<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-19985
WESTCO BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3823760
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(State or other jurisdiction I.R.S. Employer
of incorporation or Identification
organization) Number
2121 South Mannheim Road, Westchester, Illinois 60154
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (708)865-1100
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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.
Yes (X) No ( )
As of October 25, 1996, the Registrant had 2,578,643 shares of Common stock
issued and outstanding.
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WESTCO BANCORP, INC.
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition
September 30, 1996 (Unaudited) and December 31, 1995 1
Consolidated Statements of Income, Three and Nine Months
Ended September 30, 1996 and 1995 (Unaudited) 2
Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 1996 and 1995 (Unaudited) 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 10
Part II. OTHER INFORMATION 11
SIGNATURES 12
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<TABLE>
<CAPTION>
WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Cash and amounts due from
depository institutions $ 2,902,188 4,418,600
Interest-bearing deposits 1,504,666 3,971,471
----------- -----------
Total cash and cash equivalents 4,406,854 8,390,071
Investment securities (market value of
$76,629,446 at September 30, 1996 and
$82,359,066 at December 31, 1995) 76,213,079 82,110,883
Investment securities held for trade 740,750 501,150
Loans receivable, net 219,535,052 209,069,248
Stock in Federal Home Loan Bank of Chicago 1,876,000 1,861,400
Office properties and equipment, net 1,923,197 1,868,567
Accrued interest receivable 1,491,321 1,563,668
Prepaid expense and other assets 1,586,234 777,665
----------- -----------
Total assets 307,772,487 306,142,652
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits 252,968,882 250,643,639
Advance payments by borrowers for taxes
and insurance 1,236,809 2,873,411
Other liabilities 5,867,126 4,708,983
----------- -----------
Total liabilities 260,072,817 258,226,033
----------- -----------
Stockholders' Equity:
Common stock 34,828 34,768
Additional paid-in capital 22,504,866 22,298,822
Retained earnings 37,652,441 36,450,398
Treasury stock (11,620,123) (9,620,374)
Common stock acquired by ESOP (684,357) (871,000)
Common stock awarded by Association
Recognition and Retention Plan (187,985) (375,995)
----------- -----------
Total stockholders' equity 47,699,670 47,916,619
----------- -----------
Total liabilities and stockholders' equity $ 307,772,487 306,142,652
=========== ===========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 4,665,620 4,373,096 13,814,472 13,100,509
Interest on investments 1,101,077 1,275,054 3,214,204 3,321,162
Interest on interest-bearing
deposits 74,169 94,408 330,928 270,422
Dividends on securities
held for trade 2,610 2,550 6,474 5,075
Dividends on FHLB stock 31,989 32,303 93,682 88,124
--------- --------- ---------- ----------
Total interest income 5,875,465 5,777,411 17,459,760 16,785,292
--------- --------- ---------- ----------
Interest expense:
Interest on deposits 3,125,178 2,999,093 9,250,956 8,398,921
--------- --------- ---------- ----------
Total interest expense 3,125,178 2,999,093 9,250,956 8,398,921
--------- --------- ---------- ----------
Net interest income 2,750,287 2,778,318 8,208,804 8,386,371
--------- --------- ---------- ----------
Non-interest income:
Loan fees and service charges 67,616 56,925 188,440 138,210
Commission income 58,639 54,362 196,441 200,930
Unrealized gain (loss) on
trading account securities 14,500 6,250 (18,192) 34,375
Gain on sale of trading
account securities 47,414 30,742 15,373 135,210
Other income 64,001 59,536 185,690 180,026
--------- --------- ---------- ----------
Total non-interest income 252,170 207,815 567,752 688,751
--------- --------- ---------- ----------
Non-interest expense:
Staffing costs 796,229 809,870 2,372,657 2,386,681
Advertising 42,084 28,328 119,248 87,826
Occupancy & equipment expense 115,436 134,505 354,505 378,389
Data processing 50,918 49,255 155,897 165,431
Federal deposit insurance
premiums 1,757,018 140,202 2,050,562 426,961
Other 148,112 160,506 482,182 525,241
--------- --------- ---------- ----------
Total non-interest expense 2,909,797 1,322,666 5,535,051 3,970,529
--------- --------- ---------- ----------
Income before taxes 92,660 1,663,467 3,241,505 5,104,593
Provision (benefit) for
income taxes (14,800) 607,200 1,106,600 1,844,560
--------- --------- ---------- ----------
Net Income $ 107,460 1,056,267 2,134,905 3,260,033
========= ========= ========== ==========
Earnings per share-primary $ .04 .37 .75 1.11
Earnings per share-fully diluted $ .04 .37 .75 1.11
Dividends declared per common share $ .12 .10 .36 .30
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,134,905 3,260,033
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 147,965 151,190
Amortization of premiums and discounts on
investment securities - net (113,144) (712,196)
Amortization of cost of stock benefit plans 374,653 374,653
Unrealized (gain)loss on trading account securities 18,192 (34,375)
Net gain on sale of trading account securities (15,373) (135,210)
Federal Home Loan Bank stock dividend - (26,800)
Proceeds from sales of trading account securities 3,496,418 2,165,809
Purchase of trading account securities (3,740,700) (1,517,500)
Decrease in deferred income on loans (229,439) (321,705)
Increase(decrease) in current and deferred
federal income tax (965,322) 123,149
(Increase)decrease in interest receivable 72,347 (230,712)
Increase in interest payable 2,782 5,816
Change in prepaid and accrued items, net 1,472,390 1,394,895
----------- ----------
Net cash provided by operating activities 2,655,674 4,497,047
----------- ----------
Cash flows from investing activities:
Proceeds from maturities of investment securities 49,999,546 65,100,000
Purchase of investment securities (43,988,598) (64,430,342)
Purchase of Federal Home Loan Bank stock (14,600) (94,200)
Disbursements for loans (41,838,321) (37,736,926)
Loan repayments 31,601,956 36,230,224
Proceeds from sale of real estate owned - 447,180
Property and equipment expenditures (202,595) (92,859)
----------- ----------
Net cash provided for investing activities (4,442,612) (576,923)
----------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 40,000 40,000
Deposit account receipts 185,688,036 201,313,960
Deposit account withdrawals (191,729,721) (204,612,770)
Interest credited to deposit accounts 8,366,928 7,695,556
Increase(decrease) in advance payment
by borrowers for taxes and insurance (1,636,602) 601,670
Payment of dividends (925,171) (834,697)
Purchase of treasury stock (1,999,749) (2,170,770)
----------- ----------
Net cash provided by(for) financing activities (2,196,279) 2,032,949
----------- ----------
Net change in cash and cash equivalents (3,983,217) 5,953,073
Cash and cash equivalents at beginning of period 8,390,071 6,146,066
----------- ----------
Cash and cash equivalents at end of period $ 4,406,854 12,099,139
=========== ==========
Cash paid during the period for:
Interest $ 9,248,175 8,393,105
Income taxes 1,590,722 1,610,500
See notes to consolidated financial statements.
</TABLE>
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WESTCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments (which are
normal and recurring in nature) necessary for a fair presentation have been
included. The results of operations for the three months and nine months ended
September 30, 1996 are not necessarily indicative of the results which may be
expected for the entire year.
Note B - Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of Westco Bancorp, Inc. (the "Company"), its wholly-owned subsidiaries
First Federal Savings and Loan Association of Westchester (the "Association")
and Westco, Inc., the Association's wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Note C - Stock Repurchase
Since the initial public offering, the Company's Board of Directors has approved
six stock repurchase programs, each representing approximately 5% of the shares
outstanding at the program's initiation. The current stock repurchase program
was approved in September, 1995. As of October 25, 1996, 13,090 shares remain to
be repurchased in the open market.
Note D - Earnings Per Share
Earnings per share of common stock have been determined by dividing net income
for the period by the weighted average number of shares of common stock and
common stock equivalents outstanding, after consideration of the 3 for 2 stock
split completed on May 17, 1996. Stock options are regarded as common stock
equivalents and are therefore considered in both primary and fully diluted
earnings per share calculations. Common stock equivalents are computed using the
treasury stock method.
Note E - Stockholders' Equity
On April 16, 1996, the Board of Directors of Westco Bancorp, Inc. approved a 3
for 2 stock split, effected in the form of a stock dividend which was payable on
May 17, 1996 to stockholders of record on April 30, 1996. Accordingly,
stock-holders of record received 1 additional share for each 2 shares owned as
of April 30, 1996. All prior share related information has been restated to
reflect the stock split effect, including earnings per share data.
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Management's Discussions and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources:
- -------------------------------
The Company's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and proceeds from the maturity of
investment securities. While maturities and scheduled amortization of loans and
investment securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions, and competition from various financial markets. The primary business
activity of the Company, that of making conventional mortgage loans on
residential housing, is likewise affected by economic conditions.
The Association is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may be varied at the
direction of the OTS depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required
ratio is currently 5.0%. The Association has historically maintained a high
level of liquid assets. At September 30, 1996, the Association's liquidity ratio
was 30.0%.
The Company employs an Interest Rate Risk Management strategy of offsetting
interest rate risk embedded in the mortgage portfolio by maintaining a large
part of the assets in overnight deposits and a portfolio of U.S. Treasury and
Agency securities with "laddered" maturities. This strategy results in a
relatively short weighted average maturity of these assets. At September 30,
1996, these investments totalled $77.7 million, or 25.3% of assets, with a
weighted average life of approximately 11 months. At December 31, 1995, these
investments totalled $86.1 million, or 28.1% of assets, with a weighted average
life of approximately 12 months.
The Company's most liquid assets are cash and cash equivalents. The levels
of these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period. At September 30, 1996, cash and
cash equivalents totalled $4.4 million.
The primary investing activity of the Company is the origination of
mortgage loans. During the nine months ended September 30, 1996 and 1995, the
Company disbursed loans in the amounts of $41.8 million and $37.7 million,
respectively. Other investing activities include the purchase of investment
securities, which totalled $44.0 million for the nine months ended September 30,
1996 and $64.4 million for the nine months ended September 30, 1995. These
activities in 1996 were funded primarily by principal repayments on loans
totalling $31.6 million and maturities of investment securities totalling $50.0
million. The nine month activity for 1995 was funded by principal repayments on
loans and maturites of investment securities in the amounts of $36.2 million and
$65.1 million respectively.
At September 30, 1996, the Company had outstanding loan commitments of $7.0
million. At that same date, there were no commitments to purchase loans or
investment securities. The Company anticipates that it will have sufficient
funds available to meet its current loan commitments. Certificates of deposit
which are scheduled to mature in one year or less from September 30, 1996
totalled $78.7 million. Management believes that a significant portion of such
deposits will remain with the Company.
The regulatory standards of the Office of Thrift Supervision impose the
following capital requirements: a risk based capital standard expressed as a
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<PAGE> 8
percent of risk based assets, a leverage ratio of core capital to total adjusted
assets, and a tangible capital ratio expressed as a percent of total adjusted
assets. As of September 30, 1996, the Association exceeded all regulatory
capital standards.
Capital requirements, ratios and balances are as follows:
<TABLE>
<CAPTION>
Actual Required Actual Excess
Capital Capital Capital Capital Capital
Required Ratio Amount Amount Amount
-------- ------- -------- ------- -------
At December 31, 1995:
<S> <C> <C> <C> <C> <C>
Tangible 1.5% 13.3% $4,520 $40,013 $35,493
Core 3.0 13.3 9,040 40,013 30,973
Risk Based:
Tier I (core) 4.0 32.4 4,937 40,013 35,076
Total 8.0 33.1 9,873 40,896 31,023
At September 30, 1996:
Tangible 1.5% 12.8% $4,512 $38,536 $34,024
Core 3.0 12.8 9,024 38,536 29,512
Risk Based:
Tier I (core) 4.0 29.2 5,271 38,536 33,265
Total 8.0 29.9 10,542 39,419 28,877
</TABLE>
CHANGE IN FINANCIAL CONDITION OVER THE NINE MONTHS ENDED SEPTEMBER 30, 1996:
- ----------------------------------------------------------------------------
Total assets increased $1.6 million, or 0.5%, to $307.8 million at
September 30, 1996 from $306.1 million at December 31, 1995. This increase is
primarily attributable to an increase in savings deposits of $2.3 million, which
was used to fund loan originations.
Loans receivable increased $10.5 million, or 5.0%, to $219.5 million from
$209.1 million at December 31, 1995. The increase is primarily a function of
loan disbursements of $41.8 million offset by amortization and prepayments of
$31.6 million. The growth in loans receivable is due primarily to continued
originations of one-to-four family loans. Since the beginning of the year, the
Association has closed $5.0 million in new construction loans on residential
housing, $2.7 million in land development loans and $4.3 million in permanent
loans on residential property of five or more dwelling units. During the same
period in 1995, the Association closed $1.4 million in construction loans and
$1.1 million in loans on properties having five or more dwelling units.
Investment securities decreased $5.9 million, or 7.2%, to $76.2 million at
September 30, 1996 as additional funds were allocated to meet increased loan
demand. Cash and cash equivalents totalled $4.4 million at September 30, 1996
compared to $8.4 million at December 31, 1995.
Savings deposits increased $2.3 million, or 0.9%, to $253.0 million at
September 30, 1996 from $250.6 million at December 31, 1995. The Company
experienced a net deposit outflow of $6.0 million (before interest credited) for
the nine month period ended September 30, 1996.
The balance of non-performing loans, which represented all of the Company's
non-performing assets, totalling $1.62 million at September 30, 1996, increased
$478,000, or 41.9% from $1.14 million at December 31, 1995 due to the
delinquency of an additional two residential loans totalling $660,000. The ratio
of non-performing loans to total loans was .74% at September 30, 1996 compared
to 0.55% at December 31, 1995 while the ratio of non-performing assets to total
assets was 0.53% and 0.37% at September 30, 1996 and December 31, 1995
respectively. The Company's allowance for loan losses totalled $882,800, or
54.5% of non-
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performing loans, at September 30, 1996.
During 1992, the Association's ESOP borrowed $1,840,000 from an unrelated
third party to fund the Association's ESOP plan which was established in
connection with the conversion. During 1993, Westco Bancorp, Inc. refinanced
this loan on essentially the same terms as the original lender. The September
30, 1996 balance of $684,400 is eliminated in the consolidation of the Company's
financial statements. At December 31, 1995, the outstanding balance totalled
$871,000.
Retained earnings increased $1.2 million, or 3.3%, to $37.7 million as a
result of earnings for the nine month period ended September 30, 1996 offset by
the declaration of dividend payments to stockholders during the same period.
Stockholders' equity totalled $47.7 million or 15.5% of total assets at
September 30, 1996, and the book value per common share outstanding was $18.34.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------
AND SEPTEMBER 30, 1995:
- -----------------------
Net income for the quarter ended September 30, 1996 decreased $949,000 to
$107,000 million from $1.06 million for the quarter ended September 30, 1995.
The decrease in quarterly earnings resulted from a $1.61 million provision
recognized in the quarter for the estimated amount of the special assessment by
the FDIC to recapitalize the Savings Association Insurance Fund pursuant to the
requirements of legislation signed into law on September 30, 1996. This
provision was offset by a corresponding $624,000 decrease in income tax expense.
(See "Recent Developments" for further information.)
In the quarter ended September 30, 1996 net interest income decreased
$28,000, or 1.0%, due to reductions in both the interest rate spread and net
interest margin. Interest income increased $98,000 while interest expense
increased $126,000. The Company's interest rate spread averaged 2.84% during the
1996 third quarter, compared to 3.05% during the 1995 third quarter. The
Company's net interest margin averaged 3.62% for the quarter ended September 30,
1996 compared to 3.78% for the quarter ended September 30, 1995. During the
second quarter of 1996, the Company's net interest rate spread averaged 2.92%
and its net interest margin averaged 3.69%.
During the three months ended September 30, 1996 and September 30, 1995 no
additional provision for loan losses was made based upon (1) the absence of any
specific asset quality problems, (2) the current level of general loan loss
reserves, and (3) management's assessment of the inherent risk in the Company's
mortgage portfolio and possible prospective economic and regulatory conditions.
Non-interest income for the third quarter of 1996 increased $44,000 over
the same quarter in 1995 due primarily to a $25,000 increase in realized and
unrealized gains on investments held for trading, an $11,000 increase in loan
fees and service charges, a $4,000 increase in commissions on sales of
investment and insurance products and a $4,000 increase in other income.
Apart from the $1.61 million provision previously mentioned, non-interest
expense remained relatively stable, decreasing by $23,000 for the three months
ended September 30, 1996 from the level for the three months ended September 30,
1995. Staffing costs decreased $13,000, occupancy and equipment expenses
decreased 19,000, and other operating costs decreased $12,000. These decreases
were partially offset by a $14,000 increase in advertising costs.
Income tax for the third quarter of 1996 decreased $622,000 as a result of
all of the above.
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COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
- ----------------------------------------------------------------------------
AND SEPTEMBER 30, 1995:
- -----------------------
Net income for the nine months ended September 30, 1996 decreased $1.13
million to $2.13 million from $3.26 million for the nine months ended September
30, 1996. This decrease primarily resulted from the $1.61 million provision
recognized in the quarter for the estimated amount of the special assessment by
the FDIC to recapitalize the Savings Association Insurance Fund partially offset
by a corresponding $624,000 decrease in income tax expense.
Also, during the nine months ended September 30, 1996, interest income
increased $674,000 from the year earlier, and interest expense increased
$852,000 resulting in a reduction of the Company's net interest margin. The
Company's net interest margin averaged 3.63% for the nine months ended September
30, 1996, compared to 3.86% for the same period in 1995. The Company's interest
rate spread averaged 2.85% during the nine months ended September 30, 1996,
compared to 3.16% during the same period in 1995.
During the nine months ended September 30, 1996 and 1995 no additional
provision for loan losses was made based upon the absence of any specific asset
quality problems, the current level of general loan loss reserves and
management's assessment of the inherent risk in the Company's mortgage portfolio
and possible prospective economic and regulatory conditions.
Non-interest income for the nine months of 1996 decreased $121,000 over the
same period in 1995, due to a decrease of $172,000 in the net of realized and
urealized gains and losses on investments held for trading, and a decrease in
commissions on sales of insurance and investment products of $4,000, which were
partially offset by a net increase in loan fees and service charges of $50,000,
due in part to increased lending volume, and an increase of $6,000 in other
income.
Non-interest expense increased $1.56 million for the nine months ended
September 30, 1996 from the level for the nine months ended September 30, 1995
primarily as a result of the $1.61 million provision for the FDIC's special
assessment. That provision and a $31,000 increase in advertising expense were
offset by decreases in staffing costs, occupancy and equipment costs, data
processing expense and general operating costs in the amounts of $14,000,
$24,000, $10,000 and $43,000 respectively.
The provision for income taxes decreased as a result of the decreased
earnings before income taxes. State income taxes were reduced significantly
because the income derived from the portfolio of Treasury securities nearly
offset taxable income. The effective tax rate for the nine months ended
September 30, 1996 and 1995 was 34.1% and 36.1% respectively.
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<PAGE> 11
IMPACT OF NEW ACCOUNTING STANDARDS
- ----------------------------------
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of," is effective for fiscal years beginning after December 15, 1995.
The statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss is recognized if the sum of the
expected future cash flows is less than the carrying amount of the asset. The
Company adopted SFAS 121 effective January 1, 1996, resulting in no material
impact on the Company's consolidated financial position or results of
operations.
In May, 1995, the FASB issued Statement of Financial Accounting Standards
No. 122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights." This statement
amends Statement of Financial Accounting Standards No. 65, "Accounting for
Certain Mortgage Banking Activities," to require that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans for
others however those servicing rights are acquired. SFAS 122 requires that a
mortgage banking enterprise assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. SFAS 122 is effective for
fiscal years beginning after December 15, 1995. SFAS 122 will not have a
material effect on the Company's financial position or results of operations
since the Association does not service loans for others.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." This
statement establishes a fair value-based method of accounting for stock options
which encourages employers to account for stock compensation awards based on
their fair value at the date the awards are granted. The resulting compensation
award would be shown as an expense on the income statement.
SFAS 123 also permits entities to continue to use the intrinsic value
method, allowing them to continue to apply current accounting requirements,
which generally result in no compensation cost for most fixed stock option
plans. If the intrinsic value method is retained, SFAS 123 requires
significantly expanded disclosure, including disclosure of the pro-forma amount
of net income and earnings per share as if the fair value-based method were used
to account for stock-based compensation. SFAS 123 is effective for fiscal years
beginning after December 15, 1995, however, employers will be required to
include in that year's financial statements, information about options granted
in 1995. The Company has determined that it will continue to apply the APB
Opinion #25 method in preparing its consolidated financial statements.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125 ("SFAS 125"), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." This statement applies a
"financial-components approach" in recognizing assets and liabilities that
focuses on control to recognize financial assets and liabilities. Under SFAS
125, an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred. An entity ceases to recognize assets when control
has been surrendered, and it ceases to recognize liabilities when they are
extinguished. SFAS 125 establishes standards to distinguish between transfers of
financial assets that are sales and transfers of financial assets that are
secured borrowings. SFAS 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996. The Company does not expect this pronouncement to have a significant
impact on its consolidated financial condition or results of operations.
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<PAGE> 12
RECENT DEVELOPMENTS
- -------------------
Legislation regarding the recapitalization of the Savings Association
Insurance Fund (SAIF) of the FDIC was signed by the President on September 30,
1996. As a result, the disparity in bank and thrift deposit insurance premiums
should be reduced significantly. Beginning January 1, 1997, the FDIC has
estimated that thrifts will pay a rate of 6.5 cents per $100 of deposits (a 16.6
cent reduction from the current assessment of 23 cents) and banks will pay 1.3
cents per $100 of deposits to fund FICO bond interest payments until the year
2000 or the date at which the last federal savings association ceases to exist.
At that time the payments will be shared on a pro-rata basis. Also, the merger
of SAIF and BIF, as addressed in the legislation, depends upon subsequent
legislation to eliminate the federal thrift charter. Management cannot predict
the impact future legislation or regulatory changes may have on the operations
of the Company.
Legislation regarding bad debt recapture has been passed. The legislation
requires recapture of reserves accumulated after 1987. The recapture tax on
post-1987 reserves must be paid over a six year period starting in 1996. The
payment of the tax can be deferred in each of 1996 and 1997 if an institution
originates at least the same average annual principal amount of mortgage loans
that it originated in the six years prior to 1996. Management does not believe
that this legislation will have a material impact on the operations of the
Company.
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<PAGE> 13
PART II - OTHER INFORMATION
WESTCO BANCORP, INC.
Item 1. LEGAL PROCEEDINGS
-----------------
From time to time, the Association is a party to legal proceedings in the
ordinary course of business, wherein it enforces its security interest. The
Company and the Association are not engaged in any legal proceedings of a
material nature at the present time.
Item 2. CHANGES IN SECURITIES - Not applicable
---------------------
Item 3. DEFAULTS UPON SENIOR SECURITIES - Not applicable
-------------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not applicable
---------------------------------------------------
Item 5. OTHER INFORMATION
-----------------
STOCK OPTIONS
On September 6, 1996, in accordance with the provisions of the Westco
Bancorp, Inc. 1992 Incentive Stock Option Plan, which was approved by a vote of
the shareholders on September 29, 1992, Executive Vice President, Gregg P.
Goossens exercised options on 1,500 shares of Common Stock granted to him.
STOCK REPURCHASE PROGRAM
The Company began its current common stock repurchase plan in September,
1995. As of October 25, 1996, 13,090 shares remain to be repurchased.
COMMON STOCK SHARES OUTSTANDING
As a result of the exercise of options and shares repurchased in accordance
with the repurchase plan previously described, the number of common shares
outstanding on October 25, 1996 totalled 2,584,143 shares.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are filed as part of this report:
3.1 Certificate of Incorporation of Westco Bancorp, Inc.*
3.2 Bylaws of Westco Bancorp, Inc.*
4.0 Stock Certificte of Westco Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith)
27.0 Financial Data Schedule (filed herewith)
* Incorporated herein by reference in this document from the Exhibits
to Form S-1, Registration Statement, filed on March 23, 1992 and any
amendments thereto, Registration No. 33-46441.
(b) No reports on Form 8-K were filed this quarter.
-11-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WESTCO BANCORP, INC.
--------------------
Registrant
DATE: October 25, 1996 BY: (s) /s/ David C. Burba
------------------
David C. Burba
President and
Chief Executive Officer
DATE: October 25, 1996 BY: (s) /s/ Richard A. Brechlin
-----------------------
Richard A. Brechlin
Executive Vice President and
Chief Financial Officer
DATE: October 25, 1996 BY: (s) /s/ Kenneth J. Kaczmarek
------------------------
Kenneth J. Kaczmarek
Vice President and
Chief Accounting Officer
-12-
EXHIBIT 11.0 - Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
9/30/96 9/30/96
------------ ----------
<S> <C> <C>
Net Income $ 107,460 $2,134,905
========== ==========
Weighted average shares outstanding 2,606,735 2,649,726
Common stock equivalents due to
dilutive effect of stock options 213,186 205,969
---------- ----------
Total weighted average common shares
and equivalents outstanding 2,819,921 2,855,695
========== ==========
Primary earnings per share $ 0.04 $ 0.75
========== ==========
Total weighted average common shares
and equivalents outstanding for
primary computation 2,819,921 2,855,695
Additional dilutive shares using the
end of period market value versus
the average market value when
applying the treasury stock method 92 * 7,309 *
---------- ----------
Total weighted average common shares
and equivalents outstanding for
fully diluted computation 2,820,013 2,863,004
========== ==========
Fully diluted earnings per share $ 0.04 $ 0.75
========== ==========
* If average share price is greater than ending price, the average price for
both primary and fully diluted is used for the calculation.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000885413
<NAME> WESTCO BANCORP, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,902,188
<INT-BEARING-DEPOSITS> 1,504,666
<FED-FUNDS-SOLD> 700,000
<TRADING-ASSETS> 740,750
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 76,213,079
<INVESTMENTS-MARKET> 76,629,446
<LOANS> 219,535,052
<ALLOWANCE> 882,800
<TOTAL-ASSETS> 307,772,487
<DEPOSITS> 252,968,882
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,103,935
<LONG-TERM> 0
0
0
<COMMON> 34,828
<OTHER-SE> 47,664,842
<TOTAL-LIABILITIES-AND-EQUITY> 307,772,487
<INTEREST-LOAN> 13,814,472
<INTEREST-INVEST> 3,545,132
<INTEREST-OTHER> 100,156
<INTEREST-TOTAL> 17,459,750
<INTEREST-DEPOSIT> 9,250,956
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 8,208,804
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (2,819)
<EXPENSE-OTHER> 5,535,051
<INCOME-PRETAX> 3,241,505
<INCOME-PRE-EXTRAORDINARY> 3,241,505
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,134,905
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
<YIELD-ACTUAL> 3.63
<LOANS-NON> 1,619,200
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 882,800
<CHARGE-OFFS> 0
<RECOVERIES> 0<F1>
<ALLOWANCE-CLOSE> 882,800
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 882,800
<FN>
<F1> Not contained in Form 10-Q
</FN>
</TABLE>
