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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 December 31, 1998
[ ] 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 February 3, 1999: 596,940 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
December 31, 1998 and March 31, 1998 3
Consolidated Statement of Income (Unaudited)
for the Three Months ended December 31, 1998 and 1997 4
Consolidated Statement of Comprehensive Income (Unaudited)
for the Three Months ended December 31, 1998 and 1997 5
Consolidated Statement of Income (Unaudited)
for the Nine Months ended December 31, 1998 and 1997 6
Consolidated Statement of Comprehensive Income (Unaudited)
for the Nine Months ended December 31, 1998 and 1997 7
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months ended December 31, 1998 and 1997 8
Notes to Unaudited Consolidated Financial Statements 9 - 11
Item 2. Management's Discussion and Analysis 12 - 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES
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3
SISTERSVILLE BANCORP, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, March 31,
1998 1998
----------- -----------
ASSETS
Cash and Cash Equivalents:
Cash and amounts due from banks $ 99,008 $ 97,009
Interest-bearing deposits with other institutions 2,623,666 1,469,028
----------- -----------
Total cash and cash equivalents 2,722,674 1,566,037
Investment Securities:
Securities held to maturity (fair value of
$389,100 and $536,365) 383,348 527,006
Securities available for sale 4,624,255 5,387,243
----------- -----------
Total investment securities 5,007,603 5,914,249
Loans receivable, (net of allowance for loan losses
of $171,200 and $168,850) 23,930,431 23,646,924
Office properties and equipment, net 496,817 378,362
Accrued interest receivable (net of reserve for
uncollected interest of $4,713 and $5,504) 197,760 202,166
Other assets 23,328 27,244
----------- -----------
TOTAL ASSETS $32,378,613 $31,734,982
=========== ===========
LIABILITIES
Deposits $20,574,461 $20,595,965
Federal Home Loan Bank advance 1,000,000 -
Deferred income taxes 405,368 354,210
Accrued interest payable and other liabilities 234,269 203,361
----------- -----------
TOTAL LIABILITIES 22,214,098 21,153,536
----------- -----------
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; 596,940 outstanding
at December 31, 1998, and 628,357 outstanding
at March 31, 1998 66,143 66,143
Additional paid - in capital 6,174,804 6,152,518
Treasury Stock, at cost (64,488 shares at December 31,
1998, and 33,071 at March 31, 1998) (938,759) (529,136)
Retained Earnings - substantially restricted 4,807,481 4,686,573
Unearned Employee Stock Ownership Plan shares (ESOP) (432,303) (480,989)
Unearned Restricted Stock Plan shares (RSP) (302,144) -
Accumulated other comprehensive income 789,293 686,337
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 10,164,515 10,581,446
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,378,613 $31,734,982
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended December 31,
1998 1997
--------- ---------
INTEREST AND DIVIDEND INCOME
Taxable interest on loans $ 497,725 $ 492,534
Taxable interest on investments 86,199 111,774
Dividends on Federal Home Loan Bank Stock 3,698 3,267
Dividends on Federal Home Loan Mortgage
Corporation Stock 2,297 2,270
--------- ---------
Total interest and dividend income 589,919 609,845
--------- ---------
INTEREST EXPENSE
Deposits 217,727 247,159
Federal Home Loan Bank advances 13,161 -
--------- ---------
Total interest expense 230,888 247,159
--------- ---------
NET INTEREST INCOME 359,031 362,686
PROVISION FOR LOAN LOSSES 1,300 1,274
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 357,731 361,412
--------- ---------
NONINTEREST INCOME
Service charges 9,150 4,595
Gain on sale of securities available for sale - -
Other income 646 490
--------- ---------
Total noninterest income 9,796 5,085
--------- ---------
NONINTEREST EXPENSE
Compensation and employee benefits 123,183 116,644
Occupancy 10,659 8,474
Furniture and equipment expense 10,880 8,308
Deposit insurance premiums 2,994 3,415
Supervisory examination, audit and legal fees 14,333 25,763
Advertising and public relations 5,762 4,810
Service bureau expense 16,754 15,310
Franchise, payroll and other taxes 16,277 16,521
Other expenses 18,812 13,940
--------- ---------
Total noninterest expense 219,654 213,185
--------- ---------
Income before income taxes 147,873 153,312
INCOME TAXES 51,212 51,848
--------- ---------
NET INCOME $ 96,661 $ 101,464
========= =========
EARNINGS PER SHARE (Note 4)
Basic $ .19 $ .17
========= =========
Diluted $ .18 $ .17
========= =========
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 December 31,
1998 1997
--------- ---------
NET INCOME $ 96,661 $ 101,464
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising
during the period 153,588 82,024
--------- ---------
COMPREHENSIVE INCOME $ 250,249 $ 183,488
========= =========
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Nine Months Ended December 31,
1998 1997
----------- -----------
INTEREST AND DIVIDEND INCOME
Taxable interest on loans $ 1,508,390 $ 1,450,933
Taxable interest on investments 254,720 301,000
Dividends on Federal Home Loan Bank Stock 11,045 9,765
Dividends on Federal Home Loan Mortgage
Corporation Stock 5,460 6,811
----------- -----------
Total interest and dividend income 1,779,615 1,768,509
----------- -----------
INTEREST EXPENSE
Deposits 650,999 755,494
Federal Home Loan Bank advances 19,026 -
----------- -----------
Total interest expense 670,025 755,494
----------- -----------
NET INTEREST INCOME 1,109,590 1,013,015
PROVISION FOR LOAN LOSSES 2,350 5,174
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,107,240 1,007,841
----------- -----------
NONINTEREST INCOME
Service charges 26,383 16,885
Gain on sale of securities available for sale 167,536 -
Other income 1,836 1,579
---------- -----------
Total noninterest income 195,755 18,464
---------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 533,015 318,767
Occupancy 29,523 26,472
Furniture and equipment expense 27,253 25,644
Deposit insurance premiums 9,486 10,246
Supervisory examination, audit and legal fees 59,203 50,524
Advertising and public relations 16,993 17,127
Service bureau expense 46,692 47,520
Franchise, payroll and other taxes 50,389 43,413
Other expenses 51,985 41,439
---------- -----------
Total noninterest expense 824,539 581,152
---------- -----------
Income before income taxes 478,456 445,153
INCOME TAXES 172,520 156,229
---------- -----------
NET INCOME $ 305,936 $ 288,924
========== ===========
EARNINGS PER SHARE (Note 4)
Basic $ .55 $ .34
========== ===========
Diluted $ .54 $ .34
========== ===========
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Nine Months Ended December 31,
1998 1997
--------- ---------
NET INCOME $ 305,936 $ 288,924
--------- ---------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising
during the period 212,809 213,690
Reclassification adjustment for gains
included in net income (109,853) -
--------- ---------
Other comprehensive income 102,956 213,690
--------- ---------
COMPREHENSIVE INCOME $ 408,892 $ 432,614
========= =========
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended December 31,
1998 1997
----------- ----------
OPERATING ACTIVITIES
Net income $ 305,936 $ 288,924
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 35,443 28,189
Gain on sale of available for sale securities (167,536) -
Provision for loan losses 2,350 5,174
Deferred federal income taxes (6,754) 7,457
ESOP amortization 63,887 51,869
RSP amortization 107,939 -
Decrease (increase) in accrued interest
receivable and other assets 15,410 (13,330)
Increase (decrease) in accrued interest payable
and other liabilities 30,908 28,931
----------- ----------
Net cash provided by operating activities 387,583 397,214
----------- ----------
INVESTING ACTIVITIES
Proceeds from maturity of available for
sale securities 2,960,000 425,000
Proceeds from sale of available for sale securities 171,053 -
Purchase of available for sale securities (2,039,262) (5,239,047)
Principal collected on mortgage - backed securities 140,757 40,593
Net increase in loans (285,857) (1,920,127)
Purchases of office properties and equipment (151,398) (18,862)
----------- ----------
Net cash provided by (used in)
investing activities 795,293 (6,712,443)
----------- ----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (21,504) (225,253)
Federal Home Loan Bank advance 1,000,000 -
Purchase of RSP shares (410,084) -
Purchase of Treasury shares (409,623) -
Dividends paid (185,028) (96,362)
Proceeds from sale of common stock - 5,664,987
---------- -----------
Net cash provided by (used in)
financing activities (26,239) 5,342,372
---------- -----------
Change in cash and cash equivalents 1,156,637 (972,857)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,566,037 1,794,459
---------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $2,722,674 $ 821,602
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 672,334 $ 762,888
Income taxes 160,360 106,000
See accompanying notes to the unaudited consolidated financial statements.
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9
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,
1999.
These statements should be read in conjunction with the consolidated
statements as of and for the fiscal year ended March 31, 1998, 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
On April 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 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 displayed
with the same prominence as other financial statements and requires that an
enterprise (a) classify items of other comprehensive income by their nature in
a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. Under existing accounting
standards, other comprehensive income shall be classified separately into
foreign currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain investments in debt and equity securities. The
effect on the Company was to classify unrealized gains and losses on
investments available-for-sale as a component of comprehensive income.
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10
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement provides accounting and reporting
standards for derivative 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. Statement No. 133, precludes a held-to-maturity security from being
designated as a hedged item, however at the date of initial application of
this statement, 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 Statement No. 115, "Accounting for Certain
Investments 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. This statement 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 this statement.
NOTE 4 - EARNINGS PER SHARE
Earnings for the period from the closing of the conversion on June 25, 1997,
to June 30, 1997, was determined not to be meaningful. The company accounts
for the 52,914 shares acquired by the ESOP in accordance with Statement of
Position 93-6; shares controlled by the ESOP are not considered in the
weighted average shares outstanding until the shares are committed for
allocation to employee accounts.
The following table sets forth the computation of basic and diluted earnings
per share. There were no convertible securities which would affect the
numerator in calculating basic and diluted earnings per share; therefore, net
income as presented on the Consolidated Statement of Income (Unaudited) will
be used as the numerator. The following tables set forth a reconciliation of
the denominator of the basic and diluted earnings per share computation:
Three Months Ended
December 31, 1998
-----------------
Denominator:
Denominator for basic earnings per share-
weighted-average shares 533,187
Employee stock options (antidilutive) -
Unvested RSP shares 16,811
--------
Denominator for diluted earnings per share-
adjusted weighted-average assumed conversions 549,998
========
Nine Months Ended
December 31, 1998
-----------------
Denominator:
Denominator for basic earnings per share-
weighted-average shares 559,067
Employee stock options (antidilutive) -
Unvested RSP shares 11,593
--------
Denominator for diluted earnings per share-
adjusted weighted-average assumed conversions 570,660
========
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11
NOTE 5 - EMPLOYEE BENEFITS
Restricted Stock Plan (RSP)
- ---------------------------
The Board of Directors adopted a RSP for directors and certain officers and
employees which was approved by stockholders at the annual meeting held on
July 16, 1998. The objective of this RSP is to enable the Bank to retain its
corporate officers, key employees, and directors who have the experience and
the ability necessary to manage these entities. Directors, officers, and key
employees who are selected by members of the Board-appointed committee are
eligible to receive benefits under the RSP. Non-employee directors of the
Bank serve as trustees for the RSP, and have the responsibility to invest all
funds contributed by the Bank to the Trust created for the RSP.
In August, 1998, the Trust purchased, with funds contributed by the Bank,
shares of the common stock of which 23,185 shares were awarded to directors
and employees, and 3,272 shares remained unawarded. Directors, officers, and
employees who terminate their employment with the Bank shall forfeit the right
to any shares which were awarded but not earned, except in the event of death,
disability, retirement, or a change in control of the Bank or Company. The
Bank granted a total of 23,185 shares of common stock on July 16, 1998, of
which 4,637 became immediately vested under the plan. Remaining shares become
earned and non-forfeitable over a four-year period on each anniversary date of
the award beginning July 16, 1999. The RSP shares purchased in the conversion
initially will be excluded from stockholders' equity. The Company recognizes
compensation expense in the amount of fair value of the common stock at the
grant date, pro rata, over the years during which the shares are earned and
recorded as an addition to stockholders' equity.
Stock Option Plan
- -----------------
The Board of Directors adopted a Stock Option Plan for the directors,
officers, and employees which was approved by stockholders at the annual
meeting held on July 16, 1998. An aggregate of 66,142 shares of authorized
but unissued common stock of the Company was reserved for issuance under the
Stock Option Plan. The Company granted options to purchase 58,000 shares of
common stock. The options are first exercisable over a five-year period
beginning July 16, 1998. The stock options typically have expiration terms of
ten years. The per share exercise price of a stock option shall be, at a
minimum, equal to the fair value of a share of common stock on the date the
option is granted. Proceeds from the exercise of the stock options are
credited to common stock for the aggregate par value and the excess is
credited to additional paid-in capital.
The following table presents share data related to the stock option plan:
Shares Under Option
1998 1997
------ ------
Outstanding, beginning of the year - -
Granted during the period 58,000 -
Canceled during the period - -
Exercised during the period - -
------ ------
Outstanding at end of period 58,000 -
(Option price of $15.8125 per share) ====== ======
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12
MANAGEMENT'S DISCUSSION AND ANALYSIS
Comparison of Financial Condition at December 31, 1998, and March 31, 1998
- --------------------------------------------------------------------------
Total assets increased by approximately $644,000 to $32,379,000 at December
31, 1998, from $31,735,000 at March 31, 1998. Cash and cash equivalents
increased by $1,157,000 to $2,723,000 at December 31, 1998, from $1,566,000 at
March 31, 1998. This increase represented the inflow of cash associated with
Federal Home Loan Bank advances and maturity of available-for-sale securities,
offset by increased loan production, depositors' withdrawals of funds, and
purchase of RSP and Treasury shares. Net loans receivable increased $283,000
from $23,647,000 at March 31, 1998, to $23,930,000 at December 31, 1998. 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 products. Office property and equipment increased by $119,000 from
$378,000 at March 31, 1998, to $497,000 at December 31, 1998, which was the
direct result of the construction of a drive-thru facility at the Bank.
Investment securities decreased $906,000 from $5,914,000 at March 31, 1998, to
$5,008,000 at December 31, 1998. The decrease represented the sale and
maturity of available-for-sale securities of approximately $3,131,000, of
which the Bank opted to reinvest only $2,039,000 in similar securities.
Total liabilities increased $1,060,000 from $21,154,000 at March 31, 1998, to
$22,214,000 at December 31, 1998. The increase was the result of $1,000,000
advanced from the Federal Home Loan Bank in order to fund future loan growth.
Deposits decreased $22,000 from $20,596,000 at March 31, 1998, to $20,574,000
at December 31, 1998.
Stockholders' equity decreased $417,000 to $10,165,000 at December 31, 1998,
compared to $10,582,000 at March 31, 1998. The decrease was attributable to
the purchase of RSP and Treasury shares in the amounts of $410,000 and
$410,000, respectively, offset by net income of $306,000, allocation of shares
in the Employee Stock Ownership Plan amounting to $71,000, vesting of shares
in the RSP in the amount of $108,000, and unrealized gains on securities
available-for-sale of $103,000. Stockholders' equity was also reduced by
dividends of $185,000. Future dividend policies will be determined by the
Board of Directors in light of, among other factors, the earnings and
financial condition of the Company, including applicable governmental
regulations and policies.
Comparison of the Results of Operations for the Three Months Ended
- ------------------------------------------------------------------------------
December 31, 1998 and 1997
- --------------------------
Net income decreased by $5,000, or 4.7%, from net income of $102,000 for the
three months ended December 31, 1997, to net income of $97,000 for the three
months ended December 31, 1998.
Interest and dividend income decreased $20,000, or 3.3%, to $590,000 for the
three months ended December 31, 1998, compared to $610,000 for the three
months ended December 31, 1997. The decrease in interest and dividend income
was the result of a decrease in interest and dividends on investments of
$25,000, or 21.3%, offset by an increase in interest on loans of $5,000, or
1.1%. Interest and dividends on investments decreased for the three months
ended December 31, 1998, as compared to December 31, 1997, as a result of a
decrease in the average balance of investments of $1,915,000, or 20.6%, and a
declining yields on investment securities. The increase in interest on loans
was due to an increase in the average balance of loans of $796,000 for the
three months ended December 31, 1998, as compared to the same period in 1997.
Interest expense decreased $16,000 for the three months ended December 31,
1998, to $231,000 from $247,000 for the same period in 1997. A decrease in
the average balance of interest-bearing deposits of $910,000 to $20,314,000
from $21,224,000 and a reduction in the cost of funds from 4.66% for the three
months ended December 31, 1997, as compared to 4.29% for the same period in
1998 resulted in the decrease in interest expense on deposits of $29,000. The
decrease in interest on deposits was partially offset by an increase in
interest on advances from the Federal Home Loan Bank of $13,000.
<PAGE>
13
Net interest income decreased $4,000, or 1.0%, from $363,000 for the three
months ended December 31, 1997, to $359,000 for the three months ended
December 31, 1998. The interest rate spread increased from 2.85% for the
three months ended December 31, 1997, to 3.03% for the same period in 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 loan portfolio. The provision for
loan losses remained unchanged at $1,300 for the 1998 and 1997 periods 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 its allowance for
loan losses at a level that it considers to be adequate to provide for the
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 federal regulator, the Office of Thrift
Supervision ("OTS"), as part of its examination process, which may result in
the establishment of an additional allowance based upon the judgment of the
OTS after a review of the information available at the time of the OTS
examination.
Noninterest income increased by $5,000 from $5,000 for the three months ended
December 31, 1997, to $10,000 for the three months ended December 31, 1998.
The increase was primarily attributable to an increase in service charges on
deposit accounts.
Noninterest expense increased by $7,000 from $213,000 for the three months
ended December 31, 1997, to $220,000 for the three months ended December 31,
1998. Compensation and employee benefits increased by $6,000, or 5.6%, from
$117,000 for the three months ended December 31, 1997, to $123,000 for the
three months ended December 31, 1998. The increase is due to compensation
costs associated with the initiation of the Restricted Stock Plan in July of
1998. Supervisory examination, audit and legal expenses decreased $11,000, or
44.4%, from $25,000 for the three months ended December 31, 1997, to $14,000
for the same period in 1998 due to a decline in services in connection with
adoption of employee benefit plans.
Income tax expense decreased by less than $1,000 to $51,000 for the three
months ended December 31, 1998. The decrease is due to an decrease in pre-tax
income.
Comparison of the Results of Operations for the Nine months Ended December 31,
- ------------------------------------------------------------------------------
1998 and 1997
- -------------
Net income increased by $17,000, or 5.9%, from net income of $289,000 for the
nine months ended December 31, 1997, to net income of $306,000 for the nine
months ended December 31, 1998.
Interest and dividend income increased $11,000, or .6%, to $1,780,000 for the
nine months ended December 31, 1998, compared to $1,769,000 for the nine
months ended December 31, 1997. The increase in interest and dividend income
was due to an increase in taxable interest on loans of $57,000, or 4.0%,
offset by a decrease in interest on investments of $46,000, or 15.4%. The
increase in interest on loans was due to an increase in the average balance
of loans of $1.3 million for the nine months ended December 31, 1998, as
compared to the same period in 1997, offset by decline of 16 basis points from
8.54% for the nine months ended December 31, 1997, to 8.38% for the same
period in 1998. Interest on investments decreased for the nine months ended
December 31, 1998, as compared to December 31, 1997, as a result of downward
fluctuations in yields on investment securities and by a decrease in the
average balance of investments of $1.0 million from $8.1 million for the 1997
period to $7.1 million for the 1998 period.
<PAGE>
14
Interest expense decreased $85,000, or 11.3%, for the nine months ended
December 31, 1998, to $670,000 as compared to $755,000 for the same period in
1997. A decrease in the average balance of interest-bearing deposits of $1.5
million to $20.3 million from $21.8 million and a reduction in the cost of
funds from 4.6% for the nine months ended December 31, 1997, as compared to
4.3% for the same period in 1998, resulted in the decrease in interest expense
on deposits of $104,000. The decrease in interest on deposits was partially
offset by an increase in interest on advances from the Federal Home Loan Bank
of $19,000.
Net interest income increased $97,000, or 9.5%, from $1,013,000 for the nine
months ended December 31, 1997, to $1,110,000 for the nine months ended
December 31, 1998. The increase is primarily attributable to a decrease in
the average balance of interest-bearing deposits and an increase in the
average balance of loans from the nine months ended December 31, 1997, to the
same period in 1998, as previously discussed.
The provision for loan losses decreased to $2,800 for the nine months ended
December 31, 1998, from $5,200 for the nine months ended December 31, 1997,
based on management's analysis of the reserve's adequacy.
Noninterest income increased by $177,000 from $19,000 for the nine months
ended December 31, 1997, to $196,000 for the nine months ended December 31,
1998. The increase is primarily attributable to a gain on the sale of
available-for-sale securities in the 1998 period of $168,000 which was not
present in the 1997 period. The remaining portion of noninterest income is
comprised primarily of service charges on deposit accounts.
Noninterest expense increased by $243,000 from $581,000 for the nine months
ended December 31, 1997, to $824,000 for the nine months ended December 31,
1998. Compensation and employee benefits increased by $214,000 from $319,000
for the nine months ended December 31, 1997, to $533,000 for the nine months
ended December 31, 1998. The change is due to an increase in compensation
costs associated with the Employee Stock Ownership Plan of $17,000 and
Restricted Stock Plan of $108,000, and by special one-time retirement
agreements executed by four directors resulting in a pre-tax charge of
approximately $94,000 in the nine month period ending December 31, 1998.
Under terms of the agreements, the four directors accepting the offer
relinquished their positions as directors on July 2, 1998. The Restricted
Stock Plan was initiated in July, 1998, and resulted in stock awarded to
employees being earned at a rate of one-fifth per year at July 16, 1998,
through 2002. Supervisory Examination, Audit, and Legal expenses increased
by $8,000 from $51,000 for the nine months ended December 31, 1997, to $59,000
for the nine months ended December 31, 1998, as a result of additional costs
associated with public stock ownership and regulatory requirements.
Income tax expense increased by $16,000 from $156,000 for the nine months
ended December 31, 1997, to $172,000 for the nine months ended December 31,
1998. The increase is due to an increase 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 lock).
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 eliminate
the Year 2000 risk. The Bank does not expect to have material additional
costs to address this risk. The Bank expects, although there is no assurance,
to be Year 2000 compliant in this risk area by December 31, 1999. The upgrade
costs did not have a material impact on the Company's consolidated financial
position or results of operations.
<PAGE>
15
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. This risk is
primarily focused on one, third-party service bureau that provides virtually
all of the Bank's data processing. This service bureau is not Year 2000
compliant but has advised the Bank that it expects to be compliant before the
Year 2000. If this problem is not solved before 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 operations.
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 funds include a line of credit with the Federal Home
Loan Bank ("FHLB") of Pittsburgh amounting to $2.2 million. As of December
31, 1998, the Bank had $1 million in outstanding advances from the FHLB.
As of December 31, 1998, the Bank had $1,294,000 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 December 31, 1998, the
Bank exceeded the minimum capital ratios requirements imposed by the OTS.
At December 31, 1998, the Bank's capital ratios were as follows:
Bank
Requirement Actual
----------- ------
Tangible capital 1.50% 26.16%
Core capital 4.00% 26.16%
Risk-based capital 8.00% 53.44%
<PAGE>
16
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.
December 31, March 31,
1998 1998
----------- -----------
(dollars in thousands)
Loans on nonaccrual basis $ 184 $ 166
Loans past due 90 days or more - -
Renegotiated loans - -
---------- ----------
Total nonperforming loans 184 166
---------- ----------
Other real estate - -
Repossessed assets - -
---------- ----------
Total nonperforming assets $ 184 $ 166
========== ==========
Nonperforming loans as a percent of total loans 0.77% 0.70%
========== ==========
Nonperforming assets as a percent of total assets 0.57% 0.52%
========== ==========
Allowance for loan losses to nonperforming loans 94.48% 101.81%
========== ==========
Management monitors impaired loans on a continual basis. As of December 31,
1998, the Company had no impaired loans.
During the nine months ended December 31, 1998, loans increased $283,000 and
nonperforming loans increased $18,000 while the allowance for loan losses
increased $2,350 for the same period. The percentage of allowance for loan
losses to loans outstanding remained .6% during this time period.
Nonperforming loans were primarily made up of one to four family residential
mortgages at December 31, 1998. The collateral requirements on such loans
reduce the risk of potential losses to an acceptable level in management's
opinion.
<PAGE>
17
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 and use of proceeds
NONE
Item 3. Defaults upon senior securities
NONE
Item 4. Submission of matters to a vote of security holders
NONE
Item 5. Other information
Any proposals of shareholders intended to be included in the Company's
proxy statement and proxy card for the 1999 Annual Meeting of Shareholders
should be sent to the Company by certified mail and must be received by the
Company not later than May 17, 1999. In addition, if a shareholder intends to
present a proposal at the 1999 Annual Meeting without including the proposal
in the proxy materials related to that meeting and, if the proposal is not
received by May 17, 1999, then the proxies designated by the Board of
Directors of the Company for the 1999 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
On December 3, 1998, the Company filed a Current Report on Form 8-K, Item
5, Dated December 3, 1998, to report the completion the repurchase of 31,417
shares or 5% of its outstanding common stock in the open market pursuant to a
stock repurchase program originally announced by the registrant on October 15,
1998.
<PAGE>
18
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: February 3, 1999 By:
/s/ Stanley M. Kiser
------------------------------------
Stanley M. Kiser
President and Chief Executive Officer
(Duly Authorized Officer)
Date: February 3, 1999 By:
/s/ Stanley M. Kiser
-------------------------------------
Stanley M. Kiser
President and Chief Executive Officer
(Principal Executive and Financial Officer)
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