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 -
June 30, 1999 and December 31, 1998 1 - 2
Consolidated Statements of Income -
for the three and six month periods ended
June 30, 1999 and 1998 3
Consolidated Statements of Stockholders' Equity
for the six months ended June 30, 1999
and 1998 4 - 5
Consolidated Statements of Cash Flows -
for the six months ended June 30, 1999
and 1998 6 - 7
Notes to Consolidated Financial Statements 8 - 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 18
Part II - OTHER INFORMATION
Legal Proceedings 19
Changes in Securities 19
Defaults Upon Senior Securities 19
Submission of Matters to a Vote of Security
Holders 19
Other Information 19
Exhibits and Reports on Form 8-K 19
Signatures 20
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of June 30, 1999 and December 31, 1998
ASSETS
(UNAUDITED) (AUDITED)
June 30, December 31,
1999 1998
(In Thousands)
Cash and Cash Equivalents $ 376 $ 609
Interest-bearing Deposits in Other Institutions 3,938 3,094
Securities:
Investment Securities Available
for Sale (Amortized Cost of
$2.6 million and $2.3 million) 2,592 2,315
Mortgage-Backed Securities
Available for Sale (Amortized
Cost of $25.2 million and $17.2 million) 24,888 17,210
Mortgage-Backed Securities
Held to Maturity (Fair Value of
$-0- and $10.1 million) -- 10,203
Federal Home Loan Bank Stock, at Cost 2,344 1,665
Total Securities 29,824 31,393
Loans Held for Sale 413 267
Loans Receivable 63,150 52,401
Leases Receivable 238 274
Total Loans and Leases Receivable 63,388 52,675
Less: Allowance for Loan and Lease Losses (292) (302)
Net Loans and Leases Receivable 63,096 52,373
Real Estate Owned 97 --
Premises and Equipment, Net 550 547
Accrued Interest Receivable 498 483
Other Assets 92 53
Total Assets $ 98,884 $ 88,819
1
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED) (AUDITED)
June 30, December 31,
1999 1998
(In Thousands)
Deposits $ 40,031 $ 39,829
Advances from Borrowers for Taxes and
Insurance 59 51
Advances from Federal Home
Loan Bank 44,865 32,765
Income Taxes Payable 115 141
Other Liabilities 110 91
Total Liabilities 85,180 72,877
Stockholders' Equity as Restated:
Common Stock - $.01 Par Value;
10,000,000 Shares Authorized, 1,213,829
Shares Issued and Outstanding in 1999
1,477,870 in 1998 15 15
Paid-in Capital in Excess of Par 12,931 12,942
Retained Earnings - Substantially Restricted 3,991 3,875
Accumulated Other Comprehensive Income (183) (6)
16,754 16,826
Treasury Stock - 219,183 shares at cost (1,861) 0
Unearned ESOP Shares (806) (851)
Common Stock Acquired by Recognition Plans (383) (33)
Total Stockholders' Equity 13,704 15,942
Total Liabilities and Stockholders'
Equity $ 98,884 $ 88,819
2
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three and six months ended June 30, 1999 and 1998
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1999 1998 1999 1998
(In Thousands) (In Thousands)
Interest Income:
Loans and Leases $ 1,165 $ 727 $ 2,240 $ 1,390
Mortgage-Backed Securities 350 365 728 738
Investment Securities 68 44 139 88
Other 32 34 90 46
Total Interest Income 1,615 1,170 3,197 2,262
Interest Expense:
Deposits 418 467 845 930
Borrowings 560 253 1,067 414
Total Interest Expense 978 720 1,912 1,344
Net Interest Income 637 450 1,285 918
Provision for (Recovery of) Loan and
Lease Losses (6) 15 (6) 16
Net Interest Income After Provision
for (Recovery of) Loan and
Lease Losses 643 435 1,291 902
Noninterest Income:
Gain on Sale of Loans 13 20 19 82
Loan Fees and Service Charges 73 97 153 158
Other Income 2 19 5 26
Total Noninterest Income 88 136 177 266
Noninterest Expense:
Compensation and Benefits 277 243 527 453
Occupancy and Equipment Expense 39 37 84 77
Federal Insurance Premium 6 4 12 11
Net Real Estate Owned Expense 1 0 1 0
Loss on Sale of Securities 0 0 8 0
Other 225 166 450 312
Total Noninterest Expense 548 450 1,082 853
Income Before Provision for Income
Taxes 183 121 386 315
Income Taxes 65 41 135 107
Net Income $ 118 $ 80 $ 251 $ 208
Per Share:
Earnings Per Common Share 0.10 0.06 0.19 0.15
Earnings Per Common Share -
Assuming Dilution 0.08 0.05 0.17 0.14
Cash Dividends Declared 0.05 0.08 0.10 0.16
3
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the six months ended June 30, 1999 and 1998
(UNAUDITED) (AUDITED)
June, 30 June, 30
1999 1998
(In Thousands)
Common Stock:
Balance - Beginning of Per $ 15 $ 61
Restatement due to Conversion -- (47)
Balance - Beginning of Period as Restated 15 14
Balance - End of Period $ 15 $ 14
Paid-in Capital in Excess of Par:
Balance - Beginning of Per $ 12,942 $ 2,017
Restatement due to Conversion -- 47
Balance - Beginning of Period as Restated 12,942 2,064
Exercise of Stock Options 2 1
Quarterly Release of Shares (13) ---
Dividends Declared and Waived
by Holding Company -- 182
Balance - End of Period $ 12,931 $ 2,247
Retained Earnings:
Balance - Beginning of Per $ 3,875 $ 3,734
Net Income 251 208
Cash Dividends Declared and Paid (145) (60)
Dividends on ESOP Shares 10 ---
Dividends Declared and Waived
by Holding Company -- (182)
Balance - End of Period $ 3,991 $ 3,700
Treasury Stock
Balance - Beginning of Per $ -- $ --
Repurchase of Stock (1,861) --
Balance - End of Period $ (1,861) $ --
Accumulated Other Comprehensive Income:
Balance - Beginning of Per $ (6) $ (35)
Transfer of securities from
Held-to-Maturity
to Available-for-Sale (4) --
Net Change in Unrealized Gain (Loss) (173) 39
Balance - End of Period $ (183) $ 4
4
(UNAUDITED) (AUDITED)
June, 30 June, 30
1999 1998
(In Thousands)
Unearned Employee Stock Ownership
Plan Shares:
Balance - Beginning of Per $ (851) $ --
Shares Released for Allocation 45 --
Balance - End of Period $ (806) $ --
Director & Management Recognition Plans:
Balance - Beginning of Per $ (33) (42)
Exercise of Stock Options 2 2
Fund 1999 Recognition Plan (352) --
Balance - End of Period $ (383) $ (40)
Comprehensive Income:
Net Income $ 251 $ 208
Other Comprehensive Income, Net of Tax:
Unrealizied Gains (Losses) on Securities
Available for Sale (183) 39
Reclassification Adjustments 8 --
Total Comprehensive Income $ 76 $ 247
5
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1999 and 1998
(UNAUDITED)
June 30
1999 1998
Cash Flows From Operating Activities:
Net Income $ 251 $ 208
Adjustments to Reconcile Net Income
to Net Cash Provided by (Used in) Operating
Activities:
Depreciation 20 16
Provision for (Recovery of)
for Loan and Lease Losses (6) 16
Loss on Sale of Real Estate Owned -- --
Net Amortization of Premiums on Securities 68 41
Realizied Loss on Sale of Securities 8 --
Stock Dividends on Federal Home
Loan Bank Stock (54) (22)
Net (Increase) Decrease in Loans
Held for Sale (146) 780
Change in Assets and Liabilities
(Increase) Decrease in Accrued
Interest Receivable (15) (37)
(Increase) Decrease in Other
Assets (39) (145)
Increase (Decrease) in Income
Taxes Payable (26) (73)
Increase (Decrease) in Other
Liabilities 113 17
Net Cash Provided by (Used in) Operating Activ 174 801
Cash Flows From Investing Activities:
Purchases of Property and Equipment (23) (29)
Maturities of Investment Securities 700 600
Purchases of Investment Securities (998) (300)
Maturities of Mortgage-Backed Securities 4,754 2,557
Purchases of Mortgage-Backed
Securities (3,499) (1,786)
Proceeds from Sale of securities available for sale 955 --
Net (Increase) Decrease in Loans and Leases
Receivable (10,814) (10,011)
Net Cash Provided by (Used in) Investing Activ (8,925) (8,969)
6
(UNAUDITED)
June 30,
1999 1998
Cash Flows From Financing Activities:
Acquisition of Treasury Stock (1,861) --
Acquistion of shares for Recognition Plan (319) --
MRP Shares Earned 2 2
Net Increase (Decrease) in Money Market Accounts,
NOW Accounts and Savings Accounts 30 11,363
Net Increase (Decrease) in Certificates
of Deposit 172 (812)
Proceeds from (Repayment of) Federal Home
Loan Bank Advances 12,100 11,928
Increase (Decrease) in Advances from
Borrowers for Taxes and Insurance 8 5
Dividends Paid on Common Stock (145) (60)
Purchase of Federal Home Loan Bank Stock (625) (581)
Net Cash Provided by (Used In)
Financing Activities 9,362 21,845
Net Increase (Decrease) in Cash and
Cash Equivalents 611 13,677
Cash and Cash Equivalents -
Beginning of Period 3,703 1,254
Cash and Cash Equivalents -
End of Period $ 4,314 $14,931
Supplemental Disclosures of Cash flow
Information:
Cash Payments for:
Interest Paid to Depositors $ 845 $ 930
Interest Paid on Borrowings $ 1,067 $ 414
Income Taxes $ 167 $ 78
Supplemental Schedules of Noncash
Investing and Financing Activities:
Real Estate Acquired in Settle-
ment of Loans and Leases $ 97 $ --
Increase (Decrease) in Unrealized Gain (Loss)
on Securities Available for Sale $ (268) $ 39
(Increase) Decrease in Deferred Tax
Effect on Unrealized Gain (Loss) on Securities
Available for Sale $ (91) $ (13)
7
Homestead Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1999
Note 1 - Basis of Presentation -
The accompanying consolidated financial statements for the period
ended June 30, 1999 include the accounts of Homestead Bancorp, Inc.
(the "Company") and its wholly owned subsidiary, Homestead Bank (the
"Association"), Ponchatoula Homestead Savings, F.A. changed it's name
to Homestead Bank on July 1, 1999. 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, Homestead Bank (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.
8
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 became 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 components
of comprehensive income are disclosed in the Statement of Changes in
Stockholders' Equity 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 $32,000 for the six
months ended June 30, 1999 based on the annual release of shares.
Note 3 - Dividends and Earnings Per Share -
The Company declared a quarterly dividend of $.05 for the first
and second quarters of 1999. Total dividends paid to stockholders in
the first six months of 1999 was $145,000.
Basic earnings per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding,
which is 1,329,445 for the six month period ended June 30, 1999.
Earnings per common share - assuming dilution, are computed by
dividing net income by the weighted average number of shares of common
stock outstanding plus the effect of diluted securities, which was
1,462,399 for the six month period ended June 30, 1999. Earnings per
share for the prior periods have been restated to reflect the
transactions of the conversion.
9
Note 4 - Stock Option and Management Recognition Plans -
1999 Stock Option Plan
In order to attract and retain qualified personnel in key
positions, provide directors, officers and key employees with a
proprietary interest in the Company, the Board of Directors and
stockholders of the Company have adopted the 1999 Stock Option Plan.
A total of 111,954 shares of Common Stock, which is equal to 10% of
the Common Stock sold in the subscription offering in the Conversion,
has been reserved for future issuance pursuant to the Option Plan.
The Option Plan provides that grants to each employee and non-employee
director shall not exceed 25% and 5% of the shares of Common Stock
available under the Option Plan, respectively. Awards made to
non-employee directors in the aggregate may not exceed 30% of the number
of shares available under the plan.
1999 Recognition Plan
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 Company and as an
incentive to contribute to the Company's future success. An aggregate
of 44,781 shares of authorized Common Stock of the Company was issued
to the Recognition Plan, which is equal to 4.0% of the Common Stock
of the Company issued in the offering. Shares vest at the rate of 20%
per year, beginning one year from the anniversary date of the grant.
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.
10
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.
Note 6 - FASB 133 -
Homestead Bank, in the second quarter of 1999 implemented FASB 133
"Accounting forDerivative Instruments and Hedging Activities." With the
implementation of FASB 133, Homestead Bank reclassified all of it's
Held-to-Maturity securities to Available-for-Sale Securities.
11
Homestead Bancorp, Inc. and Subsidiary
Managements Discussion and Analysis
Of Financial Condition and Results of Operations
June 30, 1999
General
The following discussion compares the consolidated financial
condition of Homestead Bancorp, Inc. (the "Company") and Subsidiary,
Homestead Bank (the "Association")(formly Ponchatoula Homestead
Savings, F.A.), at June 30, 1999 to December 31, 1998 and the results
of operations for the three and six month periods ended June 30, 1999
with the same period in 1998. 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 June 30, 1999, the Company's total assets, deposits and equity
amounted to $98.9 million, $40 million, and $13.7 million respectively
compared to $88.8 million, $39.8 million, and $15.9 million
respectively at December 31, 1998. The increase in total assets of
$10.1 million or 11.4% was due primarily to an increase of $10.7
million in the net loan and lease portfolio. The increase of 20.5% 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 $844,000
during the first six months to $3.9 million. Investments in
Mortgage-Backed securities decreased in the first six months of 1999
by $2.5 million or 9.2%, due to repayment of Mortgage-Backed securities
exceeding new purchases. Investment in Federal Home Loan Bank stock
increased in the first six months of 1999 by $679,000 or 40.7%, 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 increased during the first six months of 1999 by $5.9 million or
63.4%. The Association uses the proceeds from short term borrowing to
finance the purchase of mortgage-backed securities and fund long term
12
fixed rate mortgages. The Company's long term borrowing from the
Federal Home Loan Bank increased during the first six months of 1999
by $6.1 million. Homestead uses the proceeds from long term borrowing
to fund long term fixed rate mortgages. Deposits with the Association
have increased by $202,000 or .5% in the first six months of 1999, due
to the stability and securities of the deposit as an investment,
compared to other investment opportunities. The equity of the Company
decreased $2.2 million or 14% in the first six months of 1999, due
primarily to the repurchase of the Company's common stock in the stock
repurchase plan. At June 30, 1999 the Company had repurchased $1.9
million of it's common stock. This amount appears in the equity
section of the Statement of Financial Condition as Treasury Stock.
Other factors which contributed to the decrease in equity were an
increase in unrealized loss on available for sale securities of
$177,000 combined with dividends paid out of $145,000 offset by net
income of $251,000.
Capital
The Association is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory---and
possible additional discretionary---actions by regulators that, if
undertaken, could have a direct material effect on the Association's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association
must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
practices. The Association's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weighing, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined), and
of Tier 1 capital (as defined) to average assets (as defined).
Management believes, as of June 30, 1999, that the Association meets
all capital adequacy requirements to which it is subject.
As of June 30, 1999, the most recent notification categorized the
Association as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the
Association must maintain minimum total risk-based, Tier I risk based,
and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes
have changed the institution's category.
13
The Association's actual capital amounts and ratios are also presented
in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
-------------------- ------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- -------- ------ -------- -------
(Dollars in Thousands)
As of June 30, 1999:
Total Capital (to Risk
Weighted Assets) $ 10,976 25.73% $ 3,413 >/= 8.0% $ 4,266 >/= 10.0%
Tier I Capital (to Risk
Weighted Assets) $ 10,699 25.08% $ 1,707 >/= 4.0% $ 2,560 >/= 6.0%
Tier I Capital (to Average
Assets) $ 10,699 11.01% $ 3,888 >/= 4.0% $ 4,860 >/= 5.0%
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.
Results of Operations
Net income for the first six months of 1999 was $251,000 compared
to $208,000 for the same period of 1998. The increase in net income
of $43,000 or 20.7%, was primarily due to an increase in net interest
income after provision for recovery of loan and lease losses of
$389,000 or 43.1%, offset by a decrease in non-interest income of
$89,000 or 33.5%, with an increase in non-interest expense of $229,000
or 26.8%, and an increase of $28,000 or 26.2% in income tax expense.
The decrease in non-interest income is due to a decrease in gain on
sale of loans of $63,000 or 76.8%, due to a decrease in the volume of
loans sold, combined with a decrease in loan fees and service charges
of $5,000 or 3.2%, and a decrease in other-non-interest income of
$22,000. The increase in total non-interest expense was attributable
to an increase of $74,000 in compensation expense combined with an
increase of $138,000 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. The increase in compensation expense of $74,000 is due to an
increase of $32,000 in ESOP compensation expense combined with an
increase in employee compensation.
14
Net income for the three month period ended June 30, 1999 was
$118,000 compared to $80,000 for the same period of 1998. The
increase in net income of $38,000 or 47.5%, was primarily due to an
increase in net interest income after provision for recovery of loan
and lease losses of $208,000 or 47.8%, offset by a decrease in
non-interest income of $48,000 or 35.3%, with an increase in non-interest
expense of $98,000 or 21.8%, and an increase of $24,000 or 58.5% in
income tax expense. The decrease in non-interest income is due to a
decrease in gain on sale of loans of $7,000 or 35.4%, due to a
decrease in the volume of loans sold , combined with a decrease in
loan fees and service charges of $24,000 or 24.7%. The increase in
total non-interest expense was attributable to an increase of $34,000
in compensation expense combined with an increase of $59,000 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. The increase in
compensation expense of $34,000 is due to an increase of $18,000 in
ESOP compensation expense combined with an increase in employee
compensation.
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 six months of 1999 was $1.3 million an increase of $367,000 or
40.0% over the same period of 1998. This increase in net interest
income was primarily attributable to an increase in interest income of
$935,000 or 41.3%, offset by an increase in interest expense of $568,000
or 42.3% over the same period of 1998. The increase in interest income
was primarily due to an increase in the volume of the Company's loan
and lease portfolio, combined with an increase in interest earned on
investment securities, offset by a decrease in interest earned on
mortgage-backed securities. Interest rate spread is the yield of
interest-earning assets minus the costs of interest-bearing liabilities.
The interest rate spread for the six months ended June 30, 1999 was
2.10% as compared to 2.65% for the same period in 1998.
Net interest income after the provision for (recovery of ) loan
and lease losses, for the three month period ended June 30, 1999 was
$643,000 an increase of $208,000 or 47.8% over the same period of
1998. This increase in net interest income was primarily attributable
to an increase in interest income of $445,000 or 38%, offset by an
increase in interest expense of $258,000 or 35.8% over the same period
of 1998. The increase in interest income was due to an increase in
the volume of Company's loan and lease portfolio, combined with an
increase in the volume of investment securities, offset by a decrease
in the volume of mortgage-backed securities.
The table of Consolidated Average Balance Sheets and Interest
Rate Analysis for the six months ended June 30, 1999 and 1998 on page
17, and the corresponding table of Interest Differentials on page 18,
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.
15
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 June 30,
1999 were $274,000 compared to $226,000 at June 30, 1998. The
percentage of non-accrual loans and leases to total loan and leases at
June 30, 1999 is .43% and .43% at June 30, 1998.
Real estate owned is properties held for sale acquired through
foreclosure or negotiated settlements of debt. At June 30, 1999 the
Association had real estate owned of $97,000 compared to $0 for the
same period 1998. Nonperforming assets at June 30, 1999 were .37% of
total assets compared to .26% at June 30, 1998.
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.
Management approved a $10,000 budget for future Year 2000 compliance
issues that may surface. This amount is in addition to the $12,000
of past expenditures regarding the Company's Year 2000 compliance.
Management does not believe that issues related to the Year 2000 are
reasonably likely to have or will have a material effect on the
Company's liquidity, capital resources, or results of operation.
However, management's ability to predict the results or the effects of
Year 2000 issues is inherently uncertain and subject to factors that
may cause actual results to materially differ from those anticipated.
Factors that could affect actual results include the possibility that
contingency plans and remediation efforts will not operate as
intended, the Company's failure to timely or completely identify all
software and hardware applications that require remediation,
unexpected costs, and the general uncertainty associated with the
impact of Year 2000 issues on the banking industry, the Company's
customers, vendors, and others with whom it conducts business.
Readers are cautioned not to place undue reliance on these forward
looking statements.
16
HOMESTEAD BANCORP, INC. & SUBSIDIARY
CONSOLIDATED AVERAGE BALANCE SHEETS & INTEREST RATE ANALYSIS
for the six months ended June 30, 1999 and 1998
Six months Ended Six months Ended
June 30, 1999 June 30, 1998
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
(In Thousands) (In Thousands)
Interest - Earning Assets:
Loans and Leases Receivable $ 58,878 2,240 7.61% $32,200 1,390 8.63%
Mortgage - Backed Securities 25,530 728 5.70% 23,786 738 6.21%
Investment Securities 4,721 139 5.89% 3,306 88 5.32%
Other Interest - Earning Assets 4,339 90 4.18% 1,433 46 6.42%
Total Interest - Earning Assets $ 93,468 3,197 6.84% $60,725 2,262 7.45%
Noninterest - Earning Assets 1,410 1,519
TOTAL ASSETS $ 94,878 $62,244
Interest - Bearing Liabilities:
Deposits $ 40,102 845 4.21% $42,085 930 4.42%
Federal Home Loan Bank Advances 40,583 1,067 5.26% 13,921 414 5.94%
Total Interest-Bearing Liabilities $ 80,684 1,912 4.74% $56,006 1,344 4.80%
Noninterest-Bearing Liabilities 468 373
TOTAL LIABILITIES $ 81,151 $56,379
Stockholders' Equity $ 13,727 $ 5,865
Total Liabilities and Stockholders' Equity $ 94,878 $62,244
Net Interest Income; Interest Rate Spread $ 1,285 2.10% $ 918 2.65%
Net Interest Margin as a % of Total Earning Assets 2.75% 3.02%
17
Homestead Bancorp, Inc. and Subsidiary
INTEREST DIFFERENTIALS
for the three months ended June 30, 1999 and 1998
June 30, 1999 VS June 30, 1998
CHANGE DUE TO TOTAL
VOLUME RATE CHANGE
(In Thousands)
Interest - Earning Assets:
Loans and Lease Receivable $ 1,032 $ (182) $ 850
Mortgage-Backed Securities 52 (62) (10)
Investment Securities 41 10 51
Other Interest-Earning assets 65 (21) 44
Total Interest Income $ 1,190 $ (255) $ 935
Interest - Bearing Liabilities:
Deposits $ (42) $ (43) $ (85)
Federal Home Loan Bank Advances 705 (52) 653
Total Interest Expense $ 663 $ (95) $ 568
Increase (Decrease) in Interest Differential $ 527 $ (160) $ 367
18
Homestead Bancorp, Inc. and Subsidiary
FORM 10-QSB
Three Months Ended June 30, 1999
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.
The following items were approved at the Annual Meeting
of Stockholders, held on April 21, 1999
a.) Election of Directors Robert H. Gabriel and Barbara
B. Theriot for a three year term.
b.) 1999 Stock Option Plan
c.) 1999 Recognition and Retention Plan and Trust
Agreement.
d.) Appointment of Hannis T. Bourgeois, L.L.P. as the
Company's independent auditors for year ending
December 31, 1999.
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 June 30, 1999.
b.)Reports:
No reports on Form 8-K were filed by the Registrant
during the quarter ended June 30, 1999.
19
Homestead Bancorp, Inc. and Subsidiary
FORM 10-QSB
Three Months Ended June 30, 1999
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.
The following items were approved at the Annual Meeting
of Stockholders, held on April 21, 1999
a.) Election of Directors Robert H. Gabriel and Barbara
B. Theriot for a three year term.
b.) 1999 Stock Option Plan
c.) 1999 Recognition and Retention Plan and Trust
Agreement.
d.) Appointment of Hannis T. Bourgeois, L.L.P. as the
Company's independent auditors for year ending
December 31, 1999.
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 June 30, 1999.
b.)Reports:
No reports on Form 8-K were filed by the Registrant
during the quarter ended June 30, 1999.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Homestead Bancorp, Inc
Date: August 13, 1999 BY /s/Lawrence C. Caldwell, Jr.
Lawrence C. Caldwell, Jr.
President and Chief Executive Officer
Date: August 13, 1999 BY /s/Kelly Morse
Kelly Morse
Comptroller