SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ ] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1998
-----------------
|_| Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ---------------
SEC Fine Number: 000-25009
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SKIBO FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 25-1820465
- --------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
242 East Main Street, Carnegie, Pennsylvania 15106
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(412) 276-2424
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(Registrant's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of common stock
as of January 31, 1999
$0.10 Par Value Common Stock 3,444,745 Shares
- ---------------------------- --------------------
Class Outstanding
Transitional Small Business Disclosure Format (check one)
Yes No X
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<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition (As of
December 31, 1998 (unaudited) and March 31, 1998)............1
Consolidated Statements of Operations (For the three and
nine months ended December 31, 1998 and 1997 (unaudited))....2
Consolidated Statement of Stockholders' Equity (For the
nine months ended December 31, 1998 (unaudited)..............3
Consolidated Statements of Cash Flows (For the nine
months ended December 31, 1998 and 1997 (unaudited)).........4
Notes to Consolidated Financial Statements...................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................10
PART 11. OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings.................................................17
Item 2. Changes in Securities.............................................17
Item 3. Defaults Upon Senior Securities...................................17
Item 4. Submission of Matters to a Vote of Security-Holders...............17
Item 5. Other Information.................................................17
Item 6. Exhibits and Reports on Form 8-K..................................17
Signatures
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ---------
ASSETS (Unaudited)
------
<S> <C> <C>
Cash and amounts due from depository institutions $ 530 $ 523
Interest-bearing deposits with other institutions 524 2,748
Investment securities:
Held-to-maturity (market value $25,907 and $15,836) 25,990 15,777
Mortgage-backed securities:
Held-to-maturity (market value $53,324 and $54,903) 53,028 54,315
Loans receivable, net 62,427 67,884
Real estate owned, net -- 11
Accrued interest receivable:
Investment securities 327 224
Mortgage-backed securities 369 408
Loans receivable 752 800
Federal Home Loan Bank stock, at cost 2,315 2,307
Premises and equipment, net 715 759
Prepaid expenses and other assets 3,058 2,376
--------- ---------
Total Assets $ 150,035 $ 148,132
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Savings deposits $ 77,408 $ 77,226
Federal Home Loan Bank advances 44,300 41,300
Bonds payable 1,441 1,618
Other borrowings -- 666
Advances from borrowers for taxes and insurance 154 166
Accrued expenses and other liabilities 1,845 2,176
--------- ---------
Total Liabilities 125,148 123,152
--------- ---------
Stockholders' Equity:
Common stock, $0.10 par value; 10,000,000 shares authorized;
3,449,973 and 2,300,000 shares issued
3,444,745 and 2,300,000 shares outstanding 345 230
Additional paid-in capital 9,750 9,800
Treasury stock, at cost (5,228 shares (65) --
Unearned employee stock ownership plan (ESOP) shares (501) (625)
Unearned restricted stock plan (RSP) shares (440) --
Retained earnings, substantially restricted 15,798 15,575
--------- ---------
Total Stockholders' Equity 24,887 24,980
--------- ---------
Total Liabilities and Stockholders' Equity $ 150,035 $ 148,132
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three and Nine Months Ended December 31, 1998 and 1997
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
----- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 1,149 $ 1,142 $ 3,584 $ 3,462
Mortgage-backed securities 828 1,013 2,551 3,010
Investment securities 331 290 848 938
Other 93 62 262 222
----------- ----------- ----------- -----------
Total interest income 2,401 2,507 7,245 7,632
Interest expense:
Savings deposits 865 889 2,616 2,689
Federal Home Loan Bank advances 548 587 1,625 1,762
Bonds payable 35 44 113 143
Other borrowings 14 17 42 52
----------- -----------
Total interest expense 1,462 1,537 4,396 4,646
----------- ----------- ----------- -----------
Net interest income 939 970 2,849 2,986
Provision for loan losses 5 15 20 45
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 934 955 2,829 2,941
Other income:
Fees and service charges 14 16 39 43
Loss on sale of securities -- -- -- (8)
Other 3 58 27 192
----------- ----------- ----------- -----------
Total other income 17 74 66 227
Other expenses:
Compensation and employee benefits 573 621 1,606 1,456
Premises and occupancy costs 54 59 166 173
Federal insurance premiums 11 12 35 41
Other operating expenses 93 77 281 257
----------- ----------- ----------- -----------
Total other expenses 731 769 2,088 1,927
----------- ----------- ----------- -----------
Income before income taxes 220 260 807 1,241
Provision for income taxes 95 133 335 556
----------- ----------- ----------- -----------
Net income $ 125 $ 127 $ 472 $ 685
=========== =========== =========== ===========
Basic earnings per share $ .04 $ .04 $ .14 $ .21
Diluted earnings per share $ .04 $ .04 $ .14 $ .21
Weighted average shares outstanding-basic 3,350,617 3,350,115 3,356,716 3,350,115
Weighted average shares outstanding-diluted 3,372,922 3,350,115 3,364,151 3,350,115
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended December 31, 1998 (unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Common Stock Additional Unearned Unearned
Number of Paid-in Treas. ESOP RSP Retained
Shares Amount Capital Stock Shares Shares Earnings Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1998 2,300,000 $230 $9,800 $ -- $(625) $ -- $15,575 $24,980
Cash dividends declared net
($.45 per share) -- -- -- -- -- -- (249) (249)
Reduction of equity for restricted
stock plan (RSP) liability -- -- -- -- -- (770) -- (770)
Excess of fair value above cost of
ESOP shares released or
committed to be released -- -- 65 -- -- -- -- 65
Amortization of ESOP liability -- -- -- -- 124 -- -- 124
Amortization of RSP liability -- -- -- -- -- 330 -- 330
Treasury stock purchased,
at cost (5,228 shares) -- -- -- (65) -- -- -- (65)
Reorganization-additional stock issued 1,149,973 115 (115) -- -- -- -- --
Net income -- -- -- -- -- -- 472 472
---------------------------------------------------------------------------------------------
Balance at December 31, 1998 3,449,973 $345 $9,750 $ (65) $(501) $ (440) $15,798 $24,887
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended December 31, 1998 and 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Operating activities:
Net income $ 472 $ 685
Adjustments to reconcile net income to net cash
(used in) provided by
operating activities:
Provision for loan losses 20 45
Depreciation 66 60
Compensation expense-ESOP and RSP 519 280
Loss on sale of mortgage-backed securities available-for-sale -- 4
Loss on sale of investment securities available for-sale -- 4
Net amortization of premiums and discounts 82 142
Increase in accrued interest receivable (16) (54)
Increase in prepaid expenses (682) (246)
Decrease in accrued interest payable (297) (71)
Decrease in accrued income taxes (121) (15)
Other, net 60 112
-------- --------
Net cash provided by operating activities 103 946
-------- --------
Investing activities:
Purchases of premises and equipment (22) (36)
Purchases of investment securities held-to maturity (17,187) (5,392)
Purchases of mortgage-backed securities held-to-maturity (11,290) (12,091)
Proceeds from sale of investment securities available-for-sale -- 721
Proceeds from sale of mortgage-backed securities available-for-sale -- 519
Proceeds from maturities/calls and principal repayments of:
Investment securities held-to-maturity 6,941 6,594
Mortgage-backed securities held-to-maturity 12,658 7,562
Mortgage-backed securities available-for-sale -- 33
Loans purchased (9,333) (7,477)
Net principal repayments on loans 14,643 6,467
Decrease (increase) in Federal Home Loan Bank stock (8) 140
-------- --------
Net cash used in investing activities $ (3,598) $ (2,960)
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements. (continued)
4
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Nine Months Ended December 31, 1998 and 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Financing activities:
Decrease of stock subscriptions $ -- $(13,606)
Net increase (decrease) in savings deposits 182 (10,507)
Proceeds from Federal Home Loan Bank advances 23,000 37,600
Repayment of Federal Home Loan Bank advances (20,000) (42,400)
Principal repayment of bonds payable and other borrowings (843) (415)
Net decrease in mortgage escrow (12) (26)
Common stock acquired by ESOP -- (828)
Proceeds from other borrowings -- 828
Treasury stock purchased (65) --
Common stock acquired for RSP (770) --
Capitalization of SKIBO Bancshares, M.H.C -- (100)
Cash dividends paid (214) (214)
Net proceeds from sale of common stock -- 9,849
--------
Net cash provided by (used in) financing activities 1,278 (19,819)
-------- --------
Net decrease in cash and cash equivalents (2,217) (21,833)
Cash and cash equivalents, beginning of period 3,271 22,701
-------- --------
Cash and cash equivalents, end of period $ 1,054 $ 868
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,694 $ 4,498
======== ========
Income taxes $ 530 $ 603
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - Corporate Reorganization
------------------------
On October 29, 1998, First Carnegie Deposit reorganized into a two-tier holding
company structure. First Carnegie Deposit formed a new mid-tier, federally
chartered, stock holding company, Skibo Financial Corp. (the "Company"), which
is 55% owned by Skibo Bancshares, M.H.C. As a result of this reorganization,
Skibo Financial Corp. became the parent company of First Carnegie Deposit and
owns 100% of First Carnegie Deposit's common stock. Upon surrender of First
Carnegie Deposit common stock, shareholders of record on October 29, 1998
received, on a three-for-two basis, shares of the new publicly traded entity,
Skibo Financial Corp. Aside from this two-tier holding company structure giving
the Company greater flexibility by maintaining the benefits of the mutual
holding company while capitalizing on the additional opportunities available to
stock holding companies, the operations remain unchanged.
The reorganization was accounted for in a manner similar to a pooling of
interests. Accordingly, the prior years' consolidated financial statements of
the Company are identical to the prior periods' consolidated financial
statements of First Carnegie Deposit.
NOTE 2 - Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Skibo Financial Corp., its wholly-owned subsidiary First Carnegie
Deposit (the "Bank"), and the Bank's wholly owned subsidiaries, Fedcar, Inc. and
Carnegie Federal Funding Corporation ("CFFC"). Fedcar, Inc. is a service
corporation that is currently inactive. CFFC is a special purpose subsidiary
that was formed for the issuance of collateralized mortgage obligations.
These statements have been prepared in accordance with instructions for Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, such information presented reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
the Company's management, necessary for a fair statement of results for the
interim period. All significant intercompany transactions and balances have been
eliminated in consolidation.
The results of operations for the three and nine months ended December 31, 1998
are not necessarily indicative of the results to be expected for the year ending
March 31, 1999 or any other period. The unaudited consolidated financial
statements and notes thereto should be read in conjunction with the audited
financial statements and notes thereto for the year ended March 31, 1998.
NOTE 3 - Reclassification of Prior Period's Statements
---------------------------------------------
Certain items previously reported have been reclassified to conform with the
current year's reporting format. The number of shares and related earnings per
share have been restated to reflect the Company's reorganized structure and
three-for-two exchange of stock in fiscal year 1999.
NOTE 4 - Dividends on Common Stock
-------------------------
On December 10, 1998, the Board of Directors of the Company declared a $0.075
per share cash dividend on the Company's outstanding shares of common stock,
payable to stockholders of record as of December 31, 1998. Skibo Bancshares,
M.H.C. (the "M.H.C.") waived the receipt of dividends on its 1,897,500 shares.
The cash dividends on the remaining outstanding shares were paid on January 15,
1999. There can be no assurance that the Office of Thrift Supervision ("OTS")
will permit future dividend waivers, or of the terms of such permitted waivers.
Furthermore, any waiver of dividends by the M.H.C. may result in an adjustment
to the ratio pursuant to which shares of Company common stock are exchanged for
shares of a stock holding company should the M.H.C. convert from the mutual to
stock form of organization. Such an adjustment would have the effect of diluting
the minority stockholders of the Company.
Skibo Financial Corp.'s common stock is currently listed on the Nasdaq SmallCap
Market, traded under the symbol of "SKBO" and listed in the Wall Street Journal
as "SkiboFn".
6
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5 - Earnings Per Share (EPS)
------------------------
Basic EPS is computed by dividing net income applicable to common stock by the
weighted average number of common shares outstanding during the period, without
considering any dilutive items. Diluted EPS is computed by dividing net income
applicable to common stock by the weighted average number of common shares and
common stock equivalents for items that are dilutive, net of shares assumed to
be repurchased using the treasury stock method at the average share price for
the Company's common stock during the period. Common stock equivalents arise
from the assumed conversion of outstanding stock options and unvested RSP
shares.
As required, all previously reported primary and fully diluted EPS have been
replaced with the presentation of basic and diluted EPS. The computation of
basic and diluted earnings per share is shown in the table below:
Three Months Ended Nine Months Ended
------------------ -----------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
Basic EPS computation:
Numerator-Net Income $ 125,000 $ 127,000 $ 472,000 $ 685,000
Denominator-Wt Avg common
shares outstanding 3,350,617 3,388,111 3,356,716 3,331,699
Basic EPS $ .04 $ .04 $ .14 $ .21
========== ========== ========== ==========
Diluted EPS computation:
Numerator-Net Income $ 125,000 $ 127,000 $ 472,000 $ 685,000
Denominator-Wt Avg
common stock outstanding 3,350,617 3,388,111 3,356,716 3,331,699
Dilutive Stock Options 21,973 -- 7,324 --
Dilutive Unvested RSP 332 -- 111 --
---------- ---------- ---------- ----------
Weighted avg common
shares and common stock
equivalents 3,372,922 3,388,111 3,364,151 3,331,699
Diluted EPS $ .04 $ .04 $ .14 $ .21
========== ========== ========== ==========
Shares outstanding for the three and nine months ended December 31, 1998 and
1997 do not include ESOP shares that were unallocated in accordance with
Statement of Position ("SOP") 93-6, "Employers' Accounting for Employees Stock
Ownership Plans". Unallocated ESOP shares amounted to 75,135 and 99,885 at
December 31, 1998 and 1997, respectively.
NOTE 6 - Employee Stock Ownership Plan ("ESOP")
--------------------------------------
The ESOP borrowed $828,000 from an independent third party lender to fund the
purchase of 8.0% of the shares the Company sold in the minority stock offering.
The Bank makes scheduled discretionary contributions to the ESOP sufficient to
service the debt over no more than a ten year period. The cost of shares not
committed to be released and unallocated (suspense shares) is reported as a
reduction in stockholders' equity. Dividends on allocated and unallocated shares
are used for debt service. Shares are released to participants based on a
compensation formula.
On December 31, 1998, Skibo Financial Corp. granted a loan to First Carnegie
Deposit to refinance the ESOP loan. The remaining term, maturity date, and
payment schedule are the same, however the rate decreased to a fixed rate of
7.75%.
7
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In connection with the formation of the ESOP, the Company adopted SOP 93-6. SOP
93-6 requires that (1) compensation expense be recognized based on the average
fair value of the ESOP shares committed to be released; (2) dividends on
unallocated shares used to pay debt service be reported as a reduction of debt
or of accrued interest payable and that dividends on allocated shares be charged
to retained earnings; and (3) ESOP shares which have not been committed to be
released not be considered outstanding for purposes of computing earnings per
share.
Compensation expense related to the ESOP amounted to $61,000 and $228,000 for
the three months ended December 31, 1998 and December 1997, respectively.
Compensation expense amounted to $190,000 and $280,000 for the nine months ended
December 31, 1998 and December 1997, respectively. At December 31, 1998, there
were 75,135 suspense shares. ESOP shares totalling 49,065 were allocated as of
December 31, 1998. The fair value of unearned ESOP shares at December 31, 1998
totalled $573,000.
NOTE 7 - Stock Based Compensation Plans
------------------------------
On April 16, 1998, after stockholder approval, the Company implemented the "1998
Stock Option Plan" (the "Stock Option Plan") and the "1998 Restricted Stock
Plan"(the "Restricted Stock Plan").
The Stock Option Plan provides for authorizing the issuance of an additional
155,246 shares of common stock by the Company upon the exercise of stock options
awarded to officers, directors, key employees and other persons providing
services to the Company. The Company may also purchase shares through the open
market. There were 155,246 shares of options granted under the Stock Option Plan
and they constitute either Incentive Stock Options or Non-Incentive Stock
Options and were first exercisable at a rate of 50% on the date of the grant and
50% one year later. The Company uses the "intrinsic value based method" as
prescribed by APB Opinion 25. Under APB No. 25, because the exercise price of
the Company's stock options equal the market price of the underlying stock on
the date of grant, no compensation expense is recognized. Accordingly, common
stock issuable pursuant to outstanding options will be considered outstanding
for purposes of calculating earnings per share, if dilutive.
The Restricted Stock Plan provides for the purchase of 62,098 shares of common
stock in the open market. All of the Common Stock purchased by the Restricted
Stock Plan was purchased at the fair market value of such stock on the date of
purchase. Awards under the Restricted Stock Plan were made in recognition of
expected future services to the Company by its directors, officers and key
employees responsible for implementation of the policies adopted by the
Company's Board of Directors and as a means of providing a further retention
incentive. Twenty and thirty-three percent of such awards were earned and
non-forfeitable at the date of the grant and twenty and thirty-three percent
annually thereafter, provided the recipient remains an employee. Executive
officers earn awards at a rate of thirty-three percent per year, while
directors, other officers, and key employees earn at a rate of twenty percent
per year.
NOTE 8 - Comprehensive Income
--------------------
For the three months ended December 31 1998 and 1997, the Company's total
comprehensive income was $125,000 and $127,000, respectively. For the nine
months ended December 31, 1998 and 1997, the Company's total comprehensive
income was $472,000 and $685,000, respectively. Total comprehensive income is
comprised of net income and other comprehensive income. For both the three and
nine months periods, there was no other comprehensive income.
NOTE 9 - Recent Accounting, Regulatory and Other Matters
-----------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as "the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners". The
comprehensive income and related cumulative equity impact of comprehensive
income items will be required to be disclosed as a separate statement or as a
component of the Company's statement of operations. The Company adopted SFAS 130
for the quarter ended June 30, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". SFAS No. 131 requires an entity to disclose
financial information in a manner consistent to internally used information and
requires more detailed disclosures of operating and reporting segments that are
currently in practice. SFAS No. 131 is applicable for years beginning after
December 15, 1997; however, presentation in interim financial statements is not
required for the quarterly reporting period ended December 31, 1998.
8
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure About
Pensions and Other Post-retirement Benefits." SFAS No. 132 revises employers'
disclosures about pension and other post-retirement benefit plans. It does not
change the measurement or recognition of those plans. SFAS No. 132 is applicable
for years beginning after December 15, 1997. The Company plans to adopt this
standard in their 1999 annual report.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative financial instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. Management
has not yet determined the impact, if any, the adoption of this statement will
have on the Company's consolidated financial condition or results of operations.
SFAS 133 will be effective for all fiscal quarters beginning after June 15,
1999.
NOTE 10 - Income Taxes
Income tax expense is recognized after giving effect to special rules applicable
to thrift institutions. The Company joins with its wholly owned subsidiary,
First Carnegie Deposit, in filing a consolidated federal income tax return.
The Company accounts for income taxes using the asset and liability method. The
objective of the asset and liability method is to establish deferred tax assets
and liabilities for temporary differences between the financial reporting and
tax basis of the Company's assets and liabilities based on enacted tax rates
expected to be in effect when such amounts are realized or settled.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's results of operations are primarily dependent upon net interest
income, which is the difference between the interest income earned on
interest-earning assets, primarily loans, mortgage-backed securities, and
investments, and the interest expense on interest-bearing 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 significantly influenced by the level of noninterest
expenses, such as employee salaries and benefits, noninterest income, such as
loan-related fees and fees on deposit-related services, and the Company's
provision for loan losses.
The Management Discussion and Analysis section of this Form 10-QSB contains
certain forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995). These forward-looking statements may involve
risks and uncertainties. Although management believes that the expectations
reflected in such forward-looking statements are reasonable, actual results may
differ from the results in these forward-looking statements.
Changes in Financial Condition
The Company's total assets of $150,035,000 at December 31, 1998, reflected an
increase of $1,903,000 or 1.3% from $148,132,000 at March 31, 1998. The increase
in total assets was primarily due to an increase in investment securities and
prepaid expenses, partially offset by decreases in interest-bearing deposits,
mortgage-backed securities and loans receivable.
The increase in the Company's liabilities was primarily due to increases in
Federal Home Loan Bank ("FHLB") advances, offset by decreases in other
borrowings and other liabilities. Changes in the components of assets,
liabilities and equity are discussed herein.
Loans Receivable, net. Net loans receivable at December 31, 1998 totalled
$62,427,000, a decrease of $5,457,000 or 8.0%, as compared to $67,884,000 at
March 31, 1998. The decrease was primarily due to principal repayments totalling
$15.6 million, offset by originations of $954,000 and purchases of $9.3 million.
The Company purchased $3.9 million one -to four-family mortgages, $243,000
multi-family project loans, $4.0 million farm mortgages, $180,000 commercial
non-mortgage loans, and $1.0 million agricultural and Small Business
Administration (SBA) loans.
Mortgage-backed Securities. Mortgage-backed securities were $53,028,000 at
December 31, 1998, a decrease of $1,287,000 or 2.4%, as compared to $54,315,000
at March 31, 1998. The decrease was due to principal repayments and maturities
totalling $12.7 million, offset by purchases of $11.3 million.
Investment Securities. Investment securities totalled $25,990,000 at December
31, 1998, an increase of $10,213,000 or 64.7%, as compared to $15,777,000 at
March 31, 1998. This was primarily a result of purchases of $17.2 million of
U.S. Agency securities, offset by the proceeds from maturities, calls and
payments totalling $6.9 million.
Cash and Cash Equivalents. Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits, totalled $1,054,000, a
decrease of $2,217,000 or 67.8% from the prior quarter. This decrease was
primarily due to decreased interest-bearing deposits at the FHLB.
Deposits. Total deposits, after interest credited, increased by $182,000 or .2%
to $77,408,000 at December 31, 1998, as compared to $77,226,000 at March 31,
1998. The increase was primarily due to increases in NOW and Money Market
accounts, partially offset by a decrease in passbook accounts.
FHLB Advances. FHLB advances, at December 31, 1998, totalled $44,300,000, an
increase of $3.0 million or 7.3%, as compared to $41,300,000 at March 31, 1998.
The Company uses FHLB advances as a funding source to supplement deposits.
Stockholders' Equity. Stockholders' equity totalled $24,887,000 at December 31,
1998, as compared to $24,980,000 at March 31, 1998. The decrease of $93,000 or
.4% was primarily due to the Company's implementation of a restricted stock
plan, offset by earnings for the nine months ended December 31, 1998. See Note 7
"Stock Based Compensation Plans".
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended December 31, 1998 and 1997
Net Income. The Company recorded net income of $125,000 for the three months
ended December 31, 1998, as compared to net income of $127,000 for the three
months ended December 31, 1997. The $2,000 or 1.6% decrease in net income for
the three months ended December 31, 1998 was primarily the result of decreases
in net interest income and other income, which were partially offset by
decreases in other expenses, provision for income taxes, and provision for loan
losses. Changes in the components of income and expense are discussed herein.
Net Interest Income. Net interest income decreased $31,000 or 3.2% for the three
months ended December 31, 1998, as compared to the three month period ended
December 31, 1997. Although the average balance of interest-earning assets
increased $2.7 million or 1.9%, the average yield earned thereon decreased 43
basis points. The average balance of interest-bearing liabilities increased by
$2.5 million or 2.1% with a 36 basis point decrease in the average rate paid
thereon.
The interest rate spread, which is the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities,
declined to 1.84% for the three month period ended December 31, 1998 from 1.91%
for the three month period ended December 31, 1997. The decline in the interest
rate spread was primarily the result of purchased one- to four-family mortgages
at yields lower than the yields in the existing loan portfolio and a $1.6
million principal reduction in SBA loans with higher yields. The decline is also
attributable to a decrease in the yield of investments and mortgage-backed
securities.
Interest Income. Interest income decreased $106,000 or 4.2% to $2,401,000 for
the three month period ended December 31, 1998, as compared to $2,507,000 for
the three month period ended December 31, 1997.
Interest on loans receivable increased $7,000 or .6% for the three months ended
December 31, 1998, as compared to the three month period ended December 31,
1997. This increase was primarily the result of a $2.3 million increase in the
average balance of loans receivable primarily due to the purchases of one -to
four-family, multi-family, farm mortgages, and agricultural and SBA loans,
offset by a 22 basis point decrease in the average yield earned thereon.
Interest income on mortgage-backed securities decreased $185,000 or 18.3% for
the three months ended December 31, 1998, as compared to the three months ended
December 31, 1997. This decrease was primarily the result of a $7.4 million
decrease in the average balance of such securities and a 45 basis point decrease
in the average yield earned thereon.
Interest income on investment securities increased by $41,000 or 14.1% for the
three months ended December 31, 1998, as compared to the three months ended
December 31, 1997. The increase in interest income on investment securities was
primarily due to a $6.0 million higher average balance of such securities,
offset by a decrease in the average yield of 117 basis points.
Interest income on other interest-earning assets increased by $31,000 or 50.0%
for the three months ended December 31, 1998, as compared to the three months
ended December 31, 1997. The increase was primarily due a $1.7 million increase
in the average interest-earning deposits at other financial institutions and a
24 basis point increase in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 6.71%
and 7.14% for the three month periods ended December 31, 1998 and 1997,
respectively.
Interest Expense. Interest expense totalled $1,462,000 for the three months
ended December 31, 1998, as compared to $1,537,000 for the three months ended
December 31, 1997. The $75,000 or 4.9% decrease was primarily due to decreased
average balances in certificates of deposit accounts, passbook savings and other
borrowings, offset by an increase in FHLB advances. The 36 basis point decrease
in the average rate paid on the total average interest-bearing liabilities also
contributed to the decrease.
Interest expense on deposits (including escrows) decreased $24,000 or 2.7% for
the three months ended December 31, 1998, as compared to the three months ended
December 31, 1997. The decrease was primarily due to a $315,000 decrease in
average deposits and a 10 basis point decrease in the average rate paid thereon.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest on FHLB advances decreased $39,000 or 6.6% for the three months ended
December 31, 1998, as compared to the three months ended December 31, 1997. The
decrease was primarily due to an 87 basis point decrease in the rate paid
thereon, offset by an increase of $3.5 million in the average balance of
advances. The Company uses FHLB advances as a funding source and has in the past
used borrowings to supplement deposits, which are the Company's primary source
of funds.
Interest on bonds payable and other borrowings, a less significant portion of
interest expense, decreased by $12,000 or 19.7%, as the average principal amount
of other borrowings decreased by $703,000 due to the repayment of the ESOP loan.
The average rate paid on bonds payable and other borrowings increased 97 basis
points.
Provision for Loan Losses. During the three month periods ended December 31,
1998 and 1997, the Company established provisions for loan losses of $5,000 and
$15,000, respectively. This reflected management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses.
At December 31, 1998, the allowance for loan losses totalled $570,000 or .91%
and 81.8% of total loans and total non-performing loans, respectively, as
compared to $549,000 or .81% and 48.6%, respectively, at March 31, 1998. The
Company's non-performing loans (non-accrual loans and accruing loans 90 days or
more overdue) totalled $697,000 and $1,130,000 at December 31, 1998 and March
31, 1998 respectively, which represented 1.1% and 1.7% of the Company's total
loans, respectively. The non-performing loans, however, include two Farm Service
Agency (FSA) guaranteed loans at December 31, 1998 and three at March 31, 1998,
which represent 88.3% and 93.2% of the total non-performing loans at December
31, 1998 and March 31, 1998, respectively. The Company's ratio of non-performing
loans to total assets was .46% and .76% at December 31, 1998 and March 31, 1998,
respectively.
Other Income. During the three months ended December 31, 1998, other income
decreased $57,000 or 77.0%, as compared to the three months ended December 31,
1997. Other income recorded in the prior quarter included a partial settlement
of a real estate judgement in the amount of $54,000.
Other Expenses. Total other expenses decreased by $38,000 or 4.9% during the
three months ended December 31, 1998, as compared to the three months ended
December 31, 1997. The decrease was primarily attributable to a decrease of
$49,000 in compensation and employee benefits expense and $5,000 in premises and
occupancy costs, offset by a $16,000 increase in other operating expenses. The
reduction in compensation expense was primarily due to a $167,000 reduction in
ESOP expense, as compared to the prior year's quarter, which included an
additional principal payment made to the ESOP loan, an $18,000 decrease in
compensation and employee benefits expense, and a $12,000 decrease in the
Company's defined benefit plan, Supplemental Employee Retirement Plan (SERP) and
Director's Retirement Plan (DRP) costs. This decrease was partially offset by a
$148,000 increase in Restricted Stock Plan expense, primarily due to the
implementation of the Restricted Stock Plan (RSP). The Company committed to
release 6,435 shares of stock in the ESOP in the December 1998 quarter as
compared to 18,105 shares in the December 1997 quarter.
Income Tax Expense. The provision for income tax totalled $95,000 for the three
months ended December 31, 1998, as compared to $133,000 for the three months
ended December 31, 1997. The $38,000 or 28.6% decrease was due to a lower
effective rate.
Results of Operations for the Nine Months Ended December 31, 1998 and 1997
Net Income. The Company recorded net income of $472,000 for the nine months
ended December 31, 1998, as compared to net income of $685,000 for the nine
months ended December 31, 1997. The $213,000 or 31.1% decrease in net income for
the nine months ended December 31, 1998 was primarily the result of decreases in
net interest income and other income and an increase in compensation and
employee benefits expense, partially offset by decreases in provision for income
taxes and provision for loan losses. Changes in the components of income and
expense are discussed herein.
Net Interest Income. Net interest income decreased $137,000 or 4.6% for the nine
months ended December 31, 1998, as compared to the nine month period ended
December 31, 1997. Although the average balance of interest-earning assets
increased $90,000, the average yield earned thereon decreased 37 basis points.
The average balance of interest-bearing liabilities decreased by $408,000 with a
26 basis point decrease in the average rate paid thereon.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The interest rate spread declined to 1.86% for the nine month period ended
December 31, 1998 from 1.97% for the nine month period ended December 31, 1997.
The decline in the interest rate spread was primarily the result of purchased
one- to four-family mortgages at yields lower than the yields in the existing
loan portfolio and a $6.3 million principal reduction in SBA loans with higher
yields. The decline is also attributable to a decrease in the yield of
investment and mortgage-backed securities and other interest earning assets.
Such purchases will have an ongoing effect on the average yield of the Company's
loan portfolio.
Interest Income. Interest income decreased $387,000 or 5.1% to $7,245,000 for
the nine month period ended December 31, 1998, as compared to $7,632,000 for the
nine month period ended December 31, 1997.
Interest on loans receivable increased $122,000 or 3.5% for the nine months
ended December 31, 1998, as compared to the nine month period ended December 31,
1997. This increase was primarily the result of a $4.6 million increase in the
average balance of loans receivable primarily due to the purchases of one- to
four-family, multi-family, farm mortgages, and agricultural and SBA loans,
offset by a 27 basis point decrease in the average yield due to the lower
interest rates on such loans.
Interest income on mortgage-backed securities decreased $459,000 or 15.2% for
the nine months ended December 31, 1998, as compared to the nine months ended
December 31, 1997. This decrease was primarily the result of a $6.9 million
decrease in the average balance of such securities and a 26 basis point decrease
in the average yield earned thereon.
Interest income on investment securities decreased by $90,000 or 9.6% for the
nine months ended December 31, 1998, as compared to the nine months ended
December 31, 1997. The decrease in interest income on investment securities was
primarily due to a decrease in the average yield of 76 basis points, which is
the result of the purchase of US Agency securities at lower yields.
Interest income on other interest-earning assets increased by $40,000 or 18.0%
for the nine months ended December 31, 1998, as compared to the nine months
ended December 31, 1997. The increase was primarily due a $2.2 million increase
in the average interest-earning deposits at other financial institutions, offset
by a 183 basis point decrease in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 6.82%
and 7.19% for the nine month periods ended December 31, 1998 and 1997,
respectively.
Interest Expense. Interest expense totalled $4,396,000 for the nine months ended
December 31, 1998, as compared to $4,646,000 for the nine months ended December
31, 1997. The $250,000 or 5.4% decrease was primarily due to decreased average
balances in certificates of deposit accounts and other borrowings, offset by an
increase in FHLB advances. The 26 basis point decrease in the average rate paid
on the total average interest-bearing liabilities also contributed to the
decrease.
Interest expense on deposits (including escrows) decreased $73,000 or 2.7% for
the nine months ended December 31, 1998, as compared to the nine months ended
December 31, 1997. The decrease was primarily due to a $1.0 million decrease in
the average balance of deposits and a 7 basis point decrease in the average rate
paid thereon.
Interest on FHLB advances decreased $137,000 or 7.8% for the nine months ended
December 31, 1998, as compared to the nine months ended December 31, 1997. The
decrease was primarily due to a 62 basis points decrease in the average rate
paid on advances, offset by an increase of 1.2 million in the average balances
of advances.
Interest on bonds payable and other borrowings, a less significant portion of
interest expense, decreased by $40,000 or 20.5%, as the average principal amount
of other borrowings decreased by $633,000, due to the repayment of the ESOP
loan. The average rate paid on bonds payable and other borrowings increased by
29 basis points.
Provision for Loan Losses. During the nine month periods ended December 31, 1998
and 1997, the Company established provisions for loan losses of $20,000 and
$45,000, respectively. This reflected management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses.
Other Income. During the nine months ended December 31, 1998, other income
decreased $161,000 or 70.9%, as compared to the nine months ended December 31,
1997. Other income recorded in the prior nine months included a partial
settlement of a real estate judgement in the amount of $175,000.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Expenses. Total other expenses increased by $161,000 or 8.4% during the
nine months ended December 31, 1998, as compared to the nine months ended
December 31, 1997. The increase was primarily attributable to increases of
$150,000 in compensation and employee benefits expense, a $16,000 loss on sale
of REO property, and $9,000 in professional services rendered, offset by
decreases of $6,000 in federal insurance premiums and $8,000 in premises and
occupancy costs. The increase in compensation and employee benefits expense was
due to the implementation of a restricted stock plan of $330,000 (see Note 7),
offset by decreases of $90,000 in the ESOP expense, $41,000 in compensation and
employee expenses and $49,000 in defined benefit plan, Supplemental Employee
Pension Plan (SERP) and Director's Retirement Plan (DRP) costs. The Company
committed to release 18,645 shares of stock in the ESOP in the current period as
compared to 24,315 shares in the previous period.
Income Tax Expense. The provision for income tax totalled $335,000 for the nine
months ended December 31, 1998, as compared to $556,000 for the nine months
ended December 31, 1997. The $221,000 or 39.7% decrease was due to decreased
income.
Liquidity and Capital Requirements
The Company's subsidiary bank, First Carnegie Deposit, is subject to various
requirements administered by the federal banking agencies. The Bank is required
to hold a prescribed amount of statutorily defined liquid assets. The Director
of the OTS may, by regulation, vary the amount of the liquidity requirement, but
only within pre-established statutory limits. The requirement must be no less
than four percent and no greater than ten percent of the Bank's net withdrawable
accounts and borrowings payable on demand or with unexpired maturities of one
year or less. The minimum required liquidity is currently 4%. The Bank's average
liquidity ratio was 118.70% and 77.98%, at December 31, 1998 and March 31, 1998,
respectively.
The Bank is subject to federal regulations that impose certain minimum capital
requirements. Quantitative measures, established by regulation to ensure capital
adequacy, require the Bank to maintain amounts and ratios of tangible and core
capital to adjusted total assets and of total risk-basked capital to
risk-weighted assets. On December 31, 1998, the Bank was in compliance with its
three regulatory capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital...................... $23,530 15.68%
Tangible capital requirement.......... 2,251 1.50%
------- ------
Excess over requirement............... $21,279 14.18%
====== =====
Core capital.......................... $23,530 15.68%
Core capital requirement.............. 4,502 3.00%
------- ------
Excess over requirement............... $19,028 12.68%
====== =====
Risk based capital.................... $24,100 49.76%
Risk based capital requirement........ 3,875 8.00%
------- ------
Excess over requirement............... $20,225 41.76%
====== =====
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
At December 31, 1998, the most recent notification from the OTS, the Bank was
categorized as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum Tier I (leverage), Tier I risk-basked, and total risk-based capital
ratios of 5.0%, 6.0%, and 10.0%, respectively. At December 31, 1998, the Bank's
Tier I (leverage), Tier I risk-based, and total risk-basked capital ratios
amounted to 15.68%, 48.58%, and 49.76%, respectively. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are presented at
March 31, 1998 in the Company's 1998 Annual Report. See "Market Risk &
Asset/Liability Management". Management believes there have been no material
changes in the Company's market risk since March 31, 1998.
Year 2000 (Y2K) Readiness Disclosure
Rapid and accurate data processing is essential to the Company's operations.
Many computer programs that can only distinguish the final two digits of the
year entered (a common programming practice in prior years) are expected to read
entries for the Y2K as the year 1900 or as zero and incorrectly attempt to
compute payment, interest, delinquency and other data.
The following discussion of the implications of the Y2K problem for the Company
contains numerous forward looking statements based on inherently uncertain
information. The cost of the project is based on management's best estimates,
which are derived utilizing a number of assumptions of future events including
the continued availability of internal and external resources, third party
modifications and other factors. However, there can be no guarantee that these
statements will be achieved and actual results could differ. Moreover, although
management believes it will be able to make the necessary modifications in
advance, there can be no guarantee that failure to modify the systems would not
have a material adverse effect on the Company.
The Company utilizes an in-house computer system, with all software applications
being developed and modified internally. The Company first acknowledged and
addressed the potential problem associated with the Y2K early in 1990. The
Company completed renovation of its in-house data processing system prior to
testing in October 1992. The Company has also received vender certification
confirming Y2K compliance for its hardware and operating system. With the
exception of on-going testing and additional contingency planning, management
believes nothing more is required with regard to its in-house system. Management
believes that remaining efforts towards Y2K compliance will require minimal
expense and, therefore, will not have a material impact on the Company's
financial condition or results of operations.
The Company also places a high degree of reliance on computer systems of third
parties, such as customers, suppliers, and other financial and governmental
institutions. Although the Company is assessing the readiness of these third
parties and preparing contingency plans, there can be no guarantee that the
failure of these third parties to modify their systems in advance of December
31, 1999 would not have a material adverse affect on the Company. The Company
formed a committee to implement an action plan designed to ensure that the
Company's computer systems, software applications and other date reliant
equipment would function properly after December 31, 1999. This process involved
identifying all equipment, software and third party providers deemed critical to
the Company's daily operations, and ascertained that these products and product
providers are Y2K compliant.
The Company has contacted all other material vendors and suppliers regarding
their Y2K readiness. Each of these third parties has delivered written assurance
to the Company that Y2K will not be an issue or that the issue will be
satisfactorily resolved prior to the end of 1999. Appropriate testing, if
possible, and any related contingency plans would be performed in the second and
third quarter of 1999. The Company has contacted all significant customers and
non-information technology suppliers (i.e. utility systems, telephone systems,
etc.) regarding their Y2K state of readiness with significant customers and
non-information technology suppliers. Such parties have indicated that they have
established Y2K plans and are in various stages of remediation and testing. We
are unable to test the Y2K readiness of our significant suppliers of utilities.
We are relying on the utility companies' internal testing and representations to
provide the required services that drive our data systems. The Company is
currently determining what recourse it would have from such parties if they do
not resolve the Y2K issues. Furthermore, the Company is reviewing alternative
procedures and contingency plans for all mission critical systems in the
unlikely event of their failure at the turn of the century.
The Bank has contacted by phone its material commercial mortgage customers.
Commercial mortgage customers represent approximately 5% of the Bank's
outstanding loans. The Bank reviewed with its customers questions based on
Appendix A of Guidance Concerning the Year 2000 Impact on Customers, Federal
Financial Institutions Examination Council (FFIEC) Interagency Statement, March
17, 1998. The Bank's Y2K Committee members reviewed the responses to rate the
customers' risk levels based on the type of business and the type of loan and
collateral. The Bank has received favorable responses from its borrowers.
Borrowers have established Y2K plans and are testing software and contacting
vendors and suppliers and plan to be ready for Y2K. Any customers with greater
than low risk level will receive follow-up attention in the first quarter of
calendar 1999.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Approximately 49% of the Bank's loans represent farm and Small Business
Administration (SBA) loans that are serviced by others. The Bank cannot contact
these customers directly; however it has contacted the agencies servicing these
loans. Residential mortgage loan and consumer loan customers, which represent
approximately 44% of the Bank's loans, were not contacted as a practical matter.
It was deemed to be beyond the scope of our testing parameters because most of
these are individuals with adequate collateral on the loans.
Successful and timely completion of the Y2K project is based on management's
best estimates derived from various assumptions of future events, which are
inherently uncertain, including the progress and results of the External
Provider, testing plans, and all vendors, suppliers and customer readiness. The
most likely worst case scenario is that some areas where the Bank has branch
offices located will experience blackouts if utility service companies are
unable to provide necessary service to drive our data systems or provide
sufficient sanitary conditions to our offices. In the event that this would
happen, the Bank would be unable to open the affected branches, and customers
would be directed to other branch locations and business would be transacted
manually.
The Company concluded that despite the best efforts of management to address its
financial exposure to Y2K issues, the vast number of external entities that have
direct and indirect business relationships with the Company make it impossible
to assure that a failure to achieve compliance by one or more of these entities
would not have a material adverse impact on the operations of the Company.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company was not engaged in any legal proceeding of a material
nature at December 31, 1998. From time to time, the Company is a
party to routine legal proceedings in the ordinary course of
business, such as claims to enforce liens, condemnation
proceedings on properties in which the Company holds security
interest, claims involving the making and servicing of real
property loans, and other issues incident to the business of the
Company. There were no lawsuits pending or known to be
contemplated against the Company at December 31, 1998 that would
have a material effect on the operations or income of the
Company.
Item 2. Changes in Securities.
---------------------
On October 29, 1998, the Bank completed its stock holding company
reorganization, whereby the Bank became the wholly owned
subsidiary of the Registrant. Skibo Financial Corp. is majority
owned by Skibo Bancshares, M.H.C., a federal mutual holding
company.
Pursuant to an agreement and plan of reorganization dated May 14,
1998, shares of Bank common stock were exchanged for shares of
common stock of the Registrant on a three-for-two basis. Upon
completion of the reorganization, the Registrant had outstanding
3,449,973 shares (absent fractional share cash outs) of common
stock.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
---------------------------------------------------
Not applicable.
Item 5. Other Information.
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
a) Exhibits
Not applicable.
b) Reports on Form 8-K
On October 30, 1998, the Registrant filed a Current Report
on Form 8-K with the SEC announcing the completion of the
Bank's stock holding company reorganization, whereby the
Bank became the wholly owned subsidiary of the Registrant.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 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.
<TABLE>
<CAPTION>
SKIBO FINANCIAL CORP.
<S> <C>
Date: February 16, 1999 By: /s/ Walter G. Kelly
-------------------------------------
Walter G. Kelly
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 and on the dates indicated.
/s/ Walter G. Kelly /s/ Carol A. Gilbert
Walter G. Kelly Carol A. Gilbert
President and Chief Executive Officer Chief Financial and Operating Officer and Treasurer
(Duly Authorized Representative) (Principal Financial and Accounting Officer)
Date: February 16, 1999 Date: February 16, 1999
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 530
<INT-BEARING-DEPOSITS> 524
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 79,018
<INVESTMENTS-MARKET> 79,231
<LOANS> 62,997
<ALLOWANCE> 570
<TOTAL-ASSETS> 150,035
<DEPOSITS> 77,408
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,999
<LONG-TERM> 45,741
0
0
<COMMON> 345
<OTHER-SE> 24,542
<TOTAL-LIABILITIES-AND-EQUITY> 150,035
<INTEREST-LOAN> 3,584
<INTEREST-INVEST> 3,399
<INTEREST-OTHER> 262
<INTEREST-TOTAL> 7,245
<INTEREST-DEPOSIT> 2,616
<INTEREST-EXPENSE> 4,396
<INTEREST-INCOME-NET> 2,849
<LOAN-LOSSES> 20
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<EXPENSE-OTHER> 2,088
<INCOME-PRETAX> 807
<INCOME-PRE-EXTRAORDINARY> 807
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 472
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 2.68
<LOANS-NON> 683
<LOANS-PAST> 14
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 549
<CHARGE-OFFS> 0
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<ALLOWANCE-CLOSE> 570
<ALLOWANCE-DOMESTIC> 20
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</TABLE>
