UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10 - QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
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Commission File Number 0-23765
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SFSB HOLDING COMPANY
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23 - 2934332
- --------------------------------------------- --------------------------------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
900 Saxonburg Boulevard, Pittsburgh, Pennsylvania, 15223
--------------------------------------------------------
(Address of principal executive offices)
(412) 487 - 4200
--------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Class: Common Stock, par value $.10 per share
Outstanding at August 4, 1998: 726,005
<PAGE>
SFSB HOLDING COMPANY
INDEX
<TABLE>
<CAPTION>
Page
Number
---------------
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of
June 30, 1998 and December 31, 1997 3
Consolidated Statement of Income (Unaudited)
for the Six Months ended June 30, 1998 and 1997 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended June 30, 1998 and 1997 5
Consolidated Statement of Changes in Stockholders'
Equity (Unaudited) 6
Consolidated Statement of Cash Flows (Unaudited)
for the Six Months ended June 30, 1998 and 1997 7
Notes to Unaudited Consolidated Financial Statements 8 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Default Upon Senior Securities 16
Item 4. Submissions of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8 - K 16
SIGNATURES 17
</TABLE>
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 385,244 $ 766,882
Interest-bearing overnight deposits with other banks 7,711,360 4,280,020
--------------- ---------------
Cash and cash equivalents 8,096,604 5,046,902
Certificates of deposits with other banks 3,629,023 3,036,715
Investment securities available for sale 1,636,789 1,532,656
Investment securities held to maturity (market
value of $5,656,855 and $4,502,468) 5,597,592 4,541,478
Mortgage-backed securities available for sale 2,925,126 1,378,503
Mortgage-backed securities held to maturity (market
value of $9,707,160 and $9,649,748) 9,569,239 9,527,074
Loans receivable (net of allowance for loan losses of
$117,193 and $109,951) 13,537,910 12,292,157
Accrued interest receivable 315,329 267,171
Premises and equipment 1,602,646 1,662,909
Federal Home Loan Bank stock 218,100 171,700
Other assets 181,721 322,763
--------------- ---------------
TOTAL ASSETS $ 47,310,079 $ 39,780,028
=============== ===============
LIABILITIES
Deposits $ 36,899,622 $ 35,804,473
Advances by borrowers for taxes and insurance 122,496 110,211
Accrued interest payable and other liabilities 450,510 415,573
--------------- ---------------
TOTAL LIABILITIES 37,472,628 36,330,257
--------------- ---------------
Commitments and contingencies
STOCKHOLDER'S EQUITY
Perferred stock no par value, 1,000,000 shares authorized, none issued - -
Common stock, $.10 par value, 4,000,000 shares authorized; 726,005 and
0 shares issued and outstanding 72,600 -
Additional paid in capital 6,775,575 -
Retained earnings-substantially restricted 3,039,947 3,011,068
Unrealized gain on securities available for sale, net of taxes 501,089 438,703
Unearned ESOP shares (55,176 and 0 shares) (551,760) -
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 9,837,451 3,449,771
--------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 47,310,079 $ 39,780,028
=============== ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
--------------- ---------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 526,097 $ 453,522
Interest-bearing deposits with other banks 333,876 174,808
Investment securities
Taxable 149,576 165,567
Exempt from federal income tax 41,088 39,637
Mortgage-backed securities 375,447 262,901
--------------- ---------------
Total interest and dividend
income 1,426,084 1,096,435
--------------- ---------------
INTEREST EXPENSE
Deposits 762,518 694,490
--------------- ---------------
Total interest expense 762,518 694,490
--------------- ---------------
NET INTEREST INCOME 663,566 401,945
Provision for loan losses 10,748 14,809
--------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 652,818 387,136
--------------- ---------------
NONINTEREST INCOME
Service fees 48,811 24,353
Other income 7,388 4,489
--------------- ---------------
Total noninterest income 56,199 28,842
--------------- ---------------
NONINTEREST EXPENSE
Compensation and employee benefits 325,839 308,288
Occupancy and equipment 113,126 108,166
Federal insurance premium 10,852 23,312
Data processing 98,301 57,914
Professional fees 48,190 9,500
Other operating expenses 83,830 93,412
--------------- ---------------
Total noninterest expense 680,138 600,592
--------------- ---------------
Income (loss) before income taxes 28,879 (184,614)
Income taxes - -
--------------- ---------------
NET INCOME (LOSS) $ 28,879 $ (184,614)
=============== ===============
Earnings per share (since inception February 26, 1998) $ 0.04 $ N/A
=============== ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
--------------- ---------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 274,417 $ 231,441
Interest-bearing deposits with other banks 177,547 87,686
Investment securities
Taxable 81,190 81,500
Exempt from federal income tax 21,256 20,788
Mortgage-backed securities 195,167 143,067
--------------- ---------------
Total interest and dividend
income 749,577 564,482
--------------- ---------------
INTEREST EXPENSE
Deposits 382,987 357,013
--------------- ---------------
Total interest expense 382,987 357,013
--------------- ---------------
NET INTEREST INCOME 366,590 207,469
Provision for loan losses 4,000 7,952
--------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 362,590 199,517
--------------- ---------------
NONINTEREST INCOME
Service fees 25,337 14,471
Other income 3,197 1,239
--------------- ---------------
Total noninterest income 28,534 15,710
--------------- ---------------
NONINTEREST EXPENSE
Compensation and employee benefits 170,623 186,592
Occupancy and equipment 56,715 52,854
Federal insurance premium 5,426 6,293
Data processing 53,798 35,064
Professional fees 35,915 5,000
Other operating expenses 28,850 41,273
--------------- ---------------
Total noninterest expense 351,327 327,076
--------------- ---------------
Income (loss) before income taxes 39,797 (111,849)
Income taxes - -
--------------- ---------------
NET INCOME (LOSS) $ 39,797 $ (111,849)
=============== ===============
Earnings per share $ 0.06 $ N/A
=============== ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unallocated
Additional Unrealized Shares Total
Common Paid-in Retained Gain On Held by Stockholders' Comprehensive
Stock Capital Earnings Securities ESOP Equity Income
------------ ------------- ------------ ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ - $ - $ 3,011,068 $ 438,703 $ - $ 3,449,771 $
Net income 28,879 28,879 28,879
Other comprehensive income:
Unrealized gain
on available for
sale securities 62,386 62,386 62,386
-----------
Comprehensive income $ 91,265
===========
Common stock issued 72,600 6,762,326 (580,800) 6,254,126
ESOP shares released 13,249 29,040 42,289
------------ ------------- ------------ ------------- -------------- --------------
Balance, June 30, 1998 $ 72,600 $ 6,775,575 $ 3,039,947 $ 501,089 $ (551,760) $ 9,837,451
============ ============= ============ ============= ============== ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 28,879 $ (184,614)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for loan losses 10,748 14,809
Depreciation and amortization 104,239 60,750
Increase in accrued interest receivable (48,158) (58,334)
Other, net 146,212 56,819
--------------- ---------------
Net cash provided by (used for)
operating activities 241,920 (110,570)
--------------- ---------------
INVESTING ACTIVITIES
Increase in certificates of deposits (592,309) (96,103)
Investment securities available for sale:
Purchases (16,177) (16,105)
Maturities and repayments 1,582 1,695
Investment securities held to maturity:
Purchases (1,575,000) (2,347,004)
Maturities and repayments 520,256 620,435
Mortgage-backed securities available for sale:
Purchases (1,843,594) -
Maturities and repayments 296,990 356
Mortgage-backed securities held to maturity:
Purchases (1,367,541) (2,105,796)
Maturities and repayments 1,326,603 869,747
Net increase in loans receivable (1,256,501) (399,137)
Purchase of Federal Home Loan Bank Stock (46,400) (9,900)
Purchase of premises and equipment, net (1,687) (33,535)
--------------- ---------------
Net cash used for investing activities (4,553,778) (3,515,347)
--------------- ---------------
FINANCING ACTIVITIES
Net increase in deposits 1,095,149 3,024,862
Proceeds from the sale of common stock 6,254,126 -
Net decrease in advances by borrowers
for taxes and insurance 12,285 2,012
--------------- ---------------
Net cash provided by
financing activities 7,361,560 3,026,874
--------------- ---------------
Increase (decrease) in cash and cash
equivalents 3,049,702 (599,043)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 5,046,902 4,378,710
--------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 8,096,604 $ 3,779,667
=============== ===============
SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the year for:
Interest on deposits and
borrowings $ 772,928 $ 693,879
Income taxes - -
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SFSB HOLDING COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of SFSB Holding Company (the
"Company") includes its wholly-owned subsidiary Stanton Federal Savings
Bank (the "Bank"). All significant intercompany items have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore,
do not necessarily include all information that would be included in
audited financial statements. The information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of operations. All such adjustments are of a
normal recurring nature. The results of operations for the interim periods
are not necessarily indicative of the results to be expected for the full
year or any other interim period.
Note 2 - CONVERSION TO A STOCK FORM OF OWNERSHIP AND FORMATION OF HOLDING
COMPANY
On September 30, 1997, the Board of Directors of the Bank, subject to
regulatory approval and approval by the members of the Bank, adopted a Plan
of Conversion (the "Plan") to convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank and the concurrent
formation of a holding company.
As part of the conversion, SFSB Holding Company was organized in September
1997 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 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 $6.8 million, which is net of |$423,000
conversion costs, was allocated to additional paid-in capital.
Note 3 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Bank adopted the Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." In adopting
Statement No. 130, the Bank is required to present comprehensive income and
its components in a full set of general purpose financial statements. The
Bank has elected to report the effects of Statement No. 130 as part of the
Statement of Changes in Stockholders' Equity.
<PAGE>
Note 4 - EARNINGS PER SHARE
Earnings per share computations are based upon the weighted number of
shares outstanding for the period since inception, February 26, 1998, and
for the three months ended June 30, 1998, of 669,619 and 670,588 shares,
respectively. Net income used in the earnings per share calculation was
$28,879 and $39,797, respectively.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Statement No. 128 replaced the previous reporting requirement of primary
and fully diluted earnings per share with basic and diluted earnings per
share. The Company currently maintains a simple capital structure,
therefore, there are no dilutive effects on earnings per share.
Note 5 - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company has an ESOP for the benefit of employees who meet the
eligibility requirements which include having completed one year of service
with the Company and having attained age 21. The ESOP Trust purchased
58,080 shares of common stock in the initial public offering with proceeds
from a loan from the Company. The Bank makes cash contributions to the ESOP
on an annual basis sufficient to enable the ESOP to make the required loan
payments to the Company. The loan bears interest at 8.50% with interest
payable quarterly and principal payable in equal annual installments over
ten years. The loan is secured by the shares of the stock purchased.
As the debt is repaid, shares are released from collateral and allocated to
qualified employees based on the proportion of debt service paid in the
year. The Company accounts for its leveraged ESOP in accordance with
Statement of Position 93 -6. Accordingly, the shares pledged as collateral
are reported as unallocated ESOP shares in the consolidated balance sheet.
As shares are released from collateral, the Company reports compensation
expense equal to the current market price of the shares, and the shares
become outstanding for earnings per share computations. Dividends on
allocated ESOP shares are recorded as a reduction of retained earnings;
dividends on unallocated ESOP shares are recorded as a reduction of debt.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND DECEMBER 31, 1997
Total assets increased by approximately $7.5 million to $47.3 million at June
30, 1998 from $39.8 million at December 31, 1997. The $6.3 million received in
the sale of common stock in February primarily funded the increase.
Interest-bearing overnight deposits with other banks increased $3,431,000 from
$4,280,000 at December 31, 1997 to $7,711,000 at June 30, 1998. Management has
opted to deposit a portion of the proceeds received from the sale of common
stock in overnight funds until a more desired investment environment becomes
available.
Total investment securities increased $1,340,000 or 22.7% from $5,894,000 at
December 31, 1997 to $7,234,000 at June 30, 1998. This increase most notably
affected the expansion of U.S. Agency held to maturity type securities with
maturities ranging from five to seven years.
Total mortgage-backed securities increased $1,589,000 or 14.6% from $10,906,000
at December 31, 1997 to $12,494,000 at June 30, 1998. Of this increase,
approximately $1,547,000 was directed towards the available for sale portfolio
so as to afford management the flexibility to readily seek more advantageous
investment opportunities as markets change. 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 operating expenses.
Net loan receivables increased $1,246,000 or 10.1% from $12,292,000 at December
31, 1997 to $13,538,000 at June 30, 1998. Home equity loans continue to incur
the largest increases as a result of the demand for this loan product at the
Shaler Township office. Such increases primarily reflected the economic health
of the Bank's market area and the competitive pricing of the Bank's loan
product. The funding of the loan growth was mainly provided by the usage of
funds from overnight deposits and principal repayments from mortgage-backed
securities.
Deposits increased $1,095,000 or 3.1% to $36,900,000 at June 30, 1998 from
$35,804,000 at December 31, 1997. Of this amount, Now accounts increased
approximately $858,000 due to volume related at the Shaler branch.
Stockholder's equity increased by $6.4 million to $9.8 million at June 30, 1998
from $3.5 million at December 31, 1997 primarily as a result of the proceeds
received in the initial public offering.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND 1997
Our net income increased $213,000 to $29,000 for the six months ended June 30,
1998 from a net loss of $185,000 for the same period ended June 30, 1997. This
increase was due to an increase in net interest income of $262,000 and
noninterest income of $27,000 offset by an increase in noninterest expense of
$80,000.
<PAGE>
Net interest income increased to $664,000 for the six months ended June 30, 1998
compared to $402,000 for the same period ended June 30, 1997. The increases in
interest income were primarily due to an increase in the average principal
balances of interest-bearing deposits with other banks of $5.1 million,
mortgage-backed securities of $3.5 million, and loans of $2.3 million. These
increases, as discussed previously, were funded by proceeds from the opening of
the Shaler Township office coupled with the proceeds from the stock offering in
February 1998. Mitigating the effect of these volume-related increases was an
overall decline on the yield of interest-earning assets from 6.9% for 1997 to
6.8% for 1998. The decrease on the yield for interest-earning assets consists of
a decline of 36 basis points for loans resulting from a competitive pricing
strategy and is offset by smaller increases for other interest-earning assets,
investments, and mortgage-backed securities.
Interest expense on deposits increased $68,000 or 9.8% from $694,000 for the six
months ended June 30, 1997 to $763,000 for the same period ended June 30, 1998.
The increase was primarily due to an increase in the average volume of
certificates of deposit of $2.5 million and savings deposits of $777,000
resulting from the opening of the new Shaler branch. The cost of funds on
interest-bearing liabilities declined slightly from 4.5% for 1997 to 4.4% for
1998 and thus had minimal impact on the overall increase in interest expense.
Noninterest income, which is comprised principally of service charges on deposit
accounts, increased $24,000 or 100.4% to $49,000 for 1998 compared to $24,000
for 1997. This increase was almost entirely comprised of increased levels of
service charges on deposit accounts. Since the opening of the Shaler Township
office, service fees increased due to a higher fee structure and a larger
deposit base.
Noninterest expense increased $80,000 or 13.2% to $680,000 for the six months
ended 1998 from $601,000 for the same period ended 1997. The increase was the
result of operating a larger organization including the opening of the Shaler
Township office. Compensation and benefits increased $18,000 or 5.7% to $326,000
for 1998 from $308,000 for 1997, due to increased benefits costs associated with
supplemental retirement expenses for senior management and the Employee Stock
Ownership Plan implemented as a result of the Stock Offering. Data processing
expenses increased $40,000 or 69.7% to $98,000 for 1998 from $58,000 for 1997.
This increase is directly affected by the increase in volume of processing and
number of accounts since the opening of the Shaler Township office. Professional
fees increased $39,000 due to the outside assistance in complying with the
increased levels of regulatory compliance of a public reporting company. In
additon, federal deposit insurance premiums and other expenses decreased
slightly due to reduced insurance premiums resulting from the prior year
recapitalization of the Savings Association Insurance Fund and additional
expenses incurred with the opening of the Shaler branch, respectively.
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998
AND 1997
Net income for the three months ended June 30, 1998 increased $152,000 to
$40,000 from a net loss of $112,000 for the same period ended June 30, 1997.
This growth stemmed from an increase in net interest income of $159,000 and
offset somewhat by a $24,000 increase in noninterest expense.
Net interest income increased from $207,000 for the three months ended June 30,
1997 to $367,000 for the same period ended 1998. The average balances for
interest-earnings assets rose $11.4 million during this period as other
interest-earning assets, mortgage-backed securities and loans increased $5.8
million, $3.7 million, and $2.6 million, respectively, due to funds from
proceeds from the opening of the Shaler Township office coupled with the
proceeds from the stock offering in February 1998. Furthermore, a decrease of 22
basis points on the yield for certificates of deposit resulted from the
competitiveness of the bank's rate environment. These increases to interest
income were curtailed by a decline on the yield for mortgage-backed securities
and loans of 45 and 23 basis points, respectively. The purchase of
mortgage-backed securities at rates below historical levels and the competitive
loan environment has resulted in declines in yields to the respective
portfolios.
These increases were primarily due to an increase in the average principal
balances of interest-earning assets of $12.2 million and a corresponding
decrease in the average principal balances of interest-bearing liabilities of
$1.2 million resulting from proceeds from the opening of the Shaler Township
office coupled with the proceeds from the stock offering in February 1998.
Noninterest income increased $13,000 or 81.6% from $16,000 for the three months
ended June 30, 1997 to $29,000 for the same period ended 1998 due to an increase
in service charges resulting form higher fees and a larger deposit base.
Noninterest expense increased $24,000 or 7.4% from $327,000 for the three months
ended June 30, 1997 to $351,000 for the same period ended June 30, 1998. As
previously noted, the increases result from operating a larger organization, the
volume of processing and number of accounts since the opening of the Shaler
Township office, and professional fees due to outside assistance in complying
with increased levels of regulatory compliance of a publicly reported company.
These were offset slightly by a decline in compensation and benefits from prior
year accruals for bonuses, as well as smaller dollar decreases in other expenses
from costs associated with the new Shaler branch.
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.
<PAGE>
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.
Management monitors both the Company's and the Savings Bank's total risk-based,
Tier I risk-based and Tier I leverage capital ratios in order to assess
compliance with regulatory guidelines. At June 30, 1998, both the Company and
the Savings Bank exceeded the minimum risk-based and leverage capital ratios
requirements. The Company's and Savings Bank's total risk-based, Tier I
risk-based and Tier I leverage ratios are 59.4%, 58.7%, 21.0% and 42.2%, 41.5%,
14.9%, respectively at June 30, 1998.
RISK ELEMENT
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days or more past due, other real
estate loans, and repossessed assets. A loan is classified as nonaccrual when,
in the opinion of management, there are serious doubts about collectibility of
interest and principal. At the time the accrual of interest is discontinued,
future income is recognized only when cash is received. Renegotiated loans are
those loans which terms have been renegotiated to provide a reduction or
deferral of principal or interest as a result of the deterioration of the
borrower.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Loans on nonaccrual basis $ 79 $ 93
Loans past due 90 days or more and still accruing 84 155
--------- ---------
Total nonperforming loans 163 248
--------- ---------
Nonperforming loans as a percent of total loans 1.19% 2.00%
========= =========
Nonperforming assets as a percent of total assets .34% 0.62%
======== =========
Allowance for loan losses to nonperforming loans 71.78% 44.35%
======== =========
</TABLE>
At June 30, 1998 and December 31, 1997, no real estate or other assets were held
as foreclosed or repossessed property.
<PAGE>
Management monitors impaired loans on a continual basis. As of June 30, 1998,
impaired loans had no material effect on the Company's financial position or
results of operations.
During the six month period ended June 30, 1998, loans increased $1,253,000 and
nonperforming loans decreased $85,000 while the allowance for loan losses
increased $7,000 for the same period. The percentage of allowance for loan
losses to loans outstanding remained relatively stable at .86% for June 30, 1998
and .89% December 31, 1997. Nonperforming loans are primarily made up of one to
four family residential mortgages. The collateral requirements on such loans
reduce the risk of potential losses to an acceptable level in management's
opinion.
Management believes the level of the allowance for loan losses at June 30, 1998
is sufficient; however, there can be no assurance that the current allowance for
loan losses will be adequate to absorb all future loan losses. The relationship
between the allowance for loan losses and outstanding loans is a function of the
credit quality and known risk attributed to the loan portfolio. The on-going
loan review program and credit approval process is used to determine the
adequacy of the allowance for loan losses.
YEAR 2000
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. A national third party
service bureau provides all of our material data processing that could be
affected by this problem. Our service bureau has advised us that it is
substantially compliant and 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. In order to determine the service bureau is year 2000
compliant, management is in the process of developing a test plan, which it
intends to implement during the second half of 1998. Management expects to incur
additional operating expenses during 1998 and 1999, relating to updating
equipment and software, as well as, designing and performing tests of the Bank's
computer systems. Management has determined the total costs that will be
incurred to become year 2000 compliant are not material to the Company.
<PAGE>
SFSB HOLDING COMPANY
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included in this Report or incorporated
herein by reference:
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)
(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 and subsequently amended on December 22, 1997.
**Incorporated by reference to the Form 10KSB (File No. 0-23765) filed on April
15, 1998.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM
THE QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0001049890
<NAME> SFSB Holding Company
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