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 June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from to
--------------- ---------------
Commission File Number 0-23765
------------------------------
Carnegie Financial Corporation
------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23 -1806857
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 August 10, 2000: 224,776
<PAGE>
CARNEGIE FINANCIAL CORP
INDEX
Page
Number
---------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
(Unaudited) as of June 30,
2000 and December 31, 1999 3
Consolidated Statement of Income
(Unaudited) for the Six Months
ended June 30, 2000 and 1999 4
Consolidated Statement of Income
(Unaudited) for the Three Months
ended June 30, 2000 and 1999 5
Consolidated Statement of
Changes in Stockholders' Equity
(Unaudited) as of June 30, 2000 6
Consolidated Statement of Cash
Flows (Unaudited) for the Six
Months ended June 30, 2000 and 1999 7
Notes to Unaudited Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 9 - 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Default Upon Senior Securities 17
Item 4. Submissions of Matters to a
Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8 - K 18
SIGNATURES 19
<PAGE>
CARNEGIE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, December 31,
2000 1999
------------ ------------
ASSETS
Cash and due from banks $ 215,105 $ 504,005
Interest - bearing overnight
deposits with other institutions 555,388 286,780
------------ ------------
Cash and cash equivalents 770,493 790,785
Certificates of deposit 100,000 100,000
Investment securities available
for sale 1,422,565 3,323,894
Investment securities held to
maturity (fair value of
$0 and $144,870) 0 145,000
Mortgage - backed securities
available for sale 655,640 690,164
Mortgage - backed securities
held to maturity (fair value
of $686,593 and $750,369) 685,788 743,385
Loans receivable, (net of
allowance for loan losses
of $184,333 and $203,648) 22,507,219 22,518,456
Premises and equipment 229,963 225,827
Federal Home Loan Bank Stock 322,800 564,900
Accrued interest receivable 139,241 180,797
Other assets 278,099 205,393
------------ ------------
TOTAL ASSETS $ 27,111,808 $ 29,488,601
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits $ 17,184,414 $ 16,551,544
Borrowed funds 6,455,000 9,537,500
Advances from borrowers for taxes
and insurance 351,519 275,758
Accrued interest payable and
other liabilities 436,841 431,191
------------ ------------
TOTAL LIABILITIES 24,427,774 26,795,993
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 2,060,431 2,062,493
Retained Earnings - substantially
restricted 1,057,843 1,203,806
Unearned Employee Stock Ownership
Plan shares (ESOP) (152,352) (161,874)
Unearned Restricted Stock Plan shares (RSP) (56,656) (64,750)
Accumulated other comprehensive loss (119,531) (241,366)
Treasury Stock (13,274 shares, at cost) (129,506) (129,506)
------------ ------------
Total stockholders' equity 2,684,034 2,692,608
------------ ------------
Total liabilities and
stockholder's equity $ 27,111,808 $ 29,488,601
============ ============
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
CARNEGIE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Six Months Ended
June 30,
----------- -----------
2000 1999
----------- -----------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 866,100 $ 653,464
Investment securities
Taxable 107,221 90,311
Exempt from federal
income tax 2,781 8,752
Interest - bearing deposits
in other banks 9,694 32,360
Mortgage - backed securities 45,677 61,360
Dividends on Federal Home
Loan Bank Stock 17,403 9,246
----------- -----------
Total interest and
dividend income 1,048,876 855,493
----------- -----------
INTEREST EXPENSE
Deposits 358,889 327,356
Borrowings 253,069 129,147
----------- -----------
Total interest expense 611,958 456,503
----------- -----------
NET INTEREST INCOME 436,918 398,990
Provision for loan losses 52,414 38,448
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 384,504 360,542
----------- -----------
NONINTEREST INCOME
Service fees 49,858 41,680
Loss on sale of investment
securities (283,588) (27,739)
Other income 2,042 36,636
----------- -----------
Total noninterest income (231,688) 50,577
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 168,603 170,483
Occupancy and equipment 22,273 21,456
Data processing charges 33,341 38,352
Other expense 155,682 139,525
----------- -----------
Total noninterest expense 379,899 369,816
----------- -----------
Income (loss) before income
taxes (benefit) (227,083) 41,303
Income taxes (benefit) (81,120) 12,582
----------- -----------
NET INCOME (LOSS) $ (145,963) $ 28,721
=========== ===========
Basic earnings (loss) per share $ (0.72) $ 0.13
=========== ===========
Dilutive earnings (loss) per share $ (0.72) $ 0.13
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
CARNEGIE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
June 30,
----------- -----------
2000 1999
----------- -----------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 435,246 $ 351,673
Investment securities
Taxable 43,243 54,568
Exempt from federal
income tax 1,123 2,853
Interest - bearing deposits
in other banks 5,203 8,801
Mortgage - backed securities 22,964 28,087
Dividends on Federal Home
Loan Bank Stock 7,922 5,780
----------- -----------
Total interest and
dividend income 515,701 451,762
----------- -----------
INTEREST EXPENSE
Deposits 181,518 159,486
Borrowings 120,423 80,397
----------- -----------
Total interest expense 301,941 239,883
----------- -----------
NET INTEREST INCOME 213,760 211,879
Provision for loan losses 32,450 14,427
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 181,310 197,452
----------- -----------
NONINTEREST INCOME
Service fees 28,877 22,301
Loss on sale of investment
securities (289,223) (28,906)
Other income 1,687 22,535
----------- -----------
Total noninterest income (258,659) 15,930
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 83,332 84,686
Occupancy and equipment 11,073 10,751
Data processing charges 16,697 20,066
Other expense 84,264 69,533
----------- -----------
Total noninterest expense 195,366 185,036
----------- -----------
Income (loss) before income
taxes (benefit) (272,715) 28,346
Income taxes (benefit) (98,119) 11,916
----------- -----------
NET INCOME (LOSS) $ (174,596) $ 16,430
=========== ===========
Basic earnings (loss) per share $ (0.83) $ 0.08
=========== ===========
Dilutive earnings (loss) per share $ (0.83) $ 0.08
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CARNEGIE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated Total Compre-
Additional Unearned Unearned Other Stock- hensive
Common Paid-in Retained ESOP RSP Comprehensive Treasury holders Income
Stock Capital Earnings Shares Shares Income (loss) Stock Equity (Loss)
-------- ---------- ---------- ---------- ---------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1999 $23,805 $2,062,493 $1,203,806 $ (161,874) $ (64,750) $ (241,366) $ (129,506) $2,692,608
Net loss (145,963) (145,963) $(145,963)
Other comprehensive
income: Unrealized
gain on available
for sale
securities, net
of taxes of
$62,764 121,835 121,835 121,835
--------
Comprehensive
income $ (24,127)
=========
RSP Shares earned 8,094 8,094
ESOP Shares earned (2,062) 9,522 7,460
------- --------- --------- --------- ---------- --------- --------- ---------
Balance,
June 30, 2000 $23,805 $2,060,431 $1,057,843 $ (152,352) $ (56,656) $ (119,531) $ (129,506) $2,684,035
======= ========= ========= ========= ========== ========= ========= =========
Components of
comprehensive
income:
Change in net
unrealized
gain on
investment
securities
held for sale $ (65,333)
Realized losses
included in
net loss, net
of taxes of
$96,420 187,168
----------
Total $ 121,835
==========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
CARNEGIE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
2000 1999
----------- ---------
OPERATING ACTIVITIES
Net income (loss) $ (145,963) $ 28,721
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, amortization and
accretion, net (14,884) 48,505
Provision for loan losses 52,414 38,448
Amortization of unearned ESOP and RSP 17,616 17,616
Loss on sale of securities 283,588 27,739
Decrease (increase) in accrued
interest receivable 41,556 (63,370)
Increase in accrued interest payable 63,000 189,678
Other, net (194,883) (37,233)
---------- ----------
Net cash provided by operating activities 102,444 250,104
---------- ----------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases (491,688) (2,746,119)
Proceeds from sales 2,465,224 707,194
Mortgage-backed securities available for sale:
Purchases - (111,463)
Maturities and repayments 37,203 245,491
Mortgage-backed securities held to maturity:
Maturities and repayments 57,640 195,299
Net increase in loans (41,176) (4,358,816)
Sales (purchases) of Federal Home Loan Bank stock 242,100 (305,700)
Purchases of office properties and equipment (18,170) (4,163)
---------- ----------
Net cash provided by (used for)
investing activities 2,251,133 (6,378,277)
---------- ----------
FINANCING ACTIVITIES
Net increase in deposits 632,870 137,244
Proceeds from borrowed funds 2,000,000 5,750,000
Payments of borrowed funds (5,082,500) -
Purchase of treasury stock - (118,530)
Purchase stock for RSP - (88,079)
Net change in advances for taxes and insurance 75,761 98,641
---------- ----------
Net cash provided by (used for)
financing activities (2,373,869) 5,779,276
---------- ----------
Decrease in cash and cash equivalents (20,292) (348,897)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 790,785 1,164,488
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 770,493 $ 815,591
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 255,266 $ 266,824
Income taxes 65,000 4,425
See accompanying notes to the unaudited consolidated financial statements.
7
<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 period. The weighted number of shares outstanding for the
six-month period ended June 30, 2000 and 1999 was 202,072 and 214,497,
respectively. The weighted number of shares outstanding for the three- month
period ended June 30, 2000 and 1999 was 202,385 and 210,027, respectively.
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 June 30, 2000 and 1999 there were no dilutive effects on the
computation.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Private Securities Litigation Act of 1995 contains safe harbor provisions
regarding forward-looking statements. When used in this discussion, the words
"believes," "anticipates," "contemplates," "expects," and similar expressions
are intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. Those risks and uncertainties include changes
in interest rates, the ability to control costs and expenses, general economic
conditions, government policies and actions of regulatory authorities. The
Company undertakes no obligation to publicly release the results of any
revisions to those forward looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Carnegie Financial Corporation is a savings and loan holding company
headquartered in Carnegie, Pennsylvania, which provides a broad range of
fdeposits and loan products through its wholly owned subsidiary, Carnegie
Savings Bank (collectively, the "Company").
Overview
In conjunction with a routine regulatory examination of Carnegie Savings
Bank (the "Bank") by the Office of Thrift Supervision (the "OTS"), the OTS
requested the Bank to enter into a Supervisory Agreement (the "Agreement"). The
Agreement was signed on April 14, 2000, (the "Effective Date") and will, among
other things, place restrictions on the Bank's growth. Under the Agreement, the
Bank may not increase its assets in an amount exceeding net interest credited on
deposit liabilities (or earnings credited on share accounts) during any calendar
quarter, without prior written approval of the regional director of the OTS (the
"Regional Director"). Additionally, the Agreement requires the Bank or its Board
of Directors to revise various policies including 1) interest rate risk
management, 2) strategic planning to improve earnings, 3) loan documentation and
underwriting policies, and 4) internal loan and asset classifications policies.
The restrictions on the Bank's operations are immediately effective. On June 25,
2000, the Bank submitted to the OTS among other things, a revised business plan
and on August 1, 2000 the interest rate risk policy was submitted. The Bank is
currently working with the OTS to resolve such matters. The Agreement will
remain in place until terminated by the OTS and could adversely affect the
financial conditions, liquidity, and operations of the Company.
Asset/Liability Management
The Company's net interest income is sensitive to changes in interest
rates, as the rates paid on interest-bearing liabilities generally change faster
than the rates earned on interest-earning assets. As a result, net interest
income will frequently decline in periods of rising interest rates and increase
in periods of decreasing interest rates.
The board of directors attempts to manage the interest rate sensitivity of
the Company through its asset and liability committee that is comprised of the
board of directors. The board of directors meets quarterly with management to
monitor the impact of interest rate risk and develops strategies to manage its
liquidity, shorten the effective maturities of certain interest earning assets
and increase the effective maturities of certain liabilities, to reduce the
exposure to interest rate fluctuations. The Agreement with the OTS identifies
the Bank's interest rate levels as unacceptably high and requires the Bank to
develop and pursue strategies to reduce interest-rate risk. The strategies
considered include methods to extend the terms of the Company's borrowings and
shorten the terms of the Company's assets. Although this is expected to reduce
the Bank's interest rate risk in the short
9
<PAGE>
term, it may also affect the Company's current income. However, in implementing
these strategies the board of directors will attempt to balance the need to
improve its interest rate risk against the impact such restructurings will have
on profitability.
On May 25, 2000, the Board adopted a revised interest rate risk policy and
also took certain actions to implement this policy. Accordingly, the Company
sold $2.7 million of its available for sale securities and incurred a pre-tax
loss of approximately $272,000. With the proceeds of such securities sales and
the extension of borrowings of $2 million, the Company paid down $4.3 million of
its short-term borrowings. Although this strategy is expected to reduce the
Bank's interest rate risk in the short term, there is no assurance that any
additional restructurings in compliance with the Agreement will not further
adversely affect the Company's current income. In implementing these strategies
the board of directors will attempt to balance the need to improve its interest
rate risk against the impact such restructurings will have on profitability.
Net Portfolio Value
The OTS computes amounts by which the net present value of cash flow from
assets, liabilities and off balance sheet items ("net portfolio value" or "NPV")
would change in the event of a range of assumed changes in market interest
rates. The Interest Rate Sensitivity of Net Portfolio Value Report shows the
degree to which balance sheet line items and net portfolio value are potentially
affected by a 100 to 300 basis point (1/100th of a percentage point) upward and
downward parallel shift (shock) in the Treasury yield curve.
The following table presents the Company's NPV at June 30, 2000. The NPV
was calculated by the OTS based upon information provided by the Company.
Percentage Change in Net Portfolio Value
----------------------------------------
Changes
in Market Change in NPV
Interest Rates NPV Ratio(1) Ratio(2)
-------------- ------------ --------
(basis points)
+ 300 3.20% (689) bp
+ 200 5.48 (461) bp
+ 100 7.83 (226) bp
0 10.09 --
- 100 11.95 185 bp
- 200 12.52 243 bp
- 300 12.41 232 bp
------------------
(1) Calculated as the estimated NPV divided by present value of total assets.
(2) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
The calculations in the above table indicate that the Company's NPV would
be significantly adversely affected by increases in interest rates and favorably
affected by decreases in interest rates. Computations of
10
<PAGE>
prospective effects of hypothetical interest rate changes are based on numerous
assumptions, including relative levels of market interest rates, prepayments and
deposit run-offs and should not be relied upon as indicative of actual results.
Certain shortcomings are inherent in such computations. Although certain assets
and liabilities may have similar maturity or periods of repricing they may react
at different times and in different degrees to changes in the market interest
rates. The interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while rates on other
types of assets and liabilities may lag behind changes in market interest rates.
Certain assets, such as adjustable rate mortgages, generally have features that
restrict changes in interest rates on a short-term basis and over the life of
the asset. In the event of a change in interest rates, prepayments and early
withdrawal levels could deviate significantly from those assumed in making
calculations set forth above. Additionally, an increased credit risk may result
as the ability of many borrowers to service their debt may decrease in the event
of an interest rate increase.
Results of Operations
For the current six month and three month periods, net income decreased
$175,000 and $191,000, respectively to a net loss of $146,000 and $175,000,
respectively, from net income of $29,000 and $16,000 for the same periods ended
1999. In response to the Agreement, management and the board of directors sought
to reduce the exposure to interest rate fluctuations by divesting of certain
U.S. Government Agency and municipal securities totaling $2,645,000 during the
past quarter. Although this resulted in a loss on the sale of such securities
totaling $272,000 for the quarter, the Company was able to repay certain
short-term borrowings and improved its interest rate risk position in the
current term. For details of the Company's results of operations for the current
six month and three month periods, see "Average Balance Sheets".
Average Balance Sheets
The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from daily balances. The table
illustrates that the increase in the amount and cost of funds of average other
liabilities, which consists of FHLB advances, has adversely affected the
interest rate spread for the current six months and three month periods and will
continue to do so in future periods.
11
<PAGE>
<TABLE>
<CAPTION>
Six Months ended June 30
----------------------------------------------------------------------------------
2000 1999
--------------------------------------- --------------------------------------
(Dollars in thousands)
Average Average Average Average
balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $22,816 $ 866 7.59% $16,817 $ 653 7.77%
Investment securities 2,965 110 7.42% 3,274 99 6.05%
Mortgage-backed securities 1,409 46 6.53% 1,937 61 6.30%
Other interest-earning assets(2) 963 27 5.61% 1,595 42 5.27%
------- ----- ------- ----
Total interest-earning assets 28,153 1,049 7.45% 23,623 855 7.24%
----- ----
Non-interest-earning assets 615 143
------- -------
Total assets $28,768 $23,766
======= =======
Interest-bearing liabilities:
NOW accounts $ 1,439 14 1.95% $1,414 14 1.98%
Savings accounts 3,962 51 2.57% 3,678 43 2.34%
Certificates of deposit 10,684 294 5.50% 9,752 271 5.56%
Other liabilities 8,530 253 5.93% 5,724 129 4.51%
------ ----- ------ ----
Total interest-bearing liabilities 24,615 612 4.97% 20,568 457 4.44%
------ ----- ------ ----
Non-interest bearing liabilities:
Other liabilities 1,448 290
------ ------
Total liabilities 26,063 20,858
------ ------
Stockholders' equity 2,705 2,908
----- -----
Total liabilities and stockholders' equity $28,768 $23,766
====== ======
Net interest income $ 437 $398
==== ===
Interest rate spread(3) 2.48% 2.80%
==== ====
Net yield on interest-earning assets(4) 3.10% 3.37%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 114.37% 114.85%
====== ======
</TABLE>
---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes investment-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as
a percentage of average interest-earning assets.
12
<PAGE>
<TABLE>
<CAPTION>
Three Months ended June 30
--------------------------------------------------------------------------------
2000 1999
----------------------------------- -----------------------------------------
(Dollars in thousands)
Average Average Average Average
balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $22,823 $ 435 7.62% $18,108 $ 352 7.78%
Mortgage-backed securities 1,368 23 6.73% 1,869 28 5.99%
Investment securities 2,595 44 6.78% 3,854 57 5.92%
Other interest-earning assets(2) 912 13 5.70% 1,022 15 5.87%
------ ----- ------ ----
Total interest-earning assets 27,698 515 7.44% 24,853 452 7.27%
----- ----
Non-interest-earning assets 714 752
------ ------
Total assets $28,412 $25,605
======= =======
Interest-bearing liabilities:
NOW accounts $ 1,427 7 1.96% $1,365 7 2.05%
Savings accounts 4,077 26 2.55% 3,652 20 2.19%
Certificates of deposit 10,669 148 5.50% 9,704 133 5.44%
Other liabilities 7,865 120 6.10% 6,418 80 4.99%
------- ----- ------- ----
Total interest-bearing liabilities 24,038 301 5.01% 21,139 240 4.52%
------- ----- ------- ----
Non-interest bearing liabilities:
Other liabilities 1,658 1,622
------- -------
Total liabilities 25,696 22,761
------- -------
Stockholders' equity 2,716 2,844
------- -------
Total liabilities and stockholders' equity $28,412 $25,605
======= =======
Net interest income $ 214 $212
===== ====
Interest rate spread(3) 2.43% 2.75%
==== ====
Net yield on interest-earning assets(4) 3.09% 3.43%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 115.23% 117.57%
====== ======
</TABLE>
---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes investment-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as
a percentage of average interest-earning assets.
13
<PAGE>
Rate/Volume Table
The following tables set forth certain information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume). Increases and decreases due
to both rate and volume have been allocated proportionally to the change due to
volume and the change due to rate.
For the Six-Months Ended June 30, 2000
--------------------------------------
Volume Rate Total
------ ---- -----
(In Thousands)
Interest income:
Loans receivable $ 233 $ (20) $ 213
Mortgage-backed securities (10) 21 11
Investment securities (17) 2 (15)
Other interest-earning assets (17) 2 (15)
----- ----- -----
Total interest-earning assets $ 189 $ 5 $ 194
===== ===== =====
NOW accounts $ -- $ -- $ --
Savings deposits 4 5 9
Certificates of deposit 26 (3) 23
Other interest-bearing liabilities 63 61 124
----- ----- -----
Total interest-bearing liabilities $ 93 $ 63 $ 156
===== ===== =====
Change in net interest income $ 96 $ (58) $ 38
===== ===== =====
For the Three-Months Ended June 30, 2000
----------------------------------------
Volume Rate Total
------ ---- -----
(In Thousands)
Interest income:
Loans receivable $ 92 $ (9) $ 83
Mortgage-backed securities (8) 3 (5)
Investment securities (19) 6 (13)
Other interest-earning assets (2) -- (2)
---- ---- ----
Total interest-earning assets $ 63 $-- $ 63
==== ==== ====
NOW accounts $ -- $ -- $ --
Savings deposits 13 3 16
Certificates of deposit 2 3 5
Other interest-bearing liabilities 18 22 40
---- ---- ----
Total interest-bearing liabilities $ 33 $ 28 $ 61
==== ==== ====
Change in net interest income $ 30 $(28) $ 2
==== ==== ====
14
<PAGE>
The provision for loan losses for the six-month and three-month periods
ended June 30, 2000 totaled $52,000 and $32,000, respectively, as compared to
$38,000 and $14,000, respectively for the same period ended in 1999. During the
first half of 2000, the Company incurred loan charge-offs approximating $72,000.
Such charge-offs primarily consisted of three installment loans related to the
same borrowing relationship. Management continually evaluates the adequacy of
the allowance for loan losses, which encompasses the overall risk
characteristics of the various portfolio segments, past experience with losses,
the impact of economic conditions on borrowers and other relevant factors which
may come to the attention of management. Although the Company maintains its
allowance for loan losses at a level that it considers to be adequate to provide
for the inherent risk of loss in its loan portfolio, there can be no assurance
that future losses will not exceed estimated amounts or that additional
provisions for loan losses will not be required in future periods. See "Risk
Elements".
Noninterest income, which is comprised of service charges on deposit
accounts, gains and losses on sales of securities, and other income decreased
$282,000 and $275,000 for the six-month and three-month periods ended June 30,
2000, respectively, as compared to the same periods ended in 1999. As noted
above, management's efforts to reduce interest rate exposure through the sales
of certain investment securities primarily accounted for this fluctuation.
However, also contributing to this decline was a decrease in loan originations
for the current six month and three month periods that resulted in a decline in
fee income of $35,000 and $21,000, respectively. Due to the Agreement, the
Company growth is restricted.
Liquidity and Capital Resources
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
Company's commitments to make loans and management's assessment of the Company's
ability to generate funds.
Management monitors both the Company's and the Bank's total risk-based
Tier I risk-based and Tier I leverage capital ratios in order to assess
compliance with regulatory guidelines. At June 30, 2000, both the Company and
the Bank exceeded the minimum risk-based and leverage capital ratios
requirements. At June 30, 2000, the Company's and Bank's total risk-based, Tier
I risk-based and Tier I leverage ratios were 19.7%, 18.4%, 10.0%, and 19.3%,
18.1%, 9.8%, respectively. The capital ratios for the Company and the Bank could
be adversely affected due to the Agreement.
15
<PAGE>
Risk Elements
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.
June 30, December 31,
2000 1999
--------- -----------
(Dollars in thousands)
Loans on nonaccrual basis $ 26 $ 50
Loans past due 90 days or more and still accruing -- --
Total nonperforming loans 26 50
Real estate owned -- --
Total nonperforming assets 26 50
Nonperforming loans as a percent of total loans 0.11% 0.22%
Nonperforming assets as a percent of total assets 0.10% 0.17%
Allowance for loan losses to nonperforming loans 708.97% 407.30%
Management monitors impaired loans on a continual basis. As of June 30, 2000,
impaired loans had no material effect on the Company's financial position or
results of operations.
Management believes the level of the allowance for loan losses at June 30, 2000
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.
16
<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
The following represents the results of matters submitted to a
vote of the sharesholders at the annual meeting held on April 27,
2000:
Election of a Director for term to expire in 2004:
Shirley C. Chiesa was elected by the following vote::
For: 176,543
Votes Withheld: 13,850
Ratification of the Carnegie Financial Corporation 1999 Stock
Option Plan, by the following votes:
For: 108,224
Against: 18,250
Votes Abstaining: 8,600
Ratification of the Carnegie Savings Bank Restricted Stock Plan
by the following votes:
For: 100,484
Against: 20,940
Votes Abstaining: 8,600
S.R. Snodgrass A.C.was selected as the Company's independent
auditors for the fiscal year 2000 by the following vote:
For: 180,443
Against: 5,400
Votes Abstaining: 7,550
ITEM 5. Other Information
None
17
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) The following exhibits are incorporated as part of this report
<S> <C>
3(i) Articles of Incorporation of Carnegie Financial Corporation *
3(ii) Bylaws of Carnegie Financial Corporation *
4 Specimen Stock Certificate *
10.1 Employment Agreement between the Bank and Shirley Chiesa *
10.2 Supplemental Executive Retirement Plan *
10.3 Form of Directors Consultation and Retirement Plan between the Bank and
each of the directors *
10.4 Carnegie Financial Corporation 1999 Stock Plan **
10.5 Carnegie Savings Bank Restricted Stock Plan **
27 Financial Data Schedule (electronic filing only)
99 Review Report of S.R. Snodgrass, A.C.
</TABLE>
---------------------
* 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 on
January 11, 1999 and filed with the SEC on December 10, 1999.
(b) Reports on Form 8-K
On April 14, 2000, the Company filed an Item 5 Form 8-K which disclosed
that the Bank entered into a Supervisory Agreement with the Office of Thrift
Supervision. Additionally, on June 8, 2000, the Company filed an Item 5 Form 8-K
which disclosed the effects of the implementation of the revised interest rate
risk policy in accordance with the Supervisory Agreement with the Office of
Thrift Supervision.
18
<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: August 11, 2000 By: /s/Shirley C. Chiesa
-------------------------------------
Shirley C. Chiesa
President and Chief Executive Officer
Date: August 11, 2000 By: /s/Joseph Pigoni
-------------------------------------
Joseph Pigoni
Vice President and CFO
