SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003.
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________________to_______________________
COMMISSION File Number: 0-26577
Webster City Federal Bancorp
(Exact name of registrant as specified in its charter)
United States 42-1491186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
820 Des Moines Street, Webster City, Iowa 50595-0638
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 515-832-3071
(Former name, former address and former fiscal year,
if changed since last report)
Transitional Small Business Disclosure Format: |_| Yes |X| No
Indicate the number of shares outstanding for each of the issuer's classes
of common stock, as of the latest practicable date.
3,772,372 shares of common stock, $.10 par value, outstanding at October 31,
2003.
Webster City Federal Bancorp and Subsidiaries
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
at September 30, 2003 and December 31, 2002 1
Consolidated Statements of Operations
for the three and nine months ended September 30, 2003
and 2002 2
Consolidated Statements of Cash Flows
for the nine months ended September 30, 2003
and 2002 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Controls and Procedures
Part II. Other Information
Other Information 9
Item 1
Webster City Federal Bancorp and Subsidiaries
Consolidated Balance Sheets
September 30, December 31,
2003 2002
------------- -------------
Assets (Unaudited)
Cash and cash equivalents $ 3,907,781 $ 5,251,946
Time deposits in other financial institutions 12,769,000 10,892,000
Securities available-for-sale 15,114,898 7,697,110
Securities held-to-maturity (market value 3,475,616 3,553,789
of $3,547,314 and $3,646,401, as of September 30, 2003 and
December 31, 2002, respectively.)
Loans receivable, net of allowance for loan losses of $383,300 68,326,383 73,319,065
and $404,000 at September 30, 2003 and Dwcember 31, 2002, respectively
Real estate owned 56,187 --
Federal Home Loan Bank (FHLB) stock, at cost 555,400 704,900
Office property and equipment, net 702,317 726,135
Deferred taxes on income 260,221 242,000
Accrued interest receivable 522,377 630,779
Prepaid expenses and other assets 509,213 536,457
------------- -------------
Total assets $ 106,199,393 $ 103,554,181
============= =============
Liabilities and Stockholders' Equity
Deposits $ 72,277,091 $ 70,216,797
Federal Home Loan Bank advances 9,700,000 9,700,000
Advance payments by borrowers for
taxes and insurance 104,952 306,386
Accrued interest payable 325,266 42,491
Current income taxes payable -- 83,374
Accrued expenses and other liabilities 1,159,765 886,331
------------- -------------
Total liabilities $ 83,567,074 $ 81,235,379
------------- -------------
Stockholders' Equity
Serial preferred stock, $0.10 par value -- --
Authorized 10,000,000 shares; issued none
Common stock, $.10 par value. 20,000,000 shares authorized: 429,684 430,122
4,296,840 issued and 3,772,372 outstanding at September 30, 2003
4,301,222 issued and 3,776,746 outstanding at December 31, 2002
Additional paid-in capital 9,439,592 9,467,295
Retained earnings, substantially restricted 16,608,683 16,241,330
Unrealized gain on securities available-for-sale 35,299 60,994
Treasury stock, 524,476 shares as of September 30, 2003 (3,880,939) (3,880,939)
and December 31, 2002, respectively
------------- -------------
Total stockholders' equity 22,632,319 22,318,802
------------- -------------
Total liabilities and stockholders' equity $ 106,199,393 $ 103,554,181
============= =============
See accompanying notes to consolidated financial statements.
Webster City Federal Bancorp and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Income
Interest Income:
Loans receivable $1,177,825 $1,450,943 $3,704,242 $4,284,261
Mortgage-backed & related securities 26,358 51,172 93,096 174,315
Investment securities 179,482 129,681 429,104 428,448
Other interest earning assets 116,028 39,581 341,666 133,336
---------- ---------- ---------- ----------
Total interest income 1,499,693 1,671,377 4,568,108 5,020,360
---------- ---------- ---------- ----------
Interest Expense:
Deposits 464,281 518,784 1,429,607 1,722,165
FHLB advances 127,765 127,765 379,129 379,129
---------- ---------- ---------- ----------
Total interest expense 592,046 646,549 1,808,736 2,101,294
---------- ---------- ---------- ----------
Net interest income 907,647 1,024,828 2,759,372 2,919,066
Provision for losses on loans -- 20,000 -- 20,000
---------- ---------- ---------- ----------
Net interest income after
provision for losses on loans 907,647 1,004,828 2,759,372 2,899,066
---------- ---------- ---------- ----------
Non-interest income:
Fees and service charges 51,797 85,900 157,057 216,799
Other 49,246 41,157 178,642 145,696
---------- ---------- ---------- ----------
Total non-interest income 101,043 127,057 335,699 362,495
---------- ---------- ---------- ----------
Expense
Non-interest expense:
Compensation, payroll taxes,
and employees benefits 273,091 262,168 868,600 802,098
Office property and equipment 43,253 53,216 124,966 140,202
Data processing services 49,354 50,121 144,375 131,555
Federal insurance premiums 2,839 2,967 8,516 9,225
Other real estate expenses, net 1,042 4,701 2,093 23,969
Advertising 9,900 7,406 28,894 21,263
Other 146,841 99,870 443,878 342,860
---------- ---------- ---------- ----------
Total non-interest expense 526,320 480,449 1,621,322 1,471,172
---------- ---------- ---------- ----------
Earnings before taxes on income 482,370 651,436 1,473,749 1,790,389
Taxes on income 171,150 233,200 556,117 647,642
---------- ---------- ---------- ----------
Net earnings $ 311,220 $ 418,236 $ 917,632 $1,142,747
========== ========== ---------- ----------
Earnings per share - basic $ 0.08 $ 0.11 $ 0.23 $ 0.30
========== ========== ========== ==========
Earnings per share - diluted $ 0.08 $ 0.11 $ 0.23 $ 0.30
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
Webster City Federal Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months
Ended September 30,
----------------------------
2003 2002
------------ ------------
(Unaudited)
Cash flows from operating activities
Net earnings $ 917,632 $ 1,142,747
------------ ------------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 51,303 119,064
Amortization of premiums and discounts, net (5,867) 4,718
Change in:
Accrued interest receivable 108,402 (37,126)
Prepaid expenses and other assets 27,244 (156,725)
Accrued interest payable 282,775 262,135
Accrued expenses and other liabilities 273,434 155,631
Accrued current taxes on income (83,374) (80,414)
Deferred taxes on income (1,443) --
------------ ------------
Total adjustments 652,474 267,283
------------ ------------
Net cash provided by operating activities 1,570,106 1,410,030
------------ ------------
Cash flows from investing activities
Proceeds from the maturity of interest bearing deposits 3,573,000 1,796,000
Purchase of interest earning deposits (6,620,000) (8,131,000)
Proceeds from sales of securities available-for-sale 9,848,708 4,998,450
Purchase of securities available-for-sale (16,940,000) (3,000,000)
Principal collected on mortgage-backed and related securities 875,230 1,071,148
Net change in loans receivable 4,936,732 (1,747,739)
Purchase of fixed assets (27,485) (3,192)
Sale (purchase) of FHLB stock 149,500 (91,700)
------------ ------------
Net cash used in investing activities (4,204,315) (5,108,033)
------------ ------------
Cash flows from financing activities
Net change in deposits 2,060,294 (2,897,894)
Net (decrease) in advance payments by borrowers
for taxes and insurance (201,434) (238,084)
Proceeds on exercise of stock options (18,319) 199,717
Dividends paid (550,497) (576,860)
------------ ------------
Net cash provided by (used in) financing activities 1,290,044 (3,513,121)
------------ ------------
Net decrease in cash and cash equivalents (1,344,165) (7,211,124)
------------ ------------
Cash and cash equivalents at beginning of period 5,251,946 9,183,215
------------ ------------
Cash and cash equivalents at end of period $ 3,907,781 $ 1,972,090
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,146,832 $ 1,460,030
Taxes on income 601,240 557,726
Transfers from loans to real estate acquired
through foreclosure $ 56,187 $ 247,160
============ ============
See accompanying notes to consolidated financial statements.
Webster City Federal Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. DESCRIPTION OF BUSINESS
Webster City Federal Bancorp ( the "Company" ) and its subsidiaries, Webster
City Federal Savings Bank, a federal stock savings bank (the "Bank"), and
Security Title and Abstract, Inc., conduct operations in Webster City, Iowa, a
community of approximately 8,000 people. The Bank is primarily engaged in the
business of attracting deposits from the general public in its market area and
investing such deposits in mortgage loans secured by one-to-four family
residential real estate. The Bank's primary area of lending and other financial
services consists of Hamilton County, Iowa, and the surrounding contiguous
counties. Security Title and Abstract, Inc. is engaged in the business of
providing abstracting and title services for properties located in Hamilton
County, Iowa.
Approximately 60% of the Company's outstanding common stock is owned by WCF
Financial M.H.C., a mutual holding company (the "Holding Company"). The
remaining 40% of the Company's outstanding common stock is owned by the general
public including the Bank's Employee Stock Ownership Plan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
The consolidated financial statements for the three and nine-month periods ended
September 30, 2003 and 2002 are unaudited. In the opinion of management of the
Company, these financial statements reflect all adjustments, consisting only of
normal recurring accruals necessary to present fairly these consolidated
financial statements. The results of operations for the interim periods are not
necessarily indicative of results that may be expected for an entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted.
Principles of Consolidation
The consolidated financial statements include the accounts of Webster City
Federal Bancorp, Security Title and Abstract, Inc., Webster City Federal Savings
Bank and its wholly owned subsidiary, WCF Service Corporation, which is engaged
in the sales of mortgage life and credit life insurance to the Bank's loan
customers. All material inter-company accounts and transactions have been
eliminated in the consolidation.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. In
preparing such financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change relate to management's determination of the
allowance for loan losses.
Reclassifications
Certain amounts in the 2002 financial statements have been reclassified to
conform to the presentation in the 2003 financial statements.
Critical Accounting Policy - The Company's critical accounting policy relates to
the allowance for losses on loans. The Company has established a systematic
method of periodically reviewing the credit quality of the loan portfolio in
order to establish a sufficient allowance for losses on loans. The allowance for
losses on loans is based on management's current judgments about the credit
quality of individual loans and segments of the loan portfolio. The allowance
for losses on loans is established through a provision, and considers all known
internal and external factors that affect loan collect ability as of the
reporting date. Such evaluation, which included a review of all loans on which
full collectability may not be reasonably assured, considers among other
matters, the estimated net realizable value or the fair value of the underlying
collateral, economic
conditions, historical loan loss experience, management's knowledge of inherent
risks in the portfolio that are probable and reasonably estimable and other
factors that warrant recognition in providing an appropriate loan loss
allowance.
Uses of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
3. DIVIDENDS
On August 20, 2003 the Company declared a payment of a two-for-one stock split
affected in the form of a stock dividend, for the 1,886,186 shares of common
stock issued and outstanding as of September 9, 2003. The additional shares were
issued as a result of the stock split and issued to stockholders as of September
24, 2003.
All shares and earnings per share numbers have been restated for the stock
split.
On October 15, 2003 the Company declared a cash dividend on its common stock
payable on November 20, 2003 to stockholders of record as of November 4, 2003,
equal to $.17 per share or approximately $641,303. Of this amount, the payment
of approximately $391,000 (representing the dividend payable on 3,300,000 shares
owned by WCF Financial, M.H.C., the Company's mutual holding company) was waived
by the mutual holding company, resulting in an actual dividend distribution of
$250,303.
4. EARNINGS PER SHARE COMPUTATIONS
2003
Earnings per share - basic is computed using the weighted average number of
common shares outstanding of 3,772,372 and 3,772,372 for the three and nine
months ended September 30, 2003, respectively, and divided into the net earnings
of $311,200 and $917,600 for the three and nine months ended September 30, 2003,
respectively, resulting in net earnings per share basic of $.08 and $.24 for the
three and nine months ended September 30, 2003, respectively.
Earnings per share - diluted is computed using the weighted average number of
common shares outstanding after giving effect to additional shares assumed to be
issued in relation to the Bank's stock option plan using the average price per
share for the period. Such additional shares were 4,325 and 3,861 for the three
and nine months ended September 30, 2003, respectively, due to the average price
per share being more than the stock option exercise price. Net earnings for the
three and nine months ended September 30, 2003 were $311,200 and $917,600,
respectively, resulting in net earnings per share diluted of $.08 and $.24 for
the three and nine months ended September 30, 2003, respectively.
2002
Earnings per share - basic is computed using the weighted average number of
common shares outstanding of 3,776,752 and 3,759,124 for the three and nine
months ended September 30, 2002, respectively, and divided into the net earnings
of $418,236 and $1,142,747, for the three and nine months ended September 30,
2002, respectively, resulting in basic earnings per share of $.11 and $.30 for
the three and nine months ended September 30, 2002, respectively.
Earnings per share - diluted is computed using the weighted average number of
common shares outstanding after giving effect to additional shares assumed to be
issued pursuant to the Bank's stock option plan using the average price per
share for the period. Such additional shares were 3,445 and 3,283 shares for the
three and nine months ended September 30, 2002, respectively, due to the average
price per share being more than the stock option exercise price for these
periods. Net earnings for the three and nine months ended September 30, 2002
were $418,236 and $1,142,747, respectively, resulting in diluted earnings per
share of $.11 and $.30 for the three and nine months ended September 30, 2002,
respectively.
5. INTANGIBLE ASSET
A Company subsidiary maintains an intangible asset relating to a customer list.
It has an estimated useful life of 15 years and is being amortized using the
straight-line method. At September 30, 2003, the gross carrying amount was
$145,000 with accumulated amortization of $29,800. Amortization expense for the
nine months ended September 30, 2003 and 2002 was $7,200 and $7,200
respectively.
The estimated amortization expense for the following five year period is as
follows:
December 31, 2003 $ 9,667.
December 31, 2004 9,667.
December 31, 2005 9,667.
December 31, 2006 9,667.
December 31, 2007 9,667.
6. STOCK - BASED COMPENSATION
SFAS No. 123, Accounting for Stock-Based Compensation, established accounting
and disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the Company
has elected to continue to apply the intrinsic-value-based method of accounting
described above, and has adopted only the disclosure requirements of SFAS No.
123. The following table illustrates the effect on net income if the
fair-value-based method had been applied to all outstanding and unvested awards
in each period.
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 2003 September 30, 2003 September 30, 2002 September 30, 2002
------------------ ------------------ ------------------ ------------------
Net income, as reported $ 311,220 $ 917,632 $ 418,236 $1,142,747
Add stock-based employee
compensation expense included in
reported net income, net of tax _ _ _ _
Deduct total stock-based employee
compensation expense determined
under fair-value-based method for
all rewards, net of tax _ _ _ _
Pro forma $ 311,220 $ 917,632 $ 418,236 $1,142,747
Earnings per share
As reported:
Basic .08 .23 .11 .30
Diluted .08 .23 .11 .30
Pro forma:
Basic .08 .23 .11 .30
Diluted .08 .23 .11 .30
Webster City Federal Bancorp and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION
Total assets increased by $2.6 million, or 2.6%, from December 31, 2002 to
September 30, 2003. Cash and cash equivalents decreased $1.3 million, or 25.6%,
due to funds being invested in securities available-for-sale during the period.
Loans receivable decreased $5.0 million, or 6.8% during the same period. As a
portfolio lender the Bank determined to allow some loans to be paid off or
refinanced at other financial institutions due the current low interest rate
environment. At September 30, 2003, the Company had $56,200 in real estate
owned. Securities available-for-sale increased by $7.4 million or 96.4% from
December 31, 2002 to September 30, 2003, and investment securities
held-to-maturity decreased $78,200 or 2.2%, from December 31, 2002 to September
30, 2003. The increase in securities available-for-sale was due to the purchase
of additional securities during 2003 reflecting the Bank's intention to maintain
a short-term investment duration until rates rise from their current historic
low levels. During the nine-month period, deposits increased $2.1 million, or
2.9%, due to an increase in public funds being deposited.
Total stockholders' equity increased by $313,500 to $22.6 million at September
30, 2003 from $22.3 million at December 31, 2002 as earnings of $917,600 were
partially offset by three quarterly cash dividends totaling $550,497.
CAPITAL
The Office of Thrift Supervision (OTS) requires that the Bank meet certain
minimum capital requirements. As of September 30, 2003, the Bank was in
compliance with all regulatory capital requirements. The Bank's required, actual
and excess capital levels as of September 30, 2003 were as follows:
Required % of Actual % of Excess
Amount Assets Amount Assets Capital
------ ------ ------ ------ -------
(Dollars in thousands)
Tier 1 (Core) Capital $3,164 3.0% $22,032 20.89% $18,868
Risk-based Capital $3,969 8.0% $22,280 44.91% $18,311
RESULTS OF OPERATIONS
Interest Income. Interest income decreased by $171,700 or 10.3% for the three
months ended September 30, 2003 compared to the three months ended September 30,
2002. This was the result of a decrease in the average yield on interest-earning
assets to 5.80% for the three months ended September 30, 2003 from 6.83% for the
three months ended September 30, 2002 partially offset by an increase in the
average balance of interest earning assets of $5.5 million or 5.6% to $103.4
million for the three months ended September 30, 2003 from $97.9 million for the
three months ended September 30, 2002. Interest income totaled $4.6 million for
the nine months ended September 30, 2003 compared to $5.0 million for the nine
months ended September 30, 2002. This was the result of a decrease in the
average yield on interest-earning assets to 5.96% for the nine months ended
September 30, 2003 from 6.84% for the nine months ended September 30, 2002
partially offset by an increase in the average balance of interest earning
assets of $4.2 million or 4.3% to $102.2 million for the nine months ended
September 30, 2003 from $97.8 million for the nine months ended September 30,
2002.
Interest on loans for the three months ended September 30, 2003 decreased
$273,100 or 18.8% compared to the three months ended September 30, 2002. The
decrease resulted primarily from a decrease in average loans outstanding to
$68.5 million for the three months ended September 30, 2003 from $76.0 million
for the same period ended September 30, 2002, and a decrease in the average
yield on loans receivable from 7.63% for the three months ended September 30,
2002 to 6.83% for the three months ended September 30, 2003. Interest on loans
for the nine months ended September 30, 2003 decreased $580,000 or 13.5%
compared to the nine months ended September 30, 2002. The decrease resulted from
a decrease in average total loans outstanding during the period from $75.2
million for the period ending September 30, 2002 to $69.6 million for the same
period ending September 30, 2003 and a decrease in the yield on loans receivable
from 7.63% for the
nine months ended September 30, 2002 to 7.10% for the nine months ended
September 30, 2003. The decrease in the average yield on loans receivable was
primarily due to lower market rates and adjustable rate loans repricing at a
lower rate based on the lagging index used by the Bank.
Interest on mortgage-backed securities decreased by $24,800 or 48.5% for the
three-month period ended September 30, 2003 as compared to the same period ended
September 30, 2002. The decline resulted from a decrease of $1.3 million or
40.6% in the average balance of mortgage-backed securities to $1.9 million for
the three months ended September 30, 2003 compared to $3.2 million for three
months ended September 30, 2002 and a decrease of 84 basis points in the average
yield on mortgage-backed securities to 5.52% for the three months ended
September 30, 2003 from 6.36% for the three months ended September 30, 2002.
Interest on mortgage-backed securities decreased $81,200 or 46.6% for the nine
months ended September 30, 2003 compared to same period ended September 30,
2002. The decline resulted from a decrease of $1.4 million or 38.9% in the
average balance of mortgage-backed securities to $2.2 million for the nine
months ended September 30, 2003 compared to $3.6 million for the nine months
ended September 30, 2002 and a decrease of 79 basis points in the average yield
on mortgage-backed securities to 5.69% for the nine months ended September 30,
2003 from 6.48% for the nine months ended September 30, 2002.
Interest on investment securities increased by $49,801 or 38.4% for the three
months ended September 30, 2003 compared to the same period ended September 30,
2002. This was due to an increase in the average balance of investment
securities from $9.5 million for the three months ended September 30, 2002 to
$14.9 million for the three months ended September 30, 2003 partially offset by
a decrease in the average yield of 66 basis points from 5.45%, for the three
month period ended September 30, 2002 to 4.79% for the three month period ended
September 30, 2003. Interest on investment securities increased by $700 or, .2%
for the nine months ended September 30, 2003 as compared to the same period
ended September 30, 2002. This was due to an increase in the average balance of
investment securities from $10.9 million for the three months ended September
30, 2002 to $13.1 million for the three months ended September 30, 2003
partially offset by a decrease in the average yield of 83 basis points from
5.20%, for the three month period ended September 30, 2002 to 4.37% for the
three month period ended September 30, 2003.
Interest Expense. Interest expense decreased by $54,500, or 8.4%, from $646,500
for the three months ended September 30, 2002 to $592,000 for the three months
ended September 30, 2003. The decrease in interest expense was due to a decrease
in average deposit interest rates of 55 basis points from 3.10% for the nine
month period ended September 30, 2002 to 2.55% for the same nine month period
ended September 30, 2003. Interest expense decreased by $292,600 or 13.9%, from
$2.1 million for the nine months ended September 30, 2002 to $1.8 million for
the nine months ended September 30, 2003. The decrease in interest expense was
due to a decrease in average deposit interest rates of 69 basis points from
3.40% for the nine month period ended September 30, 2002 to 2.71% for the same
nine month period ended September 30, 2003. Average interest on FHLB advances
remained unchanged at 5.27% for both periods.
Net Interest Income. Net interest income before provision for losses on loans
decreased by $117,200 or 11.4% from $1,024,800 for the three months ended
September 30, 2002 to $907,600 for the three months ended September 30, 2003.
The Company's interest rate spread for the three months ended September 30, 2003
decreased by 53 basis points to 2.93% from 3.46% for the three months ended
September 30, 2002. Net interest income before provision for losses on loans
decreased by $159,700 or 5.5% for the nine months ended September 30, 2003
compared to the same period ended September 30, 2002. The Company's interest
rate spread for the nine months ended September 30, 2003 decreased by 20 basis
points to 3.00% from 3.20% for the nine months ended September 30, 2002.
Provision for Losses on Loans. There were no additional provisions for losses on
loans for the three and nine months ended September 30, 2003. The Company had no
charge offs and recoveries of $3,100 during the three month period ended
September 30, 2003 and charge offs of $300 and recoveries of $4,300 during the
three month period ended September 30, 2002. The Company had charge offs of
$38,900 and recoveries of $17,900 during the nine month period ended September
30, 2003 and had charge-offs of $27,000 and recoveries of $24,100 during the
nine month period ended September 30, 2002. On September 30, 2003 the Company
had $347,200 in non-accrual loans compared to $379,300 on September 30, 2002.
The allowance for losses on loans is based on management's periodic evaluation
of the loan portfolio and reflects an amount that, in management's opinion, is
adequate to absorb probable losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of the
loan portfolio, and management's estimate of anticipated credit losses.
Non-interest Income. Total non-interest income decreased by $26,000 or 20.5% for
the three-month period ended September 30, 2003 as compared to the same period
ended September 30, 2002. The decrease was due to loan fees earned. Non-interest
income decreased by $26,800 or 7.4% for the nine months ended September 30, 2003
as compared to the same period ended September 30, 2002.
Non-interest Expense. Non-interest expense increased $45,900 or 9.6% for the
three-month period ended September 30, 2003 compared to the same period ended
September 30, 2002. Data processing expenses increased $800 or 1.6% for the
three-month period ended September 30, 2003 compared to the same period ended
September 30, 2002. Compensation and benefit costs increased $10,900 or 4.2%
from $262,200 for the three months ended September 30, 2002 to $273,100 for the
three month period ended September 30, 2003. Non-interest expense increased
$150,200 or 10.2% for the nine-month period ended September 30, 2003 compared to
the same period ended September 30, 2002. Data processing expenses increased
$12,800 or 9.7% for the nine-month period ended September 30, 2003 compared to
the same period ended September 30, 2002. Other expenses increased due to
additional professional fees. Compensation and benefit costs increased by
$66,500 or 8.3% from $802,100 for the nine months ended September 30, 2002 to
$868,600 for the nine months ended September 30, 2003. The increases were
primarily due to an increase of $21,600 in the Company's contribution to its
employee retirement plan and a 3.5% increase in employee compensation.
Taxes on Income. Income taxes for the three months ended September 30, 2003,
decreased by $62,100 or 26.6%, compared to the same period ended September 30,
2002. Income taxes for the nine months ended September 30, 2003, decreased by
$91,500 or 14.1%, compared to the same nine month period ended September 30,
2002. The effective income tax rate for the three months ended September 30,
2003 was 35.5% compared to 35.8% for the three months ended September 30, 2002.
The effective income tax rate for the first nine months of 2003 was 37.7%
compared to 36.2% for the first nine months of 2002. The increase in the
effective tax rate was due to the Company adjusting the tax estimate to better
match its year tax amount due the IRS.
Net Earnings. Net earnings decreased $107,000 or 2.6% to $311,200 for the three
months ended September 30, 2003 compared to $418,200 for the three months ended
September 30, 2002. Net earnings decreased $225,000 or 19.7% to $917,600 for the
nine-month period ended September 30, 2003 compared to $1,142,700 for the same
period ended September 30, 2002.
Impact of New Accounting Standards
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets. The Company also records a corresponding asset which
is depreciated over the life of the asset. The Company was required to adopt
SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 was not material
to the Company's financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of the Statement No. 4 are applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The impact of adopting SFAS No. 145 on the Company's financial
statements was not material.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The provisions of this
Statement are effective for exit and disposal activities that are initiated
after December 31, 2002. The effect of this Statement on the Company's financial
statements was not material.
In October 2002, the FASB Statement No. 147 (FAS 147), Acquisitions of Certain
Financial Institutions, which amends Statement No. 72 (FAS 72), Accounting for
Certain Acquisitions of Banking or Thrift Institutions and no longer requires
the separate recognition and subsequent amortization of goodwill that was
originally required by FAS 72. FAS 147 also amend Statement No. 144 (FAS 144),
Accounting for the Impairment or Disposal of Long-Lived Assets, to include in
its scope long-term customer-relationship intangible assets (such as core
deposit intangibles). The effects of implementation on the Company's financial
statements were not material.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57, and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for financial statements of interim and
annual periods ending after December 15, 2002. The effects of implementation on
the Company's financial statements were not material.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures of both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. Certain of
the disclosure modifications are required for fiscal years ending after December
15, 2002 and are included in the notes to these consolidated financial
statements.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 addresses consolidation by business
enterprises of variable interest entities that have certain characteristics. It
requires a business enterprise that has a controlling interest in a variable
interest entity (as defined by FIN 46) to include the assets, liabilities and
results of the activities of the variable interest entity of the consolidated
financial statements of the business enterprise. FIN 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
For variable interest acquired before February 1, 2003, it applies in the first
fiscal year or interim period ending after December 15, 2003. The impact of
adopting FIN 46 will not be material as the Company does not presently have any
variable interest entities.
In April 2003, the FASB issued SFAS No. 149, Amendment of SFAS No. 133 on
Derivative Instruments and Hedging Activities SFAS No. 149 amends SFAS No. 133
for decisions made (1) as part of the Derivatives Implementation Group process
that effectively required amendments to SFAS No. 133, (2) in connection with
other FASB projects dealing with financial instruments, and (3) in connection
with implementation issues raised in relation to the application of the
definition of a derivative, in particular, the meaning of "an initial net
investment that is smaller than would be required for other types of contracts
that would be excepted to have a similar response to changes in market factors,"
the meaning of "underlying," and the characteristics of a derivative that
contains financing components. SFAS No. 149 is generally effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The Company will adopt SFAS No. 149 as indicated
above and such adoption did not have a material effect on its financial position
or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
established standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or asset in some circumstances). Many of those instruments were
previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatory redeemable financial instruments of nonpublic
entities. The Company adopted SFAS No. 150 on July 1, 2003 and such adoption did
not have a material effect on its financial position or results of operations.
Competition
The Bank faces strong competition, both in originating real estate loans and in
attracting deposits. Competition in originating real estate loans and consumer
loans comes primarily from commercial banks, savings banks, credit unions and
mortgage brokers. The Bank competes for real estate and other loans principally
on the basis of the quality of services it provides to borrowers, the interest
rates it charges, loan fees it charges, and the types of loans it originates.
See "Lending Activities."
The Bank attracts all of its deposits through its retail banking office.
Therefore, competition for deposits is principally from commercial banks,
savings banks, credit unions and investment firms. The Bank competes for these
deposits by offering a variety of account alternatives at competitive rates and
by providing superior service with convenient business hours.
Safe Harbor Statement
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for the purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations and future prospects of the Company and its subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal polices of the U.S.
Government, including polices of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Bancorp's market area and accounting principles, polices and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
Item 3
Controls and Procedures
Under the supervision and with participation of our management, including the
Company's Chief Executive Officer and Chief Financial Officer, the Company
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15 d-15(e)
under the Securities Exchange Act of 1934) as of the end of the period covered
by this report. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period covered by
this report, the Company's disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
There has been no change made in the Company's internal control over financial
reporting is identified in connection with the quarterly evaluation that
occurred during the Company's last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
Webster City Federal Bancorp and Subsidiaries
PART II. Other Information
Item 1. Legal Proceedings
There are various claims and lawsuits in which the Registrant is
periodically involved incidental to the Registrant's business. In the opinion of
management, no material loss is expected from any of such pending claims or
lawsuits.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 31.1 Certification of Chief Executive Officer, Pursuant to Section
302 of the Sarbanes-Oxley Act
Exhibit 31.2 Certification of Chief Financial Officer, Pursuant to Section
302 of the Sarbanes-Oxley Act
Exhibit 32.1 Statement of Chief Executive Officer, Pursuant to Section 906
of the Sarbanes-Oxley Act
Exhibit 32.2 Statement of Chief Financial Officer, Pursuant to Section 906
of the Sarbanes-Oxley Act
On July 21, 2003 a Form 8-K report was filed relating to earnings and
dividends for the second quarter of 2003.
On August 22, 2003 a Form 8-K report was filed relating to a two-for-one
stock split.
On October 17, 2003 a Form 8-K report was filed relating to earnings and
dividends for the third quarter of 2003.
Webster City Federal Bancorp and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
WEBSTER CITY FEDERAL BANCORP
Registrant
Date: November 12, 2003 By:
------------------ ---------------------------------------------
Phyllis A. Murphy
President and Chief Executive Officer
Date: November 12, 2003 By:
------------------ ---------------------------------------------
Stephen L. Mourlam
Executive Vice President/Chief Financial
Officer