SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-KSB
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
------------------------------------------------------
- OR -
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission file number: 0-23765
-------
SFSB Holding Company
- --------------------------------------------------------------------------------
(Exact name of small business issuer in its charter)
Pennsylvania 23-2934332
- --------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. employer
of incorporation or organization) identification no.)
900 Saxonburg Boulevard, Pittsburgh, Pennsylvania 15223
- ----------------------------------------------------- ----------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (412) 487-4200
--------------
Securities registered pursuant to Section 12(b) of the Act: None
--------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of class)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Registrant's revenues for the year ended December 31, 1997 were
$2,367,000.
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the average of the bid and asked prices of such
stock as of March 31, 1998 ($14.50 per share), was $8.9 million.
As of April 5, 1998, the registrant had 726,005 shares of Common Stock
outstanding.
<PAGE>
PART I
SFSB HOLDING COMPANY (THE "COMPANY" OR "REGISTRANT") MAY FROM TIME TO
TIME MAKE WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS
CONTAINED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
(INCLUDING THIS ANNUAL REPORT ON FORM 10-KSB AND THE EXHIBITS THERETO), IN ITS
REPORTS TO STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY, WHICH ARE
MADE IN GOOD FAITH BY THE COMPANY PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH
AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND
INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS,
COULD CAUSE THE COMPANY'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE
PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS
OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES
AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM, INFLATION, INTEREST RATE, MARKET AND MONETARY
FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND
SERVICES OF THE COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND
SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO
COMPETITORS' PRODUCTS AND SERVICES; THE WILLINGNESS OF USERS TO SUBSTITUTE
COMPETITORS' PRODUCTS AND SERVICES FOR THE COMPANY'S PRODUCTS AND SERVICES; THE
SUCCESS OF THE COMPANY IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS AND
SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND
REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
INSURANCE); TECHNOLOGICAL CHANGES, ACQUISITIONS; CHANGES IN CONSUMER SPENDING
AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS INVOLVED
IN THE FOREGOING.
THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS IS
NOT EXCLUSIVE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD- LOOKING
STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON
BEHALF OF THE COMPANY.
Item 1. Description of Business
- -------------------------------
General
SFSB Holding Company is a unitary savings and loan holding company that
was incorporated in October 1997 under the laws of the Commonwealth of
Pennsylvania for the purpose of acquiring all of the issued and outstanding
common stock of Stanton Federal Savings Bank (the "Bank"). This acquisition
occurred in February 1998 at the time the Bank simultaneously converted from a
mutual to a stock institution, and sold all of its outstanding capital stock to
the Company and the Company made its initial
1
<PAGE>
public offering of common stock (the "Conversion"). The primary activity of the
Company is directing and planning the activities of the Bank, the Company's
primary asset.
At December 31, 1997, the Company had not completed the initial public
offering of its common stock and had not held any assets or conducted any
significant business. As a result, references to the Company or Registrant
generally refer to the Bank, unless the context otherwise indicates. In the
discussion of regulation, except for the discussion of the regulation of the
Company, all regulations apply to the Bank rather than the Company. As of
December 31, 1997, the Bank had total assets of $39.8 million, total deposits of
$35.8 million, and retained earnings of $3.4 million or 8.5% of total assets
under generally accepted accounting principles ("GAAP").
The principal sources of funds for the Bank's activities are deposits
and payments on loans and investments. Funds are used primarily for the
origination of fixed rate loans secured by mortgages on one- to four-family
residences and home equity loans which are located in the Bank's market area and
the purchase of investment securities. The Bank's principal source of revenue is
interest received on loans and investments and the Bank's principal expense is
interest paid on deposits.
Market Area
The Bank's main office is located in Shaler Township, a suburb of
Pittsburgh and the Bank's branch office is located in the Lawrenceville section
of Pittsburgh. The communities of Shaler Township, Lawrenceville and surrounding
areas of Allegheny County are considered to be the Bank's primary market area.
Most of the Bank's deposits and lending activity are generated from individuals
who live in these areas. The Bank is a community-oriented institution and has
served the local Allegheny County community since 1890. Until September 1996,
the Bank operated from its Lawrenceville office where there was limited growth
opportunities for loan originations and deposit needs. The Bank moved to its new
office in Shaler Township in September 1996. Since the opening of the Shaler
Township office, the Bank has generated a significant amount of deposits.
The population in the Bank's primary market area has decreased by 15%
over the fifteen year period ending 1995 and is projected to decrease through
the year 2000. In addition, over the last five years, total deposits at
financial institutions (i.e., banks and thrifts) in the communities of Shaler
Township and Lawrenceville have decreased. The Bank believes that the economic
vitality of these communities depend on the economic vitality of the city of
Pittsburgh, which has been relatively stable in recent years. The Greater
Pittsburgh area has been in the process of restructuring over the past decade.
Once centered on heavy manufacturing, primarily steel, its economic base is now
more diverse, including technology, health and business services. Several
"Fortune 500" industrial firms are headquartered in the Greater Pittsburgh area,
including USX Corporation. The largest employers in Pittsburgh, by the number of
local employees, include the United States Government, the Commonwealth of
Pennsylvania, USAirways, University of Pittsburgh Medical Center, and the
University of Pittsburgh. Seven colleges and universities are located in the
greater Pittsburgh area.
Lending Activities
Most of the Bank's loans are mortgage loans which are secured by one-
to four-family residences. The Bank also makes home equity, multi-family,
commercial real estate and consumer loans. Loans originated by the Bank
historically have rates of interest which are fixed for the term of the loan
("fixed rate"). In the future, the Bank anticipates that any home equity lines
of credit and business loans will be offered at adjustable rates of interest.
2
<PAGE>
The following table sets forth information concerning the types of
loans held by the Bank.
<TABLE>
<CAPTION>
1997 1996
------------------------ --------------------------
Amount Percent Amount Percent
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of Loans:
Real Estate Loans:
One- to four-family ........................ $ 7,656 61.68% $ 7,539 68.88%
Home equity................................. 3,188 25.68 2,017 18.43
Multi-family................................ 33 .27 69 .63
Commercial.................................. 1,096 8.83 921 8.41
Consumer Loans:
Share loans................................. 313 2.52 329 3.01
Other....................................... 126 1.02 70 .64
------- ------ ------- ------
Total loans............................. 12,412 100.00% 10,945 100.00%
------ ====== ------ ======
Less:
Deferred loan origination fees and costs.... 10 14
Allowance for loan losses .................. 110 66
-------- --------
Total loans, net......................... $12,292 $10,865
====== ======
</TABLE>
The following table sets forth the estimated maturity of the Bank's
loan portfolio at December 31, 1997. All of the Bank's loans have fixed rates of
interest. The table does not include the effects of possible prepayments or
scheduled repayments. Prepayments and scheduled principal repayments of loans
totaled $2.0 million at December 31, 1997. All mortgage loans are shown as
maturing based on the date of the last payment required by the loan agreement.
<TABLE>
<CAPTION>
One- to four-
Family
Real Estate Home Multi-
Mortgage Equity Family Commercial Consumer Total
-------- ------ ------ ---------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year............ $ 129 $ 3 $ -- $ 4 $314 $ 450
Over 1 to 3 years........ 72 192 -- -- 51 315
Over 3 to 5 years........ 344 768 -- 246 65 1,423
Over 5 to 10 years....... 907 1,229 33 56 9 2,234
Over 10 to 20 years...... 1,983 996 -- 790 -- 3,769
Over 20 years............ 4,221 -- -- -- -- 4,221
----- ------- ---- ------- ---- ------
Total amount due......... $7,656 $3,188 $ 33 $1,096 $439 $12,412
===== ===== ==== ===== === ======
</TABLE>
One- to Four-Family Residential Loans. The Bank's primary lending
activity consists of the origination of one- to four-family fixed rate
residential mortgage loans secured by property located in the Bank's primary
market area. The Bank generally originates one- to four-family fixed rate
residential mortgage loans in amounts up to 97% of the lesser of the appraised
value or purchase price, with private mortgage insurance required on loans with
a loan-to-value ratio in excess of 80%. The maximum loan-to-value ratio on
mortgage loans secured by non-owner occupied properties generally is limited to
70%. The Bank retains all of its mortgage loans and originates these loans with
maturities of up to 30 years.
3
<PAGE>
Mortgage loans originated and held by the Bank generally include
due-on-sale clauses. This gives the Bank the right to deem the loan immediately
due and payable in the event the borrower transfers ownership of the property
securing the mortgage loan without the Bank's consent.
Home Equity Loans, Second Mortgages and Other Loans. The Bank
originates home equity loans and second mortgage loans which are secured by one
to four-family residences. The Bank originates these loans on one- to
four-family residences with fixed rate terms of up to 15 years. The loans are
generally subject to a 80% combined loan-to-value limitation, including any
other outstanding mortgages or liens. The Bank anticipates offering adjustable
rate home equity lines of credit loans and commercial business loans within the
next year.
Commercial Real Estate Loans. The Bank's commercial real estate loans
are secured by office buildings, retail establishments, and other commercial
properties. These loans generally have not exceeded $400,000 or had terms
greater than 20 years.
Commercial real estate lending entails significant additional risks
compared to residential property lending. These loans typically involve large
loan balances to single borrowers or groups of related borrowers. The repayment
of these loans typically is dependent on the successful operation of the real
estate project securing the loan. These risks can be significantly affected by
supply and demand conditions in the market for office and retail space and may
also be subject to adverse conditions in the economy.
Loan Approval Authority and Underwriting. The Bank establishes various
lending limits for the Bank's officers and maintains a loan committee consisting
of the President, the Secretary and two outside board members. Ms. Mallen, the
Bank's President, and Mr. Gallagher, the Bank's Senior Vice President have loan
authority to approve home equity loans up to $75,000 and unsecured consumer
loans up to $10,000. The loan committee ratifies all residential mortgage loans
and all other real estate and consumer loans.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers.
Title insurance is generally required on all real estate mortgage
loans. The Bank does not require title insurance on home equity loans and second
mortgages, but it obtains a property report from a third party, which indicates
whether there are any liens or other encumbrances against the property.
Borrowers also must obtain fire and casualty insurance. Flood insurance is also
required on loans secured by property that is located in a flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 10 days of the date of issuance. At December 31, 1997,
commitments to cover originations of mortgage loans and construction loans in
process totalled $518,000. The Bank believes that virtually all of its
commitments will be funded.
Loans to One Borrower. The maximum amount of loans which the Bank may
make to any one borrower may not exceed the greater of $500,000 or 15% of the
Bank's unimpaired capital and unimpaired surplus. The Bank may lend an
additional 10% of its unimpaired capital and unimpaired surplus if the loan is
fully secured by readily marketable collateral. The Bank's maximum loan-to-one
4
<PAGE>
borrower limit has been $450,000. At December 31, 1997, the loan outstanding to
the Bank's largest borrower had an outstanding balance of $373,000 and was
performing in accordance with its terms.
Nonperforming and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 20 days past due, a
notice of nonpayment is sent to the borrower. If such payment is not received by
month end, an additional notice of nonpayment is sent to the borrower. After 60
days, if payment is still delinquent, a notice of right to cure default is sent
to the borrower giving 30 additional days to bring the loan current before
foreclosure is commenced. If the loan continues in a delinquent status for 90
days past due and no repayment plan is in effect, foreclosure proceedings will
be initiated. The customer will be notified when foreclosure is commenced.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when the loan becomes more than 90 days delinquent or when, in the Bank's
opinion, the collection of additional interest is doubtful. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent interest payments, if any, are either applied to the
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan.
Nonperforming Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. The
Bank has no loans categorized as troubled debt restructurings within the meaning
of the Statement of Financial Accounting Standards ("SFAS") 15 and no impaired
loans within the meaning of SFAS 114, as amended by SFAS 118. Interest income
that would have been recorded on loans accounted for on a nonaccrual basis under
the original terms of such loans was approximately $11,000 for the year ended
December 31, 1997.
5
<PAGE>
<TABLE>
<CAPTION>
At December 31,
------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Real estate loans:
One- to four-family residential real estate............. $ 89 $ 85
Commercial real estate.................................. 4 --
Consumer.................................................. -- --
---- ----
Total non-accrual loans................................... 93 85
--- ---
Accruing loans which are contractually past
due 90 days or more:
Real estate loans:
One- to four-family residential real estate............. 149 141
Commercial real estate.................................. -- 4
Home equity............................................. 6 --
Consumer.................................................. -- 2
---- ----
Total accrual loans....................................... 155 147
--- ---
Total non-performing loans................................ $248 $232
=== ===
Real estate owned......................................... $ -- $ --
==== ====
Total non-performing assets............................... $248 $232
=== ===
Total non-performing loans to total loans................. 2.00% 2.12%
==== ====
Total non-performing loans to total assets................ 0.62% .70%
==== ====
Total non-performing assets to total assets............... 0.62% .70%
==== ====
</TABLE>
Classified Assets. Office of Thrift Supervision (the "OTS") regulations
provide for a classification system for problem assets of savings associations
which covers all problem assets. Under this classification system, problem
assets of savings institutions such as the Bank's are classified as
"substandard," "doubtful," or "loss." An asset is considered substandard if it
is inadequately protected by the current net worth and paying capacity of the
borrower or of the collateral pledged, if any. Substandard assets include those
characterized by the "distinct possibility" that the savings institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
doubtful have all of the weaknesses inherent in those classified substandard,
with the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions, and
values, "highly questionable and improbable." Assets classified as loss are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted.
Assets may be designated "special mention" because of potential weaknesses that
do not currently warrant classification in one of the aforementioned categories.
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. A savings association's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which may order the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included
6
<PAGE>
in determining a savings association's regulatory capital. Specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
At December 31, 1997, the Bank had no loans classified as doubtful or
loss and had $248,000 of loans classified as substandard. These substandard
loans are classified as nonperforming loans.
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in the Bank's loan portfolio. The evaluation, including a review of all loans on
which full collectibility of interest and principal may not be reasonably
assured, considers: (i) the Bank's past loan loss experience, (ii) known and
inherent risks in the Bank's portfolio, (iii) adverse situations that may affect
the borrower's ability to repay, (iv) the estimated value of any underlying
collateral, and (v) current economic conditions.
The Bank monitors its allowance for loan losses and makes additions to
the allowance as economic conditions dictate. Although the Bank maintains its
allowance for loan losses at a level that the Bank considers adequate for the
inherent risk of loss in the Bank's loan portfolio, future losses could exceed
estimated amounts and additional provisions for loan losses could be required.
In addition, the Bank's determination of the amount of the allowance for loan
losses is subject to review by the OTS, as part of its examination process.
After a review of the information available, the OTS might require the
establishment of an additional allowance. Any increase in the loan loss
allowance required by the OTS would have a negative impact on the Bank's
earnings.
The following table illustrates the allocation of the allowance for
loan losses for each category of loan. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the Bank's use of the allowance to absorb losses in other
loan categories.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1997 1996
-------------------------------------- ------------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One-to four-family $ 98 87.37% $ 63 87.31%
Multi-family -- .27 1 .63
Commercial 10 8.83 2 8.41
Consumer 2 3.53 - 3.65
----- ------ ----- ------
Total $ 110 100.00% $ 66 100.00%
===== ====== ===== ======
</TABLE>
7
<PAGE>
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates and for the periods indicated:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------------
1997 1996
--------- ----------
(Dollars in thousands)
<S> <C> <C>
Total loans outstanding......................... $ 12,412 $ 10,945
====== ======
Average loans outstanding....................... $11,399 $ 9,845
====== ======
Allowance balance at beginning of period........ $ 66 $ 40
Provision:
Real estate.................................. 44 37
Consumer..................................... -- --
Charge-offs:
Real estate.................................. -- (10)
Consumer...................................... -- (1)
Recoveries:
Real estate.................................. -- --
Consumer...................................... -- --
------- -------
Allowance balance at end of period.............. $ 110 $ 66
======= =======
Allowance for loan losses as a percent
of total loans outstanding.................... 0.89 % 0.60 %
Net loans charged off as a percent
of average loans outstanding.................. -- % (.11)%
</TABLE>
Investment Activities
Investment Securities. The Bank is required under federal regulations
to maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. The level of liquid assets
varies depending upon several factors, including: (i) the yields on investment
alternatives, (ii) the Bank's judgment as to the attractiveness of the yields
then available in relation to other opportunities, (iii) expectation of future
yield levels, and (iv) the Bank's projections as to the short-term demand for
funds to be used in loan origination and other activities. The Bank classifies
its investment securities as "available for sale" or "held to maturity" in
accordance with SFAS No. 115. At December 31, 1997, the Bank's investment
portfolio policy allowed investments in instruments such as: (i) U.S. Treasury
obligations, (ii) U.S. federal agency or federally sponsored agency obligations,
(iii) local municipal obligations, (iv) mortgage-backed securities, (v) banker's
acceptances, (vi) certificates of deposit, (vii) federal funds, including
Federal Home Loan Bank ("FHLB") overnight and term deposits, and (viii)
investment grade corporate bonds, commercial paper and mortgage derivative
products. The board of directors may authorize additional investments.
8
<PAGE>
Mortgage-backed Securities. To supplement lending activities, the Bank
has invested in residential mortgage-backed securities. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. Mortgage-backed securities represent a participation
interest in a pool of single-family or other type of mortgages. Principal and
interest payments are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interests in the form of securities, to investors. The
quasi-governmental agencies guarantee the payment of principal and interest to
investors and include the Federal Home Loan Mortgage Corporation ("FHLMC"),
Government National Mortgage Association ("GNMA"), and Federal National Mortgage
Association ("FNMA.")
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
Mortgage-backed securities issued by FHLMC and GNMA make up a majority of the
pass-through certificates market.
Securities Portfolio. The following table sets forth the carrying
(i.e., amortized cost) value of the Bank's investment securities held to
maturity, at the dates indicated. The Bank's securities portfolio classified as
available for sale is carried at market value.
<TABLE>
<CAPTION>
At December 31,
---------------------------------
1997 1996
----------- ------------
(In thousands)
<S> <C> <C>
Securities held to maturity:
U.S. Government agencies...................................... $ 2,737 $ 2,678
Obligations of state and political subdivisions............... 1,804 1,606
Mortgage-backed securities.................................... 9,527 7,457
------ ------
Total securities held to maturity.......................... 14,068 11,741
------ ------
Securities available for sale:
Mutual funds.................................................. 790 756
FHLMC common stock............................................ 743 489
Mortgage-backed securities.................................... 1,379 53
------ -------
Total securities available for sale........................ 2,912 1,298
------ ------
Total investment and mortgage-backed securities............ $16,980 $13,039
====== ======
</TABLE>
9
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for the Bank's investment and mortgage-backed securities portfolio at
December 31, 1997 by contractual maturity. The following table does not take
into consideration the effects of scheduled repayments or the effects of
possible prepayments.
<TABLE>
<CAPTION>
As of December 31, 1997
-------------------------------------------------------------------------------------------------------------------
Total
More than More than Investment Securities and
One Year or Less One to Five Years Five to Ten Years More than Ten Years Mortgage-Backed Securities
---------------------- ----------------- ------------------- ------------------- --------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----------- ---------- -------- ---------- --------- -------- --------- -------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government
agencies...... $ 250 4.81% $1,200 5.93% $ 950 7.13% $ 337 7.28% $ 2,737 6.41% $2,729
Obligations
of state and
political
subdivisions.. -- -- 200 7.50 612 5.82 992 6.16 1,804 6.19 1,874
Mutual funds.... 790 5.95 -- -- -- -- -- -- 790 5.95 790
FHLMC common
stock......... 743 40.00 -- -- -- -- -- -- 743 40.00 743
Mortgage-backed
securities.... 372 5.31 2,368 5.92 754 6.78 7,412 7.15 10,906 6.79 11,028
------ ----- ----- ----- ----- ----- ----- ----- ------ ----- ------
Total......... $2,155 17.45% $3,768 6.01% $2,316 6.67% $8,741 7.04% $16,980 8.08% $17,164
===== ===== ===== ===== ===== ===== ===== ===== ====== ===== ======
</TABLE>
10
<PAGE>
Sources of Funds
Deposits are the Bank's major external source of funds for lending and
other investment purposes. Funds are also derived from the receipt of payments
on loans and prepayment of loans and maturities of investment and
mortgage-backed securities and, to a much lesser extent, borrowings and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a selection
of deposit instruments including regular savings accounts, money market
accounts, and term certificate accounts. IRA accounts are also offered. Deposit
account terms vary according to the minimum balance required, the time period
the funds must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set weekly at the
direction of the Bank's senior management. Interest rates are determined based
on the Bank's liquidity requirements, interest rates paid by the Bank's
competitors, and the Bank's growth goals and applicable regulatory restrictions
and requirements.
At December 31, 1997, the Bank had no brokered deposits and its
deposits were represented by the following types of savings programs.
<TABLE>
<CAPTION>
Minimum Balance as of Percentage
Interest Balance December 31, of Total
Category Term Rate(1) Amount 1997 Deposits
- -------- ---- ------- ------ ------------------ ----------
(Dollars in
thousands)
<S> <C> <C> <C> <C> <C>
Non-interest Accounts -- -- $ 1,692 4.73%
NOW Accounts 2.00% $ 300 1,691 4.72
Regular Savings None 3.00 100 9,535 26.63
Money Market Accounts 2.75 2,500 1,328 3.71
Certificates of Deposit:
Fixed Term, Fixed Rate 3 months 4.25 500 200 0.56
Fixed Term, Fixed Rate 6 months 5.00 500 2,570 7.18
Fixed Term, Fixed Rate 12 months 5.39 500 10,406 29.06
Fixed Term, Fixed Rate 30 months 5.63 500 4,006 11.19
Fixed Term, Fixed Rate 60 months 5.87 500 1,398 3.90
Fixed Term, Fixed Rate 72 - 120 months 5.87 500 936 2.61
Jumbo Certificates (2) 100,000 2,042 5.71
------ ------
Total $35,804 100.00%
====== ======
</TABLE>
- ---------------
(1) Interest rate offerings as of December 31, 1997.
(2) Negotiated rates and terms.
11
<PAGE>
The following table sets forth the Bank's time deposits classified by
interest rate at the dates indicated.
As of December 31,
------------------------------------
1997 1996
---------- ---------
(Dollars in thousands)
Interest Rate
4.00% or less $ 2 $ 181
4.01 - 6.00% 18,465 13,037
6.01 - 8.00% 3,091 4,091
8.01 - 10.00 -- 26
------- -------
Total $21,558 $17,335
======= =======
The following table sets forth the amount and maturities of the Bank's
time deposits at December 31, 1997.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------------------
After
December 31, December 31, December 31, December 31,
Interest Rate 1998 1999 2000 2001 Total
- ------------- ----------- ------------- ----------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
2.00 - 4.00% $ 2 $ -- $ -- $ -- $ 2
4.01 - 6.00% 15,145 1,524 1,397 399 18,465
6.01 - 8.00% 1,440 542 842 267 3,091
8.01 - 10.00% -- -- -- -- --
-------- ------- ------- ----- --------
Total $16,587 $2,066 $2,239 $666 $21,558
====== ===== ===== === ======
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
1997.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In thousands)
Within three months $ 618
Three through six months 108
Six through twelve months 405
Over twelve months 911
----
$2,042
======
12
<PAGE>
Borrowings. Advances (borrowing) may be obtained from the FHLB of
Pittsburgh to supplement the Bank's supply of lendable funds. Advances from the
FHLB of Pittsburgh are typically secured by a pledge of the Bank's stock in the
FHLB of Pittsburgh, a portion of the Bank's first mortgage loans and other
assets. Each FHLB credit program has its own interest rate, which may be fixed
or adjustable, and range of maturities. The Bank may borrow up to $21.8 million
from the FHLB of Pittsburgh. If the need arises, the Bank may also access the
Federal Reserve Bank discount window to supplement the Bank's supply of lendable
funds and to meet deposit withdrawal requirements. At December 31, 1997, the
Bank had no borrowings from the FHLB of Pittsburgh.
Competition
Competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
finance companies, and multi-state regional banks in the Bank's market areas.
Competition for funds also includes a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from commercial banks, thrift institutions, credit unions
and mortgage bankers, most of whom have far greater resources than the Bank.
Personnel
At December 31, 1997 the Bank had 13 full-time and 2 part-time
employees. None of the Bank's employees are represented by a collective
bargaining group.
Regulation
Set forth below is a brief description of certain laws which relate to
the Company and the Bank. The description is not complete and is qualified in
its entirety by references to applicable laws and regulation.
Regulation of the Company
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test or a somewhat
similar test for domestic building and loan associations. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualifies as a QTL or domestic building and loan association and were acquired
in a supervisory acquisition. See "- Regulation of the Bank - Qualified Thrift
Lender Test."
13
<PAGE>
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the Federal Deposit
Insurance Corporation ("FDIC"). Lending activities and other investments must
comply with various federal statutory and regulatory requirements. The Bank is
also subject to certain reserve requirements promulgated by the Board of
Governors of the Federal Reserve System (the "Federal Reserve System").
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC, or the
Congress could have a material adverse impact on the Company, the Bank, and
their operations.
Insurance of Deposit Accounts. The deposit accounts held by the Bank
are insured by the SAIF to a maximum of $100,000 for each insured member (as
defined by law and regulation). Insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. In 1996, the annual insurance premium for most BIF
members was lowered to $2,000. The lower insurance premiums for BIF members
placed SAIF members at a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
.657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit
insurance assessment for SAIF members was reduced to .064% of deposits on an
annual basis through the end of 1999. During this same period, BIF members will
be assessed approximately .013% of deposits. After 1999, assessments for BIF and
SAIF members should be the same. It is expected that these continuing
assessments for both SAIF and BIF members will be used to repay outstanding
Financing Corporation bond obligations. As a result of these changes, beginning
January 1, 1997, the rate of deposit insurance assessed the Bank declined by
approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require
savings associations to meet three capital standards: (1) a tangible capital
requirement of 1.5% of total adjusted assets, (2) a leverage
14
<PAGE>
ratio (core capital) requirement of 3% of total adjusted assets and (3) a
risk-based capital requirement equal to 8% of total risk-weighted assets.
Net Portfolio Value. In recent years, the Bank has measured its
interest rate sensitivity by computing the "gap" between the assets and
liabilities which were expected to mature or reprice within certain periods,
based on assumptions regarding loan prepayment and deposit decay rates formerly
provided by the OTS. However, the OTS now requires the computation of amounts by
which the net present value of an institution's cash flows from assets,
liabilities, and off balance sheet items (the institution's net portfolio value,
or "NPV") would change in the event of a range of assumed changes in market
interest rates. The OTS also requires the computation of estimated changes in
net interest income over a four-quarter period. These computations estimate the
effect on an institution's NPV and net interest income of instantaneous and
permanent 100 to 400 basis point increases and decreases in market interest
rates.
NPV is the difference between incoming and outgoing discounted cash
flows from assets, liabilities, and off-balance sheet contracts. An
institution's interest rate risk is measured as the change to its NPV as a
result of a hypothetical 200 basis point change in market interest rates. A
resulting change in NPV of more than 2% of the estimated market value of its
assets will require the institution to deduct from its capital 50% of that
excess change. At December 31, 1997, had the rule applied to the Bank, a
deduction would have been required. Institutions, such as the Bank, with less
than $300 million in total assets and a risk-based capital ratio in excess of
12% are exempt from filing information with the OTS and are exempt from making a
deduction from capital. Because the Bank is not subject to the rule, the
following table presents the Bank's NPV at December 31, 1997, as calculated by
the OTS for the Bank.
The Bank utilizes the NPV calculations to manage its interest rate risk
by establishing a maximum decrease in net interest income and maximum decreases
in NPV given these instantaneous changes in interest rates. The greater the
change in NPV, positive or negative, the more interest rate risk is assumed to
exist with the institution. However, computations of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including
relative levels of market interest rates, loan prepayments and deposit run-offs,
and should not be relied upon as indicative of actual results. Further, the
computations do not contemplate any actions the Bank may undertake in response
to changes in interest rates.
<TABLE>
<CAPTION>
Change in Estimated Amount of Percent of NPV Change (basis
Rates (basis points) NPV($) Change ($) (1) NPV Change (2) Ratio (%) (3) points) (4)
-------------------- ------ -------------- -------------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+400 2,646 -2,082 -44% 6.97% -463 bp
+300 3,190 -1,538 -33 8.25 -335 bp
+200 3,744 -984 -21 9.50 -210 bp
+100 4,276 -453 -10 10.65 -94 bp
-- 4,728 11.60
-100 5,115 386 +8 12.37 +77 bp
-200 5,473 745 +16 13.06 +146 bp
-300 5,874 1,146 +24 13.81 +221 bp
-400 6,409 1,681 +36 14.81 +321 bp
</TABLE>
15
<PAGE>
- -----------------
(1) Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
(2) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(3) Calculated as estimated NPV divided by present value of total assets.
(4) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio
assuming no change in interest rates.
The Bank is exempt from deducting the interest rate risk component from
its risk-based capital due to its asset size and level of risk-based capital.
Based on the table, net interest income should decline with instantaneous
increases in interest rates while net interest income should increase with
instantaneous declines in interest rates.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to the Conversion.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. As of
December 31, 1997, the Bank was a Tier 1 institution. In the event the Bank's
capital fell below its fully phased-in requirement or the OTS notified it that
it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
Finally, a savings association is prohibited from making a capital
distribution, such as a dividend payment, if, after making the distribution, the
savings association would be undercapitalized (not meet any one of its minimum
regulatory capital requirements). In contrast, the Company has fewer
restrictions on making dividend payments, although it is limited by the amount
of dividends it may receive from the Bank.
Qualified Thrift Lender Test. Savings institutions must meet either the
QTL test pursuant to OTS regulations or the definition of a domestic building
and loan association in section 7701 of the Code. If the Bank maintains an
appropriate level of certain specified investments (primarily residential
mortgages and related investments, including certain mortgage-related
securities) and otherwise qualifies as a QTL or a domestic building and loan
association, it will continue to enjoy full borrowing privileges from the FHLB
of Pittsburgh. The required percentage of investments under the QTL test is 65%
of assets while the Code requires investments of 60% of assets. A bank must be
in compliance with the QTL test or
16
<PAGE>
definition of domestic building and loan association on a monthly basis in nine
out of every 12 months. As of December 31, 1997, the Bank was in compliance with
its QTL requirement and met the definition of a domestic building and loan
association.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve System may be
used to satisfy the liquidity requirements that are imposed by the OTS. However,
at December 31, 1997, the Bank was in compliance with this requirement.
Proposed Legislation. Bills have been introduced to congressional
committees that would consolidate the OTS with the Office of the Comptroller of
the Currency ("OCC"). The resulting agency would regulate all federally
chartered commercial banks and thrift institutions. In the event that the OTS is
consolidated with the OCC, it is possible that the thrift charter could be
eliminated and thrifts could be forced to convert to commercial banks. Under
current law and regulations, a unitary savings and loan holding company, such as
the Company, which has only one thrift subsidiary such as the Bank, has
essentially unlimited investment authority. Legislation has also been proposed
which, if enacted, would limit the non-banking related activities of savings and
loan holding companies to those activities permitted for bank holding companies.
Item 2. Description of Property
- -------------------------------
The Bank operates from its main office and one branch office.
<TABLE>
<CAPTION>
Year Net Book Value at
Location Owned Acquired December 31, 1997
- -------- --------------------- -------- -----------------
<S> <C> <C> <C>
900 Saxonburg Boulevard Owned 1996 $1,077,000
Pittsburgh, Pennsylvania 15223
5200 Butler Street Owned 1958 $ 198,000
Pittsburgh, Pennsylvania 15201
</TABLE>
In addition, the Bank owns property at 920 Saxonburg Boulevard which
consists of a single family dwelling that is rented for $650 per month. Upon
termination of the lease, the Bank plans to use this property as a paved parking
area for the Bank's customers and employees. At December 31, 1997, the net book
value of the property was $64,000. On November 14, 1997, the Bank purchased
property at 922 Saxonburg Boulevard for $66,000. This property was acquired for
possible future business needs. This property is being leased as residential
real estate and is included in "premises and equipment" on the balance sheet of
the financial statements of the Company.
Item 3. Legal Proceedings
- -------------------------
There are various claims and lawsuits in which Registrant is
periodically involved, such as claims to enforce liens, condemnation proceedings
on properties in which Registrant holds security interests, claims involving the
making and servicing of real property loans, and other issues incident to
Registrant's business. In the opinion of management, no material loss is
expected from any of such pending claims or lawsuits.
17
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not Applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
Stock Price Information - There were 726,005 shares of common stock of
the Company outstanding on March 31, 1998, held by approximately 404
stockholders of record (not including the number of persons or entities holding
the stock in nominee or street name through various brokerage firms). The
Company completed the initial public offering of its common stock in February
1998 and has not paid any dividends on its common stock.
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
At December 31,
--------------------------
1997 1996
------- -------
(In thousands)
Selected financial data:
Assets............................. $39,780 $33,297
Loans receivable, net.............. 12,292 10,865
Investment securities.............. 6,074 5,528
Mortgage-backed securities......... 10,906 7,511
Deposits........................... 35,804 29,319
Retained earnings.................. 3,450 3,570
18
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Selected operating data:
Interest income............................... $2,294 $1,966
Interest expense.............................. 1,452 1,137
------ ------
Net interest income......................... 842 829
Provision for credit losses................... 44 37
------ ------
Net interest income after provision for
loan losses............................... 798 792
------ ------
Noninterest income............................ 73 154
Noninterest expense........................... 1,221 1,033(1)
----- -----
Loss before income taxes...................... (350) (87)
Income tax benefit............................ (59) (41)
------- -------
Net loss.................................... $ (291) $ (46)
====== =======
</TABLE>
- ----------------------
(1) Includes a one-time expense of $160,000 assessed by the FDIC to
recapitalize the SAIF.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL RATIOS AND OTHER DATA
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
--------------------------------------------
1997 1996
---------------------- -------------------
<S> <C> <C>
Performance Ratios:
Return on average assets
(net income divided by average total assets)....... (0.80)% (0.15)%
Return on average equity
(net income divided by average equity)............. (7.98) (1.27)
Average equity to average assets
(average equity divided by average total assets)... 9.97 11.92
Equity to assets at period end....................... 8.67 10.72
Loans to deposits.................................... 34.64 37.30
Interest rate spread(1).............................. 2.41 2.62
Net yield on average-interest earning assets(2)...... 2.58 2.90
Average interest-earning assets to average
interest-bearing liabilities....................... 106.58 109.36
Net interest income after provision for loan
losses to total noninterest expenses............... 65.36 76.74
Noninterest expense to average assets................ 3.34 3.39
Asset Quality Ratios:
Non-performing loans to total loans.................. 2.00 2.12
Non-performing assets to total assets................ 0.62 0.70
Allowance for loan losses to non-performing assets... 44.35 28.45
Regulatory Capital Ratios:
Tangible............................................. 8.24 10.10
Core................................................. 8.24 10.10
Total Risk Based..................................... 21.18 28.00
</TABLE>
- ---------------------------------
(1) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(2) Net yield on average-interest earning assets is net interest income
before provision for credit losses divided by average interest-earning
assets.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Total assets increased by approximately $6,483,000 to $39,780,000 at
December 31, 1997 from $33,297,000 at December 31, 1996. The increase was funded
by a $6,486,000 or 22.1% increase in deposits due to the inflow of cash
associated with new deposits being attracted to our new Shaler Township office,
which opened in September 1996.
Total mortgage-backed securities increased by $3,395,000 or 45.2% to
$10,906,000 at December 31, 1997 from $7,511,000 at December 31, 1996. There was
an increase in available for sale mortgage-backed securities of $1,326,000 to
$1,379,000 at December 31, 1997 from $53,000 at December 31, 1996. These
purchased securities have interest rates ranging from 6.8% and 7.2% and
scheduled repayments between twenty-nine and thirty years. Held to maturity
mortgage-backed securities increased $2,070,000 or 27.8% to $9,527,000 at
December 31, 1997 from $7,457,000 at December 31, 1996. Of this increase,
approximately $2 million relates to securities with interest rates ranging from
5.5% to 7.0% and maturities within five years. Mortgage-backed securities are
typically being used to supplement the loan portfolio in periods of inadequate
demand. Principal repayments from mortgage-backed securities are being used to
fund loans and to meet other operating activities.
Net loan receivables increased $1,427,000 or 13.1% from $10,865,000 at
December 31, 1996 to $12,292,000 at December 31, 1997. Home equity loans
increased $1,171,000 to $3,188,000 at December 31, 1997 from $2,017,000 at
December 31, 1996 as a result of the demand for this loan product at the new
Shaler Township office. The funding of the loan growth was mainly provided by
the means discussed above, specifically the usage of principal repayments from
mortgage-backed securities.
Deposits increased $6,486,000 to $35,805,000 at December 31, 1997 from
$29,319,000 at December 31, 1996. This increase primarily represents deposits
accumulated with the opening of the new Shaler Township office. Specifically,
there were increases in certificates of deposit of $4,223,000, NOW accounts of
$1,632,000, and savings accounts of $703,000 as customers preferred the higher
yielding returns and flexibility available with the certificate of deposit
products.
Retained earnings decreased by $120,000 to $3,450,000 at December 31,
1997 from $3,570,000 at December 31, 1996 as a result of a net loss of $291,000
offset somewhat by an increase of $171,000 from the unrealized gain on
securities available for sale.
On September 30, 1997, the Board of Directors of the Bank adopted the
Plan of Conversion (the "Conversion") pursuant to which the Bank proposed to
convert from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the concurrent formation of a holding company for the
Bank.
On February 26, 1998, SFSB Holding Company became a bank holding
company by acquiring all of the outstanding capital stock of the Bank by
exchanging approximately $3.5 million of the proceeds received in the public
offering for all of the common stock of the Bank, and a percentage of the
conversion proceeds permitted to be retained. From the proceeds of the
Conversion, approximately $73,000 was allocated to common stock, and $6.9
million, which is net of $333,000 conversion costs, was allocated to additional
paid-in capital.
21
<PAGE>
Results of Operations
Our net loss increased $245,000 to $291,000 for the year ended December
31, 1997 from $46,000 for the same period ended December 31, 1996. This increase
was primarily due to a decline in noninterest income of $80,000 or 52.4% coupled
with an increase in noninterest expense of $187,000 or 18.1%. As discussed
below, non-interest income declined primarily due to gains on sales of
securities that occurred during the year ended December 31, 1996 that were not
repeated during the following fiscal year and noninterest expense increased
primarily due to the costs associated with the operation of the Shaler Township
office that was opened in September 1996. The operation of this new office has
resulted in both increased net income after provision for loan losses and
increased service fees during the year ended December 31, 1997. However, the
increase in noninterest expense has, as expected, more than offset these other
increases during the five fiscal quarters the branch has been in operation. If,
through time, the Shaler Township office is successful, net income after
provision for loan losses and service fee income will both increase in greater
dollar amounts than noninterest expense has increased due to the operation of
the Shaler Township office. However, as with any expansion, if the new office
does not ultimately result in sufficient increased loan and deposit activity and
increased net interest income and noninterest income, these expenses would
continue to have an adverse effect on the Bank during 1998 and in future
periods.
Net interest income increased slightly by $13,000 to $842,000 for the
year ended December 31, 1997 compared to $829,000 for the same period ended
December 31, 1996. There was an increase in interest income resulting primarily
from an increase in earnings on interest-bearing deposits with other banks of
$109,000 or 37.0%, loans of $95,000 or 11.4%, and investment securities of
$94,000 or 31.3%. The increases in interest income were primarily due to an
increase in the average principal balances of interest-bearing deposits with
other banks of $1,163,000, loans of $1,554,000, and investment securities of
$1,640,000. These increases, as discussed previously, were funded by proceeds of
depositors from the opening of the Shaler Township office. The yield on other
interest-earning assets increased 71 basis points from 5.28% for 1996 to 5.99%
for 1997 due to the purchase of $1,140,000 in certificates of deposit with
interest rates ranging from 5.85% to 6.20%. These increases to interest income
were offset by a decline in the yield on loans from 8.47% in 1996 to 8.32% for
1997 as the competitive nature of the Bank's market area forced interest rates
on certain loan products downward.
Interest expense on deposits increased $315,000 or 27.8% from
$1,137,000 for the year December 31, 1996 to $1,452,000 for the same period
ended 1997. The increase was primarily due to the average volume of certificates
of deposit increasing $4,608,000 or 30.6% due to the opening of the new Shaler
Township office. The increase in interest expense was further impacted by the
yield on certificates of deposit increasing from 5.44% for 1996 to 5.68% for
1997 due to the movement from lower paying savings accounts to higher yielding
certificate accounts.
Our provision for loan losses increased $7,000 from $37,000 for the
year ended December 31, 1996 to $44,000 for the same period ended December 31,
1997 primarily in response to loan growth. Historically, we have emphasized our
loss experience over other factors in establishing the provision for loan
losses. We review the allowance for loan losses in relation to (i) our past loan
experience, (ii) known and inherent risks in our portfolio, (iii) adverse
situations that may affect the borrower's ability to repay, (iv) the estimated
value of any underlying collateral, and (v) current economic conditions. Because
of the increased coverage of the allowances for loan losses to total loans,
management believes the allowance for loan losses is at a level that is
considered to be adequate to provide for estimated losses; however, there can be
no assurance that further additions will not be made to the allowance and that
such losses will not exceed the estimated amount.
22
<PAGE>
Noninterest income which is comprised principally of service charges on
deposit accounts and gains on sale of securities decreased $81,000 or 52.4% to
$73,000 for the year ended December 31, 1997 from $154,000 for the same period
ended December 31, 1996. Service charges on deposit accounts increased $45,000
to $61,000 for 1997 compared to $16,000 for 1996. Since the opening of the
Shaler Township office in September 1996, service fees increased due to a higher
fee structure and a larger deposit base. In 1996, the Bank recognized gains from
sales of FHLMC common stock of $124,000.
There were no sales from the available for sale portfolio in 1997.
Noninterest expense increased $187,000 or 18.1% to $1,220,000 for the
year ended December 31, 1997 from $1,033,000 for the same period ended December
31, 1996. The increase was the result of operating a larger organization
including the opening of the Shaler Township office in September 1996.
Compensation and benefits increased $115,000 or 25.7%, due to the recognition of
$43,000 in supplemental retirement expenses for senior management and the hiring
of new employees for the Shaler Township office. Occupancy and equipment
increased $88,000 or 68.4% to $216,000 for 1997 compared to $128,000 for 1996
primarily due to an increase of $63,000 in depreciation expenses related to
buildings, furniture, and equipment for the Shaler Township office, as well as
smaller increases in other expenses of this type. Data processing expenses
increased from $68,000 for 1996 to $132,000 for 1997 or $64,000. This increase
is directly affected by the increase in volume of processing and number of
accounts since the opening of the Shaler Township office. Other operating
expenses increased by $96,000 from $152,000 for 1996 to $248,000 for 1997 due to
recognition of $56,000 from the implementation of a directors consultation and
retirement plan and $18,000 of ATM expenses from the operation of an ATM which
was put into use in September 1996. These increases to noninterest expense were
partially offset by a decrease of $180,000 in federal insurance premiums. The
decrease in federal insurance premiums was the result of the recapitalization of
the Savings Association Insurance Fund ("SAIF"). The SAIF insurance assessment
rate paid by the us before the recapitalization was 23(cent) per $100 of
deposits and decreased to 6.5(cent) per $100 of deposits after the
recapitalization of SAIF.
A great deal of information has been disseminated about the global
computer year 2000. 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 and compute
payment, interest or delinquency based on the wrong date or are expected to be
unable to compute payment, interest or delinquency. Rapid and accurate data
processing is essential to our Bank's operation. Data processing is also
essential to most other financial institutions and many other companies. All of
our material data processing that could be affected by this problem is provided
by a third party service bureau. Our service bureau has advised us that it
expects to resolve this potential problem before the year 2000. However, if our
service bureau is unable to resolve this potential problem in time, we would
likely experience significant data processing delays, mistakes or failures.
These delays, mistakes or failures could have a significant adverse impact on
our financial condition and our results of operation.
Income tax benefit increased $18,000 to $58,000 for the year ended
December 31, 1997 compared to $40,000 for the same period ended December 31,
1996 due to a larger net loss on operations and an offsetting establishment of a
$79,000 valuation allowance for net deferred tax assets. In establishing a
valuation allowance, management considered the history of operating losses of
the Bank coupled with the Bank's future ability to recognize Commonwealth of
Pennsylvania net operating loss carryforwards which will expire within three
years.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, interest-bearing deposits
with other banks and funds provided from operations. While scheduled repayments
of loans and mortgage-backed securities and maturities of investment securities
are predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions, and
competition. We use our liquid resources principally to fund loan commitments,
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, and to meet operating expenses.
Net cash used for operating activities was $318,000 for 1997 as
compared to $32,000 for 1996. This increase was primarily the result of an
increase in the net loss from operations of $245,000, prepaid conversion costs
of $157,000, and prepaid federal income taxes of $103,000. This increase was
partially offset by the decline in net security gains of $124,000 and an
increase in depreciation and amortization expense of $72,000 primarily from the
new Shaler Township office.
Investing activities consist primarily of loan originations and
repayments, investment purchases and maturities, and mortgage-backed security
purchases and repayments. These activities used $5,484,000 in funds for 1997,
principally for purchase of investment and mortgage-backed securities of
$1,430,000 and $5,498,000, respectively, and the net funding of loans which
totaled $1,471,000. These cash outlays were partially offset from investment and
mortgage-backed security repayments and maturities of $1,144,000 and $2,093,000,
respectively. For 1996, investing activities used $3,090,000, resulting from the
purchase and construction of the Shaler Township office totaling $1,418,000, the
net funding of loans for $1,322,000, and $1,893,000 for the purchase of
investment securities and certificates of deposits. These cash outlays exceeded
funds received from investment and mortgage-backed security repayments and
maturities of $405,000 and $1,585,000, respectively.
Net cash provided from our financing activities, which consist
principally of the solicitation and repayment of customer deposits, totaled
$6,470,000 for 1997 as compared to $3,895,000 for 1996.
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
savings and loan industry and similar matters. Management monitors projected
liquidity needs and determines the level desirable, based in part on the Bank's
commitments to make loans and management's assessment of the Bank's ability to
generate funds.
24
<PAGE>
Average Balance
The following tables set forth a summary of average balances of assets
and liabilities as well as average yield and cost information. Average balances
are derived from quarterly average balances, however, we do not believe the use
of quarterly balances has caused any material differences in the information
presented. Tax equivalent adjustments have been made to yields or securities
that are exempt from federal income tax, assuming a tax rate of 34%.
<TABLE>
<CAPTION>
For the Year Ended December 31, At December 31,
-------------------------------------------------------------- ---------------------
1997 1996 1997
------------------------------ ------------------------------ ---------------------
Average Average Average
Average Yield/ Average Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Cost
-------- -------- --------- ---------- -------- --------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)........................ $11,399 $ 948 8.32% $9,845 $834 8.47% $12,402 8.22%
Mortgage-backed securities................. 8,460 568 6.71 7,992 537 6.72 10,906 6.79
Investments securities..................... 6,791 394 6.41 5,151 301 6.33 6,074 6.43
Other interest-earning assets.............. 6,727 403 5.99 5,564 294 5.28 5,728 5.69
------ ----- ---- ------ ----- ---- ------ ----
Total interest-earning assets................ 33,377 2,313 7.05 28,552 1,966 6.97 35,110 7.05
----- -----
Non-interest-earning assets.................. 3,180 1,939 4,670
------ ------ ------
Total assets................................. $36,557 $30,491 $39,780
====== ====== ======
Interest-bearing liabilities:
Interest-bearing demand deposits........... $ 2,649 66 2.49 $ 2,402 59 2.46 $ 3,020 2.33
Certificates of deposit.................... 19,670 1,117 5.68 15,062 820 5.44 21,558 5.68
Savings deposits........................... 8,996 269 2.99 8,645 258 2.98 9,532 3.00
------ ----- ---- ------ ----- ---- ------ ----
Total interest-bearing liabilities........... 31,315 1,452 4.64 26,109 1,137 4.35 34,110 4.63
------ ----- ------ ----- ------
Noninterest-bearing liabilities.............. 1,597 746 2,220
------ ------ ------
Total liabilities............................ $32,912 $26,855 $36,330
====== ====== ======
Retained Earnings............................ 3,645 3,636 3,450
------ ------ ------
Total liabilities and retained earnings...... $36,557 $30,491 $39,780
====== ====== ======
Net interest income.......................... $ 861 $ 829
===== =====
Interest rate spread(2)...................... 2.41% 2.62% 2.42%
Net yield on interest-earning assets(3)...... 2.58% 2.90% 2.45%
Ratio of average interest-earning assets
to average interest-bearing liabilities.... 106.58% 109.36% 102.93%
</TABLE>
- ------------
(1) Average balances include non-accrual loans.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
25
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest earnings assets and interest bearing liabilities,
information is provided on changes attributable to (1) changes in volume
(changes in average volume multiplied by old rate) and (ii) changes in rate
(changes in rate multiplied by old volume). Increases and decreases due to both
rate and volume, which cannot be separated, have been allocated proportionally
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 vs. 1996 1996 vs. 1995
--------------------- ----------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------- ---------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable .................... $132 $(18) $114 $ 61 $ (3) $ 58
Mortgage-backed securities .......... 31 0 31 (4) 11 7
Investment securities ............... 96 (3) 93 30 (17) 13
Other interest-earning assets ....... 61 48 109 (35) (18) (53)
---- ---- ---- ---- ---- ----
Total interest-earning assets .... 320 27 347 52 (27) 25
==== ==== ==== ==== ==== ====
Interest expense:
Interest-bearing demand deposits .... $ 6 $ 1 $ 7 $ (4) $ (1) $ (5)
Certificates of deposit ............. 251 46 297 85 5 90
Savings deposits .................... 10 1 11 (12) (3) (15)
---- ---- ---- ---- ---- ----
Total interest-bearing liabilities 267 48 315 69 1 70
==== ==== ==== ==== ==== ====
Change in net interest income ......... $ 53 $(21) $ 32 $(17) $(28) $(45)
==== ==== ==== ==== ==== ====
</TABLE>
Item 7. Financial Statements
- ----------------------------
The financial statements begin on the following page.
26
<PAGE>
STANTON FEDERAL SAVINGS BANK
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Page
Number
---------------
Report of Independent Auditors 28
Financial Statements
Balance Sheet 29
Statement of Income 30
Statement of Retained Earnings 31
Statement of Cash Flows 32
Notes to Financial Statements 33 - 50
27
<PAGE>
[Letterhead]
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors
Stanton Federal Savings Bank
We have audited the accompanying balance sheet of Stanton Federal Savings Bank
as of December 31, 1997, and the related statements of income, retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Stanton Federal Savings Bank as of December 31, 1996 and for the
year then ended, were audited by other auditors whose report, dated March 6,
1997, expressed an unqualified opinion on those financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stanton Federal Savings Bank as
of December 31, 1997 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/S.R.Snodgrass, A.C.
Wexford, PA
March 27, 1998
28
<PAGE>
STANTON FEDERAL SAVINGS BANK
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 766,882 $ 770,715
Interest-bearing overnight deposits with other banks 4,280,020 3,607,995
----------- -----------
Cash and cash equivalents 5,046,902 4,378,710
Certificates of deposits with other banks 3,036,715 2,844,900
Investment securities available for sale 1,532,656 1,244,753
Investment securities held to maturity (market
value of $4,602,468 and $4,268,173) 4,541,478 4,283,449
Mortgage-backed securities available for sale 1,378,503 53,791
Mortgage-backed securities held to maturity (market
value of $9,649,748 and $7,402,651) 9,527,074 7,457,415
Loans receivable (net of allowance for loan losses
of $109,951 and $65,951) 12,292,157 10,864,801
Accrued interest receivable 267,171 225,714
Premises and equipment 1,662,909 1,664,306
Federal Home Loan Bank stock 171,700 161,800
Other assets 322,763 117,238
----------- -----------
TOTAL ASSETS $39,780,028 $33,296,877
=========== ===========
LIABILITIES
Deposits $35,804,473 $29,318,964
Advances by borrowers for taxes and insurance 110,211 125,711
Accrued interest payable and other liabilities 415,573 282,073
----------- -----------
TOTAL LIABILITIES 36,330,257 29,726,748
----------- -----------
Commitments and contingencies
RETAINED EARNINGS
Retained earnings-substantially restricted 3,011,068 3,301,992
Unrealized gain on securities available for sale, net of tax 438,703 268,137
----------- -----------
TOTAL RETAINED EARNINGS 3,449,771 3,570,129
----------- -----------
TOTAL LIABILITIES AND
RETAINED EARNINGS $39,780,028 $33,296,877
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
29
<PAGE>
STANTON FEDERAL SAVINGS BANK
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 929,788 $ 834,482
Interest-bearing deposits with other banks 403,081 294,199
Investment securities
Taxable 313,360 250,711
Exempt from federal income tax 80,212 49,209
Mortgage-backed securities 567,828 537,353
----------- -----------
Total interest and dividend income 2,294,269 1,965,954
----------- -----------
INTEREST EXPENSE
Deposits 1,452,031 1,136,528
----------- -----------
Total interest expense 1,452,031 1,136,528
----------- -----------
NET INTEREST INCOME 842,238 829,426
Provision for loan losses 44,000 36,500
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 798,238 792,926
----------- -----------
NONINTEREST INCOME
Service fees 61,538 16,393
Investment securities gains, net -- 124,468
Other 11,558 12,729
----------- -----------
Total noninterest income 73,096 153,590
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 562,438 447,279
Occupancy and equipment 215,971 128,242
Federal insurance premium 38,572 211,724
Data processing 131,515 67,933
Stationary and printing 23,388 25,793
Other 248,642 152,232
----------- -----------
Total noninterest expense 1,220,526 1,033,203
----------- -----------
Loss before income tax benefit (349,192) (86,687)
Income tax benefit (58,268) (40,416)
----------- -----------
NET LOSS $ (290,924) $ (46,271)
=========== ===========
See accompanying notes to financial statements.
</TABLE>
30
<PAGE>
STANTON FEDERAL SAVINGS BANK
STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Available for
Retained Sale, Net
Earnings of Taxes Total
----------- ------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 3,348,263 $ 276,108 $ 3,624,371
Net loss (46,271) -- (46,271)
Net unrealized loss on securities -- (7,971) (7,971)
----------- ----------- -----------
Balance, December 31, 1996 3,301,992 268,137 3,570,129
Net loss (290,924) -- (290,924)
Net unrealized gain on securities -- 170,566 170,566
----------- ----------- -----------
Balance, December 31, 1997 $ 3,011,068 $ 438,703 $ 3,449,771
=========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
31
<PAGE>
STANTON FEDERAL SAVINGS BANK
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (290,924) $ (46,271)
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 44,000 36,500
Depreciation 121,500 58,203
Investment securities gains, net -- (124,468)
Deferred income taxes 2,484 789
Increase in accrued interest receivable (41,457) (12,284)
Other, net (153,331) 55,759
----------- -----------
Net cash used for operating activities (317,728) (31,772)
----------- -----------
INVESTING ACTIVITIES
Increase in certificates of deposits (191,815) (668,453)
Investment securities available for sale:
Purchases (32,576) (525,018)
Proceeds from sales -- 130,333
Maturities and repayments 3,172 3,998
Investment securities held to maturity:
Purchases (1,397,004) (700,000)
Maturities and repayments 1,140,679 405,240
Mortgage-backed securities available for sale:
Purchases (1,325,491) --
Maturities and repayments 713 36,795
Mortgage-backed securities held to maturity:
Purchases (4,172,828) (1,094,529)
Maturities and repayments 2,092,420 1,622,237
Net increase in loans receivable (1,471,356) (1,322,070)
Purchase of Federal Home Loan Bank stock (9,900) (8,300)
Purchase of premises and equipment, net (120,103) (970,135)
----------- -----------
Net cash used for investing activities (5,484,089) (3,089,902)
----------- -----------
FINANCING ACTIVITIES
Net increase in deposits 6,485,509 3,900,836
Net decrease in advances by borrowers for taxes and insurance (15,500) (6,101)
----------- -----------
Net cash provided by financing activities 6,470,009 3,894,735
----------- -----------
Increase in cash and cash equivalents 668,192 773,061
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,378,710 3,605,649
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,046,902 $ 4,378,710
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
32
<PAGE>
STANTON FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying financial statements follows:
Nature of Operations and Basis of Presentation
----------------------------------------------
Stanton Federal Savings Bank (the "Bank") is a federally chartered mutual
savings bank located in Pittsburgh, Pennsylvania. The Bank's principal
sources of revenue emanate from its investment, mortgage-backed
securities, and mortgage loan portfolios. The Bank is supervised by the
Office of Thrift Supervision.
The accounting policies followed by the Bank and the methods of applying
these principles conform with generally accepted accounting principles
and with general practice within the banking industry. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the
period. Actual results could differ significantly from those estimates.
Investment and Mortgage-Backed Securities
-----------------------------------------
Investment and mortgage-backed securities are classified, at the time of
purchase, based on management's intention and ability, as securities held
to maturity or securities available for sale. Debt securities, acquired
with the intent and ability to hold to maturity are stated at cost and
adjusted for amortization of premium and accretion of discount, which are
computed using a level yield method and are recognized as adjustments of
interest income. Certain other debt and equity securities have been
classified as available for sale to serve principally as a source of
liquidity. Unrealized holding gains and losses for available for sale
securities are reported as a separate component of retained earnings, net
of tax, until realized. Realized securities gains and losses are computed
using the specific identification method. Interest and dividends on
investment securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank (the "FHLB") represents
ownership in an institution which is wholly-owned by other financial
institutions. This equity security is accounted for at cost and reported
separately on the accompanying balance sheet.
Loans Receivable
----------------
Loans receivable are stated at their unpaid principal amounts net of any
unearned income. Interest on loans is credited to income as earned.
Interest accrued on loans more than 90 days delinquent is generally
offset by a reserve for uncollected interest and is not recognized as
income.
The accrual of interest is generally discontinued when the contractual
payment of principal and interest has become 90 days past due or
management has serious doubts about further collectibility of principal
or interest, even though the loan is currently performing. A loan may
remain on accrual status if it is in the process of collection and is
either guaranteed or well secured. When a loan is placed on nonaccrual
status unpaid interest is charged against income. Interest received on
nonaccrual loans is either applied to principal or reported as interest
income, according to management's judgment as to the collectibility of
principal.
33
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan Origination Fees
---------------------
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of
the related loan's yield. The Bank is amortizing these amounts over the
contractual life of the related loans using the interest method.
Allowance for Loan Losses
-------------------------
The allowance for loan losses represents the amount which management
estimates is adequate to provide for potential losses in its loan
portfolio. The allowance method is used in providing for loan losses.
Accordingly, all loan losses are charged to the allowance and all
recoveries are credited to it. The allowance for loan losses is
established through a provision for loan losses charged to operations.
The provision for loan losses is based on management's periodic
evaluation of individual loans, economic factors, past loan loss
experience, changes in the composition and volume of the portfolio, and
other relevant factors. The estimates used in determining the adequacy of
the allowance for loan losses, including the amounts and timing of future
cash flows expected on impaired loans, are particularly susceptible to
changes in the near term.
A loan is considered impaired when it is probable that the borrower will
not repay the loan according to the original contractual terms of the
loan agreement. Management has determined that first mortgage loans on
one-to-four family properties and all consumer loans represent large
groups of smaller-balance, homogeneous loans that are to be collectively
evaluated. Management considers an insignificant delay, which is defined
as less than 90 days by the Bank, will not cause a loan to be classified
as impaired. A loan is not impaired during a period of delay in payment
if the Bank expects to collect all amounts due including interest
accrued at the contractual interest rate during the period of the delay.
All loans identified as impaired are evaluated independently by
management. The Bank estimates credit losses on impaired loans based on
the present value of expected cash flows or the fair value of the
underlying collateral if the loan repayment is expected to come from the
sale or operation of said collateral. Impaired loans, or portions
thereof, are charged-off when it is determined that a realized loss has
occurred. Until such time, an allowance for loan losses is maintained
for estimated losses. Cash receipts on impaired loans are applied first
to accrued interest receivable, unless otherwise required by the loan
terms, except when an impaired loan is also a nonaccrual loan, in which
case the portion of the receipts related to interest is recognized as
income.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using straight-line and accelerated methods
over the useful lives of the related assets. Expenditures for maintenance
and repairs are charged to operations as incurred. Costs of major
additions and improvements are capitalized.
Real Estate Owned
-----------------
Real estate owned, acquired in settlement of foreclosed loans, is carried
at the lower of cost or fair value minus estimated cost to sell.
Valuation allowances for estimated losses are provided when the carrying
value exceeds the fair value. Direct costs incurred on such properties
are recorded as expenses of current operations.
Federal Income Taxes
--------------------
Deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rates. Deferred income tax
expenses or benefits are based on the changes in the deferred tax asset
or liability from period to period.
34
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Flow Information
---------------------
Cash payments for interest in 1997 and 1996 were $1,449,816 and
$1,135,755, respectively. Cash payments for income taxes in 1996 were
$19,389. There were no cash payments for income taxes in 1997.
Reclassification of Comparative Amounts
---------------------------------------
Certain comparative account balances for prior periods have been
reclassified to conform to the current period classifications. Such
reclassifications did not effect net income.
Recent Accounting Pronouncements
--------------------------------
In June 1996, the Financial Accounting Standards Board (the "FASB")
issued Statement of Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities." This Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings based on a control-oriented
"financial-components" approach. Under this approach, after a transfer
of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. The provisions of Statement 125 are
effective for transactions occurring after December 31, 1996, except
those provisions relating to repurchase agreements, securities lending,
and other similar transactions and pledged collateral, which have been
delayed until after December 31, 1997 by Statement No. 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125, an
amendment of FASB Statement No. 125." The adoption of the provisions of
Statement No. 127 is not expected to have a material impact on the
financial position or results of operations.
In July 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." The Statement establishes standards for reporting and
presentation of comprehensive income and its components (revenue,
expenses, gains, and losses) in a full set of general purpose financial
statements. It requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is presented with the same
prominence as other financial statements. The provisions of the statement
are effective for all fiscal years beginning after December 15, 1997. The
adoption of this statement is not expected to have a material impact on
financial position or results of operations.
35
<PAGE>
2. INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities
available for sale and held to maturity are summarized as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Available for Sale
Mutual funds $ 850,735 $ - $ (60,876) $ 789,859
FHLMC common stock 17,353 725,444 - 742,797
----------------- ----------------- ---------------- ----------------
Total $ 868,088 $ 725,444 $ (60,876) $ 1,532,656
================= ================= ================ ================
Held to Maturity
U.S. Government agency
securities $ 2,737,135 $ 8,417 $ (16,628) $ 2,728,924
Obligations of state and political
subdivisions 1,804,343 69,201 - 1,873,544
----------------- ----------------- ---------------- ----------------
Total $ 4,541,478 $ 77,618 $ (16,628) $ 4,602,468
================= ================= ================ ================
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Available for Sale
Mutual funds $ 821,332 $ - $ (65,319) $ 756,013
FHLMC common stock 17,353 471,387 - 488,740
----------------- ----------------- ---------------- ----------------
Total $ 838,685 $ 471,387 $ (65,319) $ 1,244,753
================= ================= ================ ================
Held to Maturity
U.S. Government agency
securities $ 2,678,012 $ - $ (34,444) $ 2,643,568
Obligations of state and political
subdivisions 1,605,437 47,474 (28,306) 1,624,605
----------------- ----------------- ---------------- ----------------
Total $ 4,283,449 $ 47,474 $ (62,750) $ 4,268,173
================= ================= ================ ================
</TABLE>
36
<PAGE>
2. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investments in debt
securities by contractual maturity are shown below.
<TABLE>
<CAPTION>
Held to Maturity
--------------------------------------
Estimated
Amortized Market
Cost Value
---------------- ----------------
<S> <C> <C>
Due within one year $ 250,000 $ 248,975
Due after one year through five years 1,400,000 1,402,228
Due after five years through ten years 1,561,911 1,600,931
Due after ten years 1,329,567 1,350,334
---------------- ----------------
Total $ 4,541,478 $ 4,602,468
================ ================
</TABLE>
Proceeds from sales of investment securities available for sale and gross
gains and losses realized on those sales for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Proceeds from sales $ - $ 130,333
Gross gains - 124,468
Gross losses - -
</TABLE>
3. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed
securities available for sale and held to maturity are summarized as
follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- --------------- -------------------
<S> <C> <C> <C> <C>
Available for Sale
Federal Home Loan
Mortgage Corporation $ 1,020,727 $ - $ - $ 1,020,727
Federal National Mortgage
Association 357,643 133 - 357,776
----------------- ---------------- --------------- -------------------
Total $ 1,378,370 $ 133 $ - $ 1,378,503
================= ================= =============== ===================
Held to Maturity
Government National
Mortgage Association $ 3,848,660 $ 80,885 $ (18,251) $ 3,911,294
Federal Home Loan
Mortgage Corporation 3,265,585 49,341 (9,706) 3,305,220
Federal National Mortgage
Association 2,412,829 20,405 - 2,433,234
----------------- ---------------- --------------- -------------------
Total $ 9,527,074 $ 150,631 $ (27,957) $ 9,649,748
================= ================ =============== ===================
</TABLE>
37
<PAGE>
3. MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- --------------- --------------------
<S> <C> <C> <C> <C>
Available for Sale
Federal National Mortgage
Association $ 53,589 $ 202 $ - $ 53,791
----------------- ---------------- --------------- --------------------
Total $ 53,589 $ 202 $ - $ 53,791
================= ================= =============== ====================
Held to Maturity
Government National
Mortgage Association $ 4,130,286 $ 34,324 $ (84,994) $ 4,079,616
Federal Home Loan
Mortgage Corporation 2,725,306 25,342 (29,136) 2,721,512
Federal National Mortgage
Association 601,823 1,601 (1,901) 601,523
----------------- ---------------- --------------- --------------------
Total $ 7,457,415 $ 61,267 $ (116,031) $ 7,402,651
================= ================ ================ ====================
</TABLE>
The amortized cost and estimated market value of mortgage-backed
securities by contractual maturity are shown below. Mortgage-backed
securities provide for periodic payments of principal and interest. Due
to expected repayment terms being significantly less than the underlying
mortgage loan pool contractual maturities, the estimated lives of these
securities could be significantly shorter.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------------- -----------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------------- ----------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 372,426 $ 368,195
Due after one year through
five years - - 2,368,035 2,378,729
Due after five years through
ten years - - 753,547 759,398
Due after ten years 1,378,370 1,378,503 6,033,066 6,143,426
----------------- ----------------- ---------------- --------------------
Total $ 1,378,370 $ 1,378,503 $ 9,527,074 $ 9,649,748
================= ================= ================ ====================
</TABLE>
38
<PAGE>
4. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
<S> <C> <C>
Mortgage loans:
1-4 family $ 7,652,183 $ 7,539,096
Home equity 3,187,949 2,016,854
Multi-family 32,519 68,569
Commercial 1,097,549 921,368
---------------- -----------------
11,970,200 10,545,887
---------------- -----------------
Consumer loans:
Share loans 312,550 328,573
Other 129,090 70,215
---------------- -----------------
441,640 398,788
---------------- -----------------
Less:
Deferred loan origination fees, net 9,732 13,923
Allowance for loan losses 109,951 65,951
---------------- -----------------
119,683 79,874
---------------- -----------------
Total $ 12,292,157 $ 10,864,801
================ ================
</TABLE>
The Bank's primary business activity is with customers located within its
local trade area. Commercial, residential, and personal loans are
granted. The repayment of these loans is dependent upon the local
economic conditions in its immediate trade area.
Activity in the allowance for loan losses for the year ended December 31,
is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Balance, at beginning of
period $ 65,951 $ 40,013
Loans charged off - (10,562)
Recoveries - -
---------------- ----------------
Net loans charged off - (10,562)
Provision for loan losses 44,000 36,500
---------------- ----------------
Balance, at end of period $ 109,951 $ 65,951
================ ================
</TABLE>
The Bank had nonaccrual loans of $93,366 and $85,100 at December 31, 1997
and 1996, respectively, which in management's opinion did not meet the
definition of impaired. Interest income on loans would have been
increased by $11,426 and $7,365 respectively, if these loans had
performed in accordance with their original terms.
39
<PAGE>
4. LOANS RECEIVABLE (Continued)
In the normal course of business, loans are extended to directors and
executive officers and their associates. In management's opinion, all of
these loans are on substantially the same terms and conditions as loans
to other individuals and businesses of comparable creditworthiness. A
summary of loan activity for those directors, executive officers, and
their associates with loan balances in excess of $60,000 for the year
ended December 31, 1997, is as follows:
1996 Additions Repayments 1997
---- --------- ---------- ----
$380,987 - $18,037 $362,950
5. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Investment securities $ 83,962 $ 59,577
Mortgage-backed securities 77,107 56,489
Interest-bearing deposits 26,315 44,008
Loans receivable 79,787 65,640
---------------- ----------------
Total $ 267,171 $ 225,714
================ ================
</TABLE>
6. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Land and improvements $ 422,181 $ 422,181
Buildings and improvements 1,140,695 1,074,317
Furniture and equipment 654,281 600,556
---------------- ----------------
2,217,157 2,097,054
Less accumulated depreciation 554,248 432,748
---------------- ----------------
Total $ 1,662,909 $ 1,664,306
================ ================
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$121,500 and $58,203, respectively.
7. FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the FHLB System. As a member, the Bank maintains
an investment in the capital stock of the FHLB of Pittsburgh, at cost, in
an amount not less than the greater of 1% of its outstanding home loans
or 5% of its outstanding notes payable to the FHLB of Pittsburgh as
calculated at December 31 of each year.
40
<PAGE>
8. DEPOSITS
Comparative details of deposits are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------------------
Amount % Amount %
------------------ ---------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Noninterest-bearing $ 1,691,598 4.7% $ 678,870 2.3%
------------------ ---------------- ------------------- ---------------
Interest-bearing
Savings 9,534,653 26.6 8,829,611 30.1
NOW checking 1,691,471 4.7 1,075,071 3.7
Money market 1,328,365 3.8 1,400,519 4.8
------------------ ---------------- ------------------- ---------------
12,554,489 35.1 11,305,201 38.6
------------------ ---------------- ------------------- ---------------
Time certificates of deposit
2.00 - 3.99% 1,597 - 180,745 0.6
4.00 - 5.99% 18,464,893 51.6 13,036,968 44.4
6.00 - 7.99% 3,091,896 8.6 4,091,085 14.0
8.00 - 9.99% - - 26,095 0.1
------------------ ---------------- ------------------- ---------------
21,558,386 60.2 17,334,893 59.1
------------------ ---------------- ------------------- ---------------
Total $ 35,804,473 100.0% $ 29,318,964 100.0%
================== ================= =================== ===============
</TABLE>
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was $2,042,094 and $702,554 at December 31, 1997
and 1996, respectively. Deposits in excess of $100,000 are not federally
insured.
The scheduled maturities of time certificates of deposit as of December
31, 1997 are as follows:
Within one year $ 16,586,014
Beyond one year but within three years 4,305,893
Beyond three years but within five years 529,719
Beyond five years 136,760
---------------
Total $ 21,558,386
===============
Interest expense by deposit category for the years ended December 31, is
as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Savings $ 269,418 $ 258,295
NOW and money market 65,860 58,793
Time certificates of deposit 1,116,753 819,440
---------------- ----------------
Total $ 1,452,031 $ 1,136,528
================ ================
</TABLE>
41
<PAGE>
9. BORROWING CAPACITY
Borrowing capacity consists of credit arrangements with the FHLB of
Pittsburgh. FHLB borrowings are subject to annual renewal, incur no
service charges, and are secured by a blanket security agreement on
certain investment and mortgage-backed securities, outstanding
residential mortgages and the Bank's investment in FHLB stock. As of
December 31, 1997, the Bank's maximum borrowing capacity with the FHLB
was approximately $21.8 million. As of December 31, 1997 and 1996, there
were no outstanding borrowings.
10. SAVINGS ASSOCIATION INSURANCE FUNDS RECAPITALIZATION
On September 30, 1996, the President signed into law legislation which
included, among other things, recapitalization of the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation by a
one time charge to SAIF-insured institutions of 65.7 basis points per one
hundred dollars of insurable deposits. The gross effect to the Bank
amounted to $160,102, which is reflected in the financial results of the
Bank for the year ended December 31, 1996.
11. INCOME TAXES
The components of income tax benefit for the years ended December 31, are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Current payable:
Federal $ (79,649) $ (27,912)
State 18,897 (13,293)
---------------- ----------------
(60,752) (41,205)
Deferred taxes:
Federal 2,484 8,867
State - (8,078)
---------------- ----------------
Total $ (58,268) $ (40,416)
================ ================
</TABLE>
Income taxes applicable to net securities gains were $42,319 for the year
ended December 31, 1996.
On August 20, 1996, The Small Business Job Protections Act (the "Act")
was signed into law. The Act eliminated the percentage of taxable income
bad debt deduction for thrift institutions for tax years beginning after
December 31, 1995. The Act provides that bad debt reserves accumulated
prior to 1988 be exempt from recapture. Bad debt reserves accumulated
after 1987 are subject to recapture. The Bank has accumulated additional
bad debt reserves since 1987 of $85,251.
42
<PAGE>
11. INCOME TAXES (Continued)
The following temporary differences gave rise to the net deferred tax
liabilities:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 28,884 $ 13,923
Pension liability 21,942 28,621
Deferred compensation 33,723 -
Deferred loan origination fees, net 3,309 9,604
State net operating loss carryforward 45,353 -
Other 1,602 689
---------------- ----------------
Total gross deferred tax assets 134,813 52,837
Less valuation allowance 78,945 -
---------------- ----------------
Net deferred tax asset 55,868 52,837
---------------- ----------------
Deferred tax liabilities:
Net unrealized gain on securities 225,998 138,131
Premises and equipment 11,463 6,272
Discount on mortgage-backed securities - 15,096
Excess tax bad debt reserve 28,985 28,985
Other 15,420 -
---------------- ----------------
Total gross deferred tax liabilities 281,866 188,484
---------------- ----------------
Net deferred liabilities $ (225,998) $ (135,647)
================ ================
</TABLE>
The reconciliation of the federal statutory rate and the Bank's effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- -------------------------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
------------------ ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Benefit at statutory rate $ (118,725) (34.0%) $ (29,474) (34.0%)
State tax expense (benefit),
net of federal tax 12,472 3.6 (8,773) (10.1)
Tax exempt income (22,656) (6.5) (16,731) (19.3)
Valuation allowance 78,945 22.6 - -
Other (8,304) (2.4) 14,562 16.8
------------------ ----------------- --------------- ----------------
Actual tax benefit
and effective rate $ (58,268) (16.7%) $ (40,416) (46.6%)
================== ================= =============== ================
</TABLE>
The Bank is subject to the Pennsylvania Mutual Thrift Institution's tax
which is calculated at 11.5% of earnings based on generally accepted
accounting principles with certain adjustments.
43
<PAGE>
11. INCOME TAXES (Continued)
The Bank has available at December 31, 1997, $394,373 of unused state
operating loss carryforwards that may be applied against future taxable
income and that expire from 1999 to 2000.
12. EMPLOYEE BENEFITS
Defined Benefit Plan
--------------------
The Bank sponsors a trusteed, defined benefit pension plan covering
substantially all employees and officers. The plan calls for benefits to
be paid to eligible employees at retirement based primarily upon years of
service with the Bank and compensation rates near retirement. The Bank's
funding policy is to make annual contributions as needed based upon the
funding formula developed by the plan's actuary. Net periodic pension
cost is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Service cost of the current period $ 30,623 $ 40,058
Interest cost on projected benefit obligation 51,059 52,882
Actual return on plan assets (54,148) (21,803)
Net amortization and deferral 11,440 (14,237)
---------------- ----------------
Net periodic pension cost $ 38,974 $ 56,900
================ ================
</TABLE>
The actuarial present value of accumulated benefit obligations at
December 31, 1997 and 1996, was $548,390 and $428,196, including vested
benefits of $506,839 and $391,647, respectively. The following table sets
forth the funded status and amounts recognized in the statement of
financial condition:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Plan assets at fair value $ 643,046 $ 549,600
Projected benefit obligation 923,158 713,241
---------------- ----------------
Funded status (280,112) (163,641)
Unrecognized net loss 193,508 55,013
Unrecognized prior service costs 1,793 1,960
Unrecognized transition liability 20,277 22,488
---------------- ----------------
Net pension liability $ (64,534) $ (84,180)
================ ================
</TABLE>
Assumptions used in the accounting for the defined benefit plan are as
follows:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Weighted average discount rate 6.50 % 7.25 %
Rates of increase in compensation levels 4.92 % 4.96 %
Expected long-term rate of return on a%sets 7.75 % 7.75 %
</TABLE>
44
<PAGE>
12. EMPLOYEE BENEFITS (Continued)
Supplemental Retirement Plan
----------------------------
Effective September 30, 1997, the Directors Consultation and Retirement
Plan was adopted to provide post-retirement payments over a five year
period to members of the Board of Directors who have completed five or
more years of service. Expenses for the year ended December 31, 1997
amounted to $56,000.
Supplemental Executive Retirement Plan
--------------------------------------
Effective December 16, 1997, the Executive Retirement Plan was adopted to
provide executive officers with supplemental post-retirement benefits for
life in addition to those provided under the Bank's pension plan for all
eligible employees. Expenses for the year ended December 31, 1997
amounted to $43,185.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
-----------
In the normal course of business, the Bank makes various commitments
which are not reflected in the accompanying financial statements. These
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The
Bank's exposure to credit loss in the event of nonperformance by the
other parties to the financial instruments is represented by the
contractual amounts as disclosed. The Bank minimizes its exposure to
credit loss under these commitments by subjecting them to credit approval
and review procedures, and collateral requirements, as deemed necessary.
Commitments generally have fixed expiration dates within one year of
their origination.
The off-balance sheet commitments were comprised of the following:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Commitments to extend credit:
One-to-four family $ 518,000 $ 108,000
</TABLE>
All of the Bank's commitments to fund future loans are fixed rate and at
December 31, 1997 those rates ranged from 8.50% to 9.50%.
Contingent Liabilities
----------------------
In the normal course of business, the Bank is involved in various legal
proceedings primarily involving the collection of outstanding loans. None
of these proceedings are expected to have a material effect on the
financial position or operations of the Bank.
45
<PAGE>
14. CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. The Office of Thrift
Supervision sets forth capital standards applicable to all thrifts.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by the regulators
that, if undertaken, could have a direct material effect on the Bank's
financial statements. Capital adequacy guidelines involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk-weightings, and other
factors.
Quantitative measures established by the regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of Total
and Tier I capital (as defined in the regulations) to risk-weighted
assets, and of tangible and core capital (as defined in the regulations)
to adjusted assets (as defined). Management believes as of December 31,
1997 that the Bank meets all capital adequacy requirements to which they
are subject.
As of December 31, 1997, the most recent notification from the Bank's
primary regulator categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well capitalized" the Bank must maintain minimum tangible, core, and
risk-based ratios. There have been no conditions or events since that
notification that management believes have changed the Bank's category.
The following table reconciles capital under generally accepted
accounting principles to regulatory capital.
<TABLE>
<CAPTION>
1997 1996
------------------------------------
<S> <C> <C>
Total equity $ 3,449,771 $ 3,570,129
Unrealized gain on securities
available for sale (438,703) (268,137)
--------------- ----------------
Tier I, core and tangible capital 3,011,068 3,301,992
General allowance for loan losses 109,951 65,951
--------------- ----------------
Risk-based capital $ 3,121,019 $ 3,367,943
=============== ================
</TABLE>
46
<PAGE>
14. CAPITAL REQUIREMENTS (Continued)
Actual capital levels of the Bank and minimum required levels are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------------------------
Amount Ratio Amount Ratio
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total Capital to Risk-Weighted Assets
Actual $ 3,121,019 21.2% $ 3,367,943 27.9%
For Capital Adequacy Purposes 1,178,880 8.0 964,000 8.0
To be "Well Capitalized" 1,473,600 10.0 1,205,000 10.0
Tier I Capital to Risk-Weighted Assets
Actual $ 3,011,068 20.4% $ 3,301,992 27.4%
For Capital Adequacy Purposes 589,440 4.0 482,000 4.0
To be "Well Capitalized" 884,160 6.0 723,000 6.0
Core Capital to Adjusted Assets
Actual $ 3,011,068 8.2% $ 3,301,992 10.1%
For Capital Adequacy Purposes 1,096,716 3.0 984,810 3.0
To be "Well Capitalized" 1,827,860 5.0 1,641,350 5.0
Tangible Capital to Adjusted Assets
Actual $ 3,011,068 8.2% $ 3,301,992 10.1%
For Capital Adequacy Purposes 548,358 1.5 492,405 1.5
To be "Well Capitalized" N/A N/A N/A N/A
</TABLE>
Prior to the enactment of The Small Business Job Protection Act discussed
in Note 11, the Bank accumulated approximately $975,000 of retained
earnings at December 31, 1996, which amount represents allocations of
income to bad debt deductions for tax purposes only. Since this amount
represents the accumulated bad debt reserves prior to 1988, no provision
for federal income tax has been made for such amount. If any portion of
this amount is used other than to absorb loan losses (which is not
anticipated), the amount will be subject to federal income tax at the
current corporate rate.
47
<PAGE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments at December
31, are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- ------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits
and certificates of deposits
with other banks $ 8,083,617 $ 8,083,617 $ 7,223,610 $ 7,223,610
Investment securities
available for sale 1,532,656 1,532,656 1,244,753 1,244,753
Investment securities
held to maturity 4,541,478 4,602,468 4,283,449 4,268,173
Mortgage-backed securities
available for sale 1,378,503 1,378,503 53,791 53,791
Mortgage-backed securities
held to maturity 9,527,074 9,649,748 7,457,415 7,402,651
Loans receivable 12,292,157 12,500,623 10,864,801 10,949,438
Accrued interest receivable 267,171 267,171 225,714 225,714
FHLB stock 171,700 171,700 161,800 161,800
---------------- ---------------- --------------- ---------------
Total $ 37,794,356 $ 38,186,486 $ 31,515,333 $ 31,529,930
================ ================ =============== ===============
Financial liabilities:
Deposits $ 35,804,473 $ 35,868,087 $ 29,318,964 $ 29,361,112
Advances by borrowers
for taxes and insurance 110,211 110,211 125,711 125,711
Accrued interest payable 4,542 4,542 2,327 2,327
---------------- ---------------- --------------- ---------------
Total $ 35,919,226 $ 35,982,840 $ 29,447,002 $ 29,489,150
================ ================ =============== ===============
</TABLE>
Financial instruments are defined as cash, evidence of an ownership
interest in an entity, or a contract which creates an obligation or right
to receive or deliver cash or another financial instrument from/to a
second entity on potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction between willing parties other than
in a forced or liquidation sale. If a quoted market price is available
for a financial instrument, the estimated fair value would be calculated
based upon the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for
financial instruments are based upon management's judgment regarding
current economic conditions, interest rate risk, expected cash flows,
future estimated losses, and other factors as determined through various
option pricing formulas or simulation modeling. As many of these
assumptions result from judgments made by management based upon estimates
which are inherently uncertain, the resulting estimated fair values may
not be indicative of the amount realizable in the sale of a particular
financial instrument. In addition, changes in the assumptions on which
the estimated fair values are based may have a significant impact on the
resulting estimated fair values.
48
<PAGE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
As certain assets, such as deferred tax assets and premises and
equipment, are not considered financial instruments, the estimated fair
value of financial instruments would not represent the full value of the
Bank.
The Bank employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available based upon the following assumptions:
Cash and Due From Banks, Interest-bearing Deposits and Certificates of
-------------------------------------------------------------------------
Deposits with Other Banks, Accrued Interest Receivable, FHLB Stock,
-------------------------------------------------------------------------
Advances By Borrowers For Taxes and Insurance, and Accrued Interest
-------------------------------------------------------------------------
Payable
-------
The fair value is equal to the current carrying value.
Investment and Mortgage-Backed Securities
-----------------------------------------
The fair value of these securities is equal to the available quoted
market price. If no quoted market price is available, fair value is
estimated using the quoted market price for similar securities.
Loans Receivable and Deposits
-----------------------------
The fair value of loans is estimated by discounting the future cash flows
using a simulation model which estimates future cash flows based upon
current market rates adjusted for prepayment risk and credit quality.
Savings, checking, and money market deposit accounts are valued at the
amount payable on demand as of year end. Fair values for time deposits
are estimated using a discounted cash flow calculation that applies
contractual costs currently being offered in the existing portfolio to
current market rates being offered for deposits of similar remaining
maturities.
Commitments to Extend Credit
----------------------------
These financial instruments are generally not subject to sale, and
estimated fair values are not readily available. The carrying value,
represented by the net deferred fee arising from the unrecognized
commitment and the fair value, determined by discounting the remaining
contractual fee over the term of the commitment using fees currently
charged to enter into similar agreements with similar credit risk, are
not considered material for disclosure. The contractual amounts of
unfunded commitments are presented in Note 13.
16. SUBSEQUENT EVENT
Conversion and Reorganization
-----------------------------
On September 30, 1997, the Board of Directors of the Bank adopted the
Plan of Conversion (the "Conversion") pursuant to which the Bank proposed
to convert from a federally chartered mutual savings bank to a federally
chartered stock savings bank and concurrently formed a bank holding
company.
As part of the conversion process, SFSB Holding Company (the "Company")
was organized in September 1996 at the direction of the Board of
Directors of the Bank for the purpose of acquiring all of the capital
stock to be issued by the Bank in the Conversion. The Company became a
bank holding company with its only significant assets being all of the
outstanding capital stock of the Bank, which was acquired on February 26,
1998 by exchanging approximately $3.5 million of the proceeds received in
the public offering for all of the common stock of the Bank, and a
percentage of the conversion proceeds permitted to be retained. From the
proceeds of the Conversion, approximately $73,000 was allocated to common
stock, and $6.9 million, which is net of $333,000 conversion costs, was
allocated to additional paid-in capital.
49
<PAGE>
16. SUBSEQUENT EVENT (Continued)
In accordance with regulations, at the time that the Bank converted from
a mutual savings bank to a stock savings bank, a portion of retained
earnings was restricted by establishing a liquidation account. The
liquidation account will be maintained for the benefit of eligible
account holders who continue to maintain their accounts at the Bank after
the Conversion. The liquidation account will be reduced annually to the
extent that eligible account holders have reduced their qualifying
deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation of the Bank each account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to
the current adjusted qualifying balances for accounts then held.
50
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
Not applicable during the two fiscal years prior to December 31, 1997.
However, on March 17, 1998, the board of directors of the Registrant
determined to engage S.R. Snodgrass, A.C. as its independent auditors for the
fiscal year ended December 31, 1997. On March 20, 1998, the Registrant orally
notified LaFrance, Walker, Jackley & Saville, LLP ("LWJS"), its independent
auditors for the fiscal years ended December 31, 1996 and 1995, of this
determination and that LWJS would not continue to be engaged for the fiscal year
ending December 31, 1997. On March 10, 1998, the Registrant had orally advised
LWJS that the board of directors of the Registrant would likely consider this
matter during a meeting on March 17, 1998. The determination to replace LWJS was
approved by the full board of directors of the Registrant.
The reports of LWJS for the fiscal years ended December 31, 1996 and
1995 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 1996 and 1995 and during the period
from December 31, 1996 to March 17, 1998, there were no disagreements between
the Registrant and LWJS concerning accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
- --------------------------------------------------------------------------------
The Company's board of directors consists of the same individuals who
serve as directors of the Bank. The Bank's board of directors is composed of
five members. Directors of the Company generally serve four year terms. The
following table sets forth information with respect to the Bank's directors and
executive officers, all of whom have continued to serve in the same capacities
since the conversion. All directors of the Bank became directors of the Company
at the time the Company was formed in October 1997.
Age at Current
December 31, Director Term
Directors 1997 Position Since Expires
- --------- ------------- ---------------------- -------- -------
Timothy R. Maier 38 Chairman of the Board 1986 1999
and Director
Barbara J. Mallen 55 President and Director 1972 2002
Joseph E. Gallagher 46 Senior Vice President, 1989 2001
Secretary and Director
Jerome L. Kowalewski 54 Treasurer and Director 1993 2000
Mary Lois Loftus 68 Director 1995 1999
51
<PAGE>
The business experience for the past five years of each of the
directors and executive officers is as follows:
Timothy R. Maier has been a member of the board since 1986 and Chairman
since 1996. Mr. Maier is in the insurance business and owns two insurance
agencies in the local Pittsburgh area. Mr. Maier is the Past President and the
President Elect of the Rotary Club of Lawrenceville and a member of the
Lawrenceville Business Association and the Lawrenceville Development
Corporation.
Barbara J. Mallen has been employed by the Bank since 1960 and has been
the President since 1988 and a member of the board since 1972. Ms. Mallen is a
member of the Lawrenceville Business Association and past Director of the
Western Pennsylvania League of Savings Associations.
Joseph E. Gallagher has been employed by the Bank since 1979 and has
been Senior Vice President and Secretary since 1996 and a member of the board
since 1989.
Jerome L. Kowalewski has been a member of the board since 1993 and
Treasurer since 1996. Mr. Kowalewski is the majority shareholder and President
of Al & Bob's Auto Parts Inc., in the local Pittsburgh area. Mr. Kowalewski is a
member of the Lawrenceville Business Association.
Mary Lois Loftus has been a member of the board since 1995. Ms. Loftus
is a retired real estate agent and the former owner of Loftus Florist in the
local Pittsburgh area.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's common stock was registered pursuant to Section 12(g) of
the 1934 Act in February 1998. The officers and directors of the Company and
beneficial owners of greater than 10% of the Common Stock ("10% beneficial
owners") were not required to file reports on SEC Forms 3, 4, and 5 during
fiscal year 1997.
Item 10. Executive Compensation
- --------------------------------
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by the Company's chief executive
officer. No other employee earned in excess of $100,000 during the years ended
December 31, 1997 and 1996.
Annual Compensation
- --------------------------------------------------------------------------------
Fiscal Other Annual
Name and Principal Position Year Salary Bonus Compensation(2)
- --------------------------- ---- ------ ----- ---------------
Barbara J. Mallen, President 1997 $86,256 $25,300 $8,200
1996 $78,420 $25,300(1) $6,000
- --------------------
(1) Included in this bonus amount is a special bonus of $15,000, for services
in connection with the construction of our Shaler Township office.
(2) Consists of director fees.
52
<PAGE>
Employment Agreement. The Bank has entered into an employment agreement
with Barbara J. Mallen. Ms. Mallen's base salary under the employment agreement
is $96,000. The employment agreement has a term of three years. The agreement is
terminable by us for "just cause" as defined in the agreement. If the Bank
terminates Ms. Mallen without just cause, Ms. Mallen will be entitled to a
continuation of her salary from the date of termination through the remaining
term of the agreement. The employment agreement contains a provision stating
that in the event of the termination of employment in connection with any change
in control of us, Ms. Mallen will be paid a lump sum amount equal to 2.99 times
her five year average annual taxable cash compensation. If such payments had
been made under the agreement as of December 31, 1997, such payments would have
equaled approximately $287,000. The aggregate payments that would have been made
to Ms. Mallen would be an expense to the Bank, thereby reducing its net income
and capital by that amount. The agreement may be renewed annually by the board
of directors upon a determination of satisfactory performance within the board's
sole discretion. If Ms. Mallen becomes disabled during the term of the
agreement, she shall continue to receive payment of 100% of the base salary for
a period of 12 months and 60% of such base salary for the remaining term of the
agreement. Payments shall be reduced by any other benefit payments made under
other disability programs in effect for the Bank's employees.
Supplemental Executive Retirement Plan. The Bank has implemented a
supplemental executive retirement plan ("SERP") for the benefit of its
President, Barbara J. Mallen. The SERP provides that Ms. Mallen may receive the
full income replacement percentage provided under the Bank's pension plan (67%
of final average compensation payable at age 62 rather than at age 65), provided
she remains employed until she becomes 58 years old, in the year 2000. In such
event, she will be eligible to receive a supplemental retirement benefit that
will have the effect of reducing the early retirement discount payable under our
pension plan from a reduction of 7% for each year that benefits commence prior
to age 65 to a reduction of approximately 3% per year for retirement prior to
age 62, but after age 58. Upon a termination of employment following a change in
control, Ms. Mallen will be presumed to have attained not less than the minimum
retirement age under the SERP. Payments under the SERP will be accrued for
financial reporting purposes during the period of employment of Ms. Mallen. The
SERP shall be unfunded. All benefits payable under the SERP will be paid from
our current assets. There are no tax consequences to either Ms. Mallen or us
related to the SERP prior to payment of benefits. Upon receipt of payment of
benefits, Ms. Mallen will recognize taxable ordinary income in the amount of
such payments received and we will be entitled to recognize a tax-deductible
compensation expense at that time.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Persons and groups owning in excess of 5% of the outstanding
shares of common stock of the Company are required to file
certain reports regarding such ownership pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act).
The following table sets forth, as of March 10, 1998, persons
or groups owning more than 5% of the outstanding shares of the
common stock of the Company.
53
<PAGE>
mount and Nature of Percent of
Name of Beneficial Owner Beneficial Owner Common Stock
- ------------------------ ---------------- ------------
Stanton Federal Savings Bank Employee
Stock Ownership Plan
900 Saxonburg Boulevard
Pittsburgh, Pennsylvania 58,080 8.0%
Tontine Financial Partners, L.P.
Tontine Management, L.L.C.
Jeffrey L. Gendell
200 Park Avenue, Suite 3900
New York, New York 68,500(1) 9.4%
- ----------------
(1) Based on a Schedule 13D filed on March 9, 1998 showing shared voting and
dispositive power.
(b) Security Ownership of Management
The following table sets forth the number and percentage of shares of
the Company's common stock beneficially owned by: (i) each director, (ii) the
named executive officer, and (iii) the group consisting of all directors and
executive officers of the Company. Each director of the Company is also a member
of the Board of Directors of the Bank.
Shares of Common Stock Percent of
Name Beneficially Owned(1)(2) Class
- ---- ------------------------ -----
Timothy R. Maier 12,500(3) 1.7%
Barbara J. Mallen 12,500 1.7%
Joseph E. Gallagher 12,500 1.7%
Jerome L. Kowalewski 12,500(3) 1.7%
Mary Lois Loftus 7,500(3) 1.0%
All directors and
executive officers of the
Company as a group (5
persons)(4) 57,500 7.9%
- -----------------------
(1) Includes shares of Common Stock held directly as well as by spouses or
minor children, in trust and other indirect ownership, over which shares
the individuals exercise sole or shared voting and/or investment power.
(2) Beneficial ownership as of February 28, 1998.
(3) Excludes 58,080 shares of the Company's common stock held under the
Employee Stock Ownership Plan ("ESOP") for which such individual serves as
a member of the ESOP Committee or as an ESOP Trustee. Such individual
disclaims beneficial ownership with respect to such shares held in a
fiduciary capacity.
(4) Excludes 58,080 shares of the Company's common stock held under the
Employee Stock Ownership Plan ("ESOP") for which certain directors serve as
members of the ESOP Committee
54
<PAGE>
or as an ESOP Trustees. Such directors disclaim beneficial ownership
with respect to such shares held in a fiduciary capacity.
(c) Management of Registrant knows of no arrangements, including
any pledge by any person of securities of Registrant, the
operation of which may at a subsequent date result in a change
in control of Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
Not Applicable.
PART IV
Item 13. Exhibits, List, and Reports on Form 8-K
- ------------------------------------------------
(a) The following exhibits are included in this Report or
incorporated herein by reference:
<TABLE>
<CAPTION>
<S> <C>
3(i) Articles of Incorporation of SFSB Holding Company*
3(ii) Bylaws of SFSB Holding Company*
10.1 Directors Consultant and Retirement Plan.**
10.2 Supplemental Executive Retirement Plan for Barbara J. Mallen.**
10.3 Employment Agreement with Barbara J. Mallen***
21 Subsidiaries of Registrant
27 Financial Data Schedule (in electronic filing only)
</TABLE>
(b) No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
- ---------------------
* Incorporated by reference to an identically numbered exhibit to the
registration statement on Form SB-2 (File No. 333-40955) filed with the SEC
on November 25, 1997.
** Incorporated by reference to an identically number exhibit to the amended
Form SB-2 filed with the SEC on December 22, 1997.
*** Incorporated by reference to Exhibit 10 to the amended Form SB-2 filed with
the SEC on December 22, 1997.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of April 14, 1998.
SFSB Holding Company
By: /s/ Barbara J. Mallen
----------------------------------------
Barbara J. Mallen
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of April 14, 1998.
/s/ Barbara J. Mallen /s/ Joseph E. Gallagher
- ----------------------------- --------------------------------------------
Barbara J. Mallen Joseph E. Gallagher
President Senior Vice President and Director
(Principal Executive Officer) (Principal Financial and Accounting Officer)
/s/ Timothy R. Maier /s/ Jerome L. Kowalewski
- ----------------------------- --------------------------------------------
Timothy R. Maier Jerome L. Kowalewski
Chairman of the Board Treasurer and Director
/s/ Mary Lois Loftus
- -----------------------------
Mary Lois Loftus
Director
EXHIBIT 21
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
The registrant owns 100% of the outstanding shares of Stanton Federal Savings
Bank, a federally chartered savings association.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 767
<INT-BEARING-DEPOSITS> 7,317
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,911
<INVESTMENTS-CARRYING> 14,069
<INVESTMENTS-MARKET> 14,252
<LOANS> 12,402
<ALLOWANCE> 110
<TOTAL-ASSETS> 39,780
<DEPOSITS> 35,804
<SHORT-TERM> 0
<LIABILITIES-OTHER> 526
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 3,450
<TOTAL-LIABILITIES-AND-EQUITY> 39,780
<INTEREST-LOAN> 930
<INTEREST-INVEST> 961
<INTEREST-OTHER> 403
<INTEREST-TOTAL> 2,294
<INTEREST-DEPOSIT> 1,452
<INTEREST-EXPENSE> 1,452
<INTEREST-INCOME-NET> 842
<LOAN-LOSSES> 44
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,220
<INCOME-PRETAX> (349)
<INCOME-PRE-EXTRAORDINARY> (349)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.58
<LOANS-NON> 93
<LOANS-PAST> 155
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 66
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 110
<ALLOWANCE-DOMESTIC> 110
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
