SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1999
-----------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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SEC File Number: 000-25009
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SKIBO FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
United States 25-1820465
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
242 East Main Street, Carnegie, Pennsylvania 15106
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(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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of common stock
as of January 31, 2000
$0.10 Par Value Common Stock 3,322,509 Shares
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Class Outstanding
Transitional Small Business Disclosure Format (check one)
Yes No X
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<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Statements of Financial Condition As of
December 31, 1999 (unaudited) and March 31, 1999 1
Consolidated Statements of Income for the three and
nine months ended December 31, 1999 and 1998 (unaudited)) 2
Consolidated Statement of Stockholders' Equity for the
nine months ended December 31, 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the nine months
ended December 31, 1999 and 1998 (unaudited)) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security-Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures
<PAGE>
SKIBO FINANCIAL CORP. AND Subsidiary
Consolidated Statements of Financial Condition
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
---- ----
ASSETS (Unaudited)
------
<S> <C> <C>
Cash and amounts due from depository institutions $ 528 $ 1,288
Interest-bearing deposits with other institutions 2,034 1,211
Investment securities:
Held-to-maturity (market value $24,730 and $24,703) 26,701 25,087
Mortgage-backed securities:
Held-to-maturity (market value $59,070 and $54,605) 60,234 54,365
Loans receivable, net 57,695 65,309
Accrued interest receivable:
Investment securities 365 400
Mortgage-backed securities 412 382
Loans receivable 489 726
Federal Home Loan Bank stock, at cost 2,615 2,465
Premises and equipment, net 645 695
Prepaid expenses and other assets 3,782 3,128
--------- ---------
Total Assets $ 155,500 $ 155,056
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits $76,111 $ 76,917
Federal Home Loan Bank advances 52,300 49,300
Bonds payable -- 1,299
Advances from borrowers for taxes and insurance 133 143
Accrued expenses and other liabilities 1,938 2,267
--------- ---------
Total Liabilities 130,482 129,926
Stockholders' Equity:
Preferred stock, 5,000,000 shares authorized; none issued -- --
Common stock, $0.10 par value; 10,000,000 shares authorized;
3,449,974 shares issued 345 345
Additional paid-in capital 9,749 9,755
Treasury stock, at cost (135,328 shares at December 31, 1999
and 5,228 shares at March 31, 1999)(1) (943) (65)
Unearned employee stock ownership plan (ESOP) shares (313) (458)
Unearned restricted stock plan (RSP) shares (247) (392)
Retained earnings, substantially restricted 16,427 15,945
--------- ---------
Total Stockholders' Equity 25,018 25,130
--------- ---------
Total Liabilities and Stockholders' Equity $ 155,500 $ 155,056
========= =========
</TABLE>
(1)Included are shares held by the Bank's RSP totaling 7,863 at December 31,
1999 and 5,228 at March 31, 1999, respectively.
See accompanying notes to consolidated financial statements.
1
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Income
For the Three and Nine months Ended December 31, 1999 and 1998
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 1,047 $1,149 $ 3,277 $ 3,584
Mortgage-backed securities 993 828 2,727 2,551
Investment securities 437 331 1,272 848
Other 62 93 265 262
----- ----- ----- -----
Total interest income 2,539 2,401 7,541 7,245
Interest expense:
Savings deposits 814 865 2,447 2,616
Federal Home Loan Bank advances 683 548 1,945 1,625
Bonds payable -- 35 63 113
Other borrowings -- 14 -- 42
----- ----- ----- -----
Total interest expense 1,497 1,462 4,455 4,396
----- ----- ----- -----
Net interest income 1,042 939 3,086 2,849
Provision for loan losses 1 5 3 20
----- ----- ----- -----
Net interest income after
provision for loan losses 1,041 934 3,083 2,829
Other income:
Fees and service charges 10 14 41 39
Other 12 3 30 27
----- ----- ----- -----
Total other income 22 17 71 66
Other expenses:
Compensation and employee benefits 475 573 1,425 1,606
Premises and occupancy costs 51 54 161 166
Federal insurance premiums 12 11 34 35
Other operating expenses 61 93 242 281
----- ----- ----- -----
Total other expenses 599 731 1,862 2,088
----- ----- ----- -----
Income before income taxes 464 220 1,292 807
Provision for income taxes 184 95 499 335
----- ----- ----- -----
Net income $ 280 $ 125 $ 793 $472
===== ===== ===== ====
Basic earnings per share $ .09 $ .04 $.24 $.14
Diluted earnings per share $ .09 $ .04 $.24 $.14
Weighted average shares outstanding - Basic 3,282,193 3,350,617 3,327,324 3,356,716
Weighted average shares outstanding - Diluted 3,282,193 3,372,922 3,327,324 3,364,151
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Nine months Ended December 31, 1999 (unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Additional Unearned Unearned
Common Paid-in Treasury ESOP RSP Retained
Stock Capital Stock Shares Shares Earnings Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1999 $345 $9,755 $ (65) $(458) $(392) $15,945 $25,130
Cash dividends declared net
($.45 per share) -- -- -- -- -- (311) (311)
Excess of fair value above cost of
ESOP shares released or committed
to be released -- (6) -- -- -- -- (6)
Amortization of ESOP liability -- -- -- 145 -- -- 145
Amortization of RSP liability -- -- -- -- 145 -- 145
Treasury stock purchased,
at cost (130,100 shares) -- -- (878) -- -- -- (878)
Net income -- -- -- -- -- 793 793
-------------------------------------------------------------------------------------------
Balance at December 31, 1999 $345 $9,749 $(943) $(313) $(247) $16,427 $25,018
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Nine months Ended December 31, 1999 and 1998
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Operating activities:
Net income $ 793 $ 472
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for loan losses 3 20
Depreciation 60 66
Compensation expense-ESOP and RSP 284 519
Net amortization of premiums and discounts 210 82
Decrease (increase) in accrued interest receivable 242 (16)
Increase in prepaid expenses (585) (682)
Decrease in accrued interest payable (169) (297)
Decrease in accrued income taxes (179) (121)
Other, net (63) 60
-------- --------
Net cash provided by operating activities 596 103
-------- --------
Investing activities:
Purchases of premises and equipment (10) (22)
Purchases of investment securities held-to maturity (5,446) (17,187)
Purchases of mortgage-backed securities held-to-maturity (17,287) (11,290)
Proceeds from maturities/calls and principal repayments of:
Investment securities held-to-maturity 3,819 6,941
Mortgage-backed securities held-to-maturity 11,325 12,658
Loans purchased (3,424) (9,333)
Net principal repayments on loans 10,944 14,643
Increase in Federal Home Loan Bank stock (150) (8)
-------- --------
Net cash provided by (used in) investing activities (229) (3,598)
-------- --------
Financing activities:
Net increase (decrease) in savings deposits (806) 182
Proceeds from Federal Home Loan Bank advances 14,400 23,000
Repayment of Federal Home Loan Bank advances (11,400) (20,000)
Principal repayment of bonds payable (1,299) (843)
Net decrease in mortgage escrow (10) (12)
Treasury stock purchased (878) (65)
Common stock acquired for RSP -- (770)
Cash dividends paid (311) (214)
-------- --------
Net cash used in financing activities (304) 1,278
-------- --------
Net increase (decrease) in cash and cash equivalents 63 (2,217)
Cash and cash equivalents, beginning of period 2,499 3,271
-------- --------
Cash and cash equivalents, end of period $ 2,562 $ 1,054
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,624 $ 4,694
======== ========
Income taxes $ 715 $ 530
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SKIBO FINANCIAL CORP. AND SUBSIDIARY
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.
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 months and nine months ended December
31, 1999 are not necessarily indicative of the results to be expected for the
year ending March 31, 2000 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,
1999.
NOTE 3 - Reclassification of Prior Period's Statements
---------------------------------------------
Certain amounts reported in the prior period's consolidated financial statements
have been reclassified to conform with the current period's reporting format.
The number of shares and related earnings per share have been restated to
reflect the Company's reorganized structure including a three-for-two stock
exchange completed on October 29, 1998.
NOTE 4 - Dividends on Common Stock
-------------------------
On December 9, 1999, 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, 1999. 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 14, 2000. 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. 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.
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".
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. Potentially dilutive common stock
equivalents arise from the assumed conversion of outstanding stock options and
unvested RSP shares.
5
<PAGE>
The computation of basic and diluted earnings per share is shown in the table
below:
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
December 31, December 31, December 31, December 31,
------------ ------------ ------------ ------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic EPS computation:
Numerator-Net Income $ 280,000 $ 125,000 $ 793,000 $ 472,000
========== ========== ========== ==========
Denominator-Wt Avg common
shares outstanding 3,282,193 3,350,617 3,327,324 3,356,716
Basic EPS $ .09 $ .04 $ .24 $ .14
========== ========== ========== ==========
Diluted EPS computation:
Numerator-Net Income 280,000 125,000 793,000 472,000
========== ========== ========== ==========
Denominator-Wt Avg
common shares outstanding 3,282,193 3,350,617 3,327,324 3,356,716
Dilutive Stock Options -- 21,973 -- 7,324
Dilutive Unvested RSP -- 332 -- 111
---------- ---------- ---------- ----------
Weighted avg common
shares and common stock
equivalents 3,282,193 3,372,922 3,327,324 3,364,151
Diluted EPS $ .09 $ .04 $ .24 $ .14
========== ========== ========== ==========
</TABLE>
For both the three and nine month periods ended December 31, 1999 and 1998,
30,946 and 0 RSP shares and 155,246 and 77,619 Option shares, respectively, were
excluded from the diluted EPS computation due to their anti-dilutive effect.
Shares outstanding for the three and nine months ended December 31, 1999 and
1998 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 47,046 and 75,135 at
December 31, 1999 and 1998, respectively.
NOTE 6 - Comprehensive Income
--------------------
For the three months ended December 31, 1999 and 1998, the Company's total
comprehensive income was $280,000 and $125,000, respectively, and $793,000 and
$472,000, respectively, for the nine months ended December 31, 1999 and 1998.
Total comprehensive income is comprised of net income and other comprehensive
income. For both three and nine month periods, there was no other comprehensive
income.
NOTE 7 - Income Taxes
------------
The Company joins with its wholly owned subsidiary, First Carnegie Deposit, in
filing a consolidated federal income tax return and 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 and settled
6
<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 $155,500,000 at December 31, 1999, are reflective
of an increase of $444,000 or .3% as compared to $155,056,000 at March 31, 1999.
The increase in total assets was primarily due to increases in investment and
mortgage-backed securities, prepaid expenses and other assets, partially offset
by decreases in loans receivable as well as assets used to repurchase the
Company's common stock.
The increase in the Company's liabilities was primarily due to an increase in
Federal Home Loan Bank ("FHLB") advances, offset by decreases in savings
deposits and bonds payable. Changes in the components of assets, liabilities and
equity are discussed herein.
Loans Receivable, net. Net loans receivable at December 31, 1999 totaled
$57,695,000, a decrease of $7,614,000 or 11.7%, as compared to $65,309,000 at
March 31, 1999. The decrease was primarily due to principal repayments totaling
$11.5 million, offset by originations of $548,000, which includes $212,000
consumer loans, and purchases of $3.4 million. The Company purchased $2.4
million one -to four-family and $247,000 farm mortgages in its normal lending
area. The Company also purchased $94,000 government-guaranteed multi-family
project loans, $147,000 farm mortgages and $442,000 Small Business
Administration (SBA) loans outside its normal lending area, primarily in
Pennsylvania.
Mortgage-backed Securities. Mortgage-backed securities were $60,234,000 at
December 31, 1999, an increase of $5,869,000 or 10.8%, as compared to
$54,365,000 at March 31, 1999. The increase was due to purchases of $17.3
million, offset by principal repayments and maturities totaling $11.3 million.
Investment Securities. Investment securities totaled $26,701,000 at December 31,
1999, an increase of $1,614,000 or 6.4%, as compared to $25,087,000 at March 31,
1999. This was primarily a result of purchases of $5.4 million of U.S. Agency
securities, offset by the proceeds from maturities, calls and payments totaling
$3.8 million.
Cash and Cash Equivalents. Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits, totaled $2,562,000, an
increase of $63,000 or 2.5% from the prior quarter. This increase was primarily
due to increased interest-bearing deposits maintained at the Federal Home Loan
Bank ("FHLB"), offset by decreased non-interest bearing deposits maintained at
the Federal Reserve Bank of Cleveland.
Deposits. Total deposits, after interest credited, decreased by $806,000 or 1.0%
to $76,111,000 at December 31, 1999, as compared to $76,917,000 at March 31,
1999. The decrease was primarily due to a decrease in certificates of deposit,
Money Market and passbook accounts.
FHLB Advances. FHLB advances, at December 31, 1999, totaled $52,300,000, an
increase of $3.0 million or 6.1%, as compared to $49,300,000 at March 31, 1999.
The Company uses FHLB advances as a supplement to deposits to fund its purchase
of loans and investments.
Stockholders' Equity. Stockholders' equity totaled $25,018,000 at December 31,
1999, as compared to $25,130,000 at March 31, 1999. The decrease of $112,000 or
.4% was primarily due to the purchase of 127,465 shares of treasury stock at an
average cost of $6.75 per share, partially offset by earnings for the nine
months ended December 31, 1999. The Company has received regulatory approval to
purchase up to 10% of the shares of common stock held by persons other than
Skibo Bancshares, M.H.C. Any future purchases will decrease stockholders'
equity.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operations for the Three Months Ended December 31, 1999 and 1998
Net Income. The Company recorded net income of $280,000 for the three months
ended December 31, 1999, as compared to net income of $125,000 for the three
months ended December 31, 1998. The $155,000 or 124.0% increase in net income
for the three months ended December 31, 1999 was primarily the result of an
increase in net interest income and a decrease in other expenses, offset by an
increase in provision for income taxes. Changes in the components of income and
expense are discussed herein.
Net Interest Income. Net interest income increased $103,000 or 11.0% for the
three months ended December 31, 1999, as compared to the three month period
ended December 31, 1998. The increase was primarily due to a $6.6 million
increase in average interest-earning assets and a 7 basis point increase in the
average yield earned thereon. The average balance of interest-bearing
liabilities increased by $7.1 million or 5.9% with a 16 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,
increased to 2.07% for the three month period ended December 31, 1999 from 1.84%
for the three month period ended December 31, 1998. The increase in the interest
rate spread was primarily the result of decreases in the interest paid on the
average balance of certificates of deposits, which renewed at lower rates of
interest
Interest Income. Interest income increased $138,000 or 5.7% to $2,539,000 for
the three month period ended December 31, 1999, as compared to $2,401,000 for
the three month period ended December 31, 1998.
Interest on loans receivable decreased $102,000 or 8.9% for the three months
ended December 31, 1999, as compared to the three month period ended December
31, 1998. This decrease was primarily the result of a $5.0 million decrease in
the average balance of loans receivable and an 8 basis point decrease in the
average yield earned thereon.
Interest income on mortgage-backed securities increased $165,000 or 19.9% for
the three months ended December 31, 1999, as compared to the three months ended
December 31, 1998. This increase was primarily the result of an $8.9 million
increase in the average balance of such securities and a 15 basis point increase
in the average yield earned thereon.
Interest income on investment securities increased by $106,000 or 32.0% for the
three months ended December 31, 1999, as compared to the three months ended
December 31, 1998. The increase in interest income on investment securities was
primarily due to a $4.3 million higher average balance of such securities, and a
64 basis point increase in the average yield earned thereon.
Interest income on other interest-earning assets decreased by $31,000 or 33.3%
for the three months ended December 31, 1999, as compared to the three months
ended December 31, 1998. The decrease was primarily due to a $1.6 million
decrease in the average interest-earning assets at the FHLB and a 59 basis point
decrease in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 6.78%
and 6.71 % for the three month periods ended December 31, 1999 and 1998,
respectively.
Interest Expense. Interest expense totaled $1,497,000 for the three months ended
December 31, 1999, as compared to $1,462,000 for the three months ended December
31, 1998. The $35,000 or 2.4% increase was primarily due to an increase in the
average balances of FHLB advances, offset by decreases in the average balance of
savings, bonds payable and other borrowings and a 16 basis point decrease in the
average rate paid on the total average interest-bearing liabilities.
Interest expense on deposits (including escrows) decreased $51,000 or 5.9% for
the three months ended December 31, 1999, as compared to the three months ended
December 31, 1998. The decrease was primarily due to a 22 basis point decrease
in the average rate paid thereon.
Interest on FHLB advances increased $135,000 or 24.6% for the three months ended
December 31, 1999, as compared to the three months ended December 31, 1998. The
increase was primarily due to a $9.8 million increase in the average balance of
advances and a 6 basis point increase in the rate paid thereon. 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 $49,000 or 100.0%, as the average principal
amount of other borrowings decreased by $1.9 million, primarily due to the
repayment of the bond in its entirety.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Allowance for Loan Losses. During the three month periods ended December 31,
1999 and 1998, the Company established provisions for loan losses of $1,000 and
$5,000, 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, 1999, the allowance for loan losses totaled $578,000 or .99% and
672.1% of total loans and total non-performing loans, respectively, as compared
to $575,000 or .88% and 70.3%, respectively, at March 31, 1999. The Company's
non-performing loans (non-accrual loans and accruing loans 90 days or more
overdue) totaled $86,000 and $818,000 at December 31, 1999 and March 31, 1999
respectively, which represented 0.1% and 1.3% of the Company's total loans,
respectively. The non-performing loans at March 31, 1999, included two Farm
Service Agency (FSA) guaranteed loans in the amount of $618,000, which have now
been paid off. The Company's ratio of non-performing loans to total assets was
.06% and .53% at December 31, 1999 and March 31, 1999, respectively.
Other Income. During the three months ended December 31, 1999, other income
increased $5,000 or 29.4%, as compared to the three months ended December 31,
1998.
Other Expenses. Total other expenses decreased by $132,000 or 18.1% during the
three months ended December 31, 1999, as compared to the three months ended
December 31, 1998. The decrease was primarily attributable to decreases of
$98,000 or 17.1% in compensation and employee benefits expense primarily due to
reduced expense of stock benefit plans, and $32,000 or 34.4% in other expenses
primarily due to decreases in legal and professional services expenses.
Income Tax Expense. The provision for income tax totaled $184,000 for the three
months ended December 31, 1999, as compared to $95,000 for the three months
ended December 31, 1998. The $89,000 or 93.7% increase was due to increased
taxable income.
Results of Operations for the Nine Months Ended December 31, 1999 and 1998
Net Income. The Company recorded net income of $793,000 for the nine months
ended December 31, 1999, as compared to net income of $472,000 for the nine
months ended December 31, 1998. The $321,000 or 68.0% increase in net income for
the nine months ended December 31, 1999 was primarily the result of increases in
net interest income and decreases in other expenses and provision for loan
losses, offset by an increase in provision for income taxes. Changes in the
components of income and expense are discussed herein.
Net Interest Income. Net interest income increased $237,000 or 8.3% for the nine
months ended December 31, 1999, as compared to the nine month period ended
December 31, 1998. The increase was primarily due to a $7.7 million increase in
average interest-earning assets, offset by a 9 basis point decrease in the
average yield earned thereon. The average balance of interest-bearing
liabilities increased by $8.3 million, offset by a 26 basis point decrease in
the average rate paid thereon.
The interest rate spread increased to 2.03% for the nine month period ended
December 31, 1999 from 1.86% for the nine month period ended December 31, 1998.
The increase in the interest rate spread was primarily the result of decreases
in the average interest paid on the average balance of certificates of deposits
and FHLB advances. Maturing certificates of deposit renewed at lower rates of
interest, and as FHLB advances matured, they were replaced with advances at
lower rates of interest.
Interest Income. Interest income increased $296,000 or 4.1% to $7,541,000 for
the nine month period ended December 31, 1999, as compared to $7,245,000 for the
nine month period ended December 31, 1998.
Interest on loans receivable decreased $307,000 or 8.6% for the nine months
ended December 31, 1999, as compared to the nine month period ended December 31,
1998. This decrease was primarily the result of a $6.0 million decrease in the
average balance of loans receivable , offset by a 3 basis point increase in the
average yield earned thereon.
Interest income on mortgage-backed securities increased $176,000 or 6.9% for the
nine months ended December 31, 1999, as compared to the nine months ended
December 31, 1998. This increase was primarily the result of a $5.8 million
increase in the average balance of such securities, offset by a 27 basis point
decrease in the average yield earned thereon.
Interest income on investment securities increased $424,000 or 50.0% for the
nine months ended December 31, 1999, as compared to the nine months ended
December 31, 1998. The increase in interest income on investment securities was
primarily due to a $8.1 million increase in the average balance of such
securities and an increase in the average yield of 18 basis points.
Interest income on other interest-earning assets increased by $3,000 or 1.1% for
the nine months ended December 31, 1999, as compared to the nine months ended
December 31, 1998. The increase was primarily due a 26 basis point increase in
the average yield earned thereon, offset by a $208,000 decrease in the average
interest-earning deposits at other financial institutions
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The average yield on the average balance of interest-earning assets was 6.73%
and 6.82% for the nine month periods ended December 31, 1999 and 1998,
respectively.
Interest Expense. Interest expense totaled $4,455,000 for the nine months ended
December 31, 1999, as compared to $4,396,000 for the nine months ended December
31, 1998. The $59,000 or 1.3% increase was primarily due to an increase in the
average balance of FHLB advances, offset by decreased average balances in
savings deposits, bonds payable and other borrowings and a 26 basis point
decrease in the average rate paid on the total average interest-bearing
liabilities.
Interest expense on deposits (including escrows) decreased $169,000 or 6.5% for
the nine months ended December 31, 1999, as compared to the nine months ended
December 31, 1998. The decrease was primarily due to a 29 basis point decrease
in the average rate paid thereon.
Interest on FHLB advances increased $320,000 or 19.7% for the nine months ended
December 31, 1999, as compared to the nine months ended December 31, 1998. The
increase was primarily due to a $9.8 million increase in the average balance of
advances, offset by a 19 basis point decrease in the average rate paid on
advances.
Interest on bonds payable and other borrowings, a less significant portion of
interest expense, decreased by $92,000 or 59.4%, as the average principal amount
of other borrowings decreased by $1.4 million, primarily due to the repayment of
the bond in its entirety.
Provision for Loan Losses. During the nine month periods ended December 31, 1999
and 1998, the Company established provisions for loan losses of $3,000 and
$20,000, 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, 1999, other income
increased $5,000 or 7.6%, as compared to the nine months ended December 31,
1998.
Other Expenses. Total other expenses decreased by $226,000 or 10.8% during the
nine months ended December 31, 1999, as compared to the nine months ended
December 31, 1998. The decrease was primarily attributable to an $181,000
decrease in compensation and employees benefit expense and $39,000 in other
expenses. The decrease in compensation and employees benefit expense was due to
decreases of $185,000 in RSP expense due to the implementation of a stockholder
approved restricted stock plan (RSP) in the prior period, $52,000 in ESOP
expense due to the fair market value of the stock, and $40,000 in employee
benefits expense primarily due to a change in hospitalization coverage, offset
by an increase of $75,000 in Pension Plan, Supplemental Employee Pension Plan
(SERP) and Director's Retirement Plan (DRP) costs and $21,000 in compensation
expense.
Income Tax Expense. The provision for income tax totaled $499,000 for the nine
months ended December 31, 1999, as compared to $335,000 for the nine months
ended December 31, 1998. The $164,000 or 49.0% increase was due to increased
taxable 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
by Section 6 of the Home Owners' Loan Act ("HOLA") 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 151.37% and 129.98%, at December 31, 1999 and March 31,
1999, respectively.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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, 1999, the Bank was in compliance with its
three regulatory capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital $24,166 15.57%
Tangible capital requirement 2,327 1.50%
------- -----
Excess over requirement $21,839 14.07%
======= =====
Core capital $24,166 15.57%
Core capital requirement 4,655 3.00%
------- -----
Excess over requirement $19,511 12.57%
======= =====
Risk based capital $24,744 52.73%
Risk based capital requirement 3,754 8.00%
------- -----
Excess over requirement $20,990 44.73%
======= =====
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.
Year 2000 Compliance Issues
Like many financial institutions, we rely on computers to conduct our business
and information systems processing. Industry experts were concerned that on
January 1, 2000, some computers might not be able to interpret the new year
properly, causing computer malfunctions. Some banking industry experts remain
concerned that some computers may not be able to interpret additional dates in
the year 2000 properly. We have operated and evaluated our computer operating
systems following January 1, 2000 and have not identified any errors or
experienced any computer system malfunctions. We will continue to monitor our
information systems to assess whether our systems are at risk of misinterpreting
any future dates and will develop appropriate contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problem experienced by its vendors or its customers,
nor by any of the municipal agencies that provide services to the Company.
Nevertheless, it is too soon to conclude that there will not be any problems
arising form the Year 2000 problem, particularly at some of the Company's
vendors. The Company will continue to monitor its significant vendors of goods
and services with respect to Year 2000 problems they may encounter as those
issues may effect the Company's ability to continue operations, or might
adversely affect the Company's financial position, results of operations and
cash flows. The Company does not believe at this time that these potential
problems will materially impact the ability of the Company to continue its
operations, however, no assurance can be given that this will be the case.
The expectations of the Company contained in this section on Year 2000 are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve substantial risks and uncertainties
that may cause actual results to differ materially from those indicated by the
forward-looking statements. All forward-looking statements in this section are
based on information available to the Company on the date of this document, and
the Company assumes no obligation to update such forward-looking statements.
11
<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, 1999. 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, 1999 that would have a material effect on the
operations or income of the Company.
Item 2.Changes in Securities.
---------------------
Not applicable.
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) Not applicable
b) No reports on Form 8-K were filed during the third quarter of fiscal
2000, however, on January 28, 2000, the Company filed a Current Report
on Form 8-K reporting a change in its auditors.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<CAPTION>
SKIBO FINANCIAL CORP.
<S> <C>
/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 4, 2000 Date: February 4, 2000
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 528
<INT-BEARING-DEPOSITS> 2,034
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 86,935
<INVESTMENTS-MARKET> 83,800
<LOANS> 57,695
<ALLOWANCE> 578
<TOTAL-ASSETS> 155,500
<DEPOSITS> 76,111
<SHORT-TERM> 300
<LIABILITIES-OTHER> 2,071
<LONG-TERM> 52,000
0
0
<COMMON> 345
<OTHER-SE> 24,673
<TOTAL-LIABILITIES-AND-EQUITY> 155,500
<INTEREST-LOAN> 3,277
<INTEREST-INVEST> 3,999
<INTEREST-OTHER> 265
<INTEREST-TOTAL> 7,541
<INTEREST-DEPOSIT> 2,447
<INTEREST-EXPENSE> 4,455
<INTEREST-INCOME-NET> 3,086
<LOAN-LOSSES> 3
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<EXPENSE-OTHER> 1,862
<INCOME-PRETAX> 1,292
<INCOME-PRE-EXTRAORDINARY> 1,292
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 793
<EPS-BASIC> .24
<EPS-DILUTED> .24
<YIELD-ACTUAL> 275
<LOANS-NON> 0
<LOANS-PAST> 86
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 577
<CHARGE-OFFS> 0
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<ALLOWANCE-CLOSE> 578
<ALLOWANCE-DOMESTIC> 1
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</TABLE>
