<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, 1998.
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.
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(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 14, 1998, the Registrant had 2,400,653 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, 1998 (Unaudited) and December 31, 1997 1
Consolidated Statements of Income, Three and Nine Months
Ended September 30, 1998 and 1997 (Unaudited) 2
Consolidated Statement of Changes in Stockholders' Equity,
Nine Months Ended September 30, 1998 (Unaudited) 3
Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 1998 and 1997 (Unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Part II. OTHER INFORMATION 12
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,
1998 1997
-------------- -------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Cash and amounts due from
depository institutions $ 1,270,338 3,797,551
Interest-bearing deposits 15,276,981 10,158,974
------------- -----------
Total cash and cash equivalents 16,547,319 13,956,525
Investment securities (fair value of
$44,261,875 at September 30, 1998 and
$53,973,913 at December 31, 1997) 44,078,857 53,968,243
Investment securities held for trade 1,464,966 1,462,220
Loans receivable, net 249,248,677 240,097,597
Real estate owned 111,316 -
Stock in Federal Home Loan Bank of Chicago 2,080,500 1,997,000
Office properties and equipment, net 2,048,744 2,091,639
Accrued interest receivable 1,415,346 1,476,004
Prepaid expense and other assets 1,504,772 894,505
------------- -----------
Total assets 318,500,497 315,943,733
============= ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits 260,984,109 259,610,699
Advance payments by borrowers for taxes
and insurance 1,517,624 3,183,539
Other liabilities 8,008,048 4,562,544
------------- -----------
Total liabilities 270,509,781 267,356,782
------------- -----------
Stockholders' Equity:
Common stock ($0.01 par value: 5,000,000 shares
authorized; 3,525,070 shares issued and
2,405,093 shares outstanding at September 30, 1998;
3,521,570 shares issued and 2,464,353 shares
outstanding at December 31, 1997) 35,251 35,216
Additional paid-in capital 23,090,100 23,020,242
Retained earnings 43,215,657 41,583,949
Treasury stock (1,119,977 shares at September 30,
1998; 1,057,217 shares at December 31, 1997) (18,163,649) (15,679,170)
Common stock acquired by ESOP (186,643) (373,286)
------------- -----------
Total stockholders' equity 47,990,716 48,586,951
------------- -----------
Total liabilities and stockholders' equity $ 318,500,497 315,943,733
============= ===========
</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,
----------------------- -----------------------
1998 1997 1998 1997
------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 5,146,293 4,958,799 15,202,739 14,522,278
Interest on investments 676,193 834,698 2,180,518 2,647,405
Interest on interest-bearing
deposits 205,409 114,764 532,839 349,141
Dividends on securities
held for trade 9,184 4,055 23,898 8,313
Dividends on FHLB stock 34,408 34,006 101,394 98,439
----------- --------- ---------- ----------
Total interest income 6,071,487 5,946,322 18,041,388 17,625,576
----------- --------- ---------- ----------
Interest expense:
Interest on deposits 3,261,706 3,191,375 9,702,255 9,374,294
----------- --------- ---------- ----------
Total interest expense 3,261,706 3,191,375 9,702,255 9,374,294
----------- --------- ---------- ----------
Net interest income 2,809,781 2,754,947 8,339,133 8,251,282
----------- --------- ---------- ----------
Non-interest income:
Loan fees and service charges 75,963 72,540 214,733 209,327
Commission income 91,290 76,309 221,059 212,939
Unrealized gain (loss) on
trading account securities (201,369) 89,628 (234,597) 112,414
(Loss) Gain on sale of trading
account securities 13,729 124,876 89,980 196,887
Gain on sale of REO - 38,865 - 38,865
Other income 62,034 59,524 188,945 178,222
----------- --------- ---------- ----------
Total non-interest income 41,647 461,742 480,120 948,654
----------- --------- ---------- ----------
Non-interest expense:
Staffing costs 807,603 776,354 2,362,251 2,407,348
Advertising 23,938 47,548 88,275 123,748
Occupancy & equipment expense 124,318 129,190 356,801 380,272
Data processing 54,795 54,774 168,549 164,012
Federal deposit insurance
premiums 40,500 41,400 121,500 124,200
Other 147,933 153,891 591,376 481,075
----------- --------- ---------- ----------
Total non-interest expense 1,199,087 1,203,157 3,688,752 3,680,655
----------- --------- ---------- ----------
Income before taxes 1,652,341 2,013,532 5,130,501 5,519,281
Provision (benefit) for
income taxes 586,600 741,900 1,830,069 2,016,000
----------- --------- ---------- ----------
Net Income $ 1,065,741 1,271,632 3,300,432 3,503,281
=========== ========= ========== ==========
Earnings per share-primary $.43 .51 1.34 1.40
Earnings per share-fully diluted $.40 .47 1.25 1.30
Dividends declared per common share $.17 .15 .51 .45
</TABLE>
See notes to consolidated financial statements.
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WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Additional Stock
Common Paid-In Retained Treasury Acquired
Stock Capital Earnings Stock by ESOP Total
-------- ---------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 35,216 23,020,242 41,583,949 (15,679,170) (373,286) 48,586,951
Net income 3,300,432 3,300,432
Adjustments to
determine
comprehensive income 0 0
---------- -----------
Comprehensive income 3,300,432 3,300,432
Purchase of
Treasury stock
(111,750 shares) (3,228,875) (3,228,875)
Exercise of
stock options 35 23,310 (417,633) 744,396 350,108
Tax benefit related
to employee stock
plan 46,548 46,548
Contribution to
fund ESOP 186,643 186,643
Dividend declared
on common stock (1,251,091) (1,251,091)
-------- ---------- ---------- ----------- -------- -----------
Balance at September 30,1998 $ 35,251 23,090,100 43,215,657 (18,163,649) (186,643) 47,990,716
======== ========== ========== =========== ======== ===========
</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,
1998 1997
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,300,432 3,503,281
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 136,917 150,800
Amortization of premiums and discounts on
investment securities - net (26,375) (132,240)
Amortization of cost of stock benefit plans 186,643 311,958
(Gain) loss on sale of trading account securities 234,597 (112,414)
Unrealized (gain)loss on trading account securities (89,980) (251,328)
Gain on sale of real estate owned - (38,865)
Proceeds from sales of trading account securities 2,359,051 4,066,716
Purchase of trading account securities (2,506,414) (4,093,524)
Decrease in deferred income on loans (285,397) (200,409)
(Decrease)increase in current and deferred
federal income tax (244,126) 515,411
(Increase)decrease in interest receivable 60,658 69,074
Increase(decrease) in interest payable (5,371) (21,881)
Change in prepaid and accrued items, net 3,137,339 69,247
------------ -----------------
Net cash provided by operating activities 6,257,974 3,835,826
------------ -----------------
Cash flows from investing activities:
Proceeds from maturities of investment securities 33,800,000 40,148,003
Purchase of investment securities (23,884,239) (25,210,943)
Purchase of Federal Home Loan Bank stock (83,500) (121,000)
Disbursements for loans (61,994,807) (48,207,517)
Loan repayments 53,020,848 35,039,925
Proceeds from the sale of real estate owned - 631,335
Property and equipment expenditures (94,022) (375,090)
------------ -----------------
Net cash provided for investing activities 764,280 1,904,713
------------ -----------------
Cash flows from financing activities:
Proceeds from exercise of stock options 350,108 234,400
Deposit account receipts 209,052,187 203,490,530
Deposit account withdrawals (216,524,811) (212,402,862)
Interest credited to deposit accounts 8,846,034 8,511,277
Increase in advance payments by borrowers
for tax and insurance (1,665,915) (1,700,194)
Payment of dividends (1,260,188) (1,139,628)
Purchase of treasury stock (3,228,875) (2,973,287)
------------ -----------------
Net cash provided by(for) financing activities (4,431,460) (5,979,764)
------------ -----------------
Net change in cash and cash equivalents 2,590,794 (239,225)
Cash and cash equivalents at beginning of period 13,956,525 11,389,326
------------ -----------------
Cash and cash equivalents at end of period $ 16,547,319 11,150,101
============ =================
Cash paid during the period for: Interest $ 9,719,029 9,407,578
Income taxes 2,074,195 1,500,600
Non-cash activity: Transfer of loans to reo $ 108,276 681,972
</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, 1998 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
26, 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 June, 1992 conversion, the Company's Board of Directors has
approved eight separate stock repurchase programs. The current stock repurchase
program permits the repurchase of up to 150,000 shares; and, as of September 30,
1998, 44,250 shares remained to be repurchased in the open market. As of
October 14, 1998, 23,250 shares remained to be repurchased.
Note E - Earnings Per Share
Earnings per share are determined by dividing net income for the period by
the weighted average number of both basic and diluted shares of common stock and
common stock equivalents outstanding. Stock options are regarded as common
stock equivalents and are considered in diluted earnings per share calculations.
Common stock equivalents are computed using the treasury stock method. Earnings
per share data for 1997 have been restated for comparative purposes to reflect
the implementation of Statement of Financial Accounting Standards No. 128.
Note F - Sale of the Company
On August 17, 1998, the Board of Directors announced an agreement to be
acquired by MAF Bancorp. MAF will exchange 1.395 shares of stock for each share
of Westco stock in a fixed exchange ratio transaction. The acquisition will be
accounted for using the "purchase" method of accounting. The acquisition is
subject to regulatory approval and the approval of Westco Bancorp shareholders,
and a closing of the deal is expected by the end of December, 1998 or January,
1999. Westco's subsidiary, 1st Federal Savings of Westchester, will be merged
into MAF Bancorp's subsidiary, Mid America Bank, fsb.
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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 4.0%. The Association has historically maintained a high
level of liquid assets. At September 30, 1998, the Association's liquidity
ratio was 32.9%.
The Company maintains a significant part of the assets in overnight
deposits and a portfolio of U.S. Treasury securities with "laddered" maturities.
This strategy results in a relatively short weighted average maturity of these
assets. At September 30, 1998, these investments totalled $59.4 million, or
18.6% of assets, with a weighted average life of approximately 6 months. At
December 31, 1997, these investments totalled $64.5 million, or 20.4% of assets,
with a weighted average life of approximately 8 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, 1998, cash and
cash equivalents totalled $16.5 million.
The primary investing activity of the Company is the origination of
mortgage loans. During the nine months ended September 30, 1998 and 1997, the
Company disbursed loans in the amounts of $62.0 million and $48.2 million,
respectively. Other investing activities include the purchase of investment
securities, which totalled $23.9 million for the nine months ended September 30,
1998 and $25.2 million for the nine months ended September 30, 1997. These
activities in 1998 were funded primarily by principal repayments on loans
totalling $53.0 million and maturities of investment securities totalling $33.8
million. The nine month activity for 1997 was funded by principal repayments on
loans and maturites of investment securities in the amounts of $35.0 million and
$40.1 million respectively.
At September 30, 1998, the Company had outstanding loan commitments of
$7.5 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, 1998
totalled $101.0 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
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<PAGE>
assets, and a tangible capital ratio expressed as a percent of total adjusted
assets. As of September 30, 1998, 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, 1997:
Tangible 1.5% 13.1% $ 4,635 $41,502 $36,867
Core 3.0 13.1 9,270 41,502 32,232
Risk Based:
Tier I (core) 4.0 30.0 5,761 41,502 35,741
Total 8.0 30.5 11,523 42,230 30,707
At September 30, 1998:
Tangible 1.5% 12.9% $ 4,673 $40,340 $35,667
Core 3.0 12.9 9,346 40,340 30,994
Risk Based:
Tier I (core) 4.0 27.0 5,981 40,340 34,359
Total 8.0 27.4 11,964 40,966 29,002
</TABLE>
CHANGE IN FINANCIAL CONDITION OVER THE NINE MONTHS ENDED SEPTEMBER 30, 1998:
- ---------------------------------------------------------------------------
Total assets increased $2.6 million, or 0.8%, during the period to $318.5
million at September 30, 1998 from $315.9 million at December 31, 1997.
Loans receivable increased $9.1 million, or 3.8%, to $249.2 million from
$240.1 million at December 31, 1997. The increase is primarily a function of
loan disbursements of $62.0 million offset by amortization and prepayments of
$53.0 million. The growth in loans receivable reflects the continued demand for
most types of loans to either purchase or refinance loans on one- to four-family
residences due to the low interest rate environment. Since the beginning of the
year, the Company has closed $10.1 million in residential construction loans,
$3.0 million in permanent loans on residential property of five or more dwelling
units and $3.5 million in permanent loans on non-residential properties. During
the same period in 1997, the Company closed $10.1 million in construction loans
and $4.8 million in loans on properties having five or more dwelling units, and
$3.1 million on non-residential property.
Primarily as a result of the increase in loans receivable, investment
securities decreased 18.3% to $44.1 million at September 30, 1998 from $54.0
million at December 31, 1997. Cash and cash equivalents totalled $16.5 million
at September 30, 1998 compared to $14.0 million at December 31, 1997.
Savings deposits increased $1.4 million, or 0.5%, to $261.0 million at
September 30, 1998 from $259.6 million at December 31, 1997. The Company
experienced a net deposit outflow of $7.5 million (before interest credited) for
the nine month period ended September 30, 1998.
The balance of non-performing loans totalled $1.66 million at September 30,
1998, increasing $877,000, or 111.6%, from $786,000 at December 31, 1997. The
increase is due primarily to the recurring delinquency of a group of
approximately ten loans which fall behind in payments until foreclosure is
threatened or begun at which time the loans are brought current. This
fluctuation has been present in the Company's delinquencies over the past couple
of years. The ratio of non-performing loans to total loans was 0.67% at
September 30, 1998 compared to 0.33% at December 31, 1997.
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<PAGE>
The Company's allowance for loan losses totalled $902,800, or 54.3% of
non-performing loans, at September 30, 1998. Included in the total is a $277,000
specific loan loss allowance on a 36 unit apartment building having an
outstanding balance of $302,000.
At September 30, 1998, total non-performing assets amounted to $1.77
million, or 0.56% of total assets. In addition to the non-performing loans, the
Company has one single family property acquired through foreclosure totalling
$111,000. Non-performing assets at December 31, 1997 included only
non-performing loans. The ratio of non-performing assets to total assets was
0.56% and 0.25% at September 30, 1998 and December 31, 1997 respectively.
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, 1998 balance of $186,643 is eliminated in the consolidation of the
Company's financial statements. At December 31, 1997, the outstanding balance
totalled $373,000.
Retained earnings increased $1.6 million, or 3.9%, to $43.2 million as a
result of earnings for the nine month period ended September 30, 1998 offset
primarily by the declaration of dividend payments to stockholders during the
same period. Stockholders' equity totalled $48.0 million, or 15.1% of total
assets at September 30, 1998, and the book value per common share outstanding
was $19.95.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
- ----------------------------------------------------------------------------
AND SEPTEMBER 30, 1997:
- ----------------------
Net income for the quarter ended September 30, 1998 decreased $206,000,
16.2%, to $1.07 million from $1.27 million for the quarter ended September 30,
1997. The decrease in quarterly earnings resulted from a $420,000 decrease in
non-interest income, including a $402,000 decrease in realized and unrealized
gains on securities held for trading. This changes was offset primarily by a
$55,000 increase in net interest income and a $155,000 decrease in income taxes.
In the quarter ended September 30, 1998 net interest income increased 0.2%
to $2.81 million from $2.75 million for the 1997 quarter. Interest income
increased $125,000 while interest expense increased $70,000. The Company's
interest rate spread averaged 2.73% during the 1998 third quarter, compared to
2.82% during the 1997 third quarter. The Company's net interest margin averaged
3.55% for the quarter ended September 30, 1998 compared to 3.60% for the quarter
ended September 30, 1997. During the second quarter of 1998, the Company's net
interest rate spread averaged 2.80% and its net interest margin averaged 3.62%.
During the three months ended September 30, 1998 and September 30, 1997 no
additional provision for loan losses was made based upon (1) the absence of any
new 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 second quarter of 1998 decreased $420,000 over
the same quarter in 1997 due primarily to a $402,000 decrease in realized and
unrealized gains on investments held for trading and a $39,000 decrease in the
profit on the sale of REO property. These decreases were partially offset by a
$15,000 increase in commissions on the sales of investment and insurance
products, a $3,000 increase in loan fees and service charges, and a $3,000
increase in other miscellaneous income.
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<PAGE>
Non-interest expense decreased by $4,000 to $1.20 million for the three
months ended September 30, 1998 from the similar $1.20 million for the
three months ended September 30, 1997. This decrease resulted primarily from
increases of $31,000 in staffing costs being offset by a $24,000 decrease in
advertising expenses, a $5,000 decrease in office occupancy expense, a $1,000
decrease in FDIC premiums and a $5,000 decrease in other operating expense.
Income tax for the second quarter of 1998 decreased $155,000 as a result of
all of the above.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
- ----------------------------------------------------------------------------
AND SEPTEMBER 30, 1997:
- ----------------------
Net income for the nine months ended September 30, 1998 totalled $3.30
million, a $203,000 decrease compared to the nine months ended September 30,
1997.
During the nine months ended September 30, 1998, total interest income
increased $416,000 from the year earlier while total interest expense increased
$328,000. The Company's net interest margin averaged 3.57% for the nine months
ended September 30, 1998 and 3.63% for the nine months ended September 30, 1997.
The Company's interest rate spread averaged 2.76% during the nine months ended
September 30, 1998, compared to 2.86% during the same period in 1997.
During the nine months ended September 30, 1998 and 1997 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 1998 decreased $469,000 from the
same period in 1997, due to a decrease of $454,000 in the net results of
realized and urealized gains and losses on investments held for trading and a
decrease in the profit on the sale of REO property of $39,000. These decreases
were offset by increases of $6,000 in loan fees and service charges, $8,000 in
commissions on sales of insurance and investment products and $10,000 in other
income.
Non-interest expense increased $8,000 for the nine months ended
September30, 1998 from the level for the nine months ended September 30, 1997 as
a result of a $72,000 increase in legal and professional fees, a $12,000
increase in franchise taxes, a $5,000 increase in data processing costs and a
$14,000 increase in miscellaneous operating expenses. These increases were
offset by decreases in staffing costs, occupancy and equipment costs and
advertising expense in the amounts of $45,000, $23,000 and $35,000 respectively.
The provision for income taxes decreased $186,000. The effective tax rate
for the nine months ended September 30, 1998 and 1997 was 35.7% and 36.5%
respectively.
IMPACT OF NEW ACCOUNTING STANDARDS
- ----------------------------------
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS 132 alters current disclosure requirements
regarding pensions and other postretirement benefits in the financial statements
of employers who sponsor such benefit plans. The revised disclosure
requirements are designed to provide additional information to assist readers in
evaluating future costs related to such plans. Additionally, the revised
discloures are
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<PAGE>
designed to provide changes in the components of pension and benefit costs in
addition to the year end components of those factors in the resulting asset or
liability related to such plans. The statement is effective for fiscal years
beginning after December 15, 1997 with earlier application available. Management
does not expect SFAS 132 to have a material impact on the Company.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 requires all derivatives to be recorded on the balance
sheet at fair value, and it establishes special accounting for hedges of changes
in the fair value of assets, liabilities, firm commitments, hedges of the
variable cash flows of forecasted transactions and hedges of foreign currency
exposures of net investments in foreign operations. To the extent that the
hedge is considered highly effective, both the change in the fair value of the
derivative and the change in the fair value of the item being hedged are
recognized in earnings during the same period. Changes in the fair value of
derivatives which do not meet the criteria of one of the three designated hedge
categories must be included in income. Management does not expect SFAS 133 to
have a material impact on the Company.
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.
THRIFT RECHARTERING LEGISLATION
- -------------------------------
The Funds Act provides that the BIF and the SAIF will merge on January 1,
1999, if there are no more savings associations as of that date. Several bills
have been introduced in Congress that would eliminate the federal thrift charter
and the OTS. A bill originally reported by the House Banking Committee would
have regained federal thrifts to become national banks or state banks within two
years of enactment or they would have become national banks by operation of law.
OTS would have been abolished and its functions transferred to the bank
regulatory agencies. The bill as passed by the House of Representatives,
however, did not provide for the elimination of the federal thrift charter or
OTS, but did provide that unitary stock savings and loan holding companies
existing or applied for after March 31, 1998 would not have the ability to
engage in unlimited activities but would be subject to the activities
restrictions applicable to multiple savings and loan holding companies. Unitary
stock holding companies existing or applied for before 1998 would be
grandfathered and could continue to engage in unlimited activities and could
transfer the grandfather rights to acquirors of the holding company. The Bank is
unable to predict whether the legislation will be enacted or, given such
uncertainty, determine the extent to which the legislation, if enacted, would
affect its business. The Bank is also unable to predict whether the SAIF and BIF
will eventually be merged or the federal thrift charter eliminated, and what
effect, if any, such legislation would have on the Bank.
YEAR 2000 ANALYSIS
- ------------------
The Company, including its subsidiaries, does not own or use proprietary
software. The Association has a contract with NCR Corporation for data
processing services on savings and loan accounts, and NCR has assured the
Company that all systems will be Year 2000 Compliant by mid-1999. A test
performed by NCR in August confirmed their progress toward compliance. Vendors
supplying software for other internal uses have made the same assurance. OTS
performed an interim exam regarding this issue during the second quarter of
1998.
Management does not expect the total cost for its internal systems to
become Year 2000 compliant to be significant.
MAF Bancorp does own proprietary software, and expects to convert the
Company's systems in early 1999 if the announced acquisition is ultimately
approved. The Company's management has assurances that MAF will be Year 2000
compliant, but the Company's management is unable to make an independent
determination.
-10-
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instrument assets and liabilities are subject to
varying degrees of actual or theoretical market risk. The only significant
exposure of these instruments results from the interest rate risk embedded in
them based upon their contractual terms.
As of June 30, 1998, the latest date available, an OTS analysis of the
Association's estimated interest rate risk, as measured by changes in the Net
Portfolio Value of the Association's financial assets and liabilities for
instantaneous and sustained parallel shifts in interest rates, indicated that
the Net Portfolio Value would decrease 14% and 32% for 200 and 400 basis point
increases in interest rates respectively, compared to 13% and 30% respectively
for the previous quarter, and increase 7% and 17% for 200 and 400 basis point
decreases in interest rates respectively, compared to 5% and 11% respectively
for the previous quarter.
The Board of Directors has established parameters for monitoring the
Association's interest rate risk.
-11-
<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
-----------------
DEFINITIVE AGREEMENT TO BE ACQUIRED
On August 17, 1998, the Company announced it had agreed to be acquired by
MAF Bancorp, Inc. in a fixed exchange ratio stock transaction in which each
share of Westco Bancorp common stock will be exchanged for 1.395 shares of MAF
common stock. The transaction will be treated as a purchase by MAF for
accounting purposes. Pending regulatory and shareholder approval, the closing
is expected to occur in the fourth quarter of 1998.
STOCK OPTIONS EXERCISED
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
June 29, 1992, Executive Vice President Gregg P. Goossens and Vice
President/Controller Kenneth J. Kaczmarek exercised options on 17,180 and 5,390
shares of Common Stock granted to each respectively. The dates of exercise were
September 15 and September 18, respectively. In August and October, two
non-executive officers of the Association exercised a combined total of 18,570
options.
STOCK REPURCHASE PROGRAM
The Company began its current common stock repurchase plan on September 1,
1998. As of October 14, 1998, 23,250 shares remain to be repurchased.
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) A Form 8-K was filed on August 24, 1998 describing the signing of a
definitive agreement to be acquired. A Form 8-K was filed on on September 4,
1998 describing an amendment to the agreement which changed the accounting for
the acquisition from the "pooling" method to the "purchase" method.
-12-
<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, thereunto duly authorized.
WESTCO BANCORP, INC.
____________________
Registrant
DATE: October 15, 1998 BY: (s) /s/ David C. Burba
------------------
David C. Burba
President and
Chief Executive Officer
DATE: October 15, 1998 BY: (s) /s/ Richard A. Brechlin
-----------------------
Richard A. Brechlin
Executive Vice President and
Chief Financial Officer
DATE: October 15, 1998 BY: (s) /s/ Kenneth J. Kaczmarek
------------------------
Kenneth J. Kaczmarek
Vice President and
Chief Accounting Officer
<PAGE>
EXHIBIT 11.0 - Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
9/30/98 9/30/98
---------- ----------
<S> <C> <C>
Net income $1,065,741 $3,300,432
========== ==========
Common stock (Weighted Average) 2,470,612 2,467,302
========== ==========
Basic earnings per share $ 0.43 $ 1.34
========== ==========
Common stock 2,470,612 2,467,302
Common stock equivalents using
the treasury stock method 167,841 168,356
---------- ----------
Total common stock and commonfor
stock equivalentstation 2,638,453 2,635,658
========== ==========
Diluted earnings per share $ 0.40 $ 1.25
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
The 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,270,338
<INT-BEARING-DEPOSITS> 15,276,981
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 12,464,966
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 44,078,857
<INVESTMENTS-MARKET> 44,261,875
<LOANS> 249,248,677
<ALLOWANCE> 902,800
<TOTAL-ASSETS> 318,500,497
<DEPOSITS> 260,984,109
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,525,672
<LONG-TERM> 0
0
0
<COMMON> 35,251
<OTHER-SE> 47,955,465
<TOTAL-LIABILITIES-AND-EQUITY> 318,500,497
<INTEREST-LOAN> 15,202,739
<INTEREST-INVEST> 2,713,357
<INTEREST-OTHER> 125,292
<INTEREST-TOTAL> 18,041,388
<INTEREST-DEPOSIT> 9,702,255
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 8,339,133
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (144,617)
<EXPENSE-OTHER> 3,688,752
<INCOME-PRETAX> 5,130,501
<INCOME-PRE-EXTRAORDINARY> 5,130,501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,300,432
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.25
<YIELD-ACTUAL> 3.57
<LOANS-NON> 1,662,800
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 902,800
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 902,800
<ALLOWANCE-DOMESTIC> 277,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 625,800
</TABLE>
