UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period ended September 30, 1998
Commission File Number 0-22034
WOOD BANCORP, INC.
------------------
(Exact name of small business issuer as specified in its charter)
Delaware 34-1742860
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
124 East Court Street, Bowling Green, Ohio 43402
------------------------------------------------
(Address of principal executive offices)
(419) 352-3502
--------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class: Outstanding at October 31, 1998
Common stock, $0.01 par value 2,690,561 common shares
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
FORM 10-Q
Quarter ended September, 1998
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets ..............................................
Consolidated Statements of Income and Comprehensive Income................
Consolidated Statements of Cash Flows ....................................
Notes to Consolidated Financial Statements ...............................
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.....................................................
Item 2. Changes in Securities and Use of Proceeds.............................
Item 3. Defaults Upon Senior Securities.......................................
Item 4. Submission of Matters to a Vote of Security Holders...................
Item 5. Other Information.....................................................
Item 6. Exhibits and Reports on Form 8-K......................................
SIGNATURES .....................................................................
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
1998 1998
------------- -------------
ASSETS
Cash and due from banks .................................... $ 2,502,715 $ 4,786,582
Federal funds sold ......................................... 720,000 400,000
------------- -------------
Cash and cash equivalents .............................. 3,222,715 5,186,582
Interest-bearing deposits in other financial institutions .. 3,314,529 731,398
Securities available for sale .............................. 10,151,148 10,928,948
Mortgage-backed securities available for sale .............. 7,905,151 8,234,190
Loans, net ................................................. 136,612,529 135,617,811
Office properties and equipment, net ....................... 2,449,014 2,433,618
Federal Home Loan Bank stock ............................... 1,535,100 1,507,600
Accrued interest receivable ................................ 936,632 847,379
Other assets ............................................... 712,554 662,119
------------- -------------
Total assets ...................................... $ 166,839,372 $ 166,149,645
============= =============
LIABILITIES
Deposits $ ................................................. 130,330,242 $ 130,086,695
Federal Home Loan Bank advances ............................ 11,562,769 11,922,708
Accrued interest payable ................................... 153,965 143,758
Other liabilities .......................................... 1,655,399 1,445,505
------------- -------------
Total liabilities ...................................... 143,702,375 143,598,666
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares authorized,
no shares issued or outstanding
Common stock, $.01 par value, 5,000,000 shares authorized,
3,107,065 shares issued at September 30, 1998 and
June 30, 1998 ............................................ 31,071 31,071
Additional paid-in capital ................................. 11,499,911 11,412,177
Retained earnings-substantially restricted ................. 14,666,444 14,294,514
Treasury stock at cost 416,502 shares at September 30, 1998;
438,313 shares at June 30, 1998 .......................... (2,932,193) (3,033,704)
Unearned employee stock ownership plan shares .............. (198,442) (198,442)
Unearned recognition and retention plan shares ............. (14,063) (15,234)
Net unrealized gain on available for sale securities,
net of tax ............................................... 84,269 60,597
------------- -------------
Total shareholders' equity ............................. 23,136,997 22,550,979
------------- -------------
Total liabilities and shareholders' equity ........ $ 166,839,372 $ 166,149,645
============= =============
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
September 30,
---------------------------
1998 1997
----------- -----------
Interest income
Loans ........................................ $ 3,035,073 $ 2,983,511
Investment securities ........................ 167,988 212,355
Mortgage-backed and related securities ....... 126,039 141,168
Other ........................................ 81,770 51,784
----------- -----------
Total interest income .................... 3,410,870 3,388,818
Interest expense
Deposits ..................................... 1,418,489 1,337,538
FHLB borrowings .............................. 175,669 321,024
Other ........................................ 5,581 2,355
----------- -----------
Total interest expense ................... 1,599,739 1,660,917
----------- -----------
Net interest income ............................... 1,811,131 1,727,901
Provision for loan losses ......................... 30,000 30,000
----------- -----------
Net Interest income after provision for loan losses 1,781,131 1,697,901
Noninterest income
Service charges .............................. 86,402 81,854
Net gains from sale of loans ................. 221,899 96,129
Security gains ............................... -- 13,226
Other ........................................ 33,325 30,754
----------- -----------
Total noninterest income ................. 341,626 221,963
Noninterest expense
Salaries and benefits ........................ 639,669 546,775
Occupancy and equipment ...................... 118,696 90,941
Data processing .............................. 116,823 88,957
Insurance expense ............................ 29,772 30,309
Franchise taxes .............................. 55,098 51,224
Advertising and promotional expense .......... 34,157 41,953
Other ........................................ 130,074 108,104
----------- -----------
Total noninterest expense ................ 1,124,289 958,263
----------- -----------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(continued)
Three Months Ended
September 30,
---------------------------
1998 1997
----------- -----------
Income before income tax .......................... 998,468 961,601
Provision for income tax .......................... 369,875 350,050
----------- -----------
Net income ........................................ $ 628,593 $ 611,551
Other comprehensive income, net of tax
Unrealized gain on available for sale
securities arising during the period ....... 23,672 70,155
Reclassification for realized amount ......... -- (8,729)
----------- -----------
Comprehensive income .............................. $ 652,265 $ 672,977
=========== ===========
Basic earnings per common share ................... $ .24 $ .24
=========== ===========
Diluted earnings per common share ................. $ .23 $ .22
=========== ===========
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
------------------------------
1998 1997
------------ ------------
Cash flows from operating activities
Net income ......................................... $ 628,593 $ 611,551
Adjustments to reconcile net income to net cash from
operating activities
Depreciation ................................... 51,868 29,858
Provision for loan losses ...................... 30,000 30,000
Net accretion .................................. (36,148) (48,411)
Gain on loan sales ............................. (221,899) (96,129)
Proceeds from sale of loans .................... 11,342,960 5,679,265
Loans originated for sale ...................... (11,233,395) (5,583,136)
FHLB stock dividends ........................... (27,500) (25,600)
Amortization of mortgage servicing rights ...... 24,297 6,445
RRP compensation expense ....................... 1,171 5,388
ESOP expense ................................... 113,992 76,142
Change in
Interest receivable ....................... (89,253) (21,577)
Other assets .............................. 37,602 (89,696)
Other liabilities ......................... 171,441 (121,219)
Interest payable .......................... 10,207 (645)
Deferred loan fees ........................ 16,392 5,858
------------ ------------
Net cash from operating activities .... 820,328 458,094
Cash flows from investing activities
Net change in interest-bearing deposits in
other financial institutions ..................... (2,583,131) (632,940)
Securities available for sale
Purchases ...................................... (299,550) (700,000)
Proceeds from principal payments on mortgage-
backed securities ............................ 278,404 138,089
Proceeds from calls and maturities ............. 1,200,000 2,850,000
Net increase in loans .............................. (1,041,110) (4,763,066)
Properties and equipment expenditures .............. (67,264) (5,223)
------------ ------------
Net cash used in investing activities .......... (2,512,651) (3,113,140)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Three Months Ended
September 30,
------------------------------
1998 1997
----------- -----------
Cash flows from financing activities
Net change in deposits ........................... $ 243,547 $ 2,932,692
Proceeds from FHLB borrowings .................... -- 1,000,000
Repayment of FHLB borrowings ..................... (359,939) (1,749,500)
Proceeds from issuance of stock .................. 77,647 --
Cash dividends paid .............................. (232,799) (213,484)
----------- -----------
Net cash from financing activities ........... (271,544) 1,969,708
----------- -----------
Net change in cash and cash equivalents ............... (1,963,867) (685,338)
Cash and cash equivalents at beginning of period ...... 5,186,582 2,914,578
----------- -----------
Cash and cash equivalents at end of period ............ $ 3,222,715 $ 2,229,240
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest ..................................... $ 1,589,532 $ 1,661,562
Taxes ........................................ -- --
See accompanying notes to financial statements.
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended September 30, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the financial position of Wood Bancorp, Inc. ("Company") and its sole
subsidiary, First Federal Bank (the "Bank") at September 30, 1998, and its
results of operations and cash flows for the periods presented. All such
adjustments are normal and recurring in nature. The accompanying consolidated
financial statements have been prepared in accordance with the instructions of
Form 10-Q and, therefore, do not purport to contain all the necessary financial
disclosures required by generally accepted accounting principles that might
otherwise be necessary in the circumstances and should be read in conjunction
with the 1998 consolidated financial statements and notes thereto of the Company
for the year ended June 30, 1998, included in its 1998 Annual Report. Reference
is made to the accounting policies of the Company described in the notes to the
consolidated financial statements contained in its 1998 Annual Report. The
Company has consistently followed these policies in preparing this Form 10-Q.
The consolidated financial statements include the accounts of the Company and
the Bank. All significant intercompany transactions and balances have been
eliminated.
The Company is engaged in the business of banking with operations conducted
through its main office and six branches located in Bowling Green, Ohio, and
neighboring communities. These communities are the source of substantially all
of the Company's deposit and loan activities. The majority of the Company's
income is derived from one- to four-family residential real estate loans.
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. Future results could differ
from current estimates. Areas involving the use of management's estimates and
assumptions which are particularly subject to change include the allowance for
loan losses, the realization of deferred tax assets, fair value of financial
instruments and status of contingencies.
Income tax expense is the sum of current-year income of tax due or refundable
and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to this amount expected to be realized. The provision for income taxes is
based on the effective tax rate expected to be applicable for the entire year.
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended September 30, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basic and diluted earnings per common share are computed under a new accounting
standard effective beginning with the quarter ended December 31, 1997. All prior
earnings per common share amounts have been restated to be comparable. Basic
earnings per common share is based on the net income divided by the weighted
average number of common shares outstanding during the period. ESOP shares are
considered outstanding for earnings per common share calculations as they are
committed to be released; unearned shares are not considered outstanding.
Recognition and retention plan ("RRP") shares are considered outstanding for
earnings per common share calculations as they become vested. Diluted earnings
per common share shows the dilutive effect of additional potential common shares
issuable under stock options and nonvested shares issued under the RRP. On June
18, 1996, the Board of Directors declared a three-for-two stock split effected
in the form of a 50% stock dividend payable on July 29, 1996. On July 1, 1997,
the Board of Directors declared a three-for-two stock split effected in the form
of a 50% stock dividend payable on July 29, 1997. On January 5, 1998, the Board
of Directors declared a five-for-four stock split effected in the form of a 25%
stock dividend payable on January 29, 1998. Stock dividends in excess of 20% are
reported by transferring the par value of the stock issued from retained
earnings to common stock. Stock dividends for 20% or less are reported by
transferring the market value, as of the ex-dividend date, of the stock issued
from retained earnings to common stock and additional paid-in capital.
Fractional share amounts are paid in cash with a reduction in retained earnings.
All share and per share data have been retroactively adjusted to reflect the
stock splits.
Certain items in the prior year interim financial statements have been
reclassified to correspond with the current year presentation.
On July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," issued by the FASB in June 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. It does not require a specific format for that financial
statement, but requires an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended September 30, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Standard significantly changes the way
public business enterprises report information about operating segments in
annual financial statements, and requires those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about an
enterprise's reportable operating segments which is based on reporting
information the way management organizes the segments within the enterprise for
making operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, the Standard requires significantly more information be disclosed for
each reportable segment than is presently being reported in annual financial
statements. The Standard also requires selected information be reported in
interim financial statements. SFAS No. 131 is effective for financial statements
for periods beginning after December 15, 1997. SFAS No. 131 did not have a
significant impact on the Company.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits"amends the disclosure requirements of previous pension and other
postretirement benefit accounting standards by requiring additional disclosures
about such plans as well as eliminating some disclosures no longer considered
useful. SFAS No. 132 also allows greater aggregation of disclosures for
employers with multiple defined benefit plans. Non-public companies are subject
to reduced disclosure requirements, although such entities may elect to follow
the full disclosure requirements of SFAS No. 132. SFAS No. 132 is effective for
fiscal 1999 and is not expected to have a significant impact on the Company's
financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. SFAS No. 133 does
not allow hedging of a security which is classified as held to maturity. Upon
adoption of SFAS No. 133, companies may reclassify any security from held to
maturity to available for sale if they wish to be able to hedge the security in
the future. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999 with early adoption encouraged for any fiscal quarter beginning July 1,
1998 or later, with no retroactive application. Management does not expect the
adoption of SFAS No. 133 to have a significant impact on the Company's financial
statements.
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended September 30, 1998
- --------------------------------------------------------------------------------
NOTE 2 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
A reconciliation of the numerators and denominators used in the computation of
the basic earnings per common share and diluted earnings per common share is
presented below:
Three months ended
September 30,
----------------------------
1998 1997
----------- -----------
Basic Earnings Per Common Share
Numerator
Net income ............................. $ 628,593 $ 611,551
=========== ===========
Denominator
Weighted average common shares
outstanding .......................... 2,680,148 2,648,233
Less: Average unallocated ESOP shares . (46,289) (74,679)
Less: Average nonvested RRP shares .... (1,688) (4,221)
----------- -----------
Weighted average common shares
outstanding for basis earnings per
common share ......................... 2,632,171 2,569,333
=========== ===========
Basic earnings per common share .......... $ .24 $ .24
=========== ===========
Three months ended
September 30,
--------------------------
1998 1997
---------- ----------
Diluted Earnings Per Common Share
Numerator
Net income ............................... $ 628,593 $ 611,551
========== ==========
Denominator
Weighted average common shares
outstanding for basic earnings per
common share ........................... 2,632,171 2,569,333
Add: Dilutive effects of average
nonvested RRP shares .................... 1,177 3,049
Add: Dilutive effects of assumed
exercises of stock options ............. 138,980 149,495
---------- ----------
Weighted average common shares
and dilutive potential common
shares outstanding ..................... 2,772,328 2,721,877
========== ==========
Diluted earnings per common share .......... $ .23 $ .22
========== ==========
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended September 30, 1998
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of securities at September 30, 1998 and June 30, 1998 are as follows:
------------------------September 30, 1998-----------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- ------------ ------------ ----------------
Available for sale
U.S. Treasury securities $ 623,837 $ 186,763 $ 810,600
U.S. Government agencies 6,301,409 30,533 $ 6,572 6,325,370
Mutual funds and equity
securities 2,911,141 12,627 82,985 2,840,783
Municipal bonds 175,540 1,145 174,395
--------------- ------------ ------------ ----------------
10,011,927 229,923 90,702 10,151,148
Mortgage-backed securities 7,916,691 36,833 48,373 7,905,151
--------------- ------------ ------------ ----------------
Total securities
available for sale $ 17,928,618 $ 266,756 $ 139,075 $ 18,056,299
=============== ============ ============ ================
---------------------------June 30, 1998-------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- ------------ ------------ ----------------
Available for sale
U.S. Treasury securities $ 606,158 $ 159,742 $ 765,900
U.S. Government agencies 7,199,395 14,510 $ 41,729 7,172,176
Mutual funds and equity
securities 2,894,447 4,035 79,659 2,818,823
Municipal bonds 172,049 172,049
--------------- ------------ ------------ ----------------
10,872,049 178,287 121,388 10,928,948
Mortgage-backed securities 8,199,276 104,007 69,093 8,234,190
--------------- ------------ ------------ ----------------
Total securities
available for sale $ 19,071,325 $ 282,294 $ 190,481 $ 19,163,138
=============== ============ ============ ================
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended September 30, 1998
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
The amortized cost and estimated fair value of securities at September 30, 1998,
by contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
--------------- ----------------
Available for sale
Due in one year or less $ 1,000,000 $ 996,000
Due after one year through five years 2,699,716 2,887,664
Due after five years through ten years 3,401,070 3,426,701
--------------- ----------------
7,100,786 7,310,365
Mortgage-backed securities 7,916,691 7,905,151
Mutual funds and equity securities 2,911,141 2,840,783
--------------- ----------------
$ 17,928,618 $ 18,056,299
=============== ================
Securities with carrying values of $1,254,000 at September 30, 1998 and
$1,527,000 at June 30, 1998 were pledged to secure public deposits and for other
purposes as required or permitted by law.
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended September 30, 1998
- --------------------------------------------------------------------------------
NOTE 4 - LOANS
Loans receivable are summarized below:
September 30, June 30,
1998 1998
----------------- -----------------
Real estate mortgage loans (principally conventional)
Principal balances
Secured by one- to four- family residences $ 85,530,050 $ 87,923,561
Secured by other properties 10,745,115 10,578,260
Construction 10,872,705 6,403,535
Home equity 11,121,396 10,679,082
----------------- -----------------
118,269,266 115,584,438
Less:
Loans in process 6,865,137 4,105,037
Net deferred loan origination fees 211,738 195,346
----------------- -----------------
Total real estate mortgage loans 111,192,391 111,284,055
Consumer and other loans
Principal balances
Automobile 7,409,854 7,666,776
Commercial 11,104,394 10,463,418
Other 7,580,714 6,857,912
----------------- -----------------
Total consumer and other loans 26,094,962 24,988,106
----------------- -----------------
137,287,353 136,272,161
Allowance for loan losses 674,824 654,350
----------------- -----------------
Loans, net $ 136,612,529 $ 135,617,811
================= =================
Activity in the allowance for losses on loans for the three months ended
September 30, 1998 and 1997 are as follows:
Three months ended
September 30,
------------------------------
1998 1997
------------ ------------
Balance at beginning of period $ 654,350 $ 575,985
Provision for loan losses 30,000 30,000
Recoveries 833 168
Charge-offs (10,359) (9,460)
------------ ------------
Balance at end of period $ 674,824 $ 596,693
============ ============
Impaired loans were insignificant at September 30, 1998 and June 30, 1998 and
during the three months ended September 30, 1998 and 1997.
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended September 30, 1998
- --------------------------------------------------------------------------------
NOTE 5 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Various contingent liabilities are not reflected in the consolidated financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on the Company's financial condition or results of operations.
Some financial instruments are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. These involve, to varying degrees,
credit and interest-rate risk more than the amounts reported in the financial
statements.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit, standby letters of
credit and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral obtained, if deemed necessary, on extension of credit is based upon
management's credit evaluation and generally consists of residential or
commercial real estate.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, the total commitments do not necessarily represent
future cash requirements. Standby letters of credit and financial guarantees
written are conditional commitments to guarantee a customer's performance to a
third party.
As of September 30, 1998 and June 30, 1998, variable rate commitments to make
loans or fund outstanding lines of credit amounted to approximately $11,534,000
and $12,313,000, respectively, and fixed rate commitments amounted to $2,748,000
and $3,789,000, respectively. The interest rates on variable rate commitments
ranged from 6.25% to 12.00% and interest rates on fixed rate commitments ranged
from 6.00% to 15.00% at September 30, 1998. The interest rates on variable rate
commitments ranged from 6.50% to 12.00% and interest rates on fixed rate
commitments ranged from 6.25% to 15.00% at June 30, 1998. Since loan commitments
may expire without being used, the amounts do not necessarily represent future
cash commitments.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of Wood Bancorp, Inc.
("Company") and its sole subsidiary First Federal Bank ("First Federal" or the
"Bank") at September 30, 1998 to June 30, 1998 and the results of operations for
the three months ended September 30, 1998 and 1997. This discussion should be
read in conjunction with the interim financial statements and footnotes included
herein.
FINANCIAL CONDITION
Total assets grew $690,000, or 0.4%, from $166,149,000 at June 30, 1998 to
$166,839,000 at September 30, 1998. The growth is attributable to increases in
loans and interest bearing deposits in other financial institutions, partially
offset by decreases to cash and cash equivalents and securities available for
sale.
Cash and cash equivalents decreased $1,964,000 from $5,187,000 at June 30, 1998
to $3,223,000 at September 30, 1998. Interest-bearing deposits in other
financial institutions increased $2,583,000 from $731,000 at June 30, 1998 to
$3,314,000 at September 30, 1998.
Securities available for sale decreased $778,000, or 7.1%, from $10,929,000 at
June 30, 1998 to $10,151,000 at September 30, 1998. The decrease was primarily
due to $1,200,000 in calls and maturities, offset by $300,000 in purchases. The
proceeds were used primarily to fund new loans.
At September 30, 1998, the Company's mortgage-backed securities portfolio which
is classified as available for sale was comprised primarily of agency issued
adjustable rate securities. The Company does not anticipate the need to sell
these securities even though they could be sold based upon their available for
sale classification. Management's strategy emphasizes investment in securities
guaranteed by the U.S. government and its agencies in order to minimize credit
risk. The investment strategy also includes purchasing variable rate
mortgage-backed security products with monthly and annually adjusting interest
rates. These securities provide the Company a continued cash flow through
principal paydowns and help protect the Company against interest rate risk. See
also Note 3 in the interim financial statements.
Loans receivable increased $995,000, or 0.7%, from $135,618,000 at June 30, 1998
to $136,613,000 at September 30, 1998. Fixed-rate loan originations continue to
be sold on the secondary market, which corresponds to the Bank's policy of
selling virtually all fixed-rate loan originations in the secondary market,
while maintaining variable rate loans in the Bank's portfolio. To mitigate the
interest rate risk associated with loans held for sale, management obtains fixed
secondary market purchase commitments for these loans. Increases in loans
receivable were funded primarily by decreases in cash and cash equivalents and
proceeds from calls and maturities of securities available for sale, as well as
funds from increased customer deposits.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION (Continued)
FHLB stock, accrued interest receivable, and other assets remained relatively
constant from June 30, 1998 to September 30, 1998.
Deposits increased $243,000, or 0.2%, from $130,087,000 at June 30, 1998 to
$130,330,000 at September 30, 1998. The Bank used the period's deposit growth to
pay down advances from the FHLB. FHLB advances decreased $360,000 during the
period, bringing the total balance from $11,923,000 at June 30,1998 to
$11,563,000 at September 30, 1998.
RESULTS OF OPERATIONS
Net income increased $17,000, or 2.8%, from $612,000 for the three months ended
September 30, 1997 to $629,000 for the same period in 1998. The increase was
primarily due to increase in net interest income and noninterest income being
offset by an increase in noninterest expense.
Net interest income increased $83,000, or 4.8%, during the three months ended
September 30, 1998, as compared to the same period in 1997. The increase was
primarily due to an increase in average loans during the 1998 period as compared
to the 1997 period and having a lower cost of funding due to the growth in
deposits replacing FHLB borrowings.
The provision for loan losses was $30,000 for the three months ended September
30, 1998 and 1997. The provision is based on management's assessment of risk
factors affecting the loan portfolio. The allowance for loan losses was
approximately 0.49% of loans, net of deferred loan origination fees as of
September 30, 1998, compared to 0.44% at September 30, 1997. Management believes
the allowance for loan losses is adequate to absorb reasonably foreseeable
inherent losses in the loan portfolio; however, future additions to the
allowance may be necessary based on changes in economic conditions.
Noninterest income increased $120,000 for the three ended September 30, 1998, as
compared to the same period in 1997. The increase was primarily due to an
$126,000 increase in loan sale gains for the three months ended September 30,
1998, as compared to the same period in 1997. The increase in loan sale gains
was due to increased volume of fixed-rate loans originated during the current
low interest rate environment which were sold on the secondary market.
Noninterest expense increased $166,000, or 17.3% for the three months ended
September 30, 1998, compared to the same period in 1997, primarily due to
increases in salaries and benefits expense and data processing expense. Salaries
and employee benefits increased primarily due to the impact the Company's stock
price increase had on the ESOP, the addition of loan production personnel and
annual salary reviews. Data processing expense increased due to additional
services and restructuring of telephone line charges.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
The Company's federal income tax expense was $370,000 and $350,000 for the
three-month periods ended September 30, 1998 and 1997. The increase was
primarily due to the increase in pretax income.
LIQUIDITY
Federally insured banks are required to maintain minimum levels of liquid
assets. First Federal is currently required to maintain an average daily balance
in liquid assets of at least 4% of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. At
September 30, 1998, First Federal complied with this requirement with a
liquidity ratio of 15.67%. Management considers this liquidity position adequate
to meet its expected needs.
CAPITAL RESOURCES
The Bank is required by regulations to meet certain minimum capital
requirements, which must be generally as stringent as the requirements
established for commercial banks. Current capital requirements call for tangible
capital of 1.5% of adjusted total assets, core capital (which, for the Bank,
consists solely of tangible capital) of 3.0% of adjusted total assets and
risk-based capital (which, for the Bank, 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 indicates that the requirement for core capital is 4.0% because
that is the level that the OTS prompt corrective action regulations require to
be considered adequately capitalized. The Bank was in compliance with its
regulatory capital requirements at September 30, 1998:
Tangible Capital to Tier 1 Capital to Tier 1 Capital to Total Capital to
Adjusted Total Assets Adjusted Total Assets Risk-Weighted Assets Risk-Weighted Assets
Amount % Amount % Amount % Amount %
-------- ---- --------- ---- -------- ----- --------- -----
Actual $ 14,690 8.97% $ 14,690 8.97% $ 14,690 13.82% $ 15,343 14.44%
Required 2,457 1.50 6,551 4.00 4,251 4.00 8,502 8.00
-------- ---- --------- ---- -------- ----- --------- -----
Excess $ 12,233 7.47% $ 8,139 4.97% $ 10,439 9.82% $ 6,841 6.44%
======== ==== ========= ==== ======== ===== ========= =====
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 ISSUE
The Company's lending and deposit activities are almost entirely dependent on
computer systems which process and record transactions, although the Company can
effectively operate with manual systems for brief periods when its electronic
systems malfunction or cannot be accessed. Management is prepared to hire
temporary help to complete manual processes or to be utilized as couriers should
the need arise. The Company uses the services of a nationally recognized data
processing service bureau that specializes in data processing for financial
institutions. In addition to its basic operating activities, the Company's
facilities and infrastructure, such as security systems and communications
equipment, are dependent to varying degrees on computer systems.
The Company is aware of the potential Year 2000 related problems that may affect
the computers that control or operate the Company's operating systems,
facilities and infrastructure. In 1997, the Company began a comprehensive review
of identifying any Year 2000 related problems that may be experienced by its
computer operated or dependent systems. The Company has contacted the companies
that supply or service the Company's computer operated or dependent systems to
obtain confirmation that each system that is material to the operations of the
Company is either currently Year 2000 compliant or is expected to be Year 2000
compliant. With respect to systems that cannot presently be confirmed as Year
2000 compliant, the Company will continue to work with the appropriate supplier
or servicer to ensure that all such systems will be rendered compliant in a
timely manner, with minimal expense to the Company or disruption of the
Company's operations. If, by the end of 1998, any of the Company's suppliers or
servicers are unable to certify Year 2000 compliance with respect to any
systems, the failure of which would have a material adverse effect on the
Company's operations, financial condition or results, the Company would then
have sufficient time to identify and contract with suppliers and servicers who
are able to certify Year 2000 compliance. The expense of such a change in
suppliers or servicers is not expected to be material to the Company.
In addition to possible expense related to its own systems, the Company could
incur losses if loan payments are delayed due to Year 2000 problems affecting
any of the Company's significant borrowers or impairing the payroll systems of
large employers in the Company's primary market area. The Company has contacted
all commercial loan customers informing them of the year 2000 problems. Because
the Company's loan portfolio is highly diversified with regard to individual
borrowers and types of businesses and the Company's primary market area is not
significantly dependent on one employer or industry, the Company does not expect
any significant or prolonged Year 2000 related difficulties that will affect net
earnings or cash flow. At this time, however, the expense that may be incurred
by the Company in connection with Year 2000 issues is not expected to be
material.
WOOD BANCORP, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
- --------------------------------------------------------------------------------
Asset/Liability Management
The Company's asset/liability management strategy emphasizes the retention of
adjustable rate loans and mortgage-backed securities in its portfolio in order
to reduce the effective maturity of its assets. In addition, the Bank originates
other loans, specifically consumer and commercial loans, with shorter terms to
maturity or which reprice more frequently than do long-term fixed rate mortgage
loans, yet provide a positive margin over the Company's cost of funds. Under the
Bank's current policy, virtually all fixed rate mortgage loans are sold in the
secondary market. At September 30, 1998 and June 30, 1998, fixed rate loans
totaled $31.8 million, or 22.0% and $28.7 million, or 20.4% of the Company's
gross loan portfolio. At such dates, adjustable rate loans totaled $112.6
million, or 78.0% and $111.9 million, or 79.6%, of the Company's gross loan
portfolio.
As part of its effort to monitor and manage interest rate risk, the Bank uses
the "net portfolio value" ("NPV") methodology adopted by the OTS as part of its
capital regulations. Although the Bank is not currently subject to NPV
regulation because such regulation does not apply to institutions with less than
$300 million in assets and risk-based capital in excess of 12%, application of
NPV methodology may illustrate the Bank's interest rate risk.
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV that would
result from a theoretical basis point (1 basis point equals 0.01%) change in
market interest rates. The OTS considers an institution to be subject to
interest-rate risk if the NPV would decrease by more than 2% of the present
value of the institution's assets with either an increase or a decrease in
market rates.
At June 30, 1998,the most recent date as of which the Bank's NPV information is
available, 2% of the present value of the Bank's assets was $3,368,000. The
interest rate risk of a 200 basis point increase in market interest rates (which
was greater than the interest rate risk of a 200 basis point decrease) was
$284,000 at June 30, 1998, which was less than 2% of the present value of the
Bank's assets.
First Federal's asset/liability management strategy dictates acceptable limits
on the amounts of change in NPV given certain changes in interest rates.
Presented below, as of June 30, 1998 is an OTS analysis of First Federal's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in the yield curve, in 100 basis point increments, up and down
300 basis points and compared to Bank policy limits. OTS assumptions are used in
calculating the amounts in this table.
WOOD BANCORP, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
- --------------------------------------------------------------------------------
Changes in Actual at June 30, 1998
Interest Rates Bank Limit As Measured by OTS
(Basis Points) % Change $ Change % Change
-------------- -------- -------- --------
(Dollars in thousands)
+300 60% $ (1,272) (6.89)%
+200 40 (284) (1.54)
+100 15 175 0.95
0 0 --- ---
-100 15 (123) (0.67)
-200 40 (194) (1.05)
-300 60 180 0.98
Management has structured its assets and liabilities to attempt to lessen
exposure to interest rate risk. In case of a 300 basis point change in interest
rates, First Federal would experience a 0.98% increase in NPV in a declining
interest rate environment and a 6.89% decrease in a rising interest-rate
environment. During periods of rising interest rates, the value of monetary
assets and monetary liabilities generally decline. Conversely, during periods of
falling interest rates, the value of monetary assets and liabilities generally
increase. However, the amount of change in value of specific assets and
liabilities due to changes in interest rates is not the same in a rising
interest rate environment as in a falling interest rate environment (i.e., the
amount of value increase under a specific interest rate decrease may not equal
the amount of value decrease under an identical interest rate increase).
In evaluating the Bank's exposure to interest rate risk, certain shortcomings
inherent in the method of analysis presented in the foregoing table must be
considered. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. In addition, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Furthermore, in the event of a change in interest rates,
prepayments and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their debt may decrease in case of an interest rate increase.
Therefore, the actual effect of changing interest rates may differ from that
presented in the foregoing table.
FORM 10-Q
Quarter ended September 30, 1998
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1 - Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 - Changes in Securities and Use of Proceeds:
There are no matters required to be reported under this item.
Item 3 - Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security Holders:
On October 20, 1998, the Annual Meeting of the Stockholders of
the Company was held. The following members of the Board of
Directors of the Company were reelected by the votes set forth
below for terms expiring in 2001:
FOR WITHHELD
---- --------
Michael A. Miesle 2,179,455 10,138
Robert E. Spitler 2,176,502 13,091
These other matters submitted to the Stockholders, for which the
following votes were cast:
1. The ratification of the appointment of Crowe, Chizek and
Company LLP as the Company's auditors for the fiscal year
ending June 30, 1999.
FOR AGAINST ABSTAIN
--- ------- -------
2,179,809 5,779 4,005
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibit Number Exhibit
-------------- -------
27 Financial Data Schedule (1)
(b) No current reports on Form 8-K were filed by the Company
during the quarter ended September 30, 1998.
SIGNATURES
Pursuant to the requirement 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.
WOOD BANCORP INC.
-----------------
(Registrant)
Date: November 9, 1998 /s/ Richard L. Gordley
----------------------
Richard L. Gordley
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 9, 1998 /s/ David L. Nagel
------------------
David L. Nagel
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)