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, 1999
-----
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT
For the transition period from to
------------ ----------
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 August 3, 1999: 689,705
<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
June 30, 1999 and December 31, 1998
Consolidated Statement of Income (Unaudited)
for the Six Months ended June 30, 1999 and 1998 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended June 30, 1999 and 1998 5
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) 6
Consolidated Statement of Cash Flows (Unaudited)
for the Six Months ended June 30, 1999 and 1998 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Default Upon Senior Securities 15
Item 4. Submissions of Matters to a Vote of Security Holders 15
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 (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 536,213 $ 488,759
Interest-bearing overnight deposits with other banks 3,271,344 8,605,494
------------ -----------
Cash and cash equivalents 3,807,557 9,094,253
Certificates of deposits with other banks 2,182,758 3,451,675
Investment securities available for sale 2,743,945 2,073,921
Investment securities held to maturity (market
value of $10,151,844 and $4,473,370) 10,373,742 4,387,648
Mortgage-backed securities available for sale 1,978,952 2,235,852
Mortgage-backed securities held to maturity (market
value of $10,902,808 and $10,617,900) 11,029,239 10,470,280
Loans receivable (net of allowance for loan losses of
$134,193 and $128,193) 14,068,554 13,876,438
Accrued interest receivable 433,204 307,819
Premises and equipment 1,494,403 1,552,612
Federal Home Loan Bank stock 218,100 218,100
Other assets 34,881 54,288
------------ -----------
TOTAL ASSETS $ 48,365,335 $ 47,722,886
============ ===========
LIABILITIES
Deposits $ 38,523,877 $ 37,354,170
Advances by borrowers for taxes and insurance 125,695 106,651
Accrued interest payable and other liabilities 416,284 540,947
------------ -----------
TOTAL LIABILITIES 39,065,856 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 6,698,742 6,701,193
Retained earnings-substantially restricted 3,107,142 3,123,127
Accumulated other comprehensive income 523,638 608,832
Unallocated shares held by Employee Stock
Ownership Plan (ESOP) (493,680) (522,720)
Unallocated shares held by Restricted Stock Plan (RSP) (241,796) (261,914)
Treasury stock ( 36,300 shares at cost) (367,167) -
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 9,299,479 9,721,118
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 48,365,335 $ 47,722,886
============ ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 562,506 $ 526,097
Interest-bearing deposits with other banks 251,971 333,876
Investment securities
Taxable 235,561 149,576
Exempt from federal income tax 35,926 41,088
Mortgage-backed securities 382,511 375,447
----------- -----------
Total interest and dividend
income 1,468,475 1,426,084
----------- -----------
INTEREST EXPENSE
Deposits 749,352 762,518
----------- -----------
Total interest expense 749,352 762,518
----------- -----------
NET INTEREST INCOME 719,123 663,566
Provision for loan losses 6,000 10,748
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 713,123 652,818
----------- -----------
NONINTEREST INCOME
Service fees 59,972 48,811
Investment securities gains, net 17,140 -
Other income 13,076 7,388
----------- -----------
Total noninterest income 90,188 56,199
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 391,199 325,839
Occupancy and equipment 117,163 113,126
Data processing 114,310 98,301
Professional fees 55,409 48,190
Other operating expenses 107,529 94,682
----------- -----------
Total noninterest expense 785,610 680,138
----------- -----------
NET INCOME $ 17,701 $ 28,879
=========== ===========
Earnings per share:
Basic $ 0.03 $ 0.04
Fully diluted 0.03 N/A
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
------------- ------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 289,604 $ 274,417
Interest-bearing deposits with other banks 101,913 177,547
Investment securities
Taxable 154,597 81,190
Exempt from federal income tax 17,263 21,256
Mortgage-backed securities 186,197 195,167
------------- ------------
Total interest and dividend
income 749,574 749,577
------------- ------------
INTEREST EXPENSE
Deposits 375,929 382,987
------------- ------------
Total interest expense 375,929 382,987
------------- ------------
NET INTEREST INCOME 373,645 366,590
Provision for loan losses 3,000 4,000
------------- ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 370,645 362,590
------------- ------------
NONINTEREST INCOME
Service fees 26,830 25,337
Other income 7,445 3,197
------------- ------------
Total noninterest income 34,275 28,534
------------- ------------
NONINTEREST EXPENSE
Compensation and employee benefits 200,178 170,623
Occupancy and equipment 56,306 56,715
Data processing 60,984 53,798
Professional fees 23,391 35,915
Other operating expenses 52,155 34,276
------------- ------------
Total noninterest expense 393,014 351,327
------------- ------------
NET INCOME $ 11,906 $ 39,797
============= ============
Earnings per share:
Basic $ 0.02 $ 0.06
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 Unallocated Unallocated
Additional Compre- Shares Shares Total Compre-
Common Paid-in Retained ensive Held by Held by Treasury Stockholders' hensive
Stock Capital Earnings ncome ESOP RSP Stock Equity Loss
-------- --------- --------- ------- ----------- -------- -------- --------- ---------
Balance,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998 $ 72,600 $6,701,193 $3,123,127 $608,832 $ (522,720) $(261,914) $ - $9,721,118
Net income 17,701 17,701 $ 17,701
Other comprehensive
income:
Unrealized loss on
available for
sale securities (85,194) (85,194) (85,194)
-------
Comprehensive income $(67,493)
=======
RSP shares released 20,118 20,118
ESOP shares released (2,451) 29,040 26,589
Purchase treasury stock (367,167) (367,167)
Cash dividends
($.05 per share) (33,686) (33,686)
------- --------- --------- ------- ----------- -------- -------- ---------
Balance,
June 30, 1999 $ 72,600 $6,698,742 $3,107,142 $523,638 $ (493,680) $(241,796) $(367,167) $9,299,479
======= ========= ========= ======= =========== ======== ======== =========
1999
----------
Components of
comprehensive
loss: Change in
net unrealized
loss on investment
securities
available for sale $ (73,882)
Realized gains included
in net income,
net of tax (11,312)
-----------
Total $ (85,194)
===========
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
------------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,701 $ 28,879
Adjustments to reconcile net income to
net cash provided by (used for) operating
activities:
Provision for loan losses 6,000 10,748
Depreciation and amortization 109,257 104,239
Investment securities gains (17,140) -
Increase in accrued interest receivable (125,385) (48,158)
Other, net (52,575) 146,212
------------------- ------------------
Net cash provided by (used for) operating activities (62,142) 241,920
------------------- ------------------
INVESTING ACTIVITIES
Decrease (increase) in certificates of deposits 1,268,917 (592,309)
Investment securities available for sale:
Purchases (804,847) (16,177)
Proceeds from sales 18,858 -
Maturities and repayments - 1,582
Investment securities held to maturity:
Purchases (6,798,594) (1,575,000)
Maturities and repayments 813,918 520,256
Mortgage-backed securities available for sale:
Purchases - (1,843,594)
Maturities and repayments 257,216 296,990
Mortgage-backed securities held to maturity:
Purchases (2,500,100) (1,367,541)
Maturities and repayments 1,934,637 1,326,603
Net increase in loans receivable (198,116) (1,256,501)
Purchase Federal Home Loan Bank Stock - (46,400)
Purchase of premises and equipment (4,341) (1,687)
------------------- ------------------
Net cash used for investing activities (6,012,452) (4,553,778)
------------------- ------------------
FINANCING ACTIVITIES
Net increase in deposits 1,169,707 1,095,149
Proceeds from the sale of common stock - 6,254,126
Net increase in advances by borrowers
for taxes and insurance 19,044 12,285
Purchase of treasury stock (367,167) -
Cash dividends paid (33,686) -
------------------- ------------------
Net cash provided by
financing activities 787,898 7,361,560
------------------- ------------------
Increase (decrease) in cash and cash equivalents (5,286,696) 3,049,702
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 9,094,253 5,046,902
------------------- ------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 3,807,557 $ 8,096,604
=================== ==================
SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the year for:
Interest on deposits and
borrowings $ 749,352 $ 772,928
Income taxes 30,100 -
</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.
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.
Six Months Three Months
Ended Ended
June 30, June 30,
1999 1999
------------ ------------
Denominator:
Denominator for basic earnings per
share - weighted-average shares 664,585 654,471
Employee stock options 6,130 5,904
------------ ------------
Denominator for Diluted earnings per
share - adjusted weighted-average
assumed conversions 670,715 660,375
============ ============
For the six months ended June 30, 1998, earnings per share computations
based upon the weighted number of shares outstanding for the period since
inception, February 26, 1998, totaled 669,619 and the weighted number of
shares outstanding for the three months ended June 30, 1998 totaled
670,588 shares. Net income used in the earnings per share calculation was
$28,879 and $39,797, respectively. There were no dilutive common shares
of stock outstanding in 1998.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND DECEMBER 31, 1998
Total assets at June 30, 1999 increased $642,000 or 1.35% from $47,723,000 at
December 31, 1998 to $48,365,000 at June 30, 1999 funded primarily by a
$1,170,000 or 3.13% increase in deposits less $367,000 in treasury stock
purchases.
Interest-bearing overnight deposits and certificates of deposits with other
banks decreased $6,603,000 or 54.76% from $12,057,000 at December 31, 1998 to
$5,454,000 at June 30, 1999. Management continues to utilize excess overnight
deposits, from the public offering in 1998, and increase its holdings in higher
yielding investment securities.
Total investment and mortgage-backed securities held to maturity increased
$6,545,000 or 44.05% from $14,858,000 at December 31, 1998 to $21,403,000 at
June 30, 1999. This increase most notably reflects the expansion of U.S.
Government Agency securities with maturities and yields ranging from 10 to 15
years and 6.00% to 7.10%, respectively. Total U.S. Government Agency, equity,
and mortgage-backed securities increased $6,285,000, $670,000, and $302,000,
respectively with a corresponding decline in the municipal security portfolio of
$299,000. During 1998, management focused on supplementing loan demand by
primarily increasing its holdings in mortgage-backed securities; however, during
the first two quarters of 1999, the emphasis has been directed toward increasing
the U.S. Government Agency securities portfolio to increase the yield on
interest earning assets.
At June 30, 1999, the Company's investment securities and mortgage-backed
available for sale portfolios totaled $4.7 million, or 9.8%, of the Company's
total consolidated assets. Pursuant to generally accepted accounting standards,
such securities are recorded at current market value and net unrealized gains or
losses on such securities are excluded from earnings and reported net of income
taxes as part of comprehensive income, a separate component of stockholders'
equity, until realized. At June 30, 1999, due to increases in market rates,
unrealized gains for such securities decreased approximately $85,000 from
December 31, 1998. Because of interest rate volatility, the Company's
accumulated comprehensive income and stockholders' equity could materially
fluctuate for each interim period and year-end period.
Net loans receivable increased slightly from $13,876,000 at December 31, 1998 to
$14,069,000 at June 30, 1999. Home equity loans increased $603,000 while real
estate mortgages decreased $511,000. As noted previously, management has
supplemented the loan demand with other investment opportunities until their
current market environment strengthens.
Deposits increased $1,170,000 or 3.13% to $38,524,000 at June 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 $919,000 or 9.44% and $513,000 or
9.56%, respectively offset by a decrease in certificates of deposit of $262,000
or 1.18%. The net increase in deposits was used to fund the investment
portfolio.
9
<PAGE>
Stockholder's equity decreased $422,000 to $9,299,000 at June 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 a cash dividend paid to
shareholders of $34,000. Additionally there was also a decline in unrealized
gains on investment securities of $85,000 that was offset somewhat by the
amortization of ESOP and RSP shares of $49,000.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND 1998
Our net income decreased $11,000 to $18,000 for the six months ended June 30,
1999 from net income of $29,000 for the same period ended June 30, 1998. This
decrease was due to an increase in noninterest expense of $105,000 partially
offset by an increase in net interest income after provision for loan losses and
noninterest income of $60,000 and 34,000, respectively.
Net interest income increased $55,000 to $719,000 for the six months ended June
30, 1999 compared to $664,000 for the same period ended June 30, 1998. This
increase in net interest income was due to an increase in total interest income
of $42,000 coupled with a decrease in total interest expense of $14,000.
The increase in total interest income was comprised of increases in interest
income on investment securities and loans receivable of $80,000 and $37,000,
respectively which were partially offset by a decrease in interest income on
other interest earning assets of $82,000. The average principal balance of total
interest earning assets increased $2,168,000 or 5.08% comprised of increases in
the average principal balances of U.S. Government Agency securities, loans
receivable, and mortgage-backed securities of $2,338,000, $642,000, and
$210,000, respectively which were offset by a decrease of $1,022,000 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.
Interest expense on deposits decreased $14,000 or 1.8% from $763,000 for the six
months ended June 30, 1998 to $749,000 for the same period ended June 30, 1999.
The cost of funds on interest-bearing liabilities decreased 22 basis points from
4.41% for 1998 to 4.19% for 1999. The average yield on certificates of deposit
decreased 46 basis points from 5.49% for the six months ended June 30, 1998 to
5.03% for the six months ended June 30, 1999. The certificates of deposit
average balance for the six months ending June 30, 1999 and 1998 averaged $22
million and $21 million respectively.
Noninterest income, which is comprised principally of service charges on deposit
accounts and investment securities gains, increased $34,000 or 60.48% to $90,000
for 1999 compared to $56,000 for 1998. This increase was comprised primarily of
$17,000 in investment securities gains from the sale of FHLMC stock and a
$11,000 increase in service charges on deposit accounts due to the increased
number of deposit accounts and volume of transactions.
10
<PAGE>
Noninterest expense increased $105,000 or 15.51% to $785,000 for the six months
ended June 30, 1999 from $680,000 for the same period ended 1998. The increase
was primarily due to increases in compensation and benefits expense, data
processing expense and professional fees. Compensation and benefits increased
$66,000 or 20.06% to $392,000 for 1999 from $326,000 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 $16,000 or
16.29% to $114,000 for 1999 from $98,000 for 1998 due to the increase in volume
of processing and number of accounts. Professional fees increased $7,000 due to
costs associated with the implementation of employee benefit plans and the stock
buy back program.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999
AND 1998
Net income for the three months ended June 30, 1999 decreased $28,000 to $12,000
from net income of $40,000 for the same period ended June 30, 1998. This
decrease stemmed from an increase in noninterest expense of $42,000 partially
offset by increases in net interest income after provision for loan losses and
noninterest income of $8,000 and $6,000 respectively.
Net interest income increased from $367,000 for the three months ended June 30,
1998 to $374,000 for the same period ended 1999. The average balances for
interest-earnings assets rose $638,000 during this period with a noted change in
interest-earning asset composition as U.S. Government Agency security purchases
increased the average balance of investment securities by $4.7 million offset by
a decrease in other interest earning assets of $3.7 million.
Interest expense for the three months ended June 30, 1999 decreased $7,000 to
$376,000 from $383,000 for the same period ended 1999. The average interest
bearing liabilities balance for the three months ended June 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 decreased by 5 basis points noting a decrease in the yield on
certificates of deposit offset by an increase in the yield on interest bearing
demand deposits.
Noninterest income increased $5,000 or 20.12% from $29,000 for the three months
ended June 30, 1998 to $34,000 for the same period ended 1999 due to an
increased service charges on deposit accounts and fee income on ATM
transactions.
Noninterest expense increased $42,000 or 11.87% from $351,000 for the three
months ended June 30, 1998 to $393,000 for the same period ended June 30, 1999.
As previously noted, the increase was primarily due to increases in compensation
and benefits and data processing expense. Compensation and benefits increased
$30,000 or 17.32% from $171,000 for the three months ended June 30, 1998 to
$200,000 for the same period ended 1999 due to increased costs associated with
the supplementary retirement plan, restricted stock plan, and ESOP employee
benefit plans. Data processing expenses increased $7,000, or 13.36% to $61,000
for 1999 from $54,000 for 1998 due to the increase in volume of processing and
number of accounts. Professional fees decreased by $13,000 or 34.87% to $23,000
due to initially complying with regulatory compliance of a publicly reported
company . Other operating expense increased $17,000 or 52.16% to $52,000. This
increase reflects nominal increases in numerous operating expense accounts.
11
<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 June 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 are 51.02%, 50.25%, 18.00% and 38.38%,
37.61%, 13.71%, respectively at June 30, 1999.
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.
June 30, December 31,
1999 1998
--------- -----------
(Dollars in thousands)
Loans on nonaccrual basis $ 120 $ 77
Loans past due 90 days or more and still accruing 19 38
------- -------
Total nonperforming loans 139 115
------- -------
Nonperforming loans as a percent of total loans 0.98% 0.82%
======= =======
Nonperforming assets as a percent of total assets .29% 0.24%
======= =======
Allowance for loan losses to nonperforming loans 96.54% 111.30%
======= =======
12
<PAGE>
At June 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 June 30, 1999,
impaired loans had no material effect on the Company's financial position or
results of operations.
During the six month period ended June 30, 1999, loans increased $198,000 while
nonperforming loans remained stable. The allowance for loan losses increased
$6,000 during this same period and the percentage of allowance for loan losses
to loans outstanding rose slightly from .91% to .94%. 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, 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.
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 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
June 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.
13
<PAGE>
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 services
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.
14
<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
The following represents the results of matters submitted to a
vote of the sharesholders at the annual meeting held on April 20,
1999:
Election of a Director for term to expire in 2003:
James L. Kowalewski was elected by the following vote::
For: 573,102
Votes Withheld: 152,903
Ratification of the SFSB Holding Company 1998 Stock Option Plan,
as amended, by the following votes:
For: 549,297
Against: 21,055
Votes Abstaining: 5,500
Ratification of the Stanton Federal Savings Bank Restricted Stock
Plan by the following votes:
For: 476,637
Against: 93,215
Votes Abstaining: 6,000
S.R. Snodgrass A.C.was selected as the Company's independent
auditors for the fiscal year 1999 by the following vote:
For: 571,087
Against: 3,165
Votes Abstaining: 1,600
15
<PAGE>
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:
27 Financial Data Schedule (in electronic filing only)
(b) No reports on Form 8-K were filed for the period covered by this
report.
- -------------------
16
<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 August 11, 1999 By: /s/Barbara J. Mallen
---------------------------------
Barbara J. Mallen
President
Date August 11, 1999 By: /s/Joseph E. Gallagher
---------------------------------
Joseph E. Gallagher
Sr. Vice President & Secretary
17
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 536
<INT-BEARING-DEPOSITS> 3,271
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,941
<INVESTMENTS-CARRYING> 21,403
<INVESTMENTS-MARKET> 21,055
<LOANS> 14,203
<ALLOWANCE> 134
<TOTAL-ASSETS> 48,365
<DEPOSITS> 38,524
<SHORT-TERM> 0
<LIABILITIES-OTHER> 542
<LONG-TERM> 0
0
0
<COMMON> 73,000
<OTHER-SE> 9,227
<TOTAL-LIABILITIES-AND-EQUITY> 48,365
<INTEREST-LOAN> 563
<INTEREST-INVEST> 654
<INTEREST-OTHER> 252
<INTEREST-TOTAL> 1,468
<INTEREST-DEPOSIT> 749
<INTEREST-EXPENSE> 749
<INTEREST-INCOME-NET> 719
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 786
<INCOME-PRETAX> 18
<INCOME-PRE-EXTRAORDINARY> 18
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18
<EPS-BASIC> .03
<EPS-DILUTED> .03
<YIELD-ACTUAL> 3.21
<LOANS-NON> 120
<LOANS-PAST> 19
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 128
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 134
<ALLOWANCE-DOMESTIC> 134
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>