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 March 31, 1997
--------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
----------- ----------
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
--------------
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 X NO
--- ---
Number of shares of Common Stock outstanding as of May 5, 1997: 1,462,107
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 March 31, 1997
(unaudited) and September 30, 1996...........................................................3
Consolidated statements of operations (unaudited) for six months and three months
Ended March 31, 1997 and March 31, 1996......................................................4
Consolidated statements of cash flows (unaudited) for the six months
Ended March 31, 1997 and March 31, 1996....................................................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 SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
March 31, September 30,
--------- -------------
1997 1996
---- ----
(Unaudited)
Assets
------
Cash $ 302,938 $ 1,583,482
Interest bearing deposits in other banks 3,875,503 4,076,776
Federal funds sold 2,289,440 2,427,851
Securities purchased under agreements to resell - 2,000,000
Other investments - (fair value $5,348,361 and
$2,385,000, respectively) 5,500,000 2,500,000
Mortgage backed securities - (fair value $2,782,420
and $2,884,212, respectively) 2,946,376 3,021,998
Loans receivable - net 78,569,443 75,736,786
Accrued interest receivable - loans 369,525 373,792
- investments 107,941 62,755
- mortgage backed
securities 16,589 17,030
Premises and equipment - net 714,096 734,443
Federal Home Loan Bank of Atlanta stock, at cost 753,200 682,800
Investment in and loans to affiliated corporation 2,775,000 2,825,000
Prepaid income taxes 5,198 5,198
Deferred income taxes 71,431 273,589
Other assets 161,494 206,614
---------- ----------
Total assets $98,458,174 $96,528,114
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- -----------
Deposits $71,292,746 $72,100,572
Federal Home Loan Bank advance 4,000,000 -
Advance payments by borrowers for taxes
and insurance 1,417,211 322,610
Income taxes payable 93,687 237,456
Other liabilities 102,948 621,419
---------- ----------
Total liabilities 76,906,592 73,282,057
Commitments and contingencies
Stockholders' Equity
- --------------------
Common stock .10 par value; authorized 1,620,062
shares; issued and outstanding 1,539,059 and
1,620,062 shares 153,906 162,006
Additional paid-in capital 13,444,140 15,403,857
Retained earnings (substantially restricted) 9,119,972 8,911,434
---------- ----------
22,718,018 24,477,297
Employee Stock Ownership Plan (1,166,436) (1,231,240)
---------- ----------
Total stockholders' equity 21,551,582 23,246,057
---------- ----------
Total liabilities and stockholders' equity $98,458,174 $96,528,114
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-3-
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
For Six Months Ended For Three Months Ended
March 31, March 31,
----------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
Interest and fees on loans $2,925,285 $2,856,335 $1,476,835 $1,414,687
Interest on mortgage backed securities 101,109 45,221 50,216 35,172
Interest and dividends on investment
securities 170,190 54,284 108,414 28,037
Other interest income 265,095 220,601 121,385 126,515
--------- --------- --------- ---------
Total interest income 3,461,679 3,176,441 1,756,850 1,604,411
Interest on deposits 1,579,665 1,754,902 778,024 882,059
Interest on short-term borrowings 44,151 21,828 39,667 18,083
--------- --------- --------- ---------
Total interest expense 1,623,816 1,776,730 817,691 900,142
--------- --------- --------- ---------
Net interest income 1,837,863 1,399,711 939,159 704,269
Provision for loan losses 30,644 26,786 15,000 15,000
--------- --------- --------- ---------
Net interest income after provision
for loan losses 1,807,219 1,372,925 924,159 689,269
Non-Interest Income
Fees and charges on loans 14,622 13,540 6,918 6,888
Fees on transaction accounts 22,321 24,117 8,989 12,638
Other income 24,114 34,270 12,025 11,618
--------- --------- --------- ---------
Total non-interest income 61,057 71,927 27,932 31,144
Non-Interest Expenses
Salaries and related expenses 802,575 575,209 381,879 268,988
Occupancy 84,295 71,881 40,128 37,836
SAIF deposit insurance premium 44,853 88,333 11,623 43,575
Depreciation of equipment 23,889 37,520 11,615 17,894
Advertising 16,875 24,705 11,540 9,276
Data processing costs 38,254 39,365 20,158 20,734
Professional services 85,299 25,385 39,380 11,409
Other expenses 171,330 142,317 94,199 80,388
--------- --------- --------- ---------
Total non-interest expenses 1,267,370 1,004,715 610,522 490,100
--------- --------- --------- ---------
Income before tax provision 600,906 440,137 341,569 230,313
Provision for income taxes 242,889 169,982 138,662 85,596
--------- --------- --------- ---------
Net income $ 358,017 $ 270,155 $ 202,907 $ 144,717
========= ========= ========= =========
Net income per share $ .24 $ N/A $ .14 $ N/A
========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-4-
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For Six Months Ended
March 31,
----------------------
1997 1996
---- ----
Operating Activities
- --------------------
Net income $ 358,017 $ 270,155
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
------------------------------------------
Amortization of discount on mortgage backed
securities (413) (178)
Amortization of deferred loan fees (93,863) (85,005)
Loan fees deferred 43,937 25,591
Decrease in discount on loans purchased (10,031) (13,186)
Other amortization -- (21,783)
Provision for loan losses 30,644 26,786
Non-cash compensation under stock-based
benefit plans 164,581 --
Increase in accrued interest receivable (40,478) (2,307)
Provision for depreciation 30,112 41,575
Decrease in deferred income tax asset 202,158 3,848
Increase in deferred income tax liabilities -- 23,380
Decrease in other assets 45,122 23,267
Increase (decrease) in accrued interest payable .. 149 (399)
Decrease in income taxes payable (143,769) (3,247)
Decrease in other liabilities (518,471) (76,672)
Increase in checks outstanding and overnight funds
invested in excess of bank balance -- 13,924,610
------------ ------------
Net cash provided by operating activities 67,695 14,136,435
Cash Flows from Investment Activities
- -------------------------------------
Proceeds from maturing interest bearing deposits 783,000 1,076,000
Purchases of interest bearing deposits (336,583) (786,000)
Decrease in securities purchased under agreement
to resell 2,000,000 --
Purchase of other investments (3,000,000) (1,500,000)
Puurchase of mortgage backed securities -- (2,614,902)
Principal collected on mortgage backed
securities 76,035 46,697
Net increase in shorter term loans (239,846) (22,410)
Longer term loans originated or acquired (5,269,574) (7,079,102)
Principal collected on longer term loans 2,706,076 6,470,903
Investment in premises and equipment (9,765) (2,212)
Purchase of stock in Federal Home Loan Bank
of Atlanta (70,400) (3,000)
Decrease on investments in and loans to
joint ventures 50,000 150,000
---------- ----------
Net cash used by investment activities (3,311,057) (4,264,026)
-5-
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For Six Months Ended
March 31,
-----------------------
1997 1996
---- ----
Cash Flows from Financing Activities
- ------------------------------------
Net increase in demand deposits, money
market, passbook accounts and advances by
borrowers for taxes and insurance $ 1,418,854 $ 1,537,620
Net decrease in certificates of deposit (1,132,228) (3,282,832)
Net increase in short-term borrowings 4,000,000 --
Sale of common stock -- 15,580,740
Employee Stock Ownership Plan Obligation -- (1,296,040)
Management Stock Bonus Plan (882,927) --
Dividends on stock (149,479) --
Stock redemption (1,184,669) --
------------ ------------
Net cash provided by financing activities 2,069,551 12,539,488
------------ ------------
(Decrease) increase in cash and cash equivalents (1,173,811) 22,411,897
Cash and cash equivalents at beginning of period 7,305,109 7,880,281
------------ ------------
Cash and cash equivalents at end of period $ 6,131,298 $30,292,178
============ ============
The following is a Summary of Cash and Cash Equivalents:
- --------------------------------------------------------
Cash $ 302,938 $ 467,906
Interest bearing deposits in other banks 3,875,503 8,184,412
Federal funds sold 2,289,440 22,425,860
------------ -----------
Balance of cash items reflected on
Statement of Financial condition 6,467,881 31,078,178
Less - certificates of deposit with original
maturities of more than
three months that are included in interest
bearing deposits in other banks 336,583 786,000
------------ ------------
Cash and cash equivalents reflected on the
Statement of Cash Flows $ 6,131,298 $ 30,292,178
============ ============
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
Cash paid during the period for:
Interest $ 1,623,667 $ 1,777,129
============ ============
Taxes $ 184,500 $ 146,000
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-6-
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
Note 1 - Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of WHG
Bancshares Corporation ("the Company") and its wholly-owned subsidiary, Heritage
Savings Bank, F.S.B. ("the Bank") and the Bank's subsidiary, Mapleleaf Mortgage
Corporation. All intercompany accounts and transactions have been eliminated in
the accompanying consolidated financial statements.
Note 2 - Business
--------
The Bank's primary business activity is accepting deposits from the general
public and using the proceeds for investments and loan originations. The Bank is
subject to competition from other financial institutions. The Bank is subject to
the regulations of certain federal agencies and undergoes periodic examinations
by those regulatory authorities.
Note 3 - Basis of Presentation
---------------------
The accompanying unaudited 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. 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 4 - 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 5 - Earnings Per Share
------------------
Earnings per share of common stock for the six and three months ended March
31, 1997 is computed by dividing net income by 1,498,475 and 1,497,835,
respectively, the weighted average number of shares of common stock outstanding
for the six and three months. Included in this amount for the Employee Stock
Ownership Plan are only the shares that have been allocated.
Earnings per share amounts for the six and three month period ended March
31, 1996 have not been presented because the Bank had not converted to stock
form as of December 31, 1995.
-7-
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------
Note 6 - Reclassification
----------------
Certain prior periods' amounts have been reclassified to confirm to the
current period's method of presentation.
Note 7 - Recent Accounting Pronouncements
--------------------------------
FASB Statement on Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities - In June 1996, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 125, which will become effective on a prospective basis
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. This Statement will require the
Bank to record at fair value assets and liabilities resulting from a transfer of
financial assets. The impact of adopting this Statement is not expected to be
material to the Bank's financial statements.
-8-
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Total assets of the Company were $98,458,000 as of March 31, 1997,
compared to $96,528,000 as of September 30, 1996, an increase of $1,930,000 or
2.0%. The increase was primarily attributable to an increase in investment
securities of $3,000,000 or 120% and an increase in loans of $2,833,000 or
3.74%. These increases exceeded a decrease in the total amount of cash,
interest-bearing deposits in other banks and federal funds sold of $1,620,000 or
20.03% and a decrease in securities purchased under agreement to resell of
$2,000,000 or 100%. The changes were the result of management of the Company
borrowing money and transferring assets into higher yielding items.
Total liabilities of the Company were $76,907,000 as of March 31, 1997,
compared to $73,282,000 as of September 30, 1996, an increase of $3,625,000 or
4.95%. The increase was due to an increase in Federal Home Loan Bank ("FHLB of
Atlanta") advances of $4,000,000 and advance payments by borrowers for taxes and
insurance of $1,095,000 or 339.00%. This was offset by a decrease in deposits of
$808,000 or 1.12%, a decrease of $518,000 or 83.41% in other liabilities and a
decrease in income taxes payable of $144,000 or 60.76%. The increase in advance
payments by borrowers was due to the cyclical nature of this account as
borrowers increased the accounts monthly and disbursements are made primarily in
July through September.
Stockholders' equity was $21,552,000 as of March 31, 1997, compared to
$23,246,000 as of September 30 1996, a decrease of $1,694,000. The decrease was
primarily the result of a decrease in common stock and additional paid-in
capital as a result of the repurchase of 81,003 shares of stock in the
approximate amount of $1,185,000 and the Bank funding the acquisition of 64,802
shares of common stock in the approximate amount of $845,000 for the trust of
the Management Stock Bonus Plan ("MSBP"). The decrease was also affected by the
payment of dividends and was partially off-set by net income for the period.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
General
Net income for the six and three months ended March 31, 1997 was $358,000
and $203,000, respectively, as compared to $270,000 and $145,000 for the same
period in 1996, an increase of $88,000 or 32.59% and $58,000 or 40.0% for the
six and three month periods, respectively. The increases in net income were
primarily the result of increases in net interest income off-set by a decrease
in other income and increases in total non-interest expenses and provision for
income taxes.
Net interest income for the six and three months ended March 31, 1997
were $1,838,000 and $939,000, respectively, as compared to $1,400,000 and
$704,000 for the same periods in 1996, an increase of $438,000 or 31.29% and
$235,000 or 33.38%, respectively. The increases were primarily due to an
increase in interest rate spread to 2.89% and 2.95% for the six and three months
ended March 31, 1997, as compared to 2.59% and 2.20% for the same periods in
1996.
The Savings Bank's net interest income is sensitive to changes in interest
rates, as the rates paid on its interest-bearing liabilities generally change
faster than the rates earned on interest-earning assets. As a result, net
interest income will frequently decline in periods of rising interest rates.
Interest Income
Total interest income for the six and three months ended March 31, 1997
was $3,462,000 and $1,757,000, respectively, compared to $3,176,000 and
$1,604,000 for the same periods in 1996, an increase of $286,000 or 9.01% and
$153,000 or 9.54%, respectively. Interest on loans increased by $69,000 or 2.42%
and $62,000 or 4.38% during the six and three months ended March 31, 1997,
compared to the same respective periods in 1996. These increases were
attributable to $7,716,000 and $8,506,000 increases in the average balance of
loans outstanding for the six and three month
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Interest Income - continued
periods ended March 31, 1997, respectively, partially off-set by a decrease in
the average yield on the loan portfolio to 7.48% and 7.50% for those periods,
compared to 8.10% and 8.05% for the same periods in 1996. Interest income on
mortgage backed securities increased $56,000 or 124.44% and $15,000 or 42.86%
for the six and three months ended March 31, 1997, compared to the same
respective periods in 1996. The increases are primarily due to increases in the
average dollar amount outstanding of $1,426,000 and $381,000, respectively, and
an increase in the average yield to 6.79% for both periods compared to 5.82% and
5.46% for the same periods in 1996. Interest and dividends on investment
securities increased $116,000 or 214.81% and $80,000 or 285.71% for the six and
three month periods ended March 31, 1997, respectively, compared to the same
respective periods in 1996. The increases were the result of increases of
$3,086,000 and $3,842,000 in the average dollar amount of investments
outstanding for the six and three month periods ended March 31, 1997,
respectively. This was due to purchases of investment securities of
approximately $3,000,000. Other interest income for the six and three months
ended March 31, 1997 was $265,000 and $121,000, compared to $221,000 and
$127,000 for the same respective periods in 1996, an increase of $44,000 or
19.91% and a decrease of $6,000 or 4.72%. The increase for the six month period
resulted from an increase in the average yield of 2.73%, off-set by a 32.59%
decrease in the average dollar amount of other interest-earning assets. The
decrease for the three month period resulted from a decrease in the average
dollar amount of $8,460,000, off-set by an increase in the average yield of
2.86%.
The weighted average yield on interest-earning assets was 7.33% for both
the six and three month periods ended March 31, 1997, as compared to 7.35% and
7.01% for each of the same periods in 1996.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Interest Expense
Total interest expense for the six and three months ended March 31, 1997
was $1,624,000 and $818,000, respectively, compared to $1,777,000 and $900,000
for the same respective periods in 1996, a decrease of $153,000 or 8.61% and
$82,000 or 9.11%. Interest on deposits decreased $175,000 or 9.97% and $104,000
or 11.79% for the six and three months ended March 31, 1997. The decreases
resulted primarily from decreases in the average dollar amount of deposits of
$2,413,000 and $2,299,000, respectively, as depositors withdrew funds to
purchase stock during Heritage's stock conversion, and a withdrawal of maturing
certificates of deposit by depositors for investment in higher yielding mutual
funds. Decreases in the average yield paid to 4.43% and 4.36% for the six and
three month periods, compared to 4.76% and 4.79% for the same periods in 1996,
also attributed to the decrease. This decrease in yields is due primarily to
higher rate certificates of deposit maturing and repricing at lower rates. Other
interest expense increased by $22,000 for both the six and three months ended
March 31, 1997, compared to the same periods in 1996. The increase resulted from
increases in the average dollar amount of $987,000 or 113.58% and $1,973,000 or
154.99%, respectively, due to a $4,000,000 increase in Federal Home Loan Bank
advances to fund the purchase of investment securities and the repurchase of
stock. This was off-set by a .27% and .79% decrease in the weighted average rate
paid.
The weighted average rates paid on interest-bearing liabilities were 4.44%
and 4.38% for the six and three months ended March 31, 1997, respectively, as
compared to 4.76% and 4.81% for the same periods in 1996.
Provision for Loan Losses
The provision for loan losses for the six and three month periods ended
March 31, 1997 was $31,000 and $15,000, respectively, as compared to $27,000 and
$15,000 for the same respective periods in 1996. This was an increase of $4,000
or 14.81% for the six month period and the amount was unchanged for the three
month period.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Provision for Loan Losses - continued
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 depends upon an analysis of the changing risks inherent in
the Company's loan portfolio and the relative status of the real estate market
and the economy in general. The Company has historically experienced a limited
amount of loan charge-offs and delinquencies. At March 31, 1997, the allowance
represented .28% of loans receivable, as compared to .23% at March 31, 1996. The
allowance for loan losses increased as a percentage of nonperforming loans to
57.56% at March 31, 1997, from 42.33% at March 31, 1996.
Other Non-Interest Income
Other income for the six and three months ended March 31, 1997 was
$61,000 and $28,000, respectively, compared to $72,000 and $31,000 for the same
respective periods in 1996, decreases of $11,000 or 15.28% and $3,000 or 9.68%.
The decrease for the six month period was due to a decrease in miscellaneous
income of $10,000 or 29.41% as a result of an insurance recovery for storm
damage in the period ended March 31, 1996, and slight decreases in fees and
charges on loans and fees on transaction accounts. The decrease in the three
month period is due to a decrease in fees on transaction accounts of $4,000 or
30.77%, off-set by an increase in fees and charges on loans and other income of
$1,000 or 5.40%.
Non-Interest Expense
Total non-interest expense for the six and three months ended March 31,
1997 were $1,267,000 and $611,000, respectively, compared to $1,005,000 and
$490,000 for the same respective periods in 1996, increases of $262,000 or
26.07% and $121,000 or 24.69%, respectively. The increases for the six and three
month periods were the result of increases in salaries and related expenses,
occupancy, professional services and other expenses. Those increases were
partially off-set by decreases
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Non-Interest Expense - Continued
in SAIF deposit insurance premiums, depreciation of equipment and advertising.
Salaries and related expense increased as a result of the adoption of the
Employee Stock Ownership Plan ("ESOP") and the implementation of the Management
Stock Bonus Plan ("MSBP"). These expenses are expected to continue to increase
in future periods as a result of increases in those benefits and revisions to
the Savings Bank's pension plan required by the Retirement Protection Act.
Professional services increased primarily as a direct result of the stock
conversion, which resulted in additional services being required for filings
with the Securities and Exchange Commission and also with the implementation of
the ESOP and MSBP. The rate of SAIF deposit insurance premiums declined by
approximately 70% from the rate in effect prior to December 31, 1996.
Income Taxes
The Company's income tax expense for the six and three months ended March
31, 1997 was $243,000 and $139,000, respectively, compared to $170,000 and
$86,000 for the same periods in 1996, representing increases of $73,000 or
42.94% and $53,000 or 61.63%, respectively. The increases were primarily the
result of an increase in pretax income.
Liquidity and Capital Resources
The Company is required by OTS regulations 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 and
borrowings (due in one year or less) during the preceding calendar month. This
liquidity requirement may be changed from time to time by the OTS to any amount
within the range of 4% to 10%. The Savings Bank's liquidity ratio was 7.47% at
March 31, 1997 and 10.5% at September 30, 1996.
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
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.
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 three month period ended
December 31, 1996, management used a portion of cash flows from Federal Home
Loan Bank advances, securities purchased under agreement to resell and cash to
fund loan originations and deposit outflows. Management believes it has ample
cash flows and liquidity to meet its loan commitments in the amount of
$1,512,000 as of March 31, 1997. 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 Office of Thrift
Supervision ("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 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).
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of
1991 was signed into law on December 19, 1991, and regulations implementing the
prompt corrective action provisions became effective on December 12, 1992. The
prompt corrective action regulations define specific capital categories based on
an institution's capital ratios. The capital categories, in declining order, are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized". Institutions categorized
as "undercapitalized" or lower are subject to certain restrictions, including
the requirement to file a capital plan with its primary federal regulator,
prohibitions on the payment of dividends and management fees, restrictions on
executive compensation, and increased supervisory monitoring, among other
things. To be considered "well capitalized," an institution must generally have
a leverage capital ratio of at least 5%, a tier one risk-based capital ratio of
at least 6% and a total risk-based capital ratio of at least 10%. At March 31,
1997, the Bank met the criteria required to be considered "well capitalized"
under this regulation.
The following table presents the Bank's capital position based on the
March 31, 1997 financial statements.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- ---------------------- --------------------
Amount % Amount % Amount %
------ - ------ - ------ -
Tangible (1) $14,846,607 15.16% $ 1,469,349 1.50% $ N/A N/A
Tier I capital (2) 14,846,607 31.55% N/A N/A 2,823,600 6.00%
Core (1) 14,846,607 15.16% 2,938,698 3.00% 4,897,829 5.00%
Risk-weighted (2) 15,066,607 32.02% 3,764,800 8.00% 4,706,000 10.00%
(1) To adjusted total assets.
(2) To risk-weighted assets.
-16-
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 stockholders' equity $21,551,582
Less: Non-allowable items
Equity of parent company 6,702,975
Goodwill and other intangible assets 2,000
-----------
Tangible and core capital 14,846,607
General valuation allowance 220,000
-----------
Risk-based capital $15,066,607
===========
Total assets $98,458,174
Less: Non-includable
Asset of parent company 499,588
Goodwill and other intangible assets 2,000
-----------
Tangible and adjusted tangible assets $97,956,586
===========
Risk-weighted assets $47,060,000
===========
The OTS has adopted an interest rate component to the regulatory capital
requirements. The rule requires additional capital to be maintained if the
Bank's interest rate risk exposure, measured by the decline in the market value
of the Bank's net portfolio value, exceeds 2% of assets as a result of a 200
basis point shift in interest rates. As of March 31, 1997, the rule is not yet
in effect and the Bank is not subject to the interest rate risk requirement.
For the purpose of granting to eligible savings account holders a
priority in the event of future liquidation, the Bank established a special
account at the time of conversion to the stock form of ownership in an amount
equal to its total retained earnings at December 31, 1995. In the event of
future liquidation of the Bank (and only in such an event), an eligible account
holder who continues to maintain his savings account shall be entitled to
receive a distribution from the special account. The amount
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
of the special account will be decreased in an amount proportionately
corresponding to decreases in the savings account balances of eligible account
holders on each subsequent annual determination date. The balance of the special
account at March 31, 1997 is included in retained earnings. No dividends may be
paid to the stockholders if such dividends would reduce regulatory capital of
the Bank below the amount required for the special account.
OTS regulations limit the payment of dividends and other capital
distributions by the Bank. The Bank is able to pay dividends during a calendar
year without regulatory approval to the extent of the greater of (i) an amount
which will reduce by one-half its surplus capital ratio at the beginning of the
year plus all its net income determined on the basis of generally accepted
accounting principles for that calendar year or (ii) 75% of net income for the
last four calendar quarters.
The Bank is restricted in paying dividends on its stock to the greater of
the restrictions described in the preceding paragraph, or an amount that would
reduce its retained earnings below its regulatory capital requirement, the
accumulated bad debt deduction, or the liquidation account described in the
second preceding paragraph.
-18-
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
On January 21, 1997, the annual meeting of stockholders was held to
consider and vote upon the election of 10 directors of the registrant. All ten
directors were elected:
Nominee Votes For Votes Withheld
--------------------------- --------- --------------
Herbert A. Davis 1,393,590 23,546
D. Edward Lauterbach, Jr. 1,393,590 23,546
August J. Seifert 1,390,735 26,401
Herbert W. Spath 1,393,590 23,546
Philip W. Chase, Jr. 1,393,590 23,546
Edwin C. Muhly, Jr. 1,393,590 23,546
Peggy J. Stewart 1,393,590 23,546
Urban P. Francis, Jr. 1,393,590 23,546
John E. Lufburrow 1,393,590 23,546
Hugh P. McCormick 1,393,590 23,546
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable.
(b) A Form 8-K (Items 5 and 7) concerning repurchases of stock and
dated March 18, 1997 was filed during the quarter.
A Form 8-K (Items 5 and 7) concerning repurchases and six month
earnings and dated April 15, 1997 was filed after the end of the
quarter.
-19-
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: May 5 , 1997 By: /s/Peggy J. Stewart
--- -------------------
Peggy J. Stewart
President and Chief Executive Officer
(duly authorized officer)
Date: May 5 , 1997 By: /s/Robin L. Taylor
--- ------------------
Robin L. Taylor
Controller (chief accounting officer)
-20-