SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1999
- OR -
[X] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
----------------- -------------
Commission file number: 0-23765
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SFSB Holding Company
------------------------------------
(Name of Small Business Issuer in Its Charter)
Pennsylvania 23-2934332
- ----------------------------------------------- -----------------
(State or Other Jurisdiction of (I.R.S. Employer
of Incorporation or Organization) Identification No.)
900 Saxonburg Boulevard, Pittsburgh, Pennsylvania 15223
- ------------------------------------------------------------ ---------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (412) 487-4200
--------------------
Securities registered pursuant to Section 12(b) of the Act: None
-------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Registrant's revenues for the year ended December 31, 1999 were
$3,179,099.
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant, based upon the average of the bid and asked
prices of such stock as of March 1, 2000, was approximately $3.3 million.
As of March 1, 2000, the registrant had 658,705 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year ended
December 31, 1999. (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders for
the Fiscal Year ended December 31, 1999. (Part III)
<PAGE>
PART I
Forward-Looking Statements
SFSB Holding Company (the "Company" or "Registrant") may from time to
time make written or oral "forward-looking statements", including statements
contained in the Company's filings with the Securities and Exchange Commission
(including this Annual Report on Form 10-KSB and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve system, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Item 1. Description of Business
- -------------------------------
General
The Company is a Pennsylvania corporation organized in October 1997 at
the direction of Stanton Federal Savings Bank (the "Bank") to acquire all of the
capital stock that the Bank issued in its conversion from the mutual to stock
form of ownership (the "Conversion"). On February 27, 1998, the Bank completed
the Conversion and became a wholly owned subsidiary of the Company. The Company
is a unitary savings and loan holding company which, under existing laws,
generally is not restricted in the types of business activities in which it may
engage provided that the Bank retains a specified amount of its assets in
housing-related investments. The Company conducts no significant business other
than holding all of the outstanding common stock of the Bank. References to the
Company or Registrant generally refers to the consolidated entity which includes
the main operating company, the Bank, unless the context indicates otherwise.
1
<PAGE>
The Bank, is a federally chartered stock savings bank headquartered in
Pittsburgh, Pennsylvania. The Bank is subject to examination and comprehensive
regulation by the Office of Thrift Supervision ("OTS") and its deposits are
federally insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation ("SAIF"). The Bank is a member of and owns capital
stock in the Federal Home Loan Bank ("FHLB") of Pittsburgh, which is one of the
12 regional banks in the FHLB System.
The Bank operates a traditional savings bank business, attracting
deposit accounts from the general public and using those deposits, together with
other funds, primarily to originate and invest in loans secured by single-family
residential real estate.
Competition
The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in the Registrant's market area. Deposit competition
also includes a number of insurance products sold by local agents and investment
products such as mutual funds and other securities sold by local and regional
brokers. Loan competition varies depending upon market conditions and comes from
other insured financial institutions such as commercial banks, thrift
institutions, credit unions, multi-state regional banks, and mortgage bankers.
Lending Activities
The following table sets forth information concerning the types of
loans held by the Registrant.
At December 31,
--------------------------------------------
1999 1998
---------------------- --------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
- --------------
Real Estate Loans:
One- to -four family .. $ 9,416 60.15% $ 8,202 58.56%
Home equity ........... 4,504 28.77 3,809 27.20
Commercial ............ 1,213 7.75 1,549 11.06
Consumer Loans .......... 522 3.33 446 3.18
------- ------ ------- ------
Total ............. $15,655 100.00% $14,006 100.00%
======= ====== ======= ======
The following table sets forth the estimated maturity of the
Registrant's loan portfolio at December 31, 1999. The table does not include the
effects of possible prepayments or scheduled repayments. Prepayments and
scheduled principal repayments of loans totaled $3.4 million at December 31,
1999. All mortgage loans are shown as maturing based on the date of the last
payment required by the loan agreement.
2
<PAGE>
Due after
Due within 1 through Due after
1 year 5 years 5 years Total
------ ------- ------- -----
(In thousands)
One- to -four family ....... $ 292 $ 270 $ 8,854 $ 9,416
Home equity ................ 17 938 3,549 4,504
Commercial ................. 136 35 1,042 1,213
Consumer ................... 276 217 29 522
------- ------- ------- -------
Total ...................... $ 721 $ 1,460 $13,474 $15,655
======= ======= ======= =======
The following table sets forth as of December 31, 1999 the dollar
amount of all loans due after December 31, 2000, based upon fixed rates of
interest or floating or adjustable interest rates.
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One- to four family ............... $ 9,106 $-- $ 9,106
Home equity ....................... 4,487 -- 4,487
Commercial ........................ 946 149 1,095
Consumer .......................... 246 -- 246
------- ------- -------
Total ......................... $14,785 $ 149 $14,934
======= ======= =======
One- to -Four Family Loans. The Registrant's primary lending activity
consists of the origination of one- to -four family fixed rate residential
mortgage loans secured by property located in the Registrant's primary market
area. The Registrant generally originates one- to four-family fixed rate
residential mortgage loans in amounts up to 97% of the lesser of the appraised
value or purchase price, with private mortgage insurance required on loans with
a loan-to-value ratio in excess of 80%. The maximum loan-to-value ratio on
mortgage loans secured by non-owner occupied properties generally is limited to
75%. The Registrant retains all of its mortgage loans and originates these loans
with maturities of up to 30 years.
Mortgage loans originated and held by the Registrant generally include
due-on-sale clauses. This gives the Bank the right to deem the loan immediately
due and payable in the event the borrower transfers ownership of the property
securing the mortgage loan without the Registrant's consent.
Home Equity Loans. The Registrant originates home equity loans and
second mortgage loans which are secured primarily by one-to four family
residences. These loans are originated with fixed rate terms of up to 15 years.
The loans are generally subject to a 80% combined loan-to-value limitation,
including any other outstanding mortgages or liens.
Commercial Real Estate Loans. Commercial real estate loans are secured
by office buildings, retail establishments, and other commercial properties.
These loans generally have not exceeded $475,000 or had terms greater than 20
years.
3
<PAGE>
Commercial real estate lending entails significant additional risks
compared to residential property lending. These loans typically involve large
loan balances to single borrowers or groups of related borrowers. The repayment
of these loans typically is dependent on the successful operation of the real
estate project securing the loan. These risks can be significantly affected by
supply and demand conditions in the market for office and retail space and may
also be subject to adverse conditions in the economy.
Loan Approval Authority and Underwriting. The Registrant establishes
various lending limits for its officers and maintains a loan committee
consisting of the President, the Secretary and two outside board members. The
President, and Senior Vice President have loan authority to approve home equity
loans up to $75,000 and unsecured consumer loans up to $10,000. The loan
committee ratifies all residential mortgage loans and all other real estate and
consumer loans.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers.
Title insurance is generally required on all real estate mortgage
loans. The Registrant does not require title insurance on home equity and second
mortgage loans, but obtains a property report from a third party, which
indicates whether there are any liens or other encumbrances against the
property. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property that is located in a
flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 10 days of the date of issuance. At December 31, 1999,
commitments to cover originations of mortgage loans totaled $1,135,000. The
Registrant believes that virtually all of its commitments will be funded.
Nonperforming and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 20 days past due, a
notice of nonpayment is sent to the borrower. If such payment is not received by
month end, an additional notice of nonpayment is sent to the borrower. After 60
days, if payment is still delinquent, a notice of right to cure default is sent
to the borrower giving 30 additional days to bring the loan current before
foreclosure is commenced. If the loan continues in a delinquent status for 90
days past due and no repayment plan is in effect, foreclosure proceedings will
be initiated. The customer will be notified when foreclosure is commenced.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when the loan becomes more than 90 days delinquent or when, in the
Registrant's opinion, the collection of additional interest is doubtful.
Interest accrued and unpaid at the time a loan is placed on nonaccrual status is
charged against interest income. Subsequent interest payments, if any, are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
4
<PAGE>
Nonperforming Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. The
Bank has no loans categorized as troubled debt restructurings within the meaning
of the Statement of Financial Accounting Standards ("SFAS") 15 and no impaired
loans within the meaning of SFAS 114, as amended by SFAS 118. Interest income
that would have been recorded on loans accounted for on a nonaccrual basis under
the original terms of such loans was not material for the year ended December
31, 1999.
At December 31,
----------------------
1999 1998
---- ----
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Real estate loans:
One- to -four family ............................. $100 $ 67
Commercial ....................................... 4 4
Consumer ........................................... 13 6
---- ----
Total non-accrual loans ............................ 117 77
---- ----
Accruing loans which are contractually past
due 90 days or more:
Real estate loans:
One- to -four family ............................. 29 36
Commercial ....................................... -- --
Home equity ...................................... -- --
Consumer ........................................... 3 2
---- ----
Total accrual loans ................................ 32 38
---- ----
Total non-performing loans ......................... 149 115
---- ----
Real estate owned .................................. -- --
---- ----
Total non-performing assets ........................ $149 $115
==== ====
Total non-performing loans to total loans .......... .95% .82%
==== ====
Total non-performing loans to total assets ......... .31% .24%
==== ====
Total non-performing assets to total assets ........ .31% .24%
==== ====
Classified Assets. The OTS regulations provide for a classification
system for problem assets of savings associations which covers all problem
assets. Under this classification system, problem assets of savings institutions
such as the Bank's are classified as "substandard," "doubtful," or "loss." An
asset is considered substandard if it is inadequately protected by the current
net worth and paying capacity of the borrower or of the collateral pledged, if
any. Substandard assets include those characterized by the "distinct
possibility" that the savings institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as doubtful have all of the
weaknesses inherent in those classified substandard, with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
may be designated "special mention" because of potential weaknesses that do not
currently warrant classification in one of the aforementioned categories.
5
<PAGE>
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. A savings association's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which may order the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included in determining a savings association's regulatory capital. Specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.
The following table sets forth the Registrant's classified assets in
accordance with its classification system.
At December 31, 1999
--------------------
(Dollars in thousands)
Special Mention .................................. $ --
Substandard ...................................... 155
Doubtful assets .................................. --
Loss assets ...................................... --
----
$155
====
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in the Bank's loan portfolio. The evaluation, including a review of all loans on
which full collectibility of interest and principal may not be reasonably
assured, considers: (i) the Registrant's past loan loss experience, (ii) known
and inherent risks in the Registrant's portfolio, (iii) adverse situations that
may affect the borrower's ability to repay, (iv) the estimated value of any
underlying collateral, and (v) current economic conditions.
The Registrant monitors its allowance for loan losses and makes
additions to the allowance as economic conditions dictate. Although the
Registrant maintains its allowance for loan losses at a level that the
Registrant considers adequate for the inherent risk of loss in the Registrant's
loan portfolio, future losses could exceed estimated amounts and additional
provisions for loan losses could be required. In addition, the Registrant's
determination of the amount of the allowance for loan losses is subject to
review by the OTS, as part of its examination process. After a review of the
information available, the OTS might require the establishment of an additional
allowance. Any increase in the loan loss allowance required by the OTS could
have a negative impact on the Registrant's earnings.
6
<PAGE>
The following table sets forth information with respect to the
Registrant's allowance for loan losses at the dates and for the periods
indicated:
For the Years Ended
--------------------------
December 31,
--------------------------
1999 1998
---- ----
(Dollars in thousands)
Total loans outstanding ......................... $15,655 $ 14,005
======= ========
Average loans outstanding ....................... 14,472 $ 13,391
======= ========
Allowance balance at beginning of
period .......................................... $ 128 $ 110
Provision ....................................... 10 22
Charge-offs:
Real estate ................................... -- --
Consumer ...................................... -- (4)
Recoveries:
Real estate ................................... -- --
Consumer ...................................... -- --
------- --------
Allowance balance at end of period .............. $ 138 $ 128
======= ========
Allowance for loan losses as a percent
of total loans outstanding .................... .88% .91%
======= ========
Net loans charged off as a percent
of average loans outstanding .................. --% .03%
======= ========
Return on Equity and Assets Ratio
At Or For The Years
Ended December 31,
--------------------------
1999 1998
-------- --------
Equity to Asset Ratio ................. 18.22% 20.37%
Return on Average Equity .............. .97 1.31
Return on Average Assets .............. .19 .25
Dividend Payout Ratio ................. 37.08 --
7
<PAGE>
Analysis of the Allowance for Loan Losses
The following table illustrates the allocation of the allowance for
loan losses for each category of loan. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the Registrant's use of the allowance to absorb losses in
other loan categories.
At December 31,
-------------------------------------------------
1999 1998
------------------------- -----------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
One-to -four family .... $ 76 60.15% $ 75 58.56%
Home equity ............ 31 28.77 28 27.20
Commercial ............. 6 7.75 6 11.06
Consumer ............... 25 3.33 19 3.18
---- ------ ---- ------
Total .................. $138 100.00% $128 100.00%
==== ====== ==== ======
Investment Activities
The Registrant is required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short-term
securities and certain other investments. The level of liquid assets varies
depending upon several factors, including: (i) the yields on investment
alternatives, (ii) management's judgment as to the attractiveness of the yields
then available in relation to other opportunities, (iii) expectation of future
yield levels, and (iv) management's projections as to the short-term demand for
funds to be used in loan origination and other activities. Investment
securities, including mortgage-backed securities, are classified at the time of
purchase, based upon management's intentions and abilities, as securities held
to maturity or securities available for sale. Debt securities acquired with the
intent and ability to hold to maturity are classified as held to maturity and
are stated at cost and adjusted for amortization of premium and accretion of
discount, which are computed using the level yield method and recognized as
adjustments of interest income. All other debt securities are classified as
available for sale to serve principally as a source of liquidity.
Current regulatory and accounting guidelines regarding investment
securities (including mortgage backed securities) require the Registrant to
categorize securities as "held to maturity," "available for sale" or "trading."
As of December 31, 1999, Registrant had securities (including mortgage-backed
securities) classified as "held to maturity" and "available for sale" in the
amount of $20,267,000 and $4,735,000, respectively and had no securities
classified as "trading." Securities classified as "available for sale" are
reported for financial reporting purposes at the fair market value with net
changes in the market value from period to period included as a separate
component of stockholders' equity, net of income taxes. Changes in the market
value of securities available for sale do not affect the Company's income. In
addition, changes in the market value of securities available for sale do not
affect the Bank's regulatory capital requirements or its loan-to-one borrower
limit.
8
<PAGE>
At December 31, 1999, the Registrant's investment portfolio policy
allowed investments in instruments such as: (i) U.S. Treasury obligations, (ii)
U.S. federal agency or federally sponsored agency obligations, (iii) local
municipal obligations, (iv) mortgage-backed securities, (v) banker's
acceptances, (vi) certificates of deposit, and (vii) investment grade corporate
bonds, and commercial paper. The board of directors may authorize additional
investments.
As a source of liquidity and to supplement Registrant's lending
activities, the Registrant has invested in residential mortgage-backed
securities. Mortgage-backed securities can serve as collateral for borrowings
and, through repayments, as a source of liquidity. Mortgage-backed securities
represent a participation interest in a pool of single-family or other type of
mortgages. Principal and interest payments are passed from the mortgage
originators, through intermediaries (generally quasi-governmental agencies) that
pool and repackage the participation interests in the form of securities, to
investors, like us. The quasi-governmental agencies guarantee the payment of
principal and interest to investors and include the Federal Home Loan Mortgage
Corporation ("FHLMC"), Government National Mortgage Association ("GNMA"), and
Federal National Mortgage Association ("FNMA").
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
Mortgage-backed securities issued by FHLMC, GNMA, and FNMA make up a majority of
the pass-through certificates market.
Securities Portfolio. The following table sets forth the carrying value
of the Registrant's investment portfolio, at the dates indicated.
At December 31,
----------------------
1999 1998
------------ ---------
(Dollars in thousands)
Securities held to maturity:
U.S. government agencies ............................ $ 8,808 $ 2,581
Obligations of state and political subdivisions ..... 1,183 1,807
Mortgage-backed securities .......................... 10,277 10,470
------- -------
Total securities held to maturity ................ 20,268 14,858
------- -------
Securities available for sale:
U.S. government agencies ............................ 484 --
Mutual funds ........................................ 1,762 1,043
FHLMC common stock .................................. 714 1,031
Mortgage-backed securities .......................... 1,775 2,236
------- -------
Total securities available for sale .............. 4,735 4,310
------- -------
Total investment and mortgage-backed securities ... $25,003 $19,168
======= =======
9
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for the Registrant's securities portfolio at December 31, 1999 by
contractual maturity. The following table does not take into consideration the
effects of scheduled repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------------------------------------------------------------------------
Total
One to Five to More than Investment Securities and
One Year or Less Five Years Ten Years Ten Years Mortgage-Backed Securities
---------------- ---------------- ---------------- ---------------- --------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- ----- ------ ------- -------- ------- -------- ------- -------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government
agencies........ $ 500 5.09% $ 500 6.00% $2,700 6.52% $ 5,592 7.03% $9,292 6.72% $ 8,738
Obligations
of state and
political
subdivisions.... 200 7.50 138 9.13 175 5.00 670 6.40 1,183 6.69 1,192
Mortgage-
backed
securities...... 1,762 5.79 -- -- -- -- -- -- 1,762 5.79 1,762
Mutual funds...... 198 5.55 631 6.53 712 6.41 10,511 6.60 12,052 6.56 11,754
FHLMC common
stock(1)........ 714 -- -- -- -- -- -- -- 714 -- 714
------ ------ ------ ------- ------- -------
Total........... $3,374 5.77% $1,269 6.60% $3,587 6.42% $16,773 6.74% $25,003 6.57% $24,160
====== ==== ===== ==== ===== ==== ====== ==== ====== ==== ======
</TABLE>
- --------------
(1) The cost of the FHLMC common stock is $14,550 resulting in an effective
yield of 64.74%.
10
<PAGE>
Sources of Funds
Deposits are the Registrant's major external source of funds for
lending and other investment purposes. Funds are also derived from the receipt
of payments on loans and prepayment of loans and maturities of investment and
mortgage-backed securities and, to a much lesser extent, borrowings and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within the Registrant's primary market area through the offering of a
selection of deposit instruments including regular savings accounts, money
market accounts, and term certificate accounts. IRA accounts are also offered.
Deposit account terms vary according to the minimum balance required, the time
period the funds must remain on deposit, and the interest rate. The interest
rates paid by us on deposits are set weekly at the direction of the Registrant's
senior management. Interest rates are determined based on the Registrant's
liquidity requirements, interest rates paid by the Registrant's competitors, and
the Registrant's growth goals and applicable regulatory restrictions and
requirements. At December 31, 1999, the Bank had no brokered deposits.
The following table indicates the amount of the Registrant's
certificates of deposit of $100,000 or more by time remaining until maturity as
of December 31, 1999.
Certificates
Maturity Period of Deposits
--------------- -----------
(In thousands)
Within three months ..................... $ 622
Three through six months ................ 327
Six through twelve months ............... 1,715
Over twelve months ...................... --
------
$2,664
======
Borrowings. Advances (borrowing) may be obtained from the FHLB of
Pittsburgh to supplement the Registrant' s supply of lendable funds. Advances
from the FHLB of Pittsburgh are typically secured by a pledge of the
Registrant's stock in the FHLB of Pittsburgh, a portion of the Registrant's
first mortgage loans and other assets. Each FHLB credit program has its own
interest rate, which may be fixed or adjustable, and range of maturities. The
Registrant may borrow up to $26.0 million from the FHLB of Pittsburgh. If the
need arises, the Registrant may also access the Federal Reserve Bank discount
window to supplement the Registrant's supply of lendable funds and to meet
deposit withdrawal requirements. At December 31, 1999, the Registrant had no
borrowings from the FHLB of Pittsburgh.
Personnel
At December 31, 1999 the Registrant had 14 full-time and 3 part-time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Registrant believes that its relationship with its
employees is good.
11
<PAGE>
Regulation
Set forth below is a brief description of certain laws which related to
the regulation of the Company and the Bank. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Recent Regulation
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "Act") which will, effective March 11, 2000, permit
qualifying bank holding companies to become financial holding companies and
thereby affiliate with securities firms and insurance companies and engage in
other activities that are financial in nature. The Act defines "financial in
nature" to include securities underwriting, dealing and market making;
sponsoring mutual funds and investment companies; insurance underwriting and
agency; merchant banking activities; and activities that the Board has
determined to be closely related to banking. A qualifying national bank also may
engage, subject to limitations on investment, in activities that are financial
in nature, other than insurance underwriting, insurance company portfolio
investment, real estate development, and real estate investment, through a
financial subsidiary of the bank.
The Act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or from affiliating with an nonfinancial
entity. As a grandfathered unitary thrift holding company, the Company will
retain its authority to engage in nonfinancial activities. However, the
Gramm-Leach-Bliley Act will have few direct effects on the operations or powers
of federal savings associations or of savings and loan holding companies.
The Gramm-Leach-Bliley Act imposes significant new financial privacy
obligations and reporting requirements on all financial institutions, including
federal savings associations. Specifically, the statute, among other things,
will require financial institutions (a) to establish privacy policies and
disclose them to customers both at the commencement of a customer relationship
and on an annual basis and (b) to permit customers to opt out of a financial
institution's disclosure of financial information to nonaffiliated third
parties. The Gramm-Leach-Bliley Act requires the federal financial regulators to
promulgate regulations implementing these provisions within six months of
enactment, and the statute's privacy requirements will take effect one year
after enactment.
Regulation of the Company
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions, provided the Bank satisfies the Qualified
Thrift Lender ("QTL") test. The Act terminated the "unitary thrift holding
company exemption" for all companies that applied to acquire savings
associations after May 4, 1999. Since the Company is grandfathered under this
provision of the Act, its unitary holding company powers and authorities were
not affected. However, if the Company were to acquire control of
12
<PAGE>
an additional savings association, its business activities would be subject to
restriction under the Home Owners' Loan Act. Furthermore, if the Company were in
the future to sell control of the Bank to any other company, such company would
not succeed to the Company's grandfathered status under the Act and would be
subject to the same business activity restrictions. See "- Regulation of the
Bank - Qualified Thrift Lender Test."
Regulation of the Bank
General. Set forth below is a brief description of certain laws that
relate to the regulation of the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes.
Insurance of Deposit Accounts. The deposit accounts held by the Bank
are insured by the SAIF to a maximum of $100,000 for each insured member (as
defined by law and regulation). Insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.
The Bank is required to pay insurance premiums based on a percentage of
its insured deposits to the FDIC for insurance of its deposits by the SAIF. The
FDIC also maintains another insurance fund, the Bank Insurance Fund ("BIF"),
which primarily insures commercial bank deposits. The FDIC has set the deposit
insurance assessment rates for SAIF-member institutions for the first six months
of 2000 at 0% to .027% of insured deposits on an annualized basis, with the
assessment rate for most savings institutions set at 0%.
In addition, all FDIC-insured institutions are required to pay
assessments to the FDIC at an annual rate of approximately .0212% of insured
deposits to fund interest payments on bonds issued by the Financing Corporation
("FICO"), an agency of the Federal government established to recapitalize the
predecessor to the SAIF. These assessments will continue until the FICO bonds
mature in 2017.
13
<PAGE>
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted assets, and (3) a risk-based capital requirement
equal to 8.0% of total risk-weighted assets.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including cash dividends.
A savings association that is a subsidiary of a savings and loan
holding company, such as the Bank must file an application or a notice with the
OTS at least 30 days before making a capital distribution. Savings associations
are not required to file an application for permission to make a capital
distribution and need only file a notice if the following conditions are met:
(1) they are eligible for expedited treatment under OTS regulations, (2) they
would remain adequately capitalized after the distribution, (3) the annual
amount of capital distribution does not exceed net income for that year to date
added to retained net income for the two preceding years, and (4) the capital
distribution would not violate any agreements between the OTS and the savings
association or any OTS regulations. Any other situation would require an
application to the OTS.
The OTS may disapprove an application or notice if the proposed capital
distribution would: (i) make the savings association undercapitalized,
significantly undercapitalized, or critically undercapitalized; (ii) raise
safety or soundness concerns; or (iii) violate a statue, regulation, or
agreement with the OTS (or with the FDIC), or a condition imposed in an
OTS-approved application or notice. Further, a federal savings association, like
the Bank, cannot distribute regulatory capital that is needed for its
liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet one of two
Qualified Thrift Lender ("QTL") tests. To qualify as a QTL, a savings
institution must either (i) be deemed a "domestic building and loan association"
under the Internal Revenue Code by maintaining at least 60% of its total assets
in specified types of assets, including cash, certain government securities,
loans secured by and other assets related to residential real property,
educational loans and investments in premises of the institution or (ii) satisfy
the statutory QTL test set forth in the Home Owner's Loan Act by maintaining at
least 65% of its "portfolio assets" in certain"Qualified Thrift Investments"
(defined to include residential mortgages and related equity investments,
certain mortgage-related securities, small business loans, student loans and
credit card loans, and 50% of certain community development loans). For purposes
of the statutory QTL test, portfolio assets are defined as total assets minus
intangible assets, property used by the institution in conducting its business,
and liquid assets equal to 10% of total assets. A savings institution must
maintain its status as a QTL on a monthly basis in at least nine out of every 12
months. A failure to qualify as a QTL results in a number of sanctions,
including the imposition of certain operating restrictions and a restriction on
obtaining additional advances from its FHLB. At December 31, 1999, the Bank was
in compliance with its QTL requirement, with 73.8% of its assets invested in
Qualified Thrift Investments.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB.
14
<PAGE>
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year.
Liquidity Requirements. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At December 31, 1999, the Bank's required
liquid asset ratio was 65.6%.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve Board may be
used to satisfy the liquidity requirements that are imposed by the OTS. At
December 31, 1999, the Bank was in compliance with these Federal Reserve Board
requirements.
Item 2. Description of Property
- -------------------------------
(a) The Registrant owns its main office and branch office located in Pittsburgh,
Pennsylvania. The main office is located at 900 Saxonburg Boulevard and the
branch office is located at 5200 Butler Street. In addition, the Registrant owns
property at 920 and 922 Saxonburg Boulevard.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the
Registrant's investment policies and any regulatory or Board of Directors'
percentage of assets limitations regarding certain investments. The Registrant's
investments are primarily acquired to produce income, and to a lesser extent,
possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Business - Lending Activities and - Regulation of the Bank," and "Item 2.
Description of Property."
(2) Investments in Real Estate Mortgages. See "Item 1. Business -
Lending Activities and - Regulation of the Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities
and - Regulation of the Bank."
(c) Description of Real Estate and Operating Data.
Not applicable.
Item 3. Legal Proceedings
- -------------------------
There are various claims and lawsuits in which Registrant is
periodically involved, such as claims to enforce liens, condemnation proceedings
on properties in which Registrant holds security interests, claims involving the
making and servicing of real property loans, and other issues incident to
Registrant's business. In the opinion of management, no material loss is
expected from any of such pending claims or lawsuits.
15
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matter was submitted to a vote of security holders during the forth
quarter of the fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The information contained under the section captioned "Stock Market
Information" of the Company's Annual Report to stockholders for the fiscal year
ended December 31, 1999 (the "Annual Report") is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The Registrant's financial statements listed under Item 13 are
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants On Accounting and
- --------------------------------------------------------------------------
Financial Disclosure.
---------------------
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons:
- --------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
The information required under this item is incorporated herein by
reference to the Proxy Statement for the 2000 Annual Meeting (the "Proxy
Statement") contained under the sections captioned "Section 16(a) Beneficial
Ownership Reporting Compliance," "Proposal I - Election of Directors," and "-
Biographical Information."
Item 10. Executive Compensation
- --------------------------------
The information required by this item is incorporated by reference to
the Proxy Statement contained under the section captioned "Director and
Executive Officer Compensation."
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
(b) Security Ownership of Management
The information required by items (a) and (b) is incorporated
herein by reference to the Proxy Statement contained under the
sections captioned "Principal Holders" and "Proposal I -
Election of Directors."
16
<PAGE>
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the Company.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" in the Proxy Statement.
PART IV
Item 13. Exhibits, List, and Reports on Form 8-K
- ------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as part of
this report.
(1) The consolidated balance sheets of SFSB Holding Company and subsidiary
as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in stockholders' equity and cash flows
for each of the two years ended December 31, 1999, together with the
related notes and the independent auditors' report of S.R. Snodgrass,
A.C. independent certified public accountants for the year ended
December 31, 1999.
(2) Schedules omitted as they are not applicable.
(3) The following exhibits are included in this Report or incorporated
herein by reference:
<TABLE>
<CAPTION>
<S> <C>
(a) List of Exhibits:
3(i) Articles of Incorporation of SFSB Holding Company*
3(ii) Bylaws of SFSB Holding Company*
10.1 Directors Consultant and Retirement Plan.*
10.2 Supplemental Executive Retirement Plan for Barbara J. Mallen.*
10.3 Employment Agreement with Barbara J. Mallen*
10.4 SFSB Holding Company 1998 Stock Option Plan**
10.5 Stanton Federal Savings Bank Restricted Stock Plan**
13 Portions of the 1999 Annual Report to Stockholders
21 Subsidiaries of Registrant (see "Item 1 - Business")
23 Consent of S.R. Snodgrass, A.C.
27 Financial Data Schedule (electronic filing only)
</TABLE>
- ---------------------
* Incorporated by reference to an identically numbered exhibit to the
registration statement on Form SB-2 (File No. 333-40955) declared effective
by the SEC on January 14, 1998.
** Incorporated by reference to the Proxy Statement for the Special Meeting on
October 20, 1998 and filed with SEC on September 14, 1998.
(b) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 24, 2000.
SFSB Holding Company
By: /s/Barbara J. Mallen
-------------------------------------
Barbara J. Mallen
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 24, 2000.
/s/Timothy R. Maier /s/Barbara J. Mallen
- --------------------------------------------- -----------------------------
Timothy R. Maier Barbara J. Mallen
Chairman of the Board President
(Principal Executive Officer)
/s/Joseph E. Gallagher /s/Jerome L. Kowalewski
- --------------------------------------------- -----------------------------
Joseph E. Gallagher Jerome L. Kowalewski
Senior Vice President and Director Treasurer and Director
(Principal Financial and Accounting Officer)
/s/Mary Lois Loftus
- ---------------------------------------------
Mary Lois Loftus
Director
18
EXHIBIT 13
<PAGE>
SFSB HOLDING COMPANY
Corporate Profile
SFSB Holding Company ("SFSB"), a Pennsylvania corporation, is the
savings and loan holding company for Stanton Federal Savings Bank ("Stanton
Federal"). SFSB conducts no business of its own other than holding all of the
outstanding stock of Stanton Federal. Stanton Federal is the principal
subsidiary of SFSB.
Stanton Federal is a federally chartered stock savings bank
headquartered in Pittsburgh, Pennsylvania and conducts business through two full
service branches located in the communities of Shaler Township and
Lawrenceville, Pennsylvania. Stanton Federal offers a broad range of deposits
and loan products to individuals, families, and small businesses. Stanton
Federal is subject to examination and regulation by the Office of Thrift
Supervision and its deposits are insured by the Savings Association Insurance
Fund of the FDIC to applicable limits.
Stock Market Information
SFSB's common stock has been traded on the OTC Electronic Bulletin
Board under the trading symbol of "SFSH". The following table reflects high and
low bid quotations. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not represent actual transactions.
Dividends
Date High ($) Low ($) Declared ($)
---- -------- ------- ------------
February 26, 1998 to March 31, 1998 14.88 12.00 --
April 1, 1998 to June 30, 1998 16.00 13.00 --
July 1, 1998 to September 30, 1998 13.13 8.00 --
October 1, 1998 to December 31, 1998 12.00 8.00 --
January 1, 1999 to March 31, 1999 10.00 8.00 --
April 1, 1999 to June 30, 1999 10.00 9.25 .05
July 1, 1999 to September 30, 1999 9.50 8.50 --
October 1, 1999 to December 31, 1999 9.00 7.00 --
The number of shareholders of record of common stock as of the record
date of March 1, 1999, was approximately 365. This does not reflect the number
of persons or entities who held stock in nominee or "street" name through
various brokerage firms. At March 1, 2000, there were 658,705 shares
outstanding. SFSB's ability to pay dividends to stockholders is dependent upon
the dividends it receives from Stanton Federal. Stanton Federal may not declare
or pay a cash dividend on any of its stock if the effect would cause its
regulatory capital to be reduced below (1) the amount required for its
liquidation account established in connection with its stock conversion or the
regulatory capital requirements imposed by the Office of Thrift Supervision.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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, year 2000 issues
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.
SFSB Holding Company is a savings and loan holding company headquartered in
Pittsburgh, Pennsylvania, which provides a broad range of deposits and loan
products through its wholly owned subsidiary, Stanton Federal Savings Bank
(collectively, the "Company").
Asset/liability Management
The Company's net interest income is sensitive to changes in interest rates, as
the rates paid on interest-bearing liabilities generally change faster than the
rates earned on interest-earning assets. As a result, net interest income will
frequently decline in periods of rising interest rates and increase in periods
of decreasing interest rates.
The board of directors manages the interest rate sensitivity of the Company
through its asset and liability committee which is comprised of the board of of
directors. The board of directors meets quarterly to monitor the impact of
interest rate risk and develops strategies to manage its liquidity, shorten the
effective maturities of certain interest earning assets and increase the
effective maturities of certain liabilities, to reduce the exposure to interest
rate fluctuations. These strategies include focusing its investment activities
on short and medium-term securities, maintaining and increasing the transaction
deposit accounts, as these accounts are considered to be relatively resistant to
changes in interest rates and utilizing deposit marketing programs to adjust the
term or repricing of its liabilities.
Net Portfolio Value
The Company computes amounts by which the net present value of cash flow from
assets, liabilities and off balance sheet items ("net portfolio value" or "NPV")
would change in the event of a range of assumed changes in market interest
rates. The Interest Rate Sensitivity of Net Portfolio Value Report shows the
degree to which balance sheet line items and net portfolio value are potentially
affected by a 100 to 300 basis point (1/100th of a percentage point) upward and
downward parallel shift (shock) in the Treasury yield curve.
The following table represents the Company's NPV at December 31, 1999.
The NPV was calculated by the OTS, based upon information that the Company
provided to the OTS.
3
<PAGE>
Changes in Rates NPV Ratio%(1) Change(2)
---------------- ------------- ---------
+300 bp 9.80 -509 bp
+200 bp 11.57 -331 bp
+100 bp 13.32 -156 bp
Unchanged 14.88 --
-100 bp 16.03 125 bp
-200 bp 16.69 181 bp
-300 bp 16.92 204 bp
- --------------
(1) Calculated as the estimated NPV divided by present value of total assets.
(2) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
The calculations in the above table indicate that the Company's net portfolio
value could be adversely affected by increases in interest rates but could be
favorably affected by decreases in interest rates. Computations of prospective
effects of hypothetical interest rate changes are based on numerous assumptions,
including relative levels of market interest rates, prepayments and deposit
run-offs and should not be relied upon as indicative of actual results. Certain
shortcomings are inherent in such computations. Although certain assets and
liabilities may have similar maturity or periods of repricing they may react at
different times and in different degrees to changes in the market interest
rates. The interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while rates on other
types of assets and liabilities may lag behind changes in market interest rates.
Certain assets, such as adjustable rate mortgages, generally have features which
restrict changes in interest rates on a short term basis and over the life of
the asset. In the event of a change in interest rates, prepayments and early
withdrawal levels could deviate significantly from those assumed in making
calculations set forth above. Additionally, an increased credit risk may result
as the ability of many borrowers to service their debt may decrease in the event
of an interest rate increase.
Financial Condition
Total assets increased $1,080,000 at December 31, 1999 to $48,803,000, from
$47,723,000 at December 31, 1998. The components of the Company's assets changed
as follows.
Cash and cash equivalents decreased $4,028,000 to $5,066,000 at December 31,
1999 from $9,094,000 at December 31, 1998. Certificates of deposits with other
banks decreased $2,396,000 at December 31, 1999 to $1,056,000 at December 31,
1999 from $3,452,000 at December 31, 1998. In connection with the Company's
asset and liability management strategy, such decrease in funds were reinvested
in higher yielding investment securities. Total investment securities (
available for sale and held to maturity) increased $6,490,000 at December 31,
1999 to $12,952,000 from $6,496,000 at December 31, 1998. Management increased
its investments in U.S. Government Agency securities by $6,155,000 as compared
to its investments in such securities at December 31, 1998. The securities have
maturities that range from 5 years to 15 years and interest yields that range
from 6.00% to 8.00%, respectively. Additionally, due
4
<PAGE>
to the declining interest rate yields, proceeds received from the maturities and
prepayments of mortgage-backed securities were not reinvested into such
securities. At December 31, 1999, total mortgage-backed securities (available
for sale and held to maturity) decreased $654,000 to $12,025,000 from
$12,706,000 at December 31, 1998.
Net loans receivable increased $1,641,000 at December 31, 1999 to $15,517,000
from $13,876,000 at December 31, 1998. Due to the growth in real estate lending
during the year, one-to-four family mortgages increased $1,176,000 and home
equity loans increased $661,000. The growth in the loan portfolio primarily
reflects the economic health of the Company's market area, as well as
management's strategic approach to meeting the lending demands of its market
area. The increase in deposits were used to fund new loan originations.
Deposits increased $2,058,000 at December 31, 1999 to $39,412,000 from
$37,354,000 at December 31, 1998. This increase resulted from an increase in the
volume of savings deposits, transaction accounts, and certificates of deposit of
$789,000 $706,000, and $562,000, respectively. Such increase in deposits was the
result of management's ability to meet the competitive pricing of its market
area.
Stockholder's equity decreased $831,000 at December 31, 1999 to $8,890,000 at
December 31, 1999 from $9,721,000 at December 31, 1998 as a result of the
Company's purchase of 67,300 shares of treasury stock totaling $670,000 and the
paying of a cash dividend to shareholders of $34,000. As a result of the decline
in the market values of the Company's investment in available for sale
securities, accumulated other comprehensive income decreased $300,000. 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 partially by the amortization of
employee stock ownership plan ("ESOP") and the restricted stock plan ("RSP")
totaling $82,000.
The decrease in market value of the investment securities available for sale is
considered temporary in nature and will not affect the Company's net income
unless the securities are sold. The Company plans to hold these securities until
maturity or until the market values of these securities increase. Accordingly,
the Company does not expect, though there is no assurance, that their investment
in these securities will affect net income in future periods.
Analysis of Net Interest Income
The Company's results of operations are primarily dependent on its net interest
income, which is the difference between the interest income earned on assets,
primarily loans and investments, and the interest expense on liabilities,
primarily deposits and borrowings. Net interest income may be affected
significantly by general economic and competitive conditions and policies of
regulatory agencies, particularly those with respect to market interest rates.
The results of operations are also influenced by the level of non-interest
expenses, such as employee salaries and benefits and other income, such as
loan-related fees and fees on deposit-related services.
5
<PAGE>
Results of Operations
For the year ended December 31, 1999, net income decreased $21,000 to $91,000
from $112,000 for the comparable 1998 fiscal year. Pretax income remained
relatively unchanged to $91,000 for fiscal 1999 from $95,000 for fiscal 1998.
Net interest income before the provision for loan losses increased $149,000 to
$1,522,000 for the year ended December 31, 1999 from $1,373,000 for the
comparable 1998 fiscal year. Such increase was primarily the result of
management strategy of increasing yields on interest-earning assets through a
substantial investment in U.S. Government Agency securities, increasing average
interest yields on such investments 21 basis points to 6.74% for fiscal 1999
from 6.51% for fiscal 1998. Such strategy increased interest rate spread 13
basis points to 2.53% for fiscal 1999 from 2.40% for fiscal 1998. Also,
contributing to the increase in the interest rate spread was a 24 basis points
decrease in cost of funds to 4.21% for 1999 from 4.45% for 1998.
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from daily balances. Yields on tax
exempt obligations were computed on a tax exempt basis of 34%.
6
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------------
(Dollars in thousands)
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)......................... $14,472 $1,154 7.97% $13,391 $1,103 8.24%
Mortgage-backed securities.................. 12,030 795 6.61% 11,184 760 6.80%
Investment securities....................... 11,208 721 6.72% 6,705 394 6.51%
Other interest-earning assets............... 7,599 352 4.63% 11,877 656 5.52%
------ ----- ---- ------ ----- ----
Total interest-earning assets.............. 45,309 3,022 6.74% 43,157 2,913 6.85%
----- -----
Non-interest-earning assets.................. 3,298 2,468
----- ------
Total assets............................... $48,607 $45,625
====== ======
Interest-bearing liabilities:
Interest-bearing demand deposits............ $3,502 77 2.20% $3,384 73 2.16%
Certificates of deposit..................... 21,848 1,115 5.10% 21,757 1,179 5.42%
Savings deposits............................ 10,294 308 2.99% 9,468 288 3.04%
------ ----- ---- ------ ----- ----
Total interest-bearing liabilities......... 35,644 1,500 4.21% 34,609 1,540 4.45%
------ ----- ------ -----
Non-interest bearing liabilities............. 3,600 2,480
----- ------
Total liabilities........................... 39,244 37,089
------ ------
Stockholders' equity......................... 9,363 8,536
----- ------
Total liabilities and stockholders' equity.. $48,607 $45,625
====== ======
Net interest income.......................... $1,522 $ 1,373
===== ======
Interest rate spread(2)...................... 2.53% 2.40%
Net yield on interest-earning assets(3)...... 3.36% 3.18%
Ratio of average interest-earning assets to
average interest-bearing liabilities....... 127.11% 124.70%
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the cost of interest-bearing liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
The following table sets forth certain information regarding changes in the
Company's interest income and interest expense for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume). Increases and decreases due
to both rate and volume, which cannot be separated, have been allocated
proportionally to the change due to volume and the change due to rate.
7
<PAGE>
Year Ended December 31,
-----------------------------
1999 vs. 1998
-----------------------------
Increase (Decrease)
Due to
------------------------------
Volume Rate Net
-------- --------- -------
(In Thousands)
Interest income:
Loans receivable ........................... $ 89 $ (38) $ 51
Mortgage-backed securities ................. 57 (22) 35
Investment securities ...................... 265 62 327
Other interest-earning assets .............. (236) (68) (304)
----- ----- -----
Total interest-earning assets ............ $ 175 $ (66) $ 109
----- ----- -----
Interest expense:
Interest-bearing demand deposits .......... $ 3 $ 1 $ 4
Certificates of deposit ................... 5 (69) (64)
Savings deposits .......................... 25 (5) 20
----- ----- -----
Total interest-bearing liabilities ....... $ 33 $ (73) $ (40)
----- ----- -----
Change in net interest income .............. $ 142 $ 7 $ 149
===== ===== =====
Provision for loan losses decreased $12,000 for the year ended December 31, 1999
to $10,000 from $22,000 for the comparable 1998 fiscal year. Though the
Company's net loan portfolio increased $1,641,000 at December 31, 1999 as
compared to fiscal 1998, the Company's non-performing loans were less than 1% of
total loans. Management continually evaluates 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 which may come to the
attention of management. Although the Company maintains its allowance for loan
losses at a level that it considers to be adequate to provide for the inherent
risk of loss in its loan portfolio, there can be no assurance that future losses
will not exceed estimated amounts or that additional provisions for loan losses
will not be required in future periods.
Total noninterest income, which is comprised principally of service charges on
deposit accounts and investment securities gains, net decreased $34,000 to
$204,000 for the year ended December 31, 1999 from $238,000 for the comparable
1998 fiscal year. In 1998, the Company recognized a gain of $102,000 on the sale
of FHLMC stock. For the year ended December 31, 1999, investment securities
gains, net decreased $54,000. Offsetting the decrease in investment securities
gains, net was 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 $132,000 to $1,626,000 for the year ended December
31, 1999 from $1,494,000 for the comparable 1998 fiscal year. The increase was
primarily due to increases in compensation and benefits expense and data
processing expense. Compensation and benefits increased $95,000 to $838,000 for
fiscal 1999 from $743,000 for fiscal 1998 as a result of annual increases in
salaries, the hiring of more experienced personnel and increased pension costs.
Data processing expenses increased $36,000 to $228,000 for fiscal1999 from
$192,000 for fiscal 1998 due to an increase in the volume of processing and
number of accounts.
8
<PAGE>
For the year ended December 31, 1999, the Company recognized no income tax
provision or benefit due to the reversal of certain valuation allowances on
deferred tax assets. See Note 11 to the Consolidated Financial Statements.
Year 2000
The Company relies on computers to conduct its business and information systems
processing. Industry experts were concerned that on January 1, 2000, some
computers might not be able to interpret the new year properly, causing computer
malfunctions. Some banking experts remain concerned that some computers may not
be able to interpret additional dates in the year 2000 properly. The Company has
operated and evaluated its computer operating systems following January 1, 2000
and has not identified any errors or experienced any computer system
malfunctions. Nevertheless, the Company continues to monitor its information
systems to assess whether its systems are at risk of misinterpreting any future
dates and will develop, if needed, appropriate contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problems experienced by its vendors or its customers.
It is too soon to conclude that there will not be any problems arising from the
Year 2000 problem. The Company will continue to monitor its significant vendors
of goods and services and customers with respect to any Year 2000 problems they
may encounter, as those issues may effect its ability to continue operations, or
might adversely affect the company's financial position, results of operations
and cash flows. At this time, the Company does not believe that these potential
problems will materially impact the ability to continue operations. However, any
delays, mistakes, or failures could have a significant impact on the Company's
financial condition and profitability.
Liquidity and Capital Resources
The Company's primary sources of funds includes savings, deposits, loan
repayments and prepayments, cash flow from operations and borrowing from the
Federal Home Loan Bank. The Company uses its capital resources principally to
fund loan origination and purchases, repay maturing borrowings, purchase
investments, and for short-term liquidity needs. The Company expects to be able
to fund or refinance, on a timely basis, its commitments and long-term
liabilities. As of December 31, 1999, the Company had commitments to extend
credit of $1.1 million.
The Company's liquid assets consist of cash and cash equivalents, which include
investments in short-term investments. The level of these assets are dependent
on the Company's operating financing and investment activities during any given
period. At December 31, 1999, cash and cash equivalents total $5.1 million.
Net cash provided by operating activities (the cash effects of transactions that
enter into the determination of net income -- e.g., non-cash items, amortization
and depreciation, investment securities, loss (gain ) on sale of securities
available for sale and provision for loan losses) for the year ended December
31, 1999 was $158,000, a decrease of $363,000 from December 31, 1998. Net cash
provided by operating activities in1998 reflected the reduction of prepaid
conversion expenses which were netted against the proceeds from the initial
public offering. There was no prepaid conversion expenses in fiscal 1999.
9
<PAGE>
Net cash used for investing activities (i.e., cash receipts, primarily from
investment securities and mortgage-backed securities portfolios,certificates of
deposits in other banks, and the loan portfolio) for the year ended December 31,
1999 totaled $5.5 million, an increase of $1.6 million from December 31, 1998.
This increase was primarily attributable to cash used of $4,203,000 to fund
total net investments securities and mortgage-backed securities, offset
partially by a decrease in certificates of deposit in other banks of $2,810,000.
Net cash provided by financing activities (i.e., cash receipts primarily from
net increases in deposits) for the year ended December 31, 1999 totaled
$1,360,000, a decrease of $6,091,000 from December 31, 1998. For 1999, cash
provided by financing activities reflected an increase in deposits of $2,
057,000, offset by cash used to purchase $670,000 of treasury shares and
dividends paid of $34,000. For 1998, cash provided by financing activities
reflected an increase of deposits of $1,550,000, $6,835,000 of cash proceeds
from the initial public offering, offset by common stock acquired by the ESOP
and RSP of $931,000.
Liquidity may be adversely affected by unexpected deposit outflows, excessive
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable, based in part on
the Company's commitment to make loans and management's assessment of the
Company's ability to generate funds. The Company is also subject to federal
regulations that impose certain minimum capital requirements.
10
<PAGE>
SNODGRASS
Certified Public Accountants and Consultants
[LOGO] REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors and Stockholders
SFSB Holding Company
We have audited the accompanying consolidated balance sheet of SFSB Holding
Company and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SFSB Holding Company
and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
Wexford, PA
February 11, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
S.R. Snodgrass, A.C.
1000 Stonewood Drive, Suite 200 Wexford, PA 15090-8399 Phone: 724-934-344 Facsimile: 724-934-0345
</TABLE>
11
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 908,791 $ 488,759
Interest-bearing deposits in other banks 4,156,884 8,605,494
----------------- -----------------
Cash and cash equivalents 5,065,675 9,094,253
Certificates of deposit in other banks 1,056,306 3,451,675
Investment securities available for sale 2,960,757 2,073,921
Investment securities held to maturity (market
value of $9,446,780 and $4,471,370) 9,990,854 4,387,648
Mortgage-backed securities available for sale 1,774,691 2,235,852
Mortgage-backed securities held to maturity (market
value of $9,979,691 and $10,617,900) 10,277,109 10,470,280
Loans receivable (net of allowance for loan losses
of $138,193 and $128,193) 15,516,919 13,876,438
Accrued interest receivable 412,178 307,819
Premises and equipment 1,444,866 1,552,612
Federal Home Loan Bank stock 245,600 218,100
Other assets 58,531 54,288
----------------- -----------------
TOTAL ASSETS $ 48,803,486 $ 47,722,886
================= =================
LIABILITIES
Deposits $ 39,411,665 $ 37,354,170
Advances by borrowers for taxes and insurance 112,058 106,651
Accrued interest payable and other liabilities 388,937 540,947
----------------- -----------------
TOTAL LIABILITIES 39,912,660 38,001,768
----------------- -----------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 1,000,000 shares
authorized; none issued and outstanding - -
Common stock, par value $.10 per share; 4,000,000
shares authorized; 726,005 issued 72,600 72,600
Additional paid-in capital 6,695,656 6,701,193
Retained earnings - substantially restricted 3,180,278 3,123,127
Accumulated other comprehensive income 308,907 608,832
Unallocated shares held by Employee Stock
Ownership Plan (ESOP) (464,640) (522,720)
Unallocated shares held by Restricted Stock Plan (RSP) (232,413) (261,914)
Treasury stock (67,300 at cost) (669,562) -
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 8,890,826 9,721,118
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,803,486 $ 47,722,886
================= =================
</TABLE>
See accompanying notes to the consolidated financial statements.
12
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
INTEREST INCOME
Loans receivable $ 1,153,958 $ 1,102,568
Interest-bearing deposits in other banks 352,101 655,805
Investment securities
Taxable 658,843 312,586
Exempt from federal income tax 62,619 81,663
Mortgage-backed securities 795,148 760,390
----------------- -----------------
Total interest income 3,022,669 2,913,012
----------------- -----------------
INTEREST EXPENSE
Deposits 1,500,349 1,539,894
----------------- -----------------
NET INTEREST INCOME 1,522,320 1,373,118
Provision for loan losses 10,000 21,748
----------------- -----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,512,320 1,351,370
----------------- -----------------
NONINTEREST INCOME
Service fees on deposit accounts 127,900 108,571
Investment securities gains, net 47,810 101,612
Other 28,530 27,954
----------------- -----------------
Total noninterest income 204,240 238,137
----------------- -----------------
NONINTEREST EXPENSE
Compensation and employee benefits 838,006 743,222
Occupancy and equipment 225,631 231,035
Federal insurance premium 23,203 22,294
Data processing 227,553 191,770
Professional services 88,436 87,137
Other 222,894 218,605
----------------- -----------------
Total noninterest expense 1,625,723 1,494,063
----------------- -----------------
Income before income taxes 90,837 95,444
Income tax benefit - (16,615)
----------------- -----------------
NET INCOME $ 90,837 $ 112,059
================= =================
EARNINGS PER SHARE:
(Since inception February 26, 1998)
Basic $ 0.15 $ 0.18
Diluted $ 0.15 $ 0.18
</TABLE>
See accompanying notes to the consolidated financial statements.
13
<PAGE>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumu-
lated Unallo- Unallo-
Other cated cated
Additional Compre- Shares Shares Total
Common Paid-in Retained hensive Held by Held by Treasury Stockholders' Comprehensive
Stock Capital Earnings Income ESOP RSP Stock Equity Income (Loss)
-------- ---------- --------- --------- -------- -------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 $ - $ - $3,011,068 438,703 $ - $ - $ - $3,449,771
Net income 112,059 112,059 $ 112,059
Other comprehensive
income:
Unrealized gain
on available
for sale
securities,
net of
reclassification
adjustment,net 170,129 170,129 170,129
of taxes $87,642
----------
Comprehensive income $ 282,188
==========
Common stock issued 72,600 6,762,326 6,834,926
Common stock
acquired by ESOP (580,800) (580,800)
ESOP shares released 19,965 58,080 78,045
Common stock
acquired by RSP (81,098) (268,620) (349,718)
RSP shares released 6,706 6,706
------- ---------- ---------- -------- --------- --------- --------- ----------
Balance,
December 31, 1998 72,600 6,701,193 3,123,127 608,832 (522,720) (261,914) - 9,721,118
Net income 90,837 90,837 $ 90,837
Other comprehensive
loss:
Unrealized loss
on available
for sale
securities,
net of
reclassification
adjustment,
net of tax
benefit of $154,507 (299,925) (299,925) (299,925)
---------
Comprehensive loss $(209,088)
=========
ESOP shares released (5,537) 58,080 52,543
RSP shares released 29,501 29,501
Cash dividends
($.05 per share) (33,686) (33,686)
Purchase treasury stock (669,562) (669,562)
------- ---------- ---------- -------- --------- --------- --------- ----------
Balance,
December 31, 1999 $72,600 $6,695,656 $3,180,278 $308,907 $(464,640) $(232,413)$(669,562) $8,890,826
======= ========== ========== ======== ========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
1999 1998
------------- -------------
Components of comprehensive income (loss):
<S> <C> <C>
Change in net unrealized gain (loss) on investment securities available for sale $ (268,370) $ 237,193
Realized gains included in net income,
net of taxes $16,255 and $34,548 (31,555) (67,064)
------------- -------------
Total $ (299,925) $ 170,129
============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
SFSB HOLDING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 90,837 $ 112,059
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 10,000 21,748
Depreciation 119,097 124,500
Investment securities gains, net (47,810) (101,612)
Deferred income taxes (39,149) (44,388)
Increase in accrued interest receivable (104,359) (40,648)
Amortization of ESOP and RSP unearned compensation 82,044 84,751
Other, net 47,424 364,946
----------------- -----------------
Net cash provided by operating activities 158,084 521,356
----------------- -----------------
INVESTING ACTIVITIES
Net decrease (increase) in certificates of deposit in other banks 2,395,369 (414,960)
Investment securities available for sale:
Purchases (1,850,832) (279,804)
Proceeds from sales 550,034 103,278
Maturities and repayments 7,046 3,479
Investment securities held to maturity:
Purchases (6,800,000) (2,324,125)
Maturities and repayments 1,197,911 2,478,830
Mortgage-backed securities available for sale:
Purchases - (1,522,114)
Maturities and repayments 455,796 645,188
Mortgage-backed securities held to maturity:
Purchases (2,500,100) (3,841,629)
Maturities and repayments 2,687,792 2,893,939
Net increase in loans receivable (1,650,481) (1,606,029)
Purchase of Federal Home Loan Bank stock (27,500) (46,400)
Purchase of premises and equipment, net (11,351) (14,203)
----------------- -----------------
Net cash used for investing activities (5,546,316) (3,924,550)
----------------- -----------------
FINANCING ACTIVITIES
Net increase in deposits 2,057,495 1,549,697
Net increase (decrease) in advances by borrowers
for taxes and insurance 5,407 (3,560)
Proceeds from sale of common stock - 6,834,926
Common stock aquired by ESOP - (580,800)
Common stock aquired by RSP - (349,718)
Purchase of treasury stock (669,562) -
Cash dividends paid (33,686) -
----------------- -----------------
Net cash provided by financing activities 1,359,654 7,450,545
----------------- -----------------
Increase (decrease) in cash and cash equivalents (4,028,578) 4,047,351
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,094,253 5,046,902
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,065,675 $ 9,094,253
================= =================
</TABLE>
See accompanying notes to the consolidated financial statements.
15
<PAGE>
SFSB HOLDING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying financial statements follows:
Nature of Operations and Basis of Presentation
- ----------------------------------------------
SFSB Holding Company (the "Company") is a Pennsylvania corporation and is
registered under the Bank Holding Company Act. The Company was organized to be
the holding company of Stanton Federal Savings Bank (the "Bank"). The Company's
and the Bank's principal sources of revenue emanate from interest earnings on
its investment and mortgage-backed securities, and mortgage and consumer loan
portfolios as well as a variety of deposit services provided to its customers
through two locations. The Company and the Bank are subject to regulation by the
Office of Thrift Supervision ("OTS").
The consolidated financial statements of the Company include the accounts of the
Bank. All intercompany transactions have been eliminated in consolidation. The
investment in the subsidiary on the parent company financial statements is
carried at the parent company's equity in the underlying assets of the Bank.
The accounting principles followed by the Company and the methods of applying
these principles conform with generally accepted accounting principles and with
general practice within the banking industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the balance sheet date and
related revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Investment and Mortgage-backed Securities
- -----------------------------------------
Investment and mortgage-backed securities are classified at the time of
purchase, based on management's intention and ability, as securities held to
maturity or securities available for sale. Debt securities, acquired with the
intent and ability to hold to maturity are stated at cost and adjusted for
amortization of premium and accretion of discount, which are computed using a
level yield method and are recognized as adjustments of interest income. Certain
other debt and equity securities have been classified as available for sale to
serve principally as a source of liquidity. Unrealized holding gains and losses
for available for sale securities are reported as a separate component of
stockholders' equity, net of tax, until realized. Realized securities gains and
losses are computed using the specific identification method. Interest and
dividends on investment securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank of Pittsburgh ("FHLB") represents
ownership in an institution which is wholly-owned by other financial
institutions. This equity security is accounted for at cost and reported
separately on the accompanying consolidated balance sheet.
Loans Receivable
- ----------------
Loans receivable are stated at their unpaid principal amounts net of the
allowance for loan losses. Interest on loans is recognized as income when earned
on the accrual method. Interest accrued on loans more than 90 days delinquent is
generally offset by a reserve for uncollected interest and is not recognized as
income.
16
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Receivable (Continued)
- ----------------
The accrual of interest is generally discontinued when management has serious
doubts about further collectibility of principal or interest, even though the
loan may be currently performing. A loan may remain on accrual status if it is
in the process of collection and is either guaranteed or well secured. When a
loan is placed on nonaccrual status, unpaid interest is charged against income.
Interest received on nonaccrual loans is either applied to principal or reported
as interest income according to management's judgment as to the collectibility
of principal.
Loan Origination Fees
- ---------------------
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and the net amount amortized as an adjustment of the related
loan's yield. The Company is amortizing these amounts over the contractual life
of the related loans using the interest method.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential losses in its loan portfolio. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance, and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is based on management's periodic
evaluation of individual loans, economic factors, past loan loss experience,
changes in the composition and volume of the portfolio, and other relevant
factors. The estimates used in determining the adequacy of the allowance for
loan losses, including the amounts and timing of future cash flows expected on
impaired loans, are particularly susceptible to changes in the near term.
A loan is considered impaired when it is probable that the borrower will not
repay the loan according to the original contractual terms of the loan
agreement. Management has determined that first mortgage loans on one-to-four
family properties and all consumer loans represent large groups of
smaller-balance homogeneous loans that are to be collectively evaluated.
Management considers an insignificant delay, which is defined as less than 90
days by the Company, will not cause a loan to be classified as impaired. A loan
is not impaired during a period of delay in payment if the Company expects to
collect all amounts due including interest accrued at the contractual interest
rate during the period of the delay. All loans identified as impaired are
evaluated independently by management. The Company estimates credit losses on
impaired loans based on the present value of expected cash flows or the fair
value of the underlying collateral if the loan repayment is expected to come
from the sale or operation of said collateral. Impaired loans, or portions
thereof, are charged off when it is determined that a realized loss has
occurred. Until such time, an allowance for loan losses is maintained for
estimated losses. Cash receipts on impaired loans are applied first to accrued
interest receivable, unless otherwise required by the loan terms, except when an
impaired loan is also a nonaccrual loan, in which case the portion of the
receipts related to interest is recognized as income.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using straight-line and accelerated methods over the
useful lives of the related assets. Expenditures for maintenance and repairs are
charged to operations as incurred. Costs of major additions and improvements are
capitalized.
17
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate Owned
- -----------------
Real estate owned acquired in settlement of foreclosed loans is carried at the
lower of cost or fair value minus estimated cost to sell. Valuation allowances
for estimated losses are provided when the carrying value exceeds the fair
value. Direct costs incurred on such properties are recorded as expenses of
current operations.
Income Taxes
- ------------
Deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax basis of assets and liabilities using the
enacted marginal tax rates. Deferred income tax expenses or benefits are based
on the changes in the deferred tax asset or liability from period to period.
Earnings Per Share
- ------------------
The Company provides dual presentation of basic and diluted earnings per share.
Basic earnings per share is calculated utilizing net income as reported in the
numerator and average shares outstanding in the denominator. The computation of
diluted earnings per share differs in that the dilutive effects of any stock
options, warrants, and convertible securities are adjusted in the denominator.
Earnings per share computations for 1998 are based on net income since
inception, February 26, 1998, amounting to $118,499.
Employee Benefit Plan
- ---------------------
The Bank sponsors a trusteed, defined benefit pension plan covering all eligible
employees. The Bank's funding policy is to make annual contributions, as needed,
based upon the funding formula developed by the plan's actuary.
Stock Options
- -------------
The Company maintains a stock option plan for the directors, officers, and
employees. When the exercise price of the Company's stock options is greater
than or equal to the market price of the underlying stock on the date of the
grant, no compensation expense is recognized in the Company's financial
statements. Pro forma net income and earnings per share are presented to reflect
the impact of the stock option plan assuming compensation expense had been
recognized based on the fair value of the stock options granted under the plan.
Comprehensive Income
- --------------------
The Company is required to present comprehensive income in a full set of general
purpose financial statements for all periods presented. Other comprehensive
income is comprised exclusively of unrealized holding gains (losses) on the
available for sale securities portfolio. The Company has elected to report the
effects of other comprehensive income as part of the Statement of Changes in
Stockholders' Equity.
Cash Flow Information
- ---------------------
The Company has defined cash and cash equivalents are defined as those amounts
included in the balance sheet captions, Cash and due from banks and
Interest-bearing deposits in other banks.
Cash payments for interest in 1999 and 1998 were $1,494,672 and $1,544,436,
respectively. Cash payments for income taxes amounted to $43,033 in 1999 and
$25,000 in 1998.
18
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pending Accounting Pronouncements
- ---------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended in June 1999 by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." The Statement provides accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, by requiring the recognition of those
items as assets or liabilities in the statement of financial position, recorded
at fair value. Statement No. 133 precludes a held to maturity security from
being designated as a hedged item; however, at the date of initial application
of this Statement, an entity is permitted to transfer any held to maturity
security into the available for sale or trading categories. The unrealized
holding gain or loss on such transferred securities shall be reported consistent
with the requirements of Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Such transfers do not raise an issue regarding
an entity's intent to hold other debt securities to maturity in the future. This
Statement applies prospectively for all fiscal quarters of all years beginning
after June 15, 2000. Earlier adoption is permitted for any fiscal quarter that
begins after the issue date of this Statement.
Reclassification of Comparative Amounts
- ---------------------------------------
Certain comparative account balances for the prior period have been reclassified
to conform to the current period classifications. Such reclassifications did not
affect net income or stockholders' equity.
2. EARNINGS PER SHARE
There are no convertible securities which would affect 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.
1999 1998
------------ ------------
Weighted-average common shares 726,005 726,005
outstanding
Average treasury stock shares (26,386) -
Average unearned ESOP and RSP shares (75,087) (54,692)
------------ ------------
Weighted-average common shares and
common stock equivalents used to
calculate basic earnings per share 624,532 671,313
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share - 1,068
------------ ------------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 624,532 672,381
============ ============
19
<PAGE>
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>
1999
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Government agency
securities $ 500,000 $ - $ (16,405) $ 483,595
Mutual funds 1,969,766 - (206,979) 1,762,787
Federal Home Loan Mortgage
Corporation common stock 14,550 699,825 - 714,375
----------------- ----------------- ----------------- -----------------
Total $ 2,484,316 $ 699,825 $ (223,384) $ 2,960,757
================= ================= ================= =================
Held to Maturity
U.S. Government agency
securities $ 8,807,759 $ 305 $ (553,825) $ 8,254,239
Obligations of state and
political subdivisions 1,183,095 28,001 (18,555) 1,192,541
----------------- ----------------- ----------------- -----------------
Total $ 9,990,854 $ 28,306 $ (572,380) $ 9,446,780
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
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>
20
<PAGE>
3. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investments in debt securities
at December 31, 1999, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------------ ------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 700,000 $ 703,553
Due after one year through
five years - - 638,141 640,192
Due after five years through
ten years 2,874,938 2,744,233
- -
Due after ten years 500,000 483,595 5,777,775 5,358,802
----------------- ----------------- ----------------- -----------------
Total $ 500,000 $ 483,595 $ 9,990,854 $ 9,446,780
================= ================= ================= =================
</TABLE>
Proceeds from the sales of investment securities available for sale and the
gross realized gains and losses on those sales for the years ended December 31,
are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Proceeds from sales $ 550,034 $ 103,278
Gross gains 48,892 101,612
Gross losses 1,082 -
</TABLE>
4. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market value of mortgage-backed securities
available for sale and held to maturity are summarized as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Available for Sale
Federal Home Loan
Mortgage Corporation $ 1,665,071 $ - $ (7,151) $ 1,657,920
Federal National Mortgage
Association 118,019 - (1,248) 116,771
----------------- ----------------- ----------------- -----------------
Total $ 1,783,090 $ - $ (8,399) $ 1,774,691
================= ================= ================= =================
Held to Maturity
Government National
Mortgage Association $ 6,287,211 $ 11,591 $ (253,332) $ 6,045,470
Federal Home Loan
Mortgage Corporation 1,820,501 7,166 (18,335) 1,809,332
Federal National Mortgage
Association 2,169,397 3,970 (48,478) 2,124,889
----------------- ----------------- ----------------- -----------------
Total $ 10,277,109 $ 22,727 $ (320,145) $ 9,979,691
================= ================= ================= =================
</TABLE>
21
<PAGE>
4. MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C>
Available for Sale
Federal Home Loan
Mortgage Corporation $ 1,995,717 $ - $ (6,775) $ 1,988,942
Federal National Mortgage
Association 248,829 1,008 (2,927) 246,910
----------------- ----------------- ----------------- -----------------
Total $ 2,244,546 $ 1,008 $ (9,702) $ 2,235,852
================= ================= ================= =================
Held to Maturity
Government National
Mortgage Association $ 5,320,506 $ 72,750 $ (5,768) $ 5,387,488
Federal Home Loan
Mortgage Corporation 2,366,420 41,202 (2,997) 2,404,625
Federal National Mortgage
Association 2,783,354 42,433 - 2,825,787
----------------- ----------------- ----------------- -----------------
Total $ 10,470,280 $ 156,385 $ (8,765) $ 10,617,900
================= ================= ================= =================
</TABLE>
The amortized cost and estimated market value of mortgage-backed securities at
December 31, 1999, by contractual maturity, are shown below. Mortgage-backed
securities provide for periodic payments of principal and interest. Due to
expected repayment terms being significantly less than the underlying mortgage
loan pool contractual maturities, the estimated lives of these securities could
be significantly shorter.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------------ ------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 197,884 $ 198,707
Due after one year through
five years - - 630,751 627,504
Due after five years through
ten years - - 712,370 689,935
Due after ten years 1,783,090 1,774,691 8,736,104 8,463,545
----------------- ----------------- ----------------- -----------------
Total $ 1,783,090 $ 1,774,691 $ 10,277,109 $ 9,979,691
================= ================= ================= =================
</TABLE>
22
<PAGE>
5. LOANS RECEIVABLE
Loans receivable consist of the following:
1999 1998
----------------- -----------------
Mortgage loans:
1 - 4 family $ 9,313,408 $ 8,158,295
Home equity 4,503,928 3,809,211
Multi-family 103,165 42,582
Commercial 1,212,819 1,548,899
----------------- -----------------
15,133,320 13,558,987
----------------- -----------------
Consumer loans:
Share loans 270,690 251,648
Other 251,102 193,996
----------------- -----------------
521,792 445,644
----------------- -----------------
15,655,112 14,004,631
Less:
Allowance for loan losses 138,193 128,193
----------------- -----------------
Total $ 15,516,919 $ 13,876,438
================= =================
The Company's primary business activity is with customers located within its
local trade area. Commercial, residential, and personal loans are granted.
Although the Company has a diversified loan portfolio at December 31, 1999 and
1998, the repayment of these loans is dependent upon the local economic
conditions in its immediate trade area.
Activity in the allowance for loan losses for the years ended December 31, is as
follows:
1999 1998
----------------- -----------------
Balance, January 1, $ 128,193 $ 109,951
Loans charged off - (3,506)
Recoveries - -
----------------- -----------------
Net loans charged off - (3,506)
Provision for loan losses 10,000 21,748
----------------- -----------------
Balance, December 31, $ 138,193 $ 128,193
================= =================
The Company had nonaccrual loans of $119,248 and $77,112 at December 31, 1999
and 1998, respectively, which in management's opinion did not meet the
definition of impaired. Interest income on loans would have been increased by
$2,702 and $15,564, respectively, if these loans had performed in accordance
with their original terms.
23
<PAGE>
5. LOANS RECEIVABLE (Continued)
In the normal course of business, loans are extended to directors, executive
officers, and their associates. A summary of loan activity for those directors,
executive officers, and their associates with loan aggregate balances in excess
of $60,000 for the year ended December 31, 1999 is as follows:
1998 Additions Repayments 1999
----------------- ----------------- ----------------- -----------------
$ 298,337 $ 156,600 $ 32,050 $ 422,887
6. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Interest-bearing deposits in other banks $ 39,353 $ 60,373
Investment securities 188,928 76,240
Mortgage-backed securities 90,626 84,295
Loans receivable 93,271 86,911
----------------- -----------------
Total $ 412,178 $ 307,819
================= =================
</TABLE>
7. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Land and improvements $ 422,182 $ 422,181
Buildings and improvements 1,147,671 1,142,381
Furniture and equipment 672,858 666,798
----------------- -----------------
2,242,711 2,231,360
Less accumulated depreciation 797,845 678,748
----------------- -----------------
Total $ 1,444,866 $ 1,552,612
================= =================
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998 was $119,097
and $124,500, respectively.
8. FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the FHLB System. As a member, the Bank maintains an
investment in the capital stock of the FHLB of Pittsburgh, at cost, in an amount
not less than the greater of one percent of its outstanding home loans or five
percent of its outstanding notes payable to the FHLB of Pittsburgh as calculated
at December 31 of each year.
24
<PAGE>
9. DEPOSITS
Comparative details of deposits are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- ------------------------------------
Amount % Amount %
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Noninterest-bearing $ 2,900,612 7.4 % $ 2,194,608 5.9 %
----------------- ------------------ ----------------- -----------------
Interest-bearing:
Savings 10,238,517 26.0 9,734,757 26.1
NOW checking 2,214,461 5.6 1,955,835 5.2
Money market 1,238,518 3.1 1,211,819 3.2
----------------- ------------------ ----------------- -----------------
13,691,496 34.7 12,902,411 34.5
----------------- ------------------ ----------------- -----------------
Time certificates of deposit:
4.00 - 5.99% 22,616,994 57.4 20,579,459 55.1
6.00 - 7.99% 202,563 0.5 1,677,692 4.5
----------------- ------------------ ----------------- -----------------
22,819,557 57.9 22,257,151 59.6
----------------- ------------------ ----------------- -----------------
Total $ 39,411,665 100.0 % $ 37,354,170 100.0 %
================= ================== ================= =================
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $2,663,513 and $2,581,379 at December 31, 1999 and 1998,
respectively. Deposits in excess of $100,000 are not federally insured.
The scheduled maturities of time certificates of deposit as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Within one year $ 18,807,020
Beyond one year but within three years 1,979,006
Beyond three years but within five years 1,787,661
Beyond five years 245,870
-----------------
Total $ 22,819,557
=================
</TABLE>
Interest expense by deposit category for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Savings $ 308,124 $ 288,251
NOW and money market 77,440 73,043
Time certificates of deposit 1,114,785 1,178,600
----------------- -----------------
Total $ 1,500,349 $ 1,539,894
================= =================
</TABLE>
10. BORROWING CAPACITY
The Bank has the capability to borrow funds through a credit arrangement with
the FHLB. The FHLB borrowings are subject to annual renewal, incur no service
charges, and are secured by a blanket security agreement on certain investment
and mortgage-backed securities, qualifying residential mortgages, and the Bank's
investment in FHLB stock. At December 31, 1999, the Bank's maximum borrowing
capacity with the FHLB was approximately $26 million. At December 31, 1999 and
1998, there were no outstanding borrowings.
25
<PAGE>
11. INCOME TAXES
The components of the income tax benefit for the years ended December 31, are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Current payable (receivable):
Federal $ 39,149 $ 27,773
State - -
----------------- -----------------
39,149 27,773
Deferred federal taxes (32,910) (63,527)
Change in valuation allowance (6,239) 19,139
----------------- -----------------
Total $ - $ (16,615)
================= =================
</TABLE>
The following temporary differences gave rise to the net deferred tax
liabilities:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 46,986 $ 43,586
Premises and equipment 24,190 10,033
Pension liability 29,808 26,974
Deferred compensation 63,089 48,406
State net operating loss carryforward 43,494 49,733
----------------- -----------------
Total gross deferred tax assets 207,567 178,732
Less valuation allowance 91,845 98,084
----------------- -----------------
Net deferred tax assets 115,722 80,648
----------------- -----------------
Deferred tax liabilities:
Net unrealized gain on securities 159,134 313,641
Deferred loan origination fees, net 3,580 -
Excess tax bad debt reserve 14,492 19,323
Other 14,113 16,937
----------------- -----------------
Total gross deferred tax liabilities 191,319 349,901
----------------- -----------------
Net deferred liabilities $ (75,597) $ (269,253)
================= =================
</TABLE>
The reconciliation of the federal statutory rate and the Company's effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- ------------------------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Federal income tax at
statutory rate $ 30,885 34.0 % $ 32,451 34.0 %
State tax expense,
net of federal tax - - 8,843 9.3
Tax-exempt income (32,310) (35.6) (38,737) (40.6)
Nondeductible interest to
carry tax-exempt assets 7,084 7.8 - -
Valuation allowance (2,121) (2.3) 19,139 20.1
Other (3,538) (3.9) (38,311) (40.2)
----------------- ------------------ ----------------- -----------------
Actual tax benefit
and effective rate $ - - % $ (16,615) (17.4)%
================= ================== ================= =================
</TABLE>
26
<PAGE>
11. INCOME TAXES (Continued)
On August 20, 1996, The Small Business Job Protections Act (the "Act") was
signed into law. The Act eliminated the percentage of taxable income bad debt
deduction for thrift institutions for tax years beginning after December 31,
1995. The Act provides that bad debt reserves accumulated prior to January 1,
1988 be exempt from recapture. The recapture tax will be paid over six years
beginning with the 1997 tax year. Subject to prevailing corporate tax rate, the
Association owes $14,492 in federal income taxes at December 31, 1999, which is
reflected as a deferred tax liability.
The Company is subject to the Pennsylvania Mutual Thrift Institution's tax which
is calculated at 11.5 percent of earnings based on generally accepted accounting
principles with certain adjustments.
The Company has available at December 31, 1999, $343,296 of unused state
operating loss carryforwards that may be applied against future taxable income
and that expire from 2000 to 2002.
12. EMPLOYEE BENEFITS
Defined Benefit Plan
- --------------------
The Bank sponsors a trusteed, defined benefit pension plan covering
substantially all employees and officers. The plan calls for benefits to be paid
to eligible employees at retirement based primarily upon years of service with
the Bank and compensation rates near retirement. The Bank's funding policy is to
make annual contributions as needed based upon the funding formula developed by
the plan's actuary.
The following table sets forth the change in plan assets and benefit obligation
at December 31:
1999 1998
------------ ----------
Plan assets at fair value, beginning of year $ 759,462 $ 643,046
Actual return (loss) on plan assets (22,102) 76,781
Employer contribution 97,141 57,604
Benefits paid (17,969) (17,969)
------------ ----------
Plan assets at fair value, end of year 816,532 759,462
------------ ----------
Benefit obligation, beginning of year 1,260,673 923,158
Service cost 73,347 55,999
Interest cost 68,843 59,421
Actuarial adjustments (254,722) 240,064
Benefits paid (17,969) (17,969)
------------ ----------
Benefit obligation, end of year 1,130,172 1,260,673
------------ ----------
Funded status (313,640) (501,211)
Unrecognized prior service costs 1,459 1,626
Transition adjustment 15,855 18,066
Unrecognized net loss from past experience
different from that assumed 208,656 402,184
------------ ----------
Accrued pension liability $ (87,670) $ (79,335)
============ ==========
The plan assets are invested primarily in stocks and bonds under the control of
the plan's trustees as of December 31, 1999.
27
<PAGE>
12. EMPLOYEE BENEFITS (Continued)
Defined Benefit Plan (Continued)
- --------------------
Assumptions used in the accounting for the defined benefit plan are as follows:
1999 1998
------------- -------------
Discount rate 6.50% 5.50%
Expected return on plan assets 7.00% 7.00%
Rate of compensation increase 4.69% 4.69%
The plan utilizes the straight-line method of amortization for unrecognized
gains and losses.
Net periodic pension cost includes the following components:
1999 1998
----------- -----------
Service cost of the current period $ 73,347 $ 55,999
Interest cost on projected benefit obligation 68,843 59,421
Actual (return) loss on plan assets 22,102 (76,781)
Net amortization and deferral (58,816) 33,766
----------- -----------
Net periodic pension cost $ 105,476 $ 72,405
=========== ===========
Supplemental Retirement Plans
- -----------------------------
Board of Directors
- ------------------
The Company maintains a Directors' Consultation and Retirement Plan to provide
post-retirement payments over a five-year period to non-officer members of the
Board of Directors who have completed five or more years of service. The Company
incurred no expense in 1999 or 1998 relating to this plan.
Executive Officers
- ------------------
The Company maintains a Supplemental Retirement Plan for the executive officers
of the Company for the purpose of providing executive officers with supplemental
post-retirement benefits for life in addition to those provided under the
Company's pension plan for all eligible employees. Expenses for both years ended
December 31, 1999 and 1998 amounted to $43,185 and are included as a component
of compensation and employee benefits.
The assumptions of 6.50 percent and 5.00 percent for the discount rate and rate
of compensation increase, respectively, were used in determining net periodic
post-retirement costs for the Directors' Consultation and Retirement Plans and
Supplemental Retirement Plan for the executive officers.
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
or its subsidiary and attained age 21. The ESOP trust purchased 58,080 shares of
common stock since the date of conversion with proceeds from a loan from SFSB
Holding Company. The Company makes cash contributions to the ESOP on an annual
basis sufficient to enable the ESOP to make required loan payments to the
Company. The loan bears an interest rate of 8.50 percent with interest payable
quarterly and principal payable in equal annual installments over ten years. The
loan is secured by the shares of stock.
28
<PAGE>
12. EMPLOYEE BENEFITS (Continued)
Employee Stock Ownership Plan ("ESOP") (Continued)
- --------------------------------------
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.
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. Compensation expense for the ESOP was $52,543 and $78,045 for the
years ended December 31, 1999 and 1998, respectively.
The following table presents the components of the ESOP shares:
1999 1998
----------- ------------
Allocated shares 5,808 -
Shares released for allocation 5,808 5,808
Shares distributed (281) -
Unreleased shares 46,464 52,272
----------- ------------
Total ESOP shares 57,799 58,080
=========== ============
Fair value of unreleased shares $ 365,904 $ 444,312
=========== ============
Stock Option Plan
- -----------------
During 1998, the Board of Directors adopted a stock option plan for the
directors, officers, and employees which was approved by the stockholders at a
special meeting on October 20, 1998. An aggregate of 72,600 shares of authorized
but unissued common stock of the Company were reserved for future issuance under
this plan. The stock options typically have expiration terms of ten years
subject to certain extensions and terminations. The per share exercise price of
a stock option shall be, at a minimum, equal to the fair value of a share of
common stock on the date the option is granted.
On October 20, 1998, qualified stock options were granted for the purchase of
54,450 shares, exercisable at the market price of $9.25. The recipients of the
stock options vest over a five-year period. At December 31, 1999, there were
18,150 shares available for future grant.
The following table presents share data related to the outstanding options:
<TABLE>
<CAPTION>
Weighted- Weighted-
average average
Exercise Exercise
1999 Price 1998 Price
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Outstanding, January 1 54,450 $ 9.25 - $ -
Granted - - 54,450 9.25
Exercised - - - -
Forfeited - - - -
----------------- -----------------
Outstanding, December 31 54,450 54,450
================= =================
</TABLE>
29
<PAGE>
12. EMPLOYEE BENEFITS (Continued)
Stock Option Plan (Continued)
- -----------------
The following table summarizes the characteristics of stock options outstanding
at December 31, 1999:
Outstanding Exercisable
------------------------------------------ ---------------------------
Average Average
Average Exercise Exercise
Shares Life Price Shares Price
------------ ----------- ----------- ---------- -------------
54,450 8.83 $ 9.25 10,890 $ 9.25
For purposes of computing pro forma results, the Company estimated the fair
values of stock options using the Black-Scholes option pricing model. The model
requires the use of subjective assumptions which can materially effect fair
value estimates. Therefore, the pro forma results are estimates of results of
operations as if compensation expense had been recognized for the stock option
plans. The fair value of each stock option granted was estimated using the
following weighted-average assumptions for grants in 1999: (1) expected dividend
yield of 2.0 percent; (2) risk-free interest rate of 6.5 percent; (3) expected
volatility of 26.0 percent; and (4) expected life of 8.83 years.
The Company accounts for its stock option plans under provisions of APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
Under this Opinion, no compensation expense has been recognized with respect to
the plans because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the grant date.
Had compensation expense for the stock option plans been recognized in
accordance with the fair value accounting provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-based Compensation," net
income applicable to common stock, basic and diluted net income per common
share, for the year ended December 31, 1999 would have been as follows:
1999
---------------
Net income applicable to common stock:
As reported $ 90,837
Pro forma 65,503
Basic net income per common share:
As reported $ 0.15
Pro forma 0.10
Diluted net income per common share
As reported $ 0.15
Pro forma 0.10
Restricted Stock Plan ("RSP")
- -----------------------------
In 1998, the Board of Directors adopted a RSP for directors, officers, and
employees which was approved by stockholders at a special meeting held on
October 20, 1998. The objective of this plan is to enable the Company and the
Bank to retain its corporate directors, officers, and key employees who have the
experience and ability necessary to manage these entities. Directors, officers,
and key employees who are selected by members of a Board-appointed committee are
eligible to receive benefits under the RSP. The non-employee directors of the
Company and the Bank serve as trustees for the RSP and have the responsibility
to invest all funds contributed by the Company to the Trust created for the RSP.
30
<PAGE>
12. EMPLOYEE BENEFITS (Continued)
Restricted Stock Plan ("RSP") (Continued)
- -----------------------------
In 1998, the Trust purchased, with funds contributed by the Company, 29,040
shares of the common stock of the Company, of which 7,250 shares were issued to
directors, 13,940 shares were issued to officers and employees, and 7,850 shares
remain unissued as of December 31, 1999. Directors, officers, and key employees
who terminate their association with the Company shall forfeit the right to any
shares which were awarded but not earned.
The Company granted a total of 21,200 shares of common stock on October 20,
1998. All plan share awards granted are earned at a rate of 20 percent one year
after the date of grant and 20 percent annually thereafter. The unearned RSP
shares are excluded from stockholders' equity. The Company recognizes
compensation expense in the amount of fair value of the common stock at the
grant date, pro rata, over the years during which the shares are payable and
recorded as an addition to the stockholders' equity. Net compensation expense
attributable to the RSPs amounted to $40,236 and $6,706 for the years ended
December 31, 1999 and 1998, respectively.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
- -----------
In the normal course of business, the Company makes various commitments which
are not reflected in the accompanying consolidated financial statements. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheet. The
Company's exposure to credit loss in the event of nonperformance by the other
parties to the financial instruments is represented by the contractual amounts
as disclosed. The Company minimizes its exposure to credit loss under these
commitments by subjecting them to credit approval and review procedures and
collateral requirements as deemed necessary. Commitments generally have fixed
expiration dates within one year of their origination.
The off-balance sheet commitments were comprised of the following:
1999 1998
----------------- ----------------
Commitments to extend credit:
One-to-four family $ 1,135,209 $ 115,041
All of the Company's commitments to fund future loans are fixed rates and at
December 31, 1999, those rates ranged from 7.00 percent to 7.50 percent.
Contingent Liabilities
- ----------------------
In the normal course of business, the Company is involved in various legal
proceedings primarily involving the collection of outstanding loans. None of
these proceedings are expected to have a material effect on the financial
position or operations of the Company.
14. REGULATORY MATTERS
Dividend Restrictions
- ---------------------
The Bank is subject to a dividend restriction which generally limits the amount
of dividends that can be paid by an OTS-chartered bank. OTS regulations require
that the Bank give the OTS 30 days notice of any proposed declaration of
dividends to the Company, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends by the Bank to the Company.
31
<PAGE>
REGULATORY MATTERS (Continued)
Regulatory Capital Requirements
- -------------------------------
Federal regulations require the Company and the Bank to maintain minimum amounts
of capital. Specifically, each is required to maintain certain minimum dollar
amounts and ratios of Total and Tier I capital to risk-weighted assets and of
Tier I capital to average total assets.
In addition to the capital requirements, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") established five capital categories
ranging from "well capitalized" to "critically undercapitalized." Should any
institution fail to meet the requirements to be considered "adequately
capitalized," it would become subject to a series of increasingly restrictive
regulatory actions.
As of December 31, 1999 and 1998, the Office of Thrift Supervision categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be classified as a well capitalized financial institution,
Total risk-based, Tier 1 risk-based, Tier 1 Leverage capital, and Tangible
equity capital ratios must be at least 10.0 percent, 6.0 percent, 5.0 percent,
and 1.5 percent, respectively.
The actual capital ratios are presented in the following tables, which show that
both the Company and the Bank met all regulatory capital requirements.
The following table reconciles the Company's capital under generally accepted
accounting principles to regulatory capital.
1999 1998
----------- ------------
Total capital $ 8,890,826 $ 9,721,118
Unrealized gain on securities
available for sale (308,907) (608,832)
----------- ------------
Tier I, core, and tangible capital 8,581,919 9,112,286
Allowance for loan losses 138,193 128,193
Unrealized gain on equity securities 314,921 419,026
----------- ------------
Risk-based capital $ 9,035,033 $ 9,659,505
=========== ============
32
<PAGE>
REGULATORY MATTERS (Continued)
Regulatory Capital Requirements (Continued)
- -------------------------------
Actual capital levels of the Company and minimum required levels are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -------------------------------------
Amount Ratio Amount Ratio
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Total Capital
(to Risk-weighted Assets)
-------------------------
Actual $ 9,035,033 48.1 % $ 9,659,505 56.0 %
For Capital Adequacy Purposes 1,506,616 8.0 1,378,833 8.0
To Be Well Capitalized 1,883,269 10.0 1,723,542 10.0
Tier I Capital
(to Risk-weighted Assets)
-------------------------
Actual $ 8,581,919 45.7 % $ 9,112,286 52.9 %
For Capital Adequacy Purposes 753,308 4.0 689,417 4.0
To Be Well Capitalized 1,129,962 6.0 1,034,125 6.0
Core Capital
(to Adjusted Assets)
--------------------
Actual $ 8,581,919 17.6 % $ 9,112,286 19.3 %
For Capital Adequacy Purposes 1,953,218 4.0 1,886,233 4.0
To Be Well Capitalized 2,441,523 5.0 2,357,791 5.0
Tangible Capital
(to Adjusted Assets)
--------------------
Actual $ 8,581,919 17.6 % $ 9,112,286 19.3 %
For Capital Adequacy Purposes 732,457 1.5 707,337 1.5
To Be Well Capitalized N/A N/A N/A N/A
</TABLE>
33
<PAGE>
REGULATORY MATTERS (Continued)
Regulatory Capital Requirements (Continued)
- -------------------------------
Actual capital levels of the Bank and minimum required levels are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -------------------------------------
Amount Ratio Amount Ratio
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Total Capital
(to Risk-weighted Assets)
-------------------------
Actual $ 7,108,989 38.2 % $ 7,092,910 41.8 %
For Capital Adequacy Purposes 1,489,920 8.0 1,356,800 8.0
To Be Well Capitalized 1,862,400 10.0 1,696,000 10.0
Tier I Capital
(to Risk-weighted Assets)
-------------------------
Actual $ 6,655,875 35.7 % $ 6,545,691 38.6 %
For Capital Adequacy Purposes 744,960 4.0 678,400 4.0
To Be Well Capitalized 1,117,440 6.0 1,017,600 6.0
Core Capital
(to Adjusted Assets)
--------------------
Actual $ 6,655,875 13.8 % $ 6,545,691 14.0 %
For Capital Adequacy Purposes 1,933,681 4.0 1,868,880 4.0
To Be Well Capitalized 2,417,101 5.0 2,336,100 5.0
Tangible Capital
(to Adjusted Assets)
--------------------
Actual $ 6,655,875 13.5 % $ 6,545,691 14.0 %
For Capital Adequacy Purposes 725,130 1.5 700,830 1.5
To Be Well Capitalized N/A N/A N/A N/A
</TABLE>
Prior to the enactment of the Small Business Job Protection Act discussed in
Note 11, the Bank accumulated approximately $975,000 of retained earnings at
December 31, 1999, which represents allocations of income to bad debt deductions
for tax purposes only. Since this amount represents the accumulated bad debt
reserves prior to 1988, no provision for federal income tax has been made for
such amount. If any portion of this amount is used other than to absorb loan
losses (which is not anticipated), the amount will be subject to federal income
tax at the current corporate rate.
34
<PAGE>
15. FAIR VALUE DISCLOSURE
The estimated fair values of the Company's financial instruments at December 31,
are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits
in other banks, and
certificates of deposits
in other banks $ 6,121,981 $ 6,121,981 $ 12,545,928 $ 12,545,928
Investment securities:
Available for sale 2,960,757 2,960,757 2,073,921 2,073,921
Held to maturity 9,990,854 9,446,780 4,387,648 4,471,370
Mortgage-backed securities:
Available for sale 1,774,691 1,774,691 2,235,852 2,235,852
Held to maturity 10,277,109 9,979,691 10,470,280 10,617,900
Loans receivable 15,516,919 15,224,425 13,876,438 14,166,055
Accrued interest receivable 412,178 412,178 307,819 307,819
FHLB stock 245,600 245,600 218,100 218,100
----------------- ----------------- ----------------- -----------------
Total $ 47,300,089 $ 46,166,103 $ 46,115,986 $ 46,636,945
================= ================= ================= =================
Financial liabilities:
Deposits $ 39,411,665 $ 39,246,665 $ 37,354,170 $ 37,612,019
Advances by borrowers
for taxes and insurance 112,058 112,058 106,651 106,651
Accrued interest payable
5,677 5,677 - -
----------------- ----------------- ----------------- -----------------
Total $ 39,529,400 $ 39,364,400 $ 37,460,821 $ 37,718,670
================= ================= ================= =================
</TABLE>
Financial instruments are defined as cash, evidence of an ownership interest in
an entity, or a contract which creates an obligation or right to receive or
deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial
instruments are based upon management's judgment regarding current economic
conditions, interest rate risk, expected cash flows, future estimated losses,
and other factors as determined through various option pricing formulas or
simulation modeling. As many of these assumptions result from judgments made by
management based upon estimates which are inherently uncertain, the resulting
estimated fair values may not be indicative of the amount realizable in the sale
of a particular financial instrument. In addition, changes in the assumptions on
which the estimated fair values are based may have a significant impact on the
resulting estimated fair values.
35
<PAGE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
As certain assets, such as deferred tax assets and premises and equipment, are
not considered financial instruments, the estimated fair value of financial
instruments would not represent the full value of the Company.
The Company employed simulation modeling in determining the estimated fair value
of financial instruments for which quoted market prices were not available based
upon the following assumptions:
Cash and Due from Banks, Interest-bearing Deposits and Certificates of Deposits
- --------------------------------------------------------------------------------
in Other Banks, Accrued Interest Receivable, FHLB Stock, Advances by Borrowers
- --------------------------------------------------------------------------------
for Taxes and Insurance, and Accrued Interest Payable
- -----------------------------------------------------
The fair value is equal to the current carrying value.
Investment and Mortgage-backed Securities
- -----------------------------------------
The fair value of these securities is equal to the available quoted market
price. If no quoted market price is available, fair value is estimated using the
quoted market price for similar securities.
Loans Receivable and Deposits
- -----------------------------
The fair value of loans is estimated by discounting the future cash flows using
a simulation model which estimates future cash flows based upon current market
rates adjusted for prepayment risk and credit quality. Savings, checking, and
money market deposit accounts are valued at the amount payable on demand as of
year-end. Fair values for time deposits are estimated using a discounted cash
flow calculation that applies contractual costs currently being offered in the
existing portfolio to current market rates being offered for deposits of similar
remaining maturities.
Commitments to Extend Credit
- ----------------------------
These financial instruments are generally not subject to sale, and estimated
fair values are not readily available. The carrying value, represented by the
net deferred fee arising from the unrecognized commitment and the fair value,
determined by discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar agreements with
similar credit risk, are not considered material for disclosure. The contractual
amounts of unfunded commitments are presented in Note 13.
16. CORPORATE REORGANIZATION AND STOCK ISSUANCE
Conversion and Reorganization
- -----------------------------
On September 30, 1997, the Board of Directors of the Bank adopted the Plan of
Conversion (the "Conversion") pursuant to which the Company proposed to convert
from a federally-chartered mutual savings Bank to a federally-chartered stock
savings bank and concurrently formed a bank holding company.
As part of the conversion process, SFSB Holding Company 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 bank holding company with its only significant
assets being all of the outstanding capital stock of the Bank, which was
acquired on February 26, 1998, by exchanging approximately $3.5 million of the
proceeds received in the public offering for all of the common stock of the
Bank, and a percentage of the conversion proceeds permitted to be retained. From
the proceeds of the Conversion, approximately $73,000 was allocated to common
stock and $6.9 million, which is net of $333,000 conversion costs, was allocated
to additional paid-in capital.
36
<PAGE>
16. CORPORATE REORGANIZATION AND STOCK ISSUANCE (Continued)
Conversion and Reorganization (Continued)
- -----------------------------
In accordance with regulations, at the time that the Bank converted from a
mutual savings bank to a stock savings bank, a portion of retained earnings was
restricted by establishing a liquidation account. The liquidation account will
be maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Bank after the Conversion. The liquidation
account will be reduced annually to the extent that eligible account holders
have reduced their qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the event of a
complete liquidation of the Bank each account holder will be entitled to receive
a distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held.
17. PARENT COMPANY
The following are condensed financial statements for the Company.
CONDENSED BALANCE SHEET
1999 1998
----------- -----------
ASSETS
Cash and due from banks $ 1,797,138 $ 2,474,027
Certificates of deposits with other banks 99,000 198,000
Investment securities available for sale 208,694 227,250
Investment in subsidiary bank 6,528,535 6,645,168
Loan receivable from ESOP trust 464,640 522,720
Other assets 38,734 8,566
----------- -----------
TOTAL ASSETS $ 9,136,741 $ 10,075,731
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Restricted stock plan payable $ 232,413 $ 261,914
Other liabilities 13,502 92,699
Stockholders' equity 8,890,826 9,721,118
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,136,741 $ 10,075,731
=========== ===========
37
<PAGE>
17. PARENT COMPANY (Continued)
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the Period
of February 26,
1998 to
December 31,
1999 1998
---------------- ------------------
<S> <C> <C>
INCOME
Interest income $ 47,186 $ 54,247
EXPENSES 66,533 59,348
---------------- ------------------
Loss before equity in undistributed net income of subsidiary (19,347) (5,101)
Equity in undistributed net income of subsidiary 110,184 123,600
---------------- ------------------
NET INCOME $ 90,837 $ 118,499
================ ==================
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
of February 26,
1998 to
December 31,
1999 1998
---------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 90,837 $ 118,499
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net income of subsidiary (110,184) (123,600)
Other, net (107,160) 29,885
---------------- ------------------
Net cash provided by (used for) operating activities (126,507) 24,784
---------------- ------------------
INVESTING ACTIVITIES
Decrease (increase) in certificates of deposit with other banks 99,000 (198,000)
Investment securities available for sale:
Purchases (4,214) (247,500)
Investment in subsidiary - (3,417,463)
Loan to ESOP - (580,800)
Repayment of loan to ESOP 58,080 58,080
---------------- ------------------
Net cash provided by (used for) investing activities 152,866 (4,385,683)
---------------- ------------------
FINANCING ACTIVITIES
Issuance of stock and additional paid-in capital - 6,834,926
Purchase of treasury stock (669,562) -
Cash dividends paid (33,686) -
---------------- ------------------
Net cash provided by (used for) financing activities (703,248) 6,834,926
---------------- ------------------
Increase (decrease) in cash and cash equivalents (676,889) 2,474,027
CASH AT BEGINNING OF PERIOD 2,474,027 -
---------------- ------------------
CASH AT END OF PERIOD $ 1,797,138 $ 2,474,027
================ ==================
</TABLE>
38
EXHIBIT 23
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement of
SFSB Holding Company on Form S-8 of our report dated February 11, 2000 appearing
in the Annual Report on Form 10-KSB of SFSB Holding Company for the year ended
December 31, 1999.
/s/S.R. Snodgrass A.C.
- ----------------------
Wexford, Pennsylvania
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 909
<INT-BEARING-DEPOSITS> 5,213
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,735
<INVESTMENTS-CARRYING> 20,268
<INVESTMENTS-MARKET> 19,426
<LOANS> 15,655
<ALLOWANCE> 138
<TOTAL-ASSETS> 48,803
<DEPOSITS> 39,412
<SHORT-TERM> 0
<LIABILITIES-OTHER> 501
<LONG-TERM> 0
0
0
<COMMON> 73
<OTHER-SE> 8,818
<TOTAL-LIABILITIES-AND-EQUITY> 48,803
<INTEREST-LOAN> 1,154
<INTEREST-INVEST> 1,517
<INTEREST-OTHER> 352
<INTEREST-TOTAL> 3,023
<INTEREST-DEPOSIT> 1,500
<INTEREST-EXPENSE> 1,500
<INTEREST-INCOME-NET> 1,523
<LOAN-LOSSES> 10
<SECURITIES-GAINS> 48
<EXPENSE-OTHER> 1,626
<INCOME-PRETAX> 91
<INCOME-PRE-EXTRAORDINARY> 91
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91
<EPS-BASIC> .15
<EPS-DILUTED> .15
<YIELD-ACTUAL> 3.36
<LOANS-NON> 119
<LOANS-PAST> 32
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 128
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 138
<ALLOWANCE-DOMESTIC> 138
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
