SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
x QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
Commission File Number 0-22535
Sistersville Bancorp, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 31-1516424 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
726 Wells Street, Sistersville, WV 26175
(Address of principal executive offices)
(304) 652-3671
(Registrant’s telephone number, including area code)
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after distribution of securities under a plan confirmed by a court.
Yesx 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 October 31, 2003: 393,833 shares
SISTERSVILLE BANCORP, INC.
SISTERSVILLE BANCORP, INC.
September 30, 2003 | March 31, 2003 | |||||||
| (Unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents: | ||||||||
Cash and amounts due from banks | $ | 139,730 | $ | 264,310 | ||||
Interest-bearing deposits with other institutions | 2,319,892 | 2,689,306 | ||||||
Total cash and cash equivalents | 2,459,622 | 2,953,616 | ||||||
Investment securities: | ||||||||
Securities held-to-maturity (fair value of $66,915 and $78,610, respectively) | 64,470 | 75,699 | ||||||
Securities available-for-sale | 14,726,734 | 12,029,150 | ||||||
Total investment securities | 14,791,204 | 12,104,849 | ||||||
Loans receivable, (net of allowance for loan losses of $167,068 and $176,359, respectively) | 27,883,852 | 30,057,439 | ||||||
Real estate owned | 75,000 | — | ||||||
Office properties and equipment, net | 1,499,594 | 1,541,119 | ||||||
Federal Home Loan Bank (FHLB) stock, at cost | 233,100 | 212,700 | ||||||
Deferred income taxes | 31,398 | 8,179 | ||||||
Accrued interest receivable (net of reserve for uncollected interest of $455 and $-0-, respectively) | 262,827 | 286,810 | ||||||
Other assets | 30,161 | 43,629 | ||||||
TOTAL ASSETS | $ | 47,266,758 | $ | 47,208,341 | ||||
LIABILITIES | ||||||||
Deposits | $ | 38,476,848 | $ | 38,472,626 | ||||
Accrued interest payable and other liabilities | 461,116 | 564,672 | ||||||
TOTAL LIABILITIES | 38,937,964 | 39,037,298 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, $.10 par value; 500,000 shares authorized, none issued | — | — | ||||||
Common stock, $.10 par value; 2,000,000 shares authorized, 661,428 issued; 393,833 outstanding at September 30, 2003, and at March 31, 2003 | 66,143 | 66,143 | ||||||
Additional paid-in capital | 6,278,488 | 6,255,184 | ||||||
Treasury stock, at cost (267,595 shares) | (3,793,309 | ) | (3,793,309 | ) | ||||
Retained earnings—substantially restricted | 5,901,815 | 5,777,279 | ||||||
Accumulated other comprehensive income | 106,051 | 151,039 | ||||||
Unearned Employee Stock Ownership Plan (ESOP) shares | (185,219 | ) | (216,576 | ) | ||||
Unearned Restricted Stock Plan (RSP) shares | (45,175 | ) | (68,717 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 8,328,794 | 8,171,043 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 47,266,758 | $ | 47,208,341 | ||||
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Three Months Ended September 30, | ||||||
| 2003 | 2002 | |||||
INTEREST AND DIVIDEND INCOME | ||||||
Taxable interest on loans | $ | 510,031 | $ | 578,911 | ||
Taxable interest on investments | 126,875 | 102,471 | ||||
Nontaxable interest on loans | 3,073 | 3,801 | ||||
Nontaxable interest on investments | 14,683 | 10,235 | ||||
Dividends on Federal Home Loan Bank stock | 1,151 | 2,276 | ||||
Dividends on Federal Home Loan Mortgage Corporation stock | 260 | 3,985 | ||||
Total interest and dividend income | 656,073 | 701,679 | ||||
INTEREST EXPENSE | ||||||
Deposits | 221,866 | 285,884 | ||||
Total interest expense | 221,866 | 285,884 | ||||
NET INTEREST INCOME | 434,207 | 415,795 | ||||
Provision for loan losses | — | 600 | ||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 434,207 | 415,195 | ||||
NONINTEREST INCOME | ||||||
Service charges | 22,189 | 20,342 | ||||
Other income | 708 | 681 | ||||
Gain on call and sale of available-for-sale securities, net | 2,182 | 91,007 | ||||
Total noninterest income | 25,079 | 112,030 | ||||
NONINTEREST EXPENSE | ||||||
Compensation and employee benefits | 166,738 | 259,135 | ||||
Occupancy | 24,208 | 24,461 | ||||
Furniture and equipment expense | 17,859 | 21,552 | ||||
Deposit insurance premiums | 1,531 | 1,351 | ||||
Supervisory examination, audit, and legal fees | 18,475 | 16,710 | ||||
Advertising and public relations | 6,438 | 8,750 | ||||
Service bureau expense | 27,811 | 31,692 | ||||
Franchise, payroll, and other taxes | 15,925 | 16,209 | ||||
Other expenses | 31,340 | 27,503 | ||||
Total noninterest expense | 310,325 | 407,363 | ||||
Income before income taxes | 148,961 | 119,862 | ||||
Income taxes | 48,138 | 40,696 | ||||
NET INCOME | $ | 100,823 | $ | 79,166 | ||
Dividends declared per common share | $ | — | $ | — | ||
Earnings per share | ||||||
Basic | $ | 27 | $ | 19 | ||
Diluted | $ | 26 | $ | 19 | ||
Average shares outstanding—Basic | 372,060 | 414,850 | ||||
Average shares outstanding—Diluted | 383,821 | 425,066 | ||||
See accompanying notes to the unaudited consolidated financial statements.
4
SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| Three Months Ended September 30, | ||||||||
| 2003 | 2002 | |||||||
NET INCOME | $ | 100,823 | $ | 79,166 | ||||
Other comprehensive loss, net of tax: | ||||||||
Unrealized gain (loss) on securities, net of tax: | ||||||||
Unrealized holding gain (loss) during the period | (102,073 | ) | 6,791 | |||||
Less: Reclassification adjustment for gain included in net income | 1,440 | 60,064 | ||||||
Other comprehensive loss, net of tax | (103,513 | ) | (53,273 | ) | ||||
COMPREHENSIVE INCOME (LOSS) | $ | (2,690 | ) | $ | 25,893 | |||
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Six Months Ended September 30, | ||||||
| 2003 | 2002 | |||||
INTEREST AND DIVIDEND INCOME | ||||||
Taxable interest on loans | $ | 1,037,947 | $ | 1,178,945 | ||
Taxable interest on investments | 252,345 | 167,896 | ||||
Nontaxable interest on loans | 6,867 | 7,815 | ||||
Nontaxable interest on investments | 27,412 | 20,503 | ||||
Dividends on Federal Home Loan Bank stock | 2,375 | 4,509 | ||||
Dividends on Federal Home Loan Mortgage Corporation stock | 520 | 7,402 | ||||
Total interest and dividend income | 1,327,466 | 1,387,070 | ||||
INTEREST EXPENSE | ||||||
Deposits | 449,443 | 568,512 | ||||
Total interest expense | 449,443 | 568,512 | ||||
NET INTEREST INCOME | 878,023 | 818,558 | ||||
Provision for loan losses | — | 1,200 | ||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 878,023 | 817,358 | ||||
NONINTEREST INCOME | ||||||
Service charges | 47,573 | 39,487 | ||||
Other income | 1,615 | 1,224 | ||||
Gain on call and sale of available-for-sale securities, net | 2,182 | 91,007 | ||||
Total noninterest income | 51,370 | 131,718 | ||||
NONINTEREST EXPENSE | ||||||
Compensation and employee benefits | 340,352 | 429,155 | ||||
Occupancy | 47,125 | 47,659 | ||||
Furniture and equipment expense | 35,270 | 38,572 | ||||
Deposit insurance premiums | 3,004 | 2,644 | ||||
Supervisory examination, audit, and legal fees | 36,720 | 32,579 | ||||
Advertising and public relations | 14,477 | 16,804 | ||||
Service bureau expense | 55,434 | 63,059 | ||||
Franchise, payroll, and other taxes | 32,474 | 30,482 | ||||
Other expenses | 54,831 | 47,836 | ||||
Total noninterest expense | 619,687 | 708,790 | ||||
Income before income taxes | 309,706 | 240,286 | ||||
Income taxes | 96,112 | 79,706 | ||||
NET INCOME | $ | 213,594 | $ | 160,580 | ||
Dividends declared per common share | $ | 24 | $ | 22 | ||
Earning per share | ||||||
Basic | $ | 58 | $ | 38 | ||
Diluted | $ | 56 | $ | 37 | ||
Average shares outstanding—Basic | 370,686 | 420,929 | ||||
Average shares outstanding—Diluted | 380,874 | 433,125 | ||||
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| Six Months Ended September 30, | ||||||||
| 2003 | 2002 | |||||||
NET INCOME | $ | 213,594 | $ | 160,580 | ||||
Other comprehensive loss, net of tax: | ||||||||
Unrealized gain (loss) on securities, net of tax: | ||||||||
Unrealized holding gain (loss) during the period | (43,548 | ) | 59,279 | |||||
Less: Reclassification adjustment for gain included in net income | 1,440 | 60,064 | ||||||
Other comprehensive loss, net of tax | (44,988 | ) | (785 | ) | ||||
COMPREHENSIVE INCOME | $ | 168,606 | $ | 159,795 | ||||
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six Months Ended September 30, | ||||||||
| 2003 | 2002 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 213,594 | $ | 160,580 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation, amortization, and accretion, net | 120,559 | 59,418 | ||||||
Gain on maturity or call of available-for-sale securities | (2,182 | ) | (91,007 | ) | ||||
Provision for loan losses | — | 1,200 | ||||||
ESOP and RSP amortization | 78,203 | 83,457 | ||||||
Decrease (increase) in accrued interest receivable and other assets | 37,451 | (55,989 | ) | |||||
Increase (decrease) in accrued interest payable and other liabilities | (103,555 | ) | 85,147 | |||||
Net cash provided by operating activities | 344,070 | 242,806 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of available-for-sale securities | (7,697,729 | ) | (7,064,946 | ) | ||||
Principal collected on mortgage-backed securities | 964,132 | 165,578 | ||||||
Proceeds from maturity or call of available-for-sale securities | 3,902,182 | 811,540 | ||||||
Purchase of FHLB stock | (20,400 | ) | (28,800 | ) | ||||
Net decrease (increase) in loans | 2,098,587 | (39,229 | ) | |||||
Purchases of office properties and equipment | — | (47,178 | ) | |||||
Net cash used for investing activities | (753,228 | ) | (6,203,035 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net increase in deposits | 4,222 | 5,051,039 | ||||||
Dividends paid | (89,058 | ) | (94,116 | ) | ||||
Purchase of Treasury Stock | — | (392,044 | ) | |||||
Net cash (used for) provided by financing activities | (84,836 | ) | 4,564,879 | |||||
Change in cash and cash equivalents | (493,994 | ) | (1,395,350 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 2,953,616 | 4,834,123 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 2,459,622 | $ | 3,438,773 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION | ||||||||
Cash paid during the period for: | ||||||||
Interest on deposits and borrowings | $ | 445,991 | $ | 572,322 | ||||
Income taxes | 135,000 | 77,000 | ||||||
Real estate acquired in settlement of loan | 75,000 | — | ||||||
See accompanying notes to the unaudited consolidated financial statements.
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SISTERSVILLE BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—BASIS OF PRESENTATION
The consolidated financial statements of Sistersville Bancorp, Inc. (the “Company”), include its wholly-owned subsidiary, First Federal Savings Bank (the “Bank”). All significant inter-company balances and transactions 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 fiscal year ended March 31, 2004.
These statements should be read in conjunction with the consolidated statements as of and for the fiscal year ended March 31, 2003, and related notes which are included in the Company’s Annual Report on Form 10-KSB (file no. 0-22535).
NOTE 2—RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting Standard (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value when the liability is incurred. This statement nullifies Emerging Issues Task Force Issue No. 94-3, which required the recognition of a liability for an exit cost at the date of an entity’s commitment to an exit plan. The effective date of this statement is for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of this Statement did not have a material impact on the Company.
On December 31, 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. Under the provisions of SFAS No. 123, companies that adopted the preferable, fair value based method were required to apply that method prospectively for new stock option awards. This contributed to a “ramp-up” effect on stock-based compensation expense in the first few years following adoption, which caused concern for companies and investors because of the lack of consistency in reported results. To address that concern, SFAS No. 148 provides two additional methods of transition that reflect an entity’s full complement of stock-based compensation expense immediately upon adoption, thereby eliminating the ramp-up effect. SFAS No. 148 also improves the clarity and prominence of disclosures about the pro forma effects of using the fair value based method of accounting for stock-based compensation for all companies—regardless of the accounting method used—by requiring that the data be presented more prominently and in a more user-friendly format in the footnotes to the financial statements. In addition, the statement improves the timeliness of those disclosures by requiring that this information be included in interim as well as annual financial statements. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The adoption of SFAS No. 148 did not have a material impact on the Company.
On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities.” The statement amends and clarifies accounting for derivative instruments embedded in other contracts and for hedging activities under Statement No. 133. The amendments improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. The statement also clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the
9
statement of cash flows. The statement is generally effective for contracts entered into or modified after June 30, 2003. Adoption of SFAS No. 149 did not have a material impact on the Company.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” The statement improves the accounting for certain financial instruments that, under previous guidance, could be accounted for as equity and requires that those instruments be classified as liabilities. This statement affects accounting for three types of freestanding financial instruments. One type is mandatorily redeemable shares, which the issuing company is obligated to buy back in exchange for cash or other assets. A second type, which includes put options and forward purchase contracts, involves instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets. The third type, are instruments whose obligations can be settled with shares, the monetary value is fixed, tied solely or predominately to a variable such as a market index, or varies inversely with the value of the issuers’ shares. SFAS No. 150 does not apply to features embedded in a financial instrument that is not a derivative in its entirety. Most of the guidance is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. This interpretation clarifies that a guarantor is required to disclose (a) the nature of the guarantee, including the approximate term of the guarantee, how the guarantee arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments under the guarantee; (c) the carrying amount of the liability, if any, for the guarantor’s obligations under the guarantee; and (d) the nature and extent of any recourse provisions or available collateral that would enable the guarantor to recover the amounts paid under the guarantee. This interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur. The objective of the initial measurement of that liability is the fair value of the guarantee at its inception. The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. Adoption did not have a material impact on the Company.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” in an effort to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities, and activities of another entity. The objective of this interpretation is not to restrict the use of variable interest entities, but to improve financial reporting by companies involved with variable interest entities. Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. This interpretation changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of this interpretation apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. In October 2003, the FASB decided to defer to the fourth quarter from the third quarter the implementation date for Interpretation No. 46. This deferral only applies to variable interest entities that existed prior to February 1, 2003. The adoption of this interpretation has not and is not expected to have a material effect on the Company’s financial position or results of operations.
10
MANAGEMENT’S DISCUSSION AND ANALYSIS
Comparison of Financial Condition at September 30, 2003, and March 31, 2003
Total assets increased by $59,000 to $47,267,000 at September 30, 2003, from $47,208,000 million at March 31, 2003. Cash and cash equivalents decreased by $494,000 to $2.5 million at September 30, 2003, from $3.0 million at March 31, 2003. The decrease represented the outflow of cash associated with the payment of dividends, the purchase of available-for-sale securities, offset by the inflow of cash from operating activities, net principal repayment of loans, proceeds from the maturity or call of available-for-sale securities, and principal collected on mortgage-backed securities. Investment securities increased $2.7 million from $12.1 million at March 31, 2003, to $14.8 million at September 30, 2003. The increase was the direct result of the purchase of $6.3 million in U.S. agency obligations, $1.1 million in mortgage-backed securities, and $216,000 in municipal securities, offset by the $68,000 decrease in fair value of available-for-sale securities, the maturity or call of U.S. agency obligations of $3.9 million and the principal collected on mortgage-backed securities of $964,000. Net loans receivable decreased $2.2 million from $30.1 million at March 31, 2003, to $27.9 million at September 30, 2003. The decrease was attributable to the decrease of $2.0 million in mortgage loans which was the direct result of the Company maintaining relatively stable mortgage rates, as opposed to the industry’s decreasing loan rates, in order to assume less long-term interest rate risk.
Total liabilities decreased $99,000 to $38.9 million at September 30, 2003, from $39.0 million at March 31, 2003. Customer deposits increased $4,000 from $38,473,000 at March 31, 2003, to $38,477,000 at September 30, 2003. Savings deposit accounts increased $204,000 offset by the decrease in money market, NOW, and certificates of deposit of $53,000, $101,000, and $46,000, respectively.
Stockholders’ equity increased by $158,000 to $8.3 million at September 30, 2003. The increase was attributable to net income of $214,000, amortization of the ESOP and RSP of $78,000, offset by a decrease of $45,000 in accumulated other comprehensive income and the payment of dividends of $89,000.
Comparison of the Results of Operations for the Three Months ended September 30, 2003 and 2002
Net income increased by $22,000, or 27.4%, from net income of $79,000 for the three months ended September 30, 2002, to net income for the three months ended September 30, 2003, of $101,000.
Interest and dividend income decreased $46,000, or 6.5%, from $702,000 at September 30, 2002, to $656,000 at September 30, 2003. The decrease is attributed to the decrease in interest on loans of $70,000, or 11.9%, offset by the increase in interest on investments of $29,000, or 25.6%. The decrease in interest on loans was due to the decrease in the average loans of $2.0 million. The increase in interest on investments was due to the increase in the average investments of $3.8 million, from $12.6 million for the three-month period ended September 30, 2002, to $16.4 million for the three-month period ended September 30, 2003.
Interest expense on deposits decreased by $64,000, or 22.4%, from $286,000 for the three months ended September 30, 2002, to $222,000 for the three months ended September 30, 2003. The decrease in interest expense on deposits was the direct result of the 90 basis point decrease in the cost of funds from 3.27% for the three months ended September 30, 2002, to 2.37% for the three months ended September 30, 2003, offset by the increase in the average balance of interest-bearing deposits of $2.4 million, from $35.0 million for the three-month period ended September 30, 2002, to $37.4 million for the same period in 2003.
Management regularly performs an analysis to identify the inherent risk of loss in its loan portfolio. This analysis includes evaluation of concentrations of credit, past loss experience, current economic conditions, amount and composition of the loan portfolio (including loans being specifically monitored by management), estimated fair value of underlying collateral, loan commitments outstanding, delinquencies, and other factors. Based on this analysis, management established an allowance for loan losses. The allowance for loan losses is adjusted periodically by a provision for loan losses, which is charged to operations based on management’s evaluation of the probable losses that may be incurred in the Bank’s portfolio. The provision for loan losses decreased by $600 for the three months ended September 30, 2003, as compared to the same three months ended September 30, 2002.
11
The Bank will continue to monitor its allowance for loan losses and make future additions to the allowance through the provision for loan losses as economic conditions dictate. Although the Bank 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. In addition, the Bank’s determination as to the amount of its allowance for loan losses is subject to review by its primary federal regulator, the Office of Thrift Supervision (“OTS”), as part of its examination process, which may result in the establishment of an additional allowance based on the judgment of the OTS after a review of the information available at the time of the OTS examination.
Non-interest income decreased by $87,000, or 77.6%, to $25,000 for the three-month period ended September 30, 2003, from $112,000 for the same period in 2002. The decrease was the direct result of the decrease in the gain on call or sale of available-for-sale securities by $89,000, or 97.6%, from $91,000 for the three-month period ended September 30, 2002 to $2,000 for the same period in 2003.
Non-interest expense decreased by $97,000, or 23.8%, to $310,000 for the three months ended September 30, 2003, from $407,000 for the same period in 2002. Compensation and employee benefits decreased $92,000, or 35.7%, from $259,000 for the three months ended September 30, 2002, to $167,000 for the three months ended September 30, 2003. The decrease was the direct result of the recognition of $89,000 in compensation expense during the three-month period ended September 30, 2002, for the First Federal Savings Bank Directors Consultation and Retirement Plan effective July 1, 2002 which did not occur during the 2003 period.
Income tax expense increased by $7,000, or 18.3%, from $41,000 for the three months ended September 30, 2002, to $48,000 for the three months ended September 30, 2003, due to an increase in pre-tax income.
Comparison of the Results of Operations for the Six Months ended September 30, 2003 and 2002
Net income increased by $53,000, or 33.0%, from net income of $161,000 for the six months ended September 30, 2002, to net income for the three months ended September 30, 2003, of $214,000.
Interest and dividend income decreased $60,000, or 4.3%, from $1.4 million at September 30, 2002, to $1.3 million at September 30, 2003. The decrease is attributed to the decrease in interest on loans of $142,000, or 12.0%, offset by the increase in interest on investments of $91,000, or 48.5%. The decrease in interest on loans was due to the decrease in the average loans of $1.5 million. The increase in interest on investments was due to the increase in the average investments of $4.6 million, from $11.3 million for the six-month period ended September 30, 2002, to $15.9 million for the six-month period ended September 30, 2003.
Interest expense on deposits decreased by $119,000, or 20.9%, from $568,000 for the six months ended September 30, 2002, to $449,000 for the six months ended September 30, 2003. The decrease in interest expense on deposits was the direct result of the 98 basis point decrease in the cost of funds from 3.38% for the six months ended September 30, 2002, to 2.40% for the six months ended September 30, 2003, offset by the increase in the average balance of interest-bearing deposits of $3.8 million, from $33.6 million for the six-month period ended September 30, 2002, to $37.4 million for the same period in 2003.
Management regularly performs an analysis to identify the inherent risk of loss in its loan portfolio. This analysis includes evaluation of concentrations of credit, past loss experience, current economic conditions, amount and composition of the loan portfolio (including loans being specifically monitored by management), estimated fair value of underlying collateral, loan commitments outstanding, delinquencies, and other factors. Based on this analysis, management established an allowance for loan losses. The allowance for loan losses is adjusted periodically by a provision for loan losses, which is charged to operations based on management’s evaluation of the probable losses that may be incurred in the Bank’s portfolio. The provision for loan losses decreased by $1,200 for the six months ended September 30, 2003, as compared to the same six months ended September 30, 2002.
The Bank will continue to monitor its allowance for loan losses and make future additions to the allowance through the provision for loan losses as economic conditions dictate. Although the Bank 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. In addition, the Bank’s determination as to the amount of its allowance for loan
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losses is subject to review by its primary federal regulator, the Office of Thrift Supervision (“OTS”), as part of its examination process, which may result in the establishment of an additional allowance based on the judgment of the OTS after a review of the information available at the time of the OTS examination.
Non-interest income decreased by $81,000, or 61.0%, to $51,000 for the six-month period ended September 30, 2003, from $132,000 for the same period in 2002. The decrease was the direct result of the decrease in the gain on call or sale of available-for-sale securities by $89,000, or 97.6%, from $91,000 for the six-month period ended September 30, 2002 to $2,000 for the same period in 2003.
Non-interest expense decreased by $89,000, or 12.6%, to $620,000 for the six months ended September 30, 2003, from $709,000 for the same period in 2002. Compensation and employee benefits decreased $89,000, or 20.7%, from $429,000 for the six months ended September 30, 2002, to $340,000 for the six months ended September 30, 2003. The decrease was the direct result of the recognition of $89,000 in compensation expense during the six-month period ended September 30, 2002, for the First Federal Savings Bank Directors Consultation and Retirement Plan effective July 1, 2002 which did not occur during the 2003 period. Service bureau expense decreased $8,000, or 12.1%, from $63,000 for the six-month period ended September 30, 2002, to $55,000 for the six-month period ended September 30, 2003. Other expenses increased $7,000, or 14.6%, from $48,000 for the six months ended September 30, 2002, to $55,000 for the six months ended September 30, 2003. Service bureau expense decreased and other expenses increased as a direct result of an increase in performing services in-house such as the mailing of customer checking and money market deposit statements.
Income tax expense increased by $16,000, or 20.6%, from $80,000 for the six months ended September 30, 2002, to $96,000 for the six months ended September 30, 2003, due to an increase in pre-tax income.
Liquidity and Capital Resources
The Bank’s primary sources of funds are deposits, amortization and repayment of loans, maturities and calls of investment securities, and funds provided from operations. While scheduled loan repayments are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.
The Bank has other sources of liquidity if a need for additional funds arises. Additional sources of liquidity include funds available from the Federal Home Loan Bank (“FHLB”) of Pittsburgh amounting to $31.3 million. As of September 30, 2003, the Bank had no outstanding advances from the FHLB.
As of September 30, 2003, the Bank had $2.3 million in outstanding loan commitments. Management believes that it has adequate sources to meet the actual funding requirements.
Management monitors the Bank’s tangible, core, and risk-based capital ratios in order to assess compliance with OTS regulations. At September 30, 2003, the Bank exceeded the minimum capital ratios requirements imposed by the OTS.
At September 30, 2003, the Bank’s capital ratios were as follows:
Bank Requirement | Actual | |||||
Tangible capital | 1.5 | % | 16.79 | % | ||
Core capital | 4.0 | % | 16.79 | % | ||
Risk-based capital | 8.0 | % | 44.08 | % |
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Risk Elements
The table below presents information concerning non-performing assets including non-accrual loans, renegotiated loans, loans 90 days or more past due, other real estate loans, and repossessed assets. A loan is classified as non-accrual when, in the opinion of management, there are serious doubts about the 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 for which terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deterioration of the borrower’s ability to pay.
| September 30, 2003 | March 31, 2003 | |||||||
| (dollars in thousands) | ||||||||
Loans on non-accrual basis | $ | — | $ | — | ||||
Loans past due 90 days or more | 26 | — | ||||||
Renegotiated loans | — | — | ||||||
Total non-performing loans | 26 | — | ||||||
Other real estate | 75 | — | ||||||
Repossessed assets | — | — | ||||||
Total non-performing assets | $ | 101 | $ | — | ||||
Non-performing loans as a percent of total loans | .09 | % | — | % | ||||
Non-performing assets as a percent of total assets | .21 | % | — | % | ||||
Allowance for loan losses to non-performing loans | 642.57 | % | — | % | ||||
Management monitors impaired loans on a continual basis. As of September 30, 2003, the Company had no impaired loans. During the six months ended September 30, 2003, loans decreased $2.2 million and non-performing loans decreased $4,000, while the allowance for loan losses decreased $9,000. The percentage of allowance for loan losses to loans outstanding remained at .6% during this time period. The collateral requirements on such loans reduce the risk of potential losses to an acceptable level in management’s opinion.
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Evaluation of Disclosure Controls and Procedures
Based on the evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), the Company’s President and Chief Executive Officer (Principal Executive Officer and Principal Accounting and Financial Officer), has concluded that, as of the end of the period covered by this Quarterly Report on Form 10-QSB, such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in Internal Control over Financial Reporting
During the quarter under report, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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The registrant was not engaged in any material pending legal proceedings as of the date of this report. From time to time, the Bank is a party to legal proceedings within the normal course of business wherein it enforces its security interest in loans made by it, and other matters of a like kind.
NONE
Item 3. Defaults upon senior securities
NONE
| Item | 4. Submission of matters to a vote of security holders |
NONE
Any proposals of shareholders intended to be included in the Company’s proxy statement and proxy card for the 2004 Annual Meeting of Shareholders should be sent to the Company by certified mail and must be received by the Company not later than February 10, 2004. In addition, if a shareholder intends to present a proposal at the 2004 Annual Meeting without including the proposal in the proxy materials related to that meeting and, if the proposal is not received by May 18, 2004, then the proxies designated by the Board of Directors of the Company for the 2004 Annual Meeting of Shareholders of the Company may vote in their discretion on any such proposal, any shares for which they have been appointed proxies without mention of such matter in the proxy statement or on the proxy card for such meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
| 31 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 99.1 | Independent Accountant’s Report |
(b) Report on Form 8-K
NONE
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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.
| SISTERSVILLE BANCORP, INC. | ||||
| Date: November 6, 2003 | By: | /s/ STANLEY M. KISER Stanley M. Kiser President and Chief Executive Officer (Duly Authorized Officer) | ||
| Date: November 6, 2003 | By: | /s/ STANLEY M. KISER Stanley M. Kiser President and Chief Executive Officer (Principal Executive and Financial Officer) | ||
