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 December 31, 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
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Number of shares of Common Stock outstanding as of February 1, 1999: 1,383,780
Transitional Small Business Disclosure Format (check one)
YES NO X
--- ---
WHG BANCSHARES CORPORATION AND SUBSIDIARY
Contents
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Pages
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................................3
Consolidated statements of financial condition at December 31, 1998
(unaudited) and September 30, 1998..............................................3
Consolidated statements of operations (unaudited) for the three months
Ended December 31, 1998 and December 31, 1997...................................4
Consolidated statements of cash flows (unaudited) for the three months
Ended December 31, 1998 and December 31, 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
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
December 31, September 30,
------------- --------------
1998 1998
---- ----
(Unaudited)
Assets
------
Cash $ 11,085 $ 1,179,349
Interest bearing deposits in other banks 2,653,997 9,849,431
Federal funds sold 4,922,000 3,394,000
Investments available for sale 17,202,136 15,191,491
Other investments held to maturity 14,850,000 14,600,000
Mortgage backed securities 15,310,803 7,275,803
Loans receivable - net 77,842,488 75,357,978
Accrued interest receivable - loans 342,244 365,022
- investments 474,270 581,865
- mortgage backed securities 83,010 40,979
Premises and equipment - net 859,923 876,926
Federal Home Loan Bank of Atlanta stock, at cost 1,000,000 1,000,000
Investment in and loans to affiliated corporation 2,525,000 2,575,000
Deferred income taxes 265,811 170,695
Prepaid and refundable income taxes 193,124 131,353
Other assets 155,436 286,580
----------- -----------
Total assets $138,691,327 $132,876,472
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- -----------
Deposits $100,470,056 $ 95,065,922
Checks outstanding in excess of bank balance 196,425 11,077
Borrowings 20,937,168 20,937,168
Advance payments by borrowers for taxes and insurance 751,966 314,125
Income taxes payable - 16,780
Other liabilities 226,062 288,684
----------- -----------
Total liabilities 122,581,677 116,633,756
Commitments and contingencies
Stockholders' Equity
- --------------------
Common stock .10 par value; authorized 1,620,062 shares;
issued and outstanding 1,378,780 shares at December
31, 1998 and 1,389,002 shares at September 30, 1998 137,878 138,900
Additional paid-in capital 7,336,598 7,392,663
Retained earnings (substantially restricted) 9,698,933 9,651,860
Net unrealized losses on investments available for sale (180,593) (25,140)
----------- -----------
16,992,816 17,158,283
Employee Stock Ownership Plan (883,166) (915,567)
----------- -----------
Total stockholders' equity 16,109,650 16,242,716
----------- -----------
Total liabilities and stockholders' equity $138,691,327 $132,876,472
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
For Three Months Ended
December 31,
-------------------------------
1998 1997
---- ----
Interest and fees on loans $1,475,263 $1,513,927
Interest and dividends on investment
securities 529,265 91,989
Interest on mortgage backed securities 172,751 47,151
Other interest income 178,266 150,546
--------- ---------
Total interest income 2,355,545 1,803,613
Interest on deposits 1,163,392 868,132
Interest on short-term borrowings 292,161 61,381
--------- ---------
Total interest expense 1,455,553 929,513
--------- ---------
Net interest income 899,992 874,100
Provision for loan losses 15,000 15,000
--------- ---------
Net interest income after provision for
loan losses 884,992 859,100
Non-Interest Income
Fees and charges on loans 10,200 9,713
Fees on transaction accounts 13,635 16,303
Other commissions and fees 65,335 18,734
Other income 9,063 8,225
--------- ---------
Total non-interest income 98,233 52,975
Non-Interest Expenses
Salaries and related expenses 464,912 430,579
Occupancy 34,983 40,396
FDIC deposit insurance premium 13,214 11,798
Depreciation of equipment 21,214 10,121
Advertising 14,320 27,310
Data processing costs 23,293 18,867
Professional services 51,802 39,598
Other expenses 96,901 81,596
--------- ---------
Total non-interest expenses 720,639 660,265
--------- ---------
Income before tax provision 262,586 251,810
Provision for income taxes 101,452 98,341
--------- ---------
Net income $ 161,134 $ 153,469
========= ========
Net income $ 161,134 $ 153,469
Other comprehensive income, net of tax:
Unrealized losses on available for sale securities (155,453) -
--------- ---------
Comprehensive income $ 5,681 $ 153,469
========= =========
Basic earnings per share $ .13 $ .12
========= =========
Diluted earnings per share $ .13 $ .12
========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For Three Months Ended
December 31,
--------------------------------
1998 1997
---- ----
Operating Activities
- --------------------
Net income before other comprehensive income $ 161,134 $ 153,469
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
-------------------------------------
Net accretion/amortization of premiums and discounts
on mortgage backed securities 2,371 (206)
Amortization of discount on investments available for sale (12) -
Amortization of deferred loan fees (56,401) (25,592)
Loan fees deferred 39,735 35,922
Decrease in discount on loans purchased (4,771) (4,810)
Provision for loan losses 15,000 15,000
Non-cash compensation under stock-based
benefit plans 88,968 89,950
(Increase) decrease in accrued interest receivable 88,342 (20,214)
Loans sold - 750,000
Loans originated for sale - (750,000)
Provision for depreciation 21,214 13,496
Decrease in deferred income taxes 2,694 -
Increase in prepaid income taxes (61,771) -
(Increase) decrease in other assets 131,144 (48,560)
Decrease in accrued interest payable (100) (251)
Decrease in income taxes payable (16,780) (19,159)
Decrease in other liabilities (62,622) (23,376)
---------- ----------
Net cash provided by operating activities 348,145 165,669
Cash Flows from Investment Activities
- -------------------------------------
Proceeds from maturing interest
bearing deposits - 1,367,000
Purchases of interest bearing deposits (95,000) (1,369,272)
Proceeds from maturities of investments available for sale 3,250,000 -
Purchase of investments available for sale (5,513,898) -
Purchase of other investments (4,250,000) (4,000,000)
Proceeds from maturing other investments 4,000,000 2,000,000
Purchase of mortgage backed securities (8,479,853) -
Principal collected on mortgage backed securities 442,481 71,332
Net decrease in shorter term loans 124,521 16,116
Longer term loans originated or acquired (3,984,350) (4,172,415)
Principal collected on longer term loans 1,381,759 3,264,961
Investment in premises and equipment (4,211) (41,051)
Decrease on investments in and loans to
joint ventures 50,000 75,000
---------- ----------
Net cash used by investment activities (13,078,551) (2,788,329)
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For Three Months Ended
December 31,
---------------------------------
1998 1997
---- ----
Cash Flows from Financing Activities
Net increase in demand deposits, money
market, passbook accounts and advances by
borrowers for taxes and insurance $ 1,146,596 $ 100,392
Net increase in certificates of deposit 4,695,479 2,629,435
Increase in checks outstanding in excess of
bank balances 185,348 -
Stock repurchase (113,654) (53,754)
Dividends on stock (114,061) (102,563)
----------- -----------
Net cash provided by financing activities 5,799,708 2,573,510
----------- -----------
Decrease in cash and cash equivalents (6,930,698) (49,150)
Cash and cash equivalents at beginning of period 14,422,780 7,946,628
----------- -----------
Cash and cash equivalents at end of period $ 7,492,082 $ 7,897,478
========== ==========
The following is a Summary of Cash and Cash Equivalents:
Cash $ 11,085 $ 1,057,768
Interest bearing deposits in other banks 2,653,997 4,144,648
Federal funds sold 4,922,000 3,135,013
----------- -----------
Balance of cash items reflected on
Statement of Financial condition 7,587,082 8,337,429
Less - certificates of deposit with
original maturities of more than
three months that are included in
interest bearing deposits in other banks 95,000 439,951
----------- -----------
Cash and cash equivalents reflected on the
Statement of Cash Flows $ 7,492,082 $ 7,897,478
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,452,933 $ 929,262
========== ==========
Taxes $ 181,800 $ 117,500
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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Note 1 - 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 three months ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the
fiscal year September 30, 1999 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, 1998.
Note 2 - 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 3 - Earnings Per Share
------------------
Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding for the appropriate period.
Unearned ESOP shares are not included in outstanding shares. Diluted
EPS is computed by dividing net income by the weighted average shares
outstanding as adjusted for the dilutive effect of stock options and
unvested stock awards based on the "treasury stock" method. Information
relating to the calculations of net income per share of common stock is
summarized for the quarters ended December 31, as follows:
1998 1997
---- ----
Net income before other comprehensive income $ 161,134 $ 153,469
========= =========
Weighted Average Shares
Outstanding basic EPS 1,246,050 1,229,543
Dilutive Items
Stock options - 28,719
Unvested stock awards 42,658 6,984
--------- ---------
Adjusted weighted average shares
used for dilutive EPS 1,288,708 1,265,246
========= =========
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
Note 4 - Reclassification and Correction of Press Release
------------------------------------------------
Certain prior years' amounts have been reclassified to conform
to the current year's method of presentation.
On February 5, 1999, the Company issued a Press Release to
announce its quarterly earnings. Subsequent to the issuance of the
press release, due to a mathematical error, earnings, basic and diluted
earnings per share decreased $16,000, $.01, and $.01, respectively.
Additionally, total assets and stockholders' equity decreased $16,000,
and $16,000, respectively. Such amounts were corrected as set forth in
this quarterly report.
Note 5 - Adoption of New Accounting Pronouncements
-----------------------------------------
During the three-month period ended December 31, 1998, the
Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." The Statement requires that comprehensive
income, made up of all revenues, expenses, gains and losses, be
displayed in the Company's financial statements with the same
prominence as its other financial statements. The Company reported as a
loss of $155,453 of other comprehensive income for the three months
ended December 31, 1998. The Company did not have any other
comprehensive income for the three months ended December 31, 1997. The
Company has reported comprehensive income on the consolidated
statements of operations.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION ANDF RESULTS OF OPERATIONS
Financial Condition
Total assets of the Company were $138,691,000 as of December 31, 1998,
compared to $132,876,000 at September 30, 1998, an increase of $5,815,000. This
increase was primarily attributable to an increase in mortgage backed securities
of $8,035,000, an increase in loans receivable of $2,485,000, an increase in
investments available for sale of $2,011,000, and an increase in federal funds
sold of $1,528,000. This was partially off-set by a decrease in interest-bearing
deposits in other banks of $7,195,000 and a decrease in cash of $1,168,000. The
net increase in the Company's assets was primarily the result of management's
continued strategy to maximize the high level of equity, diversify the Company's
balance sheet and increase profitability.
Total liabilities of the Company were $122,582,000 as of December 31,
1998, compared to $116,634,000 as of September 30, 1998, an increase of
$5,948,000. The increase was due to an increase in deposits, primarily
certificates of deposit, of $5,404,000, and an increase of advance payments by
borrowers for taxes and insurance of $438,000. The Company's successful
advertising campaign in 1998 of certificate of deposit products contributed to
the continued growth in certificates of deposit.
Stockholders' equity decreased $133,000 to $16,110,000 as of December
31, 1998 from $16,243,000 as of September 30, 1998. The decrease was due to an
increase of $155,000 in unrealized losses of investment securities, a dividend
of $114,000 and the repurchase of $114,000 of the Company's own stock. The
decrease was primarily off-set by the period's net income of $161,000 and shares
earned under stock-based benefit and bonus plans totaling $89,000.
Results of Operations
General
Net income for the three months ended December 31, 1998 was $161,000,
as compared to $153,000 for the same period in 1997. The increase in net income
was primarily the result of an increase in net interest income of $26,000, and
an increase in non-interest income of $45,000, partially off-set by an increase
in non-interest expenses of $61,000 and provision for income taxes of $3,000.
Interest Income
Total interest income for the three months ended December 31, 1998 was
$2,356,000 compared to $1,804,000 for the same period in 1997, an increase of
$552,000. Interest on loans decreased by $39,000. This decrease was attributable
to a $3,435,000 decrease in the average balance of loans outstanding, which was
partially off-set by an increase in the average yield on the loan portfolio to
7.71% for the three months ended December 31, 1998, compared to 7.57% for the
same period in 1997.
Results of Operations - Continued
Interest Income - Continued
Interest and dividend income on investment securities increased by
$437,000 to $529,000 for the three months ended December 31, 1998 from $92,000
for December 31, 1997. The increase was a result of an increase in the average
dollar amount of investments outstanding of $26,773,000, off-set slightly by the
decline in the average rate to 6.58% for December 31, 1998, compared to 6.79%
for December 31, 1997.
Interest income on mortgage backed securities increased by $126,000 to
$173,000 for the three months ended December 31, 1998 from $47,000 for December
31, 1997. The increase was primarily due to an increase in the average dollar
amount of mortgage backed securities outstanding of $9,547,000, which was
partially off-set by a decline in the weighted average rate to 5.60% from 6.77%
at December 31, 1998 and 1997, respectively.
Other interest income increased by $28,000 to $178,000 for the three
months ended December 31, 1998 from $150,000 for December 31, 1997. The increase
was primarily due to the increase in the average dollar amount of
interest-earning assets outstanding of $1,032,000 and an increase in the
weighted average rate of 6.73% for December 31, 1998, compared to 6.29% for
December 31, 1997.
Interest Expense
Total interest expense increased $526,000 to $1,456,000 for the three
months ended December 31, 1998, compared to $930,000 for December 31, 1997.
Interest on deposits increased by $295,000 for the three months ended December
31, 1998, compared to December 31, 1997. The increase resulted from an increase
in the average dollar amount of time deposits of $21,430,000 following the
Bank's aggressive advertising campaign for certificates of deposit conducted
throughout fiscal 1998 and a $16,198,000 increase in the average dollar amount
of borrowings, principally FHLB advances, coupled with an increase in the
weighted average rate to 5.60% for December 31, 1998 from 5.26% for the same
period in 1997.
Provision for Loan Losses
The provision for loan losses was $15,000 for December 31, 1998 and for
December 31, 1997. 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 December
31, 1998, management believes the allowance for loan losses is sufficient since
the loans are adequately secured. The assessment of the adequacy of the
allowance for loan losses involves subjective judgment regarding future events
and there can be no assurance that additional provisions for loan losses will
not be required in future periods.
Results of Operations - Continued
Other Non-Interest Income
Other income for the three months ended December 31, 1998 increased
$45,000 to $98,000 from $53,000 for the same period 1997. The increase was the
result of the Bank's subsidiary Mapleleaf Mortgage Corporation ("MMC")
increasing its mortgage brokerage operation activities with third parties.
Non-Interest Expenses
Total non-interest expense increased $61,000 to $721,000 for the three
months ended December 31, 1998 from $660,000 for December 31, 1997. The increase
was primarily the result of increases in salaries and related expenses,
depreciation, professional services, and other expenses. Those increases were
partially off-set by a decrease in advertising expenses. Salaries and related
expenses increased as a result of increased revenue-based compensation to MMC
employees. Depreciation of equipment increased $11,000 to $21,000, as the result
of the purchase of additional equipment during the latter part of fiscal 1998.
Professional services increased $12,000 as the result of an increase in these
services in part related to the 1998 special cash distribution to shareholders
and an increase in OTS assessments. The decrease in advertising of $13,000 was
due to an aggressive advertising campaign for certificates of deposit sponsored
in fiscal 1998.
Year 2000
During fiscal 1998, the Company adopted a Year 2000 Compliance Plan
(the "Plan") and established a Year 2000 Compliance Committee (the "Committee").
The objectives of the Plan and the Committee are to prepare the Company for the
new millennium. As recommended by the Federal Financial Institutions Examination
Council, the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation and Implementation. These phases will enable the Company
to identify risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 ready. Execution of
the Plan is currently on target. The Company is currently in Phase 4,
Validation, which includes testing and verifications of corrective actions.
Concurrently, the Company is also addressing some issues related to subsequent
phases. Prioritization of the most critical applications has been addressed,
along with contract and service agreements. The primary operating software for
the Company is obtained and maintained by an external provider of software (the
"External Provider"). The Company has maintained ongoing contact with this
vendor so that modification of the software for Year 2000 readiness is a top
priority and the testing Phase was completed in August of 1998. The Company has
contacted all other material vendors and suppliers regarding their Year 2000
state of readiness. Each of these third parties has delivered written assurance
to the Company that they expect to be Year 2000 compliant prior to the Year
2000. The Company is in the process of contacting all material customers and
non-information technology suppliers (i.e. utility systems, telephone systems
and security systems) readiness. The next Phase, the Implementation Phase, is to
certify that systems are Year 2000 ready, along with assurances that any new
systems are compliant on a going-forward basis. The Implementation Phase is
targeted for completion by September 30, 1999.
Results of Operations - Continued
Year 2000 - Continued
Costs will be incurred due to the replacement of non-compliant teller
hardware and software. The Company does not anticipate that the related overall
costs will be material in any single year. In total, the Company estimates this
its cost for compliance will amount to approximately $186,000, employee time not
included. No assurance can be given that the Year 2000 Compliance Plan will be
completed successfully by the Year 2000, in which event the Company could incur
significant costs. If the External Provider is unable to resolve the potential
problem in time, the Company would likely experience significant data processing
delays, mistakes or failures. These delays, mistakes or failures could have a
significant adverse impact on the financial statements of the Company.
Contingency Plan
The Bank is currently developing a contingency plan (the "Plan")
specific to the Year 2000. The Plan will address the actions that would be
undertaken if critical business functions cannot be carried out in the normal
manner upon entering the next century due to computer system or supplier
failure. If such events occur, the Bank will input a manual posting plan that
will entail manual postings of transactions to the general ledger and hand
calculations of interest for both savings accounts and mortgages as well as the
calculations of dividends. The Bank has a number of employees who have been
employed by the Bank for at least 25 years who have experience in the manual
postings to the general ledger as well as the hand calculations of interest and
dividends. The Bank is currently devising a training program for all essential
personnel. Additionally, the Bank will have management personnel on site at each
office on the first business day of the Year 2000 to answer any concerns the
customer may have and offer any assistance to the Bank's employees.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the
Company's External Provider, testing plans, and all vendors, suppliers and
customer readiness.
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
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (electronic filing
only)
(b) None.
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: February 16, 1999 By: /s/Peggy J. Stewart
-----------------------------------------
Peggy J. Stewart
President and Chief Executive Officer
(duly authorized officer)
Date: February 16, 1999 By: /s/Robin L. Taylor
-----------------------------------------
Robin L. Taylor
Controller (chief accounting officer)