1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from to
Commission File Number 0-22535
Sistersville Bancorp, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1516424
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
726 Wells Street, Sistersville, WV 26175
(Address of principal executive offices)
(304) 652-3671
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
Class: Common Stock, par value $.10 per share
Outstanding at November 10, 1999: 538,739 shares
Transitional small business disclosure format (check one). Yes No X
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2
SISTERSVILLE BANCORP, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of
September 30, 1999 and March 31, 1999 3
Consolidated Statement of Income (Unaudited)
for the Three Months ended September 30, 1999 and 1998 4
Consolidated Statement of Comprehensive Income (Unaudited)
for the Three Months ended September 30, 1999 and 1998 5
Consolidated Statement of Income (Unaudited)
for the Six Months ended September 30, 1999 and 1998 6
Consolidated Statement of Comprehensive Income (Unaudited)
for the Six Months ended September 30, 1999 and 1998 7
Consolidated Statement of Cash Flows (Unaudited)
for the Six Months ended September 30, 1999 and 1998 8
Notes to Unaudited Consolidated Financial Statements 9 - 10
Item 2. Management's Discussion and Analysis 10 - 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Default Upon Senior Securities 16
Item 4. Submissions of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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3
SISTERSVILLE BANCORP, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, March 31,
1999 1999
----------- -----------
ASSETS
Cash and Cash Equivalents:
Cash and amounts due from banks $ 160,705 $ 29,823
Interest-bearing deposits with other institutions 367,618 1,843,976
----------- -----------
Total cash and cash equivalents 528,323 1,873,799
----------- -----------
Investment Securities:
Securities held to maturity (fair value of
$273,944 and $356,980) 269,399 350,815
Securities available for sale 4,759,251 4,908,390
----------- -----------
Total investment securities 5,028,650 5,259,205
----------- -----------
Loans receivable, (net of allowance for loan losses
of $172,550 and $172,250) 25,101,986 24,319,941
Office properties and equipment, net 939,630 487,735
Accrued interest receivable (net of reserve for
uncollected interest of $1,357 and $-0-) 224,119 212,644
Other assets 122,934 34,224
----------- -----------
TOTAL ASSETS $31,945,642 $32,187,548
=========== ===========
LIABILITIES
Deposits $21,069,369 $20,847,502
Federal Home Loan Bank advance 1,000,000 1,000,000
Deferred income taxes 275,075 358,818
Accrued interest payable and other liabilities 167,223 189,656
----------- -----------
TOTAL LIABILITIES 22,511,667 22,395,976
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, $.10 par value;
500,000 shares authorized, none issued - -
Common Stock, $.10 par value;
2,000,000 shares authorized, 661,428 issued;
538,739 outstanding at September 30, 1999,
and 567,093 outstanding at March 31, 1999 66,143 66,143
Additional paid - in capital 6,182,348 6,178,859
Treasury Stock, at cost (122,689 shares at
September 30, 1999, and 94,335 shares
at March 31, 1999) (1,649,297) (1,326,770)
Retained Earnings - substantially restricted 4,940,535 4,890,911
Unearned Employee Stock Ownership Plan shares (ESOP) (393,151) (419,074)
Unearned Restricted Stock Plan shares (RSP) (248,316) (284,217)
Accumulated other comprehensive income 535,713 685,720
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 9,433,975 9,791,572
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,945,642 $32,187,548
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
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4
SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended September 30,
1999 1998
----------- -----------
INTEREST AND DIVIDEND INCOME
Taxable interest on loans $ 488,493 $ 505,298
Taxable interest on investments 63,008 81,045
Nontaxable interest on loans 3,825 2,291
Nontaxable interest on investments 10,272 -
Dividends on Federal Home Loan Bank Stock 4,010 3,698
Dividends on Federal Home Loan Mortgage
Corporation Stock 2,867 2,482
----------- -----------
Total interest and dividend income 572,475 594,814
----------- -----------
INTEREST EXPENSE
Deposits 223,665 219,943
Federal Home Loan Bank advances 13,161 5,865
----------- -----------
Total interest expense 236,826 225,808
----------- -----------
NET INTEREST INCOME 335,649 369,006
PROVISION FOR LOAN LOSSES 1,050 -
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 334,599 369,006
----------- -----------
NONINTEREST INCOME
Service charges 7,759 9,618
Gain on sale of securities available for sale - 74,609
Other income 588 732
----------- -----------
Total noninterest income 8,347 84,959
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 139,207 196,436
Occupancy 11,668 9,948
Furniture and equipment expense 9,883 8,433
Deposit insurance premiums 3,032 3,186
Supervisory examination, audit and legal fees 16,907 19,317
Advertising and public relations 7,454 5,032
Service bureau expense 18,187 16,122
Franchise, payroll and other taxes 15,237 18,947
Loss on sale of securities available for sale 22,581 -
Other expenses 20,088 17,553
----------- -----------
Total noninterest expense 264,244 294,974
----------- -----------
Income before income taxes 78,702 158,991
INCOME TAXES 26,425 59,751
----------- -----------
NET INCOME $ 52,277 $ 99,240
=========== ===========
EARNINGS PER SHARE
Basic $ .11 $ .17
=========== ===========
Diluted $ .11 $ .17
=========== ===========
AVERAGE SHARES OUTSTANDING - BASIC 482,375 582,123
=========== ===========
AVERAGE SHARES OUTSTANDING - DILUTED 495,712 571,108
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended September 30,
1999 1998
--------- ---------
NET INCOME $ 52,277 $ 99,240
--------- ---------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses)
arising during the period (92,432) 42,584
Reclassification adjustment for (gains)
losses included in net income 14,807 (48,921)
--------- ---------
Other comprehensive income (loss) (77,625) (6,337)
--------- ---------
COMPREHENSIVE INCOME (LOSS) $ (25,348) $ 92,903
========= =========
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Six Months Ended September 30,
1999 1998
----------- -----------
INTEREST AND DIVIDEND INCOME
Taxable interest on loans $ 971,404 $ 1,010,665
Taxable interest on investments 132,212 164,305
Nontaxable interest on loans 7,582 4,216
Nontaxable interest on investments 20,551 -
Dividends on Federal Home Loan Bank Stock 7,828 7,347
Dividends on Federal Home Loan Mortgage
Corporation Stock 5,734 3,163
----------- -----------
Total interest and dividend income 1,145,311 1,189,696
----------- -----------
INTEREST EXPENSE
Deposits 445,138 433,272
Federal Home Loan Bank advance 26,179 5,865
----------- -----------
Total interest expense 471,317 439,137
----------- -----------
NET INTEREST INCOME 673,994 750,559
PROVISION FOR LOAN LOSSES 2,145 1,050
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 671,849 749,509
----------- -----------
NONINTEREST INCOME
Service charges 16,380 17,233
Gain on sale securities available for sale - 167,536
Other income 1,194 1,189
----------- -----------
Total noninterest income 17,574 185,958
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 267,463 409,832
Occupancy 23,043 18,864
Furniture and equipment expense 18,545 16,373
Deposit insurance premiums 6,132 6,491
Supervisory examination, audit and legal fees 35,002 44,871
Advertising and public relations 14,680 11,231
Service bureau expense 35,797 29,937
Franchise, payroll and other taxes 29,399 34,111
Loss on sale of securities available for sale 22,581 -
Other expenses 35,975 33,175
----------- -----------
Total noninterest expense 488,617 604,885
----------- -----------
Income before income taxes 200,806 330,582
INCOME TAXES 64,342 121,308
----------- -----------
NET INCOME $ 136,464 $ 209,274
=========== ===========
EARNINGS PER SHARE
Basic $ .28 $ .17
=========== ===========
Diluted $ .27 $ .17
=========== ===========
AVERAGE SHARES OUTSTANDING - BASIC 495,329 572,006
=========== ===========
AVERAGE SHARES OUTSTANDING - DILUTED 509,245 572,006
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six Months Ended September 30,
1999 1998
--------- ---------
NET INCOME $ 136,464 $ 209,274
--------- ---------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising
during the period (164,814) 59,221
Reclassification adjustment for (gains)
losses included in net income 14,807 (109,853)
--------- ---------
Other comprehensive income (loss) (150,007) (50,632)
--------- ---------
COMPREHENSIVE INCOME (LOSS) $ (13,543) $ 158,642
========= =========
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30,
1999 1998
----------- -----------
OPERATING ACTIVITIES
Net income $ 136,464 $ 209,274
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 26,875 18,107
Loss (gain) on sale of available for sale securities 22,581 (167,536)
Provision for loan losses 2,145 1,050
Deferred federal income taxes - (34,066)
ESOP and RRP amortization 65,313 143,548
Decrease (increase) in accrued interest
receivable and other assets (106,140) 7,608
Increase (decrease) in accrued interest
payable and other liabilities (22,433) 72,568
----------- -----------
Net cash provided by operating activities 124,805 250,553
----------- -----------
INVESTING ACTIVITIES
Proceeds from maturity of available
for sale securities 500,000 1,160,000
Proceeds from sale of available for
sale securities 382,892 171,053
Purchase of available for sale securities (1,060,000) (22,400)
Principal collected on mortgage-backed securities 152,531 106,452
Net increase in loans (784,190) (596,792)
Purchases of office properties and equipment (474,013) (151,398)
----------- -----------
Net cash provided by (used in)
investing activities (1,282,780) 666,915
----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 221,867 (470,016)
Dividends paid (86,841) (92,070)
Purchase of Treasury Stock (322,527) -
----------- -----------
Net cash used in financing activities (187,501) (562,086)
----------- -----------
Change in cash and cash equivalents (1,345,476) 355,382
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,873,799 1,566,037
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 528,323 $ 1,921,419
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 470,927 $ 438,738
Income taxes 186,780 120,270
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Sistersville Bancorp, Inc. (the
"Company"), include its wholly-owned subsidiary, First Federal Savings Bank
(the "Bank"). All significant intercompany balances and transactions have
been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore, do
not necessarily include all information that would be included in audited
financial statements. The information furnished reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of operations. All such adjustments are of a normal recurring nature.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the fiscal year ended March 31,
2000.
These statements should be read in conjunction with the consolidated
statements as of and for the fiscal year ended March 31, 1999, and related
notes which are included in the Company's Annual Report on Form 10-KSB (file
no. 0-22535).
NOTE 2 - CONVERSION TO STOCK FORM OF OWNERSHIP AND FORMATION OF HOLDING
COMPANY
On December 5, 1996, the Board of Directors of First Federal Savings and Loan
Association of Sistersville (the "Association") approved a plan of conversion
(the "Plan") providing for the conversion of the Association from a
federally chartered mutual savings and loan to a federally chartered stock
savings bank and the simultaneous issuance of all of its outstanding stock to
a newly formed holding company, Sistersville Bancorp, Inc. After approval by
the regulatory authorities and the Association's members, the Conversion was
completed on June 25, 1997. As a result of the conversion, the Company was
formed and the Bank became a wholly-owned subsidiary of the Company.
In connection with the completion of the Conversion on June 25, 1997, the
Company completed the sale of 661,428 shares of stock at $10.00 per share.
From the proceeds, $66,143 was allocated to common stock based on a par value
of $.10 per share and $6,127,984, which is net of conversion costs of
$420,153, was allocated to additional paid in capital.
NOTE 3 - RECENT ACCOUNTING STANDARDS
In July 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 is effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
presentation of comprehensive income and its components (revenue, expenses,
gains, losses) in a full set of general purpose financial statements. It
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is presented with the same prominence as other financial
statements. Statement No. 130 requires that companies (i) classify items of
other comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial condition. Reclassification of financial statements
for earlier periods provided for comprehensive purpose is required. The
Company current holds securities classified as available-for-sale. Under the
provisions of Statement No. 130, unrealized gains and losses on securities
classified as available-for-sale are a component of comprehensive income.
<PAGE>
10
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 provides accounting and
reporting standards for derivatives instruments, including certain derivative
instruments embedded in other contracts, by requiring the recognition of those
items as assets or liabilities in the statement of financial position,
recorded at fair value. SFAS No. 133 precludes a held-to-maturity security
from being designated as a hedge item. However, at the date of initial
application of SFAS No. 133, an entity is permitted to transfer any
held-to-maturity security into the available-for-sale or trading categories.
The unrealized holding gain or loss on such transferred securities shall be
reported consistent with the requirements of SFAS No. 115, "Accounting for
Certain Investment in Debt and Equity Securities." Such transfers do not
raise an issue regarding an entity's intent to hold other debt securities to
maturity in the future. The FASB has also issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective
Date of FASB Statement No. 133." SFAS No. 137 defers the effective date of
SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS No. 133 applies prospectively for all
fiscal quarters of all years beginning after June 15, 1999. Earlier adoption
is permitted for any fiscal quarter that begins after the issue date of SFAS
No. 133. Management does not believe the adoption of SFAS No. 133 will have a
material impact on the Company.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale
by a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities" and SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities" to require
that after the securitization of mortgage loans held for sale, an entity
engaged in mortgage banking activities classify the resulting mortgage-backed
securities or other retained interests based on its ability and intent to sell
or hold those investments. The statement is effective for the first fiscal
quarter beginning after December 15, 1998. The adoption of SFAS No. 134 did
not have a material impact on the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Comparison of Financial Condition at September 30, 1999 and March 31, 1999
- --------------------------------------------------------------------------
Total assets decreased by approximately $242,000 to $31,946,000 at September
30, 1999, from $32,188,000 at March 31, 1999. Cash and cash equivalents
decreased $1,345,000 to $528,000 at September 30, 1999, from $1,874,000 at
March 31, 1999. The decrease represented the outflow of cash associated with
increase in net loans, purchase of office properties and equipment, and the
purchase of available for sale securities and treasury stock offset by the
principal collected on mortgage-backed securities and increase in depositors'
investment in funds. Investment securities decreased $230,000 from $5,259,000
at March 31, 1999, to $5,029,000 at September 30, 1999, the decrease was a
result of $500,000 in matured U. S. Agency securities, sale of $400,000 in U.
S. Agency securities, $153,000 in principal collected on mortgage-backed
securities, and the decrease in the market value of available-for-sale
securities in the amount of $256,000, offset by the purchase of U. S. Agency
securities in the amount of $1,060,000. Net loans receivable increased
$782,000 from $24,320,000 at March 31, 1999, to $25,102,000 at September 30,
1999. The increase in loans was attributable to an increase in
one-to-four-family residential mortgage loans. Such increases primarily
reflect the economic health of the Bank's market area and the competitive
pricing of the Bank's loan product. Office property and equipment increased
$452,000 from $488,000 at March 31, 1999, to $940,000 at September 30, 1999,
which was a direct result of land purchased in Parkersburg, West Virginia for
the construction of a branch office.
Total liabilities increased $116,000 from March 31, 1999, from $22,396,000 to
$22,512,000 at September 30, 1999. The increase was a result of the increase
in deposits by $221,000 from $20,848,000 at March 31, 1999, to $21,069,000 at
September 30, 1999. This increase primarily represents funds invested by
depositors because of the stability of the Bank's deposit account interest
rates compared to a reduction in deposit interest rates for alternative
investment products available. The increase was offset by a decrease of
$84,000 in deferred income taxes from $359,000 at March 31, 1999, to $275,000
at September 30, 1999, which was a result of the tax effect on the decrease in
the market value of available-for-sale securities during the period.
Stockholder's equity decreased $358,000 from March 31, 1999, from $9,792,000
to $9,434,000 at September 30, 1999. The decrease was attributable to the
payment of dividends in the amount of $87,000, purchase of treasury shares in
the amount of $323,000, a $150,000 decrease in the market value of
available-for-sale securities, net of deferred taxes, offset by net income of
$136,000 for the six month period.
<PAGE>
11
Comparison of the Results of Operations for the Three Months Ended
- ------------------------------------------------------------------
September 30, 1999 and 1998
- ---------------------------
Net income decreased by $47,000, or 47.3%, from net income of $99,000 for the
three months ended September 30, 1998, to net income of $52,000 for the three
months ended September 30, 1999.
Interest and dividend income decreased $22,000, or 3.8%, to $573,000 for the
three months ended September 30, 1999, compared to $595,000 for the three
months ended September 30, 1998. The decrease in interest and dividend income
was due to the decrease in interest on loans of $16,000, or 3.1%, and a
decrease in interest on investments of $8,000, or 9.9%. The decrease in
interest on loans was due to a decline of 50 basis points in the average yield
from 8.37% at September 30, 1998, to 7.87% for the same period in 1999, offset
by the increase in the average balance of loans of $753,000 for the three
months ended September 30, 1999, as compared to the same period in 1998.
Interest on investments decreased for the three months ended September 30,
1999, as compared to September 30, 1998, as a result of the decrease in the
average balance of investments of $2,400,000 from $7,500,000 for the three
months ended September 30, 1998, to $5,100,000 for the three months ended
September 30, 1999.
Interest expense increased $11,000 for the three months ended September 30,
1999, to $237,000 as compared to $226,000 for the same period in 1998. The
increase was a result of interest charged in the amount of $13,000 for the
three months ended September 30, 1999, compared to $6,000 for the three months
ended September 30, 1998. The increase of $7,000 was the result of $1.0
million advance from the Federal Home Loan Bank which was outstanding for less
than three months during the period ended September 30, 1998.
Management regularly performs an analysis to identify the inherent risk of
loss in its loan portfolio. This analysis includes evaluation of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio (including loans being
specifically monitored by management), estimated fair value of underlying
collateral, loan commitments outstanding, delinquencies, and other factors.
Based on this analysis, management established an allowance for loan losses.
The allowance for loan losses is adjusted periodically by a provision for loan
losses which is charged to operations based on management's evaluation of the
losses that may be incurred in the Bank's portfolio. The provision for loan
losses increased to $1,050 for the three months ended September 30, 1999, from
$-0- for the three months ended September 30, 1998, based on management's
analysis of the reserve's adequacy.
The Bank will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Bank maintains what it considers to
be adequate to provide inherent risk of loss in its loan portfolio, there can
be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods.
In addition, the Bank's determination as to the amount of its allowance for
loan losses is subject to review by its primary regulator, the Office of
Thrift Supervision ("OTS"), as part of its examination process, which may
result in the establishment of additional allowance based upon the judgment of
the OTS after review of the information available at the time of the OTS
examination.
Noninterest income decreased by $77,000 from $85,000 for the three months
ended September 30, 1998, to $8,000 for the three months ended September 30,
1999. This is attributed to a gain during the 1998 period of $75,000 on the
sale of available-for-sale securities which was not present in the 1999
period. The remaining portion of noninterest income is comprised primarily of
service charges on deposit accounts.
<PAGE>
12
Noninterest expense decreased by $31,000 from $295,000 for the three months
ended September 30, 1998, to $264,000 for the three months ended September 30,
1999. Compensation and employee benefits decreased by $57,000 from $196,000
for the three months ended September 30, 1998, to $139,000 for the three
months ended September 30, 1999. The decrease is attributable to compensation
costs associated with the initiation of the Restricted Stock Plan in July of
1998, partially offset by the addition of one employee during the 1999
quarter. The decrease in compensation and employee benefits was offset by a
loss on the sale of available-for-sale securities in the amount of $23,000
which did not occur during the three months ended September 30, 1998.
Income tax expense decreased by $34,000 from $60,000 for the three months
ended September 30, 1998, to $26,000 for the three months ended September 30,
1999, attributable to a decrease in pre-tax income.
Comparison of the Results of Operations for the Six Months Ended
- ----------------------------------------------------------------
September 30, 1999 and 1998
- ---------------------------
Net income decreased by $73,000, or 34.8%, from net income of $209,000 for the
six months ended September 30, 1998, to net income of $136,000 for the six
months ended September 30, 1999.
Interest and dividend income decreased $45,000, or 3.8%, to $1,145,000 for the
six months ended September 30, 1999, compared to $1,190,000 for the six months
ended September 30, 1998. The decrease in interest and dividend income was
due to the decrease in interest on loans of $36,000, or 3.5%, and a decrease
in interest on investments of $12,000, or 7.0%. The decrease in interest on
loans was due to a decline of 54 basis points in the average yield from 8.42%
at September 30, 1998, to 7.88% for the same period in 1999, offset by the
increase in the average balance of loans of $838,000 for the six months ended
September 30, 1999, as compared to the same period in 1998. Interest on
investments decreased for the six months ended September 30, 1999, as compared
to September 30, 1998, as a result of the decrease in the average balance of
investments of $2,600,000 from $7,800,000 for the six months ended September
30, 1998, to $5,200,000 for the six months ended September 30, 1999.
Interest expense increased $32,000 for the six months ended September 30,
1999, to $471,000 as compared to $439,000 for the same period in 1998. The
increase was a result of increased interest charged in the amount of $20,000
on a $1.0 million advance from the Federal Home Loan Bank which was
outstanding during the six month period ended September 30, 1999, but was only
outstanding during a portion of the six month period ended September 30, 1998.
In addition, interest expense on deposits increased $12,000 from $433,000 for
the six months ended September 30, 1998, to $445,000 for the six months ended
September 30, 1999. The increase was the direct result of an increase in the
average outstanding deposits of $977,000 from $21,204,000 at September 30,
1999, to $20,227,000 at September 30, 1998.
Management regularly performs an analysis to identify the inherent risk of
loss in its loan portfolio. This analysis includes evaluation of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio (including loans being
specifically monitored by management), estimated fair value of underlying
collateral, loan commitments outstanding, delinquencies, and other factors.
Based on this analysis, management established an allowance for loan losses.
The allowance for loan losses is adjusted periodically by a provision for loan
losses which is charged to operations based on management's evaluation of the
losses that may be incurred in the Bank's portfolio. The provision for loan
losses increased to $2,145 for the six months ended September 30, 1999, from
$1,050 for the six months ended September 30, 1998, based on management's
analysis of the reserve's adequacy.
The Bank will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Bank maintains what it considers to
be adequate to provide inherent risk of loss in its loan portfolio, there can
be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods.
In addition, the Bank's determination as to the amount of its allowance for
loan losses is subject to review by its primary regulator, the Office of
Thrift Supervision ("OTS"), as part of its examination process, which may
result in the establishment of additional allowance based upon the judgment of
the OTS after review of the information available at the time of the OTS
examination.
<PAGE>
13
Noninterest income decreased by $168,000 from $186,000 for the six months
ended September 30, 1998, to $18,000 for the six months ended September 30,
1999, attributed to a $168,000 gain on the sale of available-for-sale
securities during this period in 1998 which did not occur for the six months
ended September 30, 1999.
Noninterest expense decreased by $116,000 from $605,000 for the six months
ended September 30, 1998, to $489,000 for the six months ended September 30,
1999. Compensation and employee benefits decreased by $143,000 from $410,000
for the six months ended September 30, 1998, to $267,000 for the six months
ended September 30, 1999, attributed to compensation costs of $184,000
associated with the Restricted Stock Plan and a one time director plan
implemented in the 1998 period, partially offset by the addition of one
employee during this period in 1999. The decrease in compensation and
employee benefits was offset by a loss on the sale of available-for-sale
securities in the amount of $23,000 which did not occur during the six months
ended September 30, 1998.
Income tax expense decreased by $57,000 from $121,000 for the six months ended
September 30, 1998, to $64,000 for the six months ended September 30, 1999,
attributable to a decline in pre-tax income.
Year 2000
- ---------
Rapid and accurate data processing is essential to the Bank's operations.
Many computer programs that can only distinguish the final two digits of the
year entered (a common programming practice in earlier years) are expected to
read entries for the Year 2000 as the year 1900 or as zero and incorrectly
attempt to compute payment, interest, delinquency, and other data. The Bank
has been evaluating both information technology (computer systems) and
non-information technology systems (e.g., vault timers and electronic door
locks). Based upon such evaluations, management has determined that the Bank
has Year 2000 risk in three areas: (1) Bank's own computers (2) Computers of
others used by the Bank's borrowers, and (3) Computers of others who provide
the Bank with data processing.
BANK'S OWN COMPUTERS. The Bank has upgraded its computer system to address
the Year 2000 risk. The Bank does not expect to have material additional
costs to address this risk. The Bank has successfully completed testing of
its computer system for Year 2000 compliance. The upgrade costs did not have
a material impact on the Company's consolidated financial position or results
of operations.
COMPUTERS OF OTHERS USED BY THE BANK'S BORROWERS. The Bank has evaluated most
of its borrowers and does not believe the Year 2000 problem should, on an
aggregate basis, impact their ability to make payments to the Bank. The Bank
believes that most of its residential borrowers are not dependent on their
home computers for income and that none of their commercial borrowers are so
large that a Year 2000 problem would render them unable to collect revenue or
rent and, in turn, be unable to continue to make loan payments to the Bank.
The Bank does not expect any material costs to address this risk area and
believes they are Year 2000 compliant in this risk area.
COMPUTERS OF OTHERS WHO PROVIDE THE BANK WITH DATA PROCESSING. Should the
computers of third party data processing providers prove to be non-compliant
with the Year 2000, the Bank would likely experience significant delays,
mistakes, or failures. These delays, mistakes, or failures could have a
significant impact on the Bank's financial condition and results of operation.
The third party service bureau which provides most of the Bank's data
processing has advised the Bank that it expects to be fully compliant before
the Year 2000. Testing of the data processing provided by this service bureau
was completed in February, 1999, whereby various Year 2000 date scenarios were
input, and transactional processing was completed satisfactorily. Other data
processing providers, used by the Bank to a much lesser extent, have advised
the Bank that Year 2000 testing and compliance has been successfully
completed.
<PAGE>
14
CONTINGENCY PLAN. The Bank is monitoring its service bureau to evaluate
whether the bureau's data processing system will fail and is being provided
with periodic updates on the status of testing and upgrades being made by the
service bureau. If the Bank service bureau fails, the Bank will attempt to
locate an alternative service bureau that is Year 2000 compliant. If the Bank
is unsuccessful, the Bank will calculate loan and deposit balances and
interest using manual ledgers. If this labor intensive approach is necessary,
management and employees will become much less efficient. However, the Bank
believes that it would be able to operate in this manner indefinitely, until
its existing service bureau, or their replacement, is able to again provide
data processing services. If very few financial institution service bureaus
were operating in the Year 2000, the Bank's replacement costs, assuming the
Bank could negotiate an agreement, could be material.
Liquidity and Capital Resources
- -------------------------------
The Bank's primary sources of funds are deposits, amortization and prepayment
of loans, maturities of investment securities, and funds provided from
operations. While scheduled loan repayments are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. In addition,
the Bank invests excess funds in overnight deposits which provide liquidity to
meet lending requirements.
The Bank has other sources of liquidity if a need for additional funds arises.
Additional sources of liquidity include funds available from the Federal Home
Loan Bank ("FHLB") of Pittsburgh amounting to $20.6 million. As of September
30, 1999, the Bank had $1 million in outstanding advances from the FHLB.
As of September 30, 1999, the Bank had $820,000 in outstanding mortgage and
construction loan commitments. Management believes that it has adequate
sources to meet the actual funding requirements.
Management monitors the Bank's tangible, core, and risk-based capital ratios
in order to assess compliance with OTS regulations. At September 30, 1999,
the Bank exceeded the minimum capital ratios requirements imposed by the OTS.
At September 30, 1999, the Bank's capital ratios were as follows:
Bank
Requirement Actual
----------- ------
Tangible capital 1.50% 26.07%
Core capital 4.00% 26.07%
Risk-based capital 8.00% 51.96%
<PAGE>
15
Risk Elements
- -------------
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days or more past due, other
real estate loans, and repossessed assets. A loan is classified as nonaccrual
when, in the opinion of management, there are serious doubts about
collectibility of interest and principal. At the time the accrual of interest
is discontinued, future income is recognized only when cash is received.
Renegotiated loans are those loans which terms have been renegotiated to
provide a reduction or deferral of principal or interest as a result of the
deterioration of the borrower.
September 30, March 31,
1999 1999
--------- ---------
(dollars in thousands)
Loans on nonaccrual basis $ 47 $ 2
Loans past due 90 days or more - -
Renegotiated loans - -
--------- ---------
Total nonperforming loans 47 2
--------- ---------
Other real estate - -
Repossessed assets - -
--------- ---------
Total nonperforming assets $ 47 $ 2
========= =========
Nonperforming loans as a percent of total loans 0.19% 0.01%
========= =========
Nonperforming assets as a percent of total assets 0.15% 0.01%
========= =========
Allowance for loan losses to nonperforming loans 367.13% 8612.50%
========= =========
Management monitors impaired loans on a continual basis. As of September 30,
1999, the Company had no impaired loans.
During the six months ended September 30, 1999, loans increased $782,000 and
nonperforming loans increased $45,000 while the allowance for loan losses
increased $300 for the same period. The percentage of allowance for loan
losses to loans outstanding remained .7% during this time period. The
collateral requirements on such loans reduce the risk of potential losses to
an acceptable level in management's opinion.
<PAGE>
16
PART II. OTHER INFORMATION
Item 1. Legal proceedings
The registrant was not engaged in any material pending legal proceedings
as of the date of this Report. From time to time, the Bank is a party to
legal proceedings within the normal course of business wherein it enforces its
security interest in loans made by it, and other matters of a like kind.
Item 2. Changes in securities
NONE
Item 3. Defaults upon senior securities
NONE
Item 4. Submission of matters to a vote of security holders
The Annual Meeting of Shareholders of Sistersville Bancorp, Inc. was held
on July 14, 1999. The following are the votes cast on each matter presented
to the shareholders:
1. The election of directors for terms expiring in 2002:
For Withheld
--- --------
Lester C. Doak 449,581 47,025
Gary L. Ward 449,606 47,000
Item 5. Other information
Any proposals of shareholders intended to be included in the Company's
proxy statement and proxy card for the 2000 Annual Meeting of Shareholders
should be sent to the Company by certified mail and must be received by the
Company not later than May 15, 2000. In addition, if a shareholder intends to
present a proposal at the 2000 Annual Meeting without including the proposal
in the proxy materials related to that meeting and, if the proposal is not
received by May 15, 2000, then the proxies designated by the Board of
Directors of the Company for the 2000 Annual Meeting of Shareholders of the
Company may vote in their discretion on any such proposal any shares for which
they have been appointed proxies without mention of such matter in the proxy
statement or on the proxy card for such meeting.
Item 6. Exhibits and Reports on Form 8-K
Financial Data Schedule
<PAGE>
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SISTERSVILLE BANCORP, INC.
Date: November 10, 1999 By: /s/ Stanley M. Kiser
-------------------------------------
Stanley M. Kiser
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 10, 1999 By: /s/ Stanley M. Kiser
-------------------------------------
Stanley M. Kiser
President and Chief Executive Officer
(Principal Executive and Financial Officer)
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