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 December 31, 2001
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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 January 25, 2002
$0.10 Par Value Common Stock 3,140,633
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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 SUBSIDIARY
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
December 31, 2001 (unaudited) and March 31, 2001.................1
Consolidated Statements of Income for the three and
nine months ended December 31, 2001 and 2000 (unaudited))........2
Consolidated Statement of Stockholders' Equity for the
nine months ended December 31, 2001 (unaudited)..................3
Consolidated Statements of Cash Flows for the nine
months ended December 31, 2001 and 2000 (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.................................................11
Item 2. Changes in Securities.............................................11
Item 3. Defaults Upon Senior Securities ..................................11
Item 4. Submission of Matters to a Vote of Security-Holders...............11
Item 5. Other Information.................................................11
Item 6. Exhibits and Reports on Form 8-K .................................11
Signatures
SKIBO FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollar amounts in thousands, except per share data)
December 31, March 31,
2001 2001
--------- ---------
ASSETS (Unaudited)
------
Cash and amounts due from depository institutions $ 932 $ 1,026
Interest-bearing deposits with other institutions 6,860 8,186
Investment securities:
Held-to-maturity (market value $17,875 and $25,972) 17,895 26,084
Mortgage-backed securities:
Held-to-maturity (market value $71,880 and $56,551) 70,749 55,907
Loans receivable, net 48,604 49,798
Accrued interest receivable:
Investment securities 152 496
Mortgage-backed securities 472 411
Loans receivable 413 452
Federal Home Loan Bank stock, at cost 2,615 2,615
Premises and equipment, net 538 577
Prepaid expenses and other assets 4,705 4,360
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Total Assets $ 153,935 $ 149,912
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 77,750 $ 73,399
Federal Home Loan Bank advances 48,000 48,000
Advances from borrowers for taxes and insurance 66 107
Accrued expenses and other liabilities 3,483 3,304
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Total Liabilities 129,299 124,810
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 9,778 9,745
Treasury stock, at cost (320,423 shares at December 31, 2001
and 304,694 shares at March 31, 2001)(1) (2,227) (2,087)
Unearned Employee Stock Ownership Plan (ESOP) shares -- (91)
Unearned Restricted Stock Plan (RSP) shares (28) (100)
Retained earnings, substantially restricted 16,768 17,290
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Total Stockholders' Equity 24,636 25,102
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Total Liabilities and Stockholders' Equity $ 153,935 $ 149,912
========= =========
(1) Included are shares held by the Bank's RSP totaling 11,082 at December 31,
2001 and 10,483 at March 31, 2001, respectively.
See accompanying notes to consolidated financial statements.
1
SKIBO FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Income
For the Three and Nine months Ended December 31, 2001 and 2000
(Dollar amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
December 31, December 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
(unaudited) (unaudited)
Interest income:
Loans receivable $ 844 $ 983 $ 2,614 $ 3,029
Mortgage-backed securities 998 993 2,932 3,002
Investment securities 261 500 1,064 1,431
Other 105 66 366 197
---------- ---------- ---------- ----------
Total interest income 2,208 2,542 6,976 7,659
Interest expense:
Deposits 811 840 2,505 2,487
Federal Home Loan Bank advances 670 692 2,004 2,036
---------- ---------- ---------- ----------
Total interest expense 1,481 1,532 4,509 4,523
---------- ---------- ---------- ----------
Net interest income 727 1,010 2,467 3,136
Provision for loan losses -- -- -- --
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 727 1,010 2,467 3,136
Other income:
Fees and service charges 11 9 31 26
Other 40 13 81 40
---------- ---------- ---------- ----------
Total other income 51 22 112 66
Other expenses:
Compensation and employee benefits 488 499 1,589 1,407
Premises and occupancy costs 48 51 145 158
Federal insurance premiums 3 4 10 12
Other operating expenses 71 67 211 227
---------- ---------- ---------- ----------
Total other expenses 610 621 1,955 1,804
---------- ---------- ---------- ----------
Income before income taxes 168 411 624 1,398
Provision for income taxes 15 159 174 526
---------- ---------- ---------- ----------
Net income 153 252 450 872
Other comprehensive income:
Unrealized gain on securities available-for-
sale, net of tax -- -- -- --
---------- ---------- ---------- ----------
Total comprehensive income $ 153 $ 252 $ 450 $ 872
========== ========== ========== ==========
Basic earnings per share $ .05 $ .08 $ .14 $ .28
Diluted earnings per share $ .05 $ .08 $ .14 $ .28
Weighted average shares outstanding - Basic 3,131,622 3,120,546 3,131,963 3,166,182
Weighted average shares outstanding - Diluted 3,194,080 3,125,455 3,179,498 3,169,082
See accompanying notes to consolidated financial statements.
2
SKIBO FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Nine months Ended December 31, 2001 (unaudited)
(Dollar amounts in thousands, except per share data)
Additional Unearned
Common Paid-in Treasury ESOP RSP Retained
Stock Capital Stock Shares Shares Earnings Total
--------------------------------------------------------------------------------
Balance at March 31, 2001 $ 345 $ 9,745 $ (2,087) $ (91) $ (100) $ 17,290 $ 25,102
Cash dividends declared, net
($.36 per share regular,
$.40 per share special) -- -- -- -- -- (893) (893)
Dividend charged to retained
earnings for ESOP -- -- -- -- -- (79) (79)
Excess of fair value above cost of
ESOP shares released or
committed to be released -- 33 -- -- -- -- 33
Amortization of ESOP liability -- -- -- 91 -- -- 91
Amortization of RSP liability -- -- -- -- 72 -- 72
Treasury stock purchased,
at cost (15,729 shares) -- -- (140) -- -- -- (140)
Net income -- -- -- -- -- 450 450
--------------------------------------------------------------------------------
Balance at December 31, 2001 $ 345 $ 9,778 $ (2,227) $ -- $ (28) $ 16,768 $ 24,636
================================================================================
See accompanying notes to consolidated financial statements.
3
SKIBO FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Nine months Ended December 31, 2001 and 2000
(Dollar amounts in thousands)
2001 2000
---- ----
(unaudited)
Operating activities:
Net income $ 450 $ 872
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 48 56
Compensation expense-ESOP and RSP 196 221
Net amortization (accretion) of premiums and discounts (227) 99
Decrease in accrued interest receivable 322 15
Increase in prepaid expenses (345) (766)
Decrease in accrued interest payable (150) (138)
Decrease in accrued income taxes (190) (11)
Other, net 516 49
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Net cash provided by operating activities 620 397
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Investing activities:
Purchases of premises and equipment (9) (24)
Purchases of investment securities held-to-maturity (8,600) (3,133)
Purchases of mortgage-backed securities held-to-maturity (31,784) (3,510)
Proceeds from maturities/calls and principal repayments of:
Investment securities held-to-maturity 16,780 1,059
Mortgage-backed securities held-to-maturity 17,127 7,719
Loans purchased (10,875) (2,346)
Net principal repayments on loans 12,123 5,764
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Net cash provided by (used in) investing activities (5,238) 5,529
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Financing activities:
Net increase (decrease) in deposits 4,351 (2,612)
Proceeds from Federal Home Loan Bank advances -- 24,000
Repayment of Federal Home Loan Bank advances -- (25,000)
Net decrease in mortgage escrow (41) (16)
Treasury stock purchased (140) (952)
Cash dividends paid (972) (354)
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Net cash provided by (used in) financing activities 3,198 (4,934)
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Net increase (decrease) in cash and cash equivalents (1,420) 992
Cash and cash equivalents, beginning of period 9,212 1,726
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Cash and cash equivalents, end of period $ 7,792 $ 2,718
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,658 $ 4,661
======== ========
Income taxes $ 357 $ 643
======== ========
See accompanying notes to consolidated financial statements
4
SKIBO FINANCIAL CORP. AND SUBSIDIARY
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 subsidiary, Fedcar, Inc.
Fedcar, Inc. is a service corporation that is currently inactive.
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 nine months ended December
31, 2001 are not necessarily indicative of the results to be expected for the
year ending March 31, 2002 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,
2001.
NOTE 2 - Dividends on Common Stock
-------------------------
On December 13, 2001, the Board of Directors of the Company declared a $0.12 per
share regular cash dividend and a $0.20 per share special cash dividend on the
Company's outstanding shares of common stock, payable to stockholders of record
as of December 31, 2001. 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 January
15, 2002. 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 December 31, 2001 and 2000, the Company's total
comprehensive income was $153,000 and $252,000, respectively, and $450,000 and
$872,000, respectively, for the nine months ended December 31, 2001 and 2000.
Total comprehensive income is comprised of net income and other comprehensive
income. For both three and nine month periods ended December 31, 2001, there was
no other comprehensive income.
NOTE 4 - 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.
5
SKIBO FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
The computation of basic and diluted earnings per share is shown in the table
below:
Three Months Ended Nine Months Ended
------------------------- -------------------------
December 31, December 31, December 31, December 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Basic EPS computation:
Numerator-Net Income $ 153,000 $ 252,000 $ 450,000 $ 872,000
Denominator-Wt Avg common
shares outstanding 3,131,622 3,120,546 3,131,963 3,166,182
Basic EPS $ .05 $ .08 $ .14 $ .28
========== ========== ========== ==========
Diluted EPS computation:
Numerator-Net Income $ 153,000 $ 252,000 $ 450,000 $ 872,000
Denominator-Wt Avg
common shares outstanding 3,131,622 3,120,546 3,131,963 3,166,182
Dilutive Stock Options 57,339 4,909 44,925 2,900
Dilutive Unvested RSP 5,119 -- 2,610 --
---------- ---------- ---------- ----------
Weighted avg common shares
and common stock
equivalents 3,194,080 3,125,455 3,179,498 3,169,082
Diluted EPS $ .05 $ .08 $ .14 $ .28
========== ========== ========== ==========
Shares outstanding for the three and nine months ended December 31, 2000 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 18,235 at December 31, 2000.
NOTE 5 - 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 $153,935,000 at December 31, 2001, are reflective
of an increase of $4,023,000 or 2.7%, as compared to $149,912,000 at March 31,
2001. The increase in total assets was due to increases in mortgage-backed
securities and prepaid expenses and other assets, offset by decreases in cash
and amounts due from depository institutions, loans receivable, investment
securities, accrued interest receivable, and premises and equipment.
The increase in the Company's liabilities was due to increases in savings
deposits and accrued expenses and other liabilities, offset by decreases in
escrows. 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 $7,792,000, a
decrease of $1,420,000 or 15.4% as compared to $9,212,000 at March 31, 2001.
Investment Securities. Investment securities totaled $17,895,000 at December 31,
2001, a decrease of $8,189,000 or 31.4%, as compared to $26,084,000 at March 31,
2001. This was primarily a result of proceeds from maturities, calls and
repayments totaling $16.8 million, offset by purchases of $8.6 million of U.S.
Agency securities.
Mortgage-backed Securities. Mortgage-backed securities were $70,749,000 at
December 31, 2001, an increase of $14,842,000 or 26.5%, as compared to
$55,907,000 at March 31, 2001. The increase was due to purchases of $31.8
million, offset by principal repayments and maturities totaling $17.1 million.
Loans Receivable, net. Net loans receivable at December 31, 2001 totaled
$48,604,000, a decrease of $1,194,000 or 2.4%, as compared to $49,798,000 at
March 31, 2001. The decrease was primarily due to principal repayments totaling
$12.5 million, offset by originations of $334,000, which includes $237,000 of
consumer and $97,000 of one-to-four family and purchases of $10.9 million. The
Company purchased $3.6 million conventional one -to four-family mortgage loans
and $887,000 insured Federal Housing Administration ("FHA") and Veterans
Administration ("VA") one- to four-family mortgage loans within its normal
lending area. The Company also purchased $2.1 million United States Department
of Agriculture ("USDA") mortgage loans, $2.9 million USDA commercial
non-mortgage loans and $369,000 Government National Mortgage Association
("GNMA") project multi-family project loans, and $1.0 million of Small Business
Administration (SBA) loans primarily outside its normal lending area.
Deposits. Total deposits, after interest credited, increased by $4.4 million or
5.9% to $77,750,000 at December 31, 2000, as compared to $73,399,000 at March
31, 2001.
FHLB Advances. FHLB advances totaled $48,000,000 at both December 31, 2001 and
March 31, 2001. The Company uses FHLB advances as a supplement to deposits to
fund its purchase of loans and investments.
Stockholders' Equity. Stockholders' equity totaled $24,636,000 at December 31,
2001, as compared to $25,102,000 at March 31, 2001. The decrease of $466,000 or
1.9% was primarily due to the purchase of 15,130 shares of treasury stock at an
average cost of $8.92 per share, and the payment of three $.12 regular cash
dividends and two $.20 special cash dividend, partially offset by earnings for
the nine months ended December 31, 2001.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operations for the Three Months Ended December 31, 2001 and 2000
Net Income. The Company recorded net income of $153,000 for the three months
ended December 31, 2001, as compared to net income of $252,000 for the three
months ended December 31, 2000. The $99,000 or 39.3% decrease in net income for
the three months ended December 31, 2001 was primarily the result of a decrease
in net interest income, partially offset by a decrease in provision for income
taxes. Changes in the components of income and expense are discussed herein.
Net Interest Income. Net interest income decreased $283,000 or 28.0% for the
three months ended December 31, 2001, as compared to the three month period
ended December 31, 2000. Although the average balance of interest-earning assets
increased $4.2 million or 2.9%, the average yield earned thereon decreased 112
basis points. The average balance of interest-bearing liabilities increased $3.7
million or 3.1%, however, the average rate paid thereon decreased 32 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, decreased to 1.24% for the three month period ended December 31,
2001 from 2.04% for the three month period ended December 31, 2000. The decrease
in the net interest rate spread was primarily the result of decreased yields on
the average balances of interest earning assets, offset by decreased rates paid
on the average balance of savings deposits and FHLB advances.
Interest Income. Interest income decreased $334,000 or 13.1% to $2,208,000 for
the three month period ended December 31, 2001, as compared to $2,542,000 for
the three month period ended December 31, 2000.
Interest on loans receivable decreased $139,000 or 14.1% for the three months
ended December 31, 2001, as compared to the three month period ended December
31, 2000. This decrease was primarily the result of a $5.1 million decrease in
the average balance of loans receivable and a 38 basis point decrease in the
average yield earned thereon.
Interest income on mortgage-backed securities increased by $5,000 or 0.5% for
the three months ended December 31, 2001, as compared to the three months ended
December 31, 2000. The increase in interest income on mortgage-backed securities
was primarily due to an $11.3 million higher average balance of such securities,
offset by a 117 basis point decrease in the average yield earned thereon.
Interest income on investment securities decreased by $239,000 or 47.8% for the
three months ended December 31, 2001, as compared to the three months ended
December 31, 2000. The decrease in interest income on investment securities was
primarily due to a $11.5 million decrease in the average balance of such
securities and a 92 basis point decrease in the average yield earned thereon.
Interest income on other interest-earning assets increased by $39,000 or 59.1%
for the three months ended December 31, 2001, as compared to the three months
ended December 31, 2000. The increase was due to a $9.4 million increase in the
average balance of other interest-earning assets, offset by a 294 basis point
decrease in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 6.02%
and 7.14 % for the three month periods ended December 31, 2001 and 2000,
respectively.
Interest Expense. Interest expense totaled $1,481,000 for the three months ended
December 31, 2001, as compared to $1,532,000 for the three months ended December
31, 2000. Although the average balance of interest-bearing liabilities increased
$3.7 million, the average rate paid thereon decreased 32 basis points, resulting
in a $51,000 or 3.3% decrease in interest expense.
Interest expense on deposits (including escrows) decreased $29,000 or 3.5% for
the three months ended December 31, 2001, as compared to the three months ended
December 31, 2000. The decrease was due to a 43 basis point decrease in the
average rate paid thereon, offset by a $4.4 million increase in the average
balance of deposits.
Interest on FHLB advances decreased $22,000 or 3.2% for the three months ended
December 31, 2001, as compared to the three months ended December 31, 2000. The
decrease was due to a 11 basis point decrease in the rate paid thereon. The
Company uses FHLB advances as a funding source to supplement deposits, which are
the Company's primary source of funds.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Allowance for Loan Losses. Based upon management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses,
the Company established no provisions for loan losses during the three month
periods ended December 31, 2001 and 2000.
At December 31, 2001, the allowance for loan losses totaled $425,000 or .87% and
376.1% of total loans and total non-performing loans, respectively, as compared
to $425,000 or 0.85% and 1,416.7%, respectively, at March 31, 2001. The
Company's non-performing loans (non- accrual loans and accruing loans 90 days or
more overdue) totaled $113,000 and $30,000 at December 31, 2001 and March 31,
2001, respectively, which represented 0.23% and 0.06% of the Company's total
loans, respectively. The Company's ratio of non-performing loans to total assets
was .07% and .02% at December 31, 2001 and March 31, 2001, respectively.
Other Income. During the three months ended December 31, 2001, other income
increased $29,000 or 131.8%, as compared to the three months ended December 31,
2000.
Other Expenses. Total other expenses decreased by $11,000 or 1.8% during the
three months ended December 31, 2001, as compared to the three months ended
December 31, 2000. The decrease was attributable to decreases of $11,000 or 2.2%
in compensation and employee benefits expense, $3,000 or 5.9% in premises and
occupancy costs, and $1,000 or 25.0% in federal insurance premiums, offset by a
$4,000 or 6.0% increase in other operating expense.
Income Tax Expense. The provision for income tax totaled $15,000 for the three
months ended December 31, 2001, as compared to $159,000 for the three months
ended December 31, 2000. The $144,000 or 90.6% decrease was due to decreased
income.
Results of Operations for the Nine Months Ended December 31, 2001 and 2000
Net Income. The Company recorded net income of $450,000 for the nine months
ended December 31, 2001, as compared to net income of $872,000 for the nine
months ended December 31, 2000. The $422,000 or 48.4% decrease in net income for
the nine months ended December 31, 2001 was primarily the result of decreases in
net interest income and increases in other expenses, partially offset by a
decrease in provision for income taxes. Changes in the components of income and
expense are discussed herein.
Net Interest Income. Net interest income decreased $669,000 or 21.3% for the
nine months ended December 31, 2001, as compared to the nine month period ended
December 31, 2000. Although the average balance of interest-earning assets
increased $1.8 million or 1.3%, the average yield earned thereon decreased 72
basis points. The average balance of interest-bearing liabilities increased by
$1.5 million or 1.2%, however, the average rate paid thereon decreased 8 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, decreased to 1.49% for the three month period ended December 31,
2001 from 2.13% for the three month period ended December 31, 2000. The decrease
in the net interest rate spread was primarily the result of decreased yields on
the average balances of interest earning assets, partially offset by decreased
rates paid on the average balance of savings deposits.
Interest Income. Interest income decreased $683,000 or 8.9% to $6,976,000 for
the nine month period ended December 31, 2001, as compared to $7,659,000 for the
nine month period ended December 31, 2000.
Interest on loans receivable decreased $415,000 or 13.7% for the nine months
ended December 31, 2001, as compared to the nine month period ended December 31,
2000. This decrease was primarily the result of a $5.3 million decrease in the
average balance of loans receivable and a 33 basis point decrease in the average
yield earned thereon.
Interest income on mortgage-backed securities decreased $70,000 or 2.3% for the
nine months ended December 31, 2001, as compared to the nine months ended
December 31, 2000. This decrease was primarily the result of a 63 basis point
decrease in the average yield earned on mortgage-backed securities, partially
offset by a $4.1 million increase in the average balance of such securities.
Interest income on investment securities decreased $367,000 or 25.6% for the
nine months ended December 31, 2001, as compared to the nine months ended
December 31, 2000. The decrease in interest income on investment securities was
primarily due to a $5.5 million decrease in the average balance of such
securities and a decrease in the average yield of 49 basis points.
Interest income on other interest-earning assets increased by $169,000 or 85.8%
for the nine months ended December 31, 2001, as compared to the nine months
ended December 31, 2000. The increase was due to a $8.5 million increase in the
average balance of other interest-earning assets, offset by a 272 basis point
decrease 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 6.39%
and 7.11% for the nine month periods ended December 31, 2001 and 2000,
respectively.
Interest Expense. Interest expense totaled $4,509,000 for the nine months ended
December 31, 2001, as compared to $4,523,000 for the nine months ended December
31, 2000. Although the average balance of interest-bearing liabilities increased
$1.5 million, the average rate paid thereon decreased 8 basis points, resulting
in a $14,000 or 0.3% decrease in interest expense.
Interest expense on deposits (including escrows) increased $18,000 or 0.7% for
the nine months ended December 31, 2001, as compared to the nine months ended
December 31, 2000. The increase was due to a $2.3 million increase in the
average balance of deposits, offset by a 12 basis point decrease in the average
rate paid thereon
Interest on FHLB advances decreased $32,000 or 1.6% for the nine months ended
December 31, 2001, as compared to the nine months ended December 31, 2000. The
decrease was due to a $833,000 decrease in the average balance of advances,
offset by a 1 basis point increase in the average rate paid thereon.
Provision for Loan Losses. Based upon management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses,
the Company established no provision for loan losses during the nine month
periods ended December 31, 2001 and 2000.
Other Income. During the nine months ended December 31, 2001, other income
increased $46,000 or 69.7%, as compared to the nine months ended December 31,
2000.
Other Expenses. Total other expenses increased by $151,000 or 8.4% during the
nine months ended December 31, 2001, as compared to the nine months ended
December 31, 2000. The increase was attributable to an increase of $182,000 in
compensation and employees benefit expense, offset by decreases of $16,000 in
other expenses, $13,000 in premises and occupancy costs, and $2,000 in federal
insurance premiums. The increase in compensation and employee benefits expense
was due to increases of $117,000 in the Company's defined benefit plan, SERP and
DRP costs and $90,000 in compensation and employee benefits expense, offset by
decreases of $21,000 in ESOP expense and $4,000 in RSP expense. The Bank adopted
an amendment to the SERP which included a definition of attained age, and a
revision to the benefit formula whereas the benefit payable shall now be
one-twelfth times eighty percent times an Eligible Employees' Final Average
Compensation, less the monthly benefit payable under the Pension Plan times the
percentage resulting from one hundred percent less twelve and one-half percent
times the number of years that the Eligible Employees' attained age exceeds age
55. It is anticipated that the cost related to the SERP amendment shall be
$285,000, thereby resulting in a total cost for calendar year 2002 of $609.000.
Income Tax Expense. The provision for income tax totaled $174,000 for the nine
months ended December 31, 2001, as compared to $526,000 for the nine months
ended December 31, 2000. The $352,000 or 66.9% decrease was due to decreased
income.
Regulatory Capital Requirements
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 December 31, 2001, the Bank was in compliance with its
three regulatory capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital......................... $24,434 15.89%
Tangible capital requirement............. 2,307 1.50
------- -----
Excess over requirement.................. $22,127 14.39%
======= =====
Core capital............................. $24,434 15.89%
Core capital requirement................. 4,614 3.00
------- -----
Excess over requirement.................. $19,820 12.89%
======= =====
Risk based capital....................... $24,859 57.79%
Risk based capital requirement........... 3,441 8.00
------- -----
Excess over requirement.................. $21,418 49.79%
======= =====
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.
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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.
---------------------------------------------------
Not applicable.
Item 5. Other Information.
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
a) Not applicable
b) Not applicable
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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: January 25, 2002
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: January 25, 2002 Date: January 25, 2002
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