SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
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Commission File No. 0-27606
WHG Bancshares Corporation
- - --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 52-1953867
- - ----------------------- -------------------
(State of incorporation (I.R.S. employer
or organization) identification no.)
1505 York Road, Lutherville, Maryland 21093
- - ------------------------------------- ----------
(Address of principal executive offices) (zip code)
(410) 583-8700
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Issuer"s telephone number, including area code
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 NO X
---- ----
Number of shares of Common Stock outstanding as of July 31, 1996: 1,620,062
Transitional Small Business Disclosure Format (check one)
YES NO X
---- ----
WHG BANCSHARES CORPORATION AND SUBSIDIARY
Contents
--------
Pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements......................................3
Consolidated statements of financial
condition at June 30, 1996
(unaudited) and September 30, 1995..............................3
Consolidated statements of operations
(unaudited) for the nine months and three months
Ended June 30, 1996 and June 30, 1995...........................4
Consolidated statements of cash flows
(unaudited) for the nine months
Ended June 30, 1996 and June 30, 1995.........................5-6
Notes to financial statements.................................7-8
Item 2. Management"s Discussion and Analysis or
Plan of Operation......................................9-18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................19
Item 2. Changes in Securities....................................19
Item 3. Defaults upon Senior Securities..........................19
Item 4. Submission of Matters to a Vote of Security-Holders......19
Item 5. Other Information........................................19
Item 6. Exhibits and Reports on Form 8-K.........................19
Signatures............................................................20
-2-
PART I. FINANCIAL INFORMATION
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
June 30 September 30,
------- -------------
1996 1995
---- ----
(Unaudited)
Assets
------
Cash $ 1,120,890 $ 1,105,528
Interest bearing deposits in other banks 3,021,271 6,808,528
Federal funds sold 2,398,177 1,042,225
Other investments - market value ($8,429,364 and
$507,117, respectively) 8,472,875 497,825
Mortgage backed securities - market value ($2,909,749
and $546,001, respectively) 3,061,171 540,046
Loans receivable - net 74,632,422 70,028,255
Accrued interest receivable - loans 373,114 354,430
- investments 88,307 21,736
Premises and equipment - net 747,841 807,626
Federal Home Loan Bank of Atlanta stock,
at cost 682,800 679,800
Investment in and loans to affiliated
corporation 2,825,000 2,975,000
Taxes receivable 16,699 -
Deferred income taxes 20,451 3,848
Other assets 108,849 161,728
---------- ----------
Total assets $97,569,867 $85,026,575
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- - -----------
Deposits $72,198,159 $76,180,631
Advance payments by borrowers for taxes
and insurance 1,970,616 254,841
Income taxes payable 41,333 20,965
Other liabilities 96,151 117,321
---------- ----------
Total liabilities 74,306,259 76,573,758
Commitments and contingencies
Stockholders' Equity
- - --------------------
Capital stock $.10 par value; authorized 1,620,062
shares; issued and outstanding 1,620,062 shares 162,006 -
Additional paid-in capital 15,398,998 -
Retained earnings (substantially restricted) 8,998,644 8,452,817
---------- ----------
24,559,648 8,452,817
Employee Stock Ownership Plan Obligation 1,296,040 -
---------- ----------
Total stockholders' equity 23,263,608 8,452,817
---------- ----------
Total liabilities and stockholders' equity $97,569,867 $85,026,575
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-3-
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
For Nine Months Ended For Three Months Ended
--------------------- ----------------------
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
Interest and fees on loans $4,313,117 $4,303,569 $1,456,782 $1,439,681
Interest on mortgage backed securities 97,509 33,582 52,288 10,833
Interest and dividends on investment
securities 110,360 75,879 56,077 25,638
Other interest income 420,459 268,671 199,857 114,692
--------- --------- --------- ---------
Total interest income 4,941,445 4,681,701 1,765,004 1,590,844
Interest on deposits 2,566,388 2,449,662 811,486 871,516
Interest on short-term borrowings 24,592 41,492 2,764 3,025
--------- --------- --------- ---------
Total interest expense 2,590,980 2,491,154 814,250 874,541
--------- --------- --------- ---------
Net interest income 2,350,465 2,190,547 950,754 716,303
Provision for loan losses 41,786 46,307 15,000 14,681
--------- --------- --------- ---------
Net interest income after provision for
loan losses 2,308,679 2,144,240 935,754 701,622
Non-Interest Income
- - -------------------
Fees and charges on loans 21,921 25,837 8,381 7,234
Fees on transaction accounts 37,830 30,416 13,713 9,702
Other income 45,861 29,426 11,591 11,911
--------- --------- --------- ---------
Total non-interest income 105,612 85,679 33,685 28,847
Non-Interest Expenses
- - ---------------------
Salaries and related expenses 879,563 822,730 304,354 263,356
Occupancy 108,638 107,577 36,757 36,996
SAIF deposit insurance premium 131,069 132,116 42,736 44,208
Depreciation of equipment 53,744 53,783 16,225 18,266
Advertising 33,316 69,544 8,610 18,655
Data processing costs 57,795 54,059 18,430 17,533
Other expenses 266,774 208,293 99,072 73,444
--------- --------- --------- ---------
Total non-interest expenses 1,530,899 1,448,102 526,184 472,458
--------- --------- --------- ---------
Income before tax provision 883,392 781,817 443,255 258,011
Provision for income taxes 337,565 301,939 167,583 99,647
--------- --------- --------- ---------
Net income $ 545,827 $ 479,878 $ 275,672 $ 158,364
========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-4-
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For Nine Months Ended
---------------------
June 30, June 30,
-------- --------
1996 1995
---- ----
Operating Activities
- - --------------------
Net income $(14,545,827 $ 479,878
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
-------------------------------------
Amortization of deferred loan fees (134,670) (165,044)
Loan fees deferred 193,337 50,181
Decrease in discount on loans purchased (20,349) (17,726)
Other amortization (30,675) (39,612)
Amortization of discount on mortgage backed
securities (386) --
Provision for loan losses 41,786 46,307
Increase in accrued interest receivable (85,255) (28,652)
Provision for depreciation 61,438 63,815
(Increase) decrease in deferred income tax (16,603) 28,945
Increase in taxes receivable (16,699) --
Decrease in other assets 52,879 26,724
Increase (decrease) in accrued interest payable (3,167) 4
Increase in income taxes payable 20,368 9,762
Decrease in other liabilities (21,170) (115,256)
------------ ------------
Net cash provided by operating activities 586,661 339,326
Cash Flows from Investment Activities
- - -------------------------------------
Proceeds from maturing interest bearing deposits 1,076,000 193,000
Purchases of interest bearing deposits (392,000) (1,169,000)
Proceeds from maturing other investments 525,000 --
Purchase of other investments (8,469,375) --
Purchase of mortgage backed
securities (2,614,902) --
Principal collected on mortgage backed securities 94,163 67,708
Net (increase) decrease in shorter term loans (246,571) 80,032
Longer term loans originated or acquired (16,319,043) (7,521,562)
Principal collected on longer term loans 11,881,343 7,597,423
Loans sold -- 3,217,867
Investment in premises and equipment (1,653) (57,625)
Purchase of stock in Federal Home
Loan Bank of Atlanta (3,000) (16,600)
(Increase) decrease on investment in and loans
to joint ventures 150,000 (100,000)
------------ ------------
Net cash provided (used) by investment
activities (14,320,038) 2,291,243
-5-
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For Nine Months Ended
---------------------
June 30, June 30,
-------- --------
1996 1995
---- ----
Cash Flows from Financing Activities
- - ------------------------------------
Net increase (decrease) in demand deposits, money
market, passbook accounts and advances by
borrowers for taxes and insurance .................... $ 952,443 $(2,609,005)
Net increase (decrease) in certificates of deposit .... (3,215,973) 1,848,275
Sale of common stock .................................. 15,561,004 --
Employee Stock Ownership Plan Obligation .............. (1,296,040) --
----------- -----------
Net cash provided (used) by financing
activities ..................................... 12,001,434 (760,730)
----------- -----------
Increase (decrease) in cash and cash equivalents ......... (1,731,943) 1,869,839
Cash and cash equivalents at beginning of period ......... 7,880,281 6,564,544
Cash and cash equivalents at end of period ............... $ 6,148,338 $ 8,434,383
=========== ===========
The following is a Summary of Cash and Cash Equivalents:
- - --------------------------------------------------------
Cash .................................................. $ 1,120,890 $ 893,115
Interest bearing deposits in other banks .............. 3,021,271 7,411,201
Federal funds sold .................................... 2,398,177 1,299,067
Balance of cash items reflected on
Statement of Financial Condition ..................... 6,540,338 9,603,383
Less - certificates of deposit with original
maturities of more than three months
that are included in interest
bearing deposits in other banks ............ 392,000 1,169,000
Cash and cash equivalents reflected on the
Statement of Cash Flows.................................. $ 6,148,338 $ 8,434,383
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest ........................................... $ 2,594,147 $ 2,491,150
============ ============
Taxes $ ............................................ 344,000 $ 253,478
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-6-
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
Note 1 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-QSB.
Accordingly, they do not include all of the disclosures required by generally
accepted accounting principles for complete financial statements. These
financial statements include the accounts of WHG Bancshares Corporation and its
wholly owned subsidiary, Heritage Savings Bank, F.S.B. All significant
intercompany balances and transactions have been eliminated for the purposes of
the consolidated financial statements. In the opinion of management, all
adjustments necessary for a fair presentation of the results of operations for
the interim periods presented have been made. Such adjustments were of a normal
recurring nature. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
Note 2 - Conversion to Stock Form
------------------------
On March 29, 1996, the Bank converted from a federally chartered mutual
savings bank to a federally chartered stock savings bank. Simultaneously, the
Bank consummated the formation of a new holding company, WHG Bancshares
Corporation, of which the Bank is a wholly owned subsidiary.
At the time of conversion, the Bank established an Employee Stock Ownership
Plan ("ESOP"), for the exclusive benefit of participating employees.
Note 3 - Cash Flow Presentation
----------------------
For purposes of the statements of cash flows, cash and cash equivalents
include cash and amounts due from depository institutions, investments in
federal funds, and certificates of deposit with maturities of 90 days or less.
Note 4 - Earnings Per Share
------------------
Earnings per share amounts for the nine and three month periods ended June
30, 1996 are not presented because the Bank did not convert to stock form until
March 29, 1996.
Note 5 - Recent Accounting Pronouncements
--------------------------------
FASB Statement on Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of - In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
121, which will become effective for fiscal years beginning after December 15,
1995. This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability is evaluated based upon the estimated
future cash flows expected to result from the use of the asset and its eventual
disposition. If expected cash flows are less than the carrying amount of the
-7-
WHG BANCSHARES CORPORATION AND SUBSIDIARY
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Lutherville, Maryland
- - ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- - ------------------------------------------------------
Note 5 - Recent Accounting Pronouncements - Continued
--------------------------------
asset, an impairment loss is recognized. Additionally, this Statement requires
that long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. The
impact of adopting this Statement is not expected to be material to the
Corporation's consolidated financial statements.
FASB Statement on Accounting for Mortgage Servicing Rights - In May 1995,
FASB issued Statement of Financial Accounting Standards ("SFAS") No. 122, which
will become effective, on a prospective basis, for years beginning after
December 31, 1995. This Statement requires mortgage banking enterprises to
recognize, as separate assets, rights to service mortgage loans, however those
servicing rights are acquired. When mortgage loans, acquired either through a
purchase transaction or by origination, are sold or securitized with servicing
rights retained an allocation of the total cost of the mortgage loans should be
made between the mortgage servicing rights and the loans based on their relative
fair values. In subsequent periods, all mortgage servicing rights capitalized
must be periodically evaluated for impairment based on the fair value of those
rights, and any impairments recognized through a valuation allowance. The impact
of adopting this Statement is not expected to be material to the Corporation's
consolidated financial statements.
FASB Statement on Accounting for Stock-Based Compensation - In October 1995,
FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123 defines a "fair value based method" of accounting for an employee stock
option whereby compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period. FASB encourages
all entities to adopt the fair value based method, however, it will allow
entities to continue the use of the "intrinsic value based method" prescribed by
Accounting Principles Board ("APB") Opinion No. 25. Under the intrinsic value
based method, compensation cost is the excess of the market price of the stock
at the grant date over the amount an employee must pay to acquire the stock.
However, most stock option plans have no intrinsic value at the grant date and,
as such, no compensation cost is recognized under APB Opinion No. 25. Entities
electing to continue use of the accounting treatment of APB Opinion No. 25 must
make certain pro forma disclosures as if the fair value based method had been
applied. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years beginning after December 15, 1995. Pro
forma disclosures must include the effects of all awards granted in fiscal years
beginning after December 15, 1994. The Bank expects to use the "intrinsic value
based method" as prescribed by APB Opinion No. 25. Accordingly, the impact of
adopting this Statement will not be material to the Corporation's consolidated
financial statements.
-8-
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2
Financial Condition
Total assets of the Corporation were $97,570,000 as of June 30, 1996
compared to $85,027,000 as of September 30, 1995, an increase of $12,543,000 or
14.75%. The increase was primarily attributable to increases in federal funds
sold of $1,356,000, other investments of $7,975,000, mortgage backed securities
of $2,521,000 and net loans of $4,604,000 as new loan originations exceeded loan
payments and prepayments. These increases were primarily the result of investing
funds raised due to the stock conversion and the use of interest bearing
deposits in other banks which decreased by $3,787,000. Investment in and loans
to affiliated corporation also decreased by $150,000.
Total liabilities of the Corporation were $74,306,000 as of June 30, 1996
compared to $76,574,000 as of September 30, 1995, a decrease of $2,268,000 or
2.96%. The decrease was primarily the result of a decrease in deposits of
$3,982,000 or 5.23%. Demand accounts decreased by $763,000 along with time
deposits which decreased by $3,216,000 as certain depositors converted their
accounts to shares of stock during the conversion. The decrease in deposits was
offset by an increase in advance payments to borrowers for taxes and insurance
("advance payment") of $1,716,000. This increase was due to the cyclical nature
of this account as borrowers increase the accounts monthly and disbursements are
made primarily in July through September.
-9-
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
General
Net income for the nine and three months ended June 30, 1996 was $546,000
and $276,000, respectively, as compared to $480,000 and $158,000 for the same
periods in 1995, an increase of $66,000 or 13.75% and $118,000 or 74.68% for the
nine and three month periods, respectively. The increases were primarily the
result of an increase in net interest income for both periods.
Net interest income for the nine and three months ended June 30, 1996 was
$2,350,000 and $951,000, respectively, as compared to $2,191,000 and $716,000
for the same periods in 1995, an increase of $159,000 or 7.26% and $235,000 or
32.82%, respectively. There was a decline in the interest rate spread to 2.72%
and 2.96% for the nine and three months ended June 30, 1996, as compared to
3.14% and 3.01% for the same periods in 1995. The decline in the interest rate
spread between the three month periods resulted primarily from the conversion
from mutual to stock form. Although the conversion resulted in an increase in
interest-earning assets, these assets could not be immediately invested in
higher yielding instruments. Further, due to their maturities, interest-bearing
liabilities could not be immediately reduced by the amount of the increase in
interest-earning assets. To a lesser extent, these same factors negatively
affected the interest rate spread between the nine month periods. During future
periods, the interest rate spread will be impacted in part by the investment of
the net proceeds of the conversion.
Interest Income
Total interest income for the nine and three months ended June 30, 1996
were $4,941,000 and $1,765,000, respectively, compared to $4,682,000 and
$1,591,000 for the same periods in 1995, an increase of $259,000 or 5.53% and
$174,000 or 10.94%, respectively. Interest and fees on loans increased by $9,500
or .22% and $17,000 or
-10-
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Interest Income - Continued
1.19% during the nine and three months ended June 30, 1996 compared to the same
respective periods in 1995. These increases were attributable to a $1,924,000
decrease in the average balance of loans outstanding offset by an increase in
the average yield on the loan portfolio to 8.04% for the nine months ended June
30, 1996, as compared to 7.81% for the same period in 1995, and an increase in
the three month period in the average loans outstanding of $1,506,000 offset by
a decrease in the average yield on the loan portfolio to 7.93% for the three
months ended June 30, 1996, compared to 8.00% for the same periods in 1995.
Interest income on mortgage backed securities increased $64,000 or 190.36% and
$41,000 or 382.67% for the nine and three months ended June 30, 1996, compared
to the same respective periods in 1995, primarily due to increases in the
average dollar amount outstanding of 249.80% and 439.63%, respectively. Interest
and dividends on investment securities increased $34,000 or 45.44% and $30,000
or 118.72% for the nine and three months ended June 30, 1996, respectively,
compared to the same respective periods in 1995. The increases were the result
of increases of $1,608,000 and $3,855,000 in the average dollar amount of
investments outstanding for the nine and three month periods, respectively.
Other interest income increased $152,000 or 56.50% and $85,000 or 74.26%
for the nine and three month periods ended June 30, 1996, respectively, compared
to the same periods in 1995. The increases were primarily due to increases in
the average dollar amount of other interest-earning assets outstanding of 44.66%
and 24.39% for the nine and three month periods, respectively.
The weighted average yield on interest-earning assets was 7.39% and 7.44%
for the nine and three month periods ended June 30, 1996, respectively, as
compared to 7.42% and 7.54% for each of the same periods in 1995.
-11-
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Interest Expense
Total interest expense for the nine and three months ended June 30, 1996
was $2,591,000 and $814,000, respectively, compared to $2,491,000 and $875,000
for the same respective periods in 1995, an increase of $100,000 or 4.01% and a
decrease of $61,000 or 6.97%, respectively. Interest on deposits increased
$117,000 or 4.76% and decreased $60,000 or 6.89% for the nine and three month
periods ended June 30, 1996, respectively, as compared to the same respective
periods in 1995. The increase for the nine month period primarily resulted from
an increase in the weighted average rate paid of 4.67% as compared to 4.28%. The
decrease for the three month period resulted from a decrease in the average
dollar amount of deposits of 5.89% and a 1.10% decrease in the weighted average
rate paid. Other interest expense decreased $17,000 or 40.73% for the nine
months ended June 30, 1996, compared to the same period in 1995 and did not
change significantly for the three month period. The decrease primarily resulted
from a decrease in the average dollar amount of $366,000 or 33.97% for the nine
and three month periods ended June 30, 1996.
The weighted average rate paid on interest-bearing liabilities were 4.67%
and 4.48% for the nine and three months ended June 30, 1996, respectively, as
compared to 4.28% and 4.53% for the same periods in 1995.
Provision for Loan Losses
The provision for loan losses for the nine and three month periods ended
June 30, 1996 was $42,000 and $15,000, respectively, as compared to $46,000 and
$15,000 for the same respective periods in 1995. This was a decrease of $4,000
or 8.70% for the nine month period. The provision remained the same for both
three month periods. Management monitors and adjusts its loan loss reserves
based upon its analysis of the loan portfolio. Reserves are increased by a
charge to income, the amount of which
-12-
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Provision for Loan Losses - Continued
depends upon an analysis of the changing risks inherent in the Corporation's
loan portfolio and the relative status of the real estate market and the economy
in general. The Corporation has historically experienced a limited amount of
loan charge-offs and delinquencies. At June 30, 1996, the allowance represented
.24% of loans receivable as compared to .16% at June 30, 1995. The allowance for
loan losses decreased as a percentage of nonperforming loans to 30.57% at June
30, 1996 from 34.07% at June 30, 1995. The implementation of Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan", had no effect on the Corporation's provision for loan
losses.
Other Non-Interest Income
Other income for the nine and three months ended June 30, 1996 was
$106,000 and $34,000, respectively, compared to $86,000 and $29,000 for the same
respective periods in 1995, an increase of $20,000 or 23.26% and $5,000 or
17.24%, respectively. The increase for the nine month period was due to an
increase in other income of $16,000 or 55.85% from an insurance recovery for
storm damage and rental income on a portion of the Bank's premises that was
rented in 1996, but vacant in 1995, and an increase in fees on transaction
accounts of $7,000 or 24.38% offset by a small decrease in fees and charges on
loans in the amount of $4,000 or 15.16%. The increase in the three month period
is due to an increase in fees on transaction accounts of $4,000 or 41.34% offset
by a decrease in fees and charges on loans of $1,000 or 15.86%.
-13-
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Non-Interest Expense
Total non-interest expense for the nine and three months ended June 30,
1996 were $1,531,000 and $526,000, respectively, compared to $1,448,000 and
$472,000 for the same respective periods in 1995, representing increases of
$83,000 or 5.73% and $54,000 or 11.44%, respectively. The increases for the nine
and three month periods were the result of increases in salaries and related
expenses and other expenses. Those increases were offset by decreases in
advertising expense. Salaries and related expenses increased and will continue
to increase in future periods as a result of the adoption of the ESOP, the
implementation of the RSP, and revisions to the Savings Bank's pension plan
required by the Retirement Protection Act.
Deposit Insurance
Currently, there are two deposit insurance funds maintained by the FDIC,
the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF"). The Bank's deposits are insured by SAIF. Deposit premium assessments
for the second half of 1995 have been reduced to as low as .04% of insured
deposits for BIF insured deposits, down from .23%. Effective for the first half
of 1996 and for future periods, annual premium assessments for most BIF insured
institutions will be lowered to $2,000. SAIF deposit insurance premiums will
remain at a minimum of .23% until SAIF meets the mandated level of 1.25% of
insured deposits. As a result of this premium disparity, BIF-insured
institutions could have a significant competitive advantage over SAIF-insured
institutions in attracting and retaining deposits. There are currently being
discussed certain proposals for restructuring the deposit insurance system to,
among other things, eliminate the BIF/SAIF premium disparity. Among the
proposals to recapitalize SAIF is one which would impose a one-time assessment
of .85% to .90% of SAIF insured deposits on all institutions holding SAIF
-14-
WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Deposit Insurance - Continued
insured deposits. The recapitalization would allow for a reduction in SAIF
premiums to BIF levels. If a one-time assessment of .85% of SAIF insured
deposits were imposed on the Bank as of June 30, 1996, the Bank would be
required to pay approximately $613,700 in connection with the assessment prior
to the effect of income taxes. There can be no assurance as to the enactment of
any of the current proposals, the form of any such proposals, the amount, tax
treatment or timing of any one-time assessment, or the means used to calculate
the deposit base subject to any such assessment.
Income Taxes
Provision for income taxes for the nine and three months ended June 30,
1996 was $338,000 and $168,000, respectively, compared to $302,000 and $100,000
for the same periods in 1995, representing increases of $36,000 or 11.92% and
$68,000 or 68.00%, respectively. The increases were the result of increases in
the Corporation's income before taxes.
SFAS No. 109 allows for a continuing exception of providing a deferred tax
liability for bad debt reserves for tax purposes of qualified thrift lenders,
such as the Savings Bank, that arose in fiscal years beginning before December
31, 1987. Such bad debt reserve for the Savings Bank amounted to approximately
$2,022,261 at September 30, 1995 with an income tax effect of approximately
$781,000. This bad debt reserve will become taxable if the Savings Bank does not
maintain certain qualified assets as defined, if the reserve is charged for
other than bad debt losses or if the Savings Bank does not maintain its thrift
charter.
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WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Income Taxes - Continued
As previously discussed, under "Deposit Insurance," certain proposals are
being discussed relating to reform or restructuring of the deposit insurance
fund system. Included in certain of those proposals is the elimination of the
thrift charter and the adoption of a uniform bank charter. Unless the
legislation ultimately enacted includes a provision for the retention of the
thrift bad debt deduction for tax purposes, the Savings Bank would be required
to record the above mentioned tax liability.
Liquidity and Capital Resources
As a member of the FHLB System, Heritage Savings Bank, F.S.B. (the "Bank")
is required by regulation to maintain, for each calendar month, a daily average
balance of cash and eligible liquid investments of not less than 5% of the
average daily balance of its net withdrawable savings account balances and
borrowings (due within one year or less) during the preceding calendar month.
This liquidity requirement may be changed from time to time by the Office of
Thrift Supervision (the "OTS") to any amount within the range of 4% to 10%. The
Bank's liquidity ratio was 8.30% as of June 30, 1996 and 12.56% as of September
30, 1995.
The Bank's sources of liquidity have historically included principal and
interest payments on loans and securities, maturities of investment securities,
deposit inflows, collateralized borrowings from the FHLB of Atlanta and
operations. The Bank invests excess funds in overnight deposits, which not only
serve as liquidity, but also earn interest as income until funds are needed to
meet required loan funding.
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WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
savings and loan industry and similar matters. For the nine month period ended
June 30, 1996, deposit outflows of $2,264,000 were experienced, primarily as a
result of certain depositors converting their accounts to shares of stock.
Management believes it has ample cash flows and liquidity to meet its loan
commitments in the amount of $3,048,000 as of June 30, 1996. The Bank has the
ability to reduce its commitments for new loan originations and to adjust other
cash outflows.
Under the regulatory capital requirements of the OTS, savings banks are
required to maintain minimal capital requirements by satisfying three capital
standards: a tangible capital requirement, a leverage ratio requirement and a
risk-based capital requirement. Under the tangible capital requirement, the
Bank's tangible capital (the amount of capital stock and retained earnings
computed under generally accepted accounting principles) must be equal to 1.5%
of adjusted total assets. Under the leverage ratio requirement, the Bank's core
capital must be equal to 3.0% of adjusted total assets. In addition, under the
risk-based capital requirement, the Bank must maintain core and supplemental
capital (core capital plus any general loss reserves) equal to 8% of
risk-weighted assets (total assets plus off-balance-sheet items multiplied by
the appropriate risk weights).
The following table presents the Bank's capital position based on the June
30, 1996 financial statements.
Actual % of Required % of Excess % of
Amount Assets* Amount Assets* Amount Assets*
------ ------- ------ ------- ------ -------
Tangible $15,417,415 16.9% $1,364,826 1.5% $14,052,589 15.4%
Core 15,417,415 16.9 2,729,651 3.0 12,687,764 13.9
Risk-weighted 15,597,415 33.1 3,773,120 8.0 11,824,295 25.1
*Based upon adjusted total assets for the tangible and core capital
requirements, and risk-weighted assets for the risk-based capital requirements.
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WHG BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
The following table presents the calculation of risk-based capital and
tangible assets used to determine the Bank's capital position.
Current Requirements
--------------------
Total retained earnings $23,263,608
Less: Non-allowable items
Equity of parent company 7,846,193
Tangible and core capital 15,417,415
General valuation allowance 180,000
-----------
Risk-based capital $15,597,415
===========
Total assets $97,569,867
Add: Pro-rata share of non-consolidated
subsidiary 10,000
Less: Non-includable
Assets of parent company 6,591,486
-----------
Tangible and adjusted tangible assets $90,988,381
===========
Risk-weighted assets $47,164,000
===========
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The registrant is not engaged in any legal proceedings at the present
time. From time to time, the Bank is a party to legal proceedings
within the normal course of business wherein it enforces its security
interest in loans made by it, and other matters of a like kind.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4, Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable.
(b) Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WHG Bancshares Corporation
Date: July 31 , 1996 By: /s/Peggy J. Stewart
---- ---------------------------------------
Peggy J. Stewart
President and Chief Executive Officer
(duly authorized officer)
Date: July 31 , 1996 By: /s/Robin L. Taylor
---- ---------------------------------------
Robin L. Taylor
Controller (chief accounting officer)
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