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 September 30, 2006
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
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(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 [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 November 7, 2006, the latest practicable date, 9,416,204 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
Page 1 of 21
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 19
Controls and Procedures 19
PART II - OTHER INFORMATION 20
SIGNATURES 21
2
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, December 31,
ASSETS 2006 2005
(Unaudited)
Cash and due from banks $ 1,270 $ 2,425
Federal funds sold 1,710 1,715
Interest-earning deposits in other financial institutions 2,588 4,963
---------- ----------
Cash and cash equivalents 5,568 9,103
Investment securities available for sale - at fair value 11,101 -
Investment securities held to maturity - at cost, approximate
market value of $26,660 and $26,509 at September 30, 2006
and December 31, 2005, respectively 27,096 27,084
Mortgage-backed securities available for sale - at fair value 1,091 1,269
Mortgage-backed securities held to maturity - at cost, approximate
market value of $15,760 and $20,193 at September 30, 2006 and
December 31, 2005, respectively 15,777 20,285
Loans receivable - net 238,462 222,053
Loans held for sale - at lower of cost or market 207 658
Real estate acquired through foreclosure - net - 89
Office premises and equipment - at depreciated cost 4,675 3,628
Federal Home Loan Bank stock - at cost 3,190 3,057
Accrued interest receivable on loans 1,001 873
Accrued interest receivable on mortgage-backed securities 60 72
Accrued interest receivable on investments and interest-earning deposits 495 298
Prepaid expenses and other assets 316 145
Bank-owned life insurance 3,221 3,121
Prepaid federal income taxes - 56
---------- ----------
Total assets $312,260 $291,791
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $208,946 $181,238
Advances from the Federal Home Loan Bank 28,408 33,209
Advances by borrowers for taxes and insurance 760 1,063
Accounts payable and other liabilities 1,046 1,090
Accrued federal income taxes 47 -
Deferred federal income taxes 516 381
---------- ----------
Total liabilities 239,723 216,981
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 September 30, 2006 and December 31, 2005 99 99
Additional paid-in capital 43,039 42,824
Shares acquired by stock benefit plans (4,686) (5,092)
Treasury stock - at cost, 495,937 and 216,208 shares at September 30, 2006
and December 31, 2005, respectively (5,893) (2,537)
Retained earnings - restricted 39,974 39,524
Accumulated comprehensive gain (loss), unrealized gains (losses) on securities
available for sale, net of related tax effects 4 (8)
---------- ----------
Total shareholders' equity 72,537 74,810
---------- ----------
Total liabilities and shareholders' equity $312,260 $291,791
========== ==========
See accompanying notes to consolidated financial statements.
3
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Nine months ended Three months ended
September 30, September 30,
2006 2005 2006 2005
Interest income
Loans $10,360 $ 9,057 $ 3,584 $ 3,139
Mortgage-backed securities 628 672 204 233
Investment securities 938 710 380 253
Interest-earning deposits and other 225 166 115 57
------- ------- ------- -------
Total interest income 12,151 10,605 4,283 3,682
Interest expense
Deposits 4,422 2,862 1,782 1,047
Borrowings 1,138 739 349 304
------- ------- ------- -------
Total interest expense 5,560 3,601 2,131 1,351
------- ------- ------- -------
Net interest income 6,591 7,004 2,152 2,331
Provision for losses on loans - 62 - 30
------- ------- ------- -------
Net interest income after provision for losses on loans 6,591 6,942 2,152 2,301
Other income (expense)
Gain on sale of loans 23 13 10 9
Gain on sale of office premises and equipment 44 - 44 -
Loss on sale of real estate acquired through foreclosure (21) (8) - (2)
Earnings on bank-owned life insurance 100 74 32 25
Other operating 253 225 90 80
------- ------- ------- -------
Total other income 399 304 176 112
General, administrative and other expense
Employee compensation and benefits 3,105 2,683 1,063 921
Occupancy and equipment 321 310 114 84
Property, payroll and other taxes 581 709 165 231
Data processing 209 201 71 85
Legal and professional 309 383 99 77
Advertising 131 131 44 44
Other operating 416 402 134 132
------- ------- ------- -------
Total general, administrative and other expense 5,072 4,819 1,690 1,574
------- ------- ------- -------
Earnings before income taxes 1,918 2,427 638 839
Federal income taxes
Current 485 744 189 274
Deferred 129 60 12 5
------- ------- ------- -------
Total federal income taxes 614 804 201 279
------- ------- ------- -------
NET EARNINGS $ 1,304 $ 1,623 $ 437 $ 560
======= ======= ======= ======
EARNINGS PER SHARE
Basic $.14 $.17 $.05 $.06
======= ======= ======= ======
Diluted $.14 $.17 $.05 $.06
======= ======= ======= ======
Dividends declared per share $.21 $.18 $.07 $.06
======= ======= ======= ======
See accompanying notes to consolidated financial statements.
4
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the nine and three months ended September 30, 2006 and 2005
(In thousands)
For the nine months For the three months
ended September 30, ended September 30,
2006 2005 2006 2005
Net earnings for the period $1,304 $1,623 $ 437 $ 560
Other comprehensive income, net of tax:
Unrealized holding gains on securities during the
period, net of taxes of $6 and $5 for the nine
months ended September 30, 2006 and 2005, respectively,
and $11 and $3 for the three months ended September 30,
2006 and 2005, respectively 12 8 17 4
Comprehensive income $1,316 $1,631 $ 454 $ 564
====== ====== ====== =====
Accumulated comprehensive income $ 4 $ 2 $ 4 $ 2
5
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(Unaudited)
(In thousands)
2006 2005
Cash flows from operating activities:
Net earnings for the period $ 1,304 $ 1,623
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Amortization of premiums and discounts on investment
and mortgage-backed securities, net (9) 27
Depreciation 191 163
Amortization of deferred loan origination fees - net (21) (35)
Proceeds from sale of loans in the secondary market 2,008 1,595
Loans originated for sale in the secondary market (1,985) (1,591)
Gain on sale of loans (23) (13)
Loss on sale of real estate acquired through foreclosure 21 8
Gain on sale of office premises and equipment (44) -
Federal Home Loan Bank stock dividends (133) (104)
Provision for losses on loans - 62
Amortization of expense related to stock benefit plans 36 100
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (128) (109)
Accrued interest receivable on mortgage-backed securities 12 7
Accrued interest receivable on investments and interest-earning deposits (197) (42)
Prepaid expenses and other assets (171) (114)
Accounts payable and other liabilities 362 183
Federal income taxes
Current 103 (242)
Deferred 129 60
------- -------
Net cash provided by operating activities 1,455 1,578
Cash flows used in investing activities:
Principal repayments on loans 29,463 32,037
Loan disbursements (45,400) (46,573)
Purchase of U.S. Government and agency obligations (8,998) (1,977)
Proceeds from maturity of U.S. Government and agency obligations - 2,000
Purchase of municipal obligations (2,080) -
Principal repayments on mortgage-backed securities 4,678 6,924
Proceeds from sale of real estate acquired through foreclosure 68 110
Proceeds from sale of office premises and equipment 85 -
Purchase of office premises and equipment (1,279) (680)
Purchase of bank-owned life insurance - (3,000)
Net increase in the cash surrender value of life insurance (100) (74)
------- -------
Net cash used in investing activities (23,563) (11,233)
Cash flows provided by financing activities:
Net increase in deposits 27,708 1,037
Proceeds from Federal Home Loan Bank advances 3,500 16,600
Repayments of Federal Home Loan Bank advances (8,301) (2,798)
Advances by borrowers for taxes and insurance (303) (288)
Purchase of shares for stock benefit plans - (1,641)
Treasury stock repurchases (3,356) -
Stock option expense, net 179 -
Dividends paid on common stock (854) (804)
------- -------
Net cash provided by financing activities 18,573 12,106
------- -------
Net (decrease) increase in cash and cash equivalents (3,535) 2,451
Cash and cash equivalents at beginning of period 9,103 7,725
------- -------
Cash and cash equivalents at end of period $ 5,568 $10,176
======= =======
6
Cheviot Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(Unaudited)
(In thousands)
2006 2005
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Federal income taxes $ 512 $1,007
======= =======
Interest on deposits and borrowings $ 5,560 $3,601
======= =======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ - $ 112
======= =======
Recognition of mortgage servicing rights in accordance with SFAS No. 140 $ 16 $ 9
======= =======
See accompanying notes to consolidated financial statements.
7
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 2006 and 2005
1. Basis of Presentation
------------------------
In January 2004, Cheviot Financial Corp. ("Cheviot Financial" or the
"Corporation") completed a Plan of Reorganization (the "Plan" or the
"Reorganization") pursuant to which Cheviot Savings Bank (the "Savings Bank")
reorganized into a two-tier mutual holding company structure with the
establishment of Cheviot Financial, as parent of the Savings Bank, with the
Savings Bank converting to stock form and issuing all of its outstanding stock
to Cheviot Financial. Pursuant to the Plan, Cheviot Financial Corp. sold
4,388,438 common shares in a minority stock offering, representing approximately
44% of its outstanding common stock at $10.00 per share to the Savings Bank's
depositors and a newly formed Employee Stock Ownership Plan ("ESOP"). The net
proceeds of the offering totaled approximately $39.3 million. In addition,
75,000 shares, or approximately one percent of its outstanding shares, were
issued to a charitable foundation established by Cheviot Savings Bank. The
remaining 5,455,313 shares of common stock of Cheviot Financial were issued to
Cheviot Mutual Holding Company, the federally chartered mutual holding company
parent of Cheviot Financial Corp.
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, 2005. 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 nine month periods ended September 30, 2006, 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
nine months ended September 30, 2006, 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 September 30, 2006 and December 31, 2005, we had $28.4 million
and $33.2 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 $108.8 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 nine months ended September 30, 2006 and 2005
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 nine months ended September
30, 2006, loan originations totaled $47.4 million, compared to $48.2 million for
the nine months ended September 30, 2005.
Total deposits increased $27.7 million and $1.0 million during the nine months
ended September 30, 2006 and 2005. 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
September 30, 2006.
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 $ - $ - $ - $28,408 $ 28,408
Certificates of deposit 119,392 25,270 399 - 145,061
Construction of branch (1) 557 - - - 557
Amount of loan commitments and expiration per period:
Commitments to originate one- to four-family
loans 4,746 - - - 4,746
Home equity lines of credit 10,850 - - - 10,850
Undisbursed loans in process 7,263 - - - 7,263
Lease obligations 3 - - - 3
-------- -------- -------- -------- ---------
Total contractual obligations $142,811 $25,270 $ 399 $28,408 $196,888
---------------------------
(1) The total commitment related to the branch was $889,000 of which $332,000
has been disbursed. In addition, at September 30, 2006, we were in
negotiations for the construction of an additional branch.
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 nine months ended September 30, 2006 and 2005
3. Liquidity and Capital Resources (continued)
----------------------------------------------
At September 30, 2006 and 2005, we exceeded all of the applicable regulatory
capital requirements. Our core (Tier 1) capital was $50.5 million and $60.2
million, or 16.2% and 20.7% of total assets at September 30, 2006 and 2005,
respectively. In order to be classified as "well-capitalized" under federal
banking regulations, we were required to have core capital of at least $18.7
million, or 6% of assets as of September 30, 2006. 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 September 30, 2006 and 2005, we had a
total risk-based capital ratio of 33.3% and 43.6%, 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 285,661 and 321,368 unallocated shares held by the ESOP for the three and
nine months ended September 30, 2006 and 2005, respectively.
For the nine months ended For the three months ended
September 30, September 30,
2006 2005 2006 2005
Weighted-average common shares
outstanding (basic) 9,262,744 9,596,867 9,164,950 9,597,383
Dilutive effect of assumed exercise
of stock options 23,578 16,152 26,584 12,001
Weighted-average common shares
outstanding (diluted) 9,286,322 9,613,019 9,191,534 9,609,384
A total of 6,060 shares with a weighted-average exercise price of $12.12 are not
included in the earnings per share calculation for both the three and nine
months ended September 30, 2006, as these shares are anti-dilutive.
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. On May 5, 2005, approximately 384,000
option shares were granted subject to five year vesting. On May 23, 2006,
approximately 6,100 option shares were granted subject to five year vesting.
Prior to January 1, 2006, the Corporation utilized APB Opinion No. 25 and
related Interpretations in accounting for its stock option plan. Accordingly, no
compensation cost had been recognized for the plan. For the nine and three
months ended September 30, 2005, net earnings would have been reduced by
$71,000, resulting in pro-forma net earnings of $1.6 million, or $.16 per share
for the nine months period and $489,000, or $.05 per share for the three month
period.
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 nine months ended September 30, 2006 and 2005
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 nine months ended
September 30, 2006, the Corporation recorded $129,000 in after-tax compensation
cost for equity-based awards that vested during the nine months ended September
30, 2006. The Corporation has $940,000 unrecognized pre-tax compensation cost
related to non-vested equity-based awards granted under its stock incentive plan
as of September 30, 2006, which is expected to be recognized over a
weighted-average vesting period of approximately 3.7 years.
A summary of the status of the Corporation's stock option plan as of September
30, 2006, and changes during the period then ended is presented below:
Nine months ended Year ended
September 30, 2006 December 31, 2005
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
Outstanding at beginning of period 383,700 $11.15 - $ -
Granted 6,060 12.12 383,700 11.15
Exercised - - - -
Forfeited - - - -
------- ------ ------- ------
Outstanding at end of period 389,760 $11.17 383,700 $11.15
======= ====== ======= ======
Options exercisable at period-end 76,740 $11.15 - $ -
======= ====== ======= ======
Options expected to be exercisable at year-end 76,740 -
======= =======
Fair value of options granted $ 2.97 $ 3.36
====== ======
The following information applies to options outstanding at September 30,
2006:
Number outstanding 389,760
Exercise price$11.15 - $12.12
Weighted-average exercise price $11.17
Weighted-average remaining contractual life 8.7 years
Aggregate intrinsic value of vested options $103,599
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 nine months ended September 30, 2006 and 2005
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 2005 and 2006: dividend yield of 2.15% and 2.31%,
expected volatility of 22.5% and 14.4%, risk-free interest rate of 4.19% and
5.07% 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. Effects of Recent Accounting Pronouncements
----------------------------------------------
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Instruments - an amendment of FASB Statements No. 133 and 140," to simplify and
make more consistent the accounting for certain financial instruments.
Specifically, SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," to permit fair value remeasurement for any
hybrid financial instrument with an embedded derivative that otherwise would
require bifurcation, provided that the whole instrument is accounted for on a
fair value basis. SFAS No. 155 amends SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities," to allow a
qualifying special purpose entity to hold a derivative instrument that pertains
to a beneficial interest other than another derivative financial instrument.
SFAS No. 155 is effective for all financial instruments acquired or issued after
the beginning of an entity's first fiscal year that begins after September 15,
2006, or January 1, 2007 as to the Corporation, with earlier application
allowed. The Corporation is currently evaluating SFAS No. 155, but does not
expect it to have a material effect on the Corporation's financial position or
results of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets - an amendment of SFAS No. 140," to simplify the accounting for
separately recognized servicing assets and servicing liabilities. Specifically,
SFAS No. 156 amends SFAS No. 140 to require an entity to take the following
steps:
o Separately recognize financial assets as servicing assets or servicing
liabilities, each time it undertakes an obligation to service a
financial asset by entering into certain kinds of servicing contracts;
o Initially measure all separately recognized servicing assets and
liabilities at fair value, if practicable, and;
o Separately present servicing assets and liabilities subsequently
measured at fair value in the statement of financial position and
additional disclosures for all separately recognized servicing assets
and servicing liabilities.
Additionally, SFAS No. 156 permits, but does not require, an entity to choose
either the amortization method or the fair value measurement method for
measuring each class of separately recognized servicing assets and servicing
liabilities. SFAS No. 156 also permits a servicer that uses derivative financial
instruments to offset risks on servicing to use fair value measurement when
reporting both the derivative financial instrument and related servicing asset
or liability.
12
Cheviot Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine months ended September 30, 2006 and 2005
6. Effects of Recent Accounting Pronouncements (continued)
---------------------------------------------------------
SFAS No. 156 applies to all separately recognized servicing assets and
liabilities acquired or issued after the beginning of an entity's fiscal year
that begins after September 15, 2006, or January 1, 2007 as to the Corporation,
with earlier application permitted. The Corporation is currently evaluating SFAS
No. 156, but does not expect it to have a material effect on the Corporation's
financial position or results of operations.
In September 2006, the SEC staff issued Staff Accounting Bulletin ("SAB") No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements." SAB 108 was issued to
provide consistency between how registrants quantify financial statement
misstatements.
Historically, there have been two widely-used methods for quantifying the
effects of financial statement misstatements. These methods are referred to as
the "roll-over" and "iron curtain" method. The roll-over method quantifies the
amount by which the current year income statement is misstated. Exclusive
reliance on an income statement approach can result in the accumulation of
errors on the balance sheet that may not have been material to any individual
income statement, but which may misstate one or more balance sheet accounts. The
iron curtain method quantifies the error as the cumulative amount by which the
current year balance sheet is misstated. Exclusive reliance on a balance sheet
approach can result in disregarding the effects of errors in the current year
income statement that results from the correction of an error existing in
previously issued financial statements. We currently use the roll-over method
for quantifying identified financial statement misstatements.
SAB 108 established an approach that requires quantification of financial
statement misstatements based on the effects of the misstatement on each of the
company's financial statements and the related financial statement disclosures.
This approach is commonly referred to as the "dual approach" because it requires
quantification of errors under both the roll-over and iron curtain methods.
SAB 108 allows registrants to initially apply the dual approach either by (1)
retroactively adjusting prior financial statements as if the dual approach had
always been used, or by (2) recording the cumulative effect of initially
applying the dual approach as adjustments to the carrying values of assets and
liabilities as of April 1, 2006, with an offsetting adjustment recorded to the
opening balance of retained earnings. Use of this "cumulative effect" transition
method requires detailed disclosure of the nature and amount of each individual
error being corrected through the cumulative adjustment and how and when it
arose.
Management is currently evaluating the requirements of SAB 108 but does not
expect it to have a material adverse effect on the Company's financial position
or results of operations.
In July 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes." The interpretation clarifies the accounting
for uncertainty in income taxes recognized in a company's financial statements
in accordance with SFAS No. 109, "Accounting for Income Taxes." Specifically,
FIN 48 prescribes a recognition threshold and a measurement attribute for the
financial statement recognition and measurement of a tax provision taken or
expected to be taken on a tax return. FIN 48 also provides guidance on the
related derecognition, classification, interest and penalties, accounting for
interim periods, disclosure, and transition of uncertain tax positions. FIN 48
is effective for fiscal years beginning after December 15, 2006, or April 1,
2007 as to the Company. The Company is currently evaluating the requirements of
FIN 48 but does not expect it to have a material adverse effect on the Company's
financial position or results of operations.
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, 2005 and at September
30, 2006
--------------------------------------------------------------------------------
Total assets increased $20.5 million, or 7.0%, to $312.3 million at September
30, 2006, from $291.8 million at December 31, 2005. The increase in total assets
reflects an increase in loans receivable, investment securities, as well as the
book value of office premises and equipment, 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 $3.5 million,
or 38.8%, to $5.6 million at September 30, 2006, from $9.1 million at December
31, 2005. The decrease in cash and cash equivalents at September 30, 2006, was
due to a $1.2 million decrease in cash and cash due from banks and a decrease in
interest earning deposits of $2.4 million. Investment securities increased $11.1
million to $38.2 million at September 30, 2006 due primarily to the purchase of
U.S. Government and agency obligations and municipal obligations of $9.0 million
and $2.1 million, respectively. At September 30, 2006, $27.1 million of
investment securities were classified as held to maturity, while $11.1 million
were classified as available for sale.
Mortgage-backed securities decreased $4.7 million, or 21.7%, to $16.9 million at
September 30, 2006, from $21.6 million at December 31, 2005. The decrease in
mortgage-backed securities was due primarily to principal prepayments and
repayments totaling $4.7 million. At September 30, 2006, $15.8 million of
mortgage-backed securities were classified as held to maturity, while $1.1
million were classified as available for sale. Management has focused on
investing in shorter term instruments in an effort to enhance the Corporation's
liquidity in the current inverted yield curve interest rate environment.
Loans receivable, including loans held for sale, increased $16.0 million, or
7.2%, to $238.7 million at September 30, 2006, from $222.7 million at December
31, 2005. The increase reflects loan originations totaling $47.4 million,
partially offset by loan principal repayments of $29.5 million and sales of $2.0
million.
The allowance for loan losses totaled $808,000 at both September 30, 2006 and
December 31, 2005, 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 historic loss
experience by applying such loss percentage to the loan types to be collectively
evaluated in the portfolio. This segment of the loss analysis resulted in no
addition to the provision for loss for the quarter ended September 30, 2006. 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 September 30, 2006.
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, 2005 to September
30, 2006 (continued)
-------------------------------------------------------------------------------
Non-performing and impaired loans totaled $12,000 and $149,000 at September 30,
2006 and December 31, 2005, respectively. At September 30, 2006, non-performing
and impaired loans were comprised solely of one loan secured by one- to
four-family residential real estate. The allowance for loan losses represented
6733.3% and 542.3% of non-performing and impaired loans at September 30, 2006
and December 31, 2005, 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 $27.7 million, or 15.3%, to $208.9 million at September 30,
2006, from $181.2 million at December 31, 2005. Advances from the Federal Home
Loan Bank of Cincinnati decreased by $4.8 million, or 14.5%, to $28.4 million at
September 30, 2006, from $33.2 million at December 31, 2005. Deposit growth
allowed for the repayment of advances from the Federal Home Loan Bank.
Shareholders' equity decreased $2.3 million, or 3.0%, to $72.5 million at
September 30, 2006, from $74.8 million at December 31, 2005. The decrease
primarily resulted from the repurchase of treasury shares of $3.4 million and
dividends paid of $854,000, which were partially offset by net earnings of $1.3
million, vesting of $406,000 of stock benefit plan shares and amortization of
shares for stock benefit plans of $36,000.
Comparison of Operating Results for the Nine-Month Periods Ended September 30,
2006 and 2005
--------------------------------------------------------------------------------
General
-------
Net earnings for the nine months ended September 30, 2006 totaled $1.3 million,
a $319,000 decrease from the $1.6 million net earnings reported in the September
2005 period. The decrease in net earnings reflects a $253,000 increase in
general and administrative expense in 2006 and a decrease in net interest income
after provision for loan losses of $351,000, which was partially offset by an
increase in other income of $95,000 and a decrease of $190,000 in federal income
taxes for the 2006 period.
Net Interest Income
-------------------
Total interest income increased $1.5 million, or 14.6%, to $12.2 million for the
nine-months ended September 30, 2006, from the comparable period in 2005.
Interest income on loans increased $1.3 million, or 14.4%, to $10.4 million
during the 2006 period from $9.1 million for the 2005 period. This increase was
due primarily to a $22.3 million, or 10.7%, increase in the average balance of
loans outstanding, and a 19 basis point increase in the weighted-average yield
on loans to 5.98% for 2006 period from 5.79% for the nine months ended September
30, 2005.
15
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine-Month Periods Ended September 30,
2006 and 2005 (continued)
--------------------------------------------------------------------------------
Net Interest Income (continued)
-------------------------------
Interest income on mortgage-backed securities decreased $44,000, or 6.5%, to
$628,000 for the nine months ended September 30, 2006, from $672,000 for the
2005 period, due primarily to a $8.1 million decrease in the average balance of
securities outstanding, which was partially offset by a 110 basis point increase
in the average yield period to period. Interest income on investment securities
increased $228,000, or 32.1%, to $938,000 for the nine months ended September
30, 2006, compared to $710,000 for the same period in 2005, due primarily to a
99 basis point increase in the average yield to 4.26% in the 2006 period, and a
$397,000, or 1.4% increase in the average balance of investment securities
outstanding. Interest income on other interest-earning deposits increased
$59,000, or 35.5% to $225,000 for the nine months ended September 30, 2006,
compared to $166,000 for the same period in 2005, due primarily to a 208 basis
point increase in the average yield to 5.10% in the 2006 period, which was
partially offset by a $1.4 million, or 19.6% decrease in the average balance of
interest-earning deposits.
Interest expense increased $2.0 million, or 54.4%, to $5.6 million for the nine
months ended September 30, 2006, from $3.6 million for the same period in 2005.
Interest expense on deposits increased by $1.6 million, or 54.5%, to $4.4
million from $2.9 million due primarily to a 96 basis point increase in the
weighted average costs of deposits to 3.11% during the 2006 period and a $12.0
million increase in the weighted-average balance outstanding. Interest expense
on borrowings increased by $399,000, or 54.0%, due primarily to a $9.7 million,
or 44.0%, increase in the average balance outstanding and a 31 basis point
increase in the average cost of borrowings. The increase in the yields on
interest-earning assets and costs of interest-bearing liabilities were due
primarily to the overall increase in interest rates during the September 2006
period.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $413,000, or 5.9%, to $6.6 million for the nine
months ended September 30, 2006. The average interest rate spread decreased to
2.33% for the nine months ended September 30, 2006 from 2.79% for the nine
months ended September 30, 2005. The net interest margin decreased to 3.08% for
the nine months ended September 30, 2006 from 3.43% for the nine months ended
September 30, 2005.
Provision for Losses on Loans
-----------------------------
As a result of the allowance for loan losses analysis described elsewhere
herein, management concluded that the allowance for loan loss was adequate, and
therefore, did not record a provision for losses on loans for the nine-months
ended September 30, 2006. During the nine months ended September 30, 2005,
management made a provision for losses on loans of $62,000. As stated
previously, there can be no assurance that the loan loss allowance will be
sufficient to cover losses on non-performing loans in the future.
Other Income
------------
Other income increased $95,000, or 31.3%, to $399,000 for the nine months ended
September 30, 2006, compared to the same period in 2005, due primarily to an
increase of $26,000 in earnings on bank-owned life insurance, an increase in the
gain on sale of loans of $10,000, and an increase in the gain on sale of office
premises and equipment of $44,000 and an increase in other operating income of
$28,000, which was partially offset by an increase in the loss on the sale of
real estate acquired through foreclosure of $13,000.
16
Cheviot Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine-Month Periods Ended September 30,
2006 and 2005 (continued)
-------------------------------------------------------------------------------
General, Administrative and Other Expense
-----------------------------------------
General, administrative and other expense increased $253,000, or 5.3%, to $5.1
million for the nine months ended September 30, 2006, from $4.8 million for the
comparable period in 2005. This increase is a result of an increase of $422,000
in employee compensation, which was partially offset by a decrease of $128,000
in property, payroll, and other taxes and a decrease in legal and professional
expenses of $74,000. The increase in employee compensation and benefits is due
primarily to an increase in expense related to stock benefit plans and an
increase in the number of employees as a result of the Corporation's growth. The
decrease in property, payroll, and other taxes is due primarily to a decrease in
Ohio franchise tax. The decrease in legal and professional expenses was due
primarily to a decline in the amount of professional services provided during
the 2006 period.
Federal Income Taxes
--------------------
The provision for federal income taxes decreased $190,000, or 23.6%, to $614,000
for the nine months ended September 30, 2006, from $804,000 for the same period
in 2005, due primarily to a $509,000, or 21.0%, decrease in pre-tax earnings.
The effective tax rate was 32.0% and 33.1% for the nine month periods ended
September 30, 2006 and 2005. The difference between the Corporation's effective
tax rate in the 2006 and 2005 periods and the 34% statutory corporate rate
reflects primarily the tax exempt earnings on bank-owned life insurance.
Comparison of Operating Results for the Three-Month Periods Ended September 30,
2006 and 2005
-------------------------------------------------------------------------------
General
-------
Net earnings for the three months ended September 30, 2006 totaled $437,000, an
$123,000 decrease from the $560,000 net earnings reported in the September 2005
period. The decrease in net earnings reflects a decrease in net interest income
after the provision for losses on loans of $149,000, and an increase of
$116,000, in general, administrative and other expenses, which was partially
offset by an increase in other income of $64,000 and a decrease of $78,000 in
federal income taxes for the 2006 quarter.
Net Interest Income
-------------------
Total interest income increased $601,000, or 16.3%, to $4.3 million for the
three-months ended September 30, 2006, from the comparable quarter in 2005.
Interest income on loans increased $445,000, or 14.2%, to $3.6 million during
the 2006 period from $3.1 million for the 2005 period. This increase was due
primarily to a $20.2 million, or 9.3%, increase in the average balance of loans
outstanding, and a 26 basis point increase in the weighted-average yield on
loans to 6.07% for 2006 quarter from 5.81% for the three months ended September
30, 2005.
17
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 September 30,
2006 and 2005 (continued)
--------------------------------------------------------------------------------
Net Interest Income (continued)
------------------------------
Interest income on mortgage-backed securities decreased $29,000, or 12.4%, to
$204,000 for the three months ended September 30, 2006, from $233,000 for the
2005 quarter, due primarily to a $22.9 million decrease in the average balance
of securities outstanding, which was partially offset by a 92 basis point
increase in the average yield period to period. Interest income on investment
securities increased $127,000, or 50.2%, to $380,000 for the three months ended
September 30, 2006, compared to $253,000 for the same quarter in 2005, due
primarily to a 113 basis point increase in the average yield to 4.49% in the
2006 quarter, and an increase of $3.8 million, or 12.5% in the average balance
of investment securities outstanding. Interest income on other interest-earning
deposits increased $58,000, or 101.8% to $115,000 for the three months ended
September 30, 2006.
Interest expense increased $780,000, or 57.7%, to $2.1 million for the three
months ended September 30, 2006, from $1.4 million for the same period in 2005.
Interest expense on deposits increased by $735,000, or 70.2%, to $1.8 million
from $1.1 million due primarily to a 115 basis point increase in the weighted
average costs of deposits to 3.50% during the 2006 period and a $25.8 million,
or 14.5%, increase in the weighted-average balance outstanding. Interest expense
on borrowings increased by $45,000, or 14.8%, due primarily to a $1.7 million,
or 6.3%, increase in the average balance outstanding and a 34 basis point
increase in the average cost of borrowings. The increase in the yields on
interest-earning assets and costs of interest-bearing liabilities were due
primarily to the overall increase in interest rates during the September 2006
quarter.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $179,000, or 7.7%, to $2.2 million for the
three months ended September 30, 2006. The average interest rate spread
decreased to 2.13% for the three months ended September 30, 2006 from 2.67% for
the three months ended September 30, 2005. The net interest margin decreased to
2.91% for the three months ended September 30, 2006 from 3.36% for the three
months ended September 30, 2005.
Provision for Losses on Loans
-----------------------------
As a result of the allowance for loan losses analysis described elsewhere in
this document, management concluded that the allowance for loan loss was
adequate, and therefore, did not record a provision for losses on loans for the
three-months ended September 30, 2006. There can be no assurance that the loan
loss allowance will be sufficient to cover losses on non-performing loans in the
future. During the three months ended September 30, 2005, management made a
provision for losses on loans of $30,000.
Other Income
------------
Other income increased $64,000, or 57.1%, to $176,000 for the three months ended
September 30, 2006, compared to the same quarter in 2005, due primarily to a
gain on the sale of office premises and equipment totaling $44,000, an increase
of $7,000 in earnings on bank-owned life insurance and an increase in other
operating income of $10,000.
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 September 30,
2006 and 2005 (continued)
--------------------------------------------------------------------------------
General, Administrative and Other Expense
-----------------------------------------
General, administrative and other expense increased $116,000, or 7.4%, to $1.7
million for the three months ended September 30, 2006, from $1.6 million for the
comparable quarter in 2005. This increase is a result of an increase of $142,000
in employee compensation and benefits, a $30,000 increase in occupancy and
equipment and a $22,000 increase in legal and professional services, which were
partially offset by a $66,000 decrease in property, payroll, and other taxes and
a $14,000 decrease in data processing. The decrease in data processing cost was
due primarily to the implementation of online banking during 2005. The decrease
in property, payroll, and other taxes is due primarily to a decrease in Ohio
franchise tax. The increase in employee compensation and benefits is due
primarily to an increase in expense related to stock benefit plans and an
increase in the number of employees as a result of the Corporation's growth. The
increase in occupancy and equipment is due primarily to expense incurred for the
operation of the new branch in Delhi, Ohio. The increase in legal and
professional services was due primarily to expenses incurred in the preliminary
proceedings in litigation wherein the Corporation is defending its security
interest in collateral.
Federal Income Taxes
--------------------
The provision for federal income taxes decreased $78,000, or 28.0%, to $201,000
for the three months ended September 30, 2006, from $279,000 for the same
quarter in 2005, due primarily to a $201,000, or 24.0%, decrease in pre-tax
earnings. The effective tax rate was 31.5% and 33.3% for the three month periods
ended September 30, 2006 and 2005. The difference between the Corporation's
effective tax rate in the 2006 and 2005 periods and the 34% statutory corporate
rate is due primarily to the tax exempt earnings on bank-owned life insurance.
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, 2005.
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 significant 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.
19
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, 2005.
ITEM 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer
Purchases of Equity Securities
---------------------------------------------------------------------
The Corporation announced a repurchase plan on September 13, 2006
which provides for the repurchase of 5% or 471,140 shares of our
common stock. As of September 30, 2006, the Corporation has not
purchased any shares pursuant to the program.
The Corporation announced a repurchase plan on March 29, 2005 which
provided for the repurchase of 5% or 495,937 shares of our common
stock. As of September 30, 2006, the Corporation had purchased all
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
------ --------- ---------- -------------
July 1-31, 2006 20,295 $11.89 449,864
August 1-31, 2006 46,073 $12.02 495,937
September 1 - 30, 2006 - $ - 495,937
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.
20
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: November 14, 2006 By: /s/ Thomas J. Linneman
------------------------------------
Thomas J. Linneman
President and Chief Executive Officer
Date: November 14, 2006 By: /s/ Scott T. Smith
------------------------------------
Scott T. Smith
Chief Financial Officer
21
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. 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
c. 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: November 14, 2006 /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. 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
c. 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: November 14, 2006 /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 September 30, 2006, 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: November 14, 2006
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 September 30, 2006, 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: November 14, 2006