<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
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, 1998
Commission File Number: 0-21385
------------
WESTWOOD HOMESTEAD FINANCIAL CORPORATION
----------------------------------------
(Exact name of small business issuer as specified in its charter)
INDIANA 31-1463057
- ------------------------ ----------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
3002 HARRISON AVENUE, CINCINNATI, OHIO 45211-5789
- -------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (513) 661-5735
-------------------
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, 1998 common stock, $.01 par value: 2,843,375
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
---------------------
<S> <C> <C>
Item 1.Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 1998 and December 31, 1997 (Unaudited).........................................................1
Consolidated Statements of Income for the Three
Months Ended March 31, 1998 and 1997 (Unaudited).........................................................2
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 (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......................................................................................8
Item 2. Changes in Securities..................................................................................8
Item 3. Defaults Upon Senior Securities........................................................................8
Item 4. Submission of Matters to a Vote of Security-Holders....................................................8
Item 5. Other Information......................................................................................8
Item 6. Exhibits and Reports on Form 8-K.......................................................................8
</TABLE>
SIGNATURES
<PAGE> 3
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
--------------------
WESTWOOD HOMESTEAD FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
(Unaudited)
March 31, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,838,304 10,368,279
Securities available for sale -- 999,690
Mortgage backed securities available for sale 1,983,836 2,150,618
Loans receivable, net 119,731,701 117,648,013
Stock in Federal Home Loan Bank 1,042,100 1,023,800
Accrued interest receivable 723,539 712,797
Premises and equipment, net 1,150,795 1,082,978
Income taxes 24,910 177,416
Prepaid expenses and other assets 377,087 95,190
------------- -------------
Total assets $ 129,872,272 134,258,781
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 83,480,089 88,234,007
Federal Home Loan Bank advances 15,763,375 14,764,818
Advances from borrowers for taxes and insurance 511,034 865,808
Income taxes 176,707 162,975
Accrued expenses and other liabilities 77,054 85,461
------------- -------------
Total liabilities 100,008,259 104,113,069
Contingencies (Note 4)
Stockholders' equity:
Common Stock, $.01 par value, 15,000,000 shares
authorized, 2,843,375 shares outstanding at
March 31, 1998 and December 31, 1997 28,434 28,434
Additional paid in capital 18,457,526 18,789,500
Retained income 15,492,644 14,962,966
Employee Stock Ownership Plan (2,619,957) (2,686,661)
Management Recognition Plan (1,518,170) (975,484)
Accumulative other comprehensive income 23,536 26,957
------------- -------------
Total stockholders' equity 29,864,013 30,145,712
------------- -------------
Total liabilities and stockholders' equity $ 129,872,272 134,258,781
============= =============
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 4
WESTWOOD HOMESTEAD FINANCIAL CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Loans receivable $2,532,617 $1,831,166
Mortgage backed securities 34,579 247,000
Investment securities 10,254 58,535
Interest bearing deposits with banks 69,534 185,362
---------- ----------
Total interest income 2,646,984 2,322,063
---------- ----------
Interest expense:
Deposits 1,167,474 1,131,638
Borrowings 232,174 61,298
---------- ----------
Total interest expense 1,399,648 1,192,936
---------- ----------
Net interest income 1,247,336 1,129,127
Provision for loan losses 10,054 18,486
---------- ----------
Net interest income after provision for loan losses 1,237,282 1,110,641
---------- ----------
Non-interest income:
Gain on loan sales 44,689 --
Service charges and fees 30,569 29,458
---------- ----------
Total non-interest income 75,258 29,458
---------- ----------
Non-interest expense:
Compensation and benefits 497,128 282,985
Occupancy costs 51,886 42,025
Franchise tax 113,990 120,271
Federal deposit insurance premiums 13,416 12,730
Data processing 30,133 25,339
Legal, accounting and examination fees 34,612 24,005
Consulting fees 5,913 7,478
Advertising 12,004 8,393
Other 79,413 69,390
---------- ----------
Total non-interest expense 838,495 592,616
---------- ----------
Income before income tax 474,045 547,483
Income tax 168,000 186,400
---------- ----------
Net income $ 306,045 $ 361,083
========== ==========
Earnings per share, basic and diluted $ 0.12 $ 0.14
---------- ----------
</TABLE>
2
<PAGE> 5
WESTWOOD HOMESTEAD FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
Cash flows from operating activities: 1998 1997
------------ ------------
<S> <C> <C>
Net income $ 306,045 $ 361,083
Adjustments to reconcile net income to net cash provided by operating
activities:
Net amortization of premium and discounts 2,932 (17,197)
Depreciation of premises and equipment 36,150 25,525
Federal Home Loan Bank stock dividend (18,300) (16,400)
Deferred income taxes (35,044) (12,300)
Accretion of net loan fees deferred 40,560 48,403
Provision for loan losses 10,054 18,486
Gain on loan sales (44,689) --
Net loans repaid (originated) held for sale -- 12,615
Proceeds from sale of loans held for sale 2,260,992 --
Employee Stock Ownership Plan amortization 81,543 61,688
Management Recognition Plan 64,936 --
Change in:
Accrued interest receivable (10,742) (154,264)
Prepaid expenses and other assets (281,897) (229,347)
Accrued expenses (8,407) (60,004)
Income taxes 203,044 198,701
------------ ------------
Net cash provided by operating activities 2,607,177 236,989
------------ ------------
Cash flows from investing activities:
Proceeds from maturing investment securities 1,000,000 --
Principal payments on mortgage backed securities 158,356 94,474
Net increase in loans receivable (4,350,605) (10,080,248)
Additions to premises and equipment (103,967) --
------------ ------------
Net cash used in investing activities (3,296,216) (9,985,774)
------------ ------------
Cash flow from financing activities:
Net decrease in deposits (4,753,918) (3,895)
Cash dividends (123,179) (199,036)
Purchase of MRP shares (607,622) --
Short term Federal Home Loan Bank advances 1,000,000 5,000,000
Long term Federal Home Loan Bank advances repayment (1,443) (2,851)
Long term Federal Home Loan Bank advances 0 5,000,000
Net decrease in advances from borrowers for taxes and insurance (354,774) (272,851)
============ ============
Net cash (used) provided by financing activities (4,840,936) 9,521,367
============ ============
Net decrease in cash and cash equivalents (5,529,975) (227,418)
Beginning cash and cash equivalents 10,368,279 13,420,389
============ ============
Ending cash and cash equivalents $ 4,838,304 $ 13,192,971
============ ============
</TABLE>
3
<PAGE> 6
WESTWOOD HOMESTEAD FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1998 and December 31, 1997
(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, income 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,
1997. 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 statement of income for the
quarter ended March 31, 1998 is not necessarily indicative of the
results which may be expected for the entire year.
(2) Comprehensive Income
---------------------
The Company adopted FASB Statement No. 130, Reporting Comprehensive
Income", during the first quarter of 1998. The statement establishes
standards for reporting and display of comprehensive income and its
components. Comprehensive income includes net income and other
comprehensive income, which for the Company includes unrealized gains
and losses on securities available for sale.
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Net Income 306,045 361,083
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during the period (3,421) 17,683
-------- --------
Comprehensive income 302,624 378,766
======== ========
</TABLE>
(3) Earnings Per Share
------------------
The following table presents the numerators (net income) and
denominators (average shares outstanding) for the basic and diluted net
income per share computations for the three months ended March 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net income, basis and diluted $ 306,045 $ 361,083
Average shares outstanding 2,536,483 2,579,164
Effect of diluted securities 17,454 --
---------- ----------
Average shares outstanding including dilutive shares 2,553,937 2,579,164
========== ==========
Net income per share, basis $ 0.12 $ 0.14
========== ==========
Net income per share, diluted $ 0.12 $ 0.14
========== ==========
</TABLE>
(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.
4
<PAGE> 7
(5) Allowance for loan losses
-------------------------
Activity in the allowance for loan losses as follows:
<TABLE>
<S> <C> <C>
March 31, 1998 December 31, 1997
Balance, January 1 266,263 165,513
Loan charge-offs -- --
Recoveries -- --
Provision for loan losses 10,054 100,750
---------------- -----------------
Balance, end of period 276,317 266,263
================ =================
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND DECEMBER 31, 1997
Total assets decreased $4.4 million, or 3.3% from $134.3 million at
December 31, 1997 to $129.9 million at March 31, 1998. Liquidity generated from
the security sales in the previous quarter was used to fund loan demand and
withdrawals of maturing high rate CDS. Cash and cash equivalents decreased $5.5
million to $4.8 million at March 31, 1998. Loans receivable increased $2.1
million from $117.6 million at December 31, 1997 to $119.7 million at March 31,
1998 as a result of $13.7 million of originations and $2.2 million in loan
sales.
The Bank has completed construction on a two lane drive through window
and drive up ATM at the main office. The expanded hours and additional
convenience provided by this investment will facilitate increasing the number of
checking accounts. Also, construction has started on a $1 million expansion of
the main office to accommodate the bank's current and future office space needs
particularly in the loan department.
Total liabilities decreased $4.1 million from $104.1 million at
December 31, 1997 to $100.0 million at March 31, 1998. Deposits decreased $4.8
million during the quarter primarily as a result of the withdrawal of $3.6
million of high rate long term CDS. At March 31, 1998, the Bank had $4.2 million
in ten year CDS with interest rates between 9.00% and 10.00% of which $2.2
million will mature by December 31, 1998.
COMPARISON OF OPERATING RESULTS FOR THE QUARTER ENDED MARCH 31, 1998 AND 1997
Net Income. Net income for the quarter ended March 31, 1998 was
$306,000, or 12 cents per share, as compared with $361,000, or 14 cents per
share for the quarter ended March 31, 1997. Return on average equity and return
on average assets were 4.16% and 0.94%, respectively, for the quarter ended
March 31, 1998 compared to 3.58% and 1.17%, respectively, for the same quarter
in 1997.
Net Interest Income. Net interest income increased $118,000 to
$1,247,000 for the quarter ended March 31, 1998 from $1,129,000 for the quarter
ended March 31, 1997. This 10.5% increase was achieved despite a $10.9 million
decrease in average equity from the Return of Capital paid on December 22, 1997.
Net interest margin increased to 3.92% for the quarter ended March 31, 1998 as
compared to 3.69% for the same quarter in 1997 primarily due to an 88 basis
point increased net interest rate spread.
5
<PAGE> 8
Interest Income. Interest income increased $325,000, or 14.0%, to $2.6
million for the quarter ended March 31, 1998 from $2.3 million for the quarter
ended March 31, 1997. Interest income on loans receivable increased $702,000, or
38.3%, to $2.5 million for the quarter ended March 31, 1998 from $1.8 million
for the quarter ended March 31, 1997. The average balance of loans receivable
increased 33.9% to $119.8 million for the quarter ended March 31, 1998 from the
same quarter a year ago while the average yield increased 27 basis points to
8.46%. The average balance of investments and other interest earning assets
decreased $25.5 million from the year ago quarter resulting in $377,000 less in
other interest income. As of March 31, 1998 loans receivable represented 92.2%
of total assets as compared to 73.1% at March 31, 1997.
Interest Expense. Interest expense increased $207,000 to $1.4 million
for the quarter ended March 31, 1998 from $1.2 million for the quarter ended
March 31, 1997. An increase in the average balance of interest bearing
liabilities of $16.8 million was partially offset by a reduction of 15 basis
points in the average rate to 5.63% for the quarter ended March 31, 1998 from
5.78% for the quarter ended March 31, 1997. The average balance of deposits
increased $6.1 million while the average rate dropped 25 basis points to 5.52%.
The average balance of advances increased $10.7 million while the average rate
increased 25 basis points to 6.28%.
Provision for Loan Losses. The Bank established provisions for loan
losses of $10,000 and $18,000 during the quarters ended March 31, 1998 and 1997,
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.
The Bank has $155,000 of non performing loans that include three loans
of which one for $59,000 is paid current as of April 1998. The remaining $96,000
represents two loans to one borrower that, as of March 1998, is classified as
non-accrual. These loans are in process of foreclosure and a charge of
approximately $15,000 to the allowance will be made in the second quarter of
fiscal 1998.
Non-Interest Income. Non-interest income increased $46,000 to $75,000
for the quarter ended March 31, 1998 from $29,000 for the quarter ended March
31, 1997. The Bank recorded $45,000 in gain on loan sales during the quarter
ended March 31, 1998 while no loans were sold during the prior year quarter.
Non-Interest Expense. Non-interest expense increased $245,000 to
$838,000 for the quarter ended March 31, 1998 from $593,000 for the quarter
ended March 31, 1997. This increase was due primarily to an increase of
$214,000, or 75.6%, in compensation and benefits during the quarter ended March
31, 1998 as compared to the quarter ended March 31, 1997 primarily due to the
increased cost of the stock benefit plans and increased staffing levels. The
ratio of non-interest expense to average assets was 2.59% for the quarter ended
March 31, 1998 as compared to 1.92% for the same quarter a year ago.
Income Taxes. The Company has recorded income tax expense of $168,000
and $186,000 for the quarters ended March 31, 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $4.8 million at March 31, 1998 which
primarily 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 expand the Bank's
lending activities and pursue other capital management measures. Due to the
current interest rate environment, management has adjusted these lending
activities to emphasize mortgage banking. At March 31, 1998 the Bank's servicing
portfolio totaled $5.2 million.
6
<PAGE> 9
The Company will also pursue growth externally through the selective
acquisition of other financial institutions. Due to the highly competitive
market for financial institution acquisitions in the Bank's market areas,
however, there can be no assurance that the Company will be successful in
identifying attractive acquisition candidates or in acquiring 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, 1998, 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 $ 28,986,028 22.42% 1,939,454 1.50% 6,464,848 5.00%
Tier I/Core Capital 28,986,028 22.42% 3,878,909 3.00% 7,757,818 6.00%
Risk-based Capital 29,262,345 40.52% 5,778,000 8.00% 7,222,500 10.00%
</TABLE>
YEAR 2000 COMPLIANCE
The Bank has established a Year 2000 Action Plan to review the
internal information systems as well as the efforts of the outside data
processing service provider. The progress of the Action Plan is monitored by the
Board of Directors and is progressing satisfactorily.
Most of the material data processing that could be affected by this
problem is provided by a third party service bureau who provides quarterly
updates on compliance progress. They have informed the Bank that compliance is
85% complete and client testing will commence in September 1998. If the service
bureau is unable to resolve this problem in time and the Bank is unable to
engage another provider, we would likely experience significant data processing
delays, mistakes or failures.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank's March 31, 1998 analysis of the impact of changes in interest
rates on net interest income over the next 12 months indicate no significant
changes in the Bank's exposure to interest rate changes since December 31, 1997.
The table below illustrates the simulation analysis of the impact of a 100 or
200 basis point upward or downward movement in interest rates. The impact of the
rate movement was simulated as if rates changes immediately from March 31, 1998
levels, and remained constant at those levels thereafter.
<TABLE>
<CAPTION>
Movement in March 31, 1998 interest rates
-------------------------------------------
+100 bps +200 bps -100 bps -200 bps
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net interest income decrease ($ 236) ($ 480) $ 235 $ 492
Net income per share decrease ($ 0.09) ($ 0.19) $ 0.09 $ 0.19
</TABLE>
7
<PAGE> 10
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
-------------------
8
<PAGE> 11
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 12, 1997 By: /s/ Michael P. Brennan
------------------------------
Michael P. Brennan
(Principal Executive Officer)
Date: May 12, 1997 By: /s/ John E. Essen
------------------------------
John E. Essen
(Principal Financial Officer)
9
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,277,103
<INT-BEARING-DEPOSITS> 3,104,909
<FED-FUNDS-SOLD> 456,292
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,983,836
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 119,731,701
<ALLOWANCE> 276,317
<TOTAL-ASSETS> 129,872,272
<DEPOSITS> 83,480,089
<SHORT-TERM> 1,000,000
<LIABILITIES-OTHER> 764,795
<LONG-TERM> 14,763,375
0
0
<COMMON> 28,434
<OTHER-SE> 29,835,579
<TOTAL-LIABILITIES-AND-EQUITY> 129,872,272
<INTEREST-LOAN> 2,532,617
<INTEREST-INVEST> 44,833
<INTEREST-OTHER> 69,534
<INTEREST-TOTAL> 2,646,984
<INTEREST-DEPOSIT> 1,167,474
<INTEREST-EXPENSE> 1,399,648
<INTEREST-INCOME-NET> 1,247,336
<LOAN-LOSSES> 10,054
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 838,495
<INCOME-PRETAX> 474,045
<INCOME-PRE-EXTRAORDINARY> 474,045
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306,045
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<YIELD-ACTUAL> 2.68
<LOANS-NON> 95,742
<LOANS-PAST> 59,129
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 266,263
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 276,317
<ALLOWANCE-DOMESTIC> 276,317
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
