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, 1998
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 August 10, 1998: 1,389,002
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, 1998
(unaudited) and September 30, 1997...............................................................................3
Consolidated statements of operations (unaudited) for nine months and three months
Ended June 30, 1998 and June 30, 1997............................................................................4
Consolidated statements of cash flows (unaudited) for the nine months
Ended June 30, 1998 and June 30, 1997..........................................................................5-6
Notes to financial statements..................................................................................7-9
Item 2. Management's Discussion and Analysis or Plan of Operation................................................10-15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...........................................................................................16
Item 2. Changes in Securities.......................................................................................16
Item 3. Defaults upon Senior Securities.............................................................................16
Item 4. Submission of Matters to a Vote of Security-Holders.........................................................16
Item 5. Other Information...........................................................................................16
Item 6. Exhibits and Reports on Form 8-K............................................................................16
Signatures.................................................................................................................17
-2-
PART I - FINANCIAL INFORMATION
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
June 30, September 30,
------------- -------------
1998 1997
------------- -------------
(Unaudited)
Assets
------
Cash $ 986,409 $ 1,003,528
Interest bearing deposits in other banks 3,255,271 3,898,946
Federal funds sold 3,822,000 3,481,833
Investment securities - available for sale 17,994,692 -
Investment securities - held to maturity 16,100,000 3,750,000
Mortgage backed securities - held to maturity 7,469,127 2,845,210
Loans receivable - net 76,519,219 78,450,370
Accrued interest receivable - loans 347,664 374,561
- investments 573,143 69,230
- mortgage backed securities 42,071 15,998
Premises and equipment - net 835,458 721,932
Federal Home Loan Bank of Atlanta stock, at cost 1,000,000 753,200
Investment in and loans to affiliated corporation 2,575,000 2,925,000
Income taxes receivable 62,408 -
Deferred income taxes 221,611 116,394
Other assets 163,255 150,517
------------- -------------
Total assets $ 131,967,328 $ 98,556,719
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- -----------
Deposits $ 89,843,948 $ 74,186,112
Federal Home Loan Bank advances 20,000,000 4,000,000
Advance payments by borrowers for taxes and insurance 1,782,491 330,671
Income taxes payable - 64,284
Other liabilities 168,411 146,519
------------- -------------
Total liabilities 111,794,850 78,727,586
Stockholders' Equity
- --------------------
Common stock .10 par value; authorized 1,620,062
shares; issued and outstanding 1,389,002 shares in
1998 and 1,392,415 shares in 1997 138,900 139,241
Additional paid-in capital 11,519,249 11,390,312
Retained earnings (substantially restricted) 9,544,668 9,381,773
------------- -------------
21,202,817 20,911,326
Unrealized loss on investment securities available for sale (45,349) -
Employee Stock Ownership Plan (984,990) (1,082,193)
------------- -------------
Total stockholders' equity 20,172,478 19,829,133
------------- -------------
Total liabilities and stockholders' equity $ 131,967,328 $ 98,556,719
============= =============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-3-
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
For Nine Months Ended For Three Months Ended
--------------------- ----------------------
June 30, June 30,
--------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Interest and fees on loans $4,529,548 $4,432,860 $1,497,085 $1,507,575
Interest on mortgage backed securities 219,283 150,645 126,165 49,536
Interest and dividends on investment
securities 857,792 283,001 543,263 112,811
Other interest income 458,174 396,261 154,453 131,166
---------- ---------- ---------- ----------
Total interest income 6,064,797 5,262,767 2,320,966 1,801,088
Interest on deposits 2,824,529 2,381,083 1,031,707 801,418
Interest on short-term borrowings 263,058 106,359 121,758 62,210
Interest on long term borrowings 158,078 - 152,568 -
---------- ---------- ---------- ----------
Total interest expense 3,245,665 2,487,442 1,306,033 863,628
---------- ---------- ---------- ----------
Net interest income 2,819,132 2,775,325 1,014,933 937,460
Provision for loan losses 180,000 45,644 50,000 15,000
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 2,639,132 2,729,681 964,933 922,460
Non-Interest Income
- -------------------
Fees and charges on loans 21,766 18,594 6,935 3,972
Fees on transaction accounts 47,944 34,812 14,328 12,491
Other income 24,492 33,627 8,314 9,513
---------- ---------- ---------- ----------
Total non-interest income 94,202 87,033 29,577 25,976
Non-Interest Expenses
- ---------------------
Salaries and related expenses 1,204,115 1,157,018 398,516 354,443
Occupancy 115,469 122,256 36,411 37,961
SAIF deposit insurance premium 35,289 56,477 11,902 11,624
Depreciation of equipment 40,429 35,849 17,415 11,960
Advertising 84,335 32,706 32,582 15,831
Data processing costs 62,219 56,662 22,133 18,408
Professional services 135,085 130,569 48,462 43,946
Other expenses 276,996 246,636 106,230 76,628
---------- ---------- ---------- ----------
Total non-interest expenses 1,953,937 1,838,173 673,651 570,801
---------- ---------- ---------- ----------
Income before tax provision 779,397 978,541 320,859 377,635
Provision for income taxes 309,632 389,214 123,814 146,325
---------- ---------- ---------- ----------
Net income $ 469,765 $ 589,327 $ 197,045 $ 231,310
========== ========== ========== ==========
Basic earnings per share $ .38 $ .41 $ .16 $ .16
========== ========== ========== ==========
Diluted earnings per share $ .37 $ .41 $ .15 $ .16
========== ========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-4-
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For Nine Months Ended
-----------------------------
June 30, June 30,
-------- --------
1998 1997
---- ----
Operating Activities
Net income $ 469,765 $ 589,327
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
------------------------------------------
Amortization of discount on mortgage backed
securities (522) (619)
Amortization of premium on mortgage backed
securities 185 -
Amortization of deferred loan fees (139,062) (134,094)
Loan fees deferred 140,923 64,491
Decrease in discount on loans purchased (16,406) (15,749)
Provision for loan losses 180,000 45,644
Non-cash compensation under stock-based
benefit plans 279,553 248,806
Increase in accrued interest receivable (503,089) (75,521)
Provision for depreciation 50,604 45,185
(Increase) decrease in deferred income tax (45,095) 202,158
Increase in prepaid income taxes (62,408) -
(Increase) decrease in other assets (12,738) 62,392
Decrease in accrued interest payable (95) (1,647)
Decrease in income taxes payable (64,284) (202,344)
Increase (decrease) in other liabilities 21,892 (511,284)
----------- ----------
Net cash provided by operating activities 299,223 316,745
Cash Flows from Investment Activities
- -------------------------------------
Proceeds from maturing interest bearing deposits 1,759,019 683,000
Purchases of interest bearing deposits (1,568,589) (295,000)
Decrease in securities purchased under an
agreement to resell - 2,000,000
Purchase of securities available for sale (23,100,050) -
Proceeds from maturing securities - available for sale 5,000,000 -
Proceeds from maturing securities - held to maturity 7,000,000 1,000,000
Purchase of securities - held to maturity (19,350,000) (3,000,000)
Purchase of mortgage backed securities - held to maturity (4,958,225) -
Principal collected on mortgage backed securities - held
to maturity 334,645 113,795
Net decrease (increase) in shorter term loans 112,570 (126,398)
Loans purchased (203,488) -
Longer term loans originated or acquired (9,987,650) (8,317,894)
Principal collected on longer term loans 11,844,264 4,766,724
Investment in premises and equipment (164,130) (16,277)
Purchase of stock in Federal Home Loan Bank
of Atlanta (246,800) (70,400)
(Increase) decrease on investment in and loans
to joint ventures 350,000 (50,000)
----------- ----------
Net cash used by investment activities (33,178,434) (3,312,450)
-5-
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For Nine Months Ended
---------------------
June 30, June 30,
-------- --------
1998 1997
---- ----
Cash Flows from Financing Activities
Net (decrease) increase in demand deposits, money
market, passbook accounts and advances by
borrowers for taxes and insurance $(2,680,914) $ 1,403,341
Net increase in certificates of deposit 19,790,552 1,561,501
Net increase in borrowings 16,000,000 4,000,000
Management Stock Bonus Plan - (882,927)
Dividends on stock (306,870) (216,315)
Stock repurchase (53,754) (2,281,234)
------------ ------------
Net cash provided by financing activities 32,749,014 3,584,366
------------ ------------
Increase (decrease) in cash and cash equivalents (130,197) 588,661
Cash and cash equivalents at beginning of period 7,946,628 7,305,109
------------ ------------
Cash and cash equivalents at end of period $ 7,816,431 $ 7,893,770
============ ============
The following is a Summary of Cash and Cash Equivalents:
Cash $ 986,409 $ 617,600
Interest bearing deposits in other banks 3,255,271 3,215,642
Federal funds sold 3,822,000 4,455,528
------------ ------------
Balance of cash items reflected on
Statement of Financial Condition 8,063,680 8,288,770
Less - certificates of deposit with original
maturities of more than three months
that are included in interest
bearing deposits in other banks 247,249 395,000
------------ ------------
Cash and cash equivalents reflected on the
Statement of Cash Flows $ 7,816,431 $ 7,893,770
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 3,245,570 $ 2,489,089
============ ============
Taxes $ 538,851 $ 390,500
============ ============
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 - 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 - 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. 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 nine months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the
entire fiscal year September 30, 1998 or any other interim period. The
consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes which are
incorporated by reference in the Company's Annual Report on Form
10-KSB for the year ended September 30, 1997.
Note 3 - Federal Home Loan Advances
--------------------------
During the quarter ended June 30, 1998, the Bank obtained the
following advances:
Description Rate Amount Maturity
----------- ---- ------ --------
FHLB advances 5.68% $ 5,000,000 08/26/98
FHLB advances 5.80% 2,000,000 11/06/98
FHLB advances 6.02% 1,000,000 12/09/98
FHLB advances 5.71% 1,000,000 01/08/99
FHLB advances 5.52% 5,000,000 04/02/03
FHLB advances 5.51% 6,000,000 03/26/08
----------
$20,000,000
==========
-7-
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------
Note 4 - Earnings Per Share
------------------
As required, the Company adopted statement of Financial Accounting
Standards No. 128 during the quarter ended December 31, 1997. This
Statement requires dual presentation of basic and diluted earnings per
share ("EPS") with a reconciliation of the numerator and denominator
of the EPS computations. Basic per share amounts are based on the
weighted average shares of common stock outstanding. Diluted earnings
per share assume the conversion, exercise or issuance of all potential
common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings
per share. No adjustments were made to net income (numerator) for all
periods presented. Accordingly, this presentation has been adopted for
all periods presented. The basic and diluted weighted average shares
outstanding for the three and six month periods are as follows:
Nine Months Ended Nine Months Ended
June 30, 1998 June 30, 1997
------------------ -------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
Net income $ 469,765 $ 469,765 $ 589,327 $ 589,327
Weighted average shares
outstanding 1,230,887 1,230,887 1,433,936 1,433,936
Diluted securities:
MSBP shares - 10,228 - 801
Options - 40,310 - 5,034
--------- --------- --------- ---------
Adjusted weighted average
shares 1,230,887 1,281,425 1,433,936 1,439,771
Per share amount $ 0.38 $ 0.37 $ 0.41 $ 0.41
-8-
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------
Note 4 - Earnings Per Share - Continued
------------------
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
----------------------- -----------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
Net income $ 197,045 $ 197,045 $ 231,310 $ 231,310
Weighted average shares
outstanding 1,233,748 1,233,748 1,432,676 1,432,676
Diluted securities:
MSBP shares - 10,400 - 2,135
Options - 40,925 - 11,395
--------- --------- --------- ---------
Adjusted weighted average
shares 1,233,748 1,285,073 1,432,676 1,446,206
Per share amount $ 0.16 $ 0.15 $ 0.16 $ 0.16
-9-
Item 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
Total assets of the Company were $131,967,000 as of June 30, 1998, compared
to $98,557,000 as of September 30, 1997, an increase of $33,410,000 or 33.90%.
The increase was primarily attributable to a net increase in investment
securities available for sale and held to maturity of $30,345,000 and an
increase in mortgage backed securities of $4,624,000. These increases were
slightly offset by a decrease in loans of $1,931,000. The purchase of
investments is part of management's strategy to maximize the high level of
equity and to increase profitability. As liquidity levels increased with the
inflow of deposits and FHLB advances, and the funds used to purchase higher
yielding bonds and mortgage backed securities. Of the total increase in
investment securities, approximately $18.0 million of the investments are held
as "available for sale" as it is management's intention to use these bonds to
fund future loan originations.
Total liabilities of the Company were $111,795,000 as of June 30, 1998,
compared to $78,728,000 as of September 30, 1997, an increase of $33,067,000 or
42.00%. The increase was due to a net increase in deposits of $15,658,000,
Federal Home Loan Bank ("FHLB of Atlanta") advances of $16,000,000 and advance
payments by borrowers for taxes and insurance of $1,452,000. The increase in
deposits was due to an increase in certificates of deposit of $19,791,000,which
was slightly offset by a decline in other deposits of $2,681,000. During the
quarter ended June 30, 1998, the Bank borrowed an additional $12,000,000 in
short and long term FHLB advances. Management's plan was to take advantage of
the low costs of funds and invest the proceeds in higher yielding investments
and loan originations. As the borrowings mature, they will be repaid with
deposits. 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 $20,172,000 as of June 30, 1998, compared to
$19,829,000 as of September 30 1997, an increase of $343,000. The increase was
due to net income for the period of $470,000 and the allocation of shares to the
Stock Based Benefit Plan of $280,000. The increase was offset by a dividend of
$307,000, the repurchase of shares of the Company's own stock of $54,000 and a
net unrealized loss on securities available for sale of $45,000.
Results of Operations
General
Net income for the nine and three months ended June 30, 1998 was $470,000
and $197,000 respectively, as compared to $589,000 and $231,000 for the same
period in 1997. The decrease in net income of $119,000 for the nine months ended
June 30, 1998 as compared with the same period in 1997 was primarily the result
of increases in provision for loan losses, total interest expense and
non-interest expense off-set by increases in total interest income and
non-interest income.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Interest Income
Total interest income for the nine and three months ended June 30, 1998 was
$6,065,000 and $2,321,000, respectively, compared to $5,263,000 and $1,801,000
for the same periods in 1997, an increase of $802,000 or 15.24% and $520,000 or
28.87%, respectively. The increase was primarily due to an increase of
$13,746,000 and$27,207,000 in the average balance of investment securities for
the nine and three months ended June 30, 1998. The weighted average yield on
interest-earning assets was 7.30% and 7.35% for the nine and three months ended
June 30, 1998, as compared to 7.34% and 7.37 for the same periods in 1997.
Interest Expense
Total interest expense for the nine and three months ended June 30, 1998
was $3,246,000 and $1,306,000, respectively, compared to $2,487,000 and $864,000
for the same respective periods in 1997, an increase of $759,000 and $442,000,
respectively. The increases resulted primarily from increases in the average
dollar amount of deposits of $10,070,000 and $15,738,000, respectively, as the
Bank conducted an aggressive advertising campaign for certificates of deposits.
The average yields paid were 4.60% and 4.68% for the nine and three month
periods, compared to 4.42% for both the same periods in 1997. The change in
yields had little effect on the increases in interest expense. The increases
were also the result of increases in the average dollar amount of borrowings of
$8,547,000 and $15,180,000, respectively. The weighted average rates paid on
interest-bearing liabilities were 4.63% and 4.78% for the nine and three months
ended June 30, 1998, respectively, as compared to 4.43% and 4.41% for the same
periods in 1997.
Provision for Loan Losses
The provision for loan losses for the nine and three month periods ended
June 30, 1998 was $180,000 and $50,000, respectively, as compared to $46,000 and
$15,000 for the same respective periods in 1997.
During the quarter ended June 30, 1998, the Bank increased its allowance
for loan losses by $50,000. Of this increase, $35,000 related to one residential
mortgage loan in the amount of $273,000. In May, the property underlying the
loan was sold to an independent third party at a loss of $35,000, resulting in
the Bank's reevaluation of reserves. The sale is to be ratified in July, 1998
and the Bank will finance the new loan at market conditions. Based upon the
additions to the allowance for loan losses, management believes the allowance
for loan losses is adequate, however, there can be no assurance that the
allowance for loan losses will be adequate to cover significant losses that the
Bank might incur in the future.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Provision for Loan Losses - Continued
The following tables set forth information with respect to the Bank's
allowance for loan losses and non-accrual loans at the dates indicated:
June September
30, 1998 30, 1997
--------- ---------
Balance at beginning of period $ 250,000 $ 195,000
Charge-Offs:
Real estate - mortgage (76,000) (6,000)
Addition to loan loss provision 180,000 61,000
--------- ---------
$ 354,000 $ 250,000
========= =========
Ratio of net charge-offs during the period to
Average loans outstanding during the period 0.10% 0.01%
======== =========
At June At September
30, 1998 30, 1997
--------- ---------
Loans accounted for on a non-accrual basis:
Real estate:
Permanent loans secured by 1-4 dwelling units $ 776,000 $ 767,000
Commercial -- 70,000
--------- ---------
Total $ 776,000 $ 837,000
========= =========
Accruing loans which are contractually past
due 90 days or more:
Real estate:
Permanent loans secured by 1-4 dwelling units $ - $ -
Commercial 81,000 -
--------- ---------
Total $ 81,000 $ -
========= =========
Total non-performing loans $ 857,000 $ 837,000
========= =========
Total non-accrual loans to net loans 1.12% 1.07%
========= =========
Allowance for loan losses to total non-performing
loans 41.31% 29.86%
========= =========
-12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Other Non-Interest Income
Other non-interest income for the nine and three months ended June 30, 1998
was $94,000 and $30,000, respectively, compared to $87,000 and $26,000 for the
same respective periods in 1997, increases of $7,000 and $4,000, respectively.
The increases for the nine and three month periods were primarily due to an
increase in transaction accounts of $13,000 and $2,000, respectively. The
increases in fees on transaction accounts were due to increased fees on NOW
accounts and the Bank installing an Automatic Teller Machine and charging
non-customers for usage. The increases were partially off-set by decreases in
other income for the same periods due to the decline of $7,000 in rental income.
In April 1997, the Bank's second floor tenant did not renew their lease.
Non-Interest Expense
Total non-interest expense for the nine and three months ended June 30,
1998 was $1,954,000 and $674,000, respectively, compared to $1,838,000 and
$571,000 for the same respective periods in 1997, increases of $116,000 or 6.31%
and $103,000 or 18.04%, respectively. The increases for the nine and three month
periods were the result of increases in salaries and related expenses,
advertising, data processing costs and professional services. Those increases
were partially off-set by decreases in SAIF deposit insurance premiums for the
nine month period and occupancy and other expenses for the nine and three month
periods. The increase in salaries and related expenses of $47,000 and $44,000,
respectively, was the result of general merit increases and increased costs
associated with the Company's Employee Stock Ownership Plan. The increase in
advertising of $52,000 and $17,000, respectively, for the nine and three months
ended June 30, 1998 as compared to the same period in 1997 was due to an
aggressive advertising campaign for certificates of deposits. The increase in
data processing costs of $5,557 and $3,725, respectively, for the nine and three
months ended June 30, 1998 as compared to the same period in 1997 was due to
expenses associated in complying with the Year 2000 requirements. The rate of
FDIC deposit insurance premiums declined by approximately 70% from the rate in
effect prior to September 30,1996 due to the one time special assessment in 1996
of $506,000. As of January 1,1997, the Bank's premium was reduced to .064% from
.23% of insured deposits. Occupancy expense declined $6,787 and $1,550,
respectively, for the nine and three months ended June 30, 1998 as compared to
the same periods in 1997 due to a decline in repairs and maintenance. The
increase in other expenses of $30,000 for both periods was the result of return
check losses of $24,000. The Bank is pursuing legal action against the
individuals for repayment of the funds.
A great deal of publicity has been made about the Computer Year 2000. The
Bank uses a third party service bureau to process the calculation and processing
payments, interest and delinquencies. The service bureau for the Bank has
advised the Bank that the problem is being resolved and that the year 2000 will
not affect the Bank's operations. In addition, the Bank is taking steps
internally to ensure that all in-house computers are in compliance with the Year
2000 requirements. The cost to the Bank to rectify the Year 2000 computer
problems includes hardware and software costs. To date, the Bank has spent
$167,000 on these costs and expects to spend an additional $15,000, of which a
significant portion has or will be capitalized.
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Income Taxes
The Company's income tax expense for the nine and three months ended June
30, 1998 was $310,000 and $124,000, respectively, compared to $389,000 and
$146,000 for the same periods in 1997, representing a decrease of $79,000 or
20.31% and $22,000 or 15.07%, respectively. The changes were primarily the
result of the variations in pretax income. The effective tax rate for the nine
and three months ended June 30, 1998, was 39.73% and 38.59%, respectively,
compared to 39.78% and 38.75% for the same periods in 1997.
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 4% 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 Bank's liquidity ratio was 7.07% at June 30,
1998 and 9.79% at September 30, 1997.
The Bank is currently able to fund its operations internally. Additional
sources of funds include the ability to utilize Federal Home Loan Bank ("FHLB")
of Atlanta advances and the ability to borrow against mortgage backed and
investment securities. As of June 30, 1998, the Bank had a line of credit with
the FHLB of Atlanta of $20,000,000 and had outstanding advances of $20,000,000.
Management believes it has ample cash flows and liquidity to meet its loan and
investment commitments in the amount of $3,122,000 as of June 30, 1998.
The Company announced on July 30, 1998 that the Board of Directors had
declared a special cash distribution of $3.00 per share. In addition, the
Company announced the declaration of the regular quarterly dividend of $.08 per
share. Both distributions will be paid on September 10, 1998, to shareholders of
record as of August 13, 1998.
The Company estimates that the entire amount of the $3.00 per share special
distribution would be treated as a return of capital distribution. The $3.00
return of capital would be treated as a reduction in the cost basis of each
share and would not be subject to income tax as a dividend to shareholders.
However, a final determination as to an exact amount of the return of capital
portion of the special distribution cannot be made until after December 31,
1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
The following table presents the Bank's capital position based on the June
30, 1998 financial statements.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount % Amount % Amount %
---------- ----- --------- ---- --------- -----
Tangible (1) $15,999,000 12.21% $ 1,966,000 1.50% $ N/A N/A
Tier I capital (2) 15,999,000 28.33% N/A N/A 3,388,000 6.00%
Core (1) 15,999,000 12.21% 3,933,000 3.00% 6,554,000 5.00%
Risk-weighted (2) 16,234,000 28.75% 4,518,000 8.00% 5,647,000 10.00%
(1) To adjusted total assets.
(2) To risk-weighted assets.
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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) 10.1 Amendment to Employment Agreement between the Bank and Peggy J. Stewart
10.2 Form of Restated Severance Agreement between the Bank and Robin L. Taylor,
Diana L. Rohrback, Nicholas C. Tracht and Daniel J. Gallagher
27 Financial Data Schedule (electronic filing only)
(b) There were no Form 8-K's filed during the quarter.
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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: August 10, 1998 By: /s/Peggy J. Stewart
-------------------
Peggy J. Stewart
President and Chief Executive Officer
(duly authorized officer)
Date: August 10, 1998 By: /s/Robin L. Taylor
------------------
Robin L. Taylor
Controller (chief accounting officer)
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