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 June 30, 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, a non-accelerated filer, or a smaller reporting company. 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 July 29, 2008, the latest practicable date, 8,888,099 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
Page 1 of 23
INDEX
Page
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 21
Controls and Procedures 21
PART II - OTHER INFORMATION 22
SIGNATURES 24
2
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, December 31,
ASSETS 2008 2007
(Unaudited)
Cash and due from banks $ 2,029 $ 3,680
Federal funds sold 1,515 4,313
Interest-earning deposits in other financial institutions 3,062 1,457
-------- --------
Cash and cash equivalents 6,606 9,450
Investment securities available for sale - at fair value 28,831 12,178
Investment securities held to maturity - at cost, approximate
market value of $7,089 and $23,086 at June 30, 2008
and December 31, 2007, respectively 7,000 23,000
Mortgage-backed securities available for sale - at fair value 693 814
Mortgage-backed securities held to maturity - at cost, approximate
market value of $7,787 and $9,577at June 30, 2008 and
December 31, 2007, respectively 7,723 9,500
Loans receivable - net 261,215 249,832
Real estate acquired through foreclosure - net 422 625
Office premises and equipment - at depreciated cost 5,010 5,131
Federal Home Loan Bank stock - at cost 3,325 3,238
Accrued interest receivable on loans 1,135 1,119
Accrued interest receivable on mortgage-backed securities 39 51
Accrued interest receivable on investments and interest-earning deposits 514 418
Prepaid expenses and other assets 526 177
Bank-owned life insurance 3,448 3,383
Prepaid federal income taxes 167 144
-------- --------
Total assets $326,654 $319,060
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $214,706 $219,526
Advances from the Federal Home Loan Bank 42,169 28,665
Advances by borrowers for taxes and insurance 544 1,253
Accrued interest payable 138 117
Accounts payable and other liabilities 905 939
Deferred federal income taxes 623 640
-------- --------
Total liabilities 259,085 251,140
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 June 30, 2008 and December 31, 2007, respectively 99 99
Additional paid-in capital 43,531 43,418
Shares acquired by stock benefit plans (3,186) (3,582)
Treasury stock - at cost, 1,026,652 and 967,077 shares at June 30, 2008
and December 31, 2007, respectively (12,645) (12,074)
Retained earnings - restricted 39,938 40,013
Accumulated comprehensive gain (loss), unrealized gains (losses) on securities
available for sale, net of related tax effects (168) 46
-------- --------
Total shareholders' equity 67,569 67,920
-------- --------
Total liabilities and shareholders' equity $326,654 $319,060
======== ========
See accompanying notes to consolidated financial statements.
3
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Six months ended Three months ended
June 30, June 30,
2008 2007 2008 2007
(Unaudited)
Interest income
Loans $7,567 $7,376 $3,761 $3,692
Mortgage-backed securities 262 365 123 178
Investment securities 1,052 887 498 490
Interest-earning deposits and other 70 127 38 58
------ ------ ------ ------
Total interest income 8,951 8,755 4,420 4,418
Interest expense
Deposits 3,749 3,904 1,739 1,999
Borrowings 746 681 370 337
------ ------ ------ ------
Total interest expense 4,495 4,585 2,109 2,336
------ ------ ------ ------
Net interest income 4,456 4,170 2,311 2,082
Provision for losses on loans 288 - 25 -
------ ------ ------ ------
Net interest income after provision for losses on loans 4,168 4,170 2,286 2,082
Other income (expense)
Rental 25 24 13 12
Gain on sale of loans 9 23 5 9
Gain (loss) on sale of real estate acquired through foreclosure (43) - 16 -
Earnings on bank-owned life insurance 65 64 33 31
Other operating 159 147 86 77
------ ------ ------ ------
Total other income 215 258 153 129
General, administrative and other expense
Employee compensation and benefits 2,096 2,200 1,078 1,084
Occupancy and equipment 278 273 128 125
Property, payroll and other taxes 491 449 250 231
Data processing 159 154 77 73
Legal and professional 192 225 68 107
Advertising 100 88 50 44
Other operating 323 340 180 138
------ ------ ------ ------
Total general, administrative and other expense 3,639 3,729 1,831 1,802
------ ------ ------ ------
Earnings before income taxes 744 699 608 409
Federal income taxes
Current 108 58 56 (53)
Deferred 93 163 106 190
------ ------ ------ ------
Total federal income taxes 201 221 162 137
------ ------ ------ ------
NET EARNINGS $ 543 $ 478 $ 446 $ 272
====== ====== ====== ======
EARNINGS PER SHARE
Basic $ .06 $ .05 $ .05 $ .03
====== ====== ====== ======
Diluted $ .06 $ .05 $ .05 $ .03
====== ====== ====== ======
Dividends per common share $ .18 $ .16 $ .09 $ .08
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
4
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the six and three months ended June 30, 2008 and 2007
(In thousands)
For the six months For the three months
ended June 30, ended June 30,
2008 2007 2008 2007
Net earnings for the period $ 543 $ 478 $ 446 $ 272
Other comprehensive loss, net of benefits:
Unrealized holding losses on securities during the period,
net of benefits of $(110) and $(53) for the six months
ended June 30, 2008 and 2007, respectively, and $(163)
and $(49) for the three months ended June 30, 2008
and 2007, respectively (214) (103) (317) (96)
---- ---- ---- ----
Comprehensive income $ 329 $ 375 $ 129 $ 176
==== ==== ==== ====
Accumulated comprehensive loss $(168) $(111) $(168) $(111)
==== ==== ==== ====
See accompanying notes to consolidated financial statements.
5
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2008 and 2007
(In thousands)
2008 2007
(Unaudited)
Cash flows from operating activities:
Net earnings for the period $ 543 $ 478
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Amortization of premiums and discounts on investment
and mortgage-backed securities, net (7) (10)
Depreciation 140 165
Amortization of deferred loan origination fees - net - 3
Proceeds from sale of loans in the secondary market 1,726 2,307
Loans originated for sale in the secondary market (1,700) (2,001)
Gain on sale of loans (9) (23)
Loss on sale of real estate acquired through foreclosure 43 -
Federal Home Loan Bank stock dividends (87) -
Net increase in cash surrender value of bank-owned life insurance (65) (64)
Provision for losses on loans 288 -
Amortization of expense related to stock benefit plans 387 429
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (16) 5
Accrued interest receivable on mortgage-backed securities 12 7
Accrued interest receivable on investments and interest-
earning deposits (96) (106)
Prepaid expenses and other assets (349) (267)
Accrued interest payable 21 -
Accounts payable and other liabilities (58) (317)
Federal income taxes
Current (23) (108)
Deferred 93 163
------- --------
Net cash provided by operating activities 843 661
Cash flows used in investing activities:
Principal repayments on loans 27,699 16,333
Loan disbursements (39,830) (22,845)
Purchase of U.S. Government and agency obligations (18,973) (7,001)
Proceeds from maturity of U.S. Government and agency obligations 18,000 4,000
Principal repayments on mortgage-backed securities 1,901 2,676
Proceeds from sale of real estate acquired through foreclosure 636 -
Additions to real estate acquired through foreclosure (9) -
Purchase of office premises and equipment (19) (19)
------- --------
Net cash used in investing activities (10,595) (6,856)
Cash flows provided by financing activities:
Net increase (decrease) in deposits (4,820) 6,854
Proceeds from Federal Home Loan Bank advances 19,500 6,000
Repayments on Federal Home Loan Bank advances (5,996) (2,715)
Advances by borrowers for taxes and insurance (709) (724)
Treasury stock repurchases (571) (2,786)
Stock option expense, net 122 120
Dividends paid on common stock (618) (602)
------- --------
Net cash provided by financing activities 6,908 6,147
------- --------
Net decrease in cash and cash equivalents (2,844) (48)
Cash and cash equivalents at beginning of period 9,450 5,490
-------- --------
Cash and cash equivalents at end of period $ 6,606 $ 5,442
======== ========
See accompanying notes to consolidated financial statements.
6
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30, 2008 and 2007
(In thousands)
2008 2007
(Unaudited)
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Federal income taxes $ 138 $ 197
====== ======
Interest on deposits and borrowings $4,474 $4,585
====== ======
Supplemental disclosure of noncash investing activities:
Transfer of loans to real estate acquired through foreclosure $ 443 $ 734
====== ======
Loans originated upon sales of real estate acquired through foreclosure $ 138 $ -
====== ======
Recognition of mortgage servicing rights in accordance with SFAS No. 140 $ 6 $ 5
====== ======
See accompanying notes to consolidated financial statements.
7
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended June 30, 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 61% 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
and six month periods ended June 30, 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 and
six months ended June 30, 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 June 30, 2008 and December 31, 2007, we had $42.2 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 $99.4 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 and six months ended June 30, 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 six months ended June 30,
2008, loan originations totaled $41.5 million, compared to $24.8 million for the
six months ended June 30, 2007.
Total deposits decreased $4.8 million during the six months ended June 30, 2008
and increased $6.9 million during the six months ended June 30, 2007,
respectively. 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 June
30, 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 $ - $ 9,000 $ 3,352 $ 29,817 $ 42,169
Certificates of deposit 114,587 22,649 9,400 - 146,636
Amount of loan commitments and expiration per period:
Commitments to originate one- to four-family
loans 6,236 - - - 6,236
Home equity lines of credit 11,520 - - - 11,520
Undisbursed loans in process 14,921 - - - 14,921
-------- -------- -------- -------- --------
Total contractual obligations $147,264 $ 31,649 $ 12,752 $ 29,817 $221,482
======== ======== ======== ======== ========
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 and six months ended June 30, 2008 and 2007
3. Liquidity and Capital Resources (continued)
------------------------------------------
At June 30, 2008 and 2007, we exceeded all of the applicable regulatory capital
requirements. Our core (Tier 1) capital was $54.5 million and $52.4 million, or
16.7% and 16.6% of total assets at both June 30, 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 $19.6 million, or 6.0% of
assets as of June 30, 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 June 30, 2008 and 2007, we had a total risk-based capital ratio
of 32.1% and 32.5%, 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. The weighted average common shares outstanding includes
5,455,313 shares held by our mutual holding company parent. Weighted-average
common shares deemed outstanding gives effect to 214,247 and 285,661 unallocated
shares held by the ESOP for the three and six months ended June 30, 2008 and
2007, respectively.
For the six months ended For the three months ended
June 30, June 30,
2008 2007 2008 2007
Weighted-average common shares
outstanding (basic) 8,702,161 9,042,835 8,677,852 9,003,748
Dilutive effect of assumed exercise
of stock options 55,256 120,731 57,298 124,119
--------- ---------- --------- ----------
Weighted-average common shares
outstanding (diluted) 8,757,417 9,163,566 8,735,150 9,127,867
========= ========= ========= =========
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 2008, 2007, 2006 and 2005
approximately 8,060, 6,460, 6,100 and 384,000 option awards for shares were
granted all of which are 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 and six months ended June 30, 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 recognizes 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 six months ended June 30, 2008,
the Corporation recorded $122,000 in after-tax compensation cost for
equity-based awards that vested during the six months ended June 30, 2008. The
Corporation has $512,000 unrecognized pre-tax compensation cost related to
non-vested equity-based awards granted under its stock incentive plan as of June
30, 2008, which is expected to be recognized over a weighted-average vesting
period of approximately 2.0 years.
A summary of the status of the Corporation's stock option plan as of June 30,
2008, and changes during the period then ended is presented below:
Six months ended Year ended
June 30, 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 8,060 9.03 6,460 13.63
Exercised - - - -
Forfeited - - - -
-------- ------ ------- ------
Outstanding at end of period 404,280 $11.16 396,220 $11.21
======= ====== ======= ======
Options exercisable at period-end 233,936 $11.17 154,692 $11.16
======= ====== ======= ======
Options expected to be exercisable at year-end
Fair value of options granted $ 1.93 $ 2.77
====== ======
The following information applies to options outstanding at June 30, 2008:
Number outstanding 404,280
Exercise price$9.03 - $13.63
Weighted-average exercise price $11.16
Weighted-average remaining contractual life 7.0 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 and six months ended June 30, 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 2008: dividend yield of 3.65%, expected
volatility of 26.13%, risk-free interest rate of 3.78% 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 statute 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 2004.
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
Corporation, and interim periods within those fiscal years. The adoption of this
Statement did not have a material adverse effect on the Corporation's financial
position or results of operations.
12
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six months ended June 30, 2008 and 2007
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 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
Corporation '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 Corporation
adopted this Statement with no material impact to the Corporation '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.
Critical Accounting Policies
----------------------------
We consider accounting policies involving significant judgments and assumptions
by management that have, or could have, a material impact on the carrying value
of certain assets or on income to be critical accounting policies. We consider
the accounting method used for the allowance for loan losses to be a critical
accounting policy.
The allowance for loan losses is the estimated amount considered necessary to
cover inherent, but unconfirmed credit losses in the loan portfolio at the
balance sheet date. The allowance is established through the provision for
losses on loans which is charged against income. In determining the allowance
for loan losses, management makes significant estimates and has identified this
policy as one of the most critical for Cheviot Financial.
Management performs a quarterly evaluation of the allowance for loan losses.
Consideration is given to a variety of factors in establishing this estimate
including, but not limited to, current economic conditions, delinquency
statistics, geographic and industry concentrations, the adequacy of the
underlining collateral, the financial strength of the borrower, results of
internal loan reviews and other relevant factors. This evaluation is inherently
subjective as it requires material estimates that may be susceptible to
significant change.
The analysis has two components, specific and general allocations. Specific
percentage allocations can be made for unconfirmed losses related to loans that
are determined to be impaired. Impairment is measured by determining the present
value of expected future cash flows or, for collateral-dependent loans, the fair
value of the collateral adjusted for market conditions and selling expenses. If
the fair value of the loan is less than the loan's carrying value, a charge-off
is recorded for the difference. The general allocation is determined by
segregating the remaining loans by type of loan, risk weighting (if applicable)
and payment history. We also analyze historical loss experience, delinquency
trends, general economic conditions and geographic and industry concentrations.
This analysis establishes factors that are applied to the loan groups to
determine the amount of the general reserve. Actual loan losses may be
significantly more than the allowances we have established which could result in
a material negative effect on our financial results.
Discussion of Financial Condition Changes at December 31, 2007
and at June 30, 2008
--------------------------------------------------------------
Total assets increased $7.6 million, or 2.4%, to $326.7 million at June 30,
2008, from $319.1 million at December 31, 2007. The increase in total assets
reflects an increase in loans receivable and investment securities, which were
partially offset by a decrease in cash and cash equivalents and mortgage-backed
securities.
Cash, federal funds sold and interest-earning deposits decreased $2.8 million,
or 30.1%, to $6.6 million at June 30, 2008, from $9.5 million at December 31,
2007. The decrease in cash and cash equivalents at June 30, 2008, was due to a
$2.8 million decrease in federal funds sold and a $1.7 million decrease in cash
and due from banks, which was partially offset by a $1.6 million increase in
interest-earning deposits. Investment securities increased $653,000 to $35.8
million at June 30, 2008. At June 30, 2008, $7.0 million of investment
securities were classified as held to maturity, while $28.8 million were
classified as available for sale. As of June 30, 2008, none of the investment
securities are considered impaired.
14
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes at December 31, 2007
and at June 30, 2008 (continued)
---------------------------------------------------------------
Mortgage-backed securities decreased $1.9 million, or 18.4%, to $8.4 million at
June 30, 2008, from $10.3 million at December 31, 2007. The decrease in
mortgage-backed securities was due primarily to principal prepayments and
repayments totaling $1.9 million. At June 30, 2008, $7.7 million of
mortgage-backed securities were classified as held to maturity, while $693,000
were classified as available for sale. As of June 30, 2008, none of the
mortgage-backed securities are considered impaired.
Loans receivable, including loans held for sale, increased $11.4 million,
or 4.6%, to $261.2 million at June 30, 2008, from $249.8 million at December 31,
2007. The increase reflects loan originations totaling $41.5 million, partially
offset by loan principal repayments of $27.7 million and sales of $1.7 million.
The change in the composition of the Corporation's assets reflects management's
decision to take advantage of opportunities to obtain a higher rate of return
from the origination of loans.
The allowance for loan losses totaled $502,000 and $596,000 at June 30, 2008 and
December 31, 2007, respectively. 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 five year
historic loss experience by applying such loss percentage to the loan types to
be collectively evaluated in the portfolio. The $288,000 increase in the
provision for losses on loans during the six months ended June 30, 2008 is a
reflection of these factors, weaker economic conditions in the greater
Cincinnati area, and the need to allocate approximately $285,000 in specific
reserves for seven residential properties totaling $443,000 which were acquired
through foreclosure during the six months ended June 30, 2008. The five year
historic loss experience has improved from prior year, which has caused the
allowance for loan loss as a percentage of loans to decrease. 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 June 30, 2008.
Non-performing and impaired loans totaled $1.8 million and $660,000 at June 30,
2008 and December 31, 2007, respectively. At June 30, 2008, non-performing and
impaired loans were comprised solely of 4 loans secured by one- to four-family
residential real estate and 2 loans secured by multi-family residential real
estate. The allowance for loan losses represented 28.3% and 90.3% of
non-performing and impaired loans at June 30, 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 decreased $4.8 million, or 2.2%, to $214.7 million at June 30, 2008,
from $219.5 million at December 31, 2007. Advances from the Federal Home Loan
Bank of Cincinnati increased by $13.5 million, or 47.1%, to $42.2 million at
June 30, 2008, from $28.7 million at December 31, 2007.
Shareholders' equity decreased $351,000, or 0.5%, to $67.6 million at June 30,
2008, from $67.9 million at December 31, 2007. The decrease primarily resulted
from the repurchase of our common stock totaling $571,000 and dividends paid of
$618,000, which were partially offset by net earnings of $543,000. At June 30,
2008, Cheviot Financial had the ability to purchase an additional 388,009 shares
under its announced stock repurchase plan.
15
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes at December 31, 2007
and at June 30, 2008 (continued)
--------------------------------------------------------------------------------
Liquidity and Capital Resources
-------------------------------
We monitor our liquidity position on a daily basis using reports that recap all
deposit activity and loan commitments. A significant portion of our deposit base
is made up of time deposits. At June 30, 2008, $114.6 million of time deposits
are due to mature within twelve months. The daily deposit activity report allows
us to price our time deposits competitively. Because of this and our deposit
retention experience, we anticipate that a significant portion of maturing time
deposits will be retained.
Borrowings from the Federal Home Loan Bank of Cincinnati increased $13.5 million
during the six months ended June 30, 2008. This increase was used primarily to
fund our primary investing activity which is the origination of one- to
four-family real estate loans, commercial real estate, construction and consumer
loans. We have the ability to increase such borrowings by approximately $99.4
million. The additional borrowings can be used to offset any decrease in
customer deposits or to fund loan commitments.
Comparison of Operating Results for the Six-Month Periods Ended June 30, 2008
and 2007
-----------------------------------------------------------------------------
General
Net earnings for the six months ended June 30, 2008 totaled $543,000, a $65,000
increase from the $478,000 net earnings reported for the same period in 2007.
The increase in net earnings reflects an increase in net interest income of
$286,000, a decrease of $90,000 in general, administrative and other expenses
and a decrease of $20,000 in federal income taxes, which were partially offset
by an increase of $288,000 in the provision for losses on loans and a decrease
in other income of $43,000 for the 2008 period.
Net Interest Income
Total interest income increased $196,000, or 2.2%, to $9.0 million for the
six-months ended June 30, 2008, from the comparable period in 2007. Interest
income on loans increased $191,000, or 2.6%, to $7.6 million during the 2008
period from $7.4 million for the 2007 period. This increase was due primarily to
a $10.4 million, or 4.3%, increase in the average balance of loans outstanding,
which was partially offset by a 10 basis point decrease in the average yield on
loans to 5.96% for the 2008 period from 6.06% for the six months ended June 30,
2007.
Interest income on mortgage-backed securities decreased $103,000, or 28.2%, to
$262,000 for the six months ended June 30, 2008, from $365,000 for the same
period in 2007, due primarily to a $4.5 million decrease in the average balance
of securities outstanding (resulting primarily from investment security calls),
which was partially offset by a 40 basis point increase in the average yield
period to period. Interest income on investment securities increased $165,000,
or 18.6%, to $1.1 million for the six months ended June 30, 2008, compared to
$887,000 for the same period in 2007, due primarily to an 11 basis point
increase in the average yield to 5.58% in the 2008 period, and an increase of
$5.2 million, or 16.1% in the average balance of investment securities
outstanding. Interest income on other interest-earning deposits decreased
$57,000, or 44.9% to $70,000 for the six months ended June 30, 2008, as compared
to the same period in 2007.
16
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six-Month Periods Ended June 30, 2008
and 2007(continued)
-----------------------------------------------------------------------------
Interest expense decreased $90,000, or 2.0% to $4.5 million for the six months
ended June 30, 2008, from $4.6 million for the same period in 2007. Interest
expense on deposits decreased by $155,000, or 4.0%, to $3.7 million for the six
months ended June 30, 2008, from $3.9 million for the same period in 2007 due
primarily to a 28 basis point decrease in the average costs of deposits to 3.48%
during the 2008 period, which was partially offset by a $7.6 million, or 3.6%,
increase in the average balances outstanding. Interest expense on borrowings
increased by $65,000, or 9.5%, due primarily to a $4.7 million, or 16.4%,
increase in the average balance outstanding, which was partially offset by a 27
basis point decrease in the average cost of borrowings. The decrease in the
average cost of deposits and borrowings reflects lower shorter term interest
rates in 2008 as compared to 2007, as actions by the Federal Reserve to reduce
shorter term interest rates resulted in a steepening of the yield curve and a
reduction of short term and medium term interest rates.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $286,000, or 6.9%, to $4.5 million for the six
months ended June 30, 2008. The average interest rate spread increased to 2.23%
for the six months ended June 30, 2008 from 2.06% for the six months ended June
30, 2007. The net interest margin increased to 2.91% for the six months ended
June 30, 2008 from 2.83% for the six months ended June 30, 2007.
Provision for Losses on Loans
-----------------------------
Management recorded a $288,000 provision for losses on loans for the six months
ended June 30, 2008. There was no provision for the losses on loans for the six
months ended June 30, 2007. The decision to make a provision for loan losses
during the six months ended June 30, 2008 reflects the amount necessary to
maintain an adequate allowance based on the five year historical loss experience
and other external factors. 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 $43,000, or 16.7%, to $215,000 for the six months ended
June 30, 2008, compared to the same period in 2007, due primarily to an increase
in the loss on the sale of real estate acquired through foreclosure of $43,000
and a decrease of $14,000 in the gain on sale of loans, which were partially
offset by an increase of $12,000 in other operating income.
17
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six-Month Periods Ended June 30, 2008
and 2007(continued)
-------------------------------------------------------------------------------
General, Administrative and Other Expense
-----------------------------------------
General, administrative and other expense decreased $90,000, or 2.4%, to $3.6
million for the six months ended June 30, 2008, from $3.7 million for the
comparable period in 2007. This decrease is a result of a decrease of $104,000
in employee compensation and benefits, a decrease of $33,000 in legal and
professional expense and a decrease of $17,000 in other operating expense, which
was partially offset by an increase of $42,000 in property, payroll and other
taxes. 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 legal and
professional services was due primarily to expenses incurred that related to
litigation costs as the Corporation was defending its interest in collateral
during the six months ended June 30, 2007. The Corporation reached a settlement
regarding this litigation for $50,000 during the prior period, accounting for
the majority of the decrease in other operating expense. The increase in
property, payroll and other taxes was due primarily to an increase in the Ohio
franchise tax.
Federal Income Taxes
The provision for federal income taxes decreased $20,000, or 9.0%, to $201,000
for the six months ended June 30, 2008, from $221,000 for the same period in
2007. The effective tax rate was 27.0% and 31.6% for the six month periods ended
June 30, 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.
Comparison of Operating Results for the Three-Month Periods Ended June 30, 2008
and 2007
--------------------------------------------------------------------------------
General
-------
Net earnings for the three months ended June 30, 2008 totaled $446,000, a
$174,000 increase from the $272,000 earnings reported in the June 2007 period.
The increase in net earnings reflects an increase in net interest income of
$229,000 and an increase in other income of $24,000, which were partially offset
by an increase of $25,000 in the provision for losses on loans, an increase in
general, administrative and other expenses of $29,000 and an increase of $25,000
in federal income taxes for the 2008 quarter.
Net Interest Income
-------------------
Total interest income increased $2,000, or 0.1%, to $4.4 million for the
three-months ended June 30, 2008, from the comparable quarter in 2007. Interest
income on loans increased $69,000, or 1.9%, to $3.8 million during the 2008
quarter from $3.7 million for the 2007 quarter. This increase was due primarily
to a $12.7 million, or 5.2%, increase in the average balance of loans
outstanding, which was partially offset by a 19 basis point decrease in the
average yield on loans to 5.85% for the 2008 quarter from 6.04% for the three
months ended June 30, 2007.
18
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 June 30, 2008
and 2007(continued)
--------------------------------------------------------------------------------
Interest income on mortgage-backed securities decreased $55,000, or 30.9%, to
$123,000 for the three months ended June 30, 2008, from $178,000 for the
comparable 2007 quarter, due primarily to a $4.3 million decrease in the average
balance of securities outstanding, which was partially offset by a 20 basis
point increase in the average yield period to period. Interest income on
investment securities increased $8,000, or 1.6%, to $498,000 for the three
months ended June 30, 2008, compared to $490,000 for the same quarter in 2007,
due primarily to a 6 basis point increase in the average yield to 5.78% in the
2008 quarter, and an increase of $212,000, or 0.6% in the average balance of
investment securities outstanding. Interest income on other interest-earning
deposits decreased $20,000, or 34.5% to $38,000 for the three months ended June
30, 2008.
Interest expense decreased $227,000, or 9.7% to $2.1 million for the three
months ended June 30, 2008, from $2.3 million for the same quarter in 2007.
Interest expense on deposits decreased by $260,000, or 13.0%, to $1.7 million
from $2.0 million due primarily to a 58 basis point decrease in the average
costs of deposits to 3.25% during the 2008 quarter due to the lower rate
repricings of certificates of deposit, as deposit rates were lower in 2008 as
compared to 2007. This was partially offset by a $5.2 million, or 2.5%, increase
in the average balance outstanding. Interest expense on borrowings increased by
$33,000, or 9.8%, due primarily to a $5.5 million, or 18.9%, increase in the
average balance outstanding, which was partially offset by a 36 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 $229,000, or 11.0%, to $2.3 million for the
three months ended June 30, 2008, as compared to the same quarter in 2007. The
average interest rate spread increased to 2.38% for the three months ended June
30, 2008 from 2.05% for the three months ended June 30, 2007. The net interest
margin increased to 3.02% for the three months ended June 30, 2008 from 2.81%
for the three months ended June 30, 2007.
Provision for Losses on Loans
-----------------------------
Management recorded a $25,000 provision for losses on loans for the three months
ended June 30, 2008. There was no provision for the losses on loans for the
three months ended June 30, 2007. The decision to make a provision for loan
losses during the six months ended June 30, 2008 reflects the amount necessary
to maintain an adequate allowance based on the five year historical loss
experience and other external factors. 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 for loan losses is adequate to absorb such
losses.
Other Income
------------
Other income increased $24,000, or 18.6%, to $153,000 for the three months ended
June 30, 2008, compared to the same quarter in 2007, due primarily to an
increase in the gain on the sale of real estate acquired through foreclosure of
$16,000 and an increase of $9,000 in other operating income.
19
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 June 30, 2008
and 2007(continued)
--------------------------------------------------------------------------------
General, Administrative and Other Expense
-----------------------------------------
General, administrative and other expense increased $29,000, or 1.6%, and was
$1.8 million for each of the three months ended June 30, 2008 and 2007. This
increase is a result of an increase of $19,000 in property, payroll and other
taxes and an increase of $42,000 in other operating expense, which was partially
offset by a decrease of $39,000 in legal and professional expense. The increase
in property, payroll and other taxes is due primarily to an increase in the Ohio
franchise tax. The increase in other operating expense is due primarily to an
increase in the overall operations of the Bank and an increase in the cost of
maintaining properties acquired through foreclosure. The decrease in legal and
professional services was due primarily to expenses incurred that related to
litigation costs as the Corporation was defending its interest in collateral
during the six months ended June 30, 2007.
Federal Income Taxes
--------------------
The provision for federal income taxes increased $25,000, or 18.2%, to $162,000
for the three months ended June 30, 2008, from $137,000 for the same quarter in
2007, due primarily to a $199,000, or 48.7%, increase in pre-tax earnings. The
effective tax rate was 26.6% and 33.5% for the three month periods ended June
30, 2008 and 2007, respectively. 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.
20
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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.
21
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 June 30, 2008, the Corporation had purchased 59,575
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
------ --------- --------- ------------
April 1-30, 2008 8,335 $9.16 46,792
May 1-31, 2008 7,283 $8.95 54,075
June 1-30, 2008 5,500 $8.66 59,575
ITEM 3. Defaults Upon Senior Securities
------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Corporation held its Annual Meeting of Shareholders on April 22,
2008. Two matters were presented to the shareholders for a vote: The
shareholders elected two directors by the following votes:
For Withheld
John T. Smith 8,369,522 219,566
Robert L. Thomas 8,474,222 114,866
The shareholders ratified the selection of Clark, Schaefer, Hackett &
Co. as the Company's auditors for the 2008 calendar year by the
following vote:
For: 8,546,945 Against: 41,743 Abstain: 400
ITEM 5. Other Information
-----------------
None.
22
Cheviot Financial Corp.
PART II (CONTINUED)
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.
23
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: August 7, 2008 By: /s/Thomas J. Linneman
---------------------- -------------------------------------
Thomas J. Linneman
President and Chief Executive Officer
Date: August 7, 2008 By: /s/Scott T. Smith
---------------------- ------------------------------------
Scott T. Smith
Chief Financial Officer
24
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: August 7, 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: August 7, 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 June 30, 2008, 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: August 7, 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 June 30, 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: August 7, 2008