U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter period ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from to
---------- --------
Commission File No. 0-28200
Westwood Financial Corporation
------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3413572
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700-88 Broadway, Westwood, New Jersey 07675
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(Address of principal executive offices)
201-666-5002
------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class: Common Stock, par value $0.10 per share
Outstanding shares at October 21, 1996: 646,672
<PAGE>
WESTWOOD FINANCIAL CORPORATION
INDEX TO FORM 10-QSB
Page
----
PART 1. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated statements of Financial Condition at September
30, 1996 (unaudited) and March 31, 1996 (audited) 2
Consolidated Statements of Income for the three and
six months ended September 30, 1996 and 1995 (unaudited) 3
Consolidated Statements of Cash Flows for the three and
six months ended September 30, 1996 and 1995 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5 & 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Default Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
1
<PAGE>
WESTWOOD FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
<TABLE>
<CAPTION>
WESTWOOD FINANCIAL WESTWOOD
CORPORATION SAVINGS
CONSOLIDATED BANK(1)
SEPTEMBER 30, 1996 MARCH 31, 1996
------------------ --------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 5,080 $ 5,208
Loans receivable, net 38,486 34,497
Interest receivable on loans 244 218
FHLB stock, at cost 440 440
Mortgage-backed securities held-to-maturity,
(market value of $19,504 and $13,266, respectively) 19,587 13,281
Investment securities held-to-maturity,
(market value of $25,028 and $25,586, respectively) 26,156 25,742
Investment securities available-for-sale,
(at market value) 937 4,422
Interest receivable on investments 584 488
Property and equipment, net 758 750
Goodwill 1,179 1,238
Prepaid expenses and other assets 197 280
-------- --------
TOTAL ASSETS $ 93,648 $ 86,564
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Demand deposits $ 13,539 $ 12,618
Savings deposits 69,886 67,622
Interest payable on deposits 117 116
Other liabilities 528 81
Dividends payable 32 0
-------- --------
Total Liabilities 84,102 80,437
-------- --------
Commitments and Contingencies -- --
Shareholders' equity:
Common stock 65 760
Paid in capital 3,264 4,414
Retained earnings 6,402 1,174
Unearned stock bonus plan shares (104) (128)
Unrealized gain/(loss) on securities available-for-sale (81) (93)
Total Shareholders' Equity 9,546 6,127
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 93,648 $ 86,564
======== ========
</TABLE>
(1) On June 6, 1996, Westwood Savings Bank became a wholly-owned subsidiary
of Westwood Financial Corporation. The consolidated balance sheet at
March 31, 1996 has been taken from the audited balance sheet at that
date.
See notes to consolidated financial statements.
2
<PAGE>
WESTWOOD FINANCIAL CORPORATION AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- ---------------------------------
1996 1995 1996 1995
------------- ---------- ------------ ------------
WESTWOOD WESTWOOD
FINANCIAL WESTWOOD FINANCIAL WESTWOOD
CORPORATION SAVINGS CORPORATION SAVINGS
CONSOLIDATED BANK CONSOLIDATED BANK
------------ ---- ------------ ----
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans receivable $ 729 $ 657 $ 1,440 $ 1,298
Mortgage-backed securities 225 215 449 427
Investment securities, including O/N deposits 591 507 1,158 964
Dividends on FHLB stock 7 9 14 17
------- ------- ------- -------
Total interest income 1,552 1,388 3,061
INTEREST EXPENSE ON DEPOSITS 872 827 1,716 1,600
------- ------- ------- -------
Net interest income 680 561 1,345 1,106
Provision for loan losses 5 12 40 27
------- ------- ------- -------
Net interest income after
provision for loan losses 675 549 1,305 1,079
NONINTEREST INCOME
Miscellaneous charges and fees 34 26 62 50
Late charges 1 2 3 4
------- ------- ------- -------
Total noninterest income 35 28 65 54
NONINTEREST EXPENSE
Compensation and employee benefits 164 150 330 307
FDIC insurance and regulatory expenses 54 41 100 78
SAIF Special Assessment 454 0 454 0
Depreciation and amortization 41 38 81 76
Data Processing 35 29 69 57
Occupancy 29 31 57 57
Loss on sale of securities 17 0 17 0
Other 124 76 212 146
------- ------- ------- -------
Total noninterest expense 918 365 1,320 721
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (208) 212 50 412
INCOME TAX EXPENSE (58) 77 31 150
------- ------- ------- -------
NET INCOME (LOSS) $ (150) $ 135 $ 19 $ 262
======= ======= ======= =======
Weighted Average Earnings Per Share $ (0.23) $ NM $ 0.03 $ NM
======= ======= ======= =======
Weighted Average Shares Outstanding 646,700 NM 549,038 NM
</TABLE>
NM - Not meaningful due to conversion and reorganization effective June
6, 1996.
See notes to consolidated financial statements.
3
<PAGE>
WESTWOOD FINANCIAL CORPORATION AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
WESTWOOD FINANCIAL WESTWOOD
CORPORATION SAVINGS
CONSOLIDATED BANK
THREE MONTHS ENDED SIX MONTHS ENDED
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
INTEREST OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
NET INCOME $ (150) $ 135 $ 19 $ 262
======= ======= ======= =======
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 18 14 34 29
Amortization of good will 23 23 47 47
Amortization of stock bonus plan 12 12 24 24
Provision for loan losses 5 12 40 27
Loss on sale of securities 17 -- 17 --
(INCREASE) DECREASE IN ASSETS:
Interest receivable (51) (89) (122) (88)
Prepaid income taxes (104) (20) (81) 11
Prepaid expenses (6) 6 187 (15)
INCREASE (DECREASE) IN LIABILITIES:
Interest payable (11) (2) 1 25
Accrued expenses 338 13 447 (48)
Taxes payable (88) (31) (23) 11
------- ------- ------- -------
TOTAL ADJUSTMENTS 153 (62) 571 23
------- ------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3 73 590 285
------- ------- ------- -------
INVESTING ACTIVITIES:
Loans made of net repayments (1,628) (26) (4,029) (523)
Purchase of investments - net of sales (1,771) (2,330) (3,240) (4,298)
Purchase of office property and equipment (11) (8) 12 --
Reduction of goodwill 12 -- (42) (23)
NET CASH USED BY INVESTING ACTIVITIES (3,398) (2,364) (7,299) (4,844)
------- ------- ------- -------
FINANCING ACTIVITIES:
Net increase in deposit accounts 2,098 3,577 3,185 6,194
Proceeds from sale of stock and reorganization,
net of conversion costs -- -- 3,428 --
Dividends paid (32) (16) (32) (32)
------- ------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,066 3,561 6,581 6,162
------- ------- ------- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,329) 1,270 (128) 1,603
CASH AND CASH EQUIVALENTS - Beginning of period 6,409 5,388 5,208 5,055
------- ------- ------- -------
CASH AND CASH EQUIVALENTS - End of period $ 5,080 $ 6,658 $ 5,080 $ 6,658
======= ======= ======= =======
CASH PAID DURING THE PERIOD FOR:
Interest on deposits $ 883 $ 833 $ 1,715 $ 1,575
Income taxes $ 135 $ 128 $ 135 $ 128
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Notes to Unaudited Interim Consolidated Financial Statements
September 30, 1996
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying consolidated financial statements include the accounts of
Westwood Financial Corporation (the "Corporation") and Westwood Savings Bank, a
wholly-owned subsidiary of the Corporation. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Corporation is a New Jersey stock corporation organized in December 1995 to
facilitate the conversion of the Bank's holding company (formerly Bergen North
Financial, M.H.C.) from the mutual to stock form of ownership and to acquire and
hold all of the capital stock of the Bank. In connection with the conversion,
Bergen North Financial, M.H.C., which had owned 58% of the Bank's common stock,
was merged with and into the Bank, and its shares of the Bank were canceled. On
June 6, 1996, the Corporation issued 261,488 shares of its common stock for all
of the remaining outstanding shares of the Bank, and issued and sold 385,255
shares of its common stock at a price of $10.00 per share. At September 30,
1996, the Corporation had 646,672 shares of Common Stock issued and outstanding.
Since June 6, 1996, the Corporation engaged in no significant business activity
other than its ownership of the Bank's common stock.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentations have been included. The
results of operations for the interim periods ended September 30, 1995 and
September 30, 1996 are not necessarily indicative of the results which may be
expected for an entire year or any other period. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Corporation's Special Report on Form 10-KSB for the year ended March 31, 1996
filed pursuant to Rule 15d-2.
NOTE 2: EARNINGS PER SHARE
Earnings per share for the three and six months ended September 30, 1996 was
calculated based on the number of fully diluted shares at period end. Stock
options are regarded as common stock equivalents computed using the Treasury
Stock method.
Earnings per share for the three months ended September 30, 1995 was not
meaningful due to the conversion and reorganization effective June 6, 1996.
5
<PAGE>
NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1995, the Bank adopted FASB Statement Nos. 114, "Accounting
by Creditors for Impairment of a Loan" and 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." The provision of
these statements are applicable to all loans, uncollateralized as well as
collateralized, except for large groups of smaller-balance homogeneous loans
that are collectively evaluated for impairment and loans that are measured at
fair value or at the lower of cost or fair value. Additionally, such provisions
apply to all loans that are renegotiated in trouble debt restructurings
involving a modification of terms.
Statement No. 114 requires that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent, except that
loans renegotiated as part of a troubled debt restructuring subsequent to the
adoption of Statement Nos. 114 and 118 must be measured for impairment by
discounting the total expected cash flow under the renegotiated terms at each
loan's original effective interest rate.
A loan evaluated for impairment pursuant to Statement No. 114 is deemed to be
impaired when, based on current information and events, it is probable that the
Bank will be unable to collect all amounts due according to the contractual
terms of the loan agreement. An insignificant payment delay, which is defined by
the Bank as up to ninety days, will not cause a loan to be classified as
impaired. A loan is not impaired during the period of delay in payment if the
Bank expects to collect all amounts due, including interest accrued at the
contractual interest rate for the period of delay. Thus, a demand loan or other
loan with no stated maturity is not impaired if the Bank expects to collect all
amounts due, including interest accrued at the contractual interest rate, during
the period the loan is outstanding. All loans identified as impaired are
evaluated independently. The Bank does not aggregate such loans for evaluation
purposes.
The adoption of Statement Nos. 114 and 118 did not have a material adverse
impact on financial condition or operations.
Payments received on impaired loans are applied first to interest receivable and
then to principal.
NOTE 4: SAIF SPECIAL ASSESSMENT
The FDIC has imposed a special assessment on the Savings Association Insurance
Fund members based on the Bank's deposits as of March 31, 1995. The Bank will
pay an assessment of $454,000 on November 27, 1996 which was required to be
accrued and expensed for the quarter ended September 30, 1996.
NOTE 5: INCOME TAXES
The Small Business Job Protection Act of 1996 (1996 Act) repealed the
"percentage of income method" for accounting for the provision for bad debts.
The Bank has used this method consistently in developing their bad debt
provision and reserve for income tax purposes through March 31, 1996. The 1996
Act requires the Bank to recapture any addition to this reserve subsequent to
1987. As a result, the Bank has a deferred tax liability of $145,000 which will
be expensed in six annual installments beginning in tax year 1999.
6
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at September 30 and March 31, 1996
- --------------------------------------------------------------------
Total assets at September 30, 1996 amounted to $93.6 million, an increase of
$7.0 million, or 8.18% over total assets of March 31, 1996. This increase was
due primarily to a $3.2 million increase in deposits as well as net proceeds of
$3.3 million from the June, 1996 initial public offering of the company's stock
("Stock Offering").
The increase in assets includes a $4.0 million, or 11.56%, increase in loans
receivable due to increased loan originations, and a $3.2 million, or 7.45%,
increase in investment securities.
Total liabilities and shareholders' equity amounted to $93.6 million at
September 30, 1996, an increase of $7.0 million, or 8.18%, over total
liabilities and shareholders' equity at March 31, 1996. The increase in
liabilities is due primarily to a $3.2 million net increase in deposits, as well
as the $454,000 payable to the Federal Deposit Insurance Corporation ("FDIC") in
settlement of the one-time special Savings Association Insurance Funds ("SAIF")
assessment discussed in more detail below. The net increase in shareholder's
equity of $3.4 million is the result of the proceeds of the Stock Offering, as
well as a $19,000 net income for the six months ended September 30, 1996.
The Bank had no non-performing loans at September 30, 1996 or at March 31, 1996.
7
<PAGE>
Comparison of Operating Results For the Three Months Ended September 30, 1996
- ------------------------------------------------------------------------------
and 1995
- --------
General. Net loss for the three month period ended September 30, 1996 was
$150,000 compared to a net income of $135,000 for the three month period ended
September 30, 1995. This decrease reflects a $291,000 net charge for a special
assessment by the FDIC for the SAIF. A loss of $17,000 on the sale of a mutual
fund also contributed to the decrease in net income. The mutual fund sale
proceeds were reinvested in higher yielding mortgage-backed securities, which
should have a favorable effect on current as well as future earnings.
Interest Income. Interest income increased $164,000, or 11.82%, from $1.4
million for the three month period ended September 30, 1995 to $1.6 million for
the three months ended September 30, 1996. Interest income from mortgage loans
increased $72,000 due to increased lending. Interest on security investments and
mortgaged-backed securities increased $94,000 due to higher yields and increased
average balances of such investments funded by increased deposits as well as
proceeds from the Stock Offering.
Interest Expense. Total interest expense increased from $827,000 for the three
month period ended September 30, 1995 to $872,000 for the three month period
ended September 30, 1996. This increase was due primarily to an increase in the
average balance of deposits from $75.9 million at September 30, 1995 to $83.4
million at September 30, 1996.
Net Interest Income. Net interest income increased $119,000, or 21.21%, for the
three months ended September 30, 1996 as compared to the same period ended
September 30, 1995. This was primarily due to increased revenue from the
additional interest-earning assets acquired through the investment of the Stock
Offering proceeds and the increase in deposits. In addition, net interest margin
(net yield) increased from 2.88% for the quarter ended September 30, 1995 to
3.05% for the similar 1996 period.
Provision for Loan Losses. Provisions for the loan losses decreased from
$12,000, for the period ended September 30, 1995, to $5,000 for the period ended
September 30, 1996. The decrease was due to management's assessment of the
current loan portfolio, account delinquencies, and market conditions.
There was no basic change in actual delinquencies at either date.
Non-Interest Income. Non-interest income increased $7,000, or 25.00%, during the
period ended September 30, 1996, as compared to the same period ended September
30, 1995. This increase was primarily due to increased fee income from
additional checking accounts.
Non-Interest Expense. Non-interest expense increased $553,000 from $365,000 for
the three months ended September 30, 1995 to $918,000 for the three months ended
September 30,1996. This increase reflects a $454,000 net charge for a special
assessment by the Savings Association Insurance Fund. Non- interest expense also
increased due to a $17,000 loss on a mutual fund investment which was sold
during the quarter. The mutual fund sale proceeds were reinvested in
mortgage-backed securities with higher yields, with an immediate favorable
effect on current as well as future earnings. Advertising and promotional
expenses also increased $3,000 due to management's decision to promote short
term home equity loans, checking accounts and its new remote ATM facility.
Management also decided to participate in several local activities to increase
its exposure in the community. Operating costs incurred as a public company
including legal and consulting fees and auditing expenses increased $28,000
during the period.
8
<PAGE>
Income Tax Expense. Income tax expenses decreased $135,000 from $77,000 for the
three months period ended September 30, 1995 to a credit of $58,000 for the
three month period ended September 30, 1996 due to decreased earnings.
9
<PAGE>
Results of Operations - Comparison of Six Months Ended September 30, 1996 and
- --------------------------------------------------------------------------------
September 30, 1995
- ------------------
General. Net income for the six month period ended September 30, 1996 was
$19,000 compared to $262,000 for the six month period ended September 30, 1995.
This decrease reflects a $291,000 net charge for a special assessment by the
FDIC for the SAIF. A loss of $17,000 on the sale of a mutual fund also
contributed to the decrease in net income. The mutual fund sale proceeds were
reinvested in higher yielding mortgage-backed securities, which should have a
favorable effect on current as well as future earnings.
Interest Income. Total interest income increased to $3.6 million for the six
months ended September 30, 1996 from $2.7 million for the six months ended
September 30, 1995. This increase of $355,000, or 13.12%, was due primarily to
an increase of $142,000 in interest earned on loans receivable due to increased
lending, and and increase of $213,000 in interest earned on security investments
and mortgage-backed securities due to higher yields and increased average
balances of such investments funded by increased deposits as well as the
receipts from the Stock Offering.
Interest Expense. Total interest expense increased from $1.6 million for the six
months ended September 30, 1995 to $1.7 million for the six months ended
September 30, 1996. This increase was due primarily to an increase in the
average balance of deposits from $75.9 million at September 30, 1995 to $83.4
million at September 30, 1996.
Net Interest Income. Net interest income increased $239,000, or 21.61%, for the
six months ended September 30, 1996 as compared to the same period ended
September 30, 1995. This was due to the increased revenue from interest earned
on the additional interest earning assets acquired through the investment of the
proceeds of the Stock Offering and the increase in deposits.
Provision for Loan Losses. The Bank maintains a provision for losses on loans
based upon management's periodic evaluation of known and inherent risks in the
loan portfolio, the Bank's past loss experience, adverse situations that may
affect the borrower's ability to repay loans, estimated value of the underlying
collateral and current and expected market conditions. The provision for losses
on loans was increased to $40,000 for the six months ended September 30, 1996,
compared to $27,000 for the six months ended September 30, 1995, due to
management's decision to increase the provision due to the increased volume of
loan activity. There was no basic change in actual delinquencies at either date.
Non-Interest Income. Non-interest income increased $11,000 from $54,000 for the
six months ended September 30, 1995 to $65,000 for the six months ended
September 30, 1996, primarily due to an increase in personal and business
checking accounts which resulted in increased fee income.
Non-Interest Expense. Non-interest expense increased $599,000 from $721,000 to
$1.3 million during the comparable periods ending September 30, 1995 and 1996,
respectively. This increase was primarily due to the one-time SAIF special
assessment of $454,000. Non-interest expense also increased due to a $17,000
loss on the sale of a mutual fund. Increased loan processing costs attributed to
higher loan volume, additional compensation due to additional staff, additional
costs of an added ATM facility and increased advertising and promotional costs
caused other operating expenses to increase. Other non-interest expenses
including legal, consulting and registrar fees, and auditing expenses increased
$32,000, due to the added costs of being a public company.
10
<PAGE>
Income Tax Expense. Income tax expense decreased $119,000 from $150,000 for the
six month period ended September 30, 1995 to $31,000 for the six month period
ended September 30, 1996 due to decreased earnings.
11
<PAGE>
Liquidity Resources
- -------------------
The Bank's liquidity is a measure of its ability to fund loans, pay withdrawals
of deposits, and other cash outflows in an efficient, cost effective manner. The
Bank's primary sources of funds are deposits and scheduled amortization and
prepayment of loans and mortgage-backed securities. During the past several
years, the Bank has used such funds primarily to fund maturing time deposits,
pay savings withdrawals, fund lending commitments, purchase new investments, and
increase liquidity. The Bank is currently able to fund its operations
internally. Additionally, sources of funds include the ability to utilize
Federal Home Loan Bank of New York advances and the ability to borrow against
mortgage-backed and investment securities. As of September 30, 1996, the Bank
had no such borrowed funds. Loan payments, maturing investments and
mortgage-backed security prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The Bank anticipates that it will have sufficient funds available to meet its
current commitments. As of September 30, 1996, the Bank had mortgage commitments
to fund loans of $2.8 million. Also, at September 30, 1996, there were
commitments on unused lines of credit relating to home equity loans of $1.8
million. Certifcates of deposit scheduled to mature in one year or less at
September 30, 1996 totaled $44.4 million. Based on historical deposit
withdrawals and outflows, and on internal monthly deposit reports monitored by
management, management believes that a majority of such deposits will remain
with the Bank. As a result, no adverse liquidity effects are expected.
At September 30, 1996, the Bank's total liquidity was 60.99%.
Capital Compliance
- ------------------
The following table sets forth the institution's capital position at September
30, 1996 as compared to the minimum regulatory capital requirements imposed on
the institution by the FDIC at that date. The Bank also met the capital
requirements of the New Jersey Department of Banking.
At September 30, 1996
-----------------------------
Amount of Assets
------ ---------
GAAP Capital: $ 9,546 10.19%
======= =======
Leverage Capital:(1)(2)
Actual Leverage Capital $ 6,645 7.35%
Leverage Capital Requirement 2,711 3.00%
-------- -------
Excess $ 3,934 4.35%
======== =======
Tier 1 Capital: (1)(3)
Actual Tier 1 Capital $ 6,645 18.04%
Tier 1 Capital Requirement 1,473 4.00%
-------- --------
Excess $ 5,172 14.04%
======= ========
Total Risk-Based Capital:(1)(3)
Actual Risk-Based Capital $ 6,854 18.61%
Risk-Based Capital Requirement 2,946 8.00%
-------- --------
Excess $ 3,908 10.61%
======== ========
(1) Regulatory capital reflects modifications from GAAP capital due to
identifiable intangible assets and constraints on allowance for loan and
lease losses.
(2) Leverage Capital is computed as a percentage of Average Total Assets of
$90,366.
(3) Tier 1 Capital and Total Risk-Based Capital are computed as a percentage
of Total Risk-Weighted Assets of $36,831.
12
<PAGE>
Impact of Inflation and Changing Prices
- ---------------------------------------
The consolidated financial statements of the Corporation and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Corporation's operations. Unlike most industrial
companies, nearly all of the assets and liabilities of the Corporation are
financial. As a result, interest rates have a greater impact on the
Corporation's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
One-Time Assessment
- -------------------
Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 (the
"Act"), the FDIC imposed a special assessment on SAIF members to capitalize the
SAIF at the designated reserve level of 1.25% as of October 1, 1996. Based on
the Bank's deposits as of March 31, 1995, the date for measuring the amount of
the special assessment pursuant to the Act, the Bank will pay a special
assessment of $454,000 on November 27, 1996 to recapitalize the SAIF. This
experience was recognized during the second quarter of fiscal 1996. The FDIC is
expected to lower the premium for deposit insurance to a level necessary to
maintain the SAIF at its required reserve level, however, the range of premiums
has not been determined at September 30, 1996.
Pursuant to the Act, the Bank will pay, in addition to its normal deposit
insurance premium as a member of the SAIF, an amount equal to approximately 6.4
basis points toward the retirement of the Financing Corporation bonds ("Fico
Bonds") issued in the 1980's to assist in the recovery of the savings and loan
industry. Member of the Bank Insurance Fund ("BIF"). by contrast, will pay, in
addition to their normal deposit insurance premium, approximately 1.3 basis
points. Based on total deposits as of September 30, 1996, had the Act been in
effect, the Bank's Fico annual premium would have been approximately $53,000 in
addition to its normal deposit insurance premium. Beginning no later than
January 1, 2000, the rate paid to retire the Fico Bonds will be equal for
members of the BIF and the SAIF. The Act also provides for the merging of the
BIF and the SAIF by January 1, 1999 provided there are no financial institutions
still chartered as savings associations at that time. Should the insurance funds
be merged before January 1, 2000, the rate paid by all members of this new fund
to retire the Fico Bonds would be equal.
Recapture of Bad Debt Reserves
- ------------------------------
The Small Business Job Protection Act of 1996 (1996 Act) repealed the
"percentage of income method" for accounting for the provision for bad debts.
The Bank has used this method consistently in developing their bad debt
provision and reserve for income tax purposes through March 31, 1996. The 1996
Act requires the Bank to recapture any addition to this reserve subsequent to
1987. As a result, the Bank has a deferred tax liability of $145,000 which will
be expensed in six annual installments beginning in tax year 1999.
13
<PAGE>
Key Operating Ratios
- --------------------
THE TABLE BELOW SETS FORTH CERTAIN PERFORMANCE RATIOS OF THE BANK FOR THE
PERIODS INDICATED.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
RETURN ON AVERAGE ASSETS (net income
<S> <C> <C> <C> <C>
divided by average total assets) (1) (0.65%) 0.67% 0.04% 0.66%
RETURN ON AVERAGE EQUITY (net income
divided by average equity) (1) (6.19%) 9.37% 0.44% 9.19%
AVERAGE EQUITY TO AVERAGE ASSETS 10.52% 7.13% 9.40% 7.21%
(average equity divided by average
total assets)
EQUITY TO ASSETS AT PERIOD END 10.19% 7.10% 10.19% 7.10%
INTEREST RATE SPREAD (1) (2) 2.69% 2.69% 2.78% 2.71%
NET INTEREST MARGIN (net yield on average
interest-earning assets) 3.05% 2.88% 3.07% 2.89%
NON-PERFORMING ASSETS TO TOTAL ASSETS N/A N/A N/A N/A
AVERAGE INTEREST-EARNING ASSETS TO
AVERAGE INTEREST-BEARING LIABILITIES 109.20% 104.33% 107.50% 104.38%
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES TO NON-INTEREST EXPENSE 79.20% 124.53% 97.47% 124.03%
NON-INTEREST EXPENSE TO AVERAGE ASSETS (1) 3.62% 2.24% 3.00% 2.26%
</TABLE>
(1) ANNUALIZED.
(2) INTEREST RATE SPREAD REPRESENTS THE DIFFERENCE BETWEEN THE WEIGHTED AVERAGE
YIELD ON INTEREST-EARNING ASSETS AND THE WEIGHTED AVERAGE RATE ON
INTEREST-BEARING LIABILITIES. COMPUTED ON THE BASIS OF AVERAGE MONTHLY
VALUES.
14
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
The Corporation was not involved in any material legal
proceedings at September 30, 1996. The Bank, from time to
time, is a party to litigation, which arises in the ordinary
course of business, such as claims to enforce liens, claims
involving the making and servicing of loans, claims relating
to the hiring or termination of employees, and other issues
incident to the business of the Bank. In the opinion of
management, the resolution of these lawsuits would not have a
material adverse effect on the financial condition or results
of operations of the Bank or the Corporation.
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) Exhibits
Exhibit 11: Statement regarding computation of earnings
per share.
(b) Reports on Form 8-K - None
15
<PAGE>
WESTWOOD FINANCIAL CORPORATION
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.
Westwood Financial Corporation
Date: November 14, 1996 By: /s/William J. Woods
------------------ -------------------------------
William J. Woods
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1996 By: /s/George E. Niemczyk
----------------- -------------------------------
George E. Niemczyk
Controller
(Principal Accounting and Financial Officer)
EXHIBIT 11
WESTWOOD FINANCIAL CORPORATION
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, 1995 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net Loss .................... ($150,000) $ 19,000
========= ========
Primary and fully diluted
Average shares outstanding.... 646,700 549,038
======= =======
Per share amount.............. ($0.23) $ 0.03
====== ======
</TABLE>
Earnings per share of common stock for the three and six months ended September
30, 1996 have been determined by dividing net income for the six month period by
the weighted average number of shares of common stock outstanding.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 858
<INT-BEARING-DEPOSITS> 4,222
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 937
<INVESTMENTS-CARRYING> 45,743
<INVESTMENTS-MARKET> 44,532
<LOANS> 39,018
<ALLOWANCE> 209
<TOTAL-ASSETS> 93,648
<DEPOSITS> 83,425
<SHORT-TERM> 0
<LIABILITIES-OTHER> 677
<LONG-TERM> 0
0
0
<COMMON> 65
<OTHER-SE> 9,666
<TOTAL-LIABILITIES-AND-EQUITY> 93,648
<INTEREST-LOAN> 1,440
<INTEREST-INVEST> 1,621
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,061
<INTEREST-DEPOSIT> 1,716
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,345
<LOAN-LOSSES> 40
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,320
<INCOME-PRETAX> 50
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
<YIELD-ACTUAL> 2.97
<LOANS-NON> 0
<LOANS-PAST> 134
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 209
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 209
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
