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 September 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
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(Exact name of registrant as specified in its charter)
Pennsylvania 23 - 2934332
- ----------------------------------------- ---------------------------------
(State or other jurisdiction IRS Employer Identificationa No.)
or organization)
900 Saxonburg Boulevard, Pittsburgh, Pennsylvania, 15223
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(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 November 8, 1998: 726,005
<PAGE>
SFSB HOLDING COMPANY
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of 3
September 30, 1998 and December 31, 1997
Consolidated Statement of Income (Unaudited)
for the Nine Months ended September 30, 1998 and 1997 4
Consolidated Statement of Income (Unaudited)
for the Nine Months ended September 30, 1998 and 1997 5
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) 6
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months ended September 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>
September 30, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 560,272 $ 766,882
Interest-bearing overnight deposits with other banks 7,847,297 4,280,020
---------------- ----------------
Cash and cash equivalents 8,407,569 5,046,902
Certificates of deposits with other banks 3,547,458 3,036,715
Investment securities available for sale 1,894,155 1,532,656
Investment securities held to maturity (market
value of $5,631,172 and $4,502,468) 5,520,090 4,541,478
Mortgage-backed securities available for sale 2,914,292 1,378,503
Mortgage-backed securities held to maturity (market
value of $8,927,224 and $9,649,748) 8,783,870 9,527,074
Loans receivable (net of allowance for loan losses of
$123,193 and $109,951) 13,801,906 12,292,157
Accrued interest receivable 334,194 267,171
Premises and equipment 1,582,669 1,662,909
Federal Home Loan Bank stock 218,100 171,700
Other assets 186,316 322,763
---------------- ----------------
TOTAL ASSETS $ 47,190,619 $ 39,780,028
================ ================
LIABILITIES
Deposits $ 36,755,039 $ 35,804,473
Advances by borrowers for taxes and insurance 55,866 110,211
Accrued interest payable and other liabilities 488,363 415,573
---------------- ----------------
TOTAL LIABILITIES 37,299,268 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 6,779,750 -
Retained earnings-substantially restricted 3,068,066 3,011,068
Unrealized gain on securities available for sale, net of taxes 508,175 438,703
Unearned ESOP shares (55,176 and 0 shares) (537,240) -
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 9,891,351 3,449,771
---------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 47,190,619 $ 39,780,028
================ ================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
---------------- ----------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 804,636 $ 678,482
Interest-bearing deposits with other banks 498,548 271,582
Investment securities
Taxable 231,992 265,666
Exempt from federal income tax 60,926 40,626
Mortgage-backed securities 573,927 398,505
---------------- ----------------
Total interest and dividend
income 2,170,029 1,654,861
---------------- ----------------
INTEREST EXPENSE
Deposits 1,154,775 1,059,221
---------------- ----------------
Total interest expense 1,154,775 1,059,221
---------------- ----------------
NET INTEREST INCOME 1,015,254 595,640
Provision for loan losses 16,748 39,000
---------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 998,506 556,640
---------------- ----------------
NONINTEREST INCOME
Service fees 73,860 41,973
Other income 20,396 11,394
---------------- ----------------
Total noninterest income 94,256 53,367
---------------- ----------------
NONINTEREST EXPENSE
Compensation and employee benefits 519,737 441,565
Occupancy and equipment 173,691 166,920
Federal insurance premium 16,087 28,289
Data processing 146,697 96,882
Professional fees 66,528 18,469
Other operating expenses 147,811 187,860
---------------- ----------------
Total noninterest expense 1,070,551 939,985
---------------- ----------------
Income (loss) before income tax benefit 22,211 (329,978)
Income tax benefit (34,787) (146,693)
---------------- ----------------
NET INCOME (LOSS) $ 56,998 $ (183,285)
================ ================
Basic income per share (since inception February 26, 1998): $ 0.09 $ N/A
================ ================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1997
---------------- ----------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 278,539 $ 224,960
Interest-bearing deposits with other banks 164,672 96,774
Investment securities
Taxable 82,416 100,099
Exempt from federal income tax 19,838 989
Mortgage-backed securities 198,480 135,604
---------------- ----------------
Total interest and dividend
income 743,945 558,426
---------------- ----------------
INTEREST EXPENSE
Deposits 392,257 364,731
---------------- ----------------
Total interest expense 392,257 364,731
---------------- ----------------
NET INTEREST INCOME 351,688 193,695
Provision for loan losses 6,000 24,191
---------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 345,688 169,504
---------------- ----------------
NONINTEREST INCOME
Service fees 25,049 17,620
Other income 13,008 6,905
---------------- ----------------
Total noninterest income 38,057 24,525
---------------- ----------------
NONINTEREST EXPENSE
Compensation and employee benefits 193,898 133,277
Occupancy and equipment 60,565 58,754
Federal insurance premium 5,235 4,977
Data processing 48,396 38,968
Professional fees 18,338 8,969
Other operating expenses 63,981 94,448
---------------- ----------------
Total noninterest expense 390,413 339,393
---------------- ----------------
Loss before income tax benefit (6,668) (145,364)
Income tax benefit (34,787) (146,693)
---------------- ----------------
NET INCOME (LOSS) $ 28,119 $ 1,329
================ ================
Basic income per share $ 0.04 $ 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 Accumulated
Additional Shares Unrealized Total
Common Paid-in Retained Held by Gain On Stockholders' Comprehensive
Stock Capital Earnings ESOP Securities Equity Income
------------- ------------ ------------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ - $ - $ 3,011,068 $ - $ 438,703 $ 3,449,771 $
Net income 56,998 56,998 56,998
Other comprehensive income:
Unrealized gain on
available for
sale securities 69,472 69,472 69,472
--------
Comprehensive income $126,470
========
Common stock issued 72,600 6,762,326 (580,800) 6,254,126
ESOP shares released 17,424 43,560 60,984
-------- ----------- ----------- --------- ----------- -----------
Balance, September 30, 1998 $ 72,600 $ 6,779,750 $ 3,068,066 $ (537,240) $ 508,175 $ 9,891,351
======== =========== =========== ========= =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30,
1998 1997
------------ ----------------
OPERATING ACTIVITIES
Net income (loss) $ 56,998 $ (183,285)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for loan losses 16,748 39,000
Depreciation and amortization 93,625 91,125
Amortization of Unearned ESOP 60,984 --
Increase in accrued interest receivable (67,023) (33,901)
Other, net 176,493 (52,549)
----------- -----------
Net cash provided by (used for)
operating activities 337,825 (139,610)
----------- -----------
INVESTING ACTIVITIES
Increase in certificates of deposits (510,743) (86,772)
Investment securities available for sale:
Purchases (271,849) (24,401)
Maturities and repayments 2,215 2,305
Investment securities held to maturity:
Purchases (1,575,000) (2,346,537)
Maturities and repayments 597,372 1,571,749
Mortgage-backed securities available for sale:
Purchases (2,234,923) --
Maturities and repayments 706,028 532
Mortgage-backed securities held to maturity:
Purchases (1,367,541) (2,665,318)
Maturities and repayments 2,113,218 1,638,807
Net increase in loans receivable (1,526,497) (831,856)
Purchase of Federal Home Loan Bank Stock (46,400) (9,900)
Purchase of premises and equipment, net (13,385) (44,389)
----------- -----------
Net cash used for investing activities (4,127,505) (2,795,780)
----------- -----------
FINANCING ACTIVITIES
Net increase in deposits 950,566 4,565,207
Proceeds from the sale of common stock 6,254,126 --
Net decrease in advances by borrowers
for taxes and insurance (54,345) (59,180)
----------- -----------
Net cash provided by
financing activities 7,150,347 4,506,027
----------- -----------
Increase in cash and cash equivalents 3,360,667 1,570,637
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 5,046,902 4,378,710
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 8,407,569 $ 5,949,347
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the year for:
Interest on deposits and
borrowings $ 1,159,317 $ 1,057,984
Income taxes 374 --
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.
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 September 30, 1998, of 670,345 and 672,766
shares, respectively. There were 670,345 and 672,766 average shares
outstanding for each of of the aforementioned periods, respectively. Net
income used in the earnings per share calculation was $63,437 and $28,119,
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.
<PAGE>
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 SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Total assets increased by approximately $7,411,000 or 18.6% to $47,191,000 at
September 30, 1998 from $39,780,000 at December 31, 1997. The $6.3 million
received in the sale of common stock in February primarily funded this increase.
Interest-bearing overnight deposits with other banks increased $3,567,000 or
83.4% from $4,280,000 at December 31, 1997 to $7,847,000 at September 30, 1998.
As the interest rate environment declines, management is currently evaluating
investment opportunities for a portion of the proceeds received from the public
offering.
Total investment and mortgage-backed securities increased $2,133,000 or 12.6%
from $16,980,000 at December 31, 1997 to $19,112,000 at September 30, 1998.
Investment holdings in U.S. Agency securities increased with the addition of
approximately $1,575,000 of these securities with maturities between five to
seven years. Furthermore, in an effort to supplement the loan portfolio due to a
lack of demand, approximately $3,602,000 was invested or reinvested in twenty
year mortgage-backed securities. Although the portfolio mix remained relatively
stable, there were slight increases in securities designated as available for
sale so as to give management an option to sell lower yielding securities if
interest rates turn upward in the near future.
Net loans receivable increased $1,510,000 or 12.3% from $12,292,000 at December
31, 1997 to $13,802,000 at September 30, 1998. Real estate and home equity
loans, which increased slightly $805,000 and $587,000, respectively, continue to
incur the largest increases as a result of the demand for these loans at the
Shaler Township office. 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 $951,000 to $36,755,000 at September 30, 1998 from
$35,804,000 at December 31, 1997 due primarily to an increase in volume of Now
accounts and certificates of deposit of $497,000 and $334,000 relating to the
new Shaler branch.
Stockholder's equity increased $6,441,000 to $9,891,000 at September 30, 1998
from $3,450,000 at December 31, 1997 as a result of the $6,254,000 net proceeds
received in the initial public offering, the recognition of shares in the
Employee Stock Ownership Plan of $61,000, increases in unrealized gains on
available for sale securities of $69,000, and net income of $57,000.
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 AND 1997
Net income increased $240,000 to $57,000 for the nine months ended September 30,
1998 from a net loss of $183,000 for the same period ended 1997. This increase
was due to an increases in net interest income of $420,000, noninterest income
of $41,000, and a decline in the provision for loan losses of $22,000 while
offset by increases in noninterest expense of $131,000 and decrease in income
tax benefit of $112,000.
Interest income increased $515,000 or 31.1% from the same period last year due
primarily to increases in average balances of all interest earning assets. The
average balance of interest-bearing deposits with other banks increased $5.1
million due to a lack of alternative investment opportunities. Mortgage-backed
securities average balances rose $3.6 million in an effort to supplement loan
demand. Loan average balances increased $2.0 million due to growth in home
equity and one to four family mortgages. 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. As a
result of a competitive pricing strategy and a decline in the interest rate
environment, the tax equivalent yield on earning assets went from 6.86% to 6.79%
for the nine months ended September 30, 1997 and 1998, respectively.
Interest expense on deposits increased $96,000 or 9.0% from $1,059,000 for the
nine months ended September 30, 1997 to $1,155,000 for the same period ended
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 $1.6 million
resulting from the opening of the new Shaler branch. The overall rate on
interest-bearing liabilities declined slightly from 4.46% for 1997 to 4.22% for
1998 primarily due to a decline of 20 basis points on certificates of deposit.
Based upon management's continuing evaluation of the adequacy of the allowance
for loan losses which encompasses the overall risk characteristics of the
various portfolio segments, past experience with losses, the impact of economic
conditions on borrowers, and other relevant factors, the provision for loan
losses decreased by $22,000 for the nine months ended September 30, 1998
compared to the same period ended 1997. See "Risk Elements".
Noninterest income, which is comprised principally of service charges on deposit
accounts, increased $41,000 or 76.6% to $94,000 for 1998 compared to $53,000 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 have increased due to a higher fee structure and a larger deposit
base.
<PAGE>
Noninterest expense increased $131,000 or 13.9% to $1,071,000 for the nine
months ended September 30, 1998 from $940,000 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
$78,000 or 17.7% to $520,000 for 1998 from $442,000 for 1997, due to increased
benefit 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 $50,000 or 51.4% to $147,000
for 1998 from $97,000 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 $48,000 due to the outside
assistance in complying with the increased levels of regulatory compliance of a
public reporting company. Federal deposit insurance premiums and other operating
expenses decreased slightly due to reduced insurance premiums resulting from the
prior year recapitalization of the Savings Association Insurance Fund and
additional miscellaneous expenses incurred with the start up of the Shaler
branch in 1997, respectively.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1998 AND 1997
Net income for the three months ended September 30, 1998 increased $27,000 to
$28,000 from $1,000 for the same period ended 1997. This growth stemmed from an
increase in net interest income of $158,000 and a decline in the provision for
loan losses of $18,000 while being offset somewhat by a $112,000 decline in
income tax benefit and a $51,000 increase in noninterest expense.
Net interest income increased from $194,000 for the three months ended September
30, 1997 to $351,000 for the same period ended 1998. As discussed above, this
was due to the average balances for other interest-earning assets,
mortgage-backed securities and loans increasing $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. For the three months ended September 30, 1998 the net tax
equivalent yield on earning assets was 6.81%, as compared to 6.78% for the same
period in 1997. Offsetting these increases was an increase in the average volume
of interest-bearing liabilities of $3.5 million which resulted in $28,000 more
of interest expense. Also as discussed previously, this incurred as a result of
funds flowing into certificate of deposit and Now accounts from the new Shaler
branch.
Provision for loan losses decreased $18,000 to $6,000 for the three months ended
September 30, 1998 compared to $24,000 for the same period ended September 30,
1997. This decrease is derived from management's continual monitoring of the
quality of its loan portfolio and its determination of the adequacy of the
allowance for loan losses.
Noninterest income increased $14,000 or 55.2% from $24,000 for the three months
ended September 30, 1997 to $38,000 for the same period ended 1998 due to an
increase in service charges resulting form higher fees and a larger deposit
base.
<PAGE>
Noninterest expense increased $51,000 or 15.0% from $339,000 for the three
months ended September 30, 1997 to $390,000 for the same period ended 1998. As
previously noted, the increases result from operating a larger organization, the
implementation of employee benefit plans, the volume of processing and number of
accounts since the opening of the Shaler Township office, and additional
professional services 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 other expenses from costs associated with the
start-up of the Shaler branch in 1997.
As noted previously, the income tax benefit increased due to an increase in the
amount of pretax income for the three months ended September 30, 1998 compared
to the same period ended 1997.
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.
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 September 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 59.7%, 59.0%, 21.1% and 42.6%, 41.9%,
15.0%, respectively at September 30, 1998.
<PAGE>
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.
September 30, December 31,
1998 1997
------------- ------------
(Dollars in thousands)
Loans on nonaccrual basis $ 67 $ 93
Loans past due 90 days or more and still accruing 106 155
--------- -------
Total nonperforming loans 173 248
--------- -------
Nonperforming loans as a percent of total loans 1.24% 2.00%
========= =======
Nonperforming assets as a percent of total assets .37% 0.62%
========= =======
Allowance for loan losses to nonperforming loans 71.21% 44.35%
========= =======
At September 30, 1998 and December 31, 1997, no real estate or other assets were
held as foreclosed or repossessed property.
Management monitors impaired loans on a continual basis. As of September 30,
1998, impaired loans had no material effect on the Company's financial position
or results of operations.
During the nine month period ended September 30, 1998, loans increased
$1,523,000 and nonperforming loans decreased $75,000 while the allowance for
loan losses increased $13,000 for the same period. The percentage of allowance
for loan losses to loans outstanding remained relatively stable at .88% for
September 30, 1998 and .89% for 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.
<PAGE>
Management believes the level of the allowance for loan losses at September 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
Rapid and accurate data processing is essential to the Bank's operations. Many
computer programs can only distinguish the final two digits of the year entered
(a common programming practice in prior years) are expected to read entries for
the year 2000 as the year 1900 or as zero and incorrectly attempt to compute
payment, interest, delinquency and other data. The Bank has been evaluating both
information technology (computer systems) and non-information technology systems
(e.q. vault timers, electronic door lock and elevator controls). Based upon such
evaluations, management has determined that the Bank has year 2000 risk in three
areas: (1) Bank's own computer and software, (2) computers of others used by the
Bank's borrowers, and (3) computers of others who provide the Bank with
processing of certain services.
Bank's own computers and software. The Bank expects to spend approximately
$5,000 through December 31, 1998 to upgrade its computer system and software.
This upgrade is expected to eliminate the year 2000 risk. The Bank does not
expect to have material costs to address this risk after December 31, 1998. At
September 30, 1998 approximately $10,000 has been expensed. The Bank expects,
though there is no assurance, to be year 2000 compliant in this risk area by
December 31, 1998.
Computers of others used by our borrowers. The Bank has evaluated most of their
borrowers and does not believe the year 2000 problem should, on an aggregate
basis, impact their ability to make payments to the Bank. The Bank believes that
most of their residential borrowers are not dependent on their home computers
for income and that none of their commercial borrowers are so large that a year
2000 problem would render them unable to collect revenue or rent and, in turn,
continue to make loan payments to the Bank. The Bank does not expect any
material costs to address this risk area and believes they are year 2000
compliant in this risk area.
Computers of others who provide us with processing of certain services. This
risk is primarily focused on one third party service bureau that provides
virtually all of the Bank's data processing. The service bureau has communicated
that it is substantially year 2000 compliant and subsequent results of testing
by the Bank have been positive.
<PAGE>
Contingency Plan. The Bank will continue monitoring their service bureau to
evaluate whether its data processing system will fail and is being provided with
periodic updates on the status of testing and upgrades being made by the service
bureau. If the Bank service bureau fails, the Bank will attempt to locate an
alternative service bureau that is year 2000 compliant. If the Bank is
unsuccessful, the Bank will enter deposit balances and interest with its
existing computer system. If this labor intensive approach is necessary,
management and employees will become much less efficient. However, the Bank
believes that they would be able to operate in this manner in the short-term,
until their existing service bureau, or their replacement, is able to again
provide data processing services. If very few financial institution services
bureaus were operating in the year 2000, the Bank's replacement costs, assuming
the Bank could negotiate an agreement, could be material.
<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*
10.1.1 Directors Consultant and Retirement Plan*
10.1.2 Supplemental Executive Retirement Plan for Barbara J. Mallen*
10.1.3 Employment Agreement with Barbara J. Mallen*
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SFSB HOLDING COMPANY
Date November 13, 1998 By: /s/Barabara J. Mallen
---------------------------------
Barbara J.Mallen
President
Date November 13, 1998 By: /s/Joseph E. Gallagher
---------------------------------
Joseph E. Gallagher
Sr. Vice President & Secretary
<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>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 560
<INT-BEARING-DEPOSITS> 7,847
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<INVESTMENTS-HELD-FOR-SALE> 4,808
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<INVESTMENTS-MARKET> 14,558
<LOANS> 13,925
<ALLOWANCE> 123
<TOTAL-ASSETS> 47,191
<DEPOSITS> 36,755
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0
0
<COMMON> 73
<OTHER-SE> 9,819
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