<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 134
For the quarterly period ended March 31, 1999
( ) 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 6, 1999: 767,962<PAGE>
<PAGE>
SHS BANCORP, INC.
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited)
as of March 31, 1999 and December 31, 1998 3
Consolidated Statement of Income (Unaudited)
for the Three Months ended March 31, 1999 and 1998 4
Consolidated Statement of Comprehensive Income (Unaudited)
for the Three Months ended March 31, 1999 and 1998 5
Consolidated Statement of Cash Flows (Unaudited)
for the Three Months ended March 31, 1999 and 1998 6-7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Default Upon Senior Securities 14
Item 4. Submissions of Matters to a Vote of Security Holder 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8 - k 14
SIGNATURES 14
2
<PAGE>
<TABLE>
<CAPTION>
SHS Bancorp, Inc.
Consolidated Balance Sheet (Unaudited)
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 549,389 $ 892,428
Interest - bearing deposits with other banks 5,073,828 6,002,437
Short - term investments 592,309 1,054,217
----------- -----------
Cash and cash equivalents 6,215,526 7,949,082
Investment securities available for sale 2,208,944 982,767
Investment securities held to maturity (market value
of $3,948,621 and $3,210,263) 3,925,170 3,165,963
Mortgage - backed securities available for sale 1,198,419 1,480,171
Mortgage - backed securities held to maturity (market
value of $16,451,365 and $15,950,798) 16,211,155 15,711,490
Loans receivable (net of allowance for loan losses of
$437,082 and $441,080) 57,760,402 57,306,942
Accrued interest receivable 633,010 527,372
Premises and equipment 1,003,376 1,027,639
Federal Home Loan Bank stock 627,422 627,422
Other assets 655,887 634,695
----------- -----------
TOTAL ASSETS $90,439,311 $89,413,543
=========== ===========
LIABILITIES
Deposits $69,133,819 $67,665,946
Advances by borrowers for taxes and insurance 827,475 1,090,364
Borrowed funds 8,527,575 8,743,179
Accrued interest payable 114,790 96,904
Other liabilities 130,456 216,714
----------- -----------
TOTAL LIABILITIES 78,734,115 77,813,107
----------- -----------
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 7,658,795 7,654,255
Retained earnings - substantially restricted 5,434,848 5,337,645
Unallocated shares held by Employee Stock Ownership Plan (ESOP) (557,500) (573,910)
Unallocated shares held by Management Recognition and
Development Plan (MRDP) (225,481) (245,980)
Accumulated other comprehensive income (loss) (8,229) 2,483
Treasury stock, 46,988 and 45,152 shares at cost (605,437) (582,257)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,705,196 11,600,436
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $90,439,311 $89,413,543
=========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
SHS Bancorp, Inc.
Consolidated Statement of Income (Unaudited)
Three Months Ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 1,198,981 $ 1,220,185
Interest - bearing deposits with other banks 81,273 83,237
Investment securities 90,550 81,646
Mortgage - backed securities 287,382 290,988
Dividends on Federal Home Loan Bank stock 10,156 9,729
----------- -----------
Total interest and dividend income 1,668,342 1,685,785
----------- -----------
INTEREST EXPENSE
Deposits 779,053 778,786
Advances by borrowers for taxes and insurance 2,998 3,076
Collateralized mortgage obligation - 36,836
Borrowed funds 131,891 132,887
----------- -----------
Total interest expense 913,942 951,585
----------- -----------
NET INTEREST INCOME 754,400 734,200
Provision for loan losses 8,711 -
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 745,689 734,200
----------- -----------
NONINTEREST INCOME
Service charge on deposits 12,930 9,102
Other income 13,759 82,492
----------- -----------
Total noninterest income 26,689 91,594
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 292,984 241,379
Occupancy and equipment 67,576 68,966
Professional fees 30,818 24,600
Data processing 58,285 57,181
Other operating expenses 86,973 102,877
----------- -----------
Total noninterest expense 536,636 495,003
----------- -----------
Income before income taxes 235,742 330,791
Income tax expense 92,026 127,693
----------- -----------
NET INCOME $ 143,716 $ 203,098
=========== ===========
EARNINGS PER SHARE
Basic $ 0.20 $ 0.27
Diluted 0.20 N/A
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 716,665 756,907
Diluted 734,000 N/A
DIVIDENDS PER SHARE $ 0.065 -
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
SHS Bancorp, Inc.
Statement of Comprehensive Income (Unaudited)
Three Months Ended March 31,
1999 1998
----------------- -----------------
<S> <C> <C> <C> <C>
Net Income $ 143,716 $ 203,098
--------- ---------
Other Comprehensive Income, net of tax:
Unrealized gain (loss) on available-for-sale securities (10,712) 4,481
Minimum pension liability adjustment - (8,545)
--------- ---------
Total other comprehensive income (loss) (10,712) (4,064)
--------- ---------
Comprehensive income $ 133,004 $ 199,034
========= =========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SHS Bancorp, Inc.
Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 143,716 $ 203,098
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for losses on loans and real estate owned 8,711 -
Depreciation and amortization 26,901 45,802
Release of unearned ESOP shares 20,950 27,897
Release of unearned MRP shares 20,499 -
Increase in accrued interest receivable (105,638) (30,286)
Increase (decrease) in accrued interest payable 17,886 (1,728)
Other, net (99,821) 31,146
----------- -----------
Net cash provided by operating activities 33,204 275,829
----------- -----------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases (1,262,535) -
Proceeds from sales - 278,667
Maturities and repayments 22,969 -
Investment securities held to maturity:
Purchases (1,013,307) (250,000)
Maturities and repayments 254,100 1,443
Mortgage - backed securities available for sale:
Maturities and repayments 278,361 84,288
Mortgage - backed securities held to maturity:
Purchases (2,160,820) (1,355,513)
Maturities and repayments 1,656,956 1,347,940
Loans receivable:
Purchases (375,000) -
Other net (increase) decrease (87,171) 1,122,271
Purchases of premises and equipment, net - (93,445)
----------- -----------
Net cash provided by (used for) investing activities (2,686,447) 1,135,651
----------- -----------
</TABLE>
See accompany notes to the unaudited consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
SHS Bancorp, Inc.
Consolidated Statement of Cash Flows (Unaudited) (Continued)
Three Months Ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits $ 1,467,873 $ 1,199,557
Decrease in advances by borrowers for taxes and insurance (262,889) (274,696)
Collateralized mortgage obligation payments - (424,973)
Repayment of borrowed funds (215,604) (702,059)
Purchase of Treasury Stock (23,180) -
Dividends Paid (46,513) -
----------- -----------
Net cash provided by (used for) financing activities 919,687 (202,171)
----------- -----------
Increase (decrease) in cash and cash equivalents (1,733,556) 1,209,409
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,949,082 7,692,283
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,215,526 $ 8,901,692
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period for:
Interest on deposits and borrowings $ 896,056 $ 953,313
Income Taxes 44,500 65,550
</TABLE>
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 for the periods preceding October 1, 1998, the Savings
Bank's wholly-owned subsidiary, Spring Hill Funding Corporation ("SHFC").
SHFC was a limited purpose finance subsidiary that was liquidated in December
of 1998 after satisfying the obligations of the bond issuance. 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 full year. These statements
should be read in conjunction with the audited financial statements and the
notes thereto for the year ended December 31, 1998 which are incorporated in
Form 10-KSB.
Certain comparative account balances for 1998 have been reclassified to
conform to the 1999 classifications. Such reclassifications did not effect
stockholders' equity or net income.
NOTE 2 - EARNINGS PER SHARE
The Company provides dual presentation of Basic and Diluted earnings per share
("EPS"). Basic EPS is computed based upon income available to common
shareholders and the weighted average number of common shares outstanding for
the period (less the unallocated ESOP shares). Diluted EPS reflects the
dilutive effects that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then would share in the earnings of the Company.
Diluted EPS is only reported for periods following October 1998 when the
Company initially granted options pursuant to the Stock Option Plan approved
by shareholders on April 23, 1998. Prior to that period, the Company
maintained a simple capital structure with no dilutive effects on EPS.
8
<PAGE>
SHS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. This discussion and analysis may
contain certain forward-looking statements within the meaning of federal
securities laws. These forward-looking statements consist of estimates with
respect to the financial condition and results of operations of the Company.
Such forward-looking statements are not guarantees of future performance and
are subject to various factors that could cause actual results to differ
materially from these estimates. These factors include, but are not limited
to, changes in general economic and market conditions and the development of
an interest rate environment that adversely affects the interest rate spread
or other income anticipated from the Company's operations and assets.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND DECEMBER 31, 1998
Total assets increased $1,025,000, or 1.1%, from $89,414,000 at December 31,
1998 to $90,439,000 at March 31, 1999. This growth is the result of increases
in the total investment portfolio and in the balance of loans receivable.
These increases, however, were partially offset by the decrease in cash and
cash equivalents. Cash and cash equivalents decreased $1,734,000, or 21.8%,
from $7,949,000 at December 31, 1998 to $6,215,000 at March 31, 1999, while
the total investment portfolio, inclusive of mortgage-backed securities
("MBS's") and exclusive of short-term investments, increased $2,204,000 or
10.3%, from $21,340,000 at December 31, 1998 to $23,544,000 at March 31, 1999.
During the same period, loans receivable increased $453,000, or 0.8%. The
divestment of funds from cash and cash equivalents and the funds received from
the increase in deposits were used to fund investment security purchases as
well as loan originations.
During the first quarter, total liabilities increased $921,000, or 1.2%, to
$78,734,000. Total deposits increased $1,468,000, or 2.2%, during the period.
The increase in deposits was partially offset by a general decline in
non-deposit liabilities. The decrease 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.
COMPARISON OF THE RESULTS OF THE OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1999 AND 1998
NET INCOME. Net income decreased $59,000 to $144,000 for the three months
ended March 31, 1999 compared to $203,000 for the same period in 1998. This
decrease was the result of an increase in noninterest expense and a decrease
in noninterest income. This, however, was partially offset by an increase in
net interest income.
NET INTEREST INCOME. Net interest income increased $20,000, or 2.7%, from
$734,000 for the three months ended March 31, 1998 compared to $754,000 for
the comparable quarter in 1999. The improved net interest income for the
9
<PAGE>
comparable quarters is the result of decreased interest expense, partially
offset by a decrease in interest income. The interest rate spread, or the
difference between the weighted average yields on interest earning assets and
interest bearing liabilities, improved to 2.96% in the first quarter of 1999
compared to 2.85% in the first quarter of 1998. 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 the
payoff of the higher costing CMO debt in October 1998.
INTEREST INCOME. Total interest and dividend income for the first quarter
decreased $17,000, or 1.0%, in 1999 as compared to 1998. The decrease in
interest income was due to the decrease in the yield earned on these assets.
Although the average of interest-earning assets for the quarter ended March
31, 1999 exceeded average interest-earning assets for the same period in 1998
by $1,918,000, the yield earned on these assets declined 25 basis points
(0.25%) to 7.65% in 1999 compared to 7.90% in 1998. This reduction in yield
is due to interest rates remaining at lower levels since declining in the
fourth quarter of 1997.
INTEREST EXPENSE. Total interest expense for the first quarter decreased
$38,000, or 4.0%, to $914,000 in 1999, as compared to $952,000 in 1998. This
decrease resulted from the difference in interest expense recognized from the
CMO debt. As a result of the CMO paying off in October 1998, no interest
expense was recognized in 1999 for this higher costing debt, as compared to
1998. Additionally, the lower rate environment resulted in a reduced yield
paid on deposits. The weighted average yield on deposit accounts declined 24
basis points (.24%) to 4.51% for the first quarter 1999 compared to 4.74% in
1998. This, however, was offset by growth in deposit balances. Average
deposits for the first quarter 1999 increased $3,569,000 to $69,385,000 as
compared to $65,816,000 for the comparable quarter in 1998.
PROVISION FOR LOAN LOSSES. No provision for loan losses was charged to
earnings for the three months ended March 31, 1998 compared to $9,000 during
the first quarter of 1999. The additional provision expensed this quarter was
due to the reduction in the allowance for loan losses as a result of net
charge-offs of $13,000 realized during the quarter.
NON-INTEREST INCOME. Total non-interest income decreased $65,000, or 70.7%,
to $27,000 in 1999, as compared to $92,000 in 1998. The decrease was the
result of a one-time gain of $66,000 that was realized on property acquired
during the first quarter of 1998. 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 $42,000 to $537,000 in 1999 compared to $495,000 in 1998.
Compensation and employee benefits rose $52,000 in 1999 compared to 1998.
This increase is partly due to $21,000 of expense recognized in the first
quarter of 1999 for the MRDP that was adopted on October 1, 1998. This
expense represents the market price of SHS Bancorp stock as of the grant date
multiplied by the number of shares earned by all eligible employees during the
period. Salary expense also increased in part in the first quarter of 1999 as
compared to the first quarter of 1998 due to an increase in staffing for the
additional branch opened in March of 1998 as well as from general salary
increases.
INCOME TAXES. Income tax expense decreased $36,000 to $92,000 in 1999 as a
result of the lower 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 FHLB of Pittsburgh. This available credit arrangement
with the FHLB provides for a maximum borrowing capacity of up to $47,776,000
at March 31, 1999. The Savings Bank had outstanding term borrowings from the
FHLB of $8,528,000 at March 31, 1999.
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, 1999 this ratio
was 9.56%.
At March 31, 1999, the Savings Bank had $2,531,000 in outstanding mortgage,
credit lines and construction loan commitments. Management believes it has
adequate sources to meet its funding requirements.
10
<PAGE>
Management monitors risk-based capital and leverage ratios in order to assess
compliance with regulatory guidelines. Management believes, as of March 31,
1999, that the Company and the Savings Bank meet all capital adequacy
requirements to which they are subject. At March 31, 1999, the Savings Bank
had risk-based capital of 24.02% and a leverage capital ratio of 11.04% of
tangible assets. The Company's and Savings Bank's GAAP capital ratios as of
the same date were 12.94% and 11.04%, 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.
<TABLE>
<CAPTION>
March 31, Dec. 31,
1999 1998
--------- --------
(dollars in thousands)
<S> <C> <C>
Loans on nonaccrual basis $ 1,051 $ 1,471
Loans past due 90 days or more
and still accruing - -
--------- --------
Total nonperforming loans 1,051 1,471
Other real estate owned 64 41
Repossessed assets - 11
--------- --------
Total nonperforming assets $ 1,115 $ 1,523
Nonperforming loans as a percent of net loans 1.82% 2.57%
Nonperforming assets as a percent
of total assets 1.23% 1.70%
--------- --------
Restructured loans $ 103 39
--------- --------
Potential problem loans $ - $ -
--------- --------
</TABLE>
During the three months ended March 31, 1999, net loans increased $453,000 and
nonperforming loans decreased $420,000 while the allowance for loan losses
decreased $4,000. The percentage of allowance for loan losses to loans
outstanding decreased slightly to .75% from .76% during the period.
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 other relevant factors.
Management believes the level of the allowance for loan losses at March 31,
1999 is sufficient; however, there can be no assurance that the current
allowance for loan losses will be adequate to absorb all future losses.
11
<PAGE>
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. In order to diminish the exposure to this processing risk, the
Savings Bank has adopted a multiphase plan for achieving year 2000 readiness.
The following summarizes the plan's five phases and provides a brief
description of the progress:
1. Awareness - Involved Company wide educational initiatives. The
internal aspect of this phase is completed and has been expanded to
include our customer base.
2. Assessment - Essentially completed in 1997, this involved a review of
all internal systems, equipment, external service dependencies and
other third party risks with assignment of ratings for each item as
to criticality for the Savings Bank's operations.
3. Remediation - Involving systems upgrading for year 2000 processing
compliance and/or readiness. The Savings Bank is currently in this
phase. Mission critical systems are completed and non-mission
critical system and equipment renovations and upgrading is underway.
4. Testing - The Savings Bank is currently in this phase. Substantially
complete for mission critical areas.
5. Implementation - This involves bringing year 2000 compliant
and/or ready systems into operation. The Savings Bank and its
significant third party service providers are well in to this phase.
From June 1997 through April 30, 1999 the Savings Bank has incurred year 2000
related expenses of $20,000. Additional expenses related to remediation,
testing and contingency planning efforts are not anticipated to exceed $17,000
through 1999, inclusive of allocated employee time. Possible contingent costs
in the year 2000 are currently estimated at $14,000. A more complete status
of management's efforts follows.
Based upon management's year 2000 planning process, the Savings Bank has
various levels of year 2000 processing risk in three general areas: (i) Third
party service providers, (ii) the Savings Bank's internal computer systems
and equipment, and (iii) borrowers of the Savings Bank who are dependent upon
computer systems.
(i) THIRD PARTY SERVICE PROVIDERS. As with most financial companies, the
Savings Bank is highly dependent on a broad mix of external data service
providers and interchanges, however, much 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. Although dependent upon the three companies
each is a significant nationally recognized leader in their market.
Nevertheless, the Savings Bank is highly dependent upon their progress toward
achieving a comprehensive processing solution. A significant component of the
Savings Bank's plan is to monitor the progress of the remedial actions that
have been implemented and are being implemented by these service providers to
achieve proper system functioning. In connection with these efforts, the
Savings Bank's primary service provider has reported that substantially all of
the necessary remediation was completed as of June 30, 1998. Additionally,
the testing process for their system was essentially completed by September
30, 1998. The Savings Bank was actively involved in the testing process,
including sending representatives to participate in the user acceptance proxy
testing. Testing with our primary service provider also included an on-line
connectivity test on August 16, 1998 which involved both the Savings Bank and
12
<PAGE>
our service bureau rolling our system dates to March 31, 2000 and conducting
sample transaction postings to back-up customer files. The resulting activity
reports, transaction postings and interest calculations have been reviewed and
revealed no exceptions. User institutions from other regions tested on-line
with our service provider on alternate dates and tested other dates in 2000
including the leap year date of February 29, 2000. No exceptions have been
noted from these tests either. The other two service providers perform wire
services, check processing, securities safekeeping and ATM driving and
transaction processing on behalf of the Bank. Both service providers are
reporting good remedial progress with significant systems testing completed.
An additional important component to the testing process is integration
testing, or testing the interface between two of these third party providers.
Most of the mission critical third party integration testing has been
completed with no reported problems, but the results have not yet been
thoroughly reviewed.
(ii) INTERNAL SYSTEMS AND EQUIPMENT. Internally, the Savings Bank has
determined that certain computer hardware and programs must be modified and/or
replaced in advance of the year 2000. However, the Savings Bank has no
in-house developed programs or customized software and much of what is to be
replaced is part of ongoing technological upgrades that are in the normal
course of business. As of February 15, 1999, the Savings Bank completed
remedial upgrades to mission critical branch platform equipment and conducted
tests that verified year 2000 readiness. Renovations and upgrades will
continue on non-mission critical systems through June 30, 1999.
(iii) BORROWERS WITH COMPUTER SYSTEM DEPENDENCY. A review of the Savings
Bank's borrowers has been performed. Since the loan portfolio is
significantly comprised of loans collateralized with residential related
property it is not believed by management that the year 2000 problem will, on
an aggregate basis, impact the Savings Bank's capacity to recover repayment of
the debt. Additional customer contact is anticipated to further minimize any
risk in this area.
Due to the Savings Bank's third party service provider dependencies and the
significant amount of external data interfaces within the financial industry,
including various customer payroll direct deposit originating sources, there
is the possibility for some service disruptions related to the year 2000.
Contingency plans are being developed to address the potential problems that
may arise. Should year 2000 related failures prove numerous or sustained for
indefinite periods there would be a profound impact on the Savings Bank's
operations as well as the likelihood of curtailed banking services. 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.
Year 2000 costs and the expected dates for completion of remediation efforts
are based on management's best estimates, which were derived using certain
assumptions of future events including the availability of resources, third
party representations and expected performance, and other factors. There can
be no guarantee that these estimates will be achieved and actual results could
differ materially from these plans.
13
<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
A cash dividend of $0.07 per share has been declared on the common stock for
holders of record May 12, 1999 to be paid May 26, 1999.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No Form 8-K reports were filed during the quarter.
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 11, 1999
By: /s/ Thomas F. Angotti
---------------------------
Thomas F. Angotti
President and Chief Executive Officer
Date: May 11, 1999
By: /s/ Vincent C. Ashoff
---------------------------
Vincent C. Ashoff
Executive Vice President and
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 549
<INT-BEARING-DEPOSITS> 5,049
<FED-FUNDS-SOLD> 25
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,407
<INVESTMENTS-CARRYING> 20,729
<INVESTMENTS-MARKET> 20,992
<LOANS> 58,197
<ALLOWANCE> 437
<TOTAL-ASSETS> 90,439
<DEPOSITS> 69,134
<SHORT-TERM> 0
<LIABILITIES-OTHER> 130
<LONG-TERM> 8,528
0
0
<COMMON> 8
<OTHER-SE> 11,697
<TOTAL-LIABILITIES-AND-EQUITY> 90,439
<INTEREST-LOAN> 1,199
<INTEREST-INVEST> 388
<INTEREST-OTHER> 81
<INTEREST-TOTAL> 1,668
<INTEREST-DEPOSIT> 779
<INTEREST-EXPENSE> 914
<INTEREST-INCOME-NET> 754
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 537
<INCOME-PRETAX> 236
<INCOME-PRE-EXTRAORDINARY> 144
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 7.65
<LOANS-NON> 1,051
<LOANS-PAST> 0
<LOANS-TROUBLED> 103
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 441
<CHARGE-OFFS> 13
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 437
<ALLOWANCE-DOMESTIC> 437
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
