<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
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, 1997.
OR
( ) 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 0-19985
WESTCO BANCORP, INC.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3823760
-------- ----------
(State or other jurisdiction I.R.S. Employer
of incorporation or Identification
organization) Number
2121 South Mannheim Road, Westchester, Illinois 60154
----------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (708) 865-1100
--------------
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 31, 1997, the Registrant had 2,473,953 shares of Common stock
issued and outstanding.
<PAGE>
WESTCO BANCORP, INC.
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition
September 30, 1997 (Unaudited) and December 31, 1996 1
Consolidated Statements of Income, Three and Nine Months
Ended September 30, 1997 and 1996 (Unaudited) 2
Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 1997 and 1996 (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
EXHIBIT 11.0 - Computation of Earnings per Share
EXHIBIT 27.0 - Financial Data Table
<PAGE>
WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Cash and amounts due from
depository institutions $ 3,656,878 3,511,480
Interest-bearing deposits 7,493,223 7,877,846
------------ -----------
Total cash and cash equivalents 11,150,101 11,389,326
Investment securities (market value of
$53,983,896 at September 30, 1997 and
$68,638,354 at December 31, 1996) 53,932,193 68,737,012
Investment securities held for trade 1,217,425 826,875
Loans receivable, net 236,584,453 223,898,424
Real estate owned - -
Stock in Federal Home Loan Bank of Chicago 1,997,000 1,876,000
Office properties and equipment, net 2,133,333 1,909,043
Accrued interest receivable 1,435,616 1,504,690
Prepaid expense and other assets 619,666 850,677
------------ -----------
Total assets 309,069,787 310,992,047
============ ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits 254,752,906 255,153,961
Advance payments by borrowers for taxes
and insurance 1,377,100 3,077,294
Other liabilities 4,907,550 4,928,016
------------ -----------
Total liabilities 261,037,556 263,159,271
------------ -----------
Stockholders' Equity:
Common stock 35,195 34,843
Additional paid-in capital 23,000,908 22,518,095
Retained earnings 40,798,198 38,420,579
Treasury stock (15,366,570) (12,393,283)
Common stock acquired by ESOP (435,500) (622,143)
Common stock awarded by Association
Recognition and Retention Plan - (125,315)
------------ -----------
Total stockholders' equity 48,032,231 47,832,776
------------ -----------
Total liabilities and stockholders' equity $309,069,787 310,992,047
============ ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------------------
1997 1996 1997 1996
---------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $4,958,799 4,665,620 14,522,278 13,814,472
Interest on investments 834,698 1,101,077 2,647,405 3,214,204
Interest on interest-bearing
deposits 114,764 74,169 349,141 330,928
Dividends on securities
held for trade 4,055 2,610 8,313 6,474
Dividends on FHLB stock 34,006 31,989 98,439 93,682
---------- --------- ------------ -----------
Total interest income 5,946,322 5,875,465 17,625,576 17,459,760
---------- --------- ------------ -----------
Interest expense:
Interest on deposits 3,191,375 3,125,178 9,374,294 9,250,956
---------- --------- ------------ -----------
Total interest expense 3,191,375 3,125,178 9,374,294 9,250,956
---------- --------- ------------ -----------
Net interest income 2,754,947 2,750,287 8,251,282 8,208,804
---------- --------- ------------ -----------
Non-interest income:
Loan fees and service charges 72,540 67,616 209,327 188,440
Commission income 76,309 58,639 212,939 196,441
Unrealized gain (loss) on
trading account securities 89,628 14,500 112,414 (18,192)
Gain on sale of trading
account securities 124,876 47,414 196,887 15,373
Gain on sale of REO 38,865 - 38,865 -
Other income 59,524 64,001 178,222 185,690
---------- --------- ------------ -----------
Total non-interest income 461,742 252,170 948,654 567,752
---------- --------- ------------ -----------
Non-interest expense:
Staffing costs 776,354 796,229 2,407,348 2,372,657
Advertising 47,548 42,084 123,748 119,248
Occupancy & equipment expense 129,190 115,436 380,272 354,505
Data processing 54,774 50,918 164,012 155,897
Federal deposit insurance
premiums 41,400 1,757,018 124,200 2,050,562
Other 153,891 148,112 481,075 482,182
---------- --------- ------------ -----------
Total non-interest expense 1,203,157 2,909,797 3,680,655 5,535,051
---------- --------- ------------ -----------
Income before taxes 2,013,532 92,660 5,519,281 3,241,505
Provision (benefit) for
income taxes 741,900 (14,800) 2,016,000 1,106,600
---------- --------- ------------ -----------
Net Income $1,271,632 107,460 3,503,281 2,134,905
========== ========= ============ ===========
Earnings per share-primary $ .47 .04 1.30 .75
Earnings per share-fully diluted $ .47 .04 1.29 .75
Dividends declared per common share $ .15 .12 .45 .36
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,503,281 2,134,905
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 150,800 147,965
Amortization of premiums and discounts on
investment securities - net (132,240) (113,144)
Amortization of cost of stock benefit plans 311,958 374,653
(Gain) loss on sale of trading account securities (112,414) 18,192
Unrealized (gain)loss on trading account securities (251,328) (15,373)
Gain on sale of real estate owned (38,865) -
Proceeds from sales of trading account securities 4,066,716 3,496,418
Purchase of trading account securities (4,093,524) (3,740,700)
Decrease in deferred income on loans (200,409) (229,439)
Increase in current and deferred
federal income tax 515,411 965,322
(Increase)decrease in interest receivable 69,074 72,347
Increase(decrease) in interest payable (21,881) 2,782
Change in prepaid and accrued items, net 69,247 (458,254)
------------ -----------
Net cash provided by operating activities 3,835,826 2,655,674
------------ -----------
Cash flows from investing activities:
Proceeds from maturities of investment securities 40,148,003 49,999,546
Purchase of investment securities (25,210,943) (43,988,598)
Purchase of Federal Home Loan Bank stock (121,000) (14,600)
Disbursements for loans (48,207,517) (41,838,321)
Loan repayments 35,039,925 31,601,956
Proceeds from sale of real estate owned 631,335 -
Property and equipment expenditures (375,090) (202,595)
------------ -----------
Net cash provided by (for) investing activities 1,904,713 (4,442,612)
------------ -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 234,400 40,000
Deposit account receipts 203,490,530 185,688,036
Deposit account withdrawals (212,402,862) (191,729,721)
Interest credited to deposit accounts 8,511,277 8,366,928
Decrease in advance payment
by borrowers for taxes and insurance (1,700,194) (1,636,602)
Payment of dividends (1,139,628) (925,171)
Purchase of treasury stock (2,973,287) (1,999,749)
------------ -----------
Net cash provided by(for) financing activities (5,979,764) (2,196,279)
------------ -----------
Net change in cash and cash equivalents (239,225) (3,983,217)
Cash and cash equivalents at beginning of period 11,389,326 8,390,071
------------ -----------
Cash and cash equivalents at end of period $ 11,150,101 4,406,854
============ ===========
Cash paid during the period for: Interest $ 9,407,578 9,248,175
Income taxes $ 1,500,600 1,590,722
Non-cash investing activities: Transfers to REO $ 681,972 -
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
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, 1997 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 Conversion and Stock Split
On February 13, 1992 the Board of Directors of First Federal Savings and Loan
Association of Westchester approved a plan to convert from a federally chartered
mutual savings association to a federally chartered stock savings association.
The stock conversion plan included, as part of the conversion, the concurrent
formation of a Holding Company. The stock offering of the Association's parent,
Westco Bancorp, Inc. (the "Company") was closed on June 25, 1992 with the sale
of 2,300,000 shares at $10.00 per share. The Company purchased all the shares of
stock of the Association for $10,962,363 upon completion of its stock offering.
On May 17, 1996 a three for two stock split occurred with fractional shares
being paid in cash.
Note D - Stock Repurchase
Since the initial public offering, the Company's Board of Directors has approved
seven stock repurchase programs. As of October 31, 1997, 1,045,535 shares,
adjusted for the May, 1996 stock split, had been repurchased at an average price
of $14.69. The current stock repurchase program permits the repurchase of up to
200,000 shares; and, as of October 31, 1997, 71,740 shares remain to be
repurchased in the open market.
Note E - 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.
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<PAGE>
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, 1997, the Association's liquidity ratio
was 27.3%.
The Company maintains a significant 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, 1997, these investments totalled
$61.4 million, or 19.9% of assets, with a weighted average life of approximately
6 months. At December 31, 1996, these investments totalled $76.6 million, or
24.6% of assets, with a weighted average life of approximately 10 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, 1997, cash and
cash equivalents totalled $11.2 million.
The primary investing activity of the Company is the origination of
mortgage loans. During the nine months ended September 30, 1997 and 1996, the
Company disbursed loans in the amounts of $48.2 million and $41.8 million,
respectively. Other investing activities include the purchase of investment
securities, which totalled $25.2 million for the nine months ended September 30,
1997 and $44.0 million for the nine months ended September 30, 1996. These
activities in 1997 were funded primarily by principal repayments on loans
totalling $35.0 million and maturities of investment securities totalling $40.1
million. The nine month activity for 1996 was funded by principal repayments on
loans and maturities of investment securities in the amounts of $31.6 million
and $50.0 million respectively.
At September 30, 1997, the Company had outstanding loan commitments of $4.8
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, 1997
totalled $83.8 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
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
-5-
<PAGE>
assets. As of September 30, 1997, 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
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
At December 31, 1996:
Tangible 1.5% 13.1% $ 4,565 $39,751 $35,186
Core 3.0 13.1 9,130 39,751 30,621
Risk Based:
Tier I (core) 4.0 30.0 5,304 39,751 34,447
Total 8.0 30.5 10,608 40,459 29,851
At September 30, 1997:
Tangible 1.5% 13.4% $ 4,524 $40,384 $35,860
Core 3.0 13.4 9,049 40,384 31,335
Risk Based:
Tier I (core) 4.0 28.3 5,708 40,384 34,676
Total 8.0 28.3 11,416 41,092 29,676
</TABLE>
CHANGE IN FINANCIAL CONDITION OVER THE NINE MONTHS ENDED SEPTEMBER 30, 1997:
- ---------------------------------------------------------------------------
Total assets during the period decreased $1.9 million, or 0.6%, to $309.1
million at September 30, 1997 from $311.0 million at December 31, 1996.
Loans receivable, net, increased $12.7 million, or 5.7%, to $236.6 million
from $223.9 million at December 31, 1996. The increase is primarily a function
of loan disbursements of $48.2 million offset by amortization and prepayments of
$35.0 million. The growth in loans receivable is due primarily to growth in one-
to four-family residential loans and, to a lesser degree, continued originations
of construction loans on one- to four-family residences and on non-residential
property. Since the beginning of the year, the Association has closed $7.8
million in residential construction loans, $2.3 million in non-residential
construction loans, $4.8 million in permanent loans on residential property of
five or more dwelling units and $3.1 million in permanent loans on non-
residential properties.
Investment securities decreased $14.8 million, or 21.5%, to $53.9 million
at September 30, 1997 as additional funds from maturing investment securities
continued to be allocated to meet loan demand. Cash and cash equivalents
totalled $11.2 million at September 30, 1997 compared to $11.4 million at
December 31, 1996.
Savings deposits decreased $401,000, or 0.2%, to $254.7 million at
September 30, 1997 from $255.2 million at December 31, 1996. The Company
experienced a net deposit outflow of $8.9 million (before interest credited) for
the nine month period ended September 30, 1997.
The balance of non-performing loans totalled $635,000 at September 30,
1997, decreasing $932,000, or 59.5% from $1.57 million at December 31, 1996. The
decrease is due primarily to the foreclosure of two loans totalling $444,500 on
properties which were subsequently sold and the improved payment performance of
several loans. The total of non-performing loans continues to fluctuate
quarterly due to the changing delinquency of a number of loans which are
routinely delinquent between 60 and 120 days. The ratio of non-performing loans
to total loans was 0.27% at September 30, 1997 compared to 0.70% at December 31,
1996. Non-performing loans represented all of the Company's non-performing
assets at both September 30, 1997 and December 31, 1996.
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<PAGE>
The ratio of non-performing assets to total assets was 0.21% and 0.50% at
September 30, 1997 and December 31, 1996 respectively. The Company's allowance
for loan losses totalled $882,800, or 69.4% of non-performing loans, at
September 30, 1997.
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, 1997 balance of $435,500 is eliminated in the consolidation of the Company's
financial statements. At December 31, 1996, the outstanding balance totalled
$622,000.
Retained earnings increased $2.4 million, or 6.2%, to $40.8 million as a
result of earnings for the nine month period ended September 30, 1997 offset by
the declaration of dividend payments to stockholders during the same period.
Stockholders' equity totalled $48.0 million or 15.5% of total assets at
September 30, 1997, and the book value per common share outstanding was $19.42.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------
AND SEPTEMBER 30, 1996:
- ----------------------
Net income for the quarter ended September 30, 1997 increased $1.16 million
to $1.27 million from $107,500 for the quarter ended September 30, 1996. The
increase in quarterly earnings resulted primarily from the absence of the $1.61
million provision recognized in the 1996 quarter for the estimated amount of the
special assessment by the FDIC to recapitalize the Savings Association Insurance
Fund and the corresponding $624,000 decrease in income tax expense. In addition
to this difference, the increase in net income reflected a $5,000 increase in
net interest income, a $210,000 increase in non-interest income and a $97,000
decrease in non-interest expense all of which were offset by a proportionate
increase in income tax.
In the quarter ended September 30, 1997 net interest income remained the
same as the third quarter of 1996 at $2.75 million. Interest income increased
$71,000 while interest expense increased $66,000. The Company's interest rate
spread averaged 2.85% during the 1997 third quarter, compared to 2.84% during
the 1996 third quarter. The Company's net interest margin averaged 3.63% for the
quarter ended September 30, 1997 compared to 3.62% for the quarter ended
September 30, 1996. During the second quarter of 1997, the Company's net
interest rate spread averaged 2.95% and its net interest margin averaged 3.70%.
During the three months ended September 30, 1997 and September 30, 1996 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 1997 increased $210,000 over
the same quarter in 1996 due primarily to a $153,000 increase in realized and
unrealized gains on investments held for trading, a $5,000 increase in loan fees
and service charges, an $18,000 increase in commissions on sales of investment
and insurance products and a $39,000 profit on the sale of foreclosed
properties. These increases were offset by a $5,000 decrease in miscellaneous
income.
Non-interest expense decreased by $1.7 million for the three months ended
June 30, 1997 from the level for the three months ended September 30, 1996. The
absence of the FDIC special assessment represented $1.6 million of the decrease,
and the remainder of the decrease resulted primarily from an expected $106,000
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<PAGE>
decrease in regular FDIC deposit insurance premiums and a $20,000 decrease in
staffing costs. Those decreases were partially offset by increases of $14,000,
$5,000, $4,000 and $6,000 in office occupancy, advertising, data processing and
miscellaneous expenses respectively.
Income tax for the third quarter of 1997 increased $757,000 as a result of
all of the above.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
- ----------------------------------------------------------------------------
AND SEPTEMBER 30, 1996:
- ----------------------
Net income for the nine months ended September 30, 1997 increased $1.37
million to $3.50 million from $2.13 million for the nine months ended September
30, 1996. This increase primarily resulted from the previously discussed
decrease in FDIC deposit insurance special assessment.
Also, during the nine months ended September 30, 1997, interest income
increased $166,000 from the year earlier while interest expense increased
$123,000 resulting in a stable net interest margin. The Company's net interest
margin averaged 3.63% for the nine months ended September 30 in both 1997 and
1996. The Company's interest rate spread averaged 2.86% during the nine months
ended September 30, 1997, compared to 2.85% during the same period in 1996.
During the nine months ended September 30, 1997 and 1996 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 1997 increased $381,000 over the
same period in 1996, due to an increase of $312,000 in the net results of
realized and unrealized gains and losses on investments held for trading, an
increase in loan fees and service charges of $21,000, due in part to increased
lending volume, an increase in commissions on sales of insurance and investment
products of $16,000 and profit on the sale of foreclosed properties in the
amount of $39,000. These increases were offset by a decrease in other income of
$7,000.
Non-interest expense decreased $1.85 million for the nine months ended
September 30, 1997 from the level for the nine months ended September 30, 1996
primarily as a result of the absence of the FDIC special assessment. The
remainder of the $244,000 decrease, however, resulted from a $316,000 decrease
in regular FDIC deposit insurance premiums and a $1,000 decrease in
miscellaneous expenses. These decreases were offset by increases in staffing
costs, advertising, occupancy and equipment costs and data processing expense in
the amounts of $35,000, $4,000, $26,000 and $8,000 respectively.
The provision for income taxes increased $909,000 as a result of the
increased earnings before income taxes. The effective tax rate for the nine
months ended September 30, 1997 and 1996 was 36.5% and 34.1% respectively.
Because less earnings are being derived from Treasury securities, the Company's
effective tax rate for state income taxes is increasing.
-8-
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
- ----------------------------------
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, 1997. The
Company adopted SFAS 125 effective January 1, 1997, resulting in no material
impact on its consolidated financial condition or results of operations.
In December 1996, the FASB issued Statement of Financial Accounting
Standards No. 127 ("SFAS 127"), "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." The statement delays for one year the
implementation of SFAS 125, as it relates to (1) secured borrowings and
collateral, and (2) for the transfers of financial assets that are part of
repurchase agreements, dollar-rolls, securities lending and similar
transactions. The Company has adopted portions of SFAS 125 (those not deferred
by SFAS 127) effective January 1, 1997, and adoption of these portions did not
have a significant effect on the Company's financial condition or the results of
operations. Based on its review of SFAS 125, management does not believe that
the eventual adoption of the portions of SFAS 125 which have been deferred by
SFAS 127 will have a material affect on the Company.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings Per Share." This statement establishes
standards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock. This statement simplifies the
standards for computing earnings per share previously found in Accounting
Principles Board Opinion No. 5, "Earnings per Share" and makes them comparable
to international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS and fully diluted EPS with diluted EPS. It also
requires duel presentation of basic EPS and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
Basic EPS, unlike primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Diluted EPS is
computed similarly to fully diluted EPS under APB 15.
SFAS 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. The following presentation illustrates
pro forma basic and diluted earnings per share based on the provisions of SFAS
128:
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1997 1996 1997 1996
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding used
in EPS calculation 2,478,240 2,606,735 2,506,028 2,649,726
Add common stock equivalents
for shares issuable under
Stock Option Plans 203,591 213,186 195,997 205,969
---------- --------- --------- ---------
Weighted average number of shares
outstanding adjusted for common
stock equivalent 2,681,831 2,819,921 2,702,025 2,855,695
========== ========= ========= =========
Net income $1,271,631 107,460 3,503,281 2,134,905
Basic earnings per share $ 0.51 0.04 1.40 0.81
Diluted earnings per share $ 0.47 0.04 1.30 0.75
</TABLE>
Disclosure of earnings per share calculated in accordance with Accounting
Principles Board Opinion No. 15, "Earnings Per Share" is contained in
Exhibit 11.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 ("SFAS 129"), "Disclosure of Information about Capital
Structure." This statement establishes standards for disclosing information
about an entity's capital structure. It supersedes specific disclosure
requirements of APB Opinions No. 10, "Omnibus Opinion - 1966," and No. 15,
"Earnings Per Share," and SFAS No. 47, "Disclosure of Long-Term Obligations,"
and consolidates them in this statement for ease of retrieval and for greater
visibility to nonpublic entities. This statement is effective for financial
statements for periods ending after December 15, 1997. It contains no changes in
disclosure requirements for entities that were previously subject to the
requirements of Opinions No. 10 and No. 15 and SFAS No. 47, and, therefore, it
is not expected to have a significant impact on the consolidated financial
condition or results of operations of the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income." This statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, losses) in a full set of general purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. The Company has not yet determined the impact of adopting
this statement.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information," which becomes effective for fiscal years beginning after December
15, 1997. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments and requires enterprises
to report selected information about operating segments in interim financial
reports. The Company has not yet determined the impact of adopting this
statement.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Company keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.
-10-
<PAGE>
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
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 and Vice
President & Secretary Mary S. Suffi exercised options on 1,500 and 3,100 shares
of Common Stock granted to each respectively. The dates of exercise were
September 2 and September 5 respectively.
STOCK REPURCHASE PROGRAM
The Company began its current common stock repurchase plan in February,
1997. As of October 31, 1997, 71,740 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 out-
standing on October 31, 1997 totalled 2,473,953 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 Certificate 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>
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, there unto duly authorized.
WESTCO BANCORP, INC.
----------------------
Registrant
DATE: November 6, 1997 BY: (s) /s/ David C. Burba
--------------------------------
David C. Burba
President and
Chief Executive Officer
DATE: November 6, 1997 BY: (s) /s/ Richard A. Brechlin
--------------------------------
Richard A. Brechlin
Executive Vice President and
Chief Financial Officer
DATE: November 6, 1997 BY: (s) /s/ Kenneth J. Kaczmarek
--------------------------------
Kenneth J. Kaczmarek
Vice President and
Chief Accounting Officer
-12-
<PAGE>
EXHIBIT 11.0 - Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
9/30/97 9/30/97
------------ -----------
<S> <C> <C>
Net Income $1,271,631 $3,503,281
========== ==========
Weighted average shares outstanding 2,478,240 2,506,028
Common stock equivalents due to
dilutive effect of stock options 203,591 195,997
---------- ----------
Total weighted average common shares
and equivalents outstanding 2,681,831 2,702,025
========== ==========
Primary earnings per share $ 0.47 $ 1.30
========== ==========
Total weighted average common shares
and equivalents outstanding for
primary computation 2,681,831 2,702,025
Additional dilutive shares using the
end of period market value versus
the average market value when
applying the treasury stock method 2,210 * 9,804 *
---------- ----------
Total weighted average common shares
and equivalents outstanding for
fully diluted computation 2,684,041 2,711,829
========== ==========
Fully diluted earnings per share $ 0.47 $ 1.29
========== ==========
</TABLE>
* If average share price is greater than ending price, the average price for
both primary and fully diluted is used for the calculation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,656,878
<INT-BEARING-DEPOSITS> 7,493,223
<FED-FUNDS-SOLD> 4,400,000
<TRADING-ASSETS> 1,217,425
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 53,932,193
<INVESTMENTS-MARKET> 53,983,896
<LOANS> 237,467,253
<ALLOWANCE> 882,800
<TOTAL-ASSETS> 309,069,787
<DEPOSITS> 254,752,906
<SHORT-TERM> 0
<LIABILITIES-OTHER> 6,284,650
<LONG-TERM> 0
0
0
<COMMON> 35,195
<OTHER-SE> 47,997,036
<TOTAL-LIABILITIES-AND-EQUITY> 309,069,787
<INTEREST-LOAN> 14,522,278
<INTEREST-INVEST> 2,996,546
<INTEREST-OTHER> 106,752
<INTEREST-TOTAL> 17,625,576
<INTEREST-DEPOSIT> 9,374,294
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 8,251,282
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 309,301
<EXPENSE-OTHER> 3,680,655
<INCOME-PRETAX> 5,519,281
<INCOME-PRE-EXTRAORDINARY> 5,519,281
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,503,281
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 3.63
<LOANS-NON> 635,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 882,800
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 882,800
<ALLOWANCE-DOMESTIC> 175,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 707,800
</TABLE>
