1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number 1-14577
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 23-2980576
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization Identification No.)
31 W. Broad Street, Hazleton, Pennsylvania 18201
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(570) 454-0824
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changes since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
----- -----
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: the Issuer had 1,587,000 shares
of common stock, par value $0.01 per share, outstanding as of May 11, 1999.
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SECURITY OF PENNSYLVANIA FINANCIAL CORP.
FORM 10-QSB
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at
March 31, 1999 and June 30,1998 (unaudited)...........................1
Consolidated Income Statement and Statement of
Comprehensive Income for the Three and Nine
Months Ended March 31, 1999 and 1998 (unaudited)......................2
Consolidated Statement of Cash Flows for the Nine Months Ended
March 31, 1999 and 1998 ..............................................4
Notes to Consolidated Financial Statements............................5
Item 2. Management's Discussion and Analysis .................................6
PART II: OTHER INFORMATION
Item 1. Legal Proceedings....................................................12
Item 2. Changes in Securities and Use of Proceeds............................12
Item 3. Defaults Upon Senior Securities......................................12
Item 4. Submission of Matters to a Vote of Security Holders..................12
Item 5. Other Information....................................................12
Item 6. Exhibits and Reports on Form 8-K.....................................12
SIGNATURES ..................................................................13
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 (UNAUDITED) AND JUNE 30, 1998
(In thousands)
AT AT
MARCH 31, June 30,
1999 1998
---------- ---------
(UNAUDITED)
Assets:
Cash and cash equivalents...................... $ 16,605 $ 11,858
Held-to-maturity securities
(fair value of $21,503 on 3/31/99 and 20,807
in 6/30/98) 19,466 20,783
Available for sale securities.................. 14,643 7,900
Loans (less allowance for loan loss of $436 in
3/31/99 And $496 in 6/30/98)................ 69,891 69,211
Property and equipment, net.................... 1,291 1,364
Other assets................................... 1,732 874
-------- --------
Total assets................................. $123,628 $111,990
======== ========
Liabilities and Equity:
Deposits....................................... $100,518 $102,604
Accrued interest payable and other
liabilities.................................. 421 156
-------- --------
Total liabilities............................ 100,939 102,760
-------- --------
Common Stock ($.01 par value; 6,000,000
authorized shares, 1,587,000 shares issued.. 16
Additional paid-in capital..................... 14,868 --
Unearned ESOP Shares........................... (1,270)
Retained earnings - substantially restricted... 9,331 9,361
Accumulated other comprehensive income......... (256) (131)
-------- --------
Total equity................................. 22,689 9,230
-------- --------
Total liabilities and equity................. $123,628 $111,990
======== ========
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SECURITY OF PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED INCOME AND COMPREHENSIVE INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(in thousands, except per share data)
MARCH 31, March 31,
1999 1998
---------- ----------
(UNAUDITED)
Interest income:
Loans............................................ $1,323 $1,330
Interest and dividends on securities.......... 450 341
Interest-bearing deposits with banks.......... 213 228
------ ------
Total interest income........................ 1,986 1,899
Interest expense:
Deposits......................................... 986 1,065
Net interest income.............................. 1,000 834
Provision for loan losses........................ 10 71
------ ------
Net interest income after provision for
loan losses..................................... 990 763
Noninterest income:
Other loan fees and service charges.............. 85 59
Gain (loss) on sale of other real estate owned
and other assets........................... (29) (54)
---- ----
Total noninterest income..................... 56 5
Noninterest Expense:
Salaries and net employee benefits............... 349 303
Occupancy costs.................................. 83 56
Other Noninterest Expense........................ 290 228
------ ------
Total noninterest expense.......................... 722 587
Income (loss) before provision for income taxes 324 181
Income tax provision (benefit) 77 85
-- --
Net income 247 96
Inc rease (decrease) in unrealized losses available
for sale securities (126) (9)
----- ---
Comprehensive income (loss) $121 $ 87
=== ==
Common stock outstanding 1,587,000 N/A
Earnings per share - net income $.16 N/A
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SECURITY OF PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED INCOME AND COMPREHENSIVE INCOME STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(in thousands, except per share data)
March 31, March 31,
1999 1998
---------- ----------
(unaudited) (unaudited)
Interest income:
Loans............................................ $3,929 $3,988
Interest and dividends on securities.......... 1,061 1,071
Interest-bearing deposits with banks.......... 768 661
------ ------
Total interest income...................... 5,758 5,728
Interest expense:
Deposits......................................... 3,137 3,179
Net interest income.............................. 2,621 2,549
Provision for loan losses........................ 65 144
------ ------
Net interest income after provision for loan
losses......................................... 2,556 2,405
Noninterest income:
Other loan fees and service charges.............. 230 198
Gain (loss) on sale of: Real estate owned and
other assets.................................. (119) (17)
----- ----
Total noninterest income..................... 111 181
Noninterest expense:
Salaries and net employee benefits............... 1,028 979
Occupancy costs.................................. 219 170
Other noninterest expense........................ 1,505 649
------ ------
Total noninterest expense.................... 2,751 1,798
Income (Loss) before provision for income taxes.... (84) 788
Income tax provision (benefit)..................... (53) 330
------ ------
Net Income (loss).................................. (31) 458
Increase (decrease) in unrealized losses
available for sale securities.................... (125) 43
------ --
Comprehensive income (loss)........................ $(156) $ 501
====== ======
Common stock outstanding N/A N/A
Earnings per share - net income N/A N/A
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SECURITY OF PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR NINE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(in thousands)
March 31, March 31,
1999 1998
---------- ----------
OPERATING ACTIVITIES:
Net income (loss).................................. $ (31) $ 458
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses and foreclosed real
estate........................................... 65 66
Amortization and accretion on investment
securities....................................... 1,735 (4,186)
Depreciation and amortization...................... 113 77
Deferred income taxes.............................. -- --
(Gain) Loss on sale of:
Real estate acquired through foreclosure......... 200 66
Securities....................................... -- (63)
Change in assets and liabilities:
Accrued interest receivable...................... (1) 27
Other assets..................................... (2,080) (637)
Accrued interest payable and other liabilities... 275 81
Net cash provided by operating activities.......... $ 276 $(4,111)
INVESTMENT ACTIVITIES:
Purchase of held-to-maturity securities............ $(1,500) $ --
Purchase of available-for-sale securities.......... (10,925) (1,250)
Proceeds from the call of held-to-maturity
securities....................................... 6,935 2,741
Proceeds from maturities and principal paydowns on
available-for-sale securities.................... 600 4,750
Proceeds from principal paydowns of held-to-maturity
securities....................................... 715 784
Loans made to customers, net of principal
collected........................................ 499 (4,811)
Acquisition of office premises and equipment....... 113 45
Proceeds from sale of foreclosed real estate....... (166) 260
------ -----
Net cash used in investing activities.............. $(1,729) $ 3,019
======== =======
FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts........ $(2,086) $ 2,669
Net increase (decrease) in advances from borrowers
for taxes and insurance.......................... (10) (103)
Net proceeds from issuance of common stock......... 16,145 --
------ ------
Net cash provided by financing activities.......... $14,049 $ 2,566
------- --------
Increase (decrease) by cash and equivalents........ 4,747 1,650
Cash and equivalents - beginning of period......... 11,858 9,034
------ -----
Cash and equivalents - end of period............... $16,605 $ 10,684
======= ========
Supplemental Disclosure of Cash Flow Information:
Interest paid on deposits........................ $ 3,137 $ 3,179
Income taxes paid................................ $ (65) $ 330
Supplemental Disclosure of Non-Cash Information:
Transfer from loans to real estate owned......... $ 50 $ 321
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SECURITY OF PENNSYLVANIA FINANCIAL CORP.
Notes to Consolidated Financial Statements
(1) Organization
------------
Security of Pennsylvania Financial Corp. (the Company") was incorporated
under the laws of Delaware in August 1998 for the purpose of serving as the
holding company of Security Savings Association of Hazleton (the "Association")
as part of the Association's conversion from the mutual to stock form of
organization (the "Conversion"). The Company is a savings and loan holding
company and is subject to regulation by the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation and the Securities and Exchange
Commission. The Conversion, completed on December 30, 1998 resulted in the
Company issuing an aggregate of 1,587,000 shares of its common stock, par value
$.01 per share, at a price of $10 per share, of which 1,511,617 shares were
issued in a subscription offering and 75,383 shares were issued and sold to
Security Savings Charitable Foundation. Prior to the Conversion, the Company had
not engaged in any material operations.
(2) Accounting Principles
---------------------
The accompanying unaudited financial statements of Security of
Pennsylvania Financial Corp. have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
instructions to Form 10-QSB and of Regulation S-B. Accordingly, the financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of a normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the current
fiscal year.
For further information, refer to the consolidated financial statements
included in the Company's offering prospectus prepared in connection with the
Conversion filed with the Securities and Exchange Commission.
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Item 2. Management's Discussion and Analysis.
------------------------------------
The following analysis discusses changes in the financial condition and
results of operations at and for the three and nine months ended March 31, 1999,
and should be read in conjunction with the Bank's Consolidated Financial
Statements and the notes thereto, appearing in Part I, Item 1 of this document.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward -looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations of the Company and the subsidiaries include, but are not limited to,
changes in: interest rates, general economic conditions, legislative/regulatory
changes, monetary and fiscal policies of the U.S. Government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality or composition
of the loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the SEC.
The Company does not undertake - and specifically disclaims any obligation
- - to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
GENERAL
Security of Pennsylvania Financial Corp. (the "Company") is the holding
company for Security Savings Association of Hazleton (the "Association"), a
Pennsylvania chartered capital stock savings association. The Association's
results of operations are dependent primarily on net interest income, which is
the difference between the income earned on its loan and investment portfolios
and its cost of funds, consisting of the interest paid on deposits and
borrowings. Results of operations are also affected by the Association's
provision for loan losses, loan and security sales activities, service charges
and other fee income, and non-interest expense. The Association's non-interest
expense principally consists of compensation and employee benefits, office
occupancy and equipment expense, federal deposit insurance premiums, data
processing, advertising and business
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promotion and other expenses. Results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
interest rates, government policies and actions of regulatory authorities.
MANAGEMENT STRATEGY
The Association's operating strategy has been that of a community-based
banking institution, offering a wide variety of savings products to its retail
customers, while concentrating on residential and consumer lending and, to a
lesser extent, multi-family and commercial real estate and construction lending.
Additionally, as of February 1999, the Association has opened a commercial loan
department and expects to expand its services in that area. It is expected that
these loans will provide a higher spread in the lending portfolio. In order to
promote long-term financial strength and profitability, the Association's
operating strategy has focused on: (i) maintaining strong asset quality by
originating primarily one- to four-family mortgage loans and home equity loans
and lines of credit secured by residential real estate located in its market
area; (ii) managing its interest rate risk within the context of its significant
fixed-rate one- to four-family mortgage lending activity; (iii) providing
products and delivery systems directed at the needs and expectations of its
customer base, including taking advantage of technological advances when
appropriate; and (iv) maintaining a strong regulatory capital position.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND JUNE 30, 1998
Total assets at March 31, 1999 increased $11.6 million, or 10.4%, compared
to June 30, 1998. The increase was primarily due to the sale of the Company's
common stock in the Company's initial public offering in December 1998. During
the same period, deposits declined $2.1 million or 2.0%, due to withdrawals by
depositors purchasing stock in the initial public offering. Increased
competition in the marketplace, a low interest rate environment and a strong
stock market also contributed to the decrease.
The use of the proceeds from the initial public offering resulted in a
$5.4 million increase in investment securities and a $5.0 million increase in
money market investments (included in cash and cash equivalents) on March 31,
1999 compared to June 30, 1998. Loans increased $680,000 or 1.0% at March 31,
1999 compared to June 30, 1998.
Total equity increased $13.5 million from June 30, 1998, primarily due to
the influx of capital from the conversion to stock form of ownership in December
1998.
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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 1998
Net income for the quarter increased $151,000 or 157% compared to the
third quarter last year. Earnings per share were 16 cents. Based on annualized
earnings, return on assets for the quarter was .78% as compared to .36% last
year. Return on equity for three months ended March 31, 1999 was 4.37% compared
to 7.17% for three months ended March 31, 1998 as the higher level of capital
from the initial public offering affected the Company's ability to prudently
deploy such capital.
Net interest income during the period increased $166,000 or 19.9%.
Interest income rose 4.6% or $87,000, primarily, from increased revenue on
investment securities. Lower interest rates resulted in interest expense
declining $79,000 or 7.4%.
The provision for loan losses decreased $61,000 during the quarter ended
March 31, 1999 compared to the third quarter last year. On March 31, 1999 the
allowance for loan loss was .62% of loans compared to .69% on March 31, 1998.
The allowance account and resulting provision for loan losses are reviewed
periodically by management and the Board of Directors taking into consideration
the make-up of the loan portfolio, level of non-performing loans, charge-offs,
loan commitments, lines of credit and general economic conditions in the
company's market area. Management's analysis at March 31, 1999 indicated that
the reduced provision was appropriate to maintain an adequate level of reserves.
Noninterest income increased $51,000 primarily due to an increase in loan
fees and a reduction in the loss on the sale of other real estate. Noninterest
expense increased $135,000 or 23.0% when compared to last year. The increase was
primarily caused by a $46,000 increase in salaries and employee benefits. Merit
raises and increased staff contributed to the increase in salaries. The increase
was also attributable to a $27,000 increase in occupancy costs and a $26,000
increase in foreclosed real estate and other expenses. Price increases for
services were a major factor for the rise in occupancy and other expenses.
The following is a comparative schedule of non-interest expense for the
three months ended March 31:
[Dollars in thousands) Change
1999 1998 $ %
-------------- ---
Salaries and employee benefits $ 349 303 46 15.2
Occupancy costs 83 56 27 48.2
Data processing 45 35 10 28.6
Foreclosed real estate 40 14 26 185.7
F.D.I.C. insurance 15 15 0 0
All other 190 164 26 15.9
---------------
Total $ 722 587 135 23.0
=== === ===
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COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 1999
AND 1998
A net loss of $31,000 was reported for the nine month period compared to
net income of $458,000 for the same period last year. The loss was due to a one
time charge of $753,000 relating to the funding of Security Savings Charitable
Foundation established in connection with the Association's conversion to stock
form. If adjusted for the one time charge, net income would have approximated
$503,000. Using the adjusted net income return on assets would have been .57%
compared to .58% last year and return on equity would have been 4.20% compared
to 7.17% last year. Return on equity for the current period was negatively
affected by the need to effectively deploy the influx of capital from the
initial public offering.
Net interest income for the nine month period ended March 31, 1999
increased $72,000 or 2.8%. Interest income increased $30,000, primarily due to a
$107,000 increase in income from interest-bearing deposits in banks, offset by a
$59,000 decrease in income from loans. The level of investment securities rose
due to the investment of funds from the initial public offering. Loan income
declined as a moderate increase in volume did not offset the effect of a lower
interest rate environment. Interest expense declined $42,000 due primarily to
lower interest rates.
The provision for loan losses declined $79,000 when compared to the same
period last year. The provision is evaluated by management and the Board of
Directors periodically based on the make-up of the loan portfolio, level of
non-performing loans, charge-offs, loan commitments, lines of credit and general
economic conditions in the marketplace. Management's analysis at this time
indicated that the Association could decrease the loss reserve and still
maintain a more than adequate level of reserves.
Non interest income declined $70,000 in the quarter ended March 31, 1999
compared to the same period ended March 31, 1998 due to a $108,000 increase in
the loss on sale of other real estate owned. Loan fees and other service charges
increased $32,000, primarily because of increased volume. Non-interest expense
increased $953,000, primarily due to the one time charge of $753,000 to form the
Foundation. If adjusted for the one time charge, non interest expense would have
increased $200,000 or 11.1%. A $49,000 increase in both salaries and benefits
and occupancy costs together with a $61,000 increase in foreclosed real estate
expenses were the primary reasons for the increase.
The following is a schedule of non-interest expense for the nine months
ended March 31.
[Dollars in thousands) Change
1999 1998 $ %
-------------- ---
Salaries and employee benefits $ 1,028 979 49 5.0
Occupancy costs 219 170 49 28.8
Data processing 119 103 16 15.5
Foreclosed real estate 112 51 61 119.6
F.D.I.C. Insurance 45 46 (1) 2.2
All other 1,228 449 779 173.5
-------------------
Total 2,751 1,798 953 53.0
===== ===== === ====
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LIQUIDITY AND CAPITAL RESOURCES
The following discussion refers to the Company's wholly owned subsidiary,
the Association. The Association's primary sources of funds are deposits,
principal and interest payments on loans, mortgage-backed and investment
securities. The Association uses the funds generated to support its lending and
investment activities. While maturities and scheduled amortization of loans are
predictable sources of funds, deposit flows, mortgage prepayments and the
exercise of call features are greatly influenced by general interest rates,
economic conditions and competition. The Association has continued to maintain
the required levels of liquid assets as defined by OTS regulations. This
requirement of the OTS, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The Association's currently required
liquidity ratio is 4.0%. At March 31, 1999 and 1998, the Association's liquidity
ratios were 30.3% and 21.2%, respectively.
At March 31, 1999, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of $15.6 million, or 13.3% of total
adjusted assets, which is above the required level of 3.0%; core capital of
$15.6 million, or 13.3% of total adjusted assets, which is above the required
level of 4.0%; and risk-based capital of $16.1 million, or 30.9% of
risk-weighted assets, which is above the required level of 8.0%.
The Association has other sources of liquidity if a need for additional
funds arises, including Federal Home Loan Bank ("FHLB") advances. At March 31,
1999, the Association did not have any advances outstanding from the FHLB, but
has an overall borrowing capacity from the FHLB of $51.3 million.
The Association's most liquid assets are cash and due from banks,
interest-bearing deposits with banks and its investment and mortgage-related
securities available-for-sale. The levels of these assets are dependent on the
Association's operating, financing, lending and investing activities during any
given period. At March 31, 1999, cash and due from banks, interest-bearing
deposits with banks and investment securities available for sale totaled $31.2
million, or 25.3% of total assets.
At March 31, 1999, the Association had commitments to originate loans and
unused outstanding lines of credit and un-disbursed proceeds of construction
mortgages totaling $4.1 million. The Association anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Certificate accounts, which are scheduled to mature in less than one year from
March 31, 1999, totaled $33.8 million. The Association expects that
substantially all of the maturing certificate accounts will be retained by the
Association at maturity.
The initial impact of the Conversion on the liquidity and capital
resources of the Company was significant as it substantially increased the cash
assets of the Company and Association, and the capital base of both. At March
31, 1999, the Association had total equity, determined in accordance with
generally accepted accounting principles, of $22.6 million, or 18.3% of total
assets. The Association's regulatory tangible capital at March 31, 1999 was
13.3% of assets. An institution with a ratio of tangible capital to total assets
of greater than or equal to 5% is considered to be "well-capitalized" pursuant
to OTS regulations.
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YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "96" is stored on the
system and represents 1996. The Association relies significantly on an outside
service bureau for its data processing. While the Association has not received
any guarantee from the outside service bureau that the bureau will be Year 2000
compliant, the service bureau has completed its assessment of its Year 2000
compliance and resolved all identified problems. The Association's service
bureau completed its proxy testing of their system and the Association has
conducted on-line testing at each of its offices on February 14, 1999. No
problems were encountered during testing. The Association has completed its
inventory and assessment and has completed upgrading its internal system to
handle the Year 2000 problem. The cost to the Association for the internal
system upgrade, not including staff time, has been less than $50,000. There can
be no assurances, however, that the performance by the Association and its
service bureau will be effective to remedy all potential problems. To the extent
the Company's systems are not fully Year 2000 compliant, there can be no
assurance that potential systems interruptions or the cost necessary to update
software would not have a materially adverse effect on the Company's business,
financial condition, results of operations and business prospects. The
Association has prepared a contingency plan in the event there are any system
interruptions, in which the Association will resort to a manual method for
handling customer transactions. Any Year 2000 failure on the part of the
Association's customers could result in additional expense or loss to the
Association. The Association plans to work with its customers to address any
potential Year 2000 problems.
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
connection with the implementation of SFAS No. 133, the Association may transfer
debt securities classified as held-to-maturity to the available-for-sale
category. Such a transfer will not call into question the Association's
intention to hold other debt to maturity in the future. SFAS No. 133 is
effective for financial statements for periods beginning after June 15, 1999.
Management has not yet determined the impact, if any, of this statement on the
Association. Management plans to adopt SFAS No. 133 during its fiscal year
ending June 30, 1999 in order to use the special provision allowing the transfer
of debt securities classified as held-to-maturity to the available-for-sale
category. Management has not identified which securities might be transferred to
the available-for-sale category; and, as a result, is not able to determine
whether such transfer could have a material impact on its financial condition.
If the Association had transferred all of its held-to-maturity securities to
available-for-sale securities as of March 31, 1999, its shareholders' equity
would have decreased by approximately $35,324.
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PART II: OTHER INFORMATION
Item 1: Legal Proceedings
-----------------
The Company is not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of business.
Such routine legal proceedings, in the aggregate, are believed by management to
be immaterial to the Company's financial condition or the results of operation.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
2.1 Amended Plan of Conversion (including the Stock Articles of
Incorporation and Bylaws of Security Savings Association of
Hazleton)*
3.1 Certificate of Incorporation of Security of Pennsylvania
Financial Corp.*
3.2 Bylaws of Security of Pennsylvania Financial Corp.*
10.1 Change in Control Agreement between Security Savings
Association of Hazleton and Jan Pasdon.
27.0 Financial Data Schedule
*Incorporated by reference into this document from the Exhibits to the
Registration Statement in Form SB-2, and any amendments thereto, Registration
No. 333-63271.
(b) Reports on Form 8-K:
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer caused
this report to be signed on its behalf by the undersigned hereunto duly
authorized.
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
Dated: May 12, 1999 By: /s/ Richard C. Laubach
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Richard C. Laubach
President and Chief Executive Officer
(principal executive officer)
Dated: May 12, 1999 By: /s/ David P. Marchetti, Sr.
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David P. Marchetti, Sr.
ChiefFinancial Officer and Treasurer
(Principal financial and accounting
officer)
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