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, 1999
[ ] 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
------------------------------
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 November 10, 1999: 674,765
<PAGE>
SFSB HOLDING COMPANY
INDEX
<TABLE>
<CAPTION>
Page
Number
-----------------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of 3
September 30, 1999 and December 31, 1998
Consolidated Statement of Income (Unaudited)
for the Nine Months ended September 30, 1999 and 1998 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended September 30, 1999 and 1998 5
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) 6
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months ended September 30, 1999 and 1998 7
Notes to Unaudited Consolidated Financial Statements 8 -9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Default Upon Senior Securities 17
Item 4. Submissions of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8 - K 17
SIGNATURES 18
</TABLE>
2
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 669,740 $ 488,759
Interest-bearing overnight deposits with other banks 2,316,072 8,605,494
----------------- -----------------
Cash and cash equivalents 2,985,812 9,094,253
Certificates of deposits with other banks 2,020,883 3,451,675
Investment securities available for sale 3,112,751 2,073,921
Investment securities held to maturity (market
value of $9,681,018 and $4,473,370) 10,016,162 4,387,648
Mortgage-backed securities available for sale 1,859,616 2,235,852
Mortgage-backed securities held to maturity (market
value of $10,418,614 and $10,617,900) 10,597,587 10,470,280
Loans receivable (net of allowance for loan losses of
$137,193 and $128,193) 14,934,913 13,876,438
Accrued interest receivable 399,145 307,819
Premises and equipment 1,467,968 1,552,612
Federal Home Loan Bank stock 218,100 218,100
Other assets 60,953 54,288
----------------- -----------------
TOTAL ASSETS $ 47,673,890 $ 47,722,886
================= =================
LIABILITIES
Deposits $ 37,925,538 $ 37,354,170
Advances by borrowers for taxes and insurance 49,695 106,651
Accrued interest payable and other liabilities 462,410 540,947
----------------- -----------------
TOTAL LIABILITIES 38,437,643 38,001,768
----------------- -----------------
Commitments and contingencies
STOCKHOLDER'S EQUITY
Perferred stock no par value, 1,000,000 shares authorized, none - -
issued and outstanding
Common stock, $.10 par value, 4,000,000 shares authorized; 726,005
shares issued 72,600 72,600
Additional paid in capital 6,697,714 6,701,193
Retained earnings-substantially restricted 3,121,881 3,123,127
Accumulated other comprehensive income 422,116 608,832
Unallocated shares held by Employee Stock
Ownership Plan (ESOP) (479,160) (522,720)
Unallocated shares held by Restricted Stock Plan (RSP) (231,737) (261,914)
Treasury stock ( 36,300 shares at cost) (367,167) -
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 9,236,247 9,721,118
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 47,673,890 $ 47,722,886
================= =================
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
----------------- -----------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 858,853 $ 804,636
Interest-bearing deposits with other banks 323,187 498,548
Investment securities
Taxable 412,491 231,992
Exempt from federal income tax 50,229 60,926
Mortgage-backed securities 599,311 573,927
----------------- -----------------
Total interest and dividend
income 2,244,071 2,170,029
----------------- -----------------
INTEREST EXPENSE
Deposits 1,144,638 1,154,775
----------------- -----------------
Total interest expense 1,144,638 1,154,775
----------------- -----------------
NET INTEREST INCOME 1,099,433 1,015,254
Provision for loan losses 9,000 16,748
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,090,433 998,506
----------------- -----------------
NONINTEREST INCOME
Service fees 93,209 73,860
Investment securities gains, net 16,058 -
Other income 16,628 20,396
----------------- -----------------
Total noninterest income 125,895 94,256
----------------- -----------------
NONINTEREST EXPENSE
Compensation and employee benefits 597,222 519,737
Occupancy and equipment 179,148 173,691
Data processing 171,335 146,697
Professional fees 70,020 66,528
Other operating expenses 164,827 163,898
----------------- -----------------
Total noninterest expense 1,182,552 1,070,551
----------------- -----------------
Income before income tax expense (benefit) 33,776 22,211
Income tax expense (benefit) 1,336 (34,787)
----------------- -----------------
NET INCOME $ 32,440 $ 56,998
================= =================
Earnings per share:
Basic $ 0.05 $ 0.09
Fully diluted 0.05 N/A
See accompanying notes to the consolidated financial statements.
</TABLE>
4
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
----------------- -----------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 296,347 $ 278,539
Interest-bearing deposits with other banks 71,216 164,672
Investment securities
Taxable 176,930 82,416
Exempt from federal income tax 14,303 19,838
Mortgage-backed securities 216,800 198,480
----------------- -----------------
Total interest and dividend
income 775,596 743,945
----------------- -----------------
INTEREST EXPENSE
Deposits 395,286 392,257
----------------- -----------------
Total interest expense 395,286 392,257
----------------- -----------------
NET INTEREST INCOME 380,310 351,688
Provision for loan losses 3,000 6,000
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 377,310 345,688
----------------- -----------------
NONINTEREST INCOME
Service fees 33,236 25,049
Investment securities gains (losses), net (1,082) -
Other income 3,552 13,008
----------------- -----------------
Total noninterest income 35,706 38,057
----------------- -----------------
NONINTEREST EXPENSE
Compensation and employee benefits 206,023 193,898
Occupancy and equipment 61,985 60,565
Data processing 57,025 48,396
Professional fees 14,611 18,338
Other operating expenses 57,299 69,216
----------------- -----------------
Total noninterest expense 396,943 390,413
----------------- -----------------
Income before income tax expense (benefit) 16,073 (6,668)
Income tax expense (benefit) 1,336 (34,787)
----------------- -----------------
NET INCOME $ 14,737 $ 28,119
================= =================
Earnings per share:
Basic $ 0.02 $ 0.04
Fully diluted 0.02 N/A
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other
Additional Compre-
Common Paid-in Retained hensive
Stock Capital Earnings Income (loss)
-------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 72,600 $ 6,701,193 $ 3,123,127 $ 608,832
Net income 32,440
Other comprehensive loss:
Unrealized loss on available for
sale securities (186,716)
Comprehensive loss
RSP shares released
ESOP shares released (3,479)
Purchase treasury stock
Cash dividends ($.05 per share) (33,686)
-------- ---------- ----------- ------------
Balance, September 30, 1999 $ 72,600 $ 6,697,714 $ 3,121,881 $ 422,116
======== ========== =========== ============
1999
------------
Components of comprehensive loss:
Change in net unrealized
loss on investment
securities available for sale $ (176,118)
Realized gains included in net
income, net of tax (10,598)
------------
Total $ (186,716)
============
</TABLE>
<TABLE>
<CAPTION>
Unallocated Unallocated
Shares Shares Total Compre-
Held by Held by Treasury Stockholders' hensive
ESOP RSP Stock Equity Loss
----------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ (522,720) $ (261,914) $ - $ 9,721,118
Net income 32,440 $ 32,440
Other comprehensive loss:
Unrealized loss on available for
sale securities (186,716) (186,716)
----------
Comprehensive loss $ (154,276)
==========
RSP shares released 30,177 30,177
ESOP shares released 43,560 40,081
Purchase treasury stock (367,167) (367,167)
Cash dividends ($.05 per share) (33,686)
----------- ---------- --------- ------------
Balance, September 30, 1999 $ (479,160) $ (231,737) $ (367,167) $ 9,236,247
=========== ========== ========= ============
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 32,440 $ 56,998
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for loan losses 9,000 16,748
Depreciation and amortization 164,083 154,609
Investment securities gains (16,058) -
Increase in accrued interest receivable (91,326) (67,023)
Other, net 22,186 176,493
----------------- -----------------
Net cash provided by operating activities 120,325 337,825
----------------- -----------------
INVESTING ACTIVITIES
Decrease (increase) in certificates of deposits 1,430,792 (510,743)
Investment securities available for sale:
Purchases (1,335,454) (271,849)
Proceeds from sales 24,157 -
Maturities and repayments - 2,215
Investment securities held to maturity:
Purchases (6,800,000) (1,575,000)
Maturities and repayments 1,172,249 597,372
Mortgage-backed securities available for sale:
Purchases - (2,234,923)
Maturities and repayments 375,754 706,028
Mortgage-backed securities held to maturity:
Purchases (2,500,100) (1,367,541)
Maturities and repayments 2,366,933 2,113,218
Net increase in loans receivable (1,067,475) (1,526,497)
Purchase Federal Home Loan Bank stock - (46,400)
Purchase of premises and equipment (9,181) (13,385)
----------------- -----------------
Net cash used for investing activities (6,342,325) (4,127,505)
----------------- -----------------
FINANCING ACTIVITIES
Net increase in deposits 571,368 950,566
Proceeds from the sale of common stock - 6,254,126
Net increase in advances by borrowers
for taxes and insurance (56,956) (54,345)
Purchase of treasury stock (367,167) -
Cash dividends paid (33,686) -
----------------- -----------------
Net cash provided by
financing activities 113,559 7,150,347
----------------- -----------------
Increase (decrease) in cash and cash equivalents (6,108,441) 3,360,667
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 9,094,253 5,046,902
----------------- -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,985,812 $ 8,407,569
================= =================
SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the year for:
Interest on deposits and borrowings $ 1,124,741 $ 1,159,317
Income taxes 36,133 374
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<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 year ended December 31, 1999 or any other interim
period.
These statements should be read in conjunction with the consolidated
financial statements and related notes for the year ended December 31,1998
and 1997, which are incorporated by reference in the Company's Annual
Report on Form 10-KSB.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for 1999. There were no convertible securities which
would effect the numerator in calculating basic and diluted earnings per
share; therefore, net income as presented on the Consolidated Statements
of Income will be used as the numerator. The following table sets forth a
reconciliation of the denominator of the basic and diluted earnings per
share computation.
<TABLE>
<CAPTION>
Nine Months Three Months
Ended Ended
September 30, September 30,
1999 1999
----------------- -----------------
<S> <C> <C>
Denominator:
Denominator for basic earnings per
share - weighted-average shares 638,299 630,558
Nonvested stock 2,159 2,014
Employee stock options 6,097 6,041
----------------- -----------------
Denominator for Diluted earnings per
share - adjusted weighted-average
assumed conversions 646,555 638,613
================= =================
</TABLE>
For the nine months ended September 30, 1998, earnings per share
computations based upon the weighted number of shares outstanding for the
period since inception, February 26, 1998, totaled 670,345 and the
weighted number of shares outstanding for the three months ended September
30, 1998 totaled 672,776 shares. Net income used in the earnings per share
calculation was $63,437 and $28,119, respectively. As of September 30,
1998, the Company maintained a simple capital structure, therefore, there
were no dilutive effects on earnings per share.
8
<PAGE>
NOTE 3 - 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>
At September 30, 1999
-------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Available for Sale
Mutual funds $ 1,954,706 $ - $ (153,045) $ 1,801,661
U.S. Government agency
securities 499,584 - (4,894) 494,690
Federal Home Loan Mortgage
Corporation common stock 15,401 800,999 - 816,400
--------------- ----------------- ----------------- -----------------
Total $ 2,469,691 $ 800,999 $ (157,939) $ 3,112,751
=============== ================= ================= =================
Held to Maturity
U.S. Government agency
securities $ 8,833,710 $ - $ (365,182) $ 8,468,528
Obligations of state and
political subdivisions 1,182,452 30,038 - 1,212,490
--------------- ----------------- ----------------- -----------------
Total $ 10,016,162 $ 30,038 $ (365,182) $ 9,681,018
=============== ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1998
-------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Available for Sale
Mutual funds $ 1,127,060 $ - $ (84,139) $ 1,042,921
Federal Home Loan Mortgage
Corporation common stock 15,692 1,015,308 - 1,031,000
--------------- ----------------- ----------------- -----------------
Total $ 1,142,752 $ 1,015,308 $ (84,139) $ 2,073,921
=============== ================= ================= =================
Held to Maturity
U.S. Government agency
securities $ 2,581,147 $ 10,348 $ (8,508) $ 2,582,987
Obligations of state and
political subdivisions 1,806,501 81,882 - 1,888,383
--------------- ----------------- ----------------- -----------------
Total $ 4,387,648 $ 92,230 $ (8,508) $ 4,471,370
=============== ================= ================= =================
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Private Securities Litigation Act of 1995 contains safe harbor provisions
regarding forward-looking statements. When used in this discussion, the words
"believes," "anticipates," "contemplates," "expects," and similar expressions
are intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. Those risks and uncertainties include changes
in interest rates, the ability to control costs and expenses, and general
economic conditions. The Company undertakes no obligation to publicly release
the results of any revisions to those forward looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
Total assets of $47,674,000 at September 30, 1999 remained relatively unchanged
from the December 31, 1998 total of $47,723,000.
Cash and cash equivalents decreased $6,108,000 or 67.2% to $2,986,000 at
September 30, 1999 from $9,094,000 at December 31, 1998. Management utilized
excess overnight deposits from the public offering in 1998 to increase its
holdings in higher yielding investment securities and fund loan growth.
Management continually monitors cash and cash equivalents to meet the desired
normal cash flow requirements of its customers for the funding of loans and
repayment of deposits.
Total investment and mortgage-backed securities increased $6,418,000 or 33.5%
from $19,168,000 at December 31, 1998 to $25,586,000 at September 30, 1999. This
increase most notably reflects the expansion of U.S. Government Agency
securities by $6,747,000 with maturities and yields ranging from 10 to 15 years
and 6.00% to 8.00%, respectively. During 1998, management focused on
supplementing loan demand by primarily increasing its holdings in
mortgage-backed securities; however, during the first three quarters of 1999,
the emphasis has been directed towards diversifying the investment portfolio.
U.S. Government Agency securities as a percentage of the investment portfolio
have grown from 13.5% to 36.5% since December 31, 1998 while mortgage-backed
securities as a percentage of the investment portfolio have declined from 66.3%
to 48.7% during this same timeframe. Management funded this increase through a
reduction of its cash and cash equivalents, as noted previously, and deposit
growth.
Net loans receivable increased $1,059,000 or 7.6% from $13,876,000 at December
31, 1998 to $14,935,000 at September 30, 1999. The Company's loan growth
occurred almost entirely within its home equity loans portfolio, as these loans
increased $923,000 of 24.0%. The funding of this loan growth was also provided
by utilizing excess overnight deposits in other financial institutions and
deposit growth.
Deposits increased $571,000 to $37,925,000 at September 30, 1999 from
$37,354,000 at December 31, 1998 due primarily to an increase in the volume of
savings deposits and transaction accounts of $895,000 or 9.2% and $671,000 or
12.3%, respectively, while offset by a
10
<PAGE>
decrease in certificates of deposit of $995,000 or 4.5%. The overall net
increase in deposits was used to fund both the investment and loan portfolios.
Stockholder's equity decreased $485,000 or 5.0% to $9,236,000 at September 30,
1999 from $9,721,000 at December 31, 1998 as a result of the company purchasing
36,300 shares of treasury stock totaling $367,000 and the payment of a cash
dividend to shareholders of $34,000. Additionally, accumulated other
comprehensive income decreased $186,000 in income resulting from the Company's
investment in available for sale securities. See Note 3 to the consolidated
financial statements. Because of interest rate volatility, accumulated other
comprehensive income and stockholders' equity could materially fluctuate for
each interim period and year-end period. This decrease was offset somewhat by
the amortization of ESOP and RSP shares of $70,000.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998
Net income decreased $25,000 to $32,000 for the nine months ended September 30,
1999 from net income of $57,000 for the same period ended September 30, 1998.
This decrease was the result of a $35,000 tax benefit that was recognized in
1998 that was not recognized in 1999.
Net interest income increased to $1,099,000 for the nine months ended September
30, 1999 compared to $1,015,000 for the same period ended September 30, 1998.
This increase in net interest income was due to an increase in total interest
income of $74,000 coupled with a decrease in total interest expense of $10,000.
The net yield on interest-earning assets increased from 3.14% for the nine month
period ended September 30, 1998 to 3.27% for the same period ended 1999. Despite
a slight increase in general interest rate levels during the period, both
interest income and expense were driven by increases in average balances of
interest-earning assets and interest-bearing liabilities. The average yield on
interest-earning assets decreased slightly from 6.79% for the nine months ended
September 30, 1998 to 6.76% for 1999, while the average cost of funds of 4.22%
remained unchanged during these same periods.
The increase in total interest income was comprised of increases in interest
income on investment securities and loans receivable of $180,000 and $54,000,
respectively which were partially offset by a decrease in interest income on
other interest earning assets of $175,000. The average principal balance of
total interest earning assets increased $1,536,000 or 3.6% and was comprised of
increases in the average principal balances of investment securities and loans
receivable of $3,367,000 and $1,310,000, respectively, while offset by a
decrease of $2,969,000 in other interest earning assets. As previously
discussed, the change in the composition of interest earning assets represents
management's efforts to increase the U.S. Government Agency securities portfolio
with funds previously invested in overnight night deposits with other banks and
deposit growth.
11
<PAGE>
Interest expense on deposits decreased from $1,155,000 for the nine months ended
September 30, 1998 to $1,145,000 for the same period ended September 30, 1999.
This decrease reflects an overall decline in the average balance of
interest-bearing liabilities of $309,000. The average balance of
interest-bearing demand deposits declined by $1,361,000 while being offset by
increases in both the average balances of certificates of deposit and savings of
$589,000 and $463,000, respectively.
Noninterest income, which is comprised principally of service charges on deposit
accounts and investment securities gains, increased $32,000 or 33.6% to $126,000
for 1999 compared to $94,000 for 1998. This increase was comprised primarily of
$16,000 in investment securities gains from the sale of FHLMC stock and a
$19,000 increase in service charges on deposit accounts due to the increased
number of deposit accounts and volume of transactions.
Noninterest expense increased to $1,183,000 for the nine months ended September
30, 1999 from $1,071,000 for the same period ended 1998. The increase was
primarily due to increases in compensation and benefits expense and data
processing expense. Compensation and benefits increased $77,000 or 14.9% to
$597,000 for 1999 from $520,000 for 1998 as a result of the costs associated
with the supplementary retirement plan, restricted stock plan and ESOP employee
benefit plans. Data processing expenses increased $26,000 or 16.8% to $171,000
for 1999 from $147,000 for 1998 due to the increase in volume of processing and
number of accounts.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998
Net income for the three months ended September 30, 1999 decreased $13,000 to
$15,000 from net income of $28,000 for the same period ended September 30, 1998.
Net interest income increased from $352,000 for the three months ended September
30, 1998 to $395,000 for the same period ended 1999. The average balances for
interest-earnings assets rose $239,000 during this period with a noted change in
the interest-earning asset composition as U.S. Government Agency security
purchases increased the average balance of investment securities by $6.0 million
offset by a decrease in other interest earning assets of $7.4 million. Increases
to average interest-earning assets also resulted from a $2,272,000 increase in
the average balances of loans. The average yield on interest-earning assets
increased to 7.03% from 6.81% for the three month period ended September 30,
1999 compared to 1998 as the yield on mortgage-backed securities increased
during this period. Offsetting this increase was a slight increase in the
average cost of funds on deposits from 4.33% for the three months ended
September 30, 1998 to 4.38% for the same period ended 1999.
Interest expense for the three months ended September 30, 1999 increased to
$395,000 from $392,000 for the same period ended 1999. The average interest
bearing liabilities balance for the three months ended September 30, 1999
remained relatively unchanged compared to the same period ended 1998. The
average yield on interest bearing liabilities also remained relatively unchanged
as the overall yield increased by 5 basis points noting an increase in the yield
on savings accounts offset by a decrease in the yield on certificates of
deposit.
Noninterest income decreased slightly to $36,000 for the three mnths ended
September 30, 1999 from $38,000 for the same period ended 1998. Slight increases
in services charges on deposit account resulting from increases in accounts and
volume of transactions were offset by a decline in other income.
Noninterest expense increased to $397,000 for the three months ended September
30, 1999 compared to $390,000 for the same period ended 1998. As noted
previously, increases in compensation and employee benefits and data processing
were due to the implementation of certain benefit plans and an increase in the
volume of processing and number of accounts, respectively. Offsetting these
increases was a slight decrease in numerous other operating expense accounts of
smaller dollar amounts.
12
<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.
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, 1999, 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 were 50.1%, 47.8%, 18.9% and 38.7%, 36.3%,
14.2%, respectively at September 30, 1999.
Due to the year 2000, management has instituted a cash contingency plan in order
to meet the possible larger cash withdrawals of customers in December 1999. Such
plan may decrease the Company's investment in interest earning assets and may
increase its investment in interest bearing liabilities, which may cause the
Company's net income to slightly decrease in the 1999 fourth quarter.
13
<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,
1999 1998
-------- --------
(Dollars in Thousands)
Loans on nonaccrual basis $ 97 $ 77
Loans past due 90 days or more and still accruing 12 38
------ ------
Total nonperforming loans 109 115
------ ------
Nonperforming loans as a percent of total loans .79% 0.82%
====== ======
Nonperforming assets as a percent of total assets .23% 0.24%
====== ======
Allowance for loan losses to nonperforming loans 125.87% 111.30%
====== ======
At September 30, 1999 and December 31, 1998, 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,
1999, impaired loans had no material effect on the Company's financial position
or results of operations.
During the nine month period ended September 30, 1999, loans increased
$1,058,000 while nonperforming loans remained relatively stable. The allowance
for loan losses increased $9,000 during this same period and the percentage of
allowance for loan losses to loans outstanding remained at .91%. 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 September 30,
1999 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.
14
<PAGE>
YEAR 2000
Rapid and accurate data processing is essential to the Bank's operations. Many
computer programs that can only distinguish the final two digits of the year
entered 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 has completed testing of its own
computers and software and found no material problems. Any problems identified
have been addressed either through modifications or upgrades to the computer
system and/or software. This is expected to have eliminated the year 2000 risk.
The Bank does not expect to have any material costs to address this risk after
September 30, 1999. The Bank considers itself, though there is no assurance, to
be year 2000 compliant in this risk area.
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.
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 service
bureaus were operating in the year 2000, the Bank's replacement costs, assuming
the Bank could negotiate an agreement, could be material. The above items are
documented in the Bank's written contingency plan which has been approved by the
Board of Directors.
Despite management's best efforts to address the Year 2000 issue, the vast
number of external entities that have direct and indirect business relationships
with the Bank, such as, customers, vendors, payment system providers, utility
companies, and other financial institutions, make it
15
<PAGE>
impossible to assure that a failure to achieve compliance by one or more of
these entities would not have a material adverse impact on the Bank's business
or on the Company's consolidated financial statements.
16
<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
On October 14, 1999, the Company issued a press release
announcing its intention to purchase up to 34,485 of the
Company's common shares on the open market.
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included in this Report or incorporated
herein by reference:
27 Financial Data Schedule (in electronic filing only)
(b) No reports on Form 8-K were filed for the period covered by this
report.
17
<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 12, 1999 By: /s/Barbara J. Mallen
---------------------------------
Barbara J. Mallen
President
Date November 12, 1999 By: /s/Joseph E. Gallagher
---------------------------------
Joseph E. Gallagher
Sr. Vice President & Secretary
(Chief Accounting Officer)
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 670
<INT-BEARING-DEPOSITS> 2,316
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,113
<INVESTMENTS-CARRYING> 10,016
<INVESTMENTS-MARKET> 9,681
<LOANS> 15,072
<ALLOWANCE> 137
<TOTAL-ASSETS> 47,674
<DEPOSITS> 37,926
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,012
<LONG-TERM> 0
0
0
<COMMON> 73
<OTHER-SE> 9,163
<TOTAL-LIABILITIES-AND-EQUITY> 47,674
<INTEREST-LOAN> 859
<INTEREST-INVEST> 1,062
<INTEREST-OTHER> 323
<INTEREST-TOTAL> 2,244
<INTEREST-DEPOSIT> 1,145
<INTEREST-EXPENSE> 1,145
<INTEREST-INCOME-NET> 1,099
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 16
<EXPENSE-OTHER> 1,183
<INCOME-PRETAX> 34
<INCOME-PRE-EXTRAORDINARY> 34
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32
<EPS-BASIC> .05
<EPS-DILUTED> .05
<YIELD-ACTUAL> 3.27
<LOANS-NON> 97
<LOANS-PAST> 12
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 128
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 137
<ALLOWANCE-DOMESTIC> 137
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
