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
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PART I - FINANCIAL INFORMATION
Consolidated Financial Statements:
Page
Consolidated Statements of Financial Condition -
September 30, 1999 and December 31, 1998 1 - 2
Consolidated Statements of Income -
for the three and nine month periods ended
September 30, 1999 and 1998 3
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1999
and 1998 4 - 5
Consolidated Statements of Cash Flows -
for the nine months ended September 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 September 30, 1999 and December 31, 1998
ASSETS
(UNAUDITED) (AUDITED)
September 30, December 31,
1999 1998
(In Thousands)
Cash and Cash Equivalents $ 318 $ 609
Interest-bearing Deposits in Other Institutions 1,253 3,094
Securities:
Investment Securities Available
for Sale (Amortized Cost of
$2.6 million and $2.3 million) 2,588 2,315
Mortgage-Backed Securities
Available for Sale (Amortized
Cost of $25.2 million and $17.2 million) 24,896 17,210
Mortgage-Backed Securities
Held to Maturity (Fair Value of
$-0- and $10.1 million) -- 10,203
FPB FInancial Corp. Stock 118 --
Federal Home Loan Bank Stock, at Cost 2,502 1,665
---------- ----------
Total Securities 30,104 31,393
Loans Held for Sale 513 267
Loans Receivable 68,213 52,401
Leases Receivable 215 274
---------- ----------
Total Loans and Leases Receivable 68,428 52,675
Less: Allowance for Loan and Lease Losses (297) (302)
---------- ----------
Net Loans and Leases Receivable 68,131 52,373
Real Estate Owned 23 --
Premises and Equipment, Net 545 547
Accrued Interest Receivable 564 483
Other Assets 70 53
---------- ----------
Total Assets $ 101,521 $ 88,819
========== ==========
1
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED) (AUDITED)
September 30, December 31,
1999 1998
(In Thousands)
Deposits $ 39,575 $ 39,829
Advances from Borrowers for Taxes and
Insurance 63 51
Advances from Federal Home
Loan Bank 48,234 32,765
Income Taxes Payable 146 141
Other Liabilities 185 91
---------- ----------
Total Liabilities 88,203 72,877
Stockholders' Equity as Restated:
Common Stock - $.01 Par Value;
10,000,000 Shares Authorized, 1,146,329
Shares Issued and Outstanding in 1999
1,477,870 in 1998 15 15
Paid-in Capital in Excess of Par 12,932 12,942
Retained Earnings - Substantially Restricted 4,087 3,875
Accumulated Other Comprehensive Income (172) (6)
---------- ----------
16,862 16,826
Treasury Stock - 286,683 shares at cost (2,383) 0
Unearned ESOP Shares (784) (851)
Common Stock Acquired by Recognition Plans (377) (33)
---------- ----------
Total Stockholders' Equity 13,318 15,942
---------- ----------
Total Liabilities and Stockholders'
Equity $ 101,521 $ 88,819
========== ===========
2
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
----------------------------------
for the three and nine months ended September 30, 1999 and 1998
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(In Thousands) (In Thousands)
Interest Income:
Loans and Leases $ 1,283 $ 884 $ 3,523 $ 2,274
Mortgage-Backed Securities 374 336 1,102 1,074
Investment Securities 67 33 206 103
Other 49 185 139 249
--------- --------- --------- ---------
Total Interest Income 1,773 1,438 4,970 3,700
Interest Expense:
Deposits 416 466 1,261 1,396
Borrowings 643 372 1,710 786
--------- --------- --------- ---------
Total Interest Expense 1,059 838 2,971 2,182
--------- --------- --------- ---------
Net Interest Income 714 600 1,999 1,518
Provision for (Recovery of) Loan and Lease
Losses 15 9 9 25
--------- --------- --------- ---------
Net Interest Income After Provision for
(Recovery of) Loan and Lease Losses 699 591 1,990 1,493
--------- --------- --------- ---------
Noninterest Income:
Gain on Sale of Loans 11 22 30 104
Loan Fees and Service Charges 91 77 244 235
Other Income 8 4 13 30
--------- --------- --------- ---------
Total Noninterest Income 110 103 287 369
Noninterest Expense:
Compensation and Benefits 270 256 797 709
Occupancy and Equipment Expense 47 41 131 118
Federal Insurance Premium 6 8 18 19
Net Real Estate Owned Expense 7 0 8 0
Loss on Sale of Securities 12 0 20 0
Other 224 217 674 529
--------- --------- --------- ---------
Total Noninterest Expense 566 522 1,648 1,375
--------- --------- --------- ---------
Income Before Provision for Income
Taxes 243 172 629 487
Income Taxes 83 59 218 166
--------- --------- --------- ---------
Net Income $ 160 $ 113 $ 411 $ 321
========= ========= ========= =========
Per Share:
Earnings Per Common Share 0.13 0.08 0.32 0.22
========= ========= ========= =========
Earnings Per Common Share - Assuming Dilution 0.12 0.08 0.29 0.21
========= ========= ========= =========
Cash Dividends Declared 0.05 0.05 0.15 0.21
========= ========= ========= =========
3
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the nine months ended September 30, 1999 and 1998
(UNAUDITED) (UNAUDITED)
September 30, September 30,
1999 1998
(In Thousands)
Common Stock:
Balance - Beginning of Period $ 15 $ 61
Restatement due to Conversion -- (47)
-------------- --------------
Balance - Beginning of Period as Restated 15 14
Cancellation of Mutual Stock -- (10)
Issuance of Stock -- 11
-------------- --------------
Balance - End of Period $ 15 $ 15
============== ==============
Paid-in Capital in Excess of Par:
Balance - Beginning of Period $ 12,942 $ 2,017
Restatement due to Conversion -- 47
-------------- --------------
Balance - Beginning of Period as Restated 12,942 2,064
Exercise of Stock Options 8 26
Quarterly Release of Shares (18) (4)
Dividends Declared and Waived
by Holding Company -- 182
Management Recognition Plans
Distribution -- 12
Cancellation of Mutual Stock -- 10
Issuance of Stock (Net of Conversion
Costs) -- 10,652
-------------- --------------
Balance - End of Period $ 12,932 $ 12,942
============== ==============
Retained Earnings:
Balance - Beginning of Period $ 3,875 $ 3,734
Net Income 411 321
Cash Dividends Declared and Paid (214) (135)
Dividends on ESOP Shares 15 4
Dividends Declared and Waived
by Holding Company -- (182)
Transfer Retained Earnings of
Mutual Holding Company -- 100
Quarterly Release of Shares -- 4
-------------- --------------
Balance - End of Period $ 4,087 $ 3,846
============== ==============
Treasury Stock
Balance - Beginning of Period $ -- $ --
Repurchase of Stock (2,383) --
-------------- --------------
Balance - End of Period $ (2,383) $ --
============== ==============
Accumulated Other Comprehensive Income:
Balance - Beginning of Period $ (6) $ (35)
Transfer of securities from Held-to-Maturity
to Available-for-Sale (4) --
Net Change in Unrealized Gain (Loss) (162) 84
-------------- --------------
Balance - End of Period $ (172) $ 49
============== ==============
4
(UNAUDITED) (UNAUDITED)
September 30, September 30,
1999 1998
(In Thousands)
Unearned Employee Stock Ownership
Plan Shares:
Balance - Beginning of Period $ (851) $ --
Establishment of ESOP -- (895)
Shares Released for Allocation 67 22
-------------- --------------
Balance - End of Period $ (784) $ (873)
============== ==============
Director & Management Recognition Plans:
Balance - Beginning of Period $ (33) (42)
Exercise of Stock Options 8 --
Fund 1999 Recognition Plan (352) --
Shares of Common Stock Earned -- 9
-------------- --------------
Balance - End of Period $ (377) $ (33)
============== ==============
Comprehensive Income:
Net Income $ 411 $ 321
Other Comprehensive Income, Net of Tax:
Unrealizied Gains (Losses) on Securities
Available for Sale (172) 49
Reclassification Adjustments 8 --
-------------- --------------
Total Comprehensive Income $ 247 $ 370
============== ==============
5
Homestead Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
for the nine months ended September 30, 1999 and 1998
(UNAUDITED)
September 30,
1999 1998
Cash Flows From Operating Activities:
Net Income $ 411 $ 321
Adjustments to Reconcile Net Income
to Net Cash Provided by (Used in) Operating
Activities:
Depreciation 30 26
Provision for (Recovery of)
for Loan and Lease Losses 9 25
Gain on Sale of Real Estate Owned 5 --
Net Amortization of Premiums on Securities 100 72
Realized Loss on Sale of Securities 20 --
Stock Dividends on Federal Home
Loan Bank Stock (87) (41)
Net (Increase) Decrease in Loans
Held for Sale (246) 834
Change in Assets and Liabilities
(Increase) Decrease in Accrued
Interest Receivable (81) (61)
(Increase) Decrease in Other
Assets (17) 62
Increase (Decrease) in Income
Taxes Payable 5 (53)
Increase (Decrease) in Other
Liabilities 187 117
----------- ------------
Net Cash Provided by (Used in) Operating Activities 336 1,302
Cash Flows From Investing Activities:
Purchases of Property and Equipment (28) (43)
Maturities of Investment Securities 1,000 900
Purchases of Investment Securities (1,399) (900)
Maturities of Mortgage-Backed Securities 5,440 4,172
Purchases of Mortgage-Backed
Securities (5,329) (1,831)
Proceeds from Sale of securities available for sale 2,243 --
Net (Increase) Decrease in Loans and Leases
Receivable (15,864) (16,411)
----------- ------------
Net Cash Provided by (Used in) Investing Activities (13,937) (14,113)
6
(UNAUDITED)
September 30,
1999 1998
Cash Flows From Financing Activities:
Net Proceeds from Issuance of Common Stock -- 9,912
Acquisition of Treasury Stock (2,383) --
Acquistion of shares for Recognition Plan (319) --
MRP Shares Earned 8 9
Net Increase (Decrease) in Money Market Accounts,
NOW Accounts and Savings Accounts 542 3,390
Net Increase (Decrease) in Certificates
of Deposit (796) (1,477)
Proceeds from (Repayment of) Federal Home
Loan Bank Advances 15,469 15,733
Increase (Decrease) in Advances from
Borrowers for Taxes and Insurance 12 19
Dividends Paid on Common Stock (214) (135)
Purchase of FPB Financial Corp. Stock (100)
Purchase of Federal Home Loan Bank Stock (750) (772)
-------------- ------------
Net Cash Provided by (Used In)
Financing Activities 11,469 26,679
-------------- ------------
Net Increase (Decrease) in Cash and
Cash Equivalents (2,132) 13,868
Cash and Cash Equivalents -
Beginning of Period 3,703 1,254
-------------- ------------
Cash and Cash Equivalents -
End of Period $ 1,571 $ 15,122
============== ============
Supplemental Disclosures of Cash flow
Information:
Cash Payments for:
Interest Paid to Depositors $ 1,261 $ 1,396
============== ============
Interest Paid on Borrowings $ 1,710 $ 786
============== ============
Income Taxes $ 167 $ 166
============== ============
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 $ (162) $ 84
============== ============
(Increase) Decrease in Deferred Tax
Effect on Unrealized Gain (Loss) on Securities
Available for Sale $ (55) $ (29)
============== ============
7
Homestead Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
Note 1 - Basis of Presentation -
The accompanying consolidated financial statements for the
period ended September 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 $49,500 for the nine months ended
September 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, second and third quarters of 1999. Total dividends paid
to stockholders in the first nine months of 1999 was $214,000.
Basic earnings per share is computed by dividing net income
by the weighted average number of shares of common stock
outstanding, which is 1,289,460 for the nine month period ended
September 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
9
effect of diluted securities, which was 1,422,414 for the nine
month period ended September 30, 1999. Earnings per share for
the prior periods have been restated to reflect the transactions
of the conversion.
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 for
Derivative 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
September 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 September 30, 1999 to December 31,
1998 and the results of operations for the three and nine month
periods ended September 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 September 30, 1999, the Company's total assets, deposits
and equity amounted to $101.5 million, $39.6 million, and $13.3
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 $12.7 million or 14.3% was due primarily to an
increase of $15.8 million in the net loan and lease portfolio.
The increase of 30.1% 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 decreased $1.8 million during the first nine
months to $1.3 million. Investments in Mortgage-Backed
securities decreased in the first nine 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 nine months of 1999 by $837,000 or
50.3%, 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 nine months of 1999 by $9.7
million or 104%. The Association uses the proceeds from short
term borrowing to finance the purchase of mortgage-backed
securities and fund long term fixed rate mortgages. The
12
Company's long term borrowing from the Federal Home Loan Bank
increased during the first nine months of 1999 by $5.8 million.
Homestead uses the proceeds from long term borrowing to fund long
term fixed rate mortgages. Deposits with the Association have
decreased by $254,000 or .6% in the first nine months of 1999.
The equity of the Company decreased $2.6 million or 16.5% in the
first nine months of 1999, due primarily to the repurchase of the
Company's common stock in the stock repurchase plan. At
September 30, 1999 the Company had repurchased $2.4 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
$166,000 combined with dividends paid out of $214,000 offset by
net income of $411,000.
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
September 30, 1999, that the Association meets all capital
adequacy requirements to which it is subject.
As of September 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 September 30, 1999:
Total Capital (to Risk
Weighted Assets) $ 11,164 24.64% $ 3,624 >\= 8.0% $ 4,530 >\= 10.0%
Tier I Capital (to Risk
Weighted Assets) $ 10,878 24.01% $ 1,812 >\= 4.0% $ 2,718 >\= 6.0%
Tier I Capital (to Average
Assets) $ 10,878 10.74% $ 4,050 >\= 4.0% $ 5,062 >\= 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 nine months of 1999 was $411,000
compared to $321,000 for the same period of 1998. The increase
in net income of $90,000 or 28%, was primarily due to an increase
in net interest income after provision for recovery of loan and
lease losses of $497,000 or 33.3%, offset by a decrease in non-
interest income of $82,000 or 22.2%, with an increase in non-
interest expense of $273,000 or 19.9%, and an increase of $52,000
or 31.3% in income tax expense. The decrease in non-interest
income is due to a decrease in gain on sale of loans of $74,000
or 71.1%, which is attributed to a decrease in the volume of
loans sold, combined with a decrease in other-non-interest income
of $17,000 offset by an increase of $9,000 or 3.9% in loan fees
and service charges. The increase in total non-interest expense
was attributable to an increase of $88,000 in compensation
expense combined with an increase of $145,000 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 $88,000 is due to an increase of $49,500
in ESOP compensation expense combined with an increase in
employee compensation.
Net income for the three month period ended September 30,
1999 was $160,000 compared to $113,000 for the same period of
1998. The increase in net income of $47,000 or 41.6%, was
primarily due to an increase in net interest income after
provision for recovery of loan and lease losses of $108,000 or
18.3%, combined with an increase in non-interest income of $8,000
14
or 7.8%, offset by an increase in non-interest expense of
$45,000 or 8.6%, and an increase of $24,000 or 41% in income tax
expense. The increase in non-interest income is due to an
increase in loan fees and service charges of $14,000 or 18.1% due
to the increase in loan volume. Other factors effecting the
increase in non-interest income were an increase in other non-
interest income of $5,000 offset by a decrease in gain on sale of
loans of $11,000 or 50%, due to a decrease in the volume of loans
sold. The increase in total non-interest expense was
attributable to an increase of $14,000 in compensation expense
combined with an increase of $8,000 in other non-interest
expense, and an increase of $12,000 in loss on sale of
securities. 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 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 1999 was $2
million an increase of $481,000 or 31.7% over the same period of
1998. This increase in net interest income was primarily
attributable to an increase in interest income of $1.3 million or
34.3%, offset by an increase in interest expense of $789,000 or
36.2% 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
the volume of investment securities and 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 nine months ended September 30,
1999 was 2.17% as compared to 2.65% for the same period in 1998.
Net interest income for the three month period ended
September 30, 1999 was $714,000 an increase of $114,000 or 19%
over the same period of 1998. This increase in net interest
income was primarily attributable to an increase in interest
income of $335,000 or 23.2%, offset by an increase in interest
expense of $221,000 or 26.3% 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. The increase in
interest expenses of $221,000 was due to a increase of $271,000
or 72.8% in interest paid on FHLB Advances, offset by a decrease
of $50,000 or 10.7% in interest paid on deposits.
The table of Consolidated Average Balance Sheets and
Interest Rate Analysis for the nine months ended September 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.
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, 1999 were $283,000 compared to $226,000 at
September 30, 1998. The percentage of non-accrual loans and
15
leases to total loan and leases at September 30, 1999 is .45%
down from .43% at September 30, 1998.
Real estate owned is properties held for sale acquired
through foreclosure or negotiated settlements of debt. At
September 30, 1999 the Association had real estate owned of
$23,000 compared to $0 at September 30, 1998. Nonperforming
assets at September 30, 1999 were .30% of total assets compared
to .26% at September 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. and Subsidiary
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST RATE ANALYSIS
--------------------------------------------------------------
for the nine months ended September 30, 1999 and 1998
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
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 $ 61,462 3,523 7.64% $ 34,800 2,274 8.71%
Mortgage - Backed Securities 25,244 1,102 5.82% 23,531 1,074 6.09%
Investment Securities 4,823 206 5.69% 2,561 103 5.36%
Other Interest - Earning Assets 3,693 139 5.02% 5,429 249 6.12%
----------------------------------- -------------------------------------
Total Interest - Earning Assets $ 95,222 4,970 6.96% $ 66,321 3,700 7.44%
Noninterest - Earning Assets 2,312 5,403
----- -----
Total Assets $ 97,535 $ 71,724
======= ======
Interest - Bearing Liabilities:
Deposits $ 39,992 1,261 4.20% $ 42,502 1,396 4.38%
Federal Home Loan Bank Advances 42,792 1,710 5.33% 18,243 786 5.74%
----------------------------------- -------------------------------------
Total Interest-bearing Liabilities $ 82,785 2,971 4.79% $ 60,745 2,182 4.79%
Noninterest - Bearing Liabilities 477 456
--- ------
Total Liabilities $ 83,261 $ 61,201
======= ======
Stockholders' Equity $ 14,274 $ 10,523
------ ------
Total Liabilities and Stockholders'
Equity $ 97,535 $ 71,724
====== ======
Net Interest Income; Interest
Rate Spread $ 1,999 2.17% $ 1,518 2.65%
======================= =====================
Net Interest Margin as a % of Total
Earning Assets 2.80% 3.05%
======= ========
17
Homestead Bancorp, Inc. and Subsidiary
INTEREST DIFFERENTIALS
-----------------------
for the nine months ended September 30, 1999 and 1998
September 30, 1999 VS September 30, 1998
CHANGE DUE TO TOTAL
VOLUME RATE CHANGE
-----------------------------------
(In Thousands)
Interest-Earning Assets
Loans and Lease Receivable $ 1,557 $ (308) $ 1,249
Mortgage-Backed Securities 76 (48) 28
Investment Securities 97 6 103
Other Interest-Earning assets (71) (39) (110)
----------- ----------- -----------
Total Interest Income $ 1,659 $ (389) $ 1,270
=========== =========== ===========
Interest - Bearing Liabilities:
Deposits $ (79) $ (56) $ (135)
Federal Home Loan Bank Advances 984 (60) 924
----------- ----------- -----------
Total Interest Expense $ 905 $ (116) $ 789
=========== =========== ===========
Increase (Decrease) in Interest Differential $ 754 $ (273) $ 481
=========== =========== ===========
18
Homestead Bancorp, Inc. and Subsidiary
FORM 10-QSB
-----------
Nine Months Ended September 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 September 30, 1999.
b.) Reports:
No reports on Form 8-K were filed by the Registrant
during the quarter ended September 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: November 12, 1999 BY /s/Lawrence C. Caldwell, Jr.
Lawrence C. Caldwell, Jr.
President and Chief Executive Officer
Date: November 12, 1999 BY /s/Kelly Morse
Kelly Morse
Comptroller
20