UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Homestead Bancorp, Inc.
(Exact Name of Registrant as specified in its charter)
(504) 386-3379
Louisiana 72-1416514
(State of incorporation or organization) (IRS Employer Identification No.)
195 North Sixth Street
Ponchatoula, Louisiana 70454
(Address of principal executive office) (including zip code)
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Consolidated Financial Statements:
Page
Consolidated Statements of Financial Condition -
March 31, 1999 and December 31, 1998 1 - 2
Consolidated Statements of Income -
for the three months ended March 31, 1999 and 1998 3
Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows -
for the three months ended March 31, 1999 and 1998 5 - 6
Notes to Consolidated Financial Statements 7 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 17
Part II - OTHER INFORMATION
Legal Proceedings 18
Changes in Securities 18
Defaults Upon Senior Securities 18
Submission of Matters to a Vote of Security Holders 18
Other Information 18
Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
<TABLE>
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of March 31, 1999 and December 31, 1998
ASSETS
<CAPTION>
(UNAUDITED) (AUDITED)
March 31, December 31,
1999 1998
----------- ------------
(In Thousands)
<S> <C> <C>
Cash and Cash Equivalents $ 885 $ 609
Interest-bearing Deposits in Other Institutions 3,688 3,094
Securities:
Investment Securities Available
for Sale (Amortized Cost of
$2.6 million and $2.3 million) 2,607 2,315
Mortgage-Backed Securities
Available for Sale (Amortized
Cost of $16.1 million and $17.2 million) 16,036 17,210
Mortgage-Backed Securities
Held to Maturity (Fair Value of
$9.3 million and $10.1 million) 9,290 10,203
Federal Home Loan Bank Stock, at Cost 2,074 1,665
----------- -----------
Total Securities 30,007 31,393
Loans Held for Sale 474 267
Loans Receivable 58,777 52,401
Leases Receivable 243 274
----------- -----------
Total Loans and Leases Receivable 59,020 52,675
Less: Allowance for Loan and Lease Losses (302) (302)
----------- -----------
Net Loans and Leases Receivable 58,718 52,373
Premises and Equipment, Net 537 547
Accrued Interest Receivable 502 483
Other Assets 48 53
----------- -----------
Total Assets $ 94,859 $ 88,819
=========== ===========
1
</TABLE>
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(UNAUDITED) (AUDITED)
March 31, December 31,
1999 1998
----------- ------------
(In Thousands)
<S> <C> <C>
Deposits $ 40,510 $ 39,829
Advances from Borrowers for Taxes and
Insurance 48 51
Advances from Federal Home
Loan Bank 39,289 32,765
Income Taxes Payable 154 141
Other Liabilities 120 91
----------- -----------
Total Liabilities 80,121 72,877
Stockholders' Equity as Restated:
Common Stock - $.01 Par Value;
10,000,000 Shares Authorized, 1,332,870
Shares Issued and Outstanding in 1999
1,477,870 in 1998 15 15
Paid-in Capital in Excess of Par 12,942 12,942
Retained Earnings - Substantially Restricted 3,933 3,875
Accumulated Other Comprehensive Income (19) (6)
----------- -----------
16,871 16,826
Treasury Stock - 145,000 shares at cost (1,272) 0
Unearned ESOP Shares (828) (851)
Common Stock Acquired by Recognition Plans (33) (33)
----------- -----------
Total Stockholders' Equity 14,738 15,942
----------- -----------
Total Liabilities and Stockholders'
Equity $ 94,859 $ 88,819
=========== ===========
2
</TABLE>
<PAGE>
<TABLE>
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended March 31, 1999 and 1998
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
March 31,
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Interest Income:
Loans and Leases $ 1,074 $ 663
Mortgage-Backed Securities 378 373
Investment Securities 65 44
Other 65 12
---------- ----------
Total Interest Income 1,582 1,092
Interest Expense:
Deposits 426 463
Borrowings 507 161
---------- ----------
Total Interest Expense 933 624
---------- ----------
Net Interest Income 649 468
Provision for (Recovery of) Loan and Lease
Losses 0 1
---------- ----------
Net Interest Income After Provision for
(Recovery of) Loan and Lease Losses 649 467
---------- ----------
Noninterest Income:
Gain on Sale of Loans 6 62
Loan Fees and Service Charges 80 61
Other Income 2 7
---------- ----------
Total Noninterest Income 88 130
Noninterest Expense:
Compensation and Benefits 250 210
Occupancy and Equipment Expense 64 40
Federal Insurance Premium 7 7
Net Real Estate Owned Expense 0 0
Loss on Sale of Securities 8 0
Other 205 146
---------- ----------
Total Noninterest Expense 534 403
---------- ----------
Income Before Provision for Income
Taxes 203 194
Income Taxes 70 66
---------- ----------
Net Income $ 133 $ 128
========== ==========
Per Share:
Earnings Per Common Share 0.09 0.09
========== ==========
Earnings Per Common Share - Assuming Dilution 0.09 0.09
========== ==========
Cash Dividends Declared 0.05 0.09
========== ==========
3
</TABLE>
<PAGE>
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three months ended March 31, 1999 and 1998
(UNAUDITED) (AUDITED)
March 31, March 31,
1999 1998
----------- -----------
(In Thousands)
Common Stock:
Balance - Beginning of Period $ 15 $ 61
Restatement due to Conversion -- (47)
----------- -----------
Balance - Beginning of Period as Restated $ 15 14
----------- -----------
Balance - End of Period $ 15 $ 14
=========== ===========
Paid-in Capital in Excess of Par:
Balance - Beginning of Period $ 12,942 $ 2,017
Restatement due to Conversion -- 47
----------- -----------
Balance - Beginning of Period as Restated 12,942 2,064
----------- -----------
Exercise of Stock Options -- 1
Dividends Declared and Waived
by Holding Company -- 91
Balance - End of Period $ 12,942 $ 2,156
=========== ===========
Retained Earnings:
Balance - Beginning of Period $ 3,875 $ 3,734
Net Income 133 128
Cash Dividends Declared and Paid (75) (30)
Dividends Declared and Waived
by Holding Company -- (91)
----------- -----------
Balance - End of Period $ 3,933 $ 3,741
=========== ===========
Treasury Stock
Balance - Beginning of Period $ -- $ --
Repurchase of Stock (1,272) --
----------- -----------
Balance - End of Period $ (1,272) $ --
=========== ===========
Accumulated Other Comprehensive Income:
Balance - Beginning of Period $ (6) $ (35)
Net Change in Unrealized Gain (Loss) (13) 50
----------- -----------
Balance - End of Period $ (19) $ 15
=========== ===========
Unearned Employee Stock Ownership
Plan Shares:
Balance - Beginning of Period $ (851) $ --
Shares Released for Allocation 23 --
----------- -----------
Balance - End of Period $ (828) $ --
=========== ===========
Director & Management Recognition Plans:
Balance - Beginning of Period $ (33) (42)
----------- -----------
Balance - End of Period $ (33) $ (42)
=========== ===========
Comprehensive Income:
Net Income $ 133 $ 128
Other Comprehensive Income, Net of Tax:
Unrealizied Gains (Losses) on
Securities Available for Sale (13) 50
Reclassification Adjustments 8 --
----------- -----------
Total Comprehensive Income $ 128 $ 178
=========== ===========
4
<PAGE>
<TABLE>
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1999 and 1998
<CAPTION>
(UNAUDITED)
March 31
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 133 $ 128
Adjustments to Reconcile Net Income
to Net Cash Provided by (Used in)
Operating Activities:
Depreciation 10 9
Provision for (Recovery of)
for Loan and Lease Losses 0 1
Loss on Sale of Real Estate Owned -- 0
Net Amortization of Premiums on Securities 41 18
Realizied Loss on Sale of Securities 8 --
Stock Dividends on Federal Home
Loan Bank Stock (26) (9)
Net (Increase) Decrease in Loans
Held for Sale (207) (772)
Change in Assets and Liabilities
(Increase) Decrease in Accrued
Interest Receivable (19) (10)
(Increase) Decrease in Other
Assets 5 89
Increase (Decrease) in Income
Taxes Payable 13 (36)
Increase (Decrease) in Other
Liabilities 29 99
--------- ---------
Net Cash Provided by (Used in) Operating Activities (13) (483)
Cash Flows From Investing Activities:
Purchases of Property and Equipment 0 (1)
Maturities of Investment Securities 400 300
Purchases of Investment Securities (700) (300)
Maturities of Mortgage-Backed Securities 2,023 1,221
Purchases of Mortgage-Backed
Securities (946) (339)
Proceeds from Sale of securities available for sale 955 0
Net (Increase) Decrease in Loans and Leases
Receivable (6,321) (1,570)
---------- ----------
Net Cash Provided by (Used in) Investing Activities (4,589) (689)
5
</TABLE>
<PAGE>
<TABLE>
(UNAUDITED)
March 31
----------------------------
1,999 1,998
---------- ----------
<S> <C> <C>
Cash Flows From Financing Activities:
Acquisition of Treasury Stock (1,272) --
Net Increase (Decrease) in Money Market Accounts,
NOW Accounts and Savings Accounts 569 (154)
Net Increase (Decrease) in Certificates
of Deposit 112 (575)
Proceeds from (Repayment of) Federal Home
Loan Bank Advances 6,524 2,400
Increase (Decrease) in Advances from
Borrowers for Taxes and Insurance (3) (2)
Dividends Paid on Common Stock (75) (30)
Purchase of Federal Home Loan Bank Stock (383) (111)
---------- ----------
Net Cash Provided by (Used In)
Financing Activities 5,472 1,528
---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 870 356
Cash and Cash Equivalents -
Beginning of Period 3,703 1,254
---------- ----------
Cash and Cash Equivalents -
End of Period $ 4,573 $ 1,610
========== ==========
Supplemental Disclosures of Cash flow
Information:
Cash Payments for:
Interest Paid to Depositors $ 426 $ 463
========== ==========
Interest Paid on Borrowings $ 507 $ 161
========== ==========
Income Taxes $ 63 $ 143
========== ==========
Supplemental Schedules of Noncash
Investing and Financing Activities:
Real Estate Acquired in Settle-
ment of Loans and Leases $ -- $ --
========== ==========
Increase (Decrease) in Unrealized Gain (Loss)
on Securities Available for Sale $ (13) $ 78
========== ==========
(Increase) Decrease in Deferred Tax
Effect on Unrealized Gain (Loss) on Securities
Available for Sale $ (4) $ 26
========== ==========
6
</TABLE>
<PAGE>
Homestead Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
Note 1 - Basis of Presentation -
The accompanying consolidated financial statements for the
period ended March 31, 1999 include the accounts of Homestead
Bancorp, Inc. (the "Company") and its wholly owned subsidiary,
Ponchatoula Homestead Savings, F.A. (the "Association").
Currently, the business and management of Homestead Bancorp, Inc.
is primarily the business and management of the Association. All
significant intercompany transactions and balances have been
eliminated in the consolidation.
On February 5, 1998, Ponchatoula Homestead Savings, F. A.
(The Association) incorporated Homestead Bancorp, Inc. (The
"Company") to facilitate the conversion of Homestead Mutual
Holding Company (the "MHC") from mutual to stock form (the
Conversion). In connection with the Conversion, the Company
offered its common stock to the depositors and borrowers of the
Association as of specified dates, to an employee stock ownership
plan and to members of the general public. Upon consummation of
the Conversion on July 17, 1998, the MHC merged into the
Association, the Association then merged with an interim
subsidiary of the Company (with the Association as the surviving
entity). All of the Association's outstanding common stock
(other than shares held by the MHC, which were cancelled) was
exchanged for common stock of the Company, and the Company became
the holding company for the Association and issued shares of
common stock to the general public.
The Company filed a Form SB-2 with the Securities and
Exchange Commission ("SEC") on April 2, 1998, which as amended
was declared effective by the SEC on May 14, 1998. The
Association filed a Form AC with the Office of Thrift Supervision
("OTS") on April 2, 1998. The Form AC and related offering and
proxy materials, as amended, were conditionally approved by the
OTS by letters dated May 14, 1998. The Company also filed an
Application H-(e) 1-S with the OTS on April 17, 1998, which was
conditionally approved by the OTS letter dated May 26, 1998. The
members of the MHC and the stockholders of the Association
approved the Plan at special meetings held on July 1, 1998, and
the subscription and community offerings closed on June 23, 1998.
In connection with the incorporation of the Company, the
Company issued 100 shares of common stock to the Association.
The shares were cancelled upon consummation of the Conversion,
and the Conversion was accounted for under the pooling of
interests method of accounting.
7
<PAGE>
The Company sold 1,119,543 shares of common stock in the
subscription offering at a price of $10.00 per share, for
aggregate gross proceeds of $11,195,430. In addition, a total of
358,402 shares of common stock were issued by the Company in
exchange for all of the 152,635 shares of common stock of the
Association outstanding prior to consummation of the Conversion
(excluding the 453,710 shares held by the MHC, which were
cancelled), based upon an exchange ratio of 2.34810 shares of
Company common stock for each share of Association common stock.
The accompanying unaudited financial statements were
prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include information or footnotes necessary for
complete presentation of financial position, results of
operations and cash flows in conformity with generally accepted
accounting principles. However, all adjustments (consisting only
of normal recurring accruals) which, in the opinion of
management, are necessary for a fair presentation of the
financial statements have been included.
Comprehensive Income
The Financial Accounting Standards Board issued Statement
No. 130 "Reporting Comprehensive Income", which becomes effective
for fiscal years beginning after December 15, 1997. This
statement establishes standards for reporting and display of
comprehensive income and its components which are revenues,
expenses, gains, and losses that under GAAP are included in
comprehensive income but excluded from net income. The Company
adopted this statement in 1998. The components of comprehensive
income are disclosed in the Statement of Changes in Stockholders'
Equity for all periods presented.
Note 2 - Employee Stock Ownership Plan -
The Company sponsors a leveraged employee stock ownership
plan (ESOP) that covers all employees who have at least six
months of service with the Company, and obtained age 20. The
ESOP shares initially were pledged as collateral for its debt.
The debt is being repaid based on a ten-year amortization and the
shares are being released for allocation to active employees
annually over the ten-year period. The shares pledged as
collateral are deducted from stockholder's equity as unearned
ESOP shares in the accompanying balance sheets. ESOP
compensation expense was $18,000 for the three months ended March
31, 1999 based on the annual release of shares.
Note 3 - Dividends and Earnings Per Share -
The Company declared a quarterly dividend of $.05 for the
first quarter of 1999. Total dividends paid to stockholders in
the first three months of 1999 was $75,000.
Basic earnings per share is computed by dividing net income
by the weighted average number of shares of common stock
outstanding, which is 1,421,037 for the three month period ended
March 31, 1999. Earnings per common share - assuming dilution,
are computed by dividing net income by the weighted average
8
<PAGE>
number of shares of common stock outstanding plus the effect of
diluted securities, which was 1,442,114 for the three month
period ended March 31, 1999. Earnings per share for the prior
periods have been restated to reflect the transactions of the
conversion.
Note 4 - Stock Option and Management Recognition Plans -
1996 Stock Incentive Plan
This program was designed to attract and retain qualified
personnel in key positions, provide key employees with a
proprietary interest in the Association an incentive to
contribute to the success of the Association and reward key
employees for outstanding performance. An aggregate of 10,782
shares of authorized but unissued Common Stock of the Association
was reserved for issuance under the Plan, which is equal to 7.5%
of Common Stock issued to the public in connection with the
formation of the mutual holding company ("the offering"). The
exercise price of each option equals the market price of the
Association's stock on the date of grant and an option's maximum
term is 10 years. Options are granted and vested at the
discretion of the Compensation Committee. Ninety percent of the
options were granted on July 10, 1996. Subsequent to the
conversion on July 19, 1998, the total number of shares
outstanding in the Plan were increased to reflect the exchange
ratio. At March 31, 1999, shares available for grant under this
plan including exchange shares amounted to 3,926 shares.
1996 Directors' Stock Option Plan
In order to attract and retain qualified directors for the
Association, the Board of Directors and stockholders of the
Association have adopted the 1996 Directors' Stock Option Plan.
An aggregate of 3,594 shares of authorized but unissued Common
Stock of the Association was reserved for issuance under the
Directors' Stock Option Plan, which is equal to 2.5% of the
Common Stock of the Association issued in the offering. The
exercise price of each option equals the market price of the
Association's stock on the date of grant and an option's maximum
term is 10 years. Ninety percent of the options were granted on
the date the Plan was approved by the stockholders of the
Association, which was April 10, 1996. The options become
exercisable after six months from the grant date. The remaining
ten percent were granted one year after approval by stockholders,
which was April 10, 1997. All options were exercised prior to
July 19, 1998.
1996 Management Recognition Plan for Officers
The objective of this plan is to enable the Association to
provide officers and key employees with a proprietary interest in
the Association as compensation for their contributions to the
Association and as an incentive to contribute to the
Association's future success. An aggregate of 4,312 shares of
authorized Common Stock of Ponchatoula was issued to the
Management Recognition Plan for Officers, which is equal to 3.0%
of the Common Stock of the Association issued in the offering.
The awards are allocated at the discretion of the Committee.
9
<PAGE>
Shares vest at the rate of 20% on each annual anniversary date.
Subsequent to the conversion on July 19, 1998, the total number
of granted but unvested shares were increased to reflect the
exchange ratio.
1996 Management Recognition Plan for Directors
The objective of this plan is to enable the Association to
provide non-employee directors with a proprietary interest in
the Association as compensation for their contributions to
the Association and as an incentive to contribute to the
Association's future success. An aggregate of 1,434 shares
of authorized Common Stock of the Association was issued to the
Management Recognition Plan for Directors, which is equal to 1.0%
of the Common Stock of the Association issued in the offering.
Ninety percent of the awards were granted on the date the Plan
was approved by the stockholders of the Association, which was
April 10, 1996. The remaining 144 shares were granted April 10,
1997. Shares vest at the rate of 20% on each annual anniversary
date. Subsequent to the conversion on July 19, 1998, the total
number of granted but unvested shares were increased to reflect
the exchange ratio.
Note 5 - The Conversion -
Homestead Bancorp, Inc. is a Louisiana corporation organized in
February 1998 by the Association for the purpose of becoming a
unitary holding company of the Association. The Company acquired
all of the capital stock of the Association in exchange for
common stock of the Company and issued additional shares to
persons with subscription rights. Immediately following the
Conversion, the only significant assets of the Company are the
capital stock of the Association, the Company's loan to the ESOP,
and the remainder of the net Conversion proceeds retained by the
Company. Initially, the business and management of the Company
will primarily consist of the business and management of the
Association. Initially, the Company will neither own nor lease
any property, but will instead use the premises, equipment and
furniture of the Association. At the present time, the Company
does not intend to employ any persons other than officers of the
Association, and the Company will utilize the support staff of
the Association from time to time. Additional employees will be
hired as appropriate to the extent the Company expands or changes
its business future.
Management believes that the holding company structure will
provide the Company with additional flexibility to diversify,
should it decide to do so, its business activities through
existing or newly formed subsidiaries, or through acquisitions of
or mergers with other financial institutions and financial
services related companies. Although there are no current
arrangements, understandings or agreements, written or oral,
regarding any such opportunities or transactions, the Company is
now in a position, subject to regulatory limitations and the
Company's financial position, to take advantage of any such
acquisition and expansion opportunities that may arise. The
initial activities of the Company are anticipated to be funded by
proceeds retained by the Company and earnings thereon or,
alternatively, through dividends from the Association.
10
<PAGE>
Homestead Bancorp, Inc. and Subsidiary
Managements Discussion and Analysis
Of Financial Condition and Results of Operations
March 31, 1999
General
The following discussion compares the consolidated financial
condition of Homestead Bancorp, Inc. (the "Company") and
Subsidiary, Ponchatoula Homestead Savings, F.A. (the
"Association") at March 31, 1999 to December 31, 1998 and the
results of operations for the three months ended March 31, 1999
with the same period in 1998. Currently, the business and
management of Homestead Bancorp, Inc. is primarily the business
and management of the Association. This discussion should be
read in conjunction with the interim consolidated financial
statements and footnotes included herein.
The Company's results of operations depends primarily on its
net interest income, which is the difference between interest
income on interest-earning assets and interest expense on
interest bearing liabilities. The Company's principle interest-earning
assets are loans and leases, mortgage-backed securities
and investment securities. The Company's results of operations
also are affected by the provision for losses on loans and
leases; the level of its other income, including loan fees and
service charges, federal insurance premiums, net real estate
owned expense and miscellaneous other expenses; as well as its
income tax expense.
Changes in Financial Condition
At March 31, 1999, the Company's total assets, deposits and
equity amounted to $94.9 million, $40.5 million, and $14.7
million respectively compared to $88.8 million, $39.8 million,
and $15.9 million respectively at December 31, 1998. The increase
in total assets of $6.1 million or 6.9% was due primarily to an
increase of $6.3 million in the net loan and lease portfolio.
The increase of 12.1% in net loan and lease portfolio was due to
new loan originations exceeding new loan sales and repayment,
combined with the Company retaining a greater number of fixed
rate loans in its loan portfolio. Interest-bearing deposits in
other institutions increased $594,000 during the first three
months to $3.7 million. Investments in Mortgage-Backed
securities decreased in the first three months of 1999 by $2.1
million or 7.6%, due to repayment of Mortgage-Backed securities
exceeding new purchases. Investment in Federal Home Loan Bank
stock increased in the first three months of 1999 by $409,000 or
24.6%, due to the purchase of additional Federal Home Loan Bank
stock to facilitate the long term borrowing from Federal Home
Loan Bank.
The Company's short term borrowing from the Federal Home
Loan Bank decreased during the first three months of 1999 by
$100,000 or 1.1%. Homestead uses the proceeds from short term
borrowing to finance the purchase of mortgage-backed securities.
The Company's long term borrowing from the Federal Home Loan Bank
increased during the first three months of 1999 by $6.6 million.
11
<PAGE>
Homestead uses the proceeds from long term borrowing to fund long
term fixed rate mortgages. Deposits with the Company have
increased by $681,000 or 1.7% in the first three months of 1999,
due to the stability and securities of the deposit as an
investment, compared to other investment opportunities. The
equity of the Company decreased $1.2 million or 7.6% in the first
three months of 1999, due primarily to repurchase of the
Company's Common Stock in the stock repurchase plan. At March
31, 1999 the Company had repurchased $1.3 million of it's Common
Stock, this amount appears in the Equity Section of the Statement
of Financial Condition, as Treasury Stock. Other factors which
contributed to the decrease in equity were an increase in
unrealized loss on available for sale securities of $13,000
combined with dividends paid out of $75,000 offset by net income
of $133,000.
Capital
The Association is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory---and possible additional discretionary---actions by
regulators that, if undertaken, could have a direct material
effect on the Association's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital
guidelines that involve quantitative measures of the
Association's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The
Association's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weighing, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Association to maintain minimum
amounts and ratios (set forth in the table below) of total and
Tier 1 capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of March
31, 1999, that the Association meets all capital adequacy
requirements to which it is subject.
As of March 31, 1999, the most recent notification
categorized the Association as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized the Association must maintain
minimum total risk-based, Tier I risk based, and Tier I leverage
ratios as set forth in the table. There are no conditions or
events since that notification that management believes have
changed the institution's category.
12
<PAGE>
The Association's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------------------- -------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999:
Total Capital (to Risk
Weighted Assets) $ 11,171 27.59% $ 3,239 >/= 8.0% $ 4,048 >/= 10.0%
Tier I Capital (to Risk
Weighted Assets) $ 10,901 26.92% $ 1,619 >/= 4.0% $ 2,429 >/= 6.0%
Tier I Capital (to Average
Assets) $ 10,901 11.74% $ 3,714 >/= 4.0% $ 4,642 >/= 5.0%
</TABLE>
Liquidity
The Association is required under applicable federal
regulations to maintain specific levels of "liquid" investments
in qualifying types of United States Government, federal agency
and other investments having maturities of five years or less.
Current regulations require that a Savings institution maintain
liquid assets of not less than 5% of its average daily balance of
net withdrawable shares.
Results of Operations
Net income for the first three months of 1999 was $133,000
compared to $128,000 for the same period of 1998. The increase
in net income of $5,000 or 3.9%, was primarily due to an increase
in net interest income after provision for recovery of loan and
lease losses of $182,000 or 39%, offset by a decrease in non-interest
income of $42,000 or 32.3%, with an increase in non-interest expense
of $131,000 or 32.5%, and an increase of $4,000 or 6.14% in income
tax expense. The decrease in non-interest income is due to a decrease
in gain on sale of loans of $56,000 or 90.3%, due to a decrease in
the volume of loans sold , offset by an increase in loan fees and
service charges of $19,000 of 31.1%. The increase in loan fees and
service charges is due to the increased loan volume. The increase
in total non-interest expense was attributable to an increase of
$40,000 in compensation expense combined with an increase of $59,000
in other non-interest expense. The increase in other non-interest
expense is attributable to the increase of professional fees and
services, in connection with the increased loan volume. The
increase in compensation expense of $40,000 is due to an increase
of $18,000 in ESOP compensation expense combined with an increase
in employee compensation.
Net Interest Income
The primary source of earnings for the Company is net
interest income; the difference between income generated from
interest-earning assets less interest expense on interest-bearing
13
<PAGE>
liabilities. The primary factors that affect interest income are
changes in the volume and type of interest-earning assets and
interest-bearing liabilities, along with changes in market rates.
Net interest income for the first three months of 1999 was
$649,000 an increase of $181,000 or 38.8% over the same period
of 1998. This increase in net interest income was primarily
attributable to an increase in interest income of $490,000 or
44.9%, offset by an increase in interest expense of $309,000 or
49.5% over the same period of 1998. The increase in interest
income was due to an increase in interest received from the
Company's loan and lease portfolio, combined with an increase in
interest earned on mortgage-backed securities and investment
securities. Interest rate spread is the yield of interest-earning
assets minus the costs of interest-bearing liabilities.
The interest rate spread for the three months ended March 31,
1999 was 2.13% as compared to 2.81% for the same period in 1998.
The table of Consolidated Average Balance Sheets and
Interest Rate Analysis for the three months ended March 31, 1999
and 1998 on page 16, and the corresponding table of Interest
Differentials on page 17, detail the effect of a change in
average balances and the change in interest yield and interest
cost have on net interest income for the respective periods.
Nonperforming Assets
Nonperforming assets include non-accrual loans and leases
and real estate owned. Loans are considered non-accrual when the
principal or interest becomes 90 days past due or when there is
uncertainty about the repayment of the principal and interest in
accordance with the terms of the loans. Non-accrual loans at
March 31, 1999 were $337,000 compared to $168,000 at March 31,
1998. The percentage of non-accrual loans and leases to total
loan and leases at March 31, 1999 is .57% up from .56% at March
31, 1998.
Real estate owned is properties held for sale acquired
through foreclosure or negotiated settlements of debt. At March
31, 1999 and 1998 the Association had no real estate owned.
Nonperforming assets at March 31, 1999 were .36% of total assets
compared to .26% at March 31, 1998.
Year 2000
The Company began the process of preparing its computer systems
and applications for the Year 2000 in 1997. The process involves
identifying and resolving date recognition problems in computer systems
and software, and to a lesser extent, other operating equipment, that
could be caused by the date change from December 31, 1999 to January 1, 2000.
The Company has completed its review of all business processes
that could be affected by the Year 2000 issue. The review
revealed that substantially all vendors which service the Company
have provided regular updates as to their progress in becoming
Year 2000 compliant. The Company keeps track of the vendors'
compliance efforts. Management approved a $10,000 budget for
future Year 2000 compliance issue that may surface. This amount
is in addition to the $12,000 of past expenditures regarding the
Company's Year 2000 compliance. Management does not believe that
issues related to the Year 2000 are reasonably likely to have or
will have a material effect on the Company's liquidity, capital
resources, or results of operation.
14
<PAGE>
However, management's ability to predict the results or the
effects of Year 2000 issues is inherently uncertain and subject
to factors that may cause actual results to materially differ
from those anticipated. Factors that could affect actual results
include the possibility that contingency plans and remediation
efforts will not operate as intended, the Company's failure to
timely or completely identify all software and hardware
applications that require remediation, unexpected costs, and the
general uncertainty associated with the impact of Year 2000
issues on the banking industry, the Company's customers, vendors,
and others with whom it conducts business. Readers are cautioned
not to place undue reliance on these forward looking statements.
15
<PAGE>
<TABLE>
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST RATE ANALYSIS
for the three months ended March 31, 1999 and 1998
<CAPTION>
Three months Ended Three months Ended
March 31, 1999 March 31, 1998
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------------------------------- --------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest - Earning Assets:
Loans and Leases Receivable $ 56,222 1,074 7.64% $ 29,794 663 8.89%
Mortgage - Backed Securities 25,966 378 5.83% 24,174 373 6.17%
Investment Securities 4,626 65 5.62% 3,168 44 5.58%
Other Interest - Earning Assets 5,621 65 4.63% 698 12 6.88%
---------------------------------- --------------------------------
Total Interest - Earning Assets $ 92,435 1,582 6.85% $ 57,834 1,092 7.55%
Noninterest - Earning Assets 2,443 1,316
---------- ----------
Total Assets $ 94,878 $ 59,150
========== ==========
Interest - Bearing Liabilities:
Deposits $ 40,323 426 4.23% $ 41,767 463 4.43%
Federal Home Loan Bank Advances 38,792 507 5.23% 10,858 161 5.94%
---------------------------------- --------------------------------
Total Interest-bearing Liabilities $ 79,115 933 4.72% $ 52,625 624 4.74%
Noninterest - Bearing Liabilities 465 465
---------- ----------
Total Liabilities $ 79,580 $ 53,090
========== ==========
Stockholders' Equity $ 15,298 $ 6,060
---------- ----------
Total Liabilities and Stockholders' Equity $ 94,878 $ 59,150
========== ==========
Net Interest Income; Interest Rate Spread $ 649 2.13% $ 468 2.81%
================ =================
Net Interest Margin as a % of Total Earning Assets 2.81% 3.24%
====== ======
16
</TABLE>
<PAGE>
<TABLE>
Homestead Bancorp, Inc. and Subsidiary
INTEREST DIFFERENTIALS
for the three months ended March 31, 1999 and 1998
<CAPTION>
March 31, 1999 VS March 31, 1998
CHANGE DUE TO TOTAL
VOLUME RATE CHANGE
-----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Interest - Earning Assets:
Loans and Lease Receivable $ 516 $ (105) $ 411
Mortgage-Backed Securities 27 (22) 5
Investment Securities 20 1 21
Other Interest-Earning assets 58 (5) 53
Total Interest Income $ 621 $ (131) $ 490
Interest - Bearing Liabilities:
Deposits $ (16) $ (21) $ (37)
Federal Home Loan Bank Advances 368 (22) 346
---------- -------- --------
Total Interest Expense $ 352 $ (43) $ 309
Increase (Decrease) in Interest Differential $ 973 $ (174) $ 799
========== ======== ========
17
</TABLE>
<PAGE>
Homestead Bancorp, Inc. and Subsidiary
FORM 10-QSB
Three Months Ended March 31, 1999
PART II - OTHER INFORMATION
Item 1 -Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 -Changes in Securities:
There are no matters required to be reported under this item.
Item 3 -Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security Holders.
There are no matters required to be reported under this item.
Item 5 -Other Information:
There are no matters required to be reported under this item.
Item 6 -Exhibits and Reports on Form 8-K:
a.) Exhibits:
No exhibits were filed on Form 8-K by the Registrant
during the quarter ended March 31, 1999.
Exhibit 27 - Financial Data Schedule
b.) Reports:
No reports on Form 8-K were filed by the Registrant
during the quarter ended March 31, 1999.
18
<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.
Homestead Bancorp, Inc
Date: May 14, 1999 BY /s/Lawrence C. Caldwell, Jr.
Lawrence C. Caldwell, Jr.
President and Chief Executive Officer
Date: May 14, 1999 BY /s/Kelly Morse
Kelly Morse
Comptroller
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 885
<INT-BEARING-DEPOSITS> 3,688
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,643
<INVESTMENTS-CARRYING> 9,290
<INVESTMENTS-MARKET> 9,300
<LOANS> 59,020
<ALLOWANCE> 302
<TOTAL-ASSETS> 94,859
<DEPOSITS> 40,510
<SHORT-TERM> 9,200
<LIABILITIES-OTHER> 120
<LONG-TERM> 30,089
0
0
<COMMON> 15
<OTHER-SE> 14,723
<TOTAL-LIABILITIES-AND-EQUITY> 94,859
<INTEREST-LOAN> 1,074
<INTEREST-INVEST> 443
<INTEREST-OTHER> 65
<INTEREST-TOTAL> 1,582
<INTEREST-DEPOSIT> 426
<INTEREST-EXPENSE> 933
<INTEREST-INCOME-NET> 649
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 205
<INCOME-PRETAX> 203
<INCOME-PRE-EXTRAORDINARY> 203
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
<YIELD-ACTUAL> 6.85
<LOANS-NON> 337
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 302
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 302
<ALLOWANCE-DOMESTIC> 302
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
