UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to _________
Commission File Number 0-22034
WOOD BANCORP, INC.
------------------
(Exact name of registrant 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
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class: Outstanding at February 5, 1999
Common stock, $0.01 par value 2,853,874 common shares
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
FORM 10-Q
Quarter ended December, 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)
December 31, June 30,
1998 1998
------------- -------------
ASSETS
Cash and due from banks ...................................... $ 8,117,884 $ 4,786,582
Interest-bearing deposits in other financial institutions .... 2,334,267 632,398
Federal funds sold ........................................... 2,012,000 400,000
------------- -------------
Cash and cash equivalents ................................ 12,464,151 5,818,980
Interest-bearing time deposits in other financial institutions 99,000 99,000
Securities available for sale ................................ 7,290,789 10,928,948
Mortgage-backed securities available for sale ................ 10,337,654 8,234,190
Loans, net ................................................... 136,089,044 135,617,811
Office properties and equipment, net ......................... 2,645,663 2,433,618
Federal Home Loan Bank stock ................................. 1,562,100 1,507,600
Accrued interest receivable .................................. 808,565 847,379
Other assets ................................................. 753,586 662,119
------------- -------------
Total assets ........................................ $ 172,050,552 $ 166,149,645
============= =============
LIABILITIES
Deposits ..................................................... $ 134,844,428 $ 130,086,695
Federal Home Loan Bank advances .............................. 11,515,076 11,922,708
Accrued interest payable ..................................... 147,235 143,758
Other liabilities ............................................ 1,408,731 1,445,505
------------- -------------
Total liabilities ........................................ 147,915,470 143,598,666
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 December 31, 1998 and
June 30, 1998 .............................................. 31,071 31,071
Additional paid-in capital ................................... 11,577,139 11,412,177
Retained earnings-substantially restricted ................... 14,891,212 14,294,514
Treasury stock at cost 275,098 shares at December 31, 1998;
438,313 shares at June 30, 1998 ............................ (2,199,336) (3,033,704)
Unearned employee stock ownership plan shares ................ (198,442) (198,442)
Unearned recognition and retention plan shares ............... (12,891) (15,234)
Net unrealized gain on available for sale securities,
net of tax ................................................. 46,329 60,597
------------- -------------
Total shareholders' equity ............................... 24,135,082 22,550,979
------------- -------------
Total liabilities and shareholders' equity .......... $ 172,050,552 $ 166,149,645
============= =============
See accompanying notes to financial statements.
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Interest income
Loans ............................. $ 3,041,514 $ 3,015,926 $ 6,076,587 $ 5,999,437
Securities ........................ 105,233 193,043 273,221 405,398
Mortgage-backed and related
securities ..................... 138,298 143,392 264,337 284,560
Other ............................. 134,196 60,153 215,966 111,937
----------- ----------- ----------- -----------
Total interest income ......... 3,419,241 3,412,514 6,830,111 6,801,332
Interest expense
Deposits .......................... 1,412,338 1,382,051 2,830,827 2,719,589
FHLB borrowings ................... 171,159 272,531 346,828 593,555
Other ............................. 5,323 1,333 10,904 3,688
----------- ----------- ----------- -----------
Total interest expense ........ 1,588,820 1,655,915 3,188,559 3,316,832
----------- ----------- ----------- -----------
Net interest income .................... 1,830,421 1,756,599 3,641,552 3,484,500
Provision for loan losses .............. 30,000 30,000 60,000 60,000
----------- ----------- ----------- -----------
Net Interest income after
provision for loan losses ......... 1,800,421 1,726,599 3,581,552 3,424,500
Noninterest income
Service charges ................... 93,497 79,985 179,899 161,839
Net gains from sale of loans ...... 298,630 119,115 520,529 215,244
Security gains .................... -- -- -- 13,226
Other ............................. 23,975 35,739 57,300 66,493
----------- ----------- ----------- -----------
Total noninterest income ...... 416,102 234,839 757,728 456,802
Noninterest expense
Salaries and benefits ............. 630,358 593,455 1,270,027 1,140,230
Occupancy and equipment ........... 119,179 102,053 237,875 192,994
Data processing ................... 115,970 92,385 232,793 181,342
Insurance expense ................. 29,416 27,105 59,188 57,414
Franchise taxes ................... 71,758 51,223 126,856 102,447
Advertising and promotional expense 31,623 42,628 65,780 84,581
Other ............................. 149,228 128,356 279,302 236,460
----------- ----------- ----------- -----------
Total noninterest expense ..... 1,147,532 1,037,205 2,271,821 1,995,468
----------- ----------- ----------- -----------
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(continued)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Income before income tax ............... 1,068,991 924,233 2,067,459 1,885,834
Provision for income tax ............... 388,480 345,635 758,355 695,685
----------- ----------- ----------- -----------
Net income ............................. 680,511 578,598 1,309,104 1,190,149
Other comprehensive income, net of tax . (37,940) 83,201 (14,268) 144,627
----------- ----------- ----------- -----------
Comprehensive income ................... $ 642,571 $ 661,799 $ 1,294,836 $ 1,334,776
=========== =========== =========== ===========
Basic earnings per common share ........ $ .25 $ .22 $ .49 $ .46
=========== =========== =========== ===========
Diluted earnings per common share ...... $ .25 $ .21 $ .48 $ .44
=========== =========== =========== ===========
See accompanying notes to financial statements.
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
------------------------------
1998 1997
------------ ------------
Cash flows from operating activities
Net income ........................................... $ 1,309,104 $ 1,190,149
Adjustments to reconcile net income to net cash from
operating activities
Depreciation ..................................... 105,182 60,108
Provision for loan losses ........................ 60,000 60,000
Net accretion .................................... (69,000) (84,022)
Net gain on sales of securities available for sale -- (13,226)
Net gain from sale of loans ...................... (520,529) (215,244)
Proceeds from sale of loans ...................... 25,665,716 11,885,123
Loans originated for sale ........................ (25,399,179) (11,794,401)
FHLB stock dividends ............................. (54,500) (51,700)
Amortization of mortgage servicing rights ........ 65,611 15,228
RRP compensation expense ......................... 2,343 10,776
ESOP expense ..................................... 215,477 220,868
Change in
Interest receivable ......................... 38,814 (5,769)
Other assets ................................ 96,914 50,233
Other liabilities ........................... (79,938) (343,429)
Interest payable ............................ 3,477 (28,967)
Deferred loan fees .......................... 6,146 114
------------ ------------
Net cash from operating activities ...... 1,445,638 955,841
Cash flows from investing activities
Net change in interest-bearing deposits in
other financial institutions ....................... -- 1,171,541
Securities available for sale
Purchases ........................................ (4,634,922) (700,000)
Proceeds from principal payments on mortgage-
backed securities .............................. 701,999 364,822
Proceeds from calls and maturities ............... 5,515,000 3,500,000
Net increase in loans ................................ (537,379) (5,379,477)
Properties and equipment expenditures ................ (317,227) (62,499)
------------ ------------
Net cash from investing activities ............... 727,471 (1,105,613)
See accompanying notes to financial statements.
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six Months Ended
December 31,
--------------------------------
1998 1997
------------ ------------
Cash flows from financing activities
Net change in deposits ........................... $ 4,757,733 $ 6,716,659
Proceeds from FHLB borrowings .................... -- 1,860,391
Repayment of FHLB borrowings ..................... (407,632) (6,799,758)
Proceeds from issuance of stock, net ............. 592,109 (793)
Cash dividends paid .............................. (470,148) (416,627)
------------ ------------
Net cash from financing activities ........... 4,472,062 1,359,872
------------ ------------
Net change in cash and cash equivalents ............... 6,645,171 1,210,100
Cash and cash equivalents at beginning of period ...... 5,818,980 2,914,578
------------ ------------
Cash and cash equivalents at end of period ............ $ 12,464,151 $ 4,124,678
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest ..................................... $ 3,185,082 $ 3,345,799
Taxes ........................................ 720,000 690,000
See accompanying notes to financial statements.
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended December 31, 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 December 31, 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. Income tax expense is based on
the effective tax rate expected to be applicable for the entire year.
Certain items in the prior year interim financial statements have been
reclassified to correspond with the current year presentation.
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basic earnings per common share are net income divided by the weighted average
number of common shares outstanding during the period. Unallocated ESOP shares
are not considered outstanding for this calculation. Recognition and retention
plan ("RRP") is considered outstanding as they become vested. Diluted earnings
per common share include 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.
The Company adopted on July 1, 1998, Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive income
consists of net income and other comprehensive income. Other comprehensive
income includes unrealized gains and losses on securities available for sale,
which is also recognized as a separate components of equity. The accounting
standard that requires reporting comprehensive income first applies for fiscal
years beginning after December 15, 1997 with prior information restated to be
comparable.
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. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
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
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended December 31, 1998
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.
SFAS No. 134, "Accounting for Mortgage-backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," changes the way companies involved in mortgage banking account for
certain securities and other interests they retain after securitizing mortgage
loans that were held for sale. SFAS 134 allows any retained mortgage-backed
securities after a securitization of mortgage loans held for sale to be
classified based on holding intent in accordance with SFAS 115 except in cases
where the retained mortgage-backed security is committed to be sold before or
during the securitization process in which case it must be classified as
trading. Previously, all retained mortgage-backed securities were required to be
classified as trading. SFAS 134 will be effective on January 1, 1999 and is not
expected to have a significant impact on the Company's financial statements.
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:
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended December 31, 1998
Three months ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Basic Earnings Per Common Share
Numerator
Net income ........................... $ 680,511 $ 578,598 $ 1,309,104 $ 1,190,149
=========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding ........................ 2,753,905 2,656,785 2,717,027 2,650,946
Less: Average unallocated ESOP shares (42,812) (70,986) (46,218) (74,578)
Less: Average nonvested RRP shares .. (1,617) (8,405) (1,688) (11,143)
----------- ----------- ----------- -----------
Weighted average common shares
outstanding for basis earnings per
common share ....................... 2,709,476 2,577,394 2,669,121 2,565,225
=========== =========== =========== ===========
Basic earnings per common share ........ $ .25 $ .22 $ .49 $ .46
=========== =========== =========== ===========
Three months ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Diluted Earnings Per Common Share
Numerator
Net income ........................... $ 680,511 $ 578,598 $ 1,309,104 $ 1,190,149
=========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding for basic earnings per
common share ....................... 2,709,476 2,577,394 2,669,121 2,565,225
Add: Dilutive effects of average
nonvested RRP shares ................ 460 4,928 512 6,738
Add: Dilutive effects of assumed
exercises of stock options ......... 38,948 153,011 39,703 148,862
----------- ----------- ----------- -----------
Weighted average common shares
and dilutive potential common
shares outstanding ................. 2,748,884 2,735,333 2,709,336 2,720,825
=========== =========== =========== ===========
Diluted earnings per common share ...... $ .25 $ .21 $ .48 $ .44
=========== =========== =========== ===========
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended December 31, 1998
NOTE 3 - SECURITIES
Securities at December 31, 1998 and June 30, 1998 are as follows:
-------------------------December 31, 1998-----------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- ------------ ------------ ----------------
Available for sale
U.S. Treasury securities $ 641,997 $ 163,347 $ -- $ 805,344
U.S. Government agencies 3,487,351 14,598 (30,919) 3,471,030
Mutual funds and equity
securities 2,928,851 10,479 (99,310) 2,840,020
Municipal bonds 179,092 -- (4,697) 174,395
--------------- ------------ ------------ ----------------
7,237,291 188,424 (134,926) 7,290,789
Mortgage-backed securities 10,320,957 95,431 (78,734) 10,337,654
--------------- ------------ ------------ ----------------
Total securities
available for sale $ 17,558,248 $ 283,855 $ (213,660) $ 17,628,443
=============== ============ ============ ================
---------------------------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 December 31, 1998
NOTE 3 - SECURITIES (Continued)
The amortized cost and estimated fair value of securities at December 31, 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 $ 250,000 $ 246,000
Due after one year through five years 2,071,495 2,203,832
Due after five years through ten years 1,986,945 2,000,937
--------------- ----------------
4,308,440 4,450,769
Mortgage-backed securities 10,320,957 10,337,654
Mutual funds and equity securities 2,928,851 2,840,020
--------------- ----------------
$ 17,558,248 $ 17,628,443
=============== ================
Securities with carrying values of $1,247,000 at December 31, 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 December 31, 1998
NOTE 4 - LOANS
Loans were as follows:
December 31, June 30,
1998 1998
------------ ------------
Real estate mortgage loans (principally conventional)
Principal balances
Secured by one- to four- family residences ....... $ 82,122,476 $ 87,923,561
Secured by other properties ...................... 12,004,951 10,578,260
Construction ..................................... 9,843,611 6,403,535
Home equity ...................................... 10,767,309 10,679,082
------------ ------------
114,738,347 115,584,438
Less:
Loans in process ................................. 3,872,351 4,105,037
Net deferred loan origination fees ............... 201,492 195,346
------------ ------------
Total real estate mortgage loans ............. 110,664,504 111,284,055
Consumer and other loans
Principal balances
Automobile ....................................... 6,976,924 7,666,776
Commercial ....................................... 11,498,426 10,463,418
Other ............................................ 7,637,394 6,857,912
------------ ------------
Total consumer and other loans ............... 26,112,744 24,988,106
------------ ------------
136,777,248 136,272,161
Allowance for loan losses ................................. 688,204 654,350
------------ ------------
Loans, net ................................................ $136,089,044 $135,617,811
============ ============
Activity in the allowance for losses on loans for the three and six-month
periods ended December 31, 1998 and 1997 was as follows:
Three months ended Six months ended
December 31, December 31,
---------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------ ------------- ------------
Balance at beginning of period $ 674,824 $ 596,693 $ 654,350 $ 575,985
Provision for loan losses 30,000 30,000 60,000 60,000
Recoveries 1,500 5,238 2,333 5,406
Charge-offs (18,120) (27,397) (28,479) (36,857)
------------- ------------ ------------- ------------
Balance at end of period $ 688,204 $ 604,534 $ 688,204 $ 604,534
============ ============ ============ ============
WOOD BANCORP
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended December 31, 1998
Impaired loans were insignificant at December 31, 1998 and June 30, 1998 and
during the six months ended December 31, 1998 and 1997.
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 December 31, 1998 and June 30, 1998, variable rate commitments to make
loans or fund outstanding lines of credit amounted to approximately $10,825,000
and $12,313,000, respectively, and fixed rate commitments amounted to $2,755,000
and $3,789,000, respectively. The interest rates on variable rate commitments
ranged from 6.50% to 12.00% and interest rates on fixed rate commitments ranged
from 5.875% to 15.00% at December 31, 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
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended December 31, 1998
NOTE 6 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows.
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- --------------
Unrealized holding gains and losses on
available-for-sale securities $ (57,486) $ 126,058 $ (21,618) $ 232,352
Less reclassification adjustments for (gains)
and losses later recognized in income -- -- -- (13,226)
------------- ------------- ------------- --------------
Net unrealized gains and losses (57,486) 126,058 (21,618) 219,126
Tax effect 19,546 (42,857) 7,350 (74,499)
------------- ------------- ------------- --------------
Other comprehensive income $ (37,940) $ 83,201 $ (14,268) $ 144,627
============= =============== ============= ==============
NOTE 7 - PENDING AFFILIATION
In December 1998, the Company signed a definitive agreement with Sky Financial
Group ("Sky"), whereby the Company will affiliate with Sky. The merger provides
for an exchange ratio of .7315 Sky common shares for each of the issued and
outstanding shares of the Company's common stock. It is anticipated that the
transaction will be accounted for under the pooling of interest's method of
accounting. The merger is expected to be completed during the fourth quarter of
the Company's 1999 fiscal year end following approval of regulators and the
Company's shareholders.
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 December 31, 1998 to June 30, 1998 and the results of operations for
the three months and six months ended December 31, 1998 and 1997. This
discussion should be read in conjunction with the interim financial statements
and footnotes included herein.
FINANCIAL CONDITION
Total assets grew $5,901,000, or 3.6%, from $166,150,000 at June 30, 1998 to
$172,051,000 at December 31, 1998. The growth is attributable to increases in
loans, mortgaged-backed securities available for sale and cash and cash
equivalents, partially offset by a decrease in securities available for sale.
Cash and cash equivalents increased $6,645,000 from $5,819,000 at June 30, 1998
to $12,464,000 at December 31, 1998, due to an increase in deposits and a
decrease in securities available for sale.
Securities available for sale decreased $3,638,000, or 33.3%, from $10,929,000
at June 30, 1998 to $7,291,000 at December 31, 1998. The decrease was primarily
due to $5,515,000 in calls and maturities, partially offset by $1,800,000 in
purchases.
At December 31, 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 although 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. The portfolio increased by
$2,103,000 from June 30, 1998 to December 31, 1998. The Company purchased
$2,814,000 in variable-rate mortgaged-backed securities to offset the lack of
demand for adjustable rate loans.
Loans receivable increased $471,000, or 0.3%, from $135,618,000 at June 30, 1998
to $136,089,000 at December 31, 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.
FHLB stock, accrued interest receivable, and other assets remained relatively
constant from June 30, 1998 to December 31, 1998. Office properties and
equipment, net of accumulated depreciation increased $212,000 due to
construction of a new branch in Perrysburg, Ohio.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION (Continued)
Deposits increased $4,758,000, or 3.7%, from $130,087,000 at June 30, 1998 to
$134,844,000 at December 31, 1998. The Bank used the period's deposit growth to
pay down advances from the FHLB. FHLB advances decreased $408,000 during the
period, bringing the total balance from $11,923,000 at June 30,1998 to
$11,515,000 at December 31, 1998.
RESULTS OF OPERATIONS
Net income increased $102,000, or 17.6%, from $579,000 for the three months
ended December 31, 1997 to $681,000 for the same period in 1998. The increase
was primarily due to an increase in net interest income and noninterest income
being partially offset by an increase in noninterest expense.
Net income increased $119,000, or 10.0%, from $1,190,149 for the six months
ended December 31, 1997 to $1,309,000 for the same period in 1998. The increase
was primarily due to an increase in net interest income and noninterest income
being offset be an increase in noninterest expense.
Net interest income increased $74,000, or 4.2%, during the three-month period
and 157,000, or 4.5% during the six-month period ended December 31, 1998, as
compared to the same periods in 1997. The increases were primarily due to
increases in average loans during the 1998 periods as compared to the 1997
periods, experiencing a shift in loan categories from real estate mortgage loans
to consumer and other loans which generally earn a higher yield 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-month periods and
$60,000 for the six-month periods ended December 31, 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 0.50% of loans, net
of deferred loan origination fees as of December 31, 1998, compared to 0.44% at
December 31, 1997. Management believes the allowance for loan losses is adequate
to absorb probable losses in the loan portfolio; however, future additions to
the allowance may be necessary based on changes in economic conditions.
Noninterest income increased $181,000 and $301,000 for the three- and six-month
periods ended December 31, 1998, as compared to the same periods in 1997. The
increase was primarily due to an $180,000 and $305,000 increase in loan sale
gains for the three- and six-month periods ended December 31, 1998, as compared
to the same periods 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.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Noninterest expense increased $110,000, or 10.6% for the three months ended
December 31, 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.
Noninterest expense increased $276,000, or 13.8%, for the six months ended
December 31, 1998 compared to the same period in 1997. The increase was
primarily due to the same reasons discussed above.
The Company's federal income tax expense was $388,000 and $346,000 for the
three-month periods ended December 31, 1998 and 1997, respectively and $758,000
and $696,000 for the six-month periods ended December 31, 1998 and 1997,
respectively. 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
December 31, 1998, First Federal complied with this requirement with a liquidity
ratio of 9.8%. 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 December 31, 1998:
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 $ 15,478 9.12% $ 15,478 9.12% $ 15,478 14.34% $ 16,136 14.95%
Required 2,546 1.50 6,790 4.00 4,318 4.00 8,637 8.00
-------- ---- --------- ---- -------- ----- --------- -----
Excess $ 12,932 7.62% $ 8,688 5.12% $ 11,160 10.34% $ 7,499 6.95%
======== ==== ========= ==== ======== ===== ========= =====
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. At December 31, 1998, the Company was not aware of any
suppliers or servicers that were 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.
Additionally, the Company has completed its first ten week testing period with
its main data service provider and encountered only one Year 2000 problem. This
error is in process of being corrected.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 ISSUE (Continued)
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 December 31, 1998 and June 30, 1998, fixed rate loans
totaled $32.8 million, or 23.7% and $28.7 million, or 20.4% of the Company's
gross loan portfolio. At such dates, adjustable rate loans totaled $103.8
million, or 76.3% 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.
WOOD BANCORP, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
At September 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
$3,341,000. 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 $536,000 at September 30, 1998, which was less than 2% of
the present value of the Bank's assets.
The Bank'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 September 30, 1998 is an OTS analysis of the Bank'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.
Actual at September 30, 1998
Changes in As Measured by OTS
Interest Rates Bank Limit Net Portfolio Value
(Basis Points) % Change $ Change % Change
-------------- -------- -------- --------
(Dollars in thousands)
+300 60% $ 181 1.06%
+200 40 536 3.12%
+100 15 305 1.78%
0 0 0 0
-100 15 (106) (0.62)%
-200 40 220 1.28%
-300 60 1,089 6.34%
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 6.34% increase in NPV in a declining
interest rate environment and a 1.06% increase 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.
WOOD BANCORP, INC.
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: There
are no matters required to be reported under this item.
Item 5 - Other Information:
In December 1998, the Company signed a definitive agreement with
Sky Financial Group ("Sky"), whereby the Company will affiliate
with Sky. The merger provides for an exchange ratio of .7315 Sky
common shares for each of the issued and outstanding shares of
the Company's common stock. It is anticipated that the
transaction will be accounted for under the pooling of interests
method of accounting. The merger is expected to be completed
during the fourth quarter of the Company's 1999 fiscal year end
following approval of regulators and the Company's shareholders.
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 December 31, 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: February 11, 1998 /s/ Richard L. Gordley
----------------------
Richard L. Gordley
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 1998 /s/ David L. Nagel
------------------
David L. Nagel
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
WOOD BANCORP, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
27 Financial Data Schedule