____________________________________________
FORM 10-Q
For the Quarterly Period ended September 30, 2000
Commission File Number 0-24120
| Delaware | 31-1403116 | |
| (State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification Number) |
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
Indiate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
| Class: Common stock, $.01 par value | Outstanding at October 23, 2000 1,813,960 common shares |
| Page | |
| PART I - FINANCIAL INFORMATION (UNAUDITED) | |
| Item 1. Condensed Financial Statements | |
| Consolidated Statements of Financial Condition | 3 |
| Consolidated Statements of Income | 4 |
| Consolidated Statements of Comprehensive Income | 5 |
| Consolidated Statements of Cash Flows | 6 |
| Notes to Condensed Consolidated Financial Statements | 7 |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item 3. Quantitative and Qualitative Disclosure About Market Risk | 16 |
| PART II - OTHER INFORMATION | |
| Item 1. Legal Proceedings | 17 |
| Item 2. Changes in Securities and Use of Proceeds | 17 |
| Item 3. Defaults Upon Senior Securities | 17 |
| Item 4. Submission of Matters to a Vote of Security Holders | 17 |
| Item 5. Other Information | 17 |
| Item 6. Exhibits and Reports on Form 8-K | 17 |
| SIGNATURES | 18 |
2.
NEXT PAGE(Amounts in thousands)
| September 30, 2000 | December 31, 1999 | |
| ASSETS | ||
| Cash and cash equivalents | $ 4,508 | $ 9,614 |
| Securities available for sale | 48,366 | 50,366 |
| Federal Home Loan Bank stock | 7,865 | 7,451 |
| Loans, net | 276,158 | 254,654 |
| Loans held for sale | - | 217 |
| Premises and equipment, net | 4,022 | 3,475 |
| Other assets | 4,120 | 3,908 |
| Total assets | $ 345,039 | $ 329,685 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Deposits | $ 207,163 | $ 202,331 |
| Borrowed funds | 94,282 | 82,183 |
| Other liabilities | 2,013 | 2,182 |
| Total liabilities | 303,458 | 286,696 |
| Shareholders' equity | ||
| Common stock, $.01 par value, 7,250,000 shares authorized, 2,645,000 shares issued | 26 | 26 |
| Additional paid-in capital | 40,449 | 40,452 |
| Accumulated other comprehensive income (loss) | (1,666) | (2,157) |
| Unearned employee stock ownership plan shares | (893) | (1,071) |
| Unearned management recognition plan shares | (126) | (200) |
| Treasury stock; 778,966 and 649,166 shares at cost, respectively | (16,253) | (14,121) |
| Retained earnings | 20,044 | 20,060 |
| Total shareholders' equity | 41,581 | 42,989 |
| Total liabilities and shareholders' equity | $ 345,039 | $ 329,685 |
3.
NEXT PAGE| (Amounts in thousands, except per share data) | Three Months Ended September 30, | Nine Months Ended September 30, | ||
| 2000 | 1999 | 2000 | 1999 | |
| Interest income | ||||
| Loans, including fees | $ 5,584 | $ 4,816 | $ 15,993 | $ 14,190 |
| Securities | 809 | 867 | 2,464 | 2,724 |
| Interest-bearing deposits | 14 | 36 | 71 | 215 |
| Other interest and dividend income | 145 | 130 | 414 | 375 |
| 6,552 | 5,849 | 18,942 | 17,504 | |
| Interest expense | ||||
| Deposits | 2,698 | 2,424 | 7,742 | 7,217 |
| Borrowed funds | 1,438 | 969 | 3,847 | 2,941 |
| 4,136 | 3,393 | 11,589 | 10,158 | |
| Net interest income | 2,416 | 2,456 | 7,353 | 7,346 |
| Provision for loan losses | 84 | 74 | 252 | 182 |
| Net interest income after provision for loan losses | 2,332 | 2,382 | 7,101 | 7,164 |
| Noninterest income | ||||
| Service charges | 267 | 284 | 857 | 790 |
| Other noninterest income | 85 | (10) | 95 | 179 |
| 352 | 274 | 952 | 969 | |
| Noninterest expense | ||||
| Salaries and employee benefits | 981 | 1,013 | 3,013 | 3,056 |
| Occupancy and equipment | 208 | 214 | 600 | 650 |
| FDIC insurance | 11 | 29 | 34 | 98 |
| State Franchise taxes | 129 | 154 | 388 | 467 |
| Professional services | 81 | 99 | 254 | 374 |
| Advertising | 116 | 103 | 289 | 247 |
| Data processing | 187 | 215 | 627 | 639 |
| Other noninterest expense | 211 | 221 | 706 | 645 |
| 1,924 | 2,048 | 5,911 | 6,176 | |
| Income before income tax | 760 | 608 | 2,142 | 1,957 |
| Income tax expense | 271 | 229 | 764 | 727 |
| Net income | $ 489 | $ 379 | $ 1,378 | $ 1,230 |
| Earnings per common share | ||||
| Basic | $ .27 | $ .19 | $ .75 | $ .62 |
| Diluted | $ .27 | $ .19 | $ .74 | $ .62 |
| Dividends per common share | $ .25 | $ .25 | $ .75 | $ .75 |
| (Amounts in thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | ||
| 2000 | 1999 | 2000 | 1999 | |
| Net income | $ 489 | $ 379 | $ 1,378 | $ 1,230 |
| Other comprehensive income (loss), net of tax: | ||||
| Unrealized gain (loss) on securities available for sale arising during the period | 359 | (216) | 491 | (1,693) |
| Reclassification adjustment for amounts realized on securities sales included in net income | - | - | - | - |
| Total other comprehensive income (loss) | 359 | (216) | 491 | (1,693) |
| Comprehensive income (loss) | $ 848 | $ 163 | $ 1,869 | $ (463) |
See accompanying notes to condensed consolidated financial statements.
5.
NEXT PAGE| Nine Months Ended September 30, | ||
| (Amount in thousands) | 2000 | 1999 |
| Net cash from operating activities | $ 1,572 | $ 3,482 |
| Cash flows from investing activities | ||
| Loans: | ||
| Loan originations, net of payments received | (10,613) | 19,592 |
| Purchase of loans | (11,928) | (39,694) |
| Proceeds from sale of loans | 1,092 | 1,344 |
| Securities available for sale: | ||
| Maturities and principal payments | 3,784 | 10,613 |
| Purchase of securities | (1,118) | |
| Premises and equipment expenditures | (941) | (812) |
| Proceeds from sale of premises and equipment | 29 | 524 |
| Proceeds from sales of real estated owned | 56 | |
| Net cash from investing activities | (19,695) | (8,377) |
| Cash flows from financing activities | ||
| Net change in deposits | 4,832 | 7,982 |
| Net decrease in advances from borrowers for taxes and insurance | (338) | (529) |
| Purchase of treasury stock | (2,132) | (2,172) |
| Cash dividends paid | (1,444) | (1,549) |
| Proceeds from exercise of stock options | - | 132 |
| Proceeds from FHLB advances | 51,895 | 64,375 |
| Repayments on FHLB advances | (39,796) | (70,058) |
| Net cash from financing activities | 13,017 | (1,819) |
| Net change in cash and cash equivalents | (5,106) | (6,714) |
| Cash and cash equivalents at beginning of period | 9,614 | 13,854 |
| Cash and cash equivalents at end of period | $ 4,508 | $ 7,140 |
| Supplemental disclosures of cash flow information | ||
| Cash paid during the period for: | ||
| Interest | $ 11,463 | $ 9,901 |
| Income taxes | 640 | 310 |
| Noncash activities | ||
| Transfer of loans held for sale to portfolio loans | 217 | - |
6.
NEXT PAGENOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and with the 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Corporation's annual report on Form 10-K for the year ended December 31, 1999. The financial data and results of operations for interim periods presented may not necessarily reflect the results to be anticipated for the entire year. Internal financial information is primarily reported and aggregated solely in the line of the banking business.
Consolidation Policy: The financial statements include Western Ohio Financial Corporation (the "Company") and its wholly owned subsidiary Cornerstone Bank ("Cornerstone"). The financial statements of Cornerstone include the accounts of its wholly owned subsidiaries, CornerstoneBanc Financial Services, Inc. ("CFSI") and West Central Financial Services, Inc. ("WCFS").
Use of Estimates: To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments and status of contingencies are particularly subject to change.
Income Taxes: Income tax expense is the total of the current-year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Income tax expense is based on the effective rate expected to be applicable for the entire year.
Earnings Per Common Share: Basic earnings per common share are based on net income divided by the weighted average number of common shares outstanding during the period. Employee Stock Ownership Plan ("ESOP") shares are considered to be outstanding for the calculation unless unearned. Management Recognition Plan ("MRP") shares are considered outstanding as they become vested. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options.
7.
NEXT PAGENOTE 2 - SECURITIES
The amortized cost and fair values of securities available for sale were as follows:
(Amounts in thousands)
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Loss | Fair Value | |
| September 30, 2000 | ||||
| U.S. government agencies | $ 10,000 | $ - | $ (1,100) | $ 8,900 |
| Mortgage-backed securities | 40,891 | 22 | (1,447) | 39,466 |
| Total | $ 50,891 | $ 22 | $ (2,547) | $ 48,366 |
| December 31, 1999 | ||||
| U.S. government agencies | $ 10,000 | $ | $ (1,225) | $ 8,775 |
| Mortgage-backed securities | 43,635 | 28 | 2,072) | 41,591 |
| Total | $ 53,635 | $ 28 | $ (3,297) | $ 50,366 |
NOTE 3 - LOANS
Loans were as follows:
(Amounts in thousands)
| September 30, 2000 | December 31, 1999 | |
| First mortgage loans secured by: | ||
| One- to four- family residential | $ 179,610 | $ 178,304 |
| Other properties | 60,451 | 52,572 |
| Construction properties | 11,704 | 6,923 |
| 251,765 | 237,799 | |
Consumer and other loans | ||
| Consumer | 1,697 | 3,332 |
| Commercial | 11,762 | 5,499 |
| Home equity | 17,062 | 15,369 |
| Other | - | 157 |
| 30,521 | 24,357 | |
| Total loans | 282,286 | 262,156 |
| Less: | ||
| Net deferred loan fees, premiums and discounts | (80) | (62) |
| Loans in process | (4,491) | (4,659) |
| Allowance for loan losses | (1,557) | (2,781) |
| $ 276,158 | $ 254,654 |
8.
NEXT PAGENOTE 3 - LOANS (Continued)
Activity in the allowance for loan losses was as follows:
(Amount in thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
| 2000 | 1999 | 2000 | 1999 | |
| Beginning balance | $ 1,497 | $ 2,805 | $ 2,781 | $ 3,200 |
| Provision for loan losses | 84 | 74 | 252 | 182 |
| Recoveries | 52 | 16 | 99 | 42 |
| Charge-offs | (76) | (84) | (1,575) | (613) |
| Ending balance | $ 1,557 | $ 2,811 | $ 1,557 | $ 2,811 |
Nonperforming loans were $3,030,271 and $2,755,000 at September 30, 2000 and December 31, 1999.
NOTE 4 - DEPOSITS
Deposits were as follows:
(Amounts in thousands)
| September 30, 2000 | December 31, 1999 | |
| Checking - Noninterest bearing | $ 7,243 | $ 5,578 |
| Checking - Intererst bearing | 10,244 | 7,951 |
| Money market accounts | 45,447 | 49,149 |
| Passbook and savings accounts | 11,027 | 12,065 |
| Certificates of deposit | 133,202 | 127,588 |
| $ 207,163 | $ 202,331 |
NOTE 5 - EARNINGS PER COMMON SHARE
The factors used in the earnings per share computation were as follows:
(Amounts in thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
| 2000 | 1999 | 2000 | 1999 | |
| Basic earnings per common share | ||||
| Net income | $ 489 | $ 379 | $ 1,378 | $ 1,230 |
| Weighted average common shares outstanding | 1,922 | 2,075 | 1,958 | 2,102 |
| Less: Average unallocated ESOP shares | (60) | (71) | (63) | (74) |
| Less: Average nonvested RRP shares | (47) | (52) | (48) | (54) |
| Average shares | 1,815 | 1,952 | 1,847 | 1,974 |
| Basic earnings per common share | $ .27 | $ .19 | $ .75 | $ .62 |
9.
NEXT PAGENOTE 5 - EARNINGS PER COMMON SHARE (Continued)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
| 2000 | 1999 | 2000 | 1999 | |
| Diluted earnings per common share | ||||
| Net income | $ 489 | $ 379 | $ 1,378 | $ 1,230 |
| Weighted average common shares outstanding for basic earnings per common shares | 1,815 | 1,952 | 1,847 | 1,974 |
| Add: Dilutive effects of average nonvested RRP shares | - | 4 | - | 6 |
| Add: Dilutive effects of stock options | 3 | 14 | 3 | 18 |
Average shares and dilutive potential | 1,818 | 1,970 | 1,850 | 1,998 |
| Diluted earnings per common share | $ .27 | $ .19 | $ .74 | $ .62 |
Stock options covering 181,590 shares of common stock were not considered in computing diluted earnings per common share for the three and nine months ended September 30, 2000 as they were antidilutive.
NOTE 6 - STOCK OPTION PLANS
The following is a summary of activity in the stock option and incentive plan:
| Stock Options | |||
| Options Available for Grant | Options Outstanding | Weighted Average Exercise Price | |
| December 31, 1999 | 208,837 | 194,041 | $ 19.60 |
| Granted | (52,605) | 52,605 | 14.75 |
| Forfeited | 5,300 | (5,300) | 18.50 |
| Exercised | - | - | - |
| September 30, 2000 | 161,532 | 241,346 | $ 18.56 |
10.
NEXT PAGEItem 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discusses the financial condition of the Company as of September 30, 2000 as compared to December 31, 1999, and the results of operations for the three and nine months ended September 30, 2000, compared with the same periods in 1999. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.
Forward-Looking Statements
When used in this filing and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "would be", "will allow", "intends to", "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, including but not limited to changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition, all or some of which could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made and advises readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.
Analysis of Financial Condition
Consolidated assets of the Company totaled $345.0 million at September 30, 2000, an increase of $15.3 million from the December 31, 1999, total of $329.7 million. The primary increase in assets is a result of an increase of $21.5 million in net loans receivable. Funds for the loan growth were primarily obtained through additional Federal Home Loan Bank borrowings of $12.1 million and a deposit increase of $4.8 million.
Net loans increased $21.5 million, or 8.4% during the nine months ended September 30, 2000, increasing from $254.7 million in December 31, 1999 to $276.2 million on September 30, 2000. For the period, commercial loans increased $6.3 million to $11.8 million at September 30, 2000. Other real estate properties also increased $7.9 million from $52.6 million at December 31, 1999 to $60.5 million at September 30, 2000. These increases were the result of Cornerstone's effort to diversify its portfolio into more commercial type loans. Traditional one-to-four family residential mortgage loans increased $1.3 million to $179.6 at September 30, 2000 from $178.3 million at December 30, 1999. This increase includes the purchase of approximately $11.9 million adjustable rate mortgage loans.
11.
NEXT PAGECash and cash equivalents decreased by $5.1 million to $4.5 million on September 30, 2000, from $9.6 million on December 31, 1999. Cash and cash equivalents consist of cash, checking deposits and federal funds deposited at other financial institutions. The decrease was primarily the result of reducing excess funds maintained over year-end as a year 2000 contingency.
Securities available for sale decreased $2.0 million from $50.4 million at December 31, 1999, to $48.4 million on September 30, 2000. The decline was due to principal repayments on existing mortgage-backed securities available for sale being used to fund loan growth.
Deposits at September 30, 2000 totaled $207.2 million, an increase of $4.8 million, or 2.4% from $202.3 million at December 31, 1999. The increases occurred in demand and NOW accounts where Cornerstone is attempting to grow its retail and commercial checking account relationships and certificates of deposits where the Bank maintains competitive rates. Savings and money market accounts have decreased as depositors move to higher yielding accounts.
FHLB advances at September 30, 2000 totaled $94.3 million, an increase of $12.1 million or 14.7% from $82.2 million at December 31, 1999. The majority of borrowed funds are invested in loans to leverage the Company's excess capital and improve the Company's return on equity over time. Additionally, the Company used advances to better match estimated maturities of larger loan originations and purchases during the period. The new advances are both fixed and variable in nature.
Total shareholders' equity decreased $1.4 million from $43.0 million at December 31, 1999, to $41.6 million at September 30, 2000. This decrease is primarily due to the Company purchasing approximately $2.1 million, or 129,800 shares, of its common stock during the first nine months of 2000.
As of September 30, 2000, the Company had commitments to make $1.0 million of residential loans. It is expected that these loans will be funded within 30 days. The Company also had $4.5 million in commitments to fund loans on residential properties under construction. These commitments are anticipated to be filled within three to six months. Unused commercial lines of credit were $4.4 million and unused home equity lines of credit were $9.6 million. Commitments to originate nonmortgage loans total $0.3 million.
Results of Operations
Operating results of the Company are affected by general economic conditions, monetary and fiscal policies of federal agencies and policies of agencies regulating financial institutions. The Company's cost of funds is influenced by interest rates on competing investments and general market rates of interest. Lending activities are influenced by demand for real estate and other types of loans which, in turn, is affected by the interest rates at which such loans are made, general economic conditions and availability of funds for lending activities.
The Company's net income is primarily dependent on its net interest income (the difference between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities). Net income is also affected by provisions for loan losses, service charges, gains on sale of assets, other income, noninterest expense and income taxes. The Company's net income of $489,000 and $1,378,000 for the three and nine months ended September 30, 2000, represented increases of $110,000 and $148,000 when compared to the same periods in 1999. Basic earnings per share increased $.08 and $.13 per share from $.19 and $.62 per for 1999 to $.27 and $.75 per share for 2000.
12.
NEXT PAGENet interest income is the largest component of the Company's income and is affected by the interest rate environment and volume and composition of interest-earning assets and interest-bearing liabilities. Net interest income totaled $2,416,000 and $7,353,000 for the three and nine months ended September 30, 2000, compared to $2,456,000 and $7,346,000 for the same periods in 1999. The Company remains liability sensitive whereby its interest-bearing liabilities will generally reprice more quickly than its interest-earning assets. Therefore, the Company's net interest margin will generally increase in periods of falling interest rates in the market and will decrease in periods of rising interest rates as is currently being experienced. Accordingly, in a rising interest rate environment, the Company may need to increase rates to attract and retain deposits. Since the Company's loans generally mature or reprice over longer time periods than its deposits, the rise in interest rates may not have such an immediate impact on interest-earning assets. This lag could negatively affect net interest income in future periods
Interest and fees on loans totaled $5,584,000 and $15,993,000 for the three and nine months ended September 30, 2000 compared to $4,816,000 and $14,190,000 the three and nine months ended September 30, 1999. The increases were due to the overall increase in the interest rate environment, higher average loan balances, and increased origination of commercial and commercial real estate loans.
Interest and dividends on securities totaled $809,000 and $2,464,000 for the three and nine months ended September 30, 2000, and $867,000 and $2,724,000 for the three and nine months ended September 30, 1999. The decrease was due to principal payments on securities and reinvestment of funds in higher yielding loans.
Interest on deposits totaled $2,698,000 and $7,742,000 for the three and nine months ended September 30, 2000 and $2,424,000 and $7,217,000 for the three and nine months ended September 30, 1999. This increase was due to the overall increase in interest rates resulting in a higher cost to attract and retain both certificates of deposit and money market accounts.
Interest on FHLB advances was $1,438,000 and $3,847,000 for the three and nine months ended September 30, 2000 compared to $969,000 and $2,941,000 for the three and nine months ended September 30, 1999. The increase is due to an increase in borrowings from the FHLB to fund loan growth and to higher rates on advances due to the overall increase in rates.
The Company maintains an allowance for loan losses in an amount which, in management's judgement, is adequate to absorb probable losses in the loan portfolio. While management utilizes its best judgement and information available, ultimate adequacy of the allowance is dependent on a variety of factors, including performance of the Company's loan portfolio, the economy, changes in real estate values and interest rates and the view of the regulatory authorities toward loan classifications. The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level considered adequate to absorb probable losses in the loan portfolio. The amount of the provision is based on management's regular review of the loan portfolio and consideration of such factors as historical loss experience, changes in size and composition of the loan portfolio and specific borrower considerations, including ability of the borrower to repay the loan and the estimated value of the underlying collateral. The provision for loan losses totaled $84,000 and $252,000 for the three and nine months ended September 30, 2000, compared to $74,000 and $182,000 for the three and nine months ended September 30, 1999.
Loan charge-offs were $76,000 and $1,575,000 for the three and nine months ended September 30, 2000 compared to $84,000 and $613,000 for the same periods in 1999. During the nine months ended September 30, 2000, the Company resolved two large problem loans and charged-off portions of two other problem loan relationships. These loans were previously identified and reported as impaired and specific loan loss reserves had been established for them. The two resolved loans included principal
13.
NEXT PAGErepayments of $366,000 and principal losses of $233,000 against which $209,000 of specific reserves had been established. Based on a lack of current progress in resolving the other two problem loans as well as improved reporting capabilities of the new data processing system installed in March 2000, management charged-off approximately $1,115,000 of loan principal against the allowance. Specific reserves of approximately the same amount had previously been established. The Company continues to actively pursue collection of these two relationships.
Noninterest income totaled $352,000 and $952,000 for the three and nine months ended September 30, 2000 compared to $274,000 and $969,000 for the same periods in 1999. The decrease is primarily due to the rise in interest rates which reduced the volume of loans originated for sale in the secondary market and a gain last year on the sale of loan servicing. Additionally during the three months ended September 30, 2000, the Bank sold its credit card portfolio for a one-time gain of $65,000 and will offer Visa and Mastercard on an agency basis only.
Noninterest expense totaled $1,924,000 and $5,911,000 for the three and nine months ended September 30, 2000 compared to $2,048,000 and $6,176,000 for the same periods in 1999. Noninterest expense is comprised of employee compensation and benefits, occupancy, deposit insurance premiums, state franchise taxes and miscellaneous other expenses. No individual component had a significant change from the same period in 1999.
The Company recently announced its intent to open a new full service branch office. This new office will be located in Centerville, Ohio and is expected to open during the first half of 2001. The branch opening will contribute to an increase in operating expenses.
The change in income tax is primarily attributable to the change in income before income taxes. Income tax expense totaled $271,000 and $764,000, or an effective rate of 35.7%, for the three and nine months ended September 30, 2000, compared to $229,000 and $727,000, or an effective rate of 37.7% and 37.1%, for the three and nine months ended September 30, 1999.
14.
NEXT PAGELiquidity
Office of Thrift Supervision ("OTS") regulations presently require Cornerstone Bank to maintain an average daily balance of investments in U.S. Treasury, federal agency obligations and other investments having maturities of five years or less in an amount equal to 4% of the sum of Cornerstone's average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. The liquidity requirement, which may be changed from time to time by the OTS to reflect changing economic conditions, is intended to provide a source of relatively liquid funds on which Cornerstone may rely, if necessary, to fund deposit withdrawals or other short-term funding needs. At September 30, 2000 Cornerstone's regulatory liquidity was 17.56%. At such date, Cornerstone had commitments to originate fixed rate loans totaling $1.0 million. In addition, Cornerstone had $4.5 million in commitments to fund loans on residential properties under construction. Unused commercial lines of credit were $4.4 million and unused home equity lines of credit were $9.6 million. Cornerstone had no commitments to purchase or sell loans. Cornerstone considers it's liquidity and capital reserves sufficient to meet its outstanding short and long-term needs.
Capital Resources
Cornerstone is required by regulations to meet certain minimum capital requirements, which must be generally as stringent as standards established for commercial banks. Current capital requirements call for tangible capital of 1.5% of adjusted total assets, core capital (which, for Cornerstone, consists solely of tangible capital) of 4.0% of adjusted total assets, except for institutions with the highest examination rating and acceptable levels of risk, and risk-based capital (which, for Cornerstone, consists of core capital and general valuation allowances) of 8.0% of risk-weighted assets (assets are weighted at percentage levels ranging from 0% to 100% depending on their relative risk).
The following table summarizes Cornerstone's regulatory capital requirements and actual capital at September 30, 2000.
| Actual capital | Current requirement | Excess of actual capital over current requirement | Applicable | ||||
| (Dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | Asset Total |
| Tangible capital | $ 41,576 | 11.99% | $ 5,200 | 1.5% | $ 36,376 | 10.49% | $346,636 |
| Core capital | 41,576 | 11.99 | 13,865 | 4.0 | 27,711 | 7.99 | 346,636 |
| Risk-based capital | 42,901 | 18.97 | 18,093 | 8.0 | 24,808 | 10.97 | 226,167 |
15.
NEXT PAGEItem 3.Quantitative and Qualitative Disclosure About Market Risk
There have been no material changes in the quantitative and qualitative disclosures about market risk as of September 30, 2000, from that presented in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
16.
NEXT PAGEItem 1 - Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27.0 Financial Data Schedule
(b) No current reports on Form 8-K were filed by the Registrant during the quarter ended September 30, 2000.
17.
NEXT PAGESIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| WESTERN OHIO FINANCIAL CORPORATION (Registrant) | |
| November 14, 2000 | /s/ John Raisbeck President and Chief Executive Officer (Principal Executive Officer) |
| November 14, 2000 | /s/ Craig F. Fortin Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
