UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10 - QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from to
--------------- ---------------
Commission File Number 0-24579
------------------------------
Carnegie Financial Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania 23 -1806857
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
17 West Mall Plaza, Carnegie, Pennsylvania, 15106
-------------------------------------------------
(Address of principal executive offices)
(412) 276 - 1266
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Class: Common Stock, par value $.10 per share
Outstanding at May 5, 1999: 234,128
<PAGE>
CARNEGIE FINANCIAL CORPORATION
INDEX
Page
Number
---------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
(Unaudited) as of March 31,
1999 and December 31, 1998 3
Consolidated Statement of Income
(Unaudited) for the Three Months
ended March 31, 1999 and 1998 4
Consolidated Statement of
Changes in Stockholders' Equity
(Unaudited) as of March 31, 1999 5
Consolidated Statement of Cash
Flows (Unaudited) for the Three
Months ended March 31, 1999 and 1998 6
Notes to Unaudited Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8 - 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Default Upon Senior Securities 14
Item 4. Submissions of Matters to a
Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8 - K 14
SIGNATURES 15
<PAGE>
CARNEGIE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31,
1999 1998
------------ ------------
ASSETS
Cash and due from banks $ 226,922 $ 316,515
Interest - bearing overnight
deposits with other institutions 972,470 648,973
------------ ------------
Cash and cash equivalents 1,199,392 965,488
Certificates of deposit 199,000 199,000
Investment securities available
for sale 3,517,998 1,259,532
Investment securities held to
maturity (fair value of
$502,052 and $503,083) 489,299 489,287
Mortgage - backed securities
available for sale 975,168 1,026,442
Mortgage - backed securities
held to maturity (fair value
of $982,965 and $1,082,927) 967,390 1,066,910
Loans receivable, (net of
allowance for loan losses
of $162,882 and $138,860) 16,976,892 14,512,121
Premises and equipment 244,290 248,228
Federal Home Loan Bank Stock 300,000 102,900
Accrued interest receivable 140,011 114,675
Other assets 204,151 100,061
------------ ------------
TOTAL ASSETS $ 25,213,591 $ 20,084,644
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits $ 15,728,537 $ 15,372,170
Borrowed funds 6,000,000 1,200,000
Advances from borrowers for taxes
and insurance 214,532 179,563
Accrued interest payable and
other liabilities 367,258 295,492
------------ ------------
TOTAL LIABILITIES 22,310,327 17,047,225
STOCKHOLDERS' EQUITY
Preferred Stock, no par value;
2,000,000 shares authorized;
none issued - -
Common Stock, $.10 par value;
4,000,000 shares authorized
and 238,050 outstanding 23,805 23,805
Additional paid - in capital 2,064,903 2,072,044
Retained Earnings - substantially
restricted 1,130,345 1,118,054
Unearned Employee Stock Ownership
Plan shares (ESOP) (176,157) (180,918)
Unearned Restricted Stock Plan shares (RSP) (76,890) -
Accumulated other comprehensive income (24,012) 4,434
Treasury Stock (3,922 shares, at cost) (38,730) -
------------ ------------
Total stockholders' equity 2,903,264 3,037,419
------------ ------------
Total liabilities and
stockholder's equity $ 25,213,591 $ 20,084,644
============ ============
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
CARNEGIE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
March 31,
-----------------------------
1999 1998
----------- -----------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 301,791 $ 215,879
Investment securities
Taxable 35,743 25,093
Exempt from federal
income tax 5,899 7,409
Interest - bearing deposits
in other banks 23,559 7,387
Mortgage - backed securities 33,273 44,226
Dividends on Federal Home
Loan Bank Stock 3,466 -
----------- -----------
Total interest and
dividend income 403,731 299,994
----------- -----------
INTEREST EXPENSE
Deposits 167,870 170,314
Borrowings 48,750 -
----------- -----------
Total interest expense 216,620 170,314
----------- -----------
NET INTEREST INCOME 187,111 129,680
Provision for loan losses 24,021 -
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 163,090 129,680
----------- -----------
NONINTEREST INCOME
Service fees 19,379 6,355
Gain on sale of investment
securities 1,167 2,147
Other income 14,101 5,060
----------- -----------
Total noninterest income 34,647 13,562
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 85,797 80,330
Occupancy and equipment 10,706 10,051
Data processing charges 18,286 17,741
Loss on real estate owned - 3,191
Other expense 69,991 32,534
----------- -----------
Total noninterest expense 184,780 143,847
----------- -----------
Income (loss) before income taxes 12,957 (605)
Income taxes 666 -
----------- -----------
NET INCOME (LOSS) $ 12,291 $ (605)
=========== ===========
Basic per share earnings $ 0.06 N/A
=========== ===========
Dilutive earnings per share $ 0.06 N/A
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CARNEGIE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Unearned Unearned Accumulated
Additional Shares Shares Other Total
Common Paid-in Retained Held by Held by Comprehensive Treasury Stockholders' Comprehensive
Stock Capital Earnings ESOP RSP Income Stock Equity Income
----- ------- -------- ---- --- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1998 $ 23,805 $2,072,044 $1,118,054 $ (180,918) $ - $4,434 $3,037,419
Net income 12,291 12,291 $ 12,291
Other comprehensive
income:
Unrealized loss
on available for
sale securities,
net of
reclassification
adjustment (28,446) (28,446) (28,446)
-------
Comprehensive
income $(16,155)
========
Stock purchased RSP (7,141) (80,937) (88,078)
Shares earned RSP 4,047 4,047
Shares earned ESOP 4,761 4,761
Treasury stock
purchased (38,730) (38,730)
Balance, -------- ---------- ---------- --------- ---------- -------- --------- -----------
March 31, 1999 $ 23,805 $2,064,903 $1,130,345 $(176,157) $ (76,890) $(24,012) $(38,730) $ 2,903,264
======== ========== ========== ========= ========== ======== ========= ===========
Components of comprehensive
income: Change in net
unrealized loss on investment
securities held for sale $(27,676)
Realized gains included in
net income, net of tax (770)
-------
Total $(28,446)
========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
CARNEGIE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1999 1998
----------- ---------
OPERATING ACTIVITIES
Net income (loss) 12,291 (605)
Adjustments to reconcile net income (loss) to net
cash provided by (used for)operating activities:
Depreciation, amortization and
accretion, net (2,002) 287
Provision for loan losses 24,021 -
Amortization of unearned ESOP and RSP 8,808 -
Gain on sale of securities (1,167) (2,147)
Decrease (increase) in accrued
interest receivable (25,336) 5,136
Increase in accrued interest payable 102,771 63,772
Other, net (120,441) 41,811
-------- --------
Net cash provided by (used for)
operating activities (1,055) 108,254
-------- --------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases (2,501,119) (100,000)
Proceeds from sales 209,940 810,460
Mortgage-backed securities available for sale:
Purchases (111,463) (322,233)
Maturities and repayments 162,045 290,326
Mortgage-backed securities held to maturity:
Maturities and repayments 99,503 118,042
Net increase in loans (2,488,792) (957,796)
Purchases of Federal Home Loan Bank stock (197,100) -
Proceeds from sale of real estate owned - 2,977
Purchases of office properties and equipment ( 2,583) (9,679)
---------- ----------
Net cash used for investing activities (4,829,569) (167,903)
---------- ----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 356,367 (149,319)
Proceeds from borrowed funds 4,800,000 -
Purchase of treasury stock (38,730) -
Purchase stock for RSP (88,078) -
Net change in advances for taxes and insurance 34,969 (1,916)
---------- ----------
Net cash provided by (used for)
financing activities 5,064,528 (151,235)
---------- ----------
Increase (decrease) in cash and cash equivalents 233,904 (210,884)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 965,488 950,891
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR 1,199,392 740,007
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 113,849 $ 106,542
Income taxes 1,200 -
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
CARNEGIE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Carnegie Financial Corporation (the
"Company") includes its wholly- owned subsidiary Carnegie Savings Bank (the
"Bank"). All significant intercompany items have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB and, therefore, do not
necessarily include all information that would be included in audited financial
statements. The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results of
operations. All such adjustments are of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative of the
results to be expected for the full year or any other interim period.
Note 2 - EARNINGS PER SHARE
Earnings per share computations are based upon the weighted number of shares
outstanding for the three months ended March 31, 1999. The weighted number of
shares outstanding for the period was 219,271. Net income used in the earnings
per share calculation was $12,291. Earnings per share computations are not
applicable for the period ending March 31, 1998 as the Company converted from a
state-chartered mutual savings bank to a federally-chartered stock savings bank
on July 10, 1998
The Company provides dual presentation of Basic and Diluted earnings per share.
Basic earnings per share utilizes net income as reported as the numerator and
the actual average shares outstanding as the denominator. Diluted earnings per
share includes any dilutive effects of options, warrants, and convertible
securities. At March 31, 1999 there were no dilutive effects on the computation.
Note 3 RESTRICTED STOCK BONUS PLAN (RSP)
In October 1998, the Board of Directors adopted a RSP for certain officers and
employees which was approved by stockholders at a special meeting held on
January 11, 1999. The objective of the Plan is to enable the Company and the
Bank to retain its corporate officers, key employees, and directors who have the
experience and ability necessary to manage these entities. Directors, officers,
and key employees who are selected by members of the Board appointed committee
are eligible to receive benefits under the RSP. The non-employee directors of
the Company and the Bank serve as trustees for the RSP, which has the
responsibility to invest all funds contributed by the Bank to the Trust for the
RSP.
In February 1999, the Trust purchased with funds contributed by the Bank, 9,918
shares of the common stock of which 9,522 shares were issued to Directors,
officers and employees and 396 shares remained unissued. Directors, officers,
and key employees who terminate their association with the Company shall forfeit
the right to any shares which were awarded but not earned.
Note 4 STOCK OPTION PLAN
In October 1998, the Board of Directors adopted a Stock Option Plan for the
directors, officers, and employees which was approved by stockholders at a
special meeting held on January 11, 1999. An aggregate of 23,805 shares of
common stock of the Company were reserved for future issuance under the plan.
Shares issuable under the stock option plan may be from authorized but unissued
shares, treasury shares or shares purchased on the open market. The stock
options typically have expiration terms of ten years subject to certain
extensions and early terminations. The per share exercise price of a stock
option shall be, at a minimum, equal to the fair value of a share of common
stock on the date the option is granted. Proceeds from the exercise of the stock
options are credited to common stock for the aggregate par value and the excess
is credited to additional paid - in - capital.
7
<PAGE>
CARNEGIE FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 STOCK OPTION PLAN (Continued)
The following table presents share data related to the stock option plan:
Shares Under Option
-------------------
1999 Price
---- -----
Outstanding, beginning of year - -
Granted during the year 23,805 $ 8.50
Canceled during the year - -
Exercised during the year - -
-------- ------
Outstanding at end of period (price
(at grant date $8.50) 23,805 $ 8.50
======== ======
Note 5 INVESTMENT SECURITIES
In accordance with the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective April 1, 1999, the Company
reclassified investment securities from the held to maturity classification to
available for sale classification with an amortized cost of $489,000 and an
estimated market value of $502,000.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND DECEMBER 31,1998
Total assets increased by approximately $5,129,000 or 25.5% to $25,214,000 at
March 31, 1999 from $20,085,000 at December 31, 1998. Borrowings of $4.8 million
in the first quarter primarily funded this increase with an additional $356,000
derived from an increase in deposits.
Total investment and mortgage-backed securities increased $2,108,000 or 54.9%
from $3,842,000 at December 31, 1998 to $5,950,000 at March 31, 1999. During the
first quarter the Company purchased $2,613,000 of investments, of which,
$2,501,000 or 95.7% were U.S. Government Agencies. These investments are
scheduled to mature form 2004 through 2029. This overall increase was partially
offset by sales, maturities and repayments of investments of $471,000. The
overall increase is the result of management investing funds from FHLB advances.
As of April 1, 1999, in accordance with FASB Statement 133, management
transferred approximately $500,000 of held to maturity securities to available
for sale. Management's decision to transfer these securities is based on
providing additional liquidity in light of the strong loan demand it is
experiencing.
Net loans receivable increased $2,465,000 or 17.0% from $14,512,000 at December
31, 1998 to $16,977,000 at March 31, 1999 primarily due to the growing demand
within the Company's market area. Benefiting mostly from this environment is the
residential real estate portfolio which increased $2,211,000 or 16.8%. In
addition, the Company has relatively significant commitments to fund loans as a
direct result of the economic health of the Company's market area and the
competitive pricing of its loan products. The funding of the loan growth was
mainly provided by the usage of funds from the advances from the FHLB.
Advances from the Federal Home loan Bank of Pittsburgh increased $4.8 million to
$6.0 at March 31, 1999 from $1.2 million at December 31, 1998. Management
entered into these advances to fund the increased demand for loans and as part
of the Company's leverage strategy. At March 31, 1999, the Bank's maximum
borrowing capacity with the FHLB was $11.2 million.
Stockholder's equity decreased $134,000 to $2,903,000 at March 31, 1999, from
$3,037,000 at December 31, 1998 as a result of the Company acquiring $39,000 of
treasury stock and also by $77,000 due to the implementation of a Restricted
Stock Plan for the benefit of key employees and directors. Unrealized gain or
loss on securities classified as available for sale decreased $30,000 to a loss
of $24,000 at March 31, 1999 from a gain position of $4,000 at December 31,
1998.
9
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1999 AND 1998
Net income increased $13,000 to $12,000 for the three months ended March 31,
1999 from a loss of $600 for the same period ended 1998. This increase was
primarily due to an increase in interest and dividend income of $104,000
partially offset by an increase in interest expense of $47,000 and an increase
in noninterest expense of $41,000.
Interest and dividend income increased $104,000 or 34.6% from $300,000 for the
three months ended March 31, 1999 to $404,000 for the same period 1998. Due
primarily to an increase in earnings on loans of $86,000 or 39.8% and an
increase in income from interest earning deposits with other institutions of
$16,000 partially offset by a decrease in earnings on mortgage-backed securities
of $11,000 or 24.8%. The increase in interest income on loans was due to an
increase in the average principal balance of $5,355,000 for loans in general,
and one-to-fourfamily residential loans specifically. As stated previously, this
increase is the result the economic viability of the Company's market area and
is being funded with borrowings from the Federal Home Loan Bank of Pittsburgh.
The decrease in interest income on mortgage-backed securities was also the
result of fluctuations in average balances as repayments were used to fund the
growth in loans and other investment securities. In addition, the increase in
interest and dividend income was partially offset by a yield decline from 7.69%
to 7.22% for the periods ending March 31, 1998 and 1999, respectively.
Interest expense on deposits increased $47,000 or 27.2% from $170,000 for the
three months ended March 31, 1998 to $217,000 for the same period ended in 1999.
The increase in interest expense was due to a $4.7 million increase in the
average balance of interest-bearing liabilities due to increased borrowings
pursuant to the Company's leverage strategy partially offset by a 21 basis point
decrease in the average cost of interest-bearing liabilities.
Based upon management's continuing evaluation of the adequacy of the allowance
for loan losses which encompasses the overall risk characteristics of the
various portfolio segments, past experience with losses, the impact of economic
conditions on borrowers, and other relevant factors, the provision for loan
losses increased by $24,000 for the three months ended March 31, 1999 compared
to the same period ended 1998. This increase is primarily due to the growth of
the loan portfolio as discussed above.
See "Risk Elements".
Noninterest income, which is comprised of service charges on deposit accounts,
gains on sales of securities, and other income increased $21,000 or 155.5% to
$35,000 for 1999 compared to $14,000 for 1998 as a result of an increase in
service charges on deposit accounts of $13,000 due to an increased level of
transaction account activity and the addition of two ATMs Loan underwriting fees
increased $8,000 due to the increased volume of loans recorded in 1999 as
compared to the same period ended 1998.
Noninterest expense increased $41,000 or 28.5% to $185,000 for the three months
ended March 31, 1999 from $144,000 for the same period ended 1998 which was
substantially all result of an increase in other expense. Other expenses
increased $37,000 or 115.1% compared to the prior period due to costs associated
with the supplemental director retirement plan of $10,000. Professional fees and
stock expenses increased by $17,000 as a result of costs associated with
conducting business as a public entity for the three months ended March 31, 1999
which were not present for the same period ended 1998. ATM costs increased by
$8,000 as the Company placed two new ATMs in service during the fourth quarter
of 1998.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, interest-bearing deposits
with other banks and funds provided from operations. While scheduled repayments
of loans and mortgage-backed securities and maturities of investment securities
are predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions, and
competition. We use our liquid resources principally to fund loan commitments,
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, and to meet operating expenses.
Liquidity may be adversely affected by unexpected deposit outflows, excessive
interest rates paid by competitors, adverse publicity relating to the savings
and loan industry and similar matters. Management monitors projected liquidity
needs and determines the level desirable based in part on the Bank's commitments
to make loans and management's assessment of the Bank's ability to generate
funds.
Management monitors both the Company's and the Savings Bank's total risk-based,
Tier I risk-based and Tier I leverage capital ratios in order to assess
compliance with regulatory guidelines. At March 31, 1999, both the Company and
the Bank exceeded the minimum risk-based and leverage capital ratios
requirements. The Company's and Bank's total risk-based, Tier I risk-based and
Tier I leverage ratios are 24.9%, 25.9%, 23.6% and 24.8%, 12.7%, 12.4%,
respectively at March 31, 1999.
11
<PAGE>
RISK ELEMENT
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days or more past due, other real
estate loans, and repossessed assets. A loan is classified as nonaccrual when,
in the opinion of management, there are serious doubts about collectibility of
interest and principal. At the time the accrual of interest is discontinued,
future income is recognized only when cash is received. Renegotiated loans are
those loans which terms have been renegotiated to provide a reduction or
deferral of principal or interest as a result of the deterioration of the
borrower.
March 31, December 31,
1999 1998
------------ -----------
(Dollars in thousands)
Loans on nonaccrual basis $ 38 $ 57
Loans past due 90 days or
more and still accruing - -
--------- ---------
Total nonperforming loans 38 57
--------- ---------
Real estate owned - -
--------- ---------
Total nonperforming assets 38 57
--------- ---------
Nonperforming loans as a
percent of total loans .22% .39%
========= =========
Nonperforming assets as a
percent of total assets .15% .28%
========= =========
Allowance for loan losses to
nonperforming loans 428.64% 243.61%
========= =========
Management monitors impaired loans on a continual basis. As of March 31, 1999,
impaired loans had no material effect on the Company's financial position or
results of operations.
During the three month period ended March 31, 1999, loans increased $2,489,000
and nonperforming loans increased $19,000 while the allowance for loan losses
decreased $24,000 for the same period. The percentage of allowance for loan
losses to loans outstanding remained constant at .95% at March 31, 1999 from
December 31, 1998. Nonperforming loans are primarily made up of one to four
family residential mortgages and consumer loans. The collateral requirements on
such loans reduce the risk of potential losses to an acceptable level in
management's opinion.
Management believes the level of the allowance for loan losses at March 31, 1999
is sufficient; however, there can be no assurance that the current allowance for
loan losses will be adequate to absorb all future loan losses. The relationship
between the allowance for loan losses and outstanding loans is a function of the
credit quality and known risk attributed to the loan portfolio. The on-going
loan review program and credit approval process is used to determine the
adequacy of the allowance for loan losses.
12
<PAGE>
YEAR 2000
Rapid and accurate data processing is essential to the Bank's operations. Many
computer programs can only distinguish the final two digits of the year entered
(a common programming practice in prior years) are expected to read entries for
the year 2000 as the year 1900 or as zero and incorrectly attempt to compute
payment, interest, delinquency and other data. The Bank has been evaluating both
information technology (computer systems) and non- information technology
systems (e.q. vault timers, electronic door lock and elevator controls). Based
upon such evaluations, management has determined that the Bank has year 2000
risk in three areas: (1) Bank's own computer and software, (2) computers of
others used by the Bank's borrowers, and (3) computers of others who provide the
Bank with processing of certain services.
Bank's own computers and software. The Bank has completed most of its year 2000
Testing and has found no material problems. The Bank has corrected all problems
that were found during testing. Other less essential software applications will
be modified and/or replaced during 1999 would enable all internal software
applications to become year 2000 compliant prior to year 2000. The Bank believes
that as a result of modifications to existing software and hardware and
conversions to new software, the year 2000 problem can be mitigated. However, if
such modifications and conversions are not made, or are not Completed on a
timely basis, the year 2000 problem could have a material adverse Impact on the
operations of the Bank.
Computers of others used by our borrowers. The Bank has evaluated most of their
borrowers and does not believe the year 2000 problem should, on an aggregate
basis, impact their ability to make payments to the Bank. The Bank believes that
most of their residential borrowers are not dependent on their home computers
for income and that none of their commercial borrowers are so large that a year
2000 problem would render them unable to collect revenue or rent and, in turn,
continue to make loan payments to the Bank. The Bank does not expect any
material costs to address this risk area and believes they are year 2000
compliant in this risk area.
Computers of others who provide us with processing of certain services. This
risk is primarily focused on one third party service bureau that provides
virtually all of the Bank's data processing. The service bureau has communicated
that it is substantially year 2000 compliant and subsequent results of testing
by the Bank have been positive.
Contingency Plan. The Bank will continue monitoring their service bureau to
evaluate whether its data processing system will fail and is being provided with
periodic updates on the status of testing and upgrades being made by the service
bureau. If the Bank service bureau fails, the Bank will attempt to locate an
alternative service bureau that is year 2000 compliant. If the Bank is
unsuccessful, the Bank will enter deposit balances and interest with its
existing computer system. If this labor intensive approach is necessary,
management and employees will become much less efficient. However, the Bank
believes that they would be able to operate in this manner in the short-term,
until their existing service bureau, or their replacement, is able to again
provide data processing services. If very few financial institution services
bureaus were operating in the year 2000, the Bank's replacement costs, assuming
the Bank could negotiate an agreement, could be material.
13
<PAGE>
CARNEGIE FINANCIAL CORPORATION
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
On January 11, 1999, at a Special Meeting of Stockholders, the Company
announced that the following proposals were ratified:
Restricted Stock Plan
The ratification of the Restricted Stock Plan. There were 129,729
affirmative votes and 42,712 negative votes. The number of votes
abstaining were 1,800.
Stock Option Plan
The ratification of the 1999 Stock Option Plan. There were 130,354
affirmative votes and 42,087 negative votes. The number of votes
abstaining were 1,800.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are incorporated as part of this report
3.1 Articles of Incorporation of Carnegie Financial Corporation *
3.2 Bylaws of Carnegie Financial Corporation *
4.0 Specimen Stock Certificate *
10.1 Employment agreement between Carnegie Savings Bank and
Shirley Chiesa *
10.2 Restricted Stock Plan **
10.3 1999 Stock Option Plan **
27.0 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
On February 8, 1999 the Company filed a Form 8-K (Items 5 & 7)
announcing its intention to repurchase approximately 21,000 shares for
its restricted stock plan and for general corporate purposes.
- --------------------------------------------------------------------------------
* Incorporated by reference to the identically numbered exhibit to the
registration statement on Form SB-2 (File no. 333-24579) declared
effective by the SEC on May 14, 1998.
** Incorporated by reference to the proxy statement for the special meeting of
stockholders on January 11, 1999 and filed with the SEC on December 10,
1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Carnegie Financial Corporation
Date: May 12, 1999 By: /s/ Shirley Chiesa
--------------------------------------
Shirley Chiesa
President and Chief Executive Officer
Date: May 12, 1999 By: /s/ Joseph Pigoni
--------------------------------------
Joseph Pigoni
Executive Vice President and CFO
14
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 227
<INT-BEARING-DEPOSITS> 1,171
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,493
<INVESTMENTS-CARRYING> 1,456
<INVESTMENTS-MARKET> 1,485
<LOANS> 17,140
<ALLOWANCE> 163
<TOTAL-ASSETS> 25,214
<DEPOSITS> 15,729
<SHORT-TERM> 0
<LIABILITIES-OTHER> 587
<LONG-TERM> 6,000
0
0
<COMMON> 24
<OTHER-SE> 2,875
<TOTAL-LIABILITIES-AND-EQUITY> 25,214
<INTEREST-LOAN> 302
<INTEREST-INVEST> 75
<INTEREST-OTHER> 27
<INTEREST-TOTAL> 404
<INTEREST-DEPOSIT> 168
<INTEREST-EXPENSE> 217
<INTEREST-INCOME-NET> 187
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 185
<INCOME-PRETAX> 13
<INCOME-PRE-EXTRAORDINARY> 13
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 2.67
<LOANS-NON> 38
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 139
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 163
<ALLOWANCE-DOMESTIC> 163
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
