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 March 31, 1999
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 [ ]
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 May 10, 1999
Common stock, $0.01 par value 2,871,664 common shares
WOOD BANCORP, INC.
FORM 10-Q
Quarter ended March 31, 1999
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)
March 31, June 30,
1999 1998
------------- -------------
ASSETS
Cash and due from banks ...................................... $ 7,594,712 $ 4,786,582
Interest-bearing deposits in other financial institutions .... 2,166,405 632,398
Federal funds sold ........................................... 332,000 400,000
------------- -------------
Cash and cash equivalents ................................ 10,093,117 5,818,980
Interest-bearing time deposits in other financial institutions 99,000 99,000
Securities available for sale ................................ 7,802,641 10,928,948
Mortgage-backed securities available for sale ................ 9,784,144 8,234,190
Loans, net ................................................... 136,399,122 135,617,811
Properties and equipment, net ................................ 2,613,143 2,433,618
Federal Home Loan Bank stock ................................. 1,589,000 1,507,600
Accrued interest receivable .................................. 856,287 847,379
Other assets ................................................. 1,034,449 662,119
------------- -------------
Total assets ........................................ $ 170,270,903 $ 166,149,645
============= =============
LIABILITIES
Deposits ..................................................... $ 134,501,738 $ 130,086,695
Federal Home Loan Bank advances .............................. 9,466,653 11,922,708
Accrued interest payable ..................................... 149,414 143,758
Other liabilities ............................................ 1,483,291 1,445,505
------------- -------------
Total liabilities ........................................ 145,601,096 143,598,666
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 March 31, 1999 and June 30, 1998 31,071 31,071
Additional paid-in capital ................................... 11,680,087 11,412,177
Retained earnings - substantially restricted ................. 15,207,826 14,294,514
Treasury stock, at cost; 248,441 shares at March 31, 1999 and
438,313 shares at June 30, 1998 ............................ (2,020,524) (3,033,704)
Unearned employee stock ownership plan shares ................ (198,442) (198,442)
Unearned recognition and retention plan shares ............... (11,719) (15,234)
Net unrealized gain (loss) on available for sale securities,
net of tax ................................................. (18,492) 60,597
------------- -------------
Total shareholders' equity ............................... 24,669,807 22,550,979
------------- -------------
Total liabilities and shareholders' equity .......... $ 170,270,903 $ 166,149,645
============= =============
See accompanying notes to consolidated financial statements.
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Interest income
Loans ......................... $ 2,971,858 $ 3,001,101 $ 9,048,445 $ 9,000,538
Securities .................... 112,102 172,401 385,323 577,799
Mortgage-backed and related
securities .................. 143,924 139,926 408,261 424,486
Other ......................... 111,436 66,075 327,402 178,012
------------ ------------ ------------ ------------
Total interest income ..... 3,339,320 3,379,503 10,169,431 10,180,835
Interest expense
Deposits ...................... 1,358,991 1,388,665 4,189,818 4,108,255
FHLB borrowings ............... 144,743 209,112 491,571 802,667
Other ......................... 4,265 3,630 15,169 7,316
------------ ------------ ------------ ------------
Total interest expense .... 1,507,999 1,601,407 4,696,558 4,918,238
------------ ------------ ------------ ------------
Net interest income ................ 1,831,321 1,778,096 5,472,873 5,262,597
Provision for loan losses .......... 30,000 30,000 90,000 90,000
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses ....... 1,801,321 1,748,096 5,382,873 5,172,597
Noninterest income
Service charges ............... 81,339 74,075 261,238 235,914
Net gain on sale of loans ..... 210,738 173,958 731,267 389,202
Net realized gain on calls of
securities available for sale 13,055 -- 13,055 13,226
Other ......................... 33,024 24,450 90,324 90,942
------------ ------------ ------------ ------------
Total noninterest income .. 338,156 272,483 1,095,884 729,284
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(continued)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Noninterest expense
Salaries and benefits ......... 613,814 635,845 1,883,841 1,776,074
Occupancy and equipment ....... 120,560 103,328 358,435 296,322
Data processing ............... 114,780 108,714 347,573 290,056
Insurance expense ............. 30,750 25,978 89,938 83,392
Franchise taxes ............... 51,174 56,638 178,030 159,085
Advertising ................... 19,771 32,415 85,551 116,996
Other ......................... 95,978 117,651 375,280 354,111
------------ ------------ ------------ ------------
Total noninterest expense . 1,046,827 1,080,569 3,318,648 3,076,036
------------ ------------ ------------ ------------
Income before income tax ........... 1,092,650 940,010 3,160,109 2,825,845
Income tax expense ................. 408,830 362,890 1,167,185 1,058,575
------------ ------------ ------------ ------------
Net income ......................... 683,820 577,120 1,992,924 1,767,270
Other comprehensive income, net
of tax ........................... (64,821) (26,478) (79,089) 118,149
------------ ------------ ------------ ------------
Comprehensive income ............... $ 618,999 $ 550,642 $ 1,913,835 $ 1,885,419
============ ============ ============ ============
Basic earnings per common share .... $ .24 $ .22 $ .73 $ .68
============ ============ ============ ============
Diluted earnings per common share .. $ .24 $ .21 $ .73 $ .64
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31,
1999 1998
------------ ------------
Cash flows from operating activities
Net income .................................................... $ 1,992,924 $ 1,767,270
Adjustments to reconcile net income to net cash from
operating activities
Depreciation .............................................. 155,147 94,596
Provision for loan losses ................................. 90,000 90,000
Net accretion ............................................. (102,951) (50,734)
Net realized gain on calls of securities available for sale (13,055) (13,226)
Net gain on sale of loans ................................. (731,267) (389,202)
Proceeds from sale of loans ............................... 35,837,823 21,587,619
Loans originated for sale ................................. (35,461,167) (21,410,611)
FHLB stock dividends ...................................... (81,400) (77,700)
Amortization of mortgage servicing rights ................. 99,433 32,197
RRP compensation expense .................................. 3,515 14,571
ESOP expense .............................................. 342,682 364,215
Change in
Interest receivable .................................. (8,908) (2,147)
Other assets ......................................... (117,152) (247,633)
Other liabilities .................................... 2,101 (249,326)
Interest payable ..................................... 5,656 (25,492)
Deferred loan fees ................................... 24,957 (5,158)
------------ ------------
Net cash from operating activities ............... 2,038,338 1,479,239
Cash flows from investing activities
Net change in interest-bearing time deposits in other
financial institutions ...................................... -- 1,534,863
Securities available for sale
Purchases ................................................. (5,882,109) (2,055,224)
Proceeds from principal payments on mortgage-
backed securities ....................................... 1,191,293 563,010
Proceeds from calls and maturities ........................ 6,265,000 6,300,000
Net increase in loans ......................................... (896,268) (5,362,148)
Properties and equipment expenditures ......................... (334,672) (608,644)
------------ ------------
Net cash from investing activities ........................ 343,244 371,857
Cash flows from financing activities
Net change in deposits ........................................ 4,415,043 8,610,811
Net change in other borrowed funds ............................ -- 250,000
Proceeds from FHLB borrowings ................................. -- 1,682,511
Repayment of FHLB borrowings .................................. (2,456,055) (10,800,787)
Cash dividends paid ........................................... (749,441) (630,998)
Proceeds from issuance of stock, net .......................... 683,008 64,905
------------ ------------
Net cash from financing activities ........................ 1,892,555 (823,558)
------------ ------------
See accompanying notes to consolidated financial statements.
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Nine Months Ended March 31,
1999 1998
------------ ------------
Net change in cash and cash equivalents ............................ 4,274,137 1,027,538
Cash and cash equivalents at beginning of period ................... 5,818,980 2,914,578
------------ ------------
Cash and cash equivalents at end of period ......................... $ 10,093,117 $ 3,942,116
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest .................................................. $ 4,690,902 $ 4,943,730
Income taxes .............................................. 720,000 958,000
See accompanying notes to financial statements.
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 March 31, 1999, 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 fiscal 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 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, INC.
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basic earnings per common share is 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") shares are considered outstanding as they become vested. Diluted
earnings per common shares 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 component 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)
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
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. Nonpublic 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.
The Company adopted, on January 1, 1999, SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 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 No. 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 No. 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 No. 134 did not have a significant impact on the
Company's financial statements.
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Basic Earnings Per Common Share
Numerator
Net income ........................... $ 683,820 $ 577,120 $ 1,992,924 $ 1,767,270
=========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding ........................ 2,851,394 2,661,799 2,761,163 2,654,487
Less: Average unallocated ESOP shares (35,999) (60,302) (42,812) (60,302)
Less: Average nonvested RRP shares .. (1,477) (1,969) (1,617) (1,969)
----------- ----------- ----------- -----------
Weighted average common shares
outstanding for basis earnings per
common share ....................... 2,813,918 2,599,528 2,716,734 2,592,216
=========== =========== =========== ===========
Basic earnings per common share ........ $ .24 $ .22 $ .73 $ .68
=========== =========== =========== ===========
Diluted Earnings Per Common Share
Numerator
Net income ........................... $ 683,820 $ 577,120 $ 1,992,924 $ 1,767,270
=========== =========== =========== ===========
Denominator
Weighted average common shares
outstanding for basic earnings per
common share ....................... 2,813,918 2,599,528 2,716,734 2,592,216
Add: Dilutive effects of average
nonvested RRP shares ............... 541 784 528 632
Add: Dilutive effects of assumed
exercises of stock options ......... 20,611 170,935 19,697 160,596
----------- ----------- ----------- -----------
Weighted average common shares
and dilutive potential common
shares outstanding ................. 2,835,070 2,771,247 2,736,959 2,753,444
=========== =========== =========== ===========
Diluted earnings per common share ...... $ .24 $ .21 $ .73 $ .64
=========== =========== =========== ===========
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - SECURITIES
Securities at March 31, 1999 and June 30, 1998 were as follows:
----------------------------March 31, 1999--------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- ------------ ------------ ----------------
Available for sale
U.S. Treasury securities $ 660,235 $ 145,565 $ -- $ 805,800
U.S. Government agencies 4,000,461 625 (48,043) 3,953,043
Mutual funds and equity
securities 2,946,149 7,257 (92,234) 2,861,172
Municipal bonds 182,626 -- -- 182,626
--------------- ------------ ------------ ----------------
7,789,471 153,447 (140,277) 7,802,641
Mortgage-backed securities 9,823,676 46,430 (85,962) 9,784,144
--------------- ------------ ------------ ----------------
Total available for sale $ 17,613,147 $ 199,877 $ (226,239) $ 17,586,785
=============== ============ ============ ================
-----------------------------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 available for sale $ 19,071,325 $ 282,294 $ (190,481) $ 19,163,138
=============== ============ ============ ================
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - SECURITIES (Continued)
The amortized cost and estimated fair value of securities at March 31, 1999, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
--------------- ----------------
Available for sale
Due after one year through five years $ 2,843,322 $ 2,953,032
Due after five years through ten years 2,000,000 1,988,437
--------------- ----------------
4,843,322 4,941,469
Mutual funds and equity securities 2,946,149 2,861,172
Mortgage-backed securities 9,823,676 9,784,144
--------------- ----------------
$ 17,613,147 $ 17,586,785
=============== ================
Gross gains on securities called prior to maturity totaled $16,953 for the nine
months ended March 31, 1999 and $13,226 for the nine months ended March 31,
1998. Gross losses on securities called prior to maturity totaled $3,898 for the
nine months ended March 31, 1999.
Securities with carrying values of $1,661,000 at March 31, 1999 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, INC.
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - LOANS
Loans were as follows:
March 31, June 30,
1999 1998
------------- -------------
Real estate mortgage loans (principally conventional)
Secured by one-to-four family residences ............... $ 77,879,854 $ 87,923,561
Secured by other properties ............................ 14,605,814 10,578,260
Construction loans ..................................... 8,322,356 6,403,535
Home equity ............................................ 10,610,691 10,679,082
------------- -------------
111,418,715 115,584,438
Loans in process ....................................... (3,007,867) (4,105,037)
Net deferred loan origination fees ..................... (220,303) (195,346)
------------- -------------
Total real estate mortgage loans ................... 108,190,545 111,284,055
Consumer and other loans
Automobile ............................................. 6,749,841 7,666,776
Commercial ............................................. 15,269,554 10,463,418
Other .................................................. 6,898,893 6,857,912
------------- -------------
Total consumer and other loans ..................... 28,918,288 24,988,106
------------- -------------
137,108,833 136,272,161
Allowance for losses on loans ............................... (709,711) (654,350)
------------- -------------
Loans, net ............................................. $ 136,399,122 $ 135,617,811
============= =============
Activity in the allowance for losses on loans was as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Balance at beginning of period ........ $ 688,204 $ 604,534 $ 654,350 $ 575,985
Provision for loan losses ............. 30,000 30,000 90,000 90,000
Recoveries ............................ 11,923 5,044 14,256 10,450
Charge-offs ........................... (20,416) (8,678) (48,895) (45,535)
--------- --------- --------- ---------
Balance at end of period .............. $ 709,711 $ 630,900 $ 709,711 $ 630,900
========= ========= ========= =========
WOOD BANCORP, INC.
ITEM 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
There were no loans on nonaccrual at March 31, 1999 and June 30, 1998. Accruing
loans that were contractually past due 90 days or more totaled $378,000 at March
31, 1999 compared to $239,000 at June 30, 1998. Impaired loans were
insignificant at March 31, 1999 and June 30, 1998 and for the three and nine
months ended March 31, 1999 and 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 March 31, 1999 and June 30, 1998, variable rate commitments to make loans
or fund outstanding lines of credit amounted to approximately $11,593,000 and
$12,313,000, respectively, and fixed rate commitments amounted to $3,958,000 and
$3,789,000, respectively. The interest rates on variable rate commitments ranged
from 6.50% to 11.00% and interest rates on fixed rate commitments ranged from
6.25% to 15.00% at March 31, 1999. 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 1. FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows.
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Unrealized holding gains and losses on
available-for-sale securities ........ $ (83,502) $ (40,111) $(105,120) $ 192,241
Reclassification adjustments for (gains)
and losses later recognized in income (13,055) -- (13,055) (13,226)
--------- --------- --------- ---------
Net unrealized gains and losses ........ (96,557) (40,111) (118,175) 179,015
Tax effect ............................. 31,736 13,633 39,086 (60,866)
--------- --------- --------- ---------
Other comprehensive income ............. $ (64,821) $ (26,478) $ (78,089) $ 118,149
========= ========= ========= =========
NOTE 7 - PENDING MERGER
In December 1998, the Company signed a definitive agreement with Sky Financial
Group, Inc. ("Sky"), whereby the Company will merge with and into Sky, and the
Company's subsidiary, First Federal Banc, will merge with and into Sky's
subsidiary, Mid Am Bank. 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 in July 1999 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 March 31, 1999 to June 30, 1998 and the results of operations for the
three months and nine months ended March 31, 1999 and 1998. This discussion
should be read in conjunction with the interim financial statements and
footnotes included herein.
Forward Looking Statements
When used in this discussion or future filings by the Company with the
Securities and Exchange Commission, or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities and competitive and regulatory factors, could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from those anticipated or projected.
The Company is not aware of any trends, events or uncertainties that will have
or are reasonably likely to have a material effect on its liquidity, capital
resources or operations except as discussed herein. The Company is not aware of
any current recommendations by regulatory authorities that would have such
effect if implemented.
The Company does not undertake, and specifically disclaims, any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.
FINANCIAL CONDITION
Total assets grew $4,121,000, or 2.5%, from $166,150,000 at June 30, 1998 to
$170,271,000 at March 31, 1999. The growth is attributable to increases in
loans, mortgage-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 $4,274,000 from $5,819,000 at June 30, 1998
to $10,093,000 at March 31, 1999 due to an increase in deposits and a decrease
in securities available for sale.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION (Continued)
Securities available for sale decreased $3,126,000, or 28.6%, from $10,929,000
at June 30, 1998 to $7,803,000 at March 31, 1999. The decrease was primarily due
to $6,265,000 in calls and maturities, offset by $3,050,000 in purchases.
At March 31, 1999, 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. 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
$1,550,000 from June 30, 1998 to March 31, 1999.
Loans receivable increased $781,000, or .6%, from $135,618,000 at June 30, 1998
to $136,399,000 at March 31, 1999. 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 and accrued interest receivable remained relatively constant from
June 30, 1998 to March 31, 1999. Other assets increased $372,000 due to deferred
merger expenses.
Properties and equipment, net of accumulated depreciation increased $180,000, or
7.4% primarily due to construction of a new branch in Perrysburg, Ohio.
Deposits increased $4,415,000, or 3.4%, from $130,087,000 at June 30, 1998 to
$134,502,000 at March 31, 1999. The Bank used the period's deposit growth to pay
down advances from the FHLB and partially fund loan growth. The excess funds
generated from the deposit growth were maintained in cash and cash equivalents
to provide the Company with flexibility should loan demand increased. FHLB
advances decreased $2,456,000 during the period, bringing the total balance from
$11,923,000 at June 30,1998 to $9,467,000 at March 31, 1999.
Treasury stock declined $1,013,000 from June 30, 1998 to March 31, 1999.
Treasury shares were issued for the exercise of 189,872 stock options which
occurred during the nine months ended March 31, 1999.
RESULTS OF OPERATIONS
Net income increased $107,000, or 18.5%, from $577,000 for the three months
ended March 31, 1998 to $684,000 for the same period in 1999. The increase was
primarily due to increases in net interest income and noninterest income and a
decrease in noninterest expense.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income increased $226,000 from $1,767,000 for the nine months ended March
31, 1998 to $1,993,000 for the same period in 1999. The 1999 increase was
essentially due to increases in net interest income and noninterest income being
partially offset by an increase in noninterest expense.
Net interest income increased $53,000, or 3.0%, during the three months and
$210,000, or 4.0%, during the nine months ended March 31, 1999, as compared to
the same periods in 1998. The increases were primarily due to 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 months and $90,000 for
the nine months ended March 31, 1999 and 1998. The provision is based on
management's assessment of risk factors affecting the loan portfolio. The
allowance for loan losses was approximately .52% of loans, net of deferred loan
origination fees, as of March 31, 1999, compared to .46% at March 31, 1998.
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 $66,000 and $367,000 for the three and nine months
ended March 31, 1999, as compared to the same periods in 1998. The increases
were primarily due to a $37,000 and $342,000 increase in loan sale gains for the
three and nine months ended March 31, 1999, as compared to the same periods in
1998. The increase in loan sale gains was due to increased volume of fixed-rate
loans that were sold on the secondary market.
Noninterest expense decreased $34,000, or 3.1%, for the three months ended March
31, 1999, compared to the same period in 1998, primarily due to decreases in
salaries and benefits, advertising and other expenses. Salaries and benefits
decreased primarily due to the impact that the Company's high stock price had on
the ESOP during the three months ended March 31, 1998. As a result of the
pending merger with Sky Financial Group, Inc., advertising and other expenses
that are more discretionary have been reduced.
Noninterest expense increased $243,000, or 7.9%, for the nine months ended March
31, 1999, compared to the same period in 1998. The increase reflected increases
in almost all of the individual noninterest expense categories. Salaries and
benefits increased primarily due to the addition of loan production personnel
and annual salary reviews. Occupancy and equipment expense increased due to
additional depreciation expense associated with upgrading the teller and PC
systems. Data processing expense increased due to additional services and
restructuring of telephone line charges.
The Company's federal income tax expense was $409,000 and $363,000 for the three
months ended March 31, 1999 and 1998 and $1,167,000 and $1,059,000 for the nine
months ended March 31, 1999 and 1998. The increases were primarily due to the
increase in pretax income.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
March 31, 1999, First Federal complied with this requirement with a liquidity
ratio of 18.4%. 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 capitals (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 complied with its regulatory
capital requirements at March 31, 1999:
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 $ 16,248 9.69% $ 16,248 9.69% $ 16,248 14.67% $ 16,881 15.24%
Required 2,516 1.50 6,708 4.00 4,431 4.00 8,861 8.00
-------- ---- --------- ---- --------- ----- --------- ----
Excess $ 13,732 8.19% $ 9,540 5.69% $ 11,817 10.67% $ 8,020 7.24%
======== ==== ========= ==== ========= ===== ========= ====
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.
WOOD BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 March 31, 1999, 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 10 week testing period with
its main data service provider and encountered only one Year 2000 problem. This
error has been corrected.
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 March 31, 1999 and June 30, 1998, fixed rate loans totaled
$30.7 million, or 21.9% and $28.7 million, or 20.4% of the Company's gross loan
portfolio. At such dates, adjustable rate loans totaled $109.6 million, or 78.1%
and $111.9 million, or 79.6%, of the Company's gross loan portfolio.
WOOD BANCORP, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
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 December 31, 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
$3,477,000. 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 $839,000 at December 31, 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 December 31, 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 December 31, 1998
Changes in As Measured by OTS
Interest Rates Bank Limit Net Portfolio Value
(Basis Points) % Change $ Change % Change
-------------- -------- -------- --------
(Dollars in thousands)
+300 60% $ 551 2.93%
+200 40 839 4.46%
+100 15 571 3.04%
0 0 0 0
-100 15 (322) (1.71)%
-200 40 (432) (2.30)%
-300 60 (47) (.25)%
WOOD BANCORP, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
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 2.93% increase in NPV in a rising
interest-rate environment and a .25% decrease in a declining 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, Inc. ("Sky"), whereby the Company will merge
with and into Sky, and the Company's subsidiary, First Federal
Bank, will merge with and into Sky's subsidiary, Mid Am Bank. 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 July
1999 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
(b) No current reports on Form 8-K were filed by the Company
during the quarter ended March 31, 1999.
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: May 10, 1999 /s/Richard L. Gordley
---------------------
Richard L. Gordley
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 1999 /s/David L. Nagel
-----------------
David L. Nagel
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)