UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
OR
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 0-25047
RFS BANCORP, INC.
(Exact name of registrant as specified in its charter)
UNITED STATES 04-3449818
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
310 BROADWAY
REVERE, MASSACHUSETTS 02151
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 284-7777
--------------
Indicate by check mark whether the 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 the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
As of June 30, 1999, 933,523 shares of the registrant's common stock were
outstanding.
RFS BANCORP, INC. and SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION Page
--------------------- ----
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets - June 30, 1999
and September 30, 1998 1
Consolidated Statements of Income - Three Months
Ended June 30, 1999 and 1998 2
Consolidated Statements of Income - Nine Months
Ended June 30, 1999 and 1998 3
Consolidated Statements of Changes in Stockholders'
Equity-Nine Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows - Nine Months
Ended June 30, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements -
June 30, 1999 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II OTHER INFORMATION
-----------------
Item 4 Submission of Matters to Vote of Security holders 28
Item 6 Exhibits and Reports on Form 8-K 28
SIGNATURES 29
----------
RFS BANCORP, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, 1999 September 30, 1998
------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 2,003 $ 1,195
Federal funds sold 2,117 6,735
----------------------------
Total cash and cash equivalents 4,120 7,930
Securities available for sale, at fair value 5,808 896
Securities held to maturity, at amortized cost 27,262 30,110
Federal Home Loan Bank stock, at cost 1,517 1,517
Loans, net of allowance for loan losses of
$593 and $528, respectively 65,070 46,852
Bank premises and equipment, net 1,887 1,252
Accrued interest receivable 645 519
Other assets 328 392
----------------------------
Total assets $106,637 $89,468
============================
LIABILITIES and STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $ 72,590 $64,327
Federal Home Loan Bank borrowings 23,334 18,204
Mortgagors' escrow accounts 247 157
Accrued expenses and other liabilities 350 296
----------------------------
Total liabilities 96,521 82,984
----------------------------
Stockholders' equity:
Common stock $.01 par value, 5,000,000 shares
authorized, 933,523 shares issued 9 --
Additional paid-in capital 3,698 --
Retained earnings 6,245 5,971
Accumulated other comprehensive income 515 513
Unallocated ESOP shares (351) --
----------------------------
Total stockholders' equity 10,116 6,484
----------------------------
Total liabilities and stockholders' equity $106,637 $89,468
============================
</TABLE>
RFS BANCORP, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
June 30, 1999 June 30, 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,262 $ 976
Interest and dividends on securities 486 596
Other interest 32 71
-----------------------
Total interest and dividend income 1,780 1,643
-----------------------
Interest expense:
Deposits 601 568
Federal Home Loan Bank borrowings 276 323
-----------------------
Total interest expense 877 891
-----------------------
Net interest and dividend income 903 752
Provision for loan losses 27 51
-----------------------
Net interest and dividend income, after provision
for loan losses 876 701
-----------------------
Other income:
Loan servicing fees 14 17
Deposit account fees 45 38
Gain (loss) on sales of mortgage loans, net 36 (9)
Other income 36 28
-----------------------
Total other income 131 74
-----------------------
Operating expenses:
Salaries and employees benefits 456 326
Occupancy and equipment expenses 125 85
Professional services 92 80
Data processing expenses 54 42
Other expenses 109 107
-----------------------
Total operating expenses 836 640
-----------------------
Income before income taxes 171 135
Provision for income taxes 55 50
-----------------------
Net income $ 116 $ 85
=======================
Earnings per share (annualized) $ 0.50 N/A
Weighted average shares outstanding 934 N/A
</TABLE>
RFS BANCORP, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
June 30, 1999 June 30, 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $3,444 $2,830
Interest and dividends on securities 1,507 1,827
Other interest 138 234
-----------------------
Total interest and dividend income 5,089 4,891
-----------------------
Interest expense:
Deposits 1,816 1,693
Federal Home Loan Bank borrowings 770 1,055
-----------------------
Total interest expense 2,586 2,748
-----------------------
Net interest and dividend income 2,503 2,143
Provision for loan losses 72 174
-----------------------
Net interest and dividend income, after provision
for loan losses 2,431 1,969
-----------------------
Other income:
Loan servicing fees 60 57
Deposit account fees 127 103
Gain (loss) on sales of mortgage loans, net 37 (13)
Other income 118 83
-----------------------
Total other income 342 230
-----------------------
Operating expenses:
Salaries and employees benefits 1,209 941
Occupancy and equipment expenses 367 261
Professional services 252 245
Data processing expenses 158 112
Other expenses 367 307
-----------------------
Total operating expenses 2,353 1,866
-----------------------
Income before income taxes 420 333
Provision for income taxes 146 125
-----------------------
Net income $ 274 $ 208
=======================
Earnings per share (annualized) $ 0.39 N/A
Weighted average shares outstanding 934 N/A
</TABLE>
RFS BANCORP, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Unallocated ESOP Stockholders'
Stock Capital Earnings Income Shares Equity
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ -- $ -- $5,971 $513 $ -- $ 6,484
Comprehensive income:
Net income -- -- 274 -- -- --
Change in unrealized holding
gain on securities available
for sale, net of taxes -- -- -- 2 -- --
Comprehensive income 276
Net proceeds from common
stock issued pursuant to IPO 9 3,698 -- -- -- 3,707
Unallocated ESOP shares (351) (351)
-----------------------------------------------------------------------------------
Balance at June 30, 1999 $ 9 $3,698 $6,245 $515 $(351) $10,116
===================================================================================
Balance at September 30, 1997 $ -- $ -- $5,681 $358 $ -- $ 6,039
Comprehensive income:
Net income -- -- 208 -- -- --
Change in unrealized holding
gain on securities available
for sale, net of taxes -- -- -- 121 -- --
Comprehensive income 329
-----------------------------------------------------------------------------------
Balance at June 30, 1998 $ -- $ -- $5,889 $479 $ -- $ 6,368
===================================================================================
</TABLE>
RFS BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
June 30, 1999 June 30, 1998
-------------------------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 274 $ 208
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 72 174
(Gain) loss on sale of mortgage loans 7 13
Amortization, net of accretion, of securities 55 26
Depreciation 164 113
(Increase) decrease in interest receivable (126) 62
(Increase) decrease in other assets 64 (229)
Increase (decrease) in accrued expenses
and other liabilities 41 (164)
Change in deferred loan origination fees, net 13 (2)
-------------------------
Net cash provided by operating activities 564 201
-------------------------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank Stock -- (112)
Purchases of held-to-maturity securities (4,021) (5,500)
Purchase of available-for-sale securities (4,908) 0
Proceeds from maturities, h-t-m securities 6,825 12,331
Net increase in loans, net (23,417) (11,772)
Proceeds from sale of loans 5,107 5,948
Purchases of banking premises and equipment (799) (133)
-------------------------
Net cash provided by (used in) investing activities (21,213) 762
-------------------------
Cash flows from financing activities:
Net increase in deposits 8,263 7,520
Proceeds from FHLB advances 6,000 12,500
Repayment of advances from FHLB (870) (18,320)
Net increase in mortgagors' escrow accounts 90 2
Net proceeds from common stock issued
pursuant to initial public offering 3,707 --
Payments to acquire common stock for ESOP (351) --
-------------------------
Net cash provided by financing activities 16,839 1,702
-------------------------
Net change in cash and cash equivalents (3,810) 2,665
Cash and cash equivalents at beginning of period 7,930 1,832
-------------------------
Cash and cash equivalents at end of period $ 4,120 $ 4,497
=========================
Supplemental cash flow information:
Interest paid on deposits $ 1,814 $ 1,695
Interest paid on FHLB borrowings $ 770 $ 1,055
Income taxes paid $ 157 $ 324
</TABLE>
RFS BANCORP, INC. and SUBSIDIARY
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
June 30, 1999
1) Basis of Presentation and Consolidation
The unaudited consolidated interim financial statements of RFS Bancorp, Inc.
and Subsidiaries ("RFS Bancorp" or the "Company") presented herein should be
read in conjunction with the consolidated financial statements for the year
ended September 30, 1998, included in the Annual Report on Form 10-KSB of
RFS Bancorp, Inc., the holding company for Revere Federal Savings Bank (the
"Bank"). The operating results for the period ended June 30, 1999 are those
of the Company and Bank. The Company had not issued any stock and had not
conducted any business until December 18, 1998 when RFS Bancorp became the
Bank's holding company in connection with the Bank's reorganization from the
mutual savings association to a Federal mutual holding company structure.
Operating results prior to December 18, 1998 include only the Bank and not
the Company.
The unaudited consolidated interim financial statements herein have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for completed financial statements.
In the opinion of management, the consolidated financial statements reflect
all adjustments (consisting solely of normal recurring accruals) necessary
for a fair presentation of such information. Interim results are not
necessarily indicative of results to be expected for the entire year.
2) Commitments and Contingencies
At June 30, 1999, the Bank had outstanding commitments to originate loans
amounting to approximately $5.1 million, unused construction advances
amounting to approximately $1.4 million and unused lines of credit amounting
to approximately $1.1 million for commercial loans and $3.1 million for home
equity loans.
3) Stock Conversion
The Bank is a federally chartered stock savings bank founded in 1901. The
Bank converted from a federal mutual savings association into a mutual
holding company form of organization on December 18, 1998 and issued 100% of
its capital stock to the Company. RFS Bancorp has been organized at the
direction of the Board of Directors of the Bank. The Company issued 933,523
shares of which 47% of these shares, or 438,756 shares, were sold to the
Bank's depositors and employee benefit plans and 53% of these shares, or
494,767 shares, were issued to Revere, MHC, a federal mutual holding company
(the "MHC"). Net proceeds of the offering were approximately $3.8 million.
On December 18, 1998, the Company loaned approximately $351,000 to the
Company's Employee Stock Ownership Plan to fund its purchase of 35,100
shares of common stock of the Company.
4) Earnings Per Share
Earnings per share for the three months ended June 30, 1999 (annualized) was
$.50. Earnings per share for the nine months ended June 30, 1999
(annualized) was $.39. Earnings per share data is not presented for the
three and nine months ended June 30, 1998 since there were no outstanding
shares of common stock until the reorganization on December 18, 1998.
5) Recent Accounting Pronouncement
On June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. Accounting
principles generally require that recognized revenue, expenses, gains and
losses be included in net income. Certain FASB statements, however, require
entities to report specific changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, as a separate
component of the equity section of the consolidated balance sheet. Such
items, along with net income, are components of comprehensive income. SFAS
No. 130 requires that all items of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Additionally, SFAS No. 130 requires that the
accumulated balance of other comprehensive income be displayed separately
from retained earnings and additional paid-in capital in the equity section
of the consolidated balance sheet. The Company adopted these disclosure
requirements in the quarter ending December 31, 1998.
6) Investment Securities
Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent. The carrying amount of securities
and their approximate fair values are as follows:
<TABLE>
<CAPTION>
June 30, 1999 September 30, 1998
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale:
Mortgage-backed securities $ 4,896 $ 4,761 $ 0 $ 0
Marketable equity securities 24 1,047 24 896
Total $ 4,920 $ 5,808 $ 24 $ 896
Securities held to maturity:
U.S. Government & Federal
Agency Obligations $ 4,000 $ 3,808 $ 5,000 $ 5,031
Mortgage-backed securities 19,807 19,607 20,164 20,640
Asset-backed securities 3,455 3,417 4,946 4,976
Total $27,262 $26,832 $30,110 $30,647
</TABLE>
7) Loans
The following table presents selected data relating to the composition of
the Company's loan portfolio by type of loan on the dates indicated.
<TABLE>
<CAPTION>
June 30, 1999 September 30, 1998
------------------ ------------------
Amount Percent Amount Percent
----------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Resident mortgage loans $42,923 65.3% $34,475 73.0%
Commercial real estate loans 9,104 13.8 3,969 8.4
Construction and land loans 3,042 4.6 1,885 4.0
Commercial loans 6,181 9.4 2,724 5.8
Consumer loans 1,155 1.8 1,091 2.3
Home equity loans 3,331 5.1 3,061 6.5
------- -------
Total loans 65,736 100.0% 47,205 100.0%
Loans held for sale 0 235
Less :
Deferred loan origination fees 73 60
Allowance for loan losses 593 528
------- -------
Total Loans, net $65,070 $46,852
======= =======
</TABLE>
8) Allowance for Loan Losses
The following table analyzes activity in the Company's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
June 30, 1999 June 30, 1998
------------- -------------
(Dollars in Thousands)
<S> <C> <C>
Average loans, net $55,790 $44,477
========================
Period-end gross loans $65,736 $47,391
========================
Allowance for loan losses at beginning of period $ 528 $ 377
Provision for loan losses 72 174
Plus recoveries 2 --
Loans charged-off 9 45
------------------------
Allowance for loan losses at end of period $ 593 $ 506
========================
Non-performing loans $ 173 $ 144
========================
Ratios:
Allowance for loan losses to period-end gross loans .90% 1.07%
Allowance for loan losses to non-performing loans 342.8% 351.4%
</TABLE>
9) Deposits and Borrowed Funds
The following tables set forth the various types of deposit accounts at the
Company and the balances in these accounts as well as the borrowings of the
Company at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1999 September 30, 1998
------------------ ------------------
Amount Percent Amount Percent
----------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Deposits:
Savings accounts $16,760 23.1% $16,668 25.9%
NOW checking 6,955 9.6 5,345 8.3
Demand deposits 5,618 7.7 2,823 4.4
Money market accounts 2,459 3.4 1,883 2.9
Certificates of deposit 40,798 56.2 37,608 58.5
------- -------
Total deposits $72,590 100.0% $64,327 100.0%
======= =======
Borrowed funds:
Advances from FHLB $23,334 $18,204
Other borrowed funds -- --
------- -------
Total borrowed funds $23,334 $18,204
======= =======
</TABLE>
RFS BANCORP, INC. and SUBSIDIARY
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1999
General
Revere Federal Savings Bank (the "Bank") completed its conversion from
a federal mutual savings association to a stock institution and was
simultaneously acquired by RFS Bancorp, Inc. (the "Company") on December 18,
1998 upon the consummation of the Bank's reorganization to the mutual
holding company form of organization and stock offering (the
"Reorganization"). The following discussion and analysis should be read in
conjunction with the consolidated financial statements and related notes
thereto included within this report. This analysis provides an overview of
the significant changes that occurred during the period presented.
The Private Securities Litigation Reform 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 which could
cause actual results to differ materially from those projected. Those risks
and uncertainties include changes in interest rates generally and changes in
real estate values and other economic conditions in eastern Massachusetts,
the Bank's principal market area. 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.
Additional information on potential factors which could affect the Company's
financial results are included in the Annual Report on Form 10-KSB of RFS
Bancorp.
The Company's operating results are primarily dependent upon net
interest and dividend income. Net interest income is the difference between
income earned on the Company's loan and investment portfolio and the
Company's funds which consists of interest paid on deposits and borrowings.
Operating results are also affected by the provision for loan losses,
securities sales activities and service charges on deposit accounts as well
as other fees. The Company's operating expenses consist of salaries and
employee benefits, occupancy and equipment expenses, professional fees as
well as marketing and other expenses. Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates and government and regulatory
policies.
Market Risk Analysis
Qualitative Disclosures About Market Risk. Like other institutions,
the Company's most significant form of market risk is interest rate risk.
The Company is subject to interest rate risk to the degree that the
Company's interest-bearing liabilities, primarily deposits with short and
medium-term maturities, mature or reprice at different rates than the
Company's interest-earning assets. The Company believes it is critical to
manage the relationship between interest rates and the effect on the
Company's net portfolio value ("NPV"). This approach calculates the
difference between the present value of expected cash flows from assets and
the present value of expected cash flows from liabilities, as well as cash
flows from off-balance sheet contracts. The Company manages assets and
liabilities within the context of the marketplace, regulatory limitations
and within limits established by the Company's Board of Directors on the
amount of change in NPV which is acceptable given certain interest rate
changes.
An asset or liability is interest rate sensitive within a specific
time period if it will mature or reprice within that time period. If the
Company's assets mature or reprice more quickly or to a greater extent than
the Company's liabilities, the Company's net portfolio value and net
interest income would tend to increase during periods of rising interest
rates but decrease during periods of falling interest rates. Conversely, if
the Company's assets mature or reprice more slowly or to a lesser extent
than the Company's liabilities, the Company's net portfolio value and net
interest income would tend to decrease during periods of rising interest
rates but increase during periods of falling interest rates. The Company's
policy has been to mitigate the interest rate risk inherent in the
historical savings institution business of originating long-term loans
funded by short-term deposits by pursuing certain strategies designed to
decrease the vulnerability of the Company's earnings to material and
prolonged changes in interest rates. In this regard, the Company's attempts
to minimize interest rate risk by, among other things, emphasizing the
origination and retention of adjustable-rate loans and loans with shorter
maturities and the sale of long-term one-to-four family fixed-rate loans in
the secondary market.
Average Balances, Interest, Yields and Rates
The following tables set forth certain information relating to the
Company's average balance sheet and reflect the interest earned on assets
and interest cost of liabilities for the periods indicated and the average
yields earned and rates paid for the periods indicated. Such yields and
costs are derived by dividing income or expense by the average monthly
balances of assets and liabilities, respectively, for the periods presented.
Average balances are derived from daily balances. Loans on nonaccrual
status are included in the average balances of loans shown in the tables.
The investment securities in the following tables are presented at amortized
cost.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 Three Months Ended June 30, 1998
-------------------------------- --------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Total loans, net $ 60,918 $1,262 8.29% $45,499 $ 976 8.58%
Investments 29,710 486 6.54% 33,899 596 7.03%
Other earning assets 2,866 32 4.47% 5,593 71 5.08%
------------------- -------------------
Total interest-earning assets 93,494 1,780 7.62% 84,991 1,643 7.73%
------ ------
Cash and due from banks 1,133 589
Other assets 6,409 4,162
-------- -------
Total assets $101,036 $89,742
======== =======
INTEREST-BEARING LIABILITIES:
Passbook & Statement Savings $ 16,703 54 1.29% $15,608 52 1.33%
NOW's and MMA's 9,126 32 1.40% 6,462 27 1.67%
Certificate of deposits 40,143 515 5.12% 35,836 489 5.46%
------------------- -------------------
Total interest-bearing deposits 65,972 601 3.64% 57,906 568 3.92%
FHLB borrowings 20,021 276 5.51% 22,746 323 5.68%
------------------- -------------------
Total interest-bearing liabilities 85,993 877 4.07% 80,652 891 4.42%
------ ------
Demand deposit accounts 4,822 2,499
Other liabilities 693 324
-------- -------
Total liabilities 91,508 83,475
Stockholders' equity 9,528 6,267
-------- -------
Total liabilities and stockholders' equity $101,036 $89,742
======== =======
Net interest income $ 904 $ 752
====== ======
Interest rate spread 3.55% 3.31%
Net interest margin 3.87% 3.54%
Interest-earning assets/interest-bearing
liabilities 108.72% 105.38%
<CAPTION>
Nine Months Ended June 30, 1999 Nine Months Ended June 30, 1998
------------------------------- -------------------------------
Interest Interest
Average Income/ Yield Average Income/ Yield
Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Total loans, net $55,790 $3,444 8.23% $44,477 $2,830 8.48%
Investments 30,191 1,507 6.66% 34,964 1,827 6.97%
Other earning assets 4,079 138 4.51% 5,841 234 5.34%
------------------- -------------------
Total interest-earning assets 90,060 5,089 7.53% 85,282 4,891 7.65%
------ ------
Cash and due from banks 924 546
Other assets 5,537 3,486
------- -------
Total assets $96,521 $89,314
======= =======
INTEREST-BEARING LIABILITIES:
Passbook & Statement Savings $16,702 174 1.39% $14,892 142 1.27%
NOW's and MMA's 8,438 90 1.42% 5,745 69 1.60%
Certificate of deposits 39,059 1,552 5.30% 35,203 1,482 5.61%
------------------- -------------------
Total interest-bearing deposits 64,199 1,816 3.77% 55,840 1,693 4.04%
FHLB borrowings 18,645 770 5.51% 24,343 1,055 5.78%
------------------- -------------------
Total interest-bearing liabilities 82,844 2,586 4.16% 80,183 2,748 4.57%
------ ------
Demand deposit accounts 4,336 2,440
Other liabilities 495 363
------- -------
Total liabilities 87,675 82,986
Stockholders' equity 8,846 6,328
------- -------
Total liabilities and stockholders' equity $96,521 $89,314
======= =======
Net interest income $2,503 $2,143
====== ======
Interest rate spread 3.37% 3.08%
Net interest margin 3.71% 3.35%
Interest-earning assets/interest-bearing liabilities 108.71% 106.36%
</TABLE>
Rate/Volume Analysis
The following tables set forth certain information regarding changes
in interest income and interest expense of the Company for the periods
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to: (i) changes
in volume (changes in volume multiplied by old rate); (ii) changes in rates
(change in rate multiplied by old volume). Changes in rate-volume (changes
in rate multiplied by the changes in volume) are allocated between changes
in rate and changes in volume.
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 vs. 1998
Increase (decrease)
---------------------------
Due to
----------------
Rate Volume Total
---------------------------
(In Thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans, net $(39) $ 325 $ 286
Investments (39) (71) (110)
Other earning assets (6) (33) (39)
--------------------------
Total (84) 221 137
--------------------------
Interest expense:
Deposits (43) 76 33
Borrowed funds (8) (39) (47)
--------------------------
Total (51) 37 (14)
--------------------------
Change in net interest income $(33) $ 184 $ 151
==========================
<CAPTION>
Nine Months Ended June 30,
1999 vs. 1998
Increase (decrease)
---------------------------
Due to
----------------
Rate Volume Total
--------------------------
(In Thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans, net $ (95) $ 709 $ 614
Investments (76) (244) (320)
Other earning assets (31) (65) (96)
Total (202) 400 198
Interest expense:
Deposits (122) 245 123
Borrowed funds (44) (241) (285)
Total (166) 4 (162)
Change in net interest income $ (36) $ 396 $ 360
</TABLE>
Financial Condition and Results of Operations
Comparison of Financial Condition at June 30, 1999 and September 30, 1998.
The Company's total assets increased by $17.2 million or 19.2% to
$106.6 million at June 30, 1999 from $89.5 million at September 30, 1998.
The net increase in total assets is primarily attributable to a $18.2
million increase in net loans, offset by a $3.8 million decrease in cash and
cash equivalents. Total net loans increased by $18.2 million or 38.9% to
$65.1 million or 61.0% of total assets at June 30, 1999 as compared to $46.9
million or 52.4% of total assets at September 30, 1998. This increase
resulted from the receipt of $3.8 million in net proceeds from the issuing
of stock, the Company's continued emphasis on small business lending and a
favorable interest rate environment. Investment securities held by the
Company increased by $2.1 million or 6.7% to $33.1 million at June 30, 1999
from $31.0 million at September 30, 1998. This increase is due primarily to
the purchase of $5.0 million in mortgaged-backed securities and the
scheduled principal paydowns of mortgaged-backed and asset-backed
securities.
Total deposits increased by $8.3 million or 12.9% to $72.6 million at
June 30, 1999 from $64.3 million at September 30, 1998. This increase was
the result of the opening of the Chelsea branch and ordinary deposit growth.
Total Federal Home Loan Bank of Boston ("FHLB") advances increased by $5.1
million or 28.2% to $23.3 million at June 30, 1999 from $18.2 million at
September 30, 1998. Total equity increased by $3.6 million or 56.0% to
$10.1 million at June 30, 1999 from $6.5 million at September 30, 1998 as a
result of $3.8 million raised from the sale of stock, an increase of $2,000
in the net unrealized gain on securities and net income of $274,000.
Comparison of the Operating Results for the
Three Months ended June 30, 1999 and 1998.
Net Income. The Company's net income for the three months ended June 30,
1999 was $116,000 as compared to $85,000 for the three months ended June 30,
1998. This $31,000 or 36.5% increase in net income during the period was
the result of an increase of $137,000 in interest and dividend income, an
increase of $57,000 in other income, a decrease of $14,000 in interest
expense and a decrease in provision for loan losses of $24,000, partially
offset by an increase of $196,000 in operating expenses and an increase in
provisions for income taxes of $5,000. The increase in other income was
primarily the result of increased fees on transactional deposit accounts and
serviced loans and the adoption of FASB 125 - Capitalization of Mortgage
Servicing Rights. This adoption resulted in a one-time adjustment of
$41,000. The Company's continued expansion of its lending activities
accounted for the increase in interest and dividend income, while its
operating expenses increased due to the Company's planned expenditures in
human and technological resources, including increased staffing and non-
recurring start-up expenses associated with the Bank's new branch office in
Chelsea, Massachusetts. The return on average assets for the three months
ended June 30, 1999 was .46% compared to .38% for the three months ended
June 30, 1998.
Net Interest and Dividend Income. The Company's net interest and dividend
income for the three months ended June 30, 1999 increased $151,000 or 20.1%
to $903,000 from $752,000 for the three months ended June 30, 1998. The
increase can be attributed to a combination of the $137,000 increase in
interest and dividend income and a $14,000 decrease in interest expense on
deposits and borrowed funds due to lower interest rates.
The average yield on interest-earning assets decreased 11 basis points
to 7.62% for the three months ended June 30, 1999 from 7.73 % for the three
months ended June 30, 1998, while the average cost on interest-bearing
liabilities decreased by 34 basis points to 4.07% for the three months ended
June 30, 1999 from 4.41% for the three months ended June 30, 1998. As a
result of the Company's strategy to restructure the balance sheet by
expanding its small business lending activities in order to increase
interest rate spread, the interest rate spread increased to 3.55% for the
three months ended June 30, 1999 from 3.32% for the three months ended June
30, 1998 and the net interest margin improved from 3.54% to 3.87% during
this period.
Interest and Dividend Income. Total interest and dividend income increased
by $137,000 or 8.3% to $1.8 million for the three months ended June 30, 1999
from $1.6 million for the three months ended June 30, 1998. The increase in
interest and dividend income was a result of a higher level of loans and a
greater mix of higher yielding commercial and commercial real estate loans,
partially offset by a decline in the average balance of investment
securities and lower yields on investment securities. The average balance
of net loans for the three months ended June 30, 1999 was $60.9 million
compared to $45.5 million for the three months ended June 30, 1998. The
average yield on net loans was 8.29% for the three months ended June 30,
1999 compared to 8.58% for the three months ended June 30, 1998, reflecting
a general decline in interest rates. The average balance of investment
securities for the three months ended June 30, 1999 was $29.7 million
compared to $33.9 million for the three months ended June 30, 1998. The
average yield on investment securities was 6.54% for the three months ended
June 30, 1999 compared to 7.03% for the three months ended June 30, 1998.
Interest Expense. Interest expense decreased by $14,000 or 1.6 % to
$877,000 for the three months ended June 30, 1999 from $891,000 for the
three months ended June 30, 1998. Interest expense decreased primarily as a
result of a decrease in interest rates paid on FHLB borrowings and deposit
accounts offset by an increase in the level of FHLB advances during the
periods. Average interest-bearing deposits increased by $8.1 million or
13.9% to $66.0 million for the three months ended June 30, 1999. Deposit
balances have increased as a result of offering free checking products,
certificate of deposit products with competitive rates and new deposits
attributable to the new Chelsea branch. Accordingly, interest expense on
deposits increased $33,000 or 5.8% to $601,000 for the three months ended
June 30, 1999 compared to $568,000 for the three months ended June 30, 1998.
Interest expense on advances from the FHLB decreased $47,000 or 14.6% to
$276,000 for the three months ended June 30, 1999 from $323,000 for the
three months ended June 30, 1998. This is attributable to a decline in the
rates paid on such advances, and the payment of such advances as they
matured.
Provision for Loan Losses. The allowance for loan losses is maintained
through the provision for loan losses which is a charge to operations. The
provision reflects management's assessment of potential losses and is based
on a review of the risk characteristics as well as the growth of the loan
portfolio. The Bank considers many factors in determining the level of the
provision for loan losses. Collateral value on a loan by loan basis, trends
of loan delinquencies, risk classification identified in the Bank's regular
review of individual loans, and economic conditions are major factors in
establishing the provision. At June 30, 1999, the balance of the allowance
for loan losses was $593,000 or .90% of total loans versus $528,000 or 1.13%
of total loans at September 30, 1998. As the Bank continues to expand its
small business lending, additional increases to the provision are likely.
Noninterest Income. Total noninterest income increased by $57,000 or 77.0%
to $131,000 for the three months ended June 30, 1999 from $74,000 for the
three months ended June 30, 1998. The increase was primarily the result of
increased fees on transactional deposit accounts and serviced loans and the
adoption of FASB 125 - Capitalization of Mortgage Servicing Rights. This
adoption resulted in a one-time adjustment of $41,000. The Company
anticipates increases to noninterest income as it continues to expand the
volume of its deposit relationships. It is also the Company's goal to
increase its level of noninterest income by expanding its delivery systems
to include PC banking, debit cards and additional ATMs and by continually
considering additional sources of revenue. In this regard, the Company
began offering various investment products through a relationship with a
third-party broker-dealer during the second quarter of its current fiscal
year.
Noninterest Expense. Noninterest expense increased by $196,000 or 30.6% to
$836,000 for the three months ended June 30, 1999 from $640,000 for the
three months ended June 30, 1998. The increase resulted primarily from
planned expenditures in human and technological resources, including
increased staffing and non-recurring start up expenses associated with the
opening of the Chelsea branch. Salaries and employee benefits, the largest
component of noninterest expense was $456,000 for the three months ended
June 30, 1999 as compared to $326,000 for the three months ended June 30,
1998, an increase of $130,000 or 39.9%. This increase was primarily
associated with an increase of full time employees to staff the Bank's new
branch in Chelsea, commercial lending and operations departments. Occupancy
and equipment expense increased by $40,000 or 47.1% to $125,000 for the
three months ended June 30, 1999 as compared to $85,000 for the three months
ended June 30, 1998, with the increase primarily related to additional space
utilized for certain administrative functions and the opening of the
Company's new Chelsea branch. Other increases were incurred in the areas of
equipment, data processing and advertising services, primarily related to
the expansion of the Company's product lines and additional services,
including PC banking and debit cards, and the opening of the Chelsea branch.
Annual operating expenses are also expected to increase in future periods
due to the increased cost of operating an additional branch location and as
a stock institution, including the adoption of additional stock based
employee benefit plans.
Income Taxes. The net provision for income taxes amounted to $55,000 for
the three months ended June 30, 1999 as compared to $50,000 for the three
months ended June 30, 1998, resulting in effective tax rate of 32.2% and
37.0%, respectively. The effective tax rate reflects the Company's
utilization of a securities investment subsidiary to substantially reduce
state income taxes.
Comparison of the Operating Results for the
Nine Months ended June 30, 1999 and 1998.
Net Income. The Company's net income for the nine months ended June 30, 1999
was $274,000 as compared to $208,000 for the nine months ended June 30,
1998. This $66,000 or 31.7% increase in net income during the period was
the result of an increase of $198,000 in interest and dividend income, an
increase of $112,000 in other income, a decrease of $162,000 in interest
expense and a decrease in provision for loan losses of $102,000, partially
offset by an increase of $487,000 in operating expenses. The increase in
other income was primarily the result of increased fees on transactional
deposit accounts and serviced loans and the adoption of FASB 125 -
Capitalization of Mortgage Servicing Rights. This adoption resulted in a
one-time adjustment of $41,000. The Company's continued expansion of its
lending activities accounted for the increase in interest and dividend
income, while its operating expenses increased due to the Company's planned
expenditures in human and technological resources, including increased
staffing and non-recurring start-up expenses associated with the Bank's new
branch office in Chelsea, Massachusetts. The return on average assets for
the nine months ended June 30, 1999 was .38% compared to .31% for the nine
months ended June 30, 1998.
Net Interest and Dividend Income. The Company's net interest and dividend
income for the nine months ended June 30, 1999 increased $360,000 or 16.8%
to $2.5 million from $2.1 million for the nine months ended June 30, 1998.
The increase can be attributed to a combination of the $198,000 increase in
interest and dividend income and a $162,000 decrease in interest expense on
deposits and borrowed funds due to lower interest rates.
The average yield on interest-earning assets decreased 12 basis points
to 7.53% for the nine months ended June 30, 1999 from 7.65 % for the nine
months ended June 30, 1998, while the average cost on interest-bearing
liabilities decreased by 41 basis points to 4.16% for the nine months ended
June 30, 1999 from 4.57% for the nine months ended June 30, 1998. As a
result of the Company's strategy to restructure the balance sheet by
expanding its small business lending activities in order to increase
interest rate spread, the interest rate spread increased to 3.37% for the
nine months ended June 30, 1999 from 3.08% for the nine months ended June
30, 1998 and the net interest margin improved from 3.35% to 3.71% during
this period.
Interest and Dividend Income. Total interest and dividend income increased
by $198,000 or 4.0% to $5.1 million for the nine months ended June 30, 1999
from $4.9 million for the nine months ended June 30, 1998. The increase in
interest and dividend income was a result of a higher level of loans and a
greater mix of higher yielding commercial and commercial real estate loans,
partially offset by a decline in the average balance of investment
securities and lower yields on investment securities. The average balance
of net loans for the nine months ended June 30, 1999 was $55.8 million
compared to $44.5 million for the nine months ended June 30, 1998. The
average yield on net loans was 8.23% for the nine months ended June 30, 1999
compared to 8.48% for the nine months ended June 30, 1998, reflecting a
general decline in interest rates. The average balance of investment
securities for the nine months ended June 30, 1999 was $30.1 million
compared to $35.0 million for the nine months ended June 30, 1998. The
average yield on investment securities was 6.66% for the nine months ended
June 30, 1999 compared to 6.97% for the nine months ended June 30, 1998.
Interest Expense. Interest expense decreased by $162,000 or 5.9 % to $2.6
million for the nine months ended June 30, 1999 from $2.7 million for the
nine months ended June 30, 1998. Interest expense decreased primarily as a
result of a decrease in interest rates paid on FHLB borrowings and deposit
accounts and a significant decline in the level of FHLB advances during the
periods. Average interest-bearing deposits increased by $8.4 million or
15.0% to $64.2 million for the nine months ended June 30, 1999. Deposit
balances have increased as a result of offering free checking products,
certificate of deposit products with competitive rates and new deposits
attributable to the new Chelsea branch. Accordingly, interest expense on
deposits increased $123,000 or 7.3% to $1.8 million for the nine months
ended June 30, 1999 compared to $1.7 million for the nine months ended June
30, 1998. Interest expense on advances from the FHLB decreased $285,000 or
27.0% to $770,000 for the nine months ended June 30, 1999 from $1.1 million
for the nine months ended June 30, 1998. This is attributable to a decline
in the rates paid on such advances, and the payment of such advances as they
matured.
Provision for Loan Losses. The allowance for loan losses is maintained
through the provision for loan losses which is a charge to operations. The
provision reflects management's assessment of potential losses and is based
on a review of the risk characteristics as well as the growth of the loan
portfolio. The Bank considers many factors in determining the level of the
provision for loan losses. Collateral value on a loan by loan basis, trends
of loan delinquencies, risk classification identified in the Bank's regular
review of individual loans, and economic conditions are major factors in
establishing the provision. The provision for loan losses for the nine
months ended June 30, 1999 decreased by $102,000 or 58.6% to $72,000 from
$174,000 for the nine months ended June 30, 1998. At June 30, 1999, the
balance of the allowance for loan losses was $593,000 or .90% of total
loans. As the Bank continues to expand its small business lending,
additional increases to the provision are likely.
Noninterest Income. Total noninterest income increased by $112,000 or 48.7%
to $342,000 for the nine months ended June 30, 1999 from $230,000 for the
nine months ended June 30, 1998. The increase was primarily the result of
increased fees on transactional deposit accounts and serviced loans and the
adoption of FASB 125 - Capitalization of Mortgage Servicing Rights. This
adoption resulted in a one-time adjustment of $41,000. The Company
anticipates increases to noninterest income as it continues to expand the
volume of its deposit relationships. It is also the Company's goal to
increase its level of noninterest income by expanding its delivery systems
to include PC banking, debit cards and additional ATMs and by continually
considering additional sources of revenue. In this regard, the Company
began offering various investment products through a relationship with a
third-party broker-dealer during the second quarter of its current fiscal
year.
Noninterest Expense. Noninterest expense increased by $487,000 or 26.1% to
$2.4 million for the nine months ended June 30, 1999 from $1.9 million for
the nine months ended June 30, 1998. The increase resulted primarily from
planned expenditures in human and technological resources, including
increased staffing and non-recurring start up expenses associated with the
opening of the Chelsea branch. Salaries and employee benefits, the largest
component of noninterest expense was $1.2 million for the nine months ended
June 30, 1999 as compared to $941,000 for the nine months ended June 30,
1998, an increase of $268,000 or 28.5%. This increase was primarily
associated with an increase of full time employees to staff the Bank's new
branch in Chelsea, commercial lending and operations departments. Occupancy
and equipment expense increased by $106,000 or 40.6% to $367,000 for the
nine months ended June 30, 1999 as compared to $261,000 for the nine months
ended June 30, 1998, with the increase primarily related to additional space
utilized for certain administrative functions and the opening of the
Company's new Chelsea branch. Other increases were incurred in the areas of
equipment, data processing and advertising services, primarily related to
the expansion of the Company's product lines and additional services,
including PC banking and debit cards, and the opening of the Chelsea branch.
Annual operating expenses are also expected to increase in future periods
due to the increased cost of operating an additional branch location and as
a stock institution, including the adoption of additional stock based
employee benefit plans.
Income Taxes. The net provision for income taxes amounted to $146,000 for
the nine months ended June 30, 1999 as compared to $125,000 for the nine
months ended June 30, 1998, resulting in effective tax rate of 34.8% and
37.5%, respectively. The effective tax rate reflects the Company's
utilization of a securities investment subsidiary to substantially reduce
state income taxes.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, proceeds from the
principal and interest payments on loans, debt and equity securities, and to
a lesser extent, borrowings and proceeds from the sale of fixed rate
mortgage loans to the secondary market. While maturities and scheduled
amortization of loans and securities are predictable sources of funds,
deposit outflows, mortgage prepayments, mortgage loan sales, and borrowings
are greatly influenced by general interest rates, economic conditions and
competition.
The Company is required to maintain adequate levels of liquid assets.
This guideline, which may be varied depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term
borrowings. The Company has historically maintained a level of liquid
assets in excess of regulatory requirements. The Company's liquidity ratio
at June 30, 1999 was 5.76%.
Liquidity management is both a daily and long-term function of
management. If the Company requires funds beyond its ability to generate
them internally, the Company believes it could borrow additional funds from
the FHLB. At June 30, 1999, the Company had borrowings of $23.3 million.
At June 30, 1999, the Company had $5.1 million in outstanding
commitments to originate loans. The Company anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Certificates of deposit which are scheduled to mature in one year or less
totaled $22.5 million at June 30, 1999. Based on historical experience,
management believes that a significant portion of such deposits will remain
with the Bank.
The Company expects to incur additional costs associated with the
Chelsea branch office and the main office, including costs associated with
the potential installation of an ATM and additional renovation costs.
Management anticipates that it will have sufficient funds available to meet
its planned capital expenditures throughout 1999.
At June 30, 1999, the Company and the Bank exceeded all of their
regulatory capital requirements.
Year 2000
The "Year 2000 Problem" centers on the inability of computer systems
to recognize the Year 2000. Software, hardware, and equipment both within
and outside the Bank's direct control and with whom the Bank electronically
or operationally interfaces (e.g. third party vendors providing data
processing, information system management, maintenance of computer systems,
and credit bureau information) are likely to be affected. Furthermore, if
computer systems are not adequately changed to identify the Year 2000, many
computer applications could fail or create erroneous results. As a result,
many calculations which rely on the date field information, such as
interest, payment or due dates and other operating functions, will generate
results which could be significantly misstated, and the Bank could
experience a temporary inability to process transactions, send invoices or
engage in similar normal business activities. In addition, noninformation
technology systems, such as equipment like telephones, copiers and elevators
may also contain embedded technology which control their operation and which
may be effected by the Year 2000 Problem.
Under certain circumstances, failure to adequately address the Year
2000 Problem could adversely affect the viability of the Company's suppliers
and creditors and the creditworthiness of its borrowers. Thus, if not
adequately addressed, the Year 2000 Problem could result in a significant
adverse impact on the Company's products, services and competitive
condition.
In order to address the Year 2000 issue and to minimize its potential
adverse impact, management has begun a process to identify areas that will
be affected by the Year 2000 Problem, assess its potential impact on the
operations of the Company, monitor the progress of third party software
vendors in addressing the matter, test changes provided by these vendors,
and develop contingency plans for any critical systems which are not
effectively reprogrammed. A committee of senior officers of the Company has
been formed to evaluate the effects that the upcoming Year 2000 could have
on computer programs utilized by the Company. The Company's plan is divided
into the five phases: (1) awareness - define the problem, obtain executive
level support and develop an overall strategy; (2) assessment - identify all
systems and the criticality of the systems; (3) renovation - program
enhancements, hardware and software upgrades, system replacements, and
vendor certifications; (4) validation - test and verify system changes and
coordinate with outside parties; and (5) implementation - components
certified as Year 2000 compliant and moved to production. As of June 30,
1999, the Company has completed the five phases. The Company believes that
its internal systems and equipment are Year 2000 compliant.
Third party vendors provide the majority of software used by the
Company. All of the Company's vendors are aware of the Year 2000 situation,
and each has assured the Company that it is currently working to have its
software compliant by June, 1999. The Bank utilizes the service of a third
party vendor to provide the software which is used to process and maintain
most mortgage and deposit customer-related accounts. This vendor has
provided the Company with a software version which has been certified to be
Year 2000 compliant. Testing by the Bank is underway to verify compliance
for its application and usage. The Company presently believes that with
modifications to existing software and conversions to new software, the Year
2000 Problem will be mitigated without causing a material adverse impact on
the operations of the Company. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 Problem
could have an impact on the operations of the Company.
The Company carefully considers the Year 2000 readiness of its
potential commercial borrowers in the lending process. Commencing in
September 1998, each potential new commercial borrower was required to enter
into a Year 2000 agreement with the Company certifying that the borrower is
or will shortly be Year 2000 compliant. Moreover, the failure to be Year
2000 compliant constitutes a default under the terms of new loan agreements
with commercial borrowers. In addition, since April 1998, the Company has
monitored the Year 2000 compliance of its commercial borrowers asking them
to certify that they are Year 2000 compliant. Follow up letters have been
sent to all commercial borrowers who have failed to respond to the Company's
Year 2000 inquiries.
Monitoring and managing the year 2000 project will result in
additional direct and indirect costs to the Company. Direct costs include
potential charges by third party software vendors for product enhancements,
costs involved in testing software products for Year 2000 compliance, and
any resulting costs for developing and implementing contingency plans for
critical software products which are not enhanced. Indirect costs will
principally consist of the time devoted by existing employees in monitoring
software vendor progress, testing enhanced software products and
implementing any necessary contingency plans. The Company has spent
approximately $40,000 on Year 2000 related costs to date and estimates that
it will spend an additional $7,000 for Year 2000 compliance. Both direct
and indirect costs of addressing the Year 2000 Problem will be charged to
earnings as incurred. The Company does not believe that such costs will
have a material effect on results of operations. However, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another
company or a conversion that is incompatible with the Company's systems,
would not have material adverse effect on the Company. Although no
independent analysis of the Company's potential exposure has been obtained,
the Company believes it has no exposure to contingencies related to the Year
2000 Problem for the products it has sold. The Company's network
consultant, EOS Systems, Inc., has examined the hardware and software used
by the Company and has certified that such hardware and software is Year
2000 compliant.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could
differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct
all relevant computer codes, and similar uncertainties. The Company has
developed a contingency plan which would be implemented in the unlikely
event that Year 2000 issues arise.
PART II OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security holders
The Company held its Special Meeting of Shareholders ("Meeting") on
June 29, 1999. All of the proposals submitted to the shareholders at the
Meeting were approved. The proposals submitted to shareholders and the
tabulation of votes for each proposal is as follows:
1. Approval of 1999 RFS Bancorp, Inc. Stock Option Plan
The number of votes cast with respect to this matter was as follows:
<TABLE>
<CAPTION>
For Against Withheld Broker Non-Votes
--- ------- -------- ----------------
<S> <C> <C> <C>
719,765 29,150 375 0
</TABLE>
2. Approval of 1999 RFS Bancorp, Inc. Recognition and Retention Plan
The number of votes cast with respect to this matter was as follows:
<TABLE>
<CAPTION>
For Against Withheld Broker Non-Votes
--- ------- -------- ----------------
<S> <C> <C> <C>
720,140 28,775 375 0
</TABLE>
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RFS BANCORP, INC.
Date: By: /s/ James J. McCarthy
-----------------------------------
James J. McCarthy
President and Chief Executive Officer
Date: _________________________ By: /s/ Anthony J. Patti
-----------------------------------
Anthony J. Patti
Executive Vice President and
Chief Financial Officer (principal
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 2,003
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,117
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,808
<INVESTMENTS-CARRYING> 27,262
<INVESTMENTS-MARKET> 26,832
<LOANS> 65,663
<ALLOWANCE> 593
<TOTAL-ASSETS> 106,637
<DEPOSITS> 72,590
<SHORT-TERM> 0
<LIABILITIES-OTHER> 597
<LONG-TERM> 23,334
0
0
<COMMON> 9
<OTHER-SE> 10,107
<TOTAL-LIABILITIES-AND-EQUITY> 106,637
<INTEREST-LOAN> 3,444
<INTEREST-INVEST> 1,507
<INTEREST-OTHER> 138
<INTEREST-TOTAL> 5,089
<INTEREST-DEPOSIT> 1,816
<INTEREST-EXPENSE> 2,586
<INTEREST-INCOME-NET> 2,503
<LOAN-LOSSES> 72
<SECURITIES-GAINS> 37
<EXPENSE-OTHER> 2,353
<INCOME-PRETAX> 420
<INCOME-PRE-EXTRAORDINARY> 420
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274
<EPS-BASIC> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 7.62
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 528
<CHARGE-OFFS> 9
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 593
<ALLOWANCE-DOMESTIC> 593
<ALLOWANCE-FOREIGN> 0
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