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 September 30, 2000
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[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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SEC File Number: 000-25009
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SKIBO FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
United States 25-1820465
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
242 East Main Street, Carnegie, Pennsylvania 15106
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(Address of principal executive offices) (Zip Code)
(412) 276-2424
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(Registrant's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of common stock
as of October 20, 2000
$0.10 Par Value Common Stock 3,176,076
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Class Shares Outstanding
Transitional Small Business Disclosure Format (check one)
Yes No X
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SKIBO FINANCIAL CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 2000 (unaudited) and March 31, 2000 1
Consolidated Statements of Income for the three and six
months ended September 30, 2000 and 1999 (unaudited) 2
Consolidated Statement of Stockholders' Equity for the
six months ended September 30, 2000 (unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended September 30, 2000 and 1999 (unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security-Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollar amounts in thousands, except per share data)
September 30, March 31,
2000 2000
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ASSETS (Unaudited)
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Cash and amounts due from depository institutions $ 519 $ 446
Interest-bearing deposits with other institutions 426 1,280
Investment securities:
Held-to-maturity (market value $26,965 and $24,928) 28,491 26,696
Mortgage-backed securities:
Held-to-maturity (market value $56,454 and $57,840) 57,118 59,181
Loans receivable, net 54,929 56,504
Accrued interest receivable:
Investment securities 522 427
Mortgage-backed securities 413 410
Loans receivable 498 486
FHLB stock -- 43
Federal Home Loan Bank stock, at cost 2,615 2,615
Premises and equipment, net 591 626
Prepaid expenses and other assets 4,348 3,918
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Total Assets $ 150,470 $ 152,632
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 73,021 $ 75,583
Federal Home Loan Bank advances 49,500 49,000
Advances from borrowers for taxes and insurance 43 128
Accrued expenses and other liabilities 3,093 2,778
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Total Liabilities 125,657 127,489
Stockholders' Equity:
Preferred stock, 5,000,000 shares authorized; none issued -- --
Common stock, $0.10 par value; 10,000,000 shares authorized;
3,449,974 shares issued 345 345
Additional paid-in capital 9,737 9,740
Treasury stock, at cost (284,381 shares at September 30, 2000
and 163,111 shares at March 31, 2000)(1) (1,942) (1,119)
Unearned Employee Stock Ownership Plan (ESOP) shares (174) (267)
Unearned Restricted Stock Plan (RSP) shares (147) (199)
Retained earnings, substantially restricted 16,994 16,643
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Total Stockholders' Equity 24,813 25,143
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Total Liabilities and Stockholders' Equity $ 150,470 $ 152,632
======= =======
(1) Included are shares held by the Bank's RSP totaling 10,483 at September 30,
2000 and 7,863 at March 31, 2000, respectively.
See accompanying notes to consolidated financial statements.
1
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
For the Three and Six Months Ended September 30, 2000 and 1999
(Dollar amounts in thousands, except per share data)
Three Months Ended Six Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited)
Interest income:
Loans receivable $ 1,021 $ 1,081 $ 2,046 $ 2,230
Mortgage-backed securities 1,002 899 2,009 1,734
Investment securities 468 431 931 835
Other 65 105 131 203
----- ----- ----- -----
Total interest income 2,556 2,516 5,117 5,002
Interest expense:
Deposits 832 817 1,647 1,633
Federal Home Loan Bank advances 672 636 1,344 1,262
Bonds payable -- 32 -- 63
----- ----- ----- -----
Total interest expense 1,504 1,485 2,991 2,958
----- ----- ----- -----
Net interest income 1,052 1,031 2,126 2,044
Provision for loan losses -- 1 -- 2
----- ----- ----- -----
Net interest income after
provision for loan losses 1,052 1,030 2,126 2,042
Other income:
Fees and service charges 9 11 17 30
Other 9 10 27 19
----- ----- ----- -----
Total other income 18 21 44 49
Other expenses:
Compensation and employee benefits 448 460 908 950
Premises and occupancy costs 54 56 107 110
Federal insurance premiums 4 11 8 22
Other operating expenses 72 97 160 181
----- ----- ----- -----
Total other expenses 578 624 1,183 1,263
----- ----- ----- -----
Income before income taxes 492 427 987 828
Provision for income taxes 155 141 367 315
--- --- --- ---
Net income $ 337 $ 286 $ 620 $ 513
Other comprehensive income:
Unrealized gain on securities available-for-
sale, net of tax -- -- -- --
--- --- --- ---
Total comprehensive income $ 337 $ 286 $ 620 $ 513
=== === === ===
Basic earnings per share $ .11 $ .08 $.19 $.15
Diluted earnings per share $ .11 $ .08 $.19 $.15
Weighted average shares outstanding - Basic 3,147,845 3,354,208 3,189,127 3,351,462
Weighted average shares outstanding - Diluted 3,151,723 3,354,208 3,191,077 3,351,462
See accompanying notes to consolidated financial statements.
2
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Six Months Ended September 30, 2000 (unaudited)
(Dollar amounts in thousands, except per share data)
Additional Unearned Unearned
Common Paid-in Treasury ESOP RSP Retained
Stock Capital Stock Shares Shares Earnings Total
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Balance at March 31, 2000 $345 $9,740 $(1,119) $(267) $(199) $16,643 $25,143
Cash dividends declared net
($.15 per share regular,
$.075 per share special) -- -- -- -- -- (269) (269)
Excess of fair value above cost of
ESOP shares released or
committed to be released -- (3) -- -- -- -- (3)
Amortization of ESOP liability -- -- -- 93 -- -- 93
Amortization of RSP liability -- -- -- -- 52 -- 52
Treasury stock purchased,
at cost (121,270 shares) -- -- (823) -- -- -- (823)
Net income -- -- -- -- -- 620 620
----------------------------------------------------------------------------------------------
Balance at September 30, 2000 $345 $9,737 $(1,942) $(174) $(147) $16,994 $24,813
==============================================================================================
See accompanying notes to consolidated financial statements.
3
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended September 30, 2000 and 1999
(Dollar amounts in thousands)
2000 1999
---- ----
(unaudited)
Operating activities:
Net income $ 620 $ 513
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for loan losses -- 2
Depreciation 37 40
Compensation expense-ESOP and RSP 142 183
Net amortization of premiums and discounts 49 143
Decrease (increase) in accrued interest receivable (67) 136
Increase in prepaid expenses (430) (329)
Increase in accrued interest payable 289 268
Increase (decrease) in accrued income taxes 13 (110)
Other, net 11 (81)
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Net cash provided by operating activities 664 765
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Investing activities:
Purchases of premises and equipment (2) (9)
Purchases of investment securities held-to maturity (2,487) (4,332)
Purchases of mortgage-backed securities held-to-maturity (3,163) (13,598)
Proceeds from maturities/calls and principal repayments of:
Investment securities held-to-maturity 695 3,234
Mortgage-backed securities held-to-maturity 5,190 8,533
Loans purchased (1,380) (2,662)
Net principal repayments on loans 2,941 7,830
Increase in Federal Home Loan Bank stock -- (55)
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Net cash provided by (used in) investing activities 1,794 (1,059)
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Financing activities:
Net decrease in deposits (2,562) (559)
Proceeds from Federal Home Loan Bank advances 14,000 1,100
Repayment of Federal Home Loan Bank advances (13,500) (100)
Principal repayment of bonds payable -- (1,299)
Net decrease in mortgage escrow (85) (90)
Treasury stock purchased (823) (17)
Cash dividends paid (269) (214)
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Net cash used in financing activities (3,239) (1,179)
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Net decrease in cash and cash equivalents (781) (1,473)
Cash and cash equivalents, beginning of period 1,726 2,499
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Cash and cash equivalents, end of period $ 945 $ 1,026
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,702 $ 2,689
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Income taxes $ 450 $ 515
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See accompanying notes to consolidated financial statements
4
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Skibo Financial Corp., its wholly-owned subsidiary First Carnegie
Deposit (the "Bank"), and the Bank's wholly owned subsidiaries, Fedcar, Inc. and
Carnegie Federal Funding Corporation ("CFFC"). Fedcar, Inc. is a service
corporation that is currently inactive. CFFC was a special purpose subsidiary
that was formed for the issuance of collateralized mortgage obligations. In
September 1999, CFFC fully repaid the remaining obligation and subsequently was
dissolved.
These statements have been prepared in accordance with instructions for Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, such information presented reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
the Company's management, necessary for a fair statement of results for the
interim period. All significant intercompany transactions and balances have been
eliminated in consolidation.
The results of operations for the three months and six months ended September
30, 2000 are not necessarily indicative of the results to be expected for the
year ending March 31, 2001 or any other period. The unaudited consolidated
financial statements and notes thereto should be read in conjunction with the
audited financial statements and notes thereto for the year ended March 31,
2000.
NOTE 2 - Dividends on Common Stock
-------------------------
On September 14, 2000, the Board of Directors of the Company declared a $0.075
per share cash dividend on the Company's outstanding shares of common stock,
payable to stockholders of record as of September 30, 2000. Skibo Bancshares,
M.H.C. (the "M.H.C.") waived the receipt of dividends on its 1,897,500 shares.
The cash dividends on the outstanding shares held by persons other than the
M.H.C. were paid on October 13, 2000. Under the interim final rule of the Office
of Thrift Supervision (the "OTS") effective July 12, 2000, any waiver of
dividends by the M.H.C. will no longer result in the OTS requiring an adjustment
to the ratio pursuant to which shares of Company common stock are exchanged for
shares of a stock holding company should the M.H.C. convert from the mutual to
stock form of organization. Such an adjustment would have had the effect of
diluting the minority stockholders of the Company.
Skibo Financial Corp.'s common stock is currently listed on the Nasdaq SmallCap
Market, traded under the symbol of "SKBO" and listed in the Wall Street Journal
as "SkiboFn".
NOTE 3 - Comprehensive Income
--------------------
For the three months ended September 30, 2000 and 1999, the Company's total
comprehensive income was $337,000 and $286,000, respectively, and $620,000 and
$513,000, respectively, for the six months ended September 30, 2000 and 1999.
Total comprehensive income is comprised of net income and other comprehensive
income. For both three and six month periods ended September 30, 2000 and 1999,
there was no other comprehensive income.
NOTE 4 - Recent Accounting, Regulatory and Other Matters
-----------------------------------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," requires
that derivative instruments be carried at fair value on the balance sheet. The
statement continues to allow derivative instruments to be used to hedge various
risks and sets forth specific criteria to be used to determine when hedge
accounting can be used. The statement also provides for offsetting changes in
fair value or cash flows of both the derivative and the hedged asset or
liability to be recognized in earnings in the same period; however, any changes
in fair value or cash flow that represent the ineffective portion of a hedge are
required to be recognized in earnings and cannot be deferred. For derivative
instruments not accounted for as hedges, changes in fair value are required to
be recognized in earnings.
The provisions of this statement as amended will be adopted by the Company for
its quarterly and annual reporting beginning April 1, 2001. The Company
anticipates, based on current activities, that the adoption of SFAS No. 133 will
not have a material effect on its financial position or results of operations.
5
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5 - Earnings Per Share (EPS)
------------------------
Basic EPS is computed by dividing net income applicable to common stock by the
weighted average number of common shares outstanding during the period, without
considering any dilutive items. Diluted EPS is computed by dividing net income
applicable to common stock by the weighted average number of common shares and
common stock equivalents for items that are dilutive, net of shares assumed to
be repurchased using the treasury stock method at the average share price for
the Company's common stock during the period. Common stock equivalents arise
from the assumed conversion of outstanding stock options and unvested RSP
shares.
The computation of basic and diluted earnings per share is shown in the table
below:
Three Months Ended Six Months Ended
----------------------------------------- ------------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------------- ---------------- ------------ ---------------
Basic EPS computation:
Numerator-Net Income $ 337,000 $ 286,000 $ 620,000 $ 513,000
Denominator-Wt Avg common
shares outstanding 3,147,845 3,354,208 3,189,127 3,351,462
Basic EPS $ .11 $ .08 $ .19 $ .15
=== === === ===
Diluted EPS computation:
Numerator-Net Income $ 337,000 $ 286,000 $ 620,000 $ 513,000
========= ========= ========= =========
Denominator-Wt Avg
common shares outstanding 3,147,845 3,354,208 3,189,127 3,351,462
Dilutive Stock Options 3,878 -- 1,950 --
Dilutive Unvested RSP -- -- -- --
--------- --------- --------- ---------
Weighted avg common shares
and common stock equivalents 3,151,723 3,354,208 3,191,077 3,351,462
Diluted EPS $ .11 $ .08 $ .19 $ .15
=== === === ===
For both the three and six months ended September 30, 2000 and 1999, 15,366 and
30,946 RSP shares, respectively, were excluded from the diluted EPS computation
due to their anti-dilutive effect. For both three and six month periods ended
September 30, 1999, 155,246 Option shares were excluded from the diluted EPS
computation due to their anti-dilutive effect. Shares outstanding for the three
and six months ended September 30, 2000 and 1999 do not include ESOP shares that
were unallocated in accordance with Statement of Position ("SOP") 93-6,
"Employers' Accounting for Employees Stock Ownership Plans". Unallocated ESOP
shares amounted to 26,046 and 55,110 at September 30, 2000 and 1999,
respectively.
NOTE 6 - Income Taxes
------------
The Company joins with its wholly owned subsidiary, First Carnegie Deposit, in
filing a consolidated federal income tax return and accounts for income taxes
using the asset and liability method. The objective of the asset and liability
method is to establish deferred tax assets and liabilities for temporary
differences between the financial reporting and tax basis of the Company's
assets and liabilities based on enacted tax rates expected to be in effect when
such amounts are realized and settled.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's results of operations are primarily dependent upon net interest
income, which is the difference between the interest income earned on
interest-earning assets, primarily loans, mortgage-backed securities, and
investments, and the interest expense on interest-bearing liabilities, primarily
deposits and borrowings. Net interest income may be affected significantly by
general economic and competitive conditions and policies of regulatory agencies,
particularly those with respect to market interest rates. The results of
operations are also significantly influenced by the level of noninterest
expenses, such as employee salaries and benefits, noninterest income, such as
loan-related fees and fees on deposit-related services, and the Company's
provision for loan losses.
The Management Discussion and Analysis section of this Form 10-QSB contains
certain forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995). These forward-looking statements may involve
risks and uncertainties. Although management believes that the expectations
reflected in such forward-looking statements are reasonable, actual results may
differ from the results in these forward-looking statements.
Changes in Financial Condition
The Company's total assets of $150,470,000 at September 30, 2000, are reflective
of a decrease of $2,162,000 or 1.4% as compared to $152,632,000 at March 31,
2000. The decrease in total assets was due to decreases in interest bearing
deposits with other financial institutions, loans receivable, mortgage-backed
securities, and premises and equipment, partially offset by increases in
investment securities, cash and amounts due from depository institutions,
accrued interest receivable and prepaid expenses.
The decrease in the Company's liabilities was primarily due to decreases in
savings deposits and escrows, offset by an increase in Federal Home Loan Bank
("FHLB") advances and accrued expenses and other liabilities. Changes in the
components of assets, liabilities and equity are discussed herein.
Cash and Cash Equivalents. Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits, totaled $945,000, a decrease
of $781,000 or 45.2% as compared to $1,726,000 at March 31, 2000. This decrease
was primarily due to decreased interest-bearing deposits maintained at the
Federal Home Loan Bank, offset by increased non-interest bearing deposits
maintained at the Federal Reserve Bank of Cleveland and cash on hand.
Investment Securities. Investment securities totaled $28,491,000 at September
30, 2000, an increase of $1,795,000 or 6.7%, as compared to $26,696,000 at March
31, 2000. This was primarily a result of purchases of $2.5 million of U.S.
Agency securities, offset by the proceeds from maturities, calls and payments
totaling $695,000.
Mortgage-backed Securities. Mortgage-backed securities totaled $57,118,000 at
September 30, 2000, a decrease of $2,063,000 or 3.5%, as compared to $59,181,000
at March 31, 2000. The decrease was primarily due to principal repayments and
maturities totaling $5.2 million, offset by purchases of $3.2 million
Loans Receivable, net. Net loans receivable at September 30, 2000 totaled
$54,929,000, a decrease of $1,575,000 or 2.8%, as compared to $56,504,000 at
March 31, 2000. The decrease was primarily due to principal repayments totaling
$3.4 million, offset by originations of $489,000 and purchases of $1.4 million.
The Company originated $215,000 one -to four-family and $151,000 multi-family
mortgages and $123,000 consumer loans within its normal lending area. The
Company purchased $302,000 Government National Mortgage Association ("GNMA")
project loans, $752,000 Small Business Administration ("SBA") loans, and
$326,000 government guaranteed agricultural non-mortgage loans outside its
normal lending area, primarily in Pennsylvania.
Deposits. Total deposits, after interest credited, decreased $2,562,000 or 3.4%
to $73,021,000 at September 30, 2000, as compared to $75,583,000 at March 31,
2000. The decrease was primarily due to decreases in certificates of deposit and
NOW accounts.
FHLB Advances. FHLB advances, at September 30, 2000, totaled $49,500,000, an
increase of $500,000 or 1.0%, as compared to $49,000,000 at March 31, 2000. The
Company uses FHLB advances as a supplement to deposits to fund its purchase of
loans and investments.
Stockholders' Equity. Stockholders' equity totaled $24,813,000 at September 30,
2000, as compared to $25,143,000 at March 31, 2000. The decrease of $330,000 or
1.3% was primarily due to the purchase of 118,650 shares of treasury stock at an
average cost of $6.81 per share and the payment of two $.075 regular cash
dividends and one $.075 special cash dividend, partially offset by earnings for
the six months ended September 30, 2000.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operations for the Three Months Ended September 30, 2000 and 1999
Net Income. The Company recorded net income of $337,000 for the three months
ended September 30, 2000, as compared to net income of $286,000 for the three
months ended September 30, 1999. The $51,000 or 17.8% increase in net income for
the three months ended September 30, 2000 was primarily the result of an
increase in net interest income and a decrease in other expenses, offset by an
increase in provision for income taxes. Changes in the components of income and
expense are discussed herein.
Net Interest Income. Net interest income increased $21,000 or 2.0% for the three
months ended September 30, 2000, as compared to the three month period ended
September 30, 1999. Although the average balance of interest-earning assets
decreased $5.2 million or 3.5%, the average yield earned thereon increased 36
basis points. The average balance of interest-bearing liabilities decreased by
$4.6 million or 3.7%, however, the average rate paid thereon increased 24 basis
points.
The net interest rate spread, which is the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities, increased to 2.17% for the three month period ended September 30,
2000 from 2.05% for the three month period ended September 30, 1999. The
increase in the net interest rate spread was primarily the result of increased
yields on the average balances of loans receivable and mortgage backed and
investment securities, partially offset by increased rates paid on the average
balance of certificates of deposits and FHLB advances.
Interest Income. Interest income increased $40,000 or 1.6% to $2,556,000 for the
three month period ended September 30, 2000, as compared to $2,516,000 for the
three month period ended September 30, 1999.
Interest on loans receivable decreased $60,000 or 5.6% for the three months
ended September 30, 2000, as compared to the three month period ended September
30, 1999. This decrease was the result of a $5.2 million decrease in the average
balance of loans receivable, partially offset by a 25 basis point increase in
the average yield earned thereon.
Interest income on mortgage-backed securities increased $103,000 or 11.5% for
the three months ended September 30, 2000, as compared to the three months ended
September 30, 1999. This increase was the result of a $399,000 increase in the
average balance of mortgage-backed securities and a 67 basis point increase in
the average yield earned thereon.
Interest income on investment securities increased $37,000 or 8.6% for the three
months ended September 30, 2000, as compared to the three months ended September
30, 1999. The increase in interest income on investment securities was primarily
due to a $1.6 million higher average balance of such securities and a 17 basis
point increase in the average yield earned thereon.
Interest income on other interest-earning assets decreased $40,000 or 38.1% for
the three months ended September 30, 2000, as compared to the three months ended
September 30, 1999. The decrease was primarily due to a $1.9 million decrease in
the average balance of other interest-earning assets and a 30 basis point
decrease in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 7.12%
and 6.76% for the three month periods ended September 30, 2000 and 1999,
respectively.
Interest Expense. Interest expense totaled $1,504,000 for the three months ended
September 30, 2000, as compared to $1,485,000 for the three months ended
September 30, 1999. The $19,000 or 1.3% increase was primarily due to a 24 basis
point increase in the average rate paid on the total average interest-bearing
liabilities, partially offset by decreased average balances.
Interest expense on deposits (including escrows) totaled $832,000 for the three
months ended September 30, 2000 as compared to $817,000 for the three months
ended September 30, 1999. The $15,000 or 1.8% increase was primarily due to a 26
basis point increase in the average rate paid thereon, partially offset by a
$3.1 million decrease in the average balance of deposits.
Interest on FHLB advances increased $36,000 or 5.7% for the three months ended
September 30, 2000, as compared to the three months ended September 30, 1999.
The increase was primarily due to a 36 basis point increase in the rate paid
thereon. The Company uses FHLB advances as a funding source and has in the past
used borrowings to supplement deposits, which are the Company's primary source
of funds.
Interest on bonds payable decreased by $32,000 or 100.0% due to the repayment of
the bond in its entirety.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Allowance for Loan Losses. During the three month periods ended September 30,
2000 and 1999, the Company established provisions for loan losses of $0 and
$1,000, respectively. This reflected management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses.
At September 30, 2000, the allowance for loan losses totaled $425,000 or .77%
and 3863.6% of total loans and total non-performing loans, respectively, as
compared to $425,000 or 0.8% and 885.4%, respectively, at March 31, 2000. The
Company's non-performing loans (non-accrual loans and accruing loans 90 days or
more overdue) totaled $11,000 and $48,000 at September 30, 2000 and March 31,
2000 respectively, which represented 0.02% and 0.08% of the Company's total
loans, respectively. The Company's ratio of non-performing loans to total assets
was 0.01% and 0.03% at September 30, 2000 and March 31, 2000, respectively.
Other Income. During the three months ended September 30, 2000, other income
decreased $3,000 or 14.3%, as compared to the three months ended September 30,
1999.
Other Expenses. Total other expenses decreased by $46,000 or 7.4% during the
three months ended September 30, 2000, as compared to the three months ended
September 30, 1999. The decrease was attributable to decreases of $25,000 in
other expenses, $12,000 in compensation and employee benefits expense, $7,000 in
federal insurance premiums, and $2,000 in premises and occupancy costs.
Income Tax Expense. The provision for income tax totaled $155,000 for the three
months ended September 30, 2000, as compared to $141,000 for the three months
ended September 30, 1999. The $14,000 or 9.9% increase was due to increased
income.
Results of Operations for the Six Months Ended September 30, 2000 and 1999
Net Income. The Company recorded net income of $620,000 for the six months ended
September 30, 2000, as compared to net income of $513,000 for the six months
ended September 30, 1999. The $107,000 or 20.9% increase in net income for the
six months ended September 30, 2000 was primarily the result of an increase in
net interest income and a decrease in other expenses, offset by an increase in
provision for income taxes. Changes in the components of income and expense are
discussed herein.
Net Interest Income. Net interest income increased $82,000 or 4.0% for the six
months ended September 30, 2000, as compared to the six month period ended
September 30, 1999. Although the average balance of interest-earning assets
decreased $4.9 million or 3.3%, the average yield earned thereon increased 39
basis points. The average balance of interest-bearing liabilities decreased by
$4.5 million or 3.5%, however, the average rate paid thereon increased 23 basis
points.
The net interest rate spread increased to 2.19% for the six month period ended
September 30, 2000 from 2.03% for the six month period ended September 30, 1999.
The increase in the net interest rate spread was primarily the result of
increased yields on the average balances of all interest earning assets,
partially offset by increased rates paid on savings deposits and FHLB advances.
Interest Income. Interest income increased $115,000 or 2.3% to $5,117,000 for
the six month period ended September 30, 2000, as compared to $5,002,000 for the
six month period ended September 30, 1999.
Interest on loans receivable decreased $184,000 or 8.3% for the six months ended
September 30, 2000, as compared to the six month period ended September 30,
1999. This decrease was the result of a $5.9 million decrease in the average
balance of loans receivable, partially offset by a 12 basis point increase in
the average yield earned thereon.
Interest income on mortgage-backed securities increased $275,000 or 15.9% for
the six months ended September 30, 2000, as compared to the six months ended
September 30, 1999. This increase was the result of a $2.5 million increase in
the average balance of mortgage-backed securities and a 67 basis point increase
in the average yield earned thereon.
Interest income on investment securities increased $96,000 or 11.5% for the six
months ended September 30, 2000, as compared to the six months ended September
30, 1999. The increase in interest income on investment securities was due to a
$1.9 million increase in the average balance of such securities and a 26 basis
point increase in the average yield earned thereon.
Interest income on other interest-earning assets decreased $72,000 or 35.5% for
the six months ended September 30, 2000, as compared to the six months ended
September 30, 1999. The decrease was primarily due to a $3.3 million decrease in
the average interest-earning deposits at other financial institutions, partially
offset by a 124 basis point increase in the average yield earned thereon.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The average yield on the average balance of interest-earning assets was 7.10%
and 6.71% for the six month periods ended September 30, 2000 and 1999,
respectively.
Interest Expense. Interest expense totaled $2,991,000 for the six months ended
September 30, 2000, as compared to $2,958,000 for the six months ended September
30, 1999. The $33,000 or 1.1% increase was primarily due to a 23 basis point
increase in the average rate paid on the total average interest-bearing
liabilities, partially offset by decreased average balances of all
interest-bearing liabilities.
Interest expense on deposits (including escrows) totaled $1,647,000 for the six
months ended September 30, 2000, as compared to $1,633,000 for the six months
ended September 30, 1999. The $14,000 or 0.9% increase was primarily due to a 21
basis point increase in the average rate paid thereon, partially offset by a
$2.8 million decrease in the average balance of deposits.
Interest on FHLB advances increased $82,000 or 6.5% for the six months ended
September 30, 2000, as compared to the six months ended September 30, 1999. The
increase was primarily due to a 40 basis point increase in the average rate paid
on advances, partially offset by a $550,000 decrease in the average balance of
advances.
Interest on bonds payable decreased by $63,000 or 100.0% due to the repayment of
the bond in its entirety.
Provision for Loan Losses. During the six month periods ended September 30, 2000
and 1999, the Company established provisions for loan losses of $0 and $2,000,
respectively. This reflected management's evaluation of the underlying credit
risk of the loan portfolio and the level of allowance for loan losses.
Other Income. During the six months ended September 30, 2000, other income
decreased $5,000 or 10.2%, as compared to the six months ended September 30,
1999.
Other Expenses. Total other expenses decreased by $80,000 or 6.3% during the six
months ended September 30, 2000, as compared to the six months ended September
30, 1999. The decrease was attributable to decreases of $42,000 in compensation
and employees benefit expense, $21,000 in other expenses, $14,000 in federal
insurance premiums, and $3,000 in premises and occupancy costs. The decrease in
compensation and employees benefit expense was due to decreases of $45,000 in
RSP expense and $22,000 in the Company's defined benefit plan, Supplemental
Employee Pension Plan ("SERP") and Director's Retirement Plan ("DRP") costs,
offset by increases of $5,000 in ESOP expense and $20,000 in compensation and
employee benefits expense.
Income Tax Expense. The provision for income tax totaled $367,000 for the six
months ended September 30, 2000, as compared to $315,000 for the six months
ended September 30, 1999. The $52,000 or 16.5% increase was due to increased
income.
Liquidity and Capital Requirements
The Company's subsidiary bank, First Carnegie Deposit, is subject to various
requirements administered by the federal banking agencies. The Bank is required
by Section 6 of the Home Owners' Loan Act ("HOLA") to hold a prescribed amount
of statutorily defined liquid assets. The Director of the OTS may, by
regulation, vary the amount of the liquidity requirement, but only within
pre-established statutory limits. The requirement must be no less than four
percent and no greater than ten percent of the Bank's net withdrawable accounts
and borrowings payable on demand or with unexpired maturities of one year or
less. The minimum required liquidity is currently 4%. The Bank's average
liquidity ratio was 151.68% and 154.76%, at September 30, 2000 and March 31,
2000, respectively.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The Bank is subject to federal regulations that impose certain minimum capital
requirements. Quantitative measures, established by regulation to ensure capital
adequacy, require the Bank to maintain amounts and ratios of tangible and core
capital to adjusted total assets and of total risk-basked capital to
risk-weighted assets. On September 30, 2000, the Bank was in compliance with its
three regulatory capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital $24,071 16.03%
Tangible capital requirement 2,253 1.50%
------ -----
Excess over requirement $21,818 14.53%
====== =====
Core capital $24,071 16.03%
Core capital requirement 4,506 3.00%
------ -----
Excess over requirement $19,565 13.03%
====== =====
Risk based capital $24,496 53.92%
Risk based capital requirement 3,634 8.00%
------ -----
Excess over requirement $20,862 45.92%
====== =====
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
The Company's subsidiary First Carnegie Deposit and other third
parties have been informed of an impending legal action regarding a
previously completed sale of foreclosed real estate. Although First
Carnegie Deposit has not been served as a defendant in any lawsuit,
the Company has notified its insurance carrier of this potential
action. At this time management believes this action, if commenced,
will not result in significant loss to the Company.
The Company and its counsel are not in a position at this time to
express an opinion as to the outcome of this action.
Item 2. Changes in Securities.
----------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
--------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
----------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on July 20,
2000 and the following matters were voted on:
1. Election of director for 3-year term expiring in 2003:
For Withheld
--------- --------
John C. Burne 3,030,082 74,493
2. Ratification of appointment of Stokes Kelly & Hinds, LLC as auditor
for the fiscal year ending March 31, 2001:
For Against Abstain
--------- ------- -------
3,068,247 20,171 16,157
Item 5. Other Information.
------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Not applicable
b) Not applicable
12
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SKIBO FINANCIAL CORP.
Date: October 20, 2000 By: /s/ Walter G. Kelly
-----------------------------------------------
Walter G. Kelly
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Walter G. Kelly /s/ Carol A. Gilbert
- ------------------------------------------- ----------------------------------------------
Walter G. Kelly Carol A. Gilbert
President and Chief Executive Officer Chief Financial and Operating Officer and Treasurer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
Date: October 20, 2000 Date: October 20, 2000