<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
-------------- -------------
Commission File Number 0-22901
SHS Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2912920
- ------------ -----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One North Shore Center, Suite 120, Pittsburgh PA 15212
(Address of principal executive offices)
(412) 231-0809
(Registrant's telephone number, including area code)
Check whether the issuer (l) 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 $.01 per share
Outstanding at May 11, 1998: 819,950
<PAGE>
SHS BANCORP, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION ------
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited)
as of March 31, 1998 and December 31, 1997 3
Consolidated Statement of Income (Unaudited)
for the Three Months ended March 31, 1998 and 1997 4
Consolidated Statement of Comprehensive Income
for the Three Months ended March 31, 1998 and 1997 5
Consolidated Statement of Cash Flows (Unaudited)
for the Three Months ended March 31, 1998 and 1997 6-7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of Security Holder 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8 - k 13
SIGNATURES 13
<PAGE>
SHS Bancorp, Inc.
Consolidated Balance Sheet (Unaudited)
March 31, December 31,
1998 1997
------------- -------------
ASSETS
Cash and due from banks $ 1,155,690 $ 685,622
Interest - bearing deposits with other banks 6,755,018 5,007,919
Short - term investments 990,984 1,998,742
------------- -------------
Cash and cash equivalents 8,901,692 7,692,283
Investment securities available for sale 578,894 852,829
Investment securities held to maturity
(market value of $2,714,318 and $2,473,368) 2,671,483 2,422,926
Mortgage - backed securities
available for sale 2,046,419 2,129,682
Mortgage - backed securities held to maturity
(market value of $14,925,906 and
$14,934,833) 14,598,468 14,594,274
Loans receivable (net of allowance for loan
losses of $449,059 and $440,982) 56,803,004 57,925,275
Accrued interest receivable 534,875 504,589
Premises and equipment 1,054,109 918,597
Federal Home Loan Bank stock 607,022 607,022
Other assets 612,336 924,047
------------- -------------
TOTAL ASSETS $ 88,408,302 $ 88,571,524
============= =============
LIABILITIES
Deposits $ 65,712,754 $ 64,513,197
Advances by borrowers for taxes
and insurance 853,926 1,128,622
Collateralized mortgage obligation 986,666 1,394,821
Borrowed funds 8,160,648 8,862,707
Accrued interest payable 115,105 116,833
Other liabilities 337,339 540,411
------------- -------------
TOTAL LIABILITIES 76,166,438 76,556,591
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 5,000,000
shares authorized; none outstanding - -
Common stock, $.01 par value; 10,000,000 shares
authorized, 819,950 issued 8,200 8,200
Additional paid - in capital 7,728,425 7,716,938
Retained earnings - substantially restricted 5,163,378 4,960,280
Unearned shares held by Employee
Stock Ownership Plan (623,140) (639,550)
Net unrealized gain on securities 16,654 12,173
Pension adjustment (51,653) (43,108)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 12,241,864 12,014,933
------------- -------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 88,408,302 $ 88,571,524
============= =============
See accompanying notes to the unaudited consolidated financial statements
3
<PAGE>
SHS Bancorp, Inc.
Consolidated Statement of Income (Unaudited)
Three Months Ended March 31,
1998 1997
------------- ------------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 1,220,185 $ 1,170,944
Interest - bearing deposits with other banks 83,237 39,406
Investment securities 81,646 30,768
Mortgage - backed securities 290,988 347,164
Dividends on Federal Home Loan Bank stock 9,729 9,359
------------- ------------
Total interest and dividend income 1,685,785 1,597,641
------------- ------------
INTEREST EXPENSE
Deposits 778,786 758,374
Advances by borrowers for taxes and insurance 3,076 3,164
Collateralized mortgage obligation 36,836 172,361
Borrowed funds 132,887 84,380
------------- ------------
Total interest expense 951,585 1,018,279
------------- ------------
NET INTEREST INCOME 734,200 579,362
Provision for loan losses - 27,943
------------- ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 734,200 551,419
------------- ------------
NONINTEREST INCOME
Service charge on deposits 9,102 9,176
Investment securities gains, net - 116,541
Other income 82,492 7,499
------------- ------------
Total noninterest income 91,594 133,216
------------- ------------
NONINTEREST EXPENSE
Compensation and employee benefits 241,379 187,687
Occupancy and equipment 68,966 54,232
Federal insurance premium 10,258 10,143
Data processing 29,648 27,832
Real estate operations, net 3,263 9,212
Other operating expenses 141,489 111,289
------------- ------------
Total noninterest expense 495,003 400,395
------------- ------------
Income before income taxes 330,791 284,240
Income tax expense 127,693 109,104
------------- ------------
Income before extraordinary item 203,098 175,136
Extraordinary Item:
Loss from the early extinguishment of debt,
net of related income taxes of $400,537 - 562,525
------------- ------------
NET INCOME $ 203,098 $ (387,389)
============= ============
EARNINGS PER SHARE $ 0.27 $ N/A
WEIGHTED AVERAGE SHARES OUTSTANDING 756,907 N/A
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
SHS Bancorp, Inc.
Consolidated Statement of Comprehensive Income (Unaudited)
Three Months Ended March 31,
1998 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net Income $ 203,098 $ (387,389)
---------- ----------
Other Comprehensive Income, net of tax:
Unrealized gain on available-for-sale securities 4,481 64,886
Less: reclassification adjustment for gain included
in net income - 4,481 (68,083) (3,197)
---------- ----------
Minimum pension liability adjustment (8,545) -
---------- ----------
Total other comprehensive income (4,064) (3,197)
---------- ----------
Comprehensive income $ 199,034 $ (390,586)
---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
SHS Bancorp, Inc.
Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31,
1998 1997
------------ ------------
OPERATING ACTIVITIES
Net Income (loss) $ 203,098 $ (387,389)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for losses on loans and real
estate owned - 27,943
Depreciation and amortization 45,802 75,020
Net securities gains - (116,541)
Loss on extinguishment of debt - 963,062
Deferred income taxes (12,856) (406,156)
Release of unearned ESOP shares 27,897 -
(Increase) decrease in accrued interest receivable (30,286) 10,080
Decrease in accrued interest payable (1,728) (6,053)
Other, net 44,002 (127,393)
------------ ------------
Net cash provided by operating activities 275,929 32,573
------------ ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases - (497,500)
Proceeds from sales 278,667 617,079
Maturities and repayments - 6,654
Investment securities held to maturity:
Purchases (250,000) (499,531)
Maturities and repayments 1,443 256,790
Mortgage - backed securities available for sale:
Maturities and repayments 84,288 103,793
Mortgage - backed securities held to maturity:
Purchases (1,355,513) (1,386,878)
Maturities and repayments 1,347,940 1,147,150
Loans receivable:
Purchases - (8,900)
Other net (increase) decrease 1,122,271 (497,744)
Purchase of Federal Home Loan Bank stock - (12,300)
Purchases of premises and equipment, net (93,445) (4,518)
------------ ------------
Net cash provided by (used for)
investing activities 1,135,651 (775,905)
------------ ------------
See accompany notes to the unaudited consolidated financial statements.
6
<PAGE>
SHS Bancorp, Inc.
Consolidated Statement of Cash Flows (Unaudited)
(Continued)
Three Months Ended March 31,
1998 1997
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits $ 1,199,557 $ 481,989
Increase (decrease) in advances by borrowers
for taxes and insurance (274,696) 113,448
Collateralized mortgage obligation payments (424,973) (462,710)
Extinguishment of debt - (4,929,000)
Proceeds from borrowed funds - 5,500,000
Repayment of borrowed funds (702,059) (18,085)
------------ ------------
Net cash provided by (used for)
financing activities (202,171) 685,642
------------ ------------
Increase (decrease) in cash and
cash equivalents 1,209,409 (57,690)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,692,283 3,572,556
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,901,692 $ 3,514,866
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the year for:
Interest on deposits and borrowings $ 953,313 $ 1,024,332
Income Taxes 65,550 135,000
See accompany notes to the unaudited consolidated financial statements.
7
<PAGE>
SHS BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of SHS Bancorp, Inc. (the "Company"),
includes its wholly-owned subsidiary, Spring Hill Savings Bank, FSB (the
"Savings Bank"), and the Savings Bank's wholly-owned subsidiary, Spring Hill
Funding Corporation ("SHFC") a limited purpose finance subsidiary. 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 with the exception of the extraordinary expense realized on the early
extinguishment of debt. The results of operations for the quarter are not
necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the audited financial
statements and the notes thereto for the year ended December 31, 1997 which
are incorporated in Form 10-KSB.
NOTE 2 - CONVERSION TO STOCK FORM OF OWNERSHIP AND FORMATION OF A HOLDING
COMPANY
On April 16, 1997, the Board of Directors of the Savings Bank approved a plan
of conversion whereby the Savings Bank converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank and
simultaneously reorganized into a holding company form of organization
(collectively, the "Conversion"). After approval by the regulatory
authorities and the Savings Bank's members, the Conversion was completed on
September 30, 1997 and as a result, the holding company was formed (the
"Company") and the Savings Bank became a wholly-owned subsidiary of the
Company.
In connection with the Conversion on September 30, 1997, the Company
completed the sale of 819,950 shares of common stock (the "Offering") at $10
per share. From the proceeds, $8,200 was allocated to common stock based on
a par value of $.01 per share and $7,706,807, which is net of conversion costs
of $484,493, was allocated to additional paid in capital.
NOTE 3 - EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
shares outstanding during the period, less unreleased ESOP shares.
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." Statement No. 128 replaced the previous reporting requirement of
primary and fully diluted earnings per share with basic and diluted earnings
per share. The Company currently maintains a simple capital structure, thus
there are no dilutive effects on earnings per share.
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENT
Effective January 1, 1998, the Bank adopted the Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." In adopting
Statement No. 130, the Bank is required to present comprehensive income and
its components in a full set of general purpose financial statements. In
accordance with Statement No. 130, the Bank has elected to report the effects
as a separate Consolidated Statement of Comprehensive Income.
8
<PAGE>
SHS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND DECEMBER 31, 1997
Total assets decreased a negligible 0.2% between the periods, declining
$163,000 from $88,571,000 at December 31, 1997 to $88,408,000 at March 31,
1998. Net loans receivable declined $1,122,000, or 1.9%, from $57,925,000 at
December 31, 1997 to $56,803,000 at March 31, 1998. This decrease in loan
balances is the result of principal repayments and prepayments exceeding the
level of new loan originations in the first quarter. Interest rates have
remained at lower levels since declining in the fourth quarter of 1997. This
lower rate environment has resulted in higher levels of loan refinancings and
early repayments. This coupled with modest investment activity due to the
uncertain interest rate environment resulted in an increase to cash and cash
equivalents of $1,209,000, or 15.7%, which totaled $8,902,000 at the end of
the quarter.
Total liabilities decreased $390,000, or 0.5%, during the first quarter to
$76,166,000, despite an increase in deposits. Total deposits increased
$1,200,000, or 1.9%, during the first quarter. The increase in deposits was
more than offset by a general decline in nondeposit liabilities. The decline
in advances by borrowers for taxes and insurance results from a timing
difference in the monthly receipt of these escrowed funds from the Savings
Bank's mortgage customers and the payment of tax bills on the respective
properties. The collateralized mortgage obligation (CMO) declined $408,000
during the first quarter from the regular principal pay down on the underlying
collateral. The decrease in borrowed funds of $702,000 is the result of
scheduled repayment of Federal Home Loan Bank ("FHLB") advance borrowings.
COMPARISON OF THE RESULTS OF THE OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1998 AND 1997
Net Income. Net income increased $590,000 to $203,000 for the three months
ending March 31, 1998 as compared to a net loss of $387,000 for the first
quarter of 1997. This increase was primarily the result of an extraordinary
loss of $563,000 recognized in the first quarter of 1997 due to the early
extinguishment of a portion of the Savings Bank's CMO debt. Additionally, net
income increased in the first quarter of 1998, as compared to the first
quarter of 1997, due to the increase in net interest income.
Net Interest Income. Net interest income increased $155,000, or 26.7%, from
$579,000 for the three months ended March 31, 1997 to $734,000 for the first
quarter of 1998. The improved net interest income for the comparable quarters
is the result of the higher level of interest earning assets to interest
bearing liability balances and an increase in the interest rate spread. The
first quarter ratio of interest earning assets to interest bearing liabilities
was 113.2% in 1998 as compared to 104.6% in 1997. The first quarter average
balance of interest earning assets less interest bearing liabilities increased
$6,401,000 to $9,943,000 in 1998 as compared to $3,542,000 in 1997. This
increase resulted from the higher level of capitalization in 1998 due to the
proceeds received from the stock offering on September 30, 1997. The interest
rate spread, or the difference between the weighted average yields on
interest earning assets and interest bearing liabilities, improved to 2.85%
in the first quarter of 1998 compared to 2.64% in the first quarter of 1997.
The improvement in the interest rate spread is due to the lower weighted
average yield on interest bearing liabilities as a result of the improved
liability structure from replacing a portion of the higher costing CMO debt
with lower costing FHLB advances. This restructuring transaction occurred on
March 7, 1997.
Interest Income. Total interest and dividend income for the first quarter
increased $88,000, or 5.5%, in 1998 as compared to 1997. The increase in
interest income was due to the increase in the level of interest-earning
assets. Interest income on loans receivable rose by $49,000 as a result of
the growth in the loan portfolio between the first quarters of 1997 and 1998.
The decline in interest income on mortgaged backed securities was offset by
an increase in interest income on investment securities. Interest income on
deposits with other banks rose $44,000 between the two quarters as a result of
the higher balance in these accounts from the proceeds received from the sale
of common stock in the Offering.
Interest Expense. Total interest expense for
the first quarter decreased $66,000, or 6.5%, to $952,000 in 1998, as compared
to $1,018,000 in 1997. The increase in interest expense for deposits of
$20,000 in the first quarter of 1998 results form an higher average rate paid
on these deposits of 4.75% as compared to 4.63% for the first quarter of
1997. This higher interest expense on deposits was offset by the net
decrease in interest expense on the CMO and borrowed funds. The combined
interest expense on these borrowings declined $87,000 due to lower average
balances and the lower weighted average cost of funds on the combined CMO debt
and FHLB borrowings which declined from 9.2% in the first quarter of 1997 to
7.1% in 1998. This lower cost of funds resulted primarily from replacing the
higher cost CMO debt with lower cost advance borrowings from the FHLB.
9
<PAGE>
Provision for Loan Losses. No provision for loan losses was charged to
earnings for the three months ended March 31, 1998 compared to $28,000 during
the first quarter of 1997. This was due to the reduction in the loan
portfolio during the 1998 first quarter and recoveries to the allowance for
loan losses that was realized during this same period. In the first quarter
of 1997, provisions for loan losses were established due to the growth in the
loan portfolio and net loan charge-offs of $23,000 during that same period.
Non-interest Income. Noninterest income decreased $41,000 to $92,000 for
the three months ended March 31, 1998 compared to $133,000 for the same period
in 1997. The decrease was the result of a one-time gain of $121,000 that was
realized in the first quarter of 1997 on the early redemption of a CMO
residual investment. This was partially offset by the increase in other
income in the first quarter of 1998, which resulted primarily from a one time
gain of $66,000 that was realized on property acquired during the quarter.
The gain was due to the value of the property exceeding the acquisition
cost. The Savings Bank has used the property to open a new branch location.
Non-interest Expense. Total non-interest expense for the first quarter
increased by $95,000 to $495,000 in 1998 compared to $400,000 in 1997.
Compensation and employee benefits rose $54,000 in 1998 compared to 1997.
This increase is primarily due to expense recognized in the first quarter of
1998 of $28,000 for the Employee Stock Ownership Plan (ESOP) adopted on
September 30, 1997. This expense represents the average market price of SHS
Bancorp stock for the quarter multiplied by the number of shares allocated to
all eligible employees. An expense of $9,000 was incurred in the first
quarter of 1998 to recognize additional liability for the Savings Bank's
pension plan. The process is underway to close the pension plan in order to
offset a portion of the ESOP expense. Staffing and salaries also increased in
the first quarter of 1998 as compared to the first quarter of 1997.
Other operating expenses increased $30,000 in the first quarter of 1998 to
$141,000 compared to $111,000 in 1997. This increase is primarily due to
expenses related to renovations to the Beechview office, expenses associated
with the relocation of the North Shore offices, expenses related to opening a
new branch office, and to administrative expenses of the holding company, SHS
Bancorp, which was formed on September 30, 1997 in conjunction with the
initial public offering. In the first quarter 1998, the holding company
incurred approximately $10,000 in administrative expenses.
Income Taxes. Income tax expense increased $19,000 to $128,000 in 1998 as a
result of the higher level of pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are the Savings Bank's deposits,
amortization and prepayment of loans, maturities of, and repayments from
investment securities, and funds provided from operations. While scheduled
loan repayments are a relatively predictable source of funds, loan prepayments
and deposit flows are influenced by general interest rates, economic
conditions and competition. In light of these exogenous variables and to
provide an adequate source of funding for its operations, the Savings Bank
maintains a varying level of funds in overnight deposits, as well as a credit
facility through the Federal Home Loan Bank ("FHLB") of Pittsburgh. This
available credit arrangement with the FHLB includes a currently unused line of
credit totaling $5,579,000 at March 31, 1998. The Savings Bank had
outstanding term borrowings from the FHLB of $8,160,648 at March 31, 1998.
10
<PAGE>
Additionally, the Savings Bank is required to maintain long term liquidity in
excess of a prescribed minimum regulatory ratio of 4% of net withdrawable
accounts. As a matter of practice, the Savings Bank normally maintains
liquidity in excess of the regulatory minimum. At March 31, 1998 this
ratio was 10.7%. At March 31, 1998, the Savings Bank had $1,160,000 in
outstanding mortgage, credit lines and construction loan commitments.
Management believes it has adequate sources to meet its funding requirements.
Management monitors risk-based capital and leverage ratios in order to
assess compliance with regulatory guidelines. Management believes, as of
March 31, 1998, that the Company and the Savings Bank meet all capital
adequacy requirements to which they are subject. At March 31, 1998, the
Savings Bank had risk-based capital of 24.53% and a leverage capital
ratio of 11.05% of tangible assets. The Company's and Savings Bank's
GAAP capital ratios were 13.85% and 11.06%, respectively.
RISK ELEMENTS
The table below presents information concerning nonperforming assets including
nonaccrual loans, restructured loans, loans 90 days or more past due, other
real estate owned, and repossessed assets. A loan is classified as nonaccrual
when, in the opinion of management, there are serious doubts about the
collectibility of interest and principal, generally when the loan becomes 90
days or more past due. At the time the accrual of interest is discontinued,
future income is recognized as payments are received. Restructured loans are
those loans for which terms have been renegotiated to provide for a deferral
of principal and/or a reduction of interest as a result of deterioration in
the borrowers' credit capacity.
Mar. 31, Dec. 31,
1998 1997
------------ -----------
(dollars in thousands)
Loans on nonaccrual basis $ 1,156 $ 933
Loans past due 90 days or more - 7
------------ -----------
Total nonperforming loans 1,156 940
Other real estate owned 13 13
Repossessed assets 9 12
------------ -----------
Total nonperforming assets $ 1,178 $ 965
------------ -----------
Nonperforming loans as a percent of net loans 2.04% 1.62%
------------ -----------
Nonperforming assets as a percent of total assets 1.33% 1.09%
------------ -----------
Restructured loans $ 60 99
------------ -----------
Potential problem loans $ 273 $ 278
------------ -----------
During the first three months ended March 31, 1998, loans decreased $1,122,000
and nonperforming loans increased $216,000 while the allowance for loan
losses increased $8,000. The percentage of allowance for loan losses to loans
outstanding increased slightly to .79% from .76% during the first quarter.
Potential problem loans consist of two loans to one borrower. These loans
have been outstanding since April 1986 and April 1987. Whereas management
believes that there is adequate collateral value to reduce the risk of
potential loss, the payment patterns by the borrower are such that the loans
are carried as potential problem loans since they exhibit risk of being
reported as nonaccrual.
Provisions for loan losses are charged to operations to bring the total
allowance for loan losses to a level considered by management to be adequate
to provide for estimated losses based on management's evaluation of individual
loans, economic factors, past loan loss experiences, changes in the
composition and volume of the portfolio, and
11
<PAGE>
other relevant factors. Management believes the level of the allowance for
loan losses at March 31, 1998 is sufficient; however, there can be no
assurance that the current allowance for loan losses will be adequate to
absorb all future losses.
DATA PROCESSING ISSUES FOR THE YEAR 2000
Many older computer systems, programs and applications use two digits to
identify the year. Such systems, if they are not adapted to appropriately
identify years beyond 1999, could fail or produce erroneous results by the
year 2000. All of the material data processing of the Savings Bank that could
be affected by this problem is provided by a national third party service
bureau and, to a lesser extent, two additional third party service providers.
Consequently, the Savings Bank is significantly dependent upon their progress
toward achieving a comprehensive processing solution.
In order to diminish the exposure to this processing risk, the Savings Bank
has adopted a Plan for achieving year 2000 readiness. Part of this Plan is
to monitor the progress of the remedial actions that have been implemented
and are being implemented by the service bureau to achieve proper system
functioning. In connection with these efforts, the service bureau is
reporting that substantially all of the necessary remediation will be
completed by June 1998. Additionally, the testing process for these systems
has commenced and the Savings Bank is participating in the testing process.
As part of achieving year 2000 readiness, management is in the process of
developing a test plan which it intends to implement during the second half
of 1998. This test plan includes further testing of our service bureau's
systems as well as testing and certification by our other service providers.
Additionally, the Savings Bank's Plan calls for certain contingency planning,
including review of the merits and feasibility of converting to an
alternative service bureau should testing of our current service bureau's
process produce unacceptable results.
Internally, the Savings Bank has determined that certain computer hardware and
programs must be modified and/or replaced in advance of the year 2000. The
Savings Bank has determined that the financial costs associated with these
actions, and those of the service bureau, are not expected to be material.
This is largely due to the process of technological upgrades that are in the
normal course of business. It is anticipated that preparations and testing
for year 2000 preparedness will continue to require significant staff
attention. Should the Savings Bank's service bureau and certain other third
parties be unable to fulfill their contractual obligations to the Savings
Bank, and depending on the timing of these failures, the Savings Bank could
encounter serious difficulties locating and obtaining the services of
alternative vendors. Such complications could have a significant adverse
impact on the financial condition and results of operations of the Savings
Bank.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is involved only in routine legal proceedings occurring in the
ordinary course of business which in the aggregate are believed by management
to be immaterial to the financial condition of the Company.
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
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.
SHS BANCORP, INC.
Date: May 12, 1998 By: /s/ Thomas F. Angotti
--------------------------------
Thomas F. Angotti
President and Chief Executive
Officer
Date: May 12, 1998 By: /s/ Vincent C. Ashoff
--------------------------------
Vincent C. Ashoff
Executive Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,156
<INT-BEARING-DEPOSITS> 6,730
<FED-FUNDS-SOLD> 25
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,625
<INVESTMENTS-CARRYING> 17,270
<INVESTMENTS-MARKET> 17,640
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0
0
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<EPS-PRIMARY> .27
<EPS-DILUTED> .27
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</TABLE>
