interest bearing deposits in other banks 3,215,642 3,021,271
Federal funds sold 4,455,528 2,398,177
---------- ----------
Balance of cash items reflected on
Statement of Financial Condition 8,288,770 6,540,338
Less - certificates of deposit with original maturities of more than
three months that are included in interest
bearing deposits in other banks 395,000 392,000
---------- ----------
Cash and cash equivalents reflected on the
Statement of Cash Flows $ 7,893,770 $ 6,148,338
========== ==========
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
Cash paid during the year for:
Interest $ 2,489,089 $ 2,594,147
========== ==========
Taxes $ 390,500 $ 344,000
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-6-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
Note 1 - Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts
of WHG Bancshares Corporation ("the Company") and its wholly-owned
subsidiary, Heritage Savings Bank, F.S.B. ("the Bank") and the Bank's
subsidiary, Mapleleaf Mortgage Corporation. All intercompany accounts
and transactions have been eliminated in the accompanying consolidated
financial statements.
Note 2 - Business
--------
The Bank's primary business activity is accepting deposits
from the general public and using the proceeds for investments and
loan originations. The Bank is subject to the regulations of certain
federal agencies and undergoes periodic examinations by those
regulatory authorities.
Note 3 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with
the instructions to Form 10-QSB. Accordingly, they do not include all
of the disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of the
results of operations for the interim periods presented have been
made. Such adjustments were of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative
of the results that may be expected for the entire fiscal year.
Note 4 - Cash Flow Presentation
----------------------
For purposes of the statements of cash flows, cash and cash
equivalents include cash and amounts due from depository institutions,
investments in federal funds, and certificates of deposit with
maturities of 90 days or less.
Note 5 - Earnings Per Share
------------------
Earnings per share of common stock for the nine and three
months ended June 30, 1997 is computed by dividing net income by
1,453,865 and 1,372,881, respectively, the weighted average number of
shares of common stock outstanding for the nine and three months.
Included in this amount for the Employee Stock Ownership Plan are only
the shares that have been allocated.
Earnings per share amounts for the nine and three month periods
ended June 30, 1996 have not been presented because the Bank had not
converted to stock form as of December 31, 1995.
-7-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
- -----------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------
Note 6 - Reclassification
----------------
Certain prior periods' amounts have been reclassified to conform
to the current period's method of presentation.
Note 7 - Recent Accounting Pronouncements
--------------------------------
FASB Statement on Earnings Per Share - In February 1997, the
Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128, which will become effective
for financial statements for both interim and annual periods ending
after December 15, 1997. This Statement establishes standards for
computing and disclosing earnings per share for public companies with
common stock or potential common stock. The impact of adopting this
statement is not expected to be material to the Corporation's
consolidated financial statements.
-8-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2
Financial Condition
Total assets of the Corporation were $100,235,338 as of June 30, 1997,
compared to $96,528,114 as of September 30, 1996, an increase of $3,707,224 or
3.84%. The increase was primarily attributable to an increase in other
investments of $2,000,000 or 80% and an increase in loans of $3,717,276 or
4.91%. Increases were offset by a decrease in securities purchased under
agreements to resell of $2,000,000 or 100%.
Total liabilities of the Corporation were $79,531,628 as of June 30,
1997, compared to $73,282,057 as of September 30, 1996, an increase of
$6,249,571 or 8.53%. The increase was due to an increase in Federal Home Loan
Bank of Atlanta advances of $4,000,000 and an increase in advance payments by
borrowers for taxes and insurance of $1,632,052. Deposits also increased by
$1,331,147 or 1.85% for the nine month period ended June 30, 1997. The increases
were partially offset by a decrease in income taxes payable of $202,344 and a
decrease in other liabilities of $511,284.
Stockholders' equity was $20,703,710 as of June 30, 1997, compared to
$23,246,057 as of September 30, 1996, a decrease of $2,542,347 or 10.94%. The
decrease was primarily the result of the Bank repurchasing 157,955 shares of
common stock for approximately $2,300,000. The Bank also funded $845,000 for
64,802 common shares for the Trust of the Management Stock Bonus Plan ("MSBP").
The decreases were also affected by the payment of dividends of $216,315 and
were offset by net income of $589,327 for the nine month period ended June 30,
1997.
-9-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
General
Net income for the nine and three months ended June 30, 1997 was
$589,327 and $231,310, respectively, as compared to $545,827 and $275,672 for
the same period in 1996, an increase of $43,500 or 7.97% and a decrease of
$44,362 or 16.09% for the nine and three month periods, respectively. An
increase in net interest income in excess of an increase in non-interest expense
primarily accounted for the increase in the nine month period while a decrease
in net interest income and an increase in non-interest expense were the primary
reasons for the decline for the three month period.
Net interest income for the nine and three months ended June 30, 1997
was $2,775,325 and $937,460, respectively, as compared to $2,350,465 and
$950,754 for the same periods in 1996, an increase of $424,860 or 18.08% for the
nine month period ended June 30, 1997 and a decrease of $13,294 or 1.40% for the
three month period ended June 30, 1997. The increase in the net interest income
for the nine month period ended June 30, 1997 was attributable to an increase of
$6,368,367 in the average interest-earning assets, partially offset by an
increase in average interest-bearing liabilities of $928,563. The decline in net
interest income for the three month period ended June 30, 1997 was attributable
to greater interest expense from Federal Home Loan Bank advances and smaller
average balances of other interest-earning assets held.
The Savings Bank's net interest income is sensitive to changes in
interest rates, as the rates paid on its interest-bearing liabilities generally
change faster than the rates earned on interest-earning assets. As a result, net
interest income will frequently decline in periods of rising interest rates.
-10-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Interest Income
Total interest income for the nine and three months ended June 30, 1997
was $5,262,767 and $1,801,088, respectively, compared to $4,941,445 and
$1,765,004 for the same periods in 1996, an increase of $321,322 or 6.50% and
$36,084 or 2.04%, respectively. Interest and fees on loans increased by $119,743
or 2.78% and $50,793 or 3.49% for the nine and three months ended June 30, 1997,
compared to the same respective periods in 1996. Interest and fees on loans
increases were attributable to higher average balances of loans receivable held
of $7,079,567 and $5,806,640 for the nine and three month periods ended June 30,
1997, compared to the same periods for 1996. Increases in interest and fees on
loans were offset by a decline in the yield by 52 basis points and 32 basis
points for the nine and three month periods ended June 30, 1997, from the same
periods in 1996. Interest income on mortgage backed securities increased by
$53,136 or 54.49% for the nine month period ended June 30, 1997, compared to the
same period for 1996, because the average balance for the respective period
increased by $899,017 in 1997. Interest income on mortgage backed securities for
the three month period ended June 30, 1997 decreased by $2,752, because of a
decline in average balances held of $155,071 from the same period in 1996.
Interest and dividends on investments increased by $172,641 or 156.43%
and $56,734 or 101.17% to $283,001 and $112,811 for the nine and three month
periods ended June 30, 1997, as compared to $110,360 and $56,077 for the same
periods in 1996. The increase was attributable to a rise in both rates and
average balances of investments held for the nine and three month periods ended
June 30, 1997. Interest earned on other assets was $396,261 and $131,166 for the
nine and three month periods ended June 30, 1997, respectively, a decrease of
$24,198 or 5.76% and $68,691 or 34.37% from the same period in 1996. The
decrease was attributable to significant declines in the average balances of
other interest-earning assets held in 1997, compared to those balances held for
the same period in 1996.
The weighted average yield on interest-earning assets was 7.34% and
7.37% for the nine and three month periods ended June 30, 1997, as compared to
7.39% and 7.44% for the same periods in 1996.
-11-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Interest Expense
Total interest expense for the nine and three month periods ended June
30, 1997 was $2,487,442 and $863,628, compared to $2,590,980 and $814,250 for
the same respective periods in 1996, a decrease of $103,538 or 4.00% for the
nine month period and an increase of $49,378 or 6.06% for the three month
period. Total interest expense decreased for the nine month period ended June
30, 1997, compared to the same nine month period in 1996, because the average
rates paid on deposits declined by 24 basis points.
The increase for the three month period was attributable to an increase
in interest paid for short-term borrowing, as the Bank borrowed $4,000,000 from
the Federal Home Loan Bank of Atlanta to fund loans and investments.
The weighted average rates paid on interest-bearing liabilities were
4.43% and 4.41% for the nine and three month periods ended June 30, 1997,
respectively, as compared to 4.67% and 4.48% for the same periods in 1996.
Provision for Loan Losses
The provision for loan losses for the nine and three month periods ended
June 30, 1997 was $45,644 and $15,000 respectively, as compared to $41,786 and
$15,000 for the same periods in 1996. The amount increased by $3,858 or 9.23%
for the nine month period and did not change for the three month period.
Management monitors and adjusts its loan loss reserves based upon its analysis
of the loan portfolio and the relative status of the real estate market and the
economy in general. The Corporation has historically experienced a limited
amount of loan charge-offs and delinquencies. At June 30, 1997, the allowance
represented .30% of total loans receivable. The allowance for loan losses as a
percentage of loans delinquent ninety days or more was 80.54%.
-12-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Other Non-Interest Income
Other income for the nine and three month periods ended June 30, 1997
was $90,903 and $29,846, respectively, compared to $105,612 and $33,685 for the
same respective periods in 1996, decreases of $14,709 or 13.93% and $3,839 and
11.40%. The decrease was a result in a decline in miscellaneous income from a
prior period, as the Bank recovered approximately $10,000 from insurance for
storm damage to telephone equipment for the period ended June 30, 1996. Fees on
transactions accounts decreased by 7.98% and 8.91% for the nine and three month
periods ended June 30, 1997, compared to those same periods in 1996.
Non-Interest Expense
Total non-interest expense for the nine and three months ended June 30,
1997 were $1,842,043 and $574,671, respectively, compared to $1,530,899 and
$526,184 for the same respective periods in 1996, increases of $311,144 or
20.32% and $48,487 and 9.21%. Salaries and related expenses increased
considerably to $1,160,888 and $358,313 for the nine and three month periods
ended June 30, 1997, an increase of $281,325 or 31.98% and $53,959 or 17.73%
from $879,563 and $304,354 for the nine and three month periods ended June 30,
1996. The increase is due to compensation related to the organization's Employee
Stock Ownership Plan (ESOP) and Management Stock Bonus Plan (MSBP). These
expenses are expected to continue to increase in future periods as a result of
increases in those benefits. Professional services increased primarily as a
direct result of the stock conversion, which resulted in additional services
being required for filings with the Securities and Exchange Commission and also
with the implementation of the ESOP and MSBP. Increases in other expenses were
offset by decreases in deposit insurance premiums to $56,477 and $11,624 for the
nine
-13-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Non-Interest Expense - Continued
and three month period ended June 30, 1997, respectively, a decrease of $74,592
or 56.91% and $31,112 or 72.80% from $131,069 and $42,736 for the same
respective periods in 1996. The rate of SAIF deposit insurance premiums declined
by approximately 70% from the rate in effect to December 31, 1996.
Income Taxes
The Corporation's income tax expense increased for the nine months ended
June 30, 1997 to $389,214 from $337,565 at June 30, 1996, an increase of $51,649
or 15.30%. The change is attributed to greater pretax income.
Liquidity and Capital Resources
The Corporation is required by OTS regulations to maintain, for each
calendar month, a daily average balance of cash and eligible liquid investments
of not less than 5% of the average daily balance of its net withdrawable savings
and borrowings (due in one year or less) during the preceding calendar month.
This liquidity requirement may be changed from time to time by the OTS to any
amount within the range of 4% to 10%. The Savings Bank's liquidity ratio was
9.54% at June 30, 1997 and 10.5% at September 30, 1996.
The Bank's sources of liquidity have historically included principal and
interest payments on loans and securities, maturities of investment securities,
deposit inflows, collateralized borrowings from the FHLB of Atlanta and
operations. The Bank invests excess funds in overnight deposits, which not only
serve as liquidity, but also earn interest as income until funds are needed to
meet required loan funding.
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
savings and loan industry and similar matters. For the nine month period ended
June 30, 1997,
-14-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
management used a portion of cash flows from Federal Home Loan Bank advances,
securities purchased under agreement to resell and cash to fund loan
originations and deposit outflows. Management believes it has ample cash flows
and liquidity to meet its loan commitments in the amount of $2,246,000 as of
June 30, 1997. The Bank has the ability to reduce its commitments for new loan
originations and to adjust other cash outflows.
Under the regulatory capital requirements of the Office of Thrift
Supervision ("OTS"), savings banks are required to maintain minimal capital
requirements by satisfying three capital standards: a tangible capital
requirement, a leverage ratio requirement and a risk-based capital requirement.
Under the tangible capital requirement, the Bank's tangible capital (the amount
of stock and retained earnings computed under generally accepted accounting
principles) must be equal to 1.5% of adjusted total assets. Under the leverage
ratio requirement, the Bank's core capital must be equal to 3.0% of adjusted
total assets. In addition, under the risk-based capital requirement, the Bank
must maintain core and supplemental capital (core capital plus any general loss
reserves) equal to 8% of risk-weighted assets (total assets plus
off-balance-sheet items multiplied by the appropriate risk weights).
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of
1991 was signed into law on December 19, 1991, and regulations implementing the
prompt corrective action provisions became effective on December 12, 1992. The
prompt corrective action regulations define specific capital categories based on
an institution's capital ratios. The capital categories, in declining order, are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized". Institutions categorized
as "undercapitalized" or lower are subject to certain restrictions, including
the requirement to file a capital plan with its primary federal regulator,
prohibitions
-15-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
on the payment of dividends and management fees, restrictions on executive
compensation, and increased supervisory monitoring, among other things. To be
considered "well capitalized," an institution must generally have a leverage
capital ratio of at least 5%, a tier one risk-based capital ratio of at least 6%
and a total risk-based capital ratio of at least 10%. At June 30, 1997, the Bank
met the criteria required to be considered "well capitalized" under this
regulation.
The following table presents the Bank's capital position based on the
June 30, 1997 financial statements.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------ ----------------- -----------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Tangible (1) $15,106,625 15.11% $ 1,499,274 1.50% $ N/A N/A
Tier I capital (2) 15,106,625 31.76% N/A N/A 2,854,020 6.00%
Core (1) 15,106,625 15.11% 2,998,549 3.00% 4,997,581 5.00%
Risk-weighted (2) 15,341,625 32.25% 3,805,360 8.00% 4,756,700 10.00%
</TABLE>
(1) To adjusted total assets.
(2) To risk-weighted assets.
The following table presents the calculation of risk-based capital and
tangible assets used to determine the Bank's capital position.
<TABLE>
<CAPTION>
Current Requirements
--------------------
<S> <C>
Total stockholders' equity $ 20,703,710
Less: Non-allowable items
Equity of parent company 5,595,085
Goodwill and other intangible assets 2,000
Tangible and core capital 15,106,625
------------
General valuation allowance 235,000
------------
Risk-based capital $ 15,341,625
============
Total assets $100,235,338
Less: Non-includable
Asset of parent company 281,712
Goodwill and other intangible assets 2,000
------------
Tangible and adjusted tangible assets $ 99,951,626
============
Risk-weighted assets $ 47,567,000
============
</TABLE>
-16-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
The OTS has adopted an interest rate component to the regulatory capital
requirements. The rule requires additional capital to be maintained if the
Bank's interest rate risk exposure, measured by the decline in the market value
of the Bank's net portfolio value, exceeds 2% of assets as a result of a 200
basis point shift in interest rates. As of June 30, 1997, the rule is not yet in
effect and the Bank is not subject to the interest rate risk requirement.
For the purpose of granting to eligible savings account holders a
priority in the event of future liquidation, the Bank established a special
account at the time of conversion to the stock form of ownership in an amount
equal to its total retained earnings at December 31, 1995. In the event of
future liquidation of the Bank (and only in such an event), an eligible account
holder who continues to maintain his savings account shall be entitled to
receive a distribution from the special account. The amount of the special
account will be decreased in an amount proportionately corresponding to
decreases in the savings account balances of eligible account holders on each
subsequent annual determination date. The balance of the special account at June
30, 1997 is included in retained earnings. No dividends may be paid to the
stockholders if such dividends would reduce regulatory capital of the Bank below
the amount required for the special account.
OTS regulations limit the payment of dividends and other capital
distributions by the Bank. The Bank is able to pay dividends during a calendar
year without regulatory approval to the extent of the greater of (i) an amount
which will reduce by one-half its surplus capital ratio at the beginning of the
year plus all its net income determined on the basis of generally accepted
accounting principles for that calendar year or (ii) 75% of net income for the
last four calendar quarters.
-17-
<PAGE>
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
The Bank is restricted in paying dividends on its stock to the greater
of the restrictions described in the preceding paragraph, or an amount that
would reduce its retained earnings below its regulatory capital requirement, the
accumulated bad debt deduction, or the liquidation account described in the
second preceding paragraph.
-18-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The registrant is not engaged in any legal proceedings at the
present time. From time to time, the Bank is a party to legal
proceedings within the normal course of business wherein it
enforces its security interest in loans made by it, and other
matters of a like kind.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable.
(b) Information provided in last Form 10-QSB filed.
-19-
<PAGE>
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.
WHG Bancshares Corporation
Date: July 29, 1997 By: /s/Peggy J. Stewart
-------------------
Peggy J. Stewart
President and Chief Executive Officer
(duly authorized officer)
Date: July 29, 1997 By: /s/Robin L. Taylor
------------------
Robin L. Taylor
Controller (chief accounting officer)
-20-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 618
<INT-BEARING-DEPOSITS> 3,216
<FED-FUNDS-SOLD> 4,456
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 4,500
<INVESTMENTS-MARKET> 4,442
<LOANS> 79,454
<ALLOWANCE> 235
<TOTAL-ASSETS> 100,235
<DEPOSITS> 73,432
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 2,100
<LONG-TERM> 0
0
0
<COMMON> 146
<OTHER-SE> 12,407
<TOTAL-LIABILITIES-AND-EQUITY> 100,235
<INTEREST-LOAN> 4,433
<INTEREST-INVEST> 434
<INTEREST-OTHER> 396
<INTEREST-TOTAL> 5,263
<INTEREST-DEPOSIT> 2,381
<INTEREST-EXPENSE> 107
<INTEREST-INCOME-NET> 2,775
<LOAN-LOSSES> 46
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,842
<INCOME-PRETAX> 979
<INCOME-PRE-EXTRAORDINARY> 979
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 589
<EPS-PRIMARY> .41
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.84
<LOANS-NON> 146
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 195
<CHARGE-OFFS> 6
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 235
<ALLOWANCE-DOMESTIC> 235
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
