<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission File Number: 0-21385
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WESTWOOD HOMESTEAD FINANCIAL CORPORATION
----------------------------------------
(Exact name of small business issuer as specified in its charter)
INDIANA 31-1463057
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(State of Incorporation) (I.R.S. Employer
Identification No.)
3002 HARRISON AVENUE, CINCINNATI, OHIO 45211-5789
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (513) 661-5735
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Indicate by checkmark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No . The registrant has not been
subject to the reporting requirements of the Exchange Act for the past 90 days.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date. Shares outstanding at
March 31, 1997 common stock, $.01 par value: 2,843,375
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CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 1997 and December 31, 1996 (Unaudited)................................1
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and 1996 (Unaudited).......................................2
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 (Unaudited).............................................3
Notes to Consolidated Financial Statements (Unaudited)..........................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................7
Item 2. Changes in Securities.........................................................7
Item 3. Defaults Upon Senior Securities...............................................7
Item 4. Submission of Matters to a Vote of Security-Holders...........................7
Item 5. Other Information.............................................................7
Item 6. Exhibits and Reports on Form 8-K..............................................7
SIGNATURES
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTWOOD HOMESTEAD FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
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ASSETS
<S> <C> <C>
Cash and cash equivalents $ 13,192,971 13,420,389
Securities available for sale 3,981,726 3,969,430
Mortgage backed securities available for sale 14,971,334 15,034,115
Loans held for sale 514,766 527,381
Loans receivable, net 94,538,733 84,525,374
Stock in Federal Home Loan Bank 970,000 953,600
Accrued interest receivable 743,388 589,124
Premises and equipment, net 581,814 607,339
Income taxes 117,366 210,422
Prepaid expenses and other assets 343,556 114,209
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Total assets $129,955,654 119,951,383
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 79,078,883 79,082,778
Federal Home Loan Bank advances 10,124,607 127,458
Advances from borrowers for taxes and insurance 361,006 633,857
Income taxes 102,453 --
Accrued expenses and other liabilities 64,868 124,872
Total liabilities 89,731,817 79,968,965
Contingencies (Note 4)
Stockholders' equity:
Common Stock, $.01 par value, 15,000,000 shares
authorized, 2,843,375 shares outstanding at
March 31, 1997 and December 31, 1996 28,434 28,434
Additional paid in capital 27,724,599 27,709,597
Retained income 15,038,112 14,876,066
Employee Stock Ownership Plan (2,191,698) (2,238,386)
Net unrealized loss on securities available for sale (375,610) (393,293)
------------ ------------
Total stockholders' equity 40,223,837 39,982,418
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Total liabilities and stockholders' equity $129,955,654 119,951,383
============ ============
</TABLE>
See accompanying notes to financial statements.
1
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WESTWOOD HOMESTEAD FINANCIAL CORPORATION
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
1997 1996
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<S> <C> <C>
Interest income:
Loans receivable $1,831,166 1,503,983
Mortgage backed securities 247,000 270,369
Investment securities 58,535 13,375
Interest bearing deposits with banks 185,362 27,343
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Total interest income 2,322,063 1,815,070
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Interest expense:
Deposits 1,131,638 1,207,505
Borrowings 61,298 2,815
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Total interest expense 1,192,936 1,210,320
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Net interest income 1,129,127 604,750
Provision for loan losses 18,486 15,087
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Net interest income after provision for loan losses 1,110,641 589,663
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Non-interest income:
Loss on sale of securities -- (2,813)
Gain on loan sales -- 35,172
Service charges and fees 29,458 13,172
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Total non-interest income 29,458 45,531
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Non-interest expense:
Compensation and benefits 282,985 238,143
Occupancy costs 42,025 32,853
Franchise tax 120,271 52,500
Federal deposit insurance premiums 12,730 46,258
Data processing 25,339 21,422
Legal, accounting and examination fees 24,005 16,540
Consulting fees 7,478 17,682
Advertising 8,393 9,884
Other 69,390 42,646
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Total non-interest expense 592,616 477,928
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Income before income tax 547,483 157,266
Income tax 186,400 53,500
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Net income $ 361,083 103,766
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Income per share (Note 3) to financial statements $.14 N/A
==== ===
</TABLE>
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WESTWOOD HOMESTEAD FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 361,083 103,766
Adjustments to reconcile net income to net cash provided by
operating activities:
Net amortization of premium and discounts (17,197) 4,400
Depreciation of premises and equipment 25,525 14,267
Federal Home Loan Bank stock dividend (16,400) (15,400)
Deferred income taxes (12,300) 2,986
Accretion of net loan fees deferred 48,403 (2,742)
Provision for loan loss 18,486 15,087
Loss on securities sales -- 2,813
Gain on loan sales -- (35,172)
Net loans repaid (originated) held for sale 12,615 (447,082)
Proceeds from sale of loans held for sale -- 1,243,297
Employee Stock Ownership Plan amortization 61,688 --
Change in:
Accrued interest receivable (154,264) 11,792
Prepaid expenses and other assets (229,347) (351,970)
Accrued expenses (60,004) (15,835)
Income taxes 198,701 50,514
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Net cash provided by operating activities 236,989 580,721
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Cash from investing activities:
Proceeds from sale of mortgage backed securities -- 997,188
Principal payments on mortgage backed securities 94,474 209,510
Net increase in loans receivable (10,080,248) (1,165,409)
Additions to premises and equipment -- (14,602)
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Net cash (used in)provided by investing activities (9,985,774) 26,687
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Cash flow from financing activities
Net (decrease) increase in deposits (3,895) 1,255,698
Cash dividends (199,036) --
Short term Federal Home Loan Bank advances 5,000,000 --
Long term Federal Home Loan Bank advances repayment (2,851) (2,686)
Long term Federal Home Loan Bank advances 5,000,000 --
Net decrease in advances from borrowers for taxes and insurance (272,851) (238,194)
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Net cash provided by financing activities 9,521,367 1,014,818
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Net (decrease)increase in cash and cash equivalents (227,418) 1,622,226
Beginning cash and cash equivalents 13,420,389 869,124
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Ending cash and cash equivalents $ 13,192,971 2,491,350
============ ==========
</TABLE>
3
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WESTWOOD HOMESTEAD FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1997 and December 31, 1996
(1) BASIS OF PRESENTATION.
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and therefore,
do not include all disclosures necessary for a complete presentation
of the consolidated statements of financial condition, operations and
cash flows in conformity with generally accepted accounting
principles, and should be read in conjunction with the consolidated
financial statements and notes thereto for the fiscal year ended
December 31, 1996. However, all adjustments which are, in the opinion
of management, necessary for the fair presentation of the interim
financial statements have been included. The consolidated statements
of operations for the quarter ended March 31, 1997 are not necessarily
indicative of the results which may be expected for the entire year.
(2) CONSUMMATION OF THE CONVERSION
On September 27, 1996, the Westwood Homestead Savings Bank (the
"Bank") completed its conversion from an Ohio mutual savings bank to
an Ohio stock savings bank and was simultaneously acquired by Westwood
Homestead Financial Corporation (the "Company"), an Indiana
corporation, which was formed to act as the holding company of the
Bank.
On the date of conversion, the Company issued 2,843,375 shares of
common stock,$.01 par value, at $10 per share, raising net proceeds of
$27.7 million. In accordance with the plan of conversion, $13.9
million of the net proceeds were utilized to purchase 100% of the
stock of the Bank.
(3) EARNINGS PER SHARE
Earnings per share is not presented for the quarter ended March 31,
1996 because no shares of stock were outstanding for that period.
(4) CONTINGENCIES.
Although the Bank, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material
legal proceedings to which the Bank is a party or to which any of its
property is subject.
(5) EMPLOYEE STOCK OWNERSHIP PLAN
Effective January 1, 1996, the Company established the Employee Stock
Ownership Plan (ESOP). On September 30, 1996, the ESOP purchased
227,470 shares of the Company's common stock. The ESOP was capitalized
with a loan from the Company for $2.4 million which is secured by the
shares of common stock purchased. The obligation of the ESOP, net of
amounts charged to expense, is shown as a reduction of stockholders'
equity.
The Bank intends to make annual contributions to the ESOP sufficient
to repay the loan plus interest over a 13 year period. Amortization of
the ESOP of $62,000 has been recorded as compensation expense for the
quarter ended March 31, 1997.
4
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 AND DECEMBER 31, 1996
Westwood Homestead Savings Bank (the "Bank") converted from a state
chartered mutual savings bank to a state chartered stock savings bank on
September 27, 1996. In the conversion, 2,843,375 shares of common stock of
Westwood Homestead Financial Corporation (the "Company") were sold, generating
net proceeds after conversion expenses of $27.7 million. Of this amount, $13.9
million was used to purchase 100% of the common stock of the Bank, $2.4 million
to fund the stock purchase made by the Employee Stock Ownership Plan and the
balance was used to purchase investments and for other corporate purposes.
Total assets increased $10.0 million, or 8.3% from $120.0 million at
December 31, 1996 to $130.0 million at March 31, 1997. Loans receivable
increased $10.0 million, or 11.8% from $84.5 million at December 31, 1996 to
$94.5 million at March 31, 1997 as a result of strong loan demand, expanded
loan products and successful marketing. Approximately 63% of this increase
consisted of adjustable rate loans increasing the total portfolio to 63%
adjustable.
Total liabilities increased $9.7 million from $80.0 million at
December 31, 1996 to $89.7 million at March 31, 1997. This increase was due
primarily to Federal Home Loan Bank fixed rate advances with terms ranging from
seven months to 48 months. Recent competition for local CDs has shifted the
Banks's funding source to FHLB advances in recent periods.
COMPARISON OF OPERATING RESULTS FOR THE QUARTER ENDED MARCH 31, 1997 AND 1996
Net Income. Net income for the quarter ended March 31, 1997 was
$361,000, or 14 cents per share, as compared with $104,000 for the quarter
ended March 31, 1996. Return on average equity and return on average assets
were 3.58% and 1.17%, respectively, for the quarter ended March 31, 1997
compared to 2.89% and .43%, respectively, for the same quarter in 1996.
Net Interest Income. Net interest income increased $524,000 to
$1,129,000 for the quarter ended March 31, 1997 from $605,000 for the quarter
ended March 31, 1996. This increase was due to $27.4 million more in net
interest earning assets as a result of the investment of stock conversion
proceeds. Net interest margin increased to 3.69% for the quarter ended March
31, 1997 as compared to 2.55% for the same quarter in 1996 primarily due to
increased net interest earning assets.
Interest Income. Interest income increased $507,000, or 28.2%, to $2.3
million for the quarter ended March 31, 1997 from $1.8 million for the quarter
ended March 31, 1996. Interest income on loans receivable increased $327,000,
or 21.7%, to $1,831,000 for the quarter ended March 31, 1997 from $1,504,000
for the quarter ended March 31, 1996. The average balance of loans receivable
increased 19.2% to $89.4 million for the quarter ended March 31, 1997 from the
same quarter a year ago while the average yield increased 17 basis points to
8.19%. Stock conversion proceeds increased the average of other earning assets
$11.6 million from the year ago quarter resulting in $158,000 more in other
interest income.
Interest Expense. Interest expense decreased $17,000 to $1,193,000 for
the quarter ended March 31, 1997 from $1,210,000 for the quarter ended March
31, 1996. This improvement is due to a decrease of 9 basis points in the
average rate on interest bearing liabilities to 5.78% for the quarter ended
March 31, 1997 from 5.87% for the quarter ended March 31, 1996.
5
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Provision for Loan Losses. The Bank established provisions for loan
losses of $18,000 and $15,000 during the quarters ended March 31, 1997 and
1996, respectively. The loan portfolio is regularly reviewed by management,
including problem loans, and changes in the relative makeup to determine
whether any loans require classification or the establishment of additional
reserves.
Non-Interest Income. Non-interest income decreased $17,000 to $29,000
for the quarter ended March 31, 1997 from $46,000 for the quarter ended March
31, 1996. The Bank recorded a $35,000 gain on loan sales during the quarter
ended March 31, 1996 while no loans were sold during the current quarter.
Service charges and fees increased $16,000 to $29,000 for the quarter ended
March 31, 1997 from $13,000 for the quarter ended March 31, 1996. This increase
reflects the Bank's emphasis on attracting new checking accounts in the last
year.
Non-Interest Expense. Non-interest expense increased $115,000 to
$593,000 for the quarter ended March 31, 1997 from $478,000 for the quarter
ended March 31, 1996. This increase was due primarily to an increase of
$67,000, or 126%, in Ohio Franchise Tax which is based on year end net worth.
Compensation and benefits increased $45,000, or 18.9%, during the quarter ended
March 31, 1997 as compared to the quarter ended March 31, 1996 primarily due to
the ESOP amortization accrual of $62,000 and increased staffing levels. Other
expenses increased $27,000 due primarily to expenses relating to being a public
company. Due to the reduction in premiums resulting from the recapitalization
of the Savings Association Insurance Fund ("SAIF") in 1996, FDIC insurance
expense decreased $33,000, or 71.7% for the quarter ended March 31, 1997. The
ratio on non-interest expense to average assets was 1.92% for the quarter ended
March 31, 1997 as compared to 1.97% for the same quarter a year ago.
Income Taxes. The Company has recorded income tax expense of $186,000
and $54,000 for the quarters ended March 31, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $13.2 million at March 31, 1997
which consisted of overnight federal funds and Federal Home Loan Bank short
term deposits. In order for the Company to enhance shareholder returns and
generate a competitive return on equity, management plans to engage in an
aggressive strategy of growth, both externally through the selective
acquisition of other financial institutions and internally through expansion of
the Bank's lending activities. There can be no assurance that the Company will
in fact be able to identify attractive acquisition candidates or to acquire
such candidates on favorable terms. Management believes that current liquidity
levels are adequate to fund daily operations.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios ( set forth in the
table below ) of Tangible, Tier I/Core and Risk-based capital (as defined in
the regulations). Management believes, as of March 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provision
------------------------- --------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $ 29,139,753 26.04% 1,678,359 1.50% 5,594,529 5.00%
Tier I/Core Capital 29,139,753 26.04% 3,356,718 3.00% 6,713,435 6.00%
Risk-based Capital 29,323,752 42.18% 5,561,680 8.00% 6,952,100 10.00%
</TABLE>
6
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Although the Bank, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Bank is a party or to which any of its property is
subject.
ITEM 2. CHANGES IN SECURITIES
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) Exhibits. The following exhibits are being filed with this
report.
Exhibit Description
27 Financial Data Schedule
(b) Reports on Form 8-K. None
7
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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 HOMESTEAD FINANCIAL CORPORATION
Date: May 9, 1997 By:
--------------------------------
Michael P. Brennan
(Principal Executive Officer)
Date: May 9, 1997 By:
--------------------------------
John E. Essen
(Principal Financial Officer)
8
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 763,470
<INT-BEARING-DEPOSITS> 11,442,820
<FED-FUNDS-SOLD> 986,681
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,953,060
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 95,053,499
<ALLOWANCE> 183,999
<TOTAL-ASSETS> 129,955,654
<DEPOSITS> 79,078,883
<SHORT-TERM> 5,000,000
<LIABILITIES-OTHER> 528,327
<LONG-TERM> 5,124,607
0
0
<COMMON> 28,434
<OTHER-SE> 40,195,403
<TOTAL-LIABILITIES-AND-EQUITY> 129,955,654
<INTEREST-LOAN> 1,831,166
<INTEREST-INVEST> 305,535
<INTEREST-OTHER> 185,362
<INTEREST-TOTAL> 2,322,063
<INTEREST-DEPOSIT> 1,131,638
<INTEREST-EXPENSE> 1,192,936
<INTEREST-INCOME-NET> 1,129,127
<LOAN-LOSSES> 18,486
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 592,616
<INCOME-PRETAX> 547,483
<INCOME-PRE-EXTRAORDINARY> 547,483
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361,083
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 1.80
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 165,513
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 183,999
<ALLOWANCE-DOMESTIC> 183,999
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
