SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________________to______________________
Commission File Number: 0-26577
Webster City Federal Bancorp
(Exact name of registrant as specified in its charter)
United States 42-1491186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
820 Des Moines Street, Webster City, Iowa 50595-0638
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 515-832-3071
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 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. X Yes No
Indicate the number of shares outstanding for each of the issuer's classes
of common stock, as of the latest practicable date.
2,122,219 shares of common stock outstanding at October 30, 1999.
-----------------
<PAGE>
Webster City Federal Bancorp and Subsidiaries
Index
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
at September 30, 1999 and December 31, 1998
Consolidated Statements of Operations
for the three and nine months ended September 30, 1999
and 1998
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999
and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
Other Information
<PAGE>
Webster City Federal Bancorp and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- ----------------
Assets (Unaduited)
<S> <C> <C>
Cash and cash equivalents $ 2,525,270 $ 13,186,836
Time deposits in other financial institutions 2,585,000 2,265,000
Investment securities held to maturity 24,340,011 19,886,768
Loans receivable, net 59,899,107 56,751,506
Real estate, net - 22,460
Office property and equipment, net 488,835 496,356
Federal Home Loan Bank stock, at cost 613,200 613,200
Deferred taxes on income 137,000 137,000
Accrued interest receivable 659,655 663,648
Prepaid expenses and other assets 5,063 60,954
----------------- ----------------
Total assets $ 91,253,141 $ 94,083,728
================= ================
Liabilities and Stockholders' Equity
Deposits $ 66,180,999 $ 68,703,588
FHLB advance 1,200,000 1,200,000
Employee stock ownership plan borrowings - 159,064
Advance payments by borrowers for
taxes and insurance 84,096 219,583
Accrued interest payable 443,994 110,393
Current income taxes payable - 51,554
Accrued expenses and other liabilities 627,959 553,811
----------------- ----------------
Total liabilities 68,537,048 70,997,993
----------------- ----------------
Stockholders' Equity
Common stock, $.10 par value 212,222 211,599
Additional paid-in capital 9,093,712 9,012,687
Treasury Stock (63,725 shares at cost) (964,181) -
Retained earnings, substantially restricted 14,374,340 14,020,513
Unearned employee stock ownership plan shares - (159,064)
----------------- ----------------
Total stockholders' equity 22,716,093 23,085,735
----------------- ----------------
Total liabilities and stockholders' equity $ 91,253,141 $ 94,083,728
================= ================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
Webster City Federal Bancorp and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Income
Interest Income:
Loans receivable $1,126,751 $1,085,547 $3,326,603 $3,205,810
Mortgage-backed & related securities 140,104 201,387 443,098 671,544
Investment securities 239,282 246,707 694,862 774,840
Other interest earning assets 83,708 134,742 330,768 378,615
----------- ----------- ----------- ----------
Total interest income 1,589,846 1,668,383 4,795,330 5,030,809
Interest Expense:
Deposits 729,429 822,975 2,190,337 2,480,127
FHLB advance 14,689 14,689 43,589 40,076
ESOP loan 792 3,410 5,086 11,105
----------- ----------- ----------- ----------
Total interest expense 744,910 841,074 2,239,012 2,531,308
----------- ----------- ----------- ----------
Net interest income 844,936 827,309 2,556,318 2,499,501
Provision for losses on loans - - - -
----------- ----------- ----------- ----------
Net interest income after
provision for losses on loans 844,936 827,309 2,556,318 2,499,501
----------- ----------- ----------- ----------
Non-interest income:
Fees and service charges 47,848 41,151 116,487 143,641
Other 1,967 1,220 14,540 9,545
----------- ----------- ----------- ----------
Total non-interest income 49,815 42,371 131,027 153,186
----------- ----------- ----------- ----------
Expense
Non-interest expense:
Compensation, payroll taxes
and employees benefits 154,939 189,782 640,831 586,636
Office property and equipment 18,755 18,190 56,437 59,331
Data processing services 26,289 24,470 83,418 75,219
Federal insurance premiums 10,085 7,459 30,485 32,564
Other real estate expenses, net - (3,325) 1,008 1,920
Advertising 7,541 8,251 20,271 21,126
Other 143,243 84,871 348,819 271,661
----------- ----------- ----------- ----------
Total non-interest expense 360,854 329,698 1,181,269 1,048,457
----------- ----------- ----------- ----------
Earnings before taxes on income 533,897 539,982 1,506,076 1,604,230
Taxes on income 210,848 202,851 576,851 608,900
----------- ----------- ----------- ----------
Net earnings $ 323,049 $ 337,131 $ 929,225 $ 995,330
=========== =========== ----------- ----------
Earnings per share - basic $ 0.16 $ 0.16 $ 0.44 $ 0.48
=========== =========== =========== ==========
Earnings per share - diluted $ 0.15 $ 0.16 $ 0.44 $ 0.47
=========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Webster City Federal Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-----------------------------
1999 1998
------------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 929,225 $ 995,330
------------- ---------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 16,776 19,665
Amortization of premiums and discounts, net 7,588 15,421
Stock appreciation of allocated ESOP shares 9,061 31,897
Increase in accrued interest receivable (772) (172,111)
Decrease (Increase) in prepaid expenses and other assets 55,891 (9,205)
Increase in accrued interest payable 333,601 392,007
Increase in accrued expenses and other liabilities 74,146 85,508
Decrease in accrued current taxes on income (51,554) (61,103)
Net change in ESOP stock plan 159,064 58,107
------------- ---------
Total adjustments 603,801 360,186
------------- ---------
Net cash provided by operating activities 1,533,026 1,355,516
------------- ---------
Cash flows from investing activities
Proceeds from the maturity of interest bearing deposits 3,111,000 4,285,000
Purchase of interest bearing deposits (3,431,000) (6,955,000)
Proceeds from the maturity of investment securities 3,900,000 9,650,000
Proceeds from redemption of FHLB Stock - 166,300
Purchase of investment securities (9,905,818) (7,902,281)
Principal collected on mortgage-backed and related securities 2,611,503 3,676,453
Purchase of mortgage-backed securities (1,070,487) -
Proceeds on sale of real estate 22,460 109,175
Net change in loans receivable (3,143,630) (2,585,387)
Purchase of office property and equipment (9,255) -
------------- ---------
Net cash (used in) provided by investing activities (7,915,227) 444,260
------------- ---------
Cash flows from financing activities
Net change in savings deposits (2,522,589) (4,856,362)
Proceeds from FHLB advance - 1,200,000
Net decrease in advance payments by borrowers
for taxes and insurance (135,487) (173,250)
Proceeds from stock options 72,586 36,337
Payments on ESOP borrowings (159,064) (58,107)
Treasury stock purchase (964,181) -
Dividends paid (570,630) (565,173)
------------- ---------
Net cash used in financing activities (4,279,365) (4,416,555)
------------- ---------
Net decrease in cash and cash equivalents (10,661,566) (2,616,779)
Cash and cash equivalents at beginning of period 13,186,836 5,892,852
------------- ---------
Cash and cash equivalents at end of period $ 2,525,270 $3,276,073
============= =========
<PAGE>
<CAPTION>
For the Nine Months
Ended September 30,
-----------------------------
1999 1998
------------- ---------
(Unaudited)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,856,736 $2,088,120
Taxes on income 834,691 653,991
Transfers from loans to real estate acquired
through foreclosure $ - $ 72,353
============= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Webster City Federal Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. REORGANIZATION
--------------
Webster City Federal Bancorp (the "Registrant" or "Bancorp") is the successor to
Webster City Federal Savings Bank, a federal stock savings bank (the "Bank")
which reorganized into the holding company structure, effective July 1, 1999
(the "Holding Company Reorganization"). In the Holding Company Reorganization,
each outstanding share of the Bank's common stock was converted into one share
of the Registrant's common stock, and each stockholder of the Bank received the
same ownership interest in the Registrant immediately following the Holding
Company Reorganization as he or she had in the Bank immediately prior to that
transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
-----------------------------------------
The consolidated financial statements for the nine-month period ended September
30, 1999 are unaudited. In the opinion of management of Webster City Federal
Bancorp these financial statements reflect all adjustments, consisting only of
normal recurring accruals necessary to present fairly these consolidated
financial statements. The results of operations for the interim periods are not
necessarily indicative of results that may be expected for an entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted.
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Bancorp intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for the purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Bancorp, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Bancorp's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations and future prospects of the Bancorp and its subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal polices of the U.S.
Government, including polices of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Bancorp's market area and accounting principles, polices and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Bancorp and
its wholly owned subsidiary, Webster City Federal Savings Bank, which is engaged
in banking and its wholly owned subsidiary, WCF Service Corporation which
engaged in the sales of mortgage life insurance to the Bank's loan customers.
All material inter-company accounts and transactions have been eliminated.
<PAGE>
3. EARNINGS PER SHARE COMPUTATIONS
- ----------------------------------
1999
- ----
Earnings per share - basic is computed using the weighted average number of
common shares outstanding of 2,082,968 and 2,097,597 for the three and nine
months ended September 30, 1999, respectively. Divided into the net earnings of
$323,000 and $929,200 for the three and nine months ended September 30, 1999,
respectively, resulting in earnings per share of $.16 and $.44 for the three and
nine months ended September 30, 1999, respectively.
Earnings per share - diluted is computed using the weighted average number of
common shares outstanding after giving effect to additional shares assumed to be
issued in relation to the Bancorp's stock option plan using the average price
per share for the period. Such additional shares were 6,965 and 7,291 for the
three and nine months ended September 30, 1999, respectively. Earnings for the
three and nine months ended September 30, 1999 were $323,000 and $929,200,
respectively, resulting in earnings per share of $.15 and $.44 for the three and
nine months ended September 30, 1999, respectively.
1998
- ----
Earnings per share - basic is computed using the weighted average number of
common shares outstanding of 2,113,993 and 2,112,950 for the three and nine
months ended September 30, 1998, respectively, reduced by the 20,127 weighted
average unearned ESOP shares and divided into the net earnings of $337,100 and
$995,300 for the three and nine months ended September 30, 1998, respectively,
resulting in earnings per share of $.16 and $.48 for the three and nine months
ended September 30, 1998, respectively.
Earnings per share - diluted is computed using the weighted average number of
common shares outstanding after giving effect to additional shares assumed to be
issued in relation to the Bank's stock option plan using the average price per
share for the period. Such additional shares were 14,709 and 21,789 for the
three and nine months ended September 30, 1998, respectively. Earnings for the
three and nine months ended September 30, 1998 were $337,100 and $995,300,
respectively, resulting in earnings per share of $.16 and $.47 for the three and
nine months ended September 30, 1998, respectively.
4. DIVIDENDS
---------
On July 21, 1999 the Bancorp declared a cash dividend on its common stock
payable on August 24, 1999 to stockholders of record as of August 10, 1999,
equal to $.20 per share or approximately $411,699. Of this amount, the payment
of approximately $230,000 (representing the dividend payable on 1,150,000 shares
owned by WCF Financial, M.H.C., the Bancorp's mutual holding company) was waived
by the mutual holding company, resulting in an actual dividend distribution of
$181,699.
<PAGE>
Webster City Federal Bancorp and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
- -------------------
Total assets decreased by $2.8 million, or 3.0%, from December 31, 1998 to
September 30, 1999. Cash and cash equivalents decreased $10.7 million or 80.9%
while time deposits in other financial institutions increased $320,000 to $2.6
million from $2.3 million. Loans receivable increased $3.1 million, or 5.5%
during the same period. At September 30, 1999, the Bank had no real estate
owned. Investment securities increased $4.5 million or 22.4% from December 31,
1998 to September 30, 1999 primarily due to moving funds from cash to
higher-yielding investments in securities. The increase in investment securities
was partially offset by principal payments received on mortgage-backed
securities. During the nine month period deposits decreased $2.5 million, or
3.7%.
Total stockholders' equity decreased by $369,300 to $22.7 million at September
30, 1999 from $23.1 at December 31, 1998 as earnings of $929,200 were partially
offset by the repurchase of common stock totaling $964,100 and three quarterly
dividends totaling $575,400.
CAPITAL
- -------
The Bancorp's total stockholders' equity decreased by $369,600, to $22.7 million
at September 30, 1999 from $23.1 million at December 31, 1998. The Office of
Thrift Supervision (OTS) requires that the Bank meet certain minimum capital
requirements. As of September 30, 1999 the Bank was in compliance with all
regulatory capital requirements. The Bank's required, actual and excess capital
levels as of September 30, 1999 were as follows:
<TABLE>
<CAPTION>
Required % of Actual % of Excess
Amount Assets Amount Assets Capital
------ ------ ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tier 1 (Core) Capital $3,665 4.0% $21,960 23.97% $18,295
Risk-based Capital $3,370 8.0% $22,343 53.04% $18,973
</TABLE>
LIQUIDITY
- ---------
OTS regulations require the Bank to maintain an average daily balance of
qualified liquid assets (cash, certain time deposits and specified United States
government, state or federal agency obligations) equal to a monthly average of
not less than 4% of its net withdrawable deposits plus short term borrowings. At
September 30, 1999, the Bank's quarterly average liquidity position was $20.4
million or 30.0% compared to $13.8 million or 19.7% at December 31, 1998.
RESULTS OF OPERATIONS
- ---------------------
Interest Income. Interest income declined to $1.6 million for the three months
ended September 30, 1999 compared to $1.7 million for the three months ended
September 30, 1998. This decline in interest income was due to a decline in the
average interest earnings assets of $1.7 million to $92.3 million for the three
month period ended September 30, 1999 compared to $93.9 for the same period
ended September 30, 1998. Interest income declined to $4.8 million for the nine
months ended September 30, 1999 from $5.0 million for the nine months ended
September 30, 1998. The declines was the results of a decrease in the average
yield on interest-earning assets to 7.01% for the nine months ended September
30, 1999 from 7.19% for the nine months ended September 30, 1998 as well as a
decrease in the average balance of interest earning assets of $2.2 million or
2.4% to $91.1 million for the nine months ended September 30, 1999 from $93.3
million for the corresponding periods ended September 30, 1998.
<PAGE>
Interest on loans for the three months ended September 30, 1999 increased
$41,200 or 3.8% compared to the three months ended September 30, 1998. Interest
on loans for the nine months ended September 30, 1999 increased $120,800 or 3.8%
compared to the nine months ended September 30, 1998. The increases resulted
primarily from an increase in total loans outstanding during the periods, offset
by a decrease in the yields on loans receivable from 7.75%, and 7.73% for the
three and nine months ended September 30, 1998, respectively, to 7.73% and 7.72%
for the three and nine months ended September 30, 1999. The decreases in the
yields on loans receivable were primarily due to lower market rates and a
substantial volume of adjustable rate loans repricing at a lower rate based on
the lagging index used by the Bank.
Interest on mortgage-backed securities decreased by $61,300 or 30.4% for the
three-month period ended September 30, 1999 as compared to the same period ended
September 30, 1998. Th decrease was primarily due to a decrease in the average
balance outstanding of $2.9 million from $11.7 million in 1998 compared to $8.8
dueing the same three month period ended September 30, 1999. Interest on
mortgage-backed securities decreased $228,400 or 34.0% for the nine months ended
September 30, 1999 compared to same period ended September 30, 1998. These
declines resulted from a decrease of $3.6 million or 27.9% in the average
balance of mortgage-backed securities $9.3 million for the nine months ended
September 30, 1999 compared to $12.9 million for the nine months ended September
30, 1998. A decrease of 57 basis points in the average yield on mortgage-backed
securities to 6.35% for the nine months ended September 30, 1999 from 6.92% for
the nine months ended September 30, 1998 as higher rate mortgage-backed
securities were paid off and remaining adjustable rate loans were repricing at a
lower rate.
Interest Expense. Interest expense decreased by $96,200, or 11.4%, from $841,100
for the three months ended September 30, 1998 to $744,900 for the three months
ended September 30, 1999. The decrease was primarily due to a decrease in the
average balance outstanding of $1.8 million from $69.2 million in 1998 compared
to $67.4 during the same three month period ended September 30, 1999 and a
reduction of the ESOP loan average balance from $191,300 in 1998 compared to $0
in 1999.Interest expense decreased by $292,300 or 11.5%, from $2.5 million for
the nine months ended September 30, 1998 to $2.3 for the nine months ended
September 30, 1999. The decrease in interest expense was due to a decrease in
average deposits outstanding by $2.7 million from $69.2 million for the nine
months ended September 30, 1998 to $6.6 million for the nine months ended
September 30, 1999. The average cost of deposits decreased 38 basis points from
4.78% nine months ended September 30, 1998 compared to 4.39% for the nine months
ended September 30, 1999.
Net Interest Income. Net interest income before provision for losses on loans
increased by $17,600 or 2.1% from $827,300 for the three months ended September
30, 1998 compared to $844,900 for the three months ended September 30, 1999. Net
interest income increased by $56,800 or 2.3% for the nine months ended September
30, 1999 compared to the same period ended September 30, 1998. The Bancorp's
interest rate spread at September 30, 1999 increased by 20 basis points to 2.61%
from 2.41% at September 30, 1998.
Provision for Losses on loans. There were no provisions for losses on loans for
the three and nine months ended September 30, 1999 or September 30, 1998. The
allowance for losses on loans is based on management's periodic evaluation of
the loan portfolio and reflects an amount that, in management's opinion, is
adequate to absorb losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of the
loan portfolio, and management's estimate of anticipated credit losses.
Non-interest Income. Non-interest income increased by $7,400 or 17.5% for the
three-month period ended September 30, 1999 as compared to the same period ended
September 30, 1998. Non-interest income decreased $22,200 or 14.5% for the nine
months ended September 30, 1999 as compared to the same period ended September
30, 1998. The decrease was related to a decrease in loan fees and service
charges collected offset by an increase in other charges.
Non-interest Expense. Non-interest expense increased $31,200 or 9.5% for the
three-month period ended September 30, 1999 compared to the same period ended
September 30, 1998. Non-interest expense increased $132,800 or 12.7% for the
nine -month period ended September 30, 1999 compared to the same period ended
September 30, 1998. Compensation and benefit costs decreased $34,800 or 18.3%
from $189,800 for the three months ended September 30, 1998 to $154,900 for the
three month period ended September 30, 1999. Compensation and benefit costs
increased by $54,200 to $640,800 for the nine months ended September 30, 1999
from $586,600 for the nine months ended September 30, 1998. The nine-month
increase was primarily due to the Bank paying off the balance of the ESOP loan
of $141,800 on June 30, 1999 offset by a change in personnel.
<PAGE>
Taxes on Income.
- ----------------
Income taxes for the three months ended September 30, 1999, increased to
$210,800 compared to $202,900 for the same period ended September 30, 1998.
Income taxes for the nine months ended September 30, 1999, decreased $32,000 or
5.3% to $576,900 from $608,900 for the nine-month period ended September 30,
1998. The effective income tax rate for the nine months of 1999 was 38.3%
compared to 38.0% for the first nine months of 1998.
Net Earnings. Net earnings totaled $323,000 for the three months ended September
30, 1999 compared to $337,100 for the three months ended September 30, 1998. Net
earnings decreased $66,100 or 6.6% for the nine -month period ended September
30, 1999 compared to the same period ended September 30, 1998.
Impact of Year 2000 Compliance
- ------------------------------
The federal banking regulators recently issued guidelines establishing minimum
safety and soundness standards for achieving Year 2000 compliance. The
guidelines, which took effect October 15, 1998 and apply to all FDIC-insured
depository institutions, establish standards for developing and managing Year
2000 project plans, testing remediation efforts and planning for contingencies.
The guidelines are based upon guidance previously issued by the agencies under
the auspices of the Federal Financial Institutions Examination Council (the
"FFIEC'), but are not intended to replace or supplant the FFIEC guidance which
will continue to apply to all federally insured depository institutions.
The guidelines were issued under section 39 of the Federal Deposit Insurance
Act, as amended (the "FDIA'), which requires the federal banking regulators to
establish standards for the safe and sound operation of federally insured
depository institutions. Under section 39 of the FDIA, if an institution fails
to meet any of the standards established in the guidelines, the institution's
primary federal regulator nay require the institution to submit a plan for
achieving compliance. If an institution fails to submit an acceptable compliance
plan, or fails in any respect to implement a compliance plan that has been
accepted by its primary federal regulator, the regulator is required to issue an
order directing the institution to cure the deficiency. Such an order is
enforceable in court in the same manner as a cease and desist order. Until the
deficiency cited in the regulator's order is cured, the regulator may restrict
the institution's rate of growth, require the institution to increase its
capital, restrict the rates the institution pays on deposits or require the
institution to take any action the regulator deems appropriate under the
circumstances. In addition to the enforcement procedures established in section
39 of the FDIA, noncompliance with the standards established by the guidelines
may also be grounds for other enforcement action by the federal banking
regulators, including cease and desist orders and civil money penalty
assessments.
The Board of Directors are aware of potential risk that the year 2000 poses for
the Bank and has assigned an individual, to establish Year 2000 formal project
plans, which have been developed and adopted by the Bank. Testing and
contingency plans have also been developed and adopted by the Bank. Testing
procedures have been completed.
The Bank's contingency plans include two components, which are business
remediation and business resumption. The business remediation plan was developed
to mitigate the risk associated with the failure to successfully complete system
renovation, validation or implementation of the Bank's Year 2000 readiness. This
plan pertains to mission-critical systems developed in-house, by outside
software vendors, and by third-party service providers. The business resumption
plan is designed to be implemented in the event there are system failures at
critical dates.
The Bank anticipates that it will incur internal staff costs and other expenses
related to the enhancements necessary to become Year 2000 compliant. Based on
the Bank's current knowledge, the expense related to Year 2000 compliance is not
expected to have a material effect on the Bank's financial position or results
of operations. It is estimated that the costs incurred by the Bank for Year 2000
compliance will be approximately $ 10,000.
<PAGE>
Accurate data processing is essential to the operation of the Bank and a lack of
accurate processing by its vendors could have a significant adverse impact on
the Bank's financial condition and results of operations. The Bank has been
assured by its data processing service bureau that their computer services will
function properly on and after January 1, 2000. If by the end of this year it
appears that the Bank's data processing service bureau is not year 2000
compliant or will be unable to resolve this problem in a timely manner, then the
Bank will identify a secondary data processing service provider to complete the
task. Notwithstanding the foregoing, if the Bank is unable to resolve this
potential problem in time, the Bank will likely experience significant data
processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on the financial condition and results
of operations of the Bank.
The Bank has also tested such things as vault doors, alarms, phones, etc. and is
not aware of any significant problems with such systems.
The Bank has also received year 2000 updates from most of its material
non-information system providers, and based on these updates we do not
anticipate any significant year 2000 issues.
In addition to expenses related to our own computer system, the Bank could incur
losses if loan payments are delayed due to year 2000 problems affecting any of
our significant borrowers or impairing the payroll systems of large employers in
the Bank's market area. We have been communicating with these company's to
assess their progress in evaluating their systems and implementing any
corrective measures required by them to be prepared for the year 2000.
SFAS No. 133
- ------------
"Accounting for Derivative Instruments and Hedging Activities," and SFAS 137, an
amendment to SFAS 133, will be effective for the Bancorp beginning January 1,
2001. Management is evaluating the impact the adoption of SFAS 133 and SFAS 137
will have on the Bancorp's consolidated financial statements. The Bancorp
expects to adopt SFAS 133 and 137 when required.
Webster City Federal Bancorp and Subsidiaries
PART II. Other Information
Item 1. Legal Proceedings
-----------------
There are various claims and lawsuits in which the Registrant is
periodically involved incidental to the Registrant's business. In the opinion of
management, no material loss is expected from any of such pending claims or
lawsuits.
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:
None
(b) No form 8-K reports were filed during the quarter ended September
30, 1999.
<PAGE>
Webster City Federal Bancorp and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
WEBSTER CITY FEDERAL BANCORP
Registrant
Date:November 12, 1999 By:/s/Phyllis A. Murphy
----------------- -------------------------------------
Phyllis A. Murphy
President and Chief Executive Officer
Date:November 12, 1999 By:/s/Stephen L. Mourlam
----------------- -------------------------------------
Stephen L. Mourlam
Executive Vice President/Chief Financial Officer
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<ARTICLE> 9
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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<INT-BEARING-DEPOSITS> 2,585,000
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<DEPOSITS> 66,180,999
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0
0
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