UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2008
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-50529
CHEVIOT FINANCIAL CORP.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Federal 56-2423720
---------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3723 Glenmore Avenue, Cincinnati, Ohio 45211
--------------------------------------------------------------------------------
(Address of principal executive office)
Registrant's telephone number, including area code: (513) 661-0457
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one.)
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ]
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of May 9, 2008, the latest practicable date, 8,900,599 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
Page 1 of 20
INDEX
Page
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PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Quantitative and Qualitative Disclosures about
Market Risk 17
Controls and Procedures 17
PART II - OTHER INFORMATION 18
SIGNATURES 19
2
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, December 31,
ASSETS 2008 2007
(Unaudited)
Cash and due from banks $ 2,515 $ 3,680
Federal funds sold 6,838 4,313
Interest-earning deposits in other financial institutions 1,350 1,457
---------- ---------
Cash and cash equivalents 10,703 9,450
Investment securities available for sale - at fair value 24,317 12,178
Investment securities held to maturity - at cost, approximate
market value of $12,160 and $23,086 at March 31, 2008
and December 31, 2007, respectively 12,000 23,000
Mortgage-backed securities available for sale - at fair value 746 814
Mortgage-backed securities held to maturity - at cost, approximate
market value of $8,556 and $9,577 at March 31, 2008 and
December 31, 2007, respectively 8,470 9,500
Loans receivable - net 250,481 249,832
Loans held for sale - at lower of cost or market 150 -
Real estate acquired through foreclosure - net 562 625
Office premises and equipment - at depreciated cost 5,067 5,131
Federal Home Loan Bank stock - at cost 3,280 3,238
Accrued interest receivable on loans 1,121 1,119
Accrued interest receivable on mortgage-backed securities 44 51
Accrued interest receivable on investments and interest-earning deposits 523 418
Prepaid expenses and other assets 461 177
Bank-owned life insurance 3,415 3,383
Prepaid federal income taxes 112 144
---------- ---------
Total assets $ 321,452 $ 319,060
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 219,826 $ 219,526
Advances from the Federal Home Loan Bank 31,547 28,665
Advances by borrowers for taxes and insurance 861 1,253
Accrued interest payable 131 117
Accounts payable and other liabilities 920 939
Deferred federal income taxes 680 640
---------- ---------
Total liabilities 253,965 251,140
Shareholders' equity
Preferred stock - authorized 5,000,000 shares, $.01 par value; none issued
Common stock - authorized 30,000,000 shares, $.01 par value;
9,918,751 shares issued at March 31, 2008 and December 31, 2007 99 99
Additional paid-in capital 43,476 43,418
Shares acquired by stock benefit plans (3,582) (3,582)
Treasury stock - at cost, 1,005,534 and 967,077 shares at March 31, 2008
and December 31, 2007, respectively (12,455) (12,074)
Retained earnings - restricted 39,800 40,013
Accumulated comprehensive income, unrealized gains on securities
available for sale, net of related tax effects 149 46
---------- ---------
Total shareholders' equity 67,487 67,920
---------- ---------
Total liabilities and shareholders' equity $ 321,452 $ 319,060
========== =========
See accompanying notes to consolidated financial statements.
3
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
For the three months ended March 31, 2008 and 2007
(In thousands, except per share data)
2008 2007
Interest income
Loans $ 3,806 $ 3,683
Mortgage-backed securities 139 187
Investment securities 554 396
Interest-earning deposits and other 32 70
------- -------
Total interest income 4,531 4,336
Interest expense
Deposits 2,010 1,905
Borrowings 375 344
------- -------
Total interest expense 2,385 2,249
------- -------
Net interest income 2,146 2,087
Provision for losses on loans 263 -
------- -------
Net interest income after provision for
losses on loans 1,883 2,087
Other income
Rental 12 12
Loss on sale of real estate acquired through foreclosure (58) -
Gain on sale of loans 4 14
Earnings on bank-owned life insurance 32 32
Other operating 72 71
------- -------
Total other income 62 129
General, administrative and other expense
Employee compensation and benefits 1,018 1,116
Occupancy and equipment 150 148
Property, payroll and other taxes 240 218
Data processing 83 80
Legal and professional 124 118
Advertising 50 44
Other operating 144 203
------- -------
Total general, administrative and other expense 1,809 1,927
------- -------
Earnings before federal income taxes 136 289
Federal income taxes
Current 52 110
Deferred (13) (27)
------- -------
Total federal income taxes 39 83
------- -------
NET EARNINGS $ 97 $ 206
======= =======
EARNINGS PER SHARE
Basic $ .01 $ .02
======= =======
Diluted $ .01 $ .02
======= =======
Dividends declared per share $ .09 $ .08
======= =======
See accompanying notes to consolidated financial statements.
4
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the three months ended March 31, 2008 and 2007
(In thousands)
2008 2007
Net earnings for the period $ 97 $ 206
Other comprehensive income (loss), net of related tax expense (benefit):
Unrealized holding gains (losses) on securities during the period,
net of tax expense (benefit) of $53 and $(4) for the periods
ended March 31, 2008 and 2007 103 (7)
------ ------
Comprehensive income $ 200 $ 199
====== ======
Accumulated comprehensive income (loss) $ 149 $ (15)
====== ======
See accompanying notes to consolidated financial statements.
5
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 2008 and 2007
(In thousands)
2008 2007
Cash flows from operating activities:
Net earnings for the period $ 97 $ 206
Adjustments to reconcile net earnings to net cash (used in)
provided by operating activities:
Amortization of premiums and discounts on investment
and mortgage-backed securities, net (2) (3)
Depreciation 69 82
Amortization of deferred loan origination fees - net (4) -
Proceeds from sale of loans in the secondary market 798 1,387
Loans originated for sale in the secondary market (937) (1,594)
Gain on sale of loans (4) (14)
Amortization of expense related to stock benefit plans (2) 19
Provision for losses on loans 263 -
Federal Home Loan Bank stock dividends (42) -
Loss on real estate acquired through foreclosure 58 -
Net increase in cash surrender value of bank-owned life insurance (32) (32)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (2) 8
Accrued interest receivable on mortgage-backed securities 7 4
Accrued interest receivable on investments and interest-earning deposits (105) 134
Prepaid expenses and other assets (284) (258)
Accrued interest payable 14 (1)
Accounts payable and other liabilities (19) (93)
Federal income taxes
Current 32 125
Deferred (13) (27)
--------- --------
Net cash flows used in operating activities (108) (57)
Cash flows used in investing activities:
Principal repayments on loans 13,949 6,410
Loan disbursements (15,082) (8,920)
Purchase of investment securities (11,981) (4,001)
Proceeds from maturity of investment securities 11,000 4,000
Principal repayments on mortgage-backed securities 1,098 1,350
Proceeds from the sale of real estate acquired through foreclosure 223 -
Purchase of office premises and equipment (5) (13)
--------- --------
Net cash flows used in investing activities (798) (1,174)
Cash flows provided by financing activities:
Net increase in deposits 300 7,053
Proceeds from Federal Home Loan Bank advances 7,500 -
Repayments on Federal Home Loan Bank advances (4,618) (1,182)
Advances by borrowers for taxes and insurance (392) (373)
Stock option expense, net 60 60
Treasury stock repurchases (381) (550)
Dividends paid on common stock (310) (299)
--------- --------
Net cash flows provided by financing activities 2,159 4,709
--------- --------
Net increase in cash and cash equivalents 1,253 3,478
Cash and cash equivalents at beginning of period 9,450 5,490
--------- --------
Cash and cash equivalents at end of period $ 10,703 $ 8,968
========= ========
See accompanying notes to consolidated financial statements.
6
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(CONTINUED)
For the three months ended March 31, 2008 and 2007
(In thousands)
2008 2007
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Federal income taxes $ 25 $ -
======= =======
Interest on deposits and borrowings $ 2,371 $ 2,250
======= =======
Supplemental disclosure of non-cash investing activities:
Transfer from loans to real estate acquired through foreclosure $ 218 $ 359
======= =======
Recognition of mortgage servicing rights in
accordance with SFAS No. 140 $ - $ 5
======= =======
See accompanying notes to consolidated financial statements.
7
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2008 and 2007
1. Basis of Presentation
---------------------
Cheviot Financial Corp. ("Cheviot Financial" or the "Corporation") is a
financial holding company, the principal asset of which consists of its
ownership of Cheviot Savings Bank (the "Savings Bank"). The Savings Bank
conducts a general banking business in southwestern Ohio which consists of
attracting deposits and applying those funds to the origination of
primarily real estate loans. The Corporation is 55% owned by Cheviot Mutual
Holding Company. Cheviot Savings' profitability is significantly dependent
on net interest income, which is the difference between interest income
from interest-earning assets and the interest expense paid on
interest-bearing liabilities. Net interest income is affected by the
relative amount of interest-earning assets and interest-bearing liabilities
and the interest received or paid on these balances.
The accompanying unaudited financial statements were prepared in accordance
with instructions for Form 10-Q and, therefore, do not include information
or footnotes necessary for a complete presentation of financial position,
results of operations and cash flows in conformity with accounting
principles generally accepted in the United States of America. Accordingly,
these consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto of Cheviot
Financial included in the Annual Report on Form 10-K for the year ended
December 31, 2007. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for a
fair presentation of the consolidated financial statements have been
included. The results of operations for the three month period ended March
31, 2008, are not necessarily indicative of the results which may be
expected for the entire year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements as of and for the three
months ended March 31, 2008, include the accounts of the Corporation and
its wholly-owned subsidiary, the Savings Bank. All significant intercompany
items have been eliminated.
3. Liquidity and Capital Resources
-------------------------------
Liquidity describes our ability to meet the financial obligations that
arise in the ordinary course of business. Liquidity is primarily needed to
meet the borrowing and deposit withdrawal requirements of our customers and
to fund current and planned expenditures. Our primary sources of funds are
deposits, scheduled amortization and prepayments of loan principal and
mortgage-backed securities, maturities and calls of securities and funds
provided by our operations. In addition, we may borrow from the Federal
Home Loan Bank of Cincinnati. At March 31, 2008 and December 31, 2007, we
had $31.5 million and $28.7 million, respectively, in outstanding
borrowings from the Federal Home Loan Bank of Cincinnati and had the
capacity to increase such borrowings at those dates by approximately $108.1
million and $109.4 million.
Loan repayments and maturing securities are a relatively predictable source
of funds. However, deposit flows, calls of securities and prepayments of
loans and mortgage-backed securities are strongly influenced by interest
rates, general and local economic conditions and competition in the
marketplace. These factors reduce the predictability of these sources of
funds.
8
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended March 31, 2008 and 2007
3. Liquidity and Capital Resources (continued)
-------------------------------
Our primary investing activities are the origination of one- to four-family
real estate loans, commercial real estate, construction and consumer loans,
and, to a lesser extent, the purchase of securities. For the three months
ended March 31, 2008, loan originations totaled $16.0 million, compared to
$10.5 million for the three months ended March 31, 2007.
Total deposits increased $300,000 and $7.1 million during the three months
ended March 31, 2008 and 2007. Deposit flows are affected by the level of
interest rates, the interest rates and products offered by competitors and
other factors.
The following table sets forth information regarding the Corporation's
obligations and commitments to make future payments under contract as of
March 31, 2008.
Payments due by period
Less More than More than More
than 1-3 4-5 than
1 year years years 5 years Total
(In thousands)
Contractual obligations:
Advances from the Federal Home Loan Bank $ - $ 4,000 $ 3,673 $ 23,874 $ 31,547
Certificates of deposit 126,064 19,991 7,037 - 153,092
Amount of loan commitments and expiration per period:
Commitments to originate one- to four-family
loans 3,639 - - - 3,639
Home equity lines of credit 11,436 - - - 11,436
Undisbursed loans in process 14,843 - - - 14,843
-------- --------- --------- --------- ---------
Total contractual obligations $155,982 $ 23,991 $ 10,710 $ 23,874 $ 214,557
======== ========= ========= ========= =========
We are committed to maintaining a strong liquidity position. We monitor our
liquidity position on a daily basis. We anticipate that we will have
sufficient funds to meet our current funding commitments. Based on our
deposit retention experience and current pricing strategy, we anticipate
that a significant portion of maturing time deposits will be retained.
9
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended March 31, 2008 and 2007
3. Liquidity and Capital Resources (continued)
-------------------------------
At March 31, 2008 and 2007, we exceeded all of the applicable regulatory
capital requirements. Our core (Tier 1) capital was $53.4 million and $51.7
million, or 16.8% and 16.4% of total assets at March 31, 2008 and 2007,
respectively. In order to be classified as "well-capitalized" under federal
banking regulations, we were required to have core capital of at least
$19.1 million, or 6.0% of assets as of March 31, 2008. To be classified as
a well-capitalized bank, we must also have a ratio of total risk-based
capital to risk-weighted assets of at least 10.0%. At March 31, 2008 and
2007, we had a total risk-based capital ratio of 32.6% and 32.8%,
respectively.
4. Earnings Per Share
------------------
Basic earnings per share is computed based upon the weighted-average common
shares outstanding during the period, less shares in the ESOP that are
unallocated and not committed to be released plus shares in the ESOP that
have been allocated. Weighted-average common shares deemed outstanding
gives effect to 214,247 and 249,954 unallocated shares held by the ESOP for
the three months ended March 31, 2008 and 2007, respectively.
For the three months ended
March 31,
2008 2007
Weighted-average common shares
outstanding (basic) 8,717,914 9,082,356
Dilutive effect of assumed exercise
of stock options 58,574 120,429
--------- ----------
Weighted-average common shares
outstanding (diluted) 8,776,488 9,202,785
========= =========
5. Stock Option Plan
-----------------
On April 26, 2005, the Corporation approved a Stock Incentive Plan that
provides for grants of up to 486,018 stock options. During 2007, 2006 and
2005 approximately 6,460, 6,100 and 384,000 options shares were granted
subject to five year vesting.
In 2004, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 123(R), "Share-Based
Payment," which revises SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R)
requires that cost related to the fair value of all equity-based awards to
employees, including grants of employee stock options, be recognized in the
financial statements.
10
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended March 31, 2008 and 2007
5. Stock Option Plan (continued)
----------------
The Corporation adopted the provisions of SFAS No. 123(R) effective January
1, 2006, using the modified prospective transition method, and therefore
has not restated its financial statements for prior periods. Under this
method, the Corporation has applied the provisions of SFAS No. 123(R) to
new equity-based awards and to equity-based awards modified, repurchased,
or cancelled after January 1, 2006. In addition, the Corporation will
recognize compensation cost for the portion of equity-based awards for
which the requisite service period has not been rendered ("unvested
equity-based awards") that are outstanding as of January 1, 2006. The
compensation cost recorded for unvested equity-based awards is based on
their grant-date fair value. For the three months ended March 31, 2008, the
Corporation recorded $61,000 in after-tax compensation cost for
equity-based awards that vested during the three months ended March 31,
2008. The Corporation has $563,000 unrecognized pre-tax compensation cost
related to non-vested equity-based awards granted under its stock incentive
plan as of March 31, 2008, which is expected to be recognized over a
weighted-average vesting period of approximately 2.2 years.
A summary of the status of the Corporation's stock option plan as of March
31, 2008, and changes during the period then ended is presented below:
Three months ended Year ended
March 31, 2008 December 31, 2007
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
Outstanding at beginning of period 396,220 $11.21 389,760 $11.17
Granted - - 6,460 13.63
Exercised - - - -
Forfeited - - - -
------- ------ ------- ------
Outstanding at end of period 396,220 $11.21 396,220 $11.21
======= ====== ======= ======
Options exercisable at period-end 154,692 $11.16 154,692 $11.16
======= ====== ======= ======
Options expected to be exercisable at year-end
Fair value of options granted N/A $ 2.77
=== ======
The following information applies to options outstanding at March 31, 2008:
Number outstanding 396,220
Exercise price $11.15 - $13.63
Weighted-average exercise price $11.21
Weighted-average remaining contractual life 7.2 years
The expected term of options is based on evaluations of historical and
expected future employee exercise behavior. The risk free interest rate is
based upon the U.S. Treasury rates at the date of grant with maturity dates
approximately equal to the expected life at grant date. Volatility is based
upon the historical volatility of the Corporation's stock.
11
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended March 31, 2008 and 2007
5. Stock Option Plan (continued)
----------------
The fair value of each option was estimated on the date of grant using the
modified Black-Scholes options pricing model with the following
weighted-average assumptions used for grants in 2007: dividend yield of
2.35%, expected volatility of 10.12%, risk-free interest rate of 4.83% and
an expected life of 10 years for each grant.
The effects of expensing stock options is reported in "cash provided by
financing activities" in the Consolidated Statements of Cash Flows.
6. Income Taxes
------------
The Corporation adopted the provisions of FASB Interpretation 48,
"Accounting for Uncertainty in Income Taxes," on January 1, 2007.
Previously, the Corporation had accounted for tax contingencies in
accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies." As required by Interpretation 48, which
clarifies Statement No. 109, "Accounting for Income Taxes," the Corporation
recognizes the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not
sustain the position following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax
authority. At the adoption date, the Corporation applied Interpretation 48
to all tax positions for which the stature of limitations remained open. As
a result of the implementation of Interpretation 48, the Corporation was
not required to record any liability for unrecognized tax benefits as of
January 1, 2007. There have been no material changes in unrecognized tax
benefits since January 1, 2007. As stated in the Annual Report, the only
known tax attribute which can influence the Corporation's effective tax
rate is the utilization of charitable contribution carryforwards.
The Corporation is subject to income taxes in the U.S. federal
jurisdiction, as well as various state jurisdictions. Tax regulations
within each jurisdiction are subject to the interpretation of the related
tax laws and regulations and require significant judgment to apply. With
few exceptions, the Corporation is no longer subject to U.S. federal, state
and local, or non U.S. income tax examinations by tax authorities for the
years before 2003.
The Corporation will recognize, if applicable, interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating
expenses.
7. Effects of Recent Accounting Pronouncements
-------------------------------------------
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements."
This Statement defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. This
Statement emphasizes that fair value is a market-based measurement and
should be determined based on assumptions that a market participant would
use when pricing an asset or liability. This Statement clarifies that
market participant assumptions should include assumptions about risk as
well as the effect of a restriction on the sale or use of an asset.
Additionally, this Statement establishes a fair value hierarchy that
provides the highest priority to quoted prices in active markets and the
lowest priority to unobservable data. This Statement is effective for
fiscal years beginning after November 15, 2007, or January 1, 2008 as to
the Company, and interim periods within those fiscal years. The adoption of
this Statement did not have a material adverse effect on the Company's
financial position or results of operations.
12
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended March 31, 2007 and 2006
7. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115." This Statement allows companies the choice to measure
many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge accounting provisions. This Statement is expected to expand the use
of fair value measurement, which is consistent with the Board's long-term
measurement objectives for accounting for financial instruments. This
Statement is effective as of the beginning of an entity's first fiscal year
that begins after November 15, 2007, or January 1, 2008 as to the
Corporation, and interim periods within those fiscal years. The impact of
this new pronouncement was not material to the Company's consolidated
financial statements.
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 109,
Written Loan Commitments Recorded at Fair Value Through Earnings (SAB 109)
-- In November 2007, SEC SAB 109 was issued. SAB 109 provides the staff's
views on the accounting for written loan commitments recorded at fair
value. To make the staff's views consistent with Statement No. 156,
Accounting for Servicing of Financial Assets, and Statement No. 159, SAB
109 revises and rescinds portions of SAB No. 105, Application of Accounting
Principles to Loan Commitments, and requires that the expected net future
cash flows related to the associated servicing of a loan should be included
in the measurement of all written loan commitments that are accounted for
at fair value through earnings. The provisions of SAB 109 are applicable to
written loan commitments issued or modified in fiscal quarters beginning
after December 15, 2007. The Company adopted this Statement with no
material impact to the Company's consolidated financial statements.
13
Cheviot Financial Corp.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
--------------------------
This report on Form 10-Q contains forward-looking statements, which can be
identified by the use of such words as estimate, project, believe, intend,
anticipate, plan, seek, expect and similar expressions. These forward-looking
statements are subject to significant risks, assumptions and uncertainties that
could affect the actual outcome of future events. Because of these
uncertainties, our actual future results may be materially different from the
results indicated by these forward-looking statements.
Discussion of Financial Condition Changes at December 31, 2007 and at March 31,
2008
--------------------------------------------------------------------------------
Total assets increased $2.4 million, or 0.7%, to $321.5 million at March 31,
2008, from $319.1 million at December 31, 2007. The increase in total assets
reflects an increase in cash and cash equivalents, loans receivable and
investment securities, which were partially offset by a decrease mortgage-backed
securities.
Cash, federal funds sold and interest-earning deposits increased $1.3 million,
or 13.3%, to $10.7 million at March 31, 2008, from $9.5 million at December 31,
2007. The increase in cash and cash equivalents at March 31, 2008, was due to a
$2.5 million increase in federal funds sold, which was partially offset by a
decrease in cash and due from banks of $1.2 million and a decrease in interest
earning deposits of $107,000. Investment securities increased $1.1 million, or
3.2% to $36.3 million at March 31, 2008. At March 31, 2008, $12.0 million of
investment securities were classified as held to maturity, while $24.3 million
were classified as available for sale.
Mortgage-backed securities decreased $1.1 million, or 10.6%, to $9.2 million at
March 31, 2008, from $10.3 million at December 31, 2007. The decrease in
mortgage-backed securities was due primarily to principal prepayments and
repayments totaling $1.1 million. At March 31, 2008, $8.5 million of
mortgage-backed securities were classified as held to maturity, while $746,000
were classified as available for sale.
Loans receivable, including loans held for sale, increased $799,000, or 0.3%, to
$250.6 million at March 31, 2008, from $249.8 million at December 31, 2007. The
increase reflects loan originations totaling $16.0 million, partially offset by
loan principal repayments of $13.9 million and sales of $798,000.
The allowance for loan losses totaled $652,000 and $596,000 at March 31, 2008
and December 31, 2007. In determining the adequacy of the allowance for loan
losses at any point in time, management and the board of directors apply a
systematic process focusing on the risk of loss in the portfolio. First, the
loan portfolio is segregated by loan types to be evaluated collectively and loan
types to be evaluated individually. Delinquent multi-family and commercial loans
are evaluated individually for potential impairments in their carrying value.
Second, the allowance for loan losses entails utilizing our historic loss
experience by applying such loss percentage to the loan types to be collectively
evaluated in the portfolio. The $263,000 increase in the provision for losses on
loans during the quarter ended March 31, 2008 is a reflection of these factors,
weaker economic conditions in the greater Cincinnati area, and the need to
allocate approximately $210,000 in specific reserves for five residential
properties totaling $425,000 which were acquired through foreclosure during the
quarter ended March 31, 2008. The analysis of the allowance for loan losses
requires an element of judgment and is subject to the possibility that the
allowance may need to be increased, with a corresponding reduction in earnings.
To the best of management's knowledge, all known and inherent losses that are
probable and that can be reasonably estimated have been recorded at March 31,
2008.
14
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from December 31, 2007 to March 31,
2008(continued)
--------------------------------------------------------------------------------
Non-performing and impaired loans totaled $683,000 and $660,000 at March 31,
2008 and December 31, 2007, respectively. At March 31, 2008, non-performing and
impaired loans were comprised solely of loans secured by one- to four-family
residential real estate. The allowance for loan losses represented 95.5% and
90.3% of non-performing and impaired loans at March 31, 2008 and December 31,
2007, respectively. Although management believes that the Corporation's
allowance for loan losses conforms with generally accepted accounting principles
based upon the available facts and circumstances, there can be no assurance that
additions to the allowance will not be necessary in future periods, which would
adversely affect our results of operations.
Deposits increased $300,000 or 0.1%, to $219.8 million at March 31, 2008, from
$219.5 million at December 31, 2007. Advances from the Federal Home Loan Bank of
Cincinnati increased by $2.9 million, or 10.1%, to $31.5 million at March 31,
2008, from $28.7 million at December 31, 2007.
Shareholders' equity decreased $433,000, or 0.6%, to $67.5 million at March 31,
2008, from $67.9 million at December 31, 2007. The decrease primarily resulted
from the repurchase of our common stock totaling $381,000 and dividends paid of
$310,000, which were partially offset by net earnings of $97,000. At March 31,
2008, Cheviot Financial had the ability to purchase an additional 409,127 shares
under its announced stock repurchase plan.
Comparison of Operating Results for the Three-Month Periods Ended March 31, 2008
and 2007
--------------------------------------------------------------------------------
General
-------
Net earnings for the three months ended March 31, 2008 totaled $97,000, a
$109,000 decrease from the $206,000 net earnings reported in the March 2007
period. The decrease in net earnings reflects an increase in the provision for
losses on loans of $263,000 and a decrease of $67,000 in other income, which
were partially offset by an increase in net interest income of $59,000, a
decrease in general, administrative and other expense of $118,000 and a decrease
of $44,000 in federal income taxes for the 2008 quarter.
Net Interest Income
-------------------
Total interest income increased $195,000 or 4.5%, to $4.5 million for the
three-months ended March 31, 2008, from the comparable quarter in 2007. Interest
income on loans increased $123,000, or 3.3%, to $3.8 million during the 2008
period from $3.7 million for the 2007 period. This increase was due primarily to
an $8.1 million, or 3.3%, increase in the average balance of loans outstanding.
The weighted-average yield on loans was 6.07% for both quarters ended March 31,
2008 and 2007.
Interest income on mortgage-backed securities decreased $48,000 or 25.7%, to
$139,000 for the three months ended March 31, 2008, from $187,000 for the 2007
quarter, due primarily to a $4.8 million decrease in the average balance of
securities outstanding, which was partially offset by a 57 basis point increase
in the average yield period to period. Interest income on investment securities
increased $158,000, or 39.9%, to $554,000 for the three months ended March 31,
2008, compared to $396,000 for the same quarter in 2007, due primarily to a 25
basis point increase in the average yield to 5.42% in the 2008 quarter, and an
increase of $10.2 million, or 33.4% in the average balance of investment
securities outstanding. Interest income on other interest-earning deposits
decreased $38,000, or 54.3% to $32,000 for the three months ended March 31,
2008.
15
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended March 31, 2008
and 2007 (continued)
-------------------------------------------------------------------------------
Net Interest Income (continued)
------------------
Interest expense increased $136,000, or 6.0%, to $2.4 million for the three
months ended March 31, 2008, from $2.2 million for the same period in 2007.
Interest expense on deposits increased by $105,000, or 5.5%, to $2.0 million
from $1.9 million due primarily to a 2 basis point increase in the weighted
average costs of deposits to 3.71% during the 2008 period and a $9.9 million, or
4.8%, increase in the weighted-average balance outstanding. Interest expense on
borrowings increased by $31,000, or 9.0%, due primarily to a $4.0 million, or
13.9%, increase in the average balance outstanding, which was partially offset
by a 20 basis point decrease in the average cost of borrowings.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $59,000, or 2.8%, to $2.1 million for the three
months ended March 31, 2008. The average interest rate spread was 2.08% for the
three months ended March 31, 2008 and 2007. The net interest margin decreased to
2.80% for the three months ended March 31, 2008 from 2.84% for the three months
ended March 31, 2007.
Provision for Losses on Loans
-----------------------------
Management recorded a $263,000 provision for losses on loans for the three
months ended March 31, 2008. There was no provision for the losses on loans for
the three months ended March 31, 2007. There can be no assurance that the loan
loss allowance will be sufficient to cover losses on non-performing loans in the
future, however management believes they have identified all known and inherent
losses that are probable and that can be reasonably estimated within the loan
portfolio, and that the allowance is adequate to absorb such losses.
Other Income
------------
Other income decreased $67,000, or 51.9%, to $62,000 for the three months ended
March 31, 2008, compared to the same quarter in 2007, due primarily to an
increase in the loss on sale of real estate acquired through foreclosure of
$58,000 and a decrease of $10,000 in the gain on sale of loans.
General, Administrative and Other Expense
-----------------------------------------
General, administrative and other expense decreased $118,000, or 6.1%, to $1.8
million for the three months ended March 31, 2008, from $1.9 million for the
comparable quarter in 2007. This decrease is a result of a decrease of $98,000
in employee compensation and benefits and a $59,000 decrease in other operating
expense. The decrease in employee compensation and benefits is a result of the
decrease in compensation expense recorded for the fair value of ESOP shares
allocated as a result of the decrease in the average stock price and a decrease
in the expense related to health insurance costs. The decrease in other
operating expense reflects a $50,000 settlement which was paid during the three
months ended March 31, 2007.
16
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended March 31, 2008
and 2007 (continued)
--------------------------------------------------------------------------------
Federal Income Taxes
--------------------
The provision for federal income taxes decreased $44,000, or 53.0%, to $39,000
for the three months ended March 31, 2008, from $83,000 for the same quarter in
2007, due primarily to a $153,000, or 52.9%, decrease in pre-tax earnings. The
effective tax rate was 28.7% for both the three month periods ended March 31,
2008 and 2007. The difference between the Corporation's effective tax rate in
the 2008 and 2007 periods and the 34% statutory corporate rate is due primarily
to the tax-exempt earnings on bank-owned life insurance, tax exempt interest on
municipal obligations and tax benefits for the contribution to the Cheviot
Savings Bank Foundation.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Corporation's market risk since the
Form 10-K filed with the Securities and Exchange Commission for the year ended
December 31, 2007.
ITEM 4 CONTROLS AND PROCEDURES
The Corporation's Chief Executive Officer and Chief Financial Officer evaluated
the disclosure controls and procedures (as defined under Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of
the period covered by this quarterly report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Corporation's disclosure controls and procedures are effective.
There were no changes in the Corporation's internal controls or in other factors
that could materially affect, or could reasonably be likely to materially
affect, these controls subsequent to the date of their evaluation by the
Corporation's Chief Executive Officer and Chief Financial Officer.
17
Cheviot Financial Corp.
PART II
ITEM 1. Legal Proceedings
-----------------
None.
ITEM 1A. Risk Factors
------------
There have been no changes to the Corporation's risk factors since the
filing of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2007.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
------------------------------------------------------------
The Corporation announced a repurchase plan on January 16, 2008 which
provides for the repurchase of 5% or 447,584 shares of our common
stock. As of March 31, 2008, the Corporation had purchased 38,457
shares pursuant to the program.
Total # of
shares purchased
Total Average as part of publicly
# of shares price paid announced plans
Period purchased per share or programs
------ --------- --------- ------------
January 1-31, 2008 6,695 $9.42 6,695
February 1-29, 2008 20,963 $10.12 27,658
March 1 - 31, 2008 10,799 $9.88 38,457
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
31.1 Certification of Principal Executive Officer Pursuant to Rule
13a-14 of the Securities Exchange Act of 1934, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer Pursuant to Rule
13a-14 of the Securities Exchange Act of 1934, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
18
Cheviot Financial Corp.
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.
Date: May 9, 2008 By: /s/Thomas J. Linneman
---------------- -------------------------------------
Thomas J. Linneman
President and Chief Executive Officer
Date: May 9, 2008 By: /s/Scott T. Smith
---------------- -------------------------------------
Scott T. Smith
Chief Financial Officer
19
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13A-14
OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Thomas J. Linneman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cheviot Financial
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures or caused such
disclosure controls to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such
evaluation; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 9, 2008 /s/Thomas J. Linneman
----------------------------------------
Thomas J. Linneman
President and Chief Executive Officer
(principal executive officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13A-14
OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Scott T. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cheviot Financial
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures or caused such
disclosure controls to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such
evaluation; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 9, 2008 /s/Scott T. Smith
-------------------------------
Scott T. Smith
Chief Financial Officer
(principal financial officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cheviot Financial Corp. (the
"Company"), on Form 10-Q for the period ended March 31, 2007, as filed with the
Securities and Exchange Commission on the date of this Certification (the
"Report"), I, Thomas J. Linneman, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement required by Section 906 has been
provided to Cheviot Financial Corporation and will be retained by Cheviot
Financial Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.
/s/Thomas J. Linneman
--------------------------------------
Thomas J. Linneman
President and Chief Executive Officer
Date: May 9, 2008
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cheviot Financial Corp. (the
"Company"), on Form 10-Q for the period ended March 31, 2008, as filed with the
Securities and Exchange Commission on the date of this Certification (the
"Report"), I, Scott T. Smith, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement required by Section 906 has been
provided to Cheviot Financial Corporation and will be retained by Cheviot
Financial Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.
/s/Scott T. Smith
--------------------------
Scott T. Smith
Chief Financial Officer
Date: May 9, 2008