UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
HOMESTEAD BANCORP, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
(504) 386-3379
Louisiana 72-1416514
- ---------------------------------------- --------------------------------
(State of incorporation or organization) (IRS Employer Identification No.)
195 North Sixth Street
Ponchatoula, Louisiana 70454
- --------------------------------------- -------------------
(Address of principal executive office) (including zip code)
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
---------------------------------------
(Title of Class)
INDEX
PART I - FINANCIAL INFORMATION
Consolidated Financial Statements:
Page
Consolidated Statements of Financial Condition -
September 30, 1998 and December 31, 1997 1 - 2
Consolidated Statements of Income -
for the three and nine months ended
September 30, 1998 and 1997 3
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1998
and 1997 4
Consolidated Statements of Cash Flows -
for the nine months ended September 30, 1998
and 1997 5 - 6
Notes to Consolidated Financial Statements 7 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 16
Part II - OTHER INFORMATION
Legal Proceedings 17
Changes in Securities 17
Defaults Upon Senior Securities 17
Submission of Matters to a Vote of Security
Holders 17
Other Information 17
Exhibits and Reports on Form 8-K 17
Signatures 18
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of September 30, 1998 and December 31, 1997
ASSETS
(UNAUDITED) (AUDITED)
September 30, December 31,
1998 1997
-------------- ---------------
(In Thousands)
Cash and Cash Equivalents $ 4,946 $ 609
Interest-bearing Deposits in Other Institutions 10,176 645
Securities:
Investment Securities Available
for Sale (Amortized Cost of
$2.6 million and $2.6 million) 2,622 2,605
Mortgage-Backed Securities
Available for Sale (Amortized
Cost of $12.6 million and $14.3 million) 12,632 14,261
Mortgage-Backed Securities
Held to Maturity (Fair Value of
$9.5 million and $10.4 million) 9,584 10,301
Federal Home Loan Bank Stock, at Cost 1,397 584
----------- ----------
Total Securities 26,235 27,751
Loans Held for Sale 580 1,414
Loans Receivable 44,504 28,033
Leases Receivable 279 301
----------- ----------
Total Loans and Leases Receivable 44,783 28,334
Less: Allowance for Loan and Lease Losses (278) (265)
----------- ----------
Net Loans and Leases Receivable 44,505 28,069
Premises and Equipment, Net 562 545
Accrued Interest Receivable 481 420
Other Assets 64 127
----------- ----------
Total Assets $ 87,549 $ 59,580
=========== ==========
1
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED) (AUDITED)
September 30, December 31,
1998 1997
-------------- -------------
(In Thousands)
Deposits $ 44,024 $ 42,111
Advances from Borrowers for Taxes and
Insurance 51 32
Advances from Federal Home Loan Bank 27,233 11,500
Income Taxes Payable 109 162
Other Liabilities 186 40
----------- ----------
Total Liabilities 71,603 53,845
Stockholders' Equity as Restated:
Common Stock - $.01 Par Value;
10,000,000 Shares Authorized, 1,477,891
Shares Issued and Outstanding in 1998
1,423,758 in 1997 15 14
Paid-in Capital in Excess of Par 12,942 2,064
Retained Earnings - Substantially Restricted 3,846 3,734
Unrealized Gain (Loss) on Securities
Available for Sale, Net 49 (35)
----------- ----------
16,852 5,777
Unearned ESOP Shares (873)
Common Stock Acquired by Recognition Plans (33) (42)
----------- ----------
Total Stockholders' Equity 15,946 5,735
----------- ----------
Total Liabilities and Stockholders' Equity $ 87,549 $ 59,580
=========== ==========
2
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three and nine months ended September 30, 1998 and 1997
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
1998 1997 1998 1997
------------------- ---------------------
(In Thousands) (In Thousands)
Interest Income:
Loans and Leases $ 884 $ 617 2,274 $ 1,806
Mortgage-Backed Securities 336 392 1,074 1,185
Investment Securities 33 44 103 134
Other 185 12 249 54
------- ------- ------- --------
Total Interest Income 1,438 1,065 3,700 3,179
Interest Expense:
Deposits 466 487 1,396 1,488
Borrowings 372 140 786 405
------- ------- ------- --------
Total Interest Expense 838 627 2,182 1,893
------- ------- ------- --------
Net Interest Income 600 438 1,518 1,286
Provision for (Recovery of) Loan
and Lease Losses 9 1 25 (15)
------- ------- ------- ---------
Net Interest Income After Provision for
(Recovery of) Loan and Lease Losses 591 437 1,493 1,301
------- ------- ------- --------
Noninterest Income:
Gain on Sale of Loans 22 48 104 128
Loan Fees and Service Charges 77 52 235 146
Other Income 4 1 30 13
------- ------- ------- --------
Total Noninterest Income 103 101 369 287
Noninterest Expense:
Compensation and Benefits 256 211 709 655
Occupancy and Equipment Expense 41 34 118 105
Federal Insurance Premium 8 7 19 8
Net Real Estate Owned Expense 0 13 0 14
Other 217 145 529 385
------- ------- ------- --------
Total Noninterest Expense 522 410 1,375 1,167
------- ------- ------- --------
Income Before Provision for Income
Taxes 172 128 487 421
Income Taxes 59 44 166 143
------- ------- ------- --------
Net Income $ 113 $ 84 321 $ 278
======= ======= ======= ========
Per Share:
Earnings Per Common Share 0.08 0.06 0.22 0.20
======= ======= ======= ========
Earnings Per Common Share -
Assuming Dilution 0.08 0.06 0.21 0.19
======= ======= ======= ========
Cash Dividends Declared 0.05 0.08 0.21 0.22
======= ======= ======= ========
3
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the nine months ended September 30, 1998 and 1997
(UNAUDITED) (UNAUDITED)
September 30, September 30,
1998 1997
-------------- --------------
(In Thousands)
Common Stock:
Balance - Beginning of Period $ 14 $ 61
Restatement due to Conversion -- (47)
---------- ----------
Balance - Beginning of Period as Restated 14 14
Cancellation of Mutual Stock (10) --
Issuance of Stock 11 --
---------- ----------
Balance - End of Period $ 15 $ 14
========== ==========
Paid-in Capital in Excess of Par:
Balance - Beginning of Period $ 2,064 $ 1,698
Restatement due to Conversion -- 47
---------- ----------
Balance - Beginning of Period as Restated 2,064 1,745
Exercise of Stock Options 26 --
Dividends Declared and Waived
by Holding Company 182 233
Management Recognition Plans
Distribution 12 --
Cancellation of Mutual Stock 10 --
Issuance of Stock (Net of Conversion
Costs) 10,652 --
Allocation of ESOP Shares (4) --
---------- ----------
Balance - End of Period $ 12,942 $ 1,978
========== ==========
Retained Earnings:
Balance - Beginning of Period $ 3,734 $ 3,844
Net Income 321 278
Cash Dividends Declared and Paid (135) (77)
Dividends Declared and Waived
by Holding Company (182) (233)
Transfer Retained Earnings of
Mutual Holding Company 100 --
ESOP Shares Released for Allocation 4 --
Dividends on ESOP Shares 4
---------- ----------
Balance - End of Period $ 3,846 $ 3,812
========== ==========
Unrealized Gain (Loss) on Securities
Available for Sale, Net:
Balance - Beginning of Period $ (35) $ (101)
Net Change in Unrealized Gain (Loss) 84 42
---------- ----------
Balance - End of Period $ 49 $ (59)
========== ==========
Director & Management Recognition Plans:
Balance - Beginning of Period $ (42) (57)
Shares of Common Stock Earned 9 15
---------- ----------
Balance - End of Period $ (33) $ (42)
========== ==========
Unearned Employee Stock Ownership
Plan Shares:
Balance - Beginning of Period $ -- $ --
Establishment of ESOP (895) --
Shares Released for Allocation 22 --
---------- ----------
Balance - End of Period $ (873) $ --
========== ==========
4
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1998 and 1997
(UNAUDITED)
September 30
---------------------------------
1998 1997
---------------------------------
Cash Flows From Operating Activities:
Net Income $ 321 $ 278
Adjustments to Reconcile Net Income
to Net Cash Provided by (Used in) Operating
Activities:
Depreciation 26 20
Provision for (Recovery of)
for Loan and Lease Losses 25 (15)
Loss on Sale of Real Estate Owned -- 12
Net Amortization of Premiums on Securities 72 49
Stock Dividends on Federal Home
Loan Bank Stock (41) (24)
Net (Increase) Decrease in Loans
Held for Sale 834 1,114
Change in Assets and Liabilities
(Increase) Decrease in Accrued
Interest Receivable (61) 46
(Increase) Decrease in Other
Assets 62 (10)
Increase (Decrease) in Income
Taxes Payable (53) 0
Increase (Decrease) in Other
Liabilities 117 145
------------- -------------
Net Cash Provided by (Used in) Operating Activities 1,302 1,615
Cash Flows From Investing Activities:
Purchases of Property and Equipment (43) (31)
Maturities of Investment Securities 900 900
Purchases of Investment Securities (900) (1,000)
Maturities of Mortgage-Backed Securities 4,172 3,121
Proceeds from Call of Maturites of
Mortgage-Backed Securities -- 349
Purchases of Mortgage-Backed
Securities (1,831) (1,199)
Proceeds from Sale of Real Estate Owned -- 22
Purchase of Real Estate Owned -- (1)
Net (Increase) Decrease in Loans and Leases
Receivable (16,411) (1,491)
------------- -------------
Net Cash Provided by (Used in) Investing Activities (14,113) 670
5
(UNAUDITED)
September 30,
----------------------------------
1998 1997
----------------------------------
Cash Flows From Financing Activities:
Net Proceeds from Issuance of Common Stock 9,912 --
Net Increase (Decrease) in Money Market Accounts,
NOW Accounts and Savings Accounts 3,390 (855)
Net Increase (Decrease) in Certificates
of Deposit (1,477) (462)
Proceeds from (Repayment of) Federal Home
Loan Bank Advances 15,733 (1,200)
Increase (Decrease) in Advances from
Borrowers for Taxes and Insurance 19 (12)
Dividends Paid on Common Stock (135) (76)
Purchase of Federal Home Loan Bank Stock (772) --
MRP Shares Issued 9 15
------------- -------------
Net Cash Provided by (Used In)
Financing Activities 26,679 (2,590)
------------- -------------
Net Increase (Decrease) in Cash and
Cash Equivalents 13,868 (305)
Cash and Cash Equivalents -
Beginning of Period 1,254 1,298
------------- -------------
Cash and Cash Equivalents -
End of Period $ 15,122 $ 993
============= =============
Supplemental Disclosures of Cash flow
Information:
Cash Payments for:
Interest Paid to Depositors $ 1,396 $ 1,489
============= =============
Interest Paid on Borrowings $ 786 $ 405
============= =============
Income Taxes $ 166 $ 143
============= =============
Supplemental Schedules of Noncash
Investing and Financing Activities:
Real Estate Acquired in Settlement
of Loans and Leases $ -- $ 88
============= =============
Increase (Decrease) in Unrealized Gain (Loss)
on Securities Available for Sale $ 84 $ 64
============= =============
(Increase) Decrease in Deferred Tax
Effect on Unrealized Gain (Loss) on Securities
Available for Sale $ (29) $ 22
============= =============
6
Homestead Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
Note 1 - Basis of Presentation -
The accompanying consolidated financial statements for the period
ended September 30, 1998 include the accounts of Homestead Bancorp,
Inc. (the "Company") and its wholly owned subsidiary, Ponchatoula
Homestead Savings, F.A. (the "Association"). Currently, the business
and management of Homestead Bancorp, Inc. is primarily the business
and management of the Association. All significant intercompany
transactions and balances have been eliminated in the consolidation.
On February 5, 1998, Ponchatoula Homestead Savings, F. A. (The
Association) incorporated Homestead Bancorp, Inc. (The "Company") to
facilitate the conversion of Homestead Mutual Holding Company (the
"MHC") from mutual to stock form (the Conversion). In connection with
the Conversion, the Company offered its common stock to the depositors
and borrowers of the Association as of specified dates, to an employee
stock ownership plan and to members of the general public. Upon
consummation of the Conversion on July 17, 1998, the MHC merged into
the Association, the Association then merged with an interim
subsidiary of the Company (with the Association as the surviving
entity), all of the Association's outstanding common stock (other than
shares held by the MHC, which were cancelled) was exchanged for common
stock of the Company, and the Company became the holding company for
the Association and issued shares of common stock to the general
public.
The Company filed a Form SB-2 with the Securities and Exchange
Commission ("SEC") on April 2, 1998, which as amended was declared
effective by the SEC on May 14, 1998. The Association filed a Form AC
with the Office of Thrift Supervision ("OTS") on April 2, 1998. The
Form AC and related offering and proxy materials, as amended, were
conditionally approved by the OTS by letters dated May 14, 1998. The
Company also filed an Application H-(e) 1-S with the OTS on April 17,
1998, which was conditionally approved by the OTS letter dated May 26,
1998. The members of the MHC and the stockholders of the Association
approved the Plan at special meetings held on July 1, 1998, and the
subscription and community offerings closed on June 23, 1998.
In connection with the incorporation of the Company, the Company
issued 100 shares of common stock to the Association. The shares were
cancelled upon consummation of the Conversion, and the Conversion was
accounted for under the pooling of interests method of accounting.
7
The Company sold 1,119,543 shares of common stock in the
subscription offering at a price of $10.00 per share, for aggregate
gross proceeds of $11,195,430. In addition, a total of 358,402 shares
of common stock were issued by the Company in exchange for all of the
152,635 shares of common stock of the Association outstanding prior to
consummation of the Conversion (excluding the 453,710 shares held by
the MHC, which were cancelled), based upon an exchange ratio of
2.34810 shares of Company common stock for each share of Association
common stock.
The accompanying unaudited financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not
include information or footnotes necessary for complete presentation
of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. However,
all adjustments (consisting only of normal recurring accruals) which,
in the opinion of management, are necessary for a fair presentation of
the financial statements have been included.
Comprehensive Income
The Financial Accounting Standards Board issued Statement No. 130
"Reporting Comprehensive Income", which becomes effective for fiscal
years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its
components which are revenues, expenses, gains, and losses that under
GAAP are included in comprehensive income but excluded from net
income. The Company adopted this statement in 1998. The only
component of comprehensive income included in the financial statements
was an unrealized gain (loss) on securities available for sale, which
was immaterial for all periods presented.
Note 2 - Employee Stock Ownership Plan -
The Company sponsors a leveraged employee stock ownership plan
(ESOP) that covers all employees who have at least six months of
service with the Company, and obtained age 20. The ESOP shares
initially were pledged as collateral for its debt. The debt is being
repaid based on a ten-year amortization and the shares are being
released for allocation to active employees annually over the ten-year
period. The shares pledged as collateral are deducted from
stockholder's equity as unearned ESOP shares in the accompanying
balance sheets. ESOP compensation expense was $18,000 for the three
months ended September 30, 1998 based on the annual release of shares.
Note 3 - Dividends and Earnings Per Share -
Ponchatoula declared quarterly dividends of $.20 for the first
and second quarters of 1998, prior to conversion. The Mutual Holding
Company ( prior to conversion) waived receipt of dividends declared on
all shares owned; the amounts waived were recorded by Ponchatoula as
additional paid-in capital. The Company declared a quarterly dividend
of $.05 for the third quarter of 1998 (post conversion).Total
dividends paid to stockholders in the first nine months of 1998 was
$135,000 or $.22 per share after restatement of shares outstanding due
to conversion.
8
Earnings per common share are computed by dividing net income by
the number of shares of common stock outstanding, which is 1,477,945
for the nine month period ended September 30, 1998. Earnings per
common share - assuming dilution, are computed by dividing net income
by the number of shares of common stock outstanding plus the effect of
diluted securities, which was 1,499,022 for the nine month period
ended September 30, 1998.
Note 4 - Stock Option and Management Recognition Plans -
1996 Stock Incentive Plan
This program was designed to attract and retain qualified
personnel in key positions, provide key employees with a proprietary
interest in the Company as an incentive to contribute to the success
of the Company and reward key employees for outstanding performance.
An aggregate of 10,782 shares of authorized but unissued Common Stock
of the Company was reserved for issuance under the Plan, which is
equal to 7.5% of Common Stock issued to the public in connection with
the formation of the mutual holding company ("the offering"). The
exercise price of each option equals the market price of the Company's
stock on the date of grant and an option's maximum term is 10 years.
Options are granted and vested at the discretion of the Compensation
Committee. Ninety percent of the options were granted on July 10,
1996. At December 31, 1997, shares available for grant under this
plan amounted to 1,449 shares. There were 134 options exercised
during the first nine months of 1998. Granted but unexercised shares,
which amounted to 8,976 shares were increased by the exchange ratio of
2.3481 applicable to the second step conversion which closed on July
19, 1998. These shares now total 21,077 of which 8,209 are vested and
12,868 are unvested. After applying the exchange ratio, the exercise
price is $4.26 per share.
1996 Directors' Stock Option Plan
In order to attract and retain qualified directors for the
Company, the Board of Directors and stockholders of the Company have
adopted the 1996 Directors' Stock Option Plan. An aggregate of 3,594
shares of authorized but unissued Common Stock of the Company was
reserved for issuance under the Directors' Stock Option Plan, which is
equal to 2.5% of the Common Stock of the Company issued in the
offering. The exercise price of each option equals the market price
of the Company's stock on the date of grant and an option's maximum
term is 10 years. Ninety percent of the options were granted on the
date the Plan was approved by the stockholders of the Company, which
was April 10, 1996. The remaining 10% were granted one year after
approval by stockholders, which was April 10, 1997. The options
become exercisable after six months from the grant date. All options
were exercised prior to June 30, 1998.
1996 Management Recognition Plan for Officers
The objective of this plan is to enable the Company to provide
officers and key employees with a proprietary interest in the Company
as compensation for their contributions to the Association and as an
incentive to contribute to the Company's future success. An aggregate
9
of 4,312 shares of authorized Common Stock of the Company was issued
to the Management Recognition Plan for Officers, which is equal to
3.0% of the Common Stock of the Company issued in the offering. The
awards are allocated at the discretion of the Committee. Shares vest
at the rate of 20% on each annual anniversary date. Granted but
unvested shares, which amounted to 2,393 shares, were increased by the
exchange ratio of 2.3481 applicable to the second step conversion
which closed on July 19, 1998. These shares now total 5,619 shares.
1996 Management Recognition Plan for Directors
The objective of this plan is to enable the Company to provide
non-employee directors with a proprietary interest in the Company as
compensation for their contributions to the Company and as an
incentive to contribute to the Company's future success. An aggregate
of 1,434 shares of authorized Common Stock of the Company was issued
to the Management Recognition Plan for Directors, which is equal to
1.0% of the Common Stock of the Company issued in the offering.
Ninety percent of the awards were granted on the date the Plan was
approved by the stockholders of the Company, which was April 10, 1996.
The remaining 144 shares were granted April 10, 1997. Shares vest at
the rate of 20% on each annual anniversary date. Granted but unvested
shares, which amounted to 635 shares, were increased by the exchange
ratio or 2.3481 applicable to the second step conversion which closed
on July 19, 1998. These shares now total 1,491.
Note 5 - The Conversion -
Homestead Bancorp, Inc. is a Louisiana corporation organized in February
1998 by the Association for the purpose of becoming a unitary holding
company of the Association. The Company acquired all of the capital
stock of the Association in exchange for common stock of the Company and
issued additional shares to persons with subscription rights.
Immediately following the Conversion, the only significant assets of the
Company are the capital stock of the Association, the Company's loan to
the ESOP, and the remainder of the net Conversion proceeds retained by
the Company. Initially, the business and management of the Company will
primarily consist of the business and management of the Association.
Initially, the Company will neither own nor lease any property, but will
instead use the premises, equipment and furniture of the Association.
At the present time, the Company does not intend to employ any persons
other than officers of the Association, and the Company will utilize the
support staff of the Association from time to time. Additional employees
will be hired as appropriate to the extent the Company expands or
changes its business future.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify, should it decide to do
so, its business activities through existing or newly formed
subsidiaries, or through acquisitions of or mergers with other financial
institutions and financial services related companies. Although there
are no current arrangements, understandings or agreements, written or
oral, regarding any such opportunities or transactions, the Company is
now in a position, subject to regulatory limitations and the Company's
financial position, to take advantage of any such acquisition and
expansion opportunities that may arise. The initial activities of the
Company are anticipated to be funded by proceeds retained by the Company
and earnings thereon or, alternatively, through dividends from the
Association.
10
Homestead Bancorp, Inc. and Subsidiary
Managements Discussion and Analysis
Of Financial Condition and Results of Operations
September 30, 1998
General
The following discussion compares the consolidated financial
condition of Homestead Bancorp, Inc. (the "Company") and Subsidiary,
Ponchatoula Homestead Savings, F.A. (the "Association") at September
30, 1998 to December 31, 1997 and the results of operations for the
three and nine months ended September 30, 1998 with the same periods
in 1997. Currently, the business and management of Homestead Bancorp,
Inc. is primarily the business and management of the Association.
This discussion should be read in conjunction with the interim
consolidated financial statements and footnotes included herein.
The Company's results of operations depends primarily on its net
interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest bearing
liabilities. The Company's principle interest-earning assets are
loans and leases, mortgage-backed securities and investment
securities. The Company's results of operations also are affected by
the provision for losses on loans and leases; the level of its other
income, including loan fees and service charges, federal insurance
premiums, net real estate owned expense and miscellaneous other
expenses; as well as its income tax expense.
Changes in Financial Condition
At September 30, 1998, the Company's total assets, deposits and
equity amounted to $87.5 million, $44 million, and $15.9 million
respectively compared to $59.6 million, $42.1 million, and $5.7
million respectively at December 31, 1997. The increase in total
assets of $27.9 million or 46.9% was due primarily to an increase of
$16.4 million in the net loan and lease portfolio. The increase of
58.4% in net loan and lease portfolio was due to new loan originations
exceeding new loan sales and repayment, combined with the Company
retaining a greater number of fixed rate loans in its loan portfolio.
Interest-bearing deposits in other institutions increased $9.5 million
during the first nine months to $10.2 million. The increase in
interest-bearing deposits in other institutions, was due primarily to
the issuance of common stock in the Company. Investments in Mortgage-
Backed securities decreased in the first nine months of 1998 by $2.3
million or 9.5%, due to repayment of Mortgage-Backed securities
exceeding new purchases. Investment in Federal Home Loan Bank stock
increased in the first nine months of 1998 by $813,000 or 139%, due to
the purchase of additional Federal Home Loan Bank stock to facilitate
the long term borrowing from Federal Home Loan Bank.
The Company's short term borrowing from the Federal Home Loan
Bank decreased during the first nine months of 1998 by $2 million or
17.3%. Homestead uses the proceeds from short term borrowing to
finance the purchase of mortgage-backed securities. The Company's
11
long term borrowing from the Federal Home Loan Bank increased during
the first nine months of 1998 by $17.7 million. Homestead uses the
proceeds from long term borrowing to fund long term fixed rate
mortgages. Deposits with the Company have increased $1.9 million or
4.5% in the first nine months of 1998, due to the stability and
securities of the deposit as an investment, compared to other
investment opportunities. The equity of the Company increased $10.2
million or 178.9% in the first nine months of 1998, due to the sale of
new shares of common stock in the conversion. Other factors which
contributed to the increase in equity were net income of $321,000
combined with a increase in unrealized gain on available for sale
securities of $84,000 offset by dividends paid out of $135,000.
Capital
As of September 30, 1998, the Association's unaudited regulatory
capital exceeded all minimum capital requirements as indicated in the
following table:
Unaudited Regulatory Capital
---------------------------------------
Tier 1
Core Risk-Based
Capital % Capital %
-------- ----- ---------- -----
GAAP Capital $10,676 $10,676
Adjustments:
Unrealized Gain on
Securities Available
for Sale (49) (49)
General Valuation
Reserves - 250
-------- --------
Regulatory Capital 10,627 12.78% 10,877 32.85%
Minimum Capital Requirements 3,323 4.0 2,649 8.0
-------- ------ -------- ------
Excess Regulatory Capital $ 7,304 8.78% $ 8,228 24.85%
Liquidity
The Association is required under applicable federal regulations
to maintain specific levels of "liquid" investments in qualifying
types of United States Government, federal agency and other
investments having maturities of five years or less. Current
regulations require that a Savings institution maintain liquid assets
of not less than 5% of its average daily balance of net withdrawable
shares.
12
Results of Operations
Net income for the first nine months of 1998 was $321,000
compared to $278,000 for the same period of 1997. The increase in net
income of $43,000 or 15.4%, was primarily due to an increase in net
interest income after provision for recovery of loan and lease losses
of $192,000 or 14.7%, combined with an increase in non-interest
income of $82,000 or 28.5%, offset by an increase in non-interest
expense of $208,000 or 17.8%, and an increase of $23,000 or 16.1% in
income tax expense. The increase in non-interest income is due to an
increase in loan fees of $89,000 or 60.9%, due to an increase in the
volume of loans closed. The increase in total non-interest expense
was attributable to an increase of $54,000 in compensation expense
combined with an increase of $144,000 in other non-interest expense.
The increase in other non-interest expense is attributable to the
increase of professional fees and services, in connection with the
increased loan volume. Net income for the three months ended
September 30, 1998 was $113,000 compared to $84,000 for the same
period of 1997. The increase in net income of $29,000 or 34.5%, was
primarily due to an increase in net interest income after provision
for recovery of loan and lease losses of $154,000 or 35.2%, offset by
an increase in non-interest expense of $112,000 or 27.3%. The
increase in total non-interest expense was attributable to an increase
of $72,000 in other non-interest expense, combined with an increase of
$45,000 in compensation expense. The increase in other non-interest
expense is attributable to the increased loan volume. The increase in
compensation expense of $45,000 is due to an increase of $18,000 in
ESOP compensation expense combined with an increase in employee
compensation cause by bonuses paid in the third quarter of 1998.
Net Interest Income
The primary source of earnings for the Company is net interest
income; the difference between income generated from interest-earning
assets less interest expense on interest-bearing liabilities. The
primary factors that affect interest income are changes in the volume
and type of interest-earning assets and interest-bearing liabilities,
along with changes in market rates. Net interest income for the first
nine months of 1998 was $1.5 million, an increase of $232,000 or 18%
over the same period of 1997. This increase in net interest income
was primarily attributable to an increase in interest income of
$521,000 or 16.3%, offset by an increase in interest expense of
$289,000 or 15.3% over the same period of 1997. The increase in
interest income was due to an increase in interest received from the
Company's loan and lease portfolio, offset by a decrease in interest
earned on mortgage-backed securities. The increase in interest
expense was due to an increase in interest paid on Federal Home Loan
Bank Advances, offset by an decrease in interest paid on deposit
accounts, due to a reduction in market rates paid on deposits. Net
interest income for the three months ended September 30, 1998 was
$600,000, an increase of $162,000 or 36.9% over the same period of
1997. This increase in net interest income was primarily attributable
to an increase in interest income of $373,000 or 35%, offset by an
increase in interest expense of $211,000 or 33.6% over the same period
of 1997. The increase in interest income was due to an increase in
interest received from the Company's loan and lease portfolio, offset
by a decrease in interest earned on mortgage-backed securities. The
increase in interest expense was due to an increase in interest paid
on Federal Home Loan Bank Advances, offset by an decrease in interest
paid on deposit accounts, due to a reduction in market rates paid
13
on deposits. Interest rate spread is the yield of interest-earning
assets minus the costs of interest-bearing liabilities. The interest
rate spread for the nine months ended September 30. 1998 was 2.65% as
compared to 2.61% for the same period in 1997.
The table of Consolidated Average Balance Sheets and Interest
Rate Analysis for the nine months ended September 30, 1998 and 1997 on
page 15, and the corresponding table of Interest Differentials on page
16, detail the effect of a change in average balances and the change
in interest yield and interest cost have on net interest income for
the respective periods.
Nonperforming Assets
Nonperforming assets include non-accrual loans and leases and
real estate owned. Loans are considered non-accrual when the
principal or interest becomes 90 days past due or when there is
uncertainty about the repayment of the principal and interest in
accordance with the terms of the loans. Non-accrual loans at
September 30, 1998 were $226,000 compared to $222,000 at September 30,
1997. The percentage of non-accrual loans and leases to total loan
and leases at September 30, 1998 is .51% down from .79% at September
30, 1997.
Real estate owned is properties held for sale acquired through
foreclosure or negotiated settlements of debt. At September 30, 1998
the Association had no real estate owned, compared to $45,000 at
September 30, 1997. Nonperforming assets at September 30, 1998 were
.26% of total assets compared to .46% at September 30, 1997.
Year 2000
The Company began the process of preparing its
computer systems and applications for the Year 2000 in 1997.
The process involves identifying and resolving date recognition
problems in computer systems and software, and to a lesser extent,
other operating equipment, that could be caused by the date change
from December 31, 1999 to January 1, 2000.
The Company has completed its review of all business
processes that could be affected by the Year 2000 issue. The
review revealed that substantially all vendors which service the
Company have provided regular updates as to their progress in becoming
year 2000 compliant. The Company keeps track of the vendors'
compliance efforts. It is expected that management will approve a
$5,000 to $10,000 budget for future Year 2000 compliance. This amount
is in addition to the $12,000 of past expenditures regarding the
Company's Year 2000 compliance. Management feels that Year 2000 and
related expenditures will not have a material impact on the financial
well-being of the Company. The Company believes it is taking the
appropriate steps to address all Year 2000 issues.
14
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST RATE ANALYSIS
for the nine months ended September 30, 1998 and 1997
nine months Ended nine months Ended
September 30, 1998 September 30, 1997
--------------------------------------- ---------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------------------------------- ---------------------------------------
(In Thousands) (In Thousands) (In Thousands) (In Thousands)
Interest - Earning Assets:
Loans and Leases Receivable $ 34,800 2,274 8.71% $ 28,189 1,806 8.54%
Mortgage - Backed Securities 23,531 1,074 6.09% 25,574 1,185 6.18%
Investment Securities 2,561 103 5.36% 3,000 134 5.95%
Other Interest - Earning Assets 5,429 249 6.12% 1,201 54 5.99%
------------------------------------- ------------------------------------
Total Interest - Earning Assets $ 66,321 3,700 7.44% $ 57,964 3,179 7.31%
Noninterest - Earning Assets 5,403 1,620
---------- ----------
Total Assets $ 71,724 $ 59,584
========== ==========
Interest - Bearing Liabilities:
Deposits $ 42,502 1,396 4.38% $ 43,910 1,488 4.52%
Federal Home Loan Bank Advances 18,243 786 5.74% 9,782 405 5.52%
------------------------------------- ------------------------------------
Total Interest-bearing Liabilities $ 60,745 2,182 4.79% $ 53,692 1,893 4.70%
Noninterest - Bearing Liabilities 456 386
--------- ---------
Total Liabilities $ 61,201 $ 54,078
========= =========
Stockholders' Equity $ 10,523 $ 5,506
--------- ---------
Total Liabilities and Stockholders' Equity $ 71,724 $ 59,584
========= =========
Net Interest Income; Interest Rate Spread $ 1,518 2.65% $ 1,286 2.61%
=================== =====================
Net Interest Margin as a % of Total Earning Assets 3.05% 2.96%
===== ======
15
Homestead Bancorp, Inc. and Subsidiary
INTEREST DIFFERENTIALS
for the nine months ended September 30, 1998 and 1997
September 30, 1998 VS September 30, 1997
CHANGE DUE TO
---------------------- TOTAL
VOLUME RATE CHANGE
------------------------------------------
(In Thousands)
Interest - Earning Assets:
Loans and Lease Receivable $ 433 $ 35 $ 468
Mortgage-Backed Securities (93) (18) (111)
Investment Securities (18) (13) (31)
Other Interest-Earning assets 194 1 195
Total Interest Income $ 516 $ 5 $ 521
Interest - Bearing Liabilities:
Deposits $ (55) $ (37) $ (92)
Federal Home Loan Bank Advances 363 18 381
--------- --------- ---------
Total Interest Expense $ 308 $ (19) $ 289
Increase (Decrease) in Interest Differential $ 208 $ 24 $ 232
=========
16
Homestead Bancorp, Inc. and Subsidiary
FORM 10-QSB
Nine Months Ended September 30, 1998
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 - Changes in Securities:
There are no matters required to be reported under this item.
Item 3 - Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security Holders.
There are no matters required to be reported under this item.
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
a.)Exhibits:
No exhibits were filed on Form 8-K by the Registrant
during the quarter ended September 30, 1998.
Exhibit 27 - Financial Data Schedule
b.)Reports:
No reports on Form 8-K were filed by the Registrant
during the quarter ended September 30, 1998.
17
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.
Homestead Bancorp, Inc
Date: November 12, 1998 BY /s/Lawrence C. Caldwell, Jr.
-------------------------------------
Lawrence C. Caldwell, Jr.
President and Chief Executive Officer
Date: November 12, 1998 BY /s/Kelly Morse
-------------------------------------
Kelly Morse
Comptroller
18