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, 2002
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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 30, 2003
$0.10 Par Value Common Stock 3,153,344
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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
December 31, 2002 (unaudited) and March 31, 2002................1
Consolidated Statements of Income for the three and
nine months ended December 31, 2002 and 2001 (unaudited))..2
Consolidated Statement of Stockholders' Equity for the
nine months ended December 31, 2002 (unaudited).................3
Consolidated Statements of Cash Flows for the nine
months ended December 31, 2002 and 2001 (unaudited))............4
Notes to Consolidated Financial Statements......................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................7
Item 3. Controls and Procedures..............................................11
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
2
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollar amounts in thousands, except per share data)
December 31, March 31,
2002 2002
--------- ---------
ASSETS (Unaudited)
------
Cash and amounts due from depository institutions $ 518 $ 530
Interest-bearing deposits with other institutions 4,894 4,047
Investment securities:
Held-to-maturity (market value $10,041 and $17,184) 9,875 17,421
Mortgage-backed securities:
Held-to-maturity (market value $93,591 and $79,120) 91,502 78,064
Loans receivable, net 40,254 45,865
Real estate owned, net 28 --
Accrued interest receivable:
Investment securities 75 215
Mortgage-backed securities 506 502
Loans receivable 355 423
Federal Home Loan Bank stock, at cost 2,742 2,400
Premises and equipment, net 516 531
Prepaid expenses and other assets 5,326 5,120
--------- ---------
Total Assets $ 156,591 $ 155,118
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 80,762 $ 78,520
Federal Home Loan Bank advances 48,000 48,000
Advances from borrowers for taxes and insurance 57 117
Accrued expenses and other liabilities 4,345 3,870
--------- ---------
Total Liabilities 133,164 130,507
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 9,777 9,778
Treasury stock, at cost (308,470 shares at December 31, 2002
and 320,423 shares at March 31, 2002)(1) (2,149) (2,227)
Unearned Restricted Stock Plan (RSP) shares -- (4)
Retained earnings, substantially restricted 15,454 16,719
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Total Stockholders' Equity 23,427 24,611
--------- ---------
Total Liabilities and Stockholders' Equity $ 156,591 $ 155,118
========= =========
(1) Included are shares held by the Bank's RSP totaling 11,840 at December 31,
2002 and 11,082 at March 31, 2002, respectively.
See accompanying notes to consolidated financial statements.
1
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
For the Three and Nine months Ended December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
December 31, December 31,
2002 2001 2002 2001
---------- ---------- ---------- ----------
(unaudited) (unaudited)
Interest income:
Loans receivable $ 682 $ 844 $ 2,234 $ 2,614
Mortgage-backed securities 1,119 998 3,345 2,932
Investment securities 135 261 573 1,064
Other 36 105 102 366
---------- ---------- ---------- ----------
Total interest income 1,972 2,208 6,254 6,976
Interest expense:
Deposits 660 811 2,071 2,505
Federal Home Loan Bank advances 670 670 2,004 2,004
---------- ---------- ---------- ----------
Total interest expense 1,330 1,481 4,075 4,509
---------- ---------- ---------- ----------
Net interest income 642 727 2,179 2,467
Provision for loan losses -- -- -- --
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 642 727 2,179 2,467
Other income:
Fees and service charges 23 11 51 31
Other 29 40 97 81
---------- ---------- ---------- ----------
Total other income 52 51 148 112
Other expenses:
Compensation and employee benefits 552 488 1,622 1,589
Premises and occupancy costs 44 48 136 145
Federal insurance premiums 3 3 10 10
Other operating expenses 60 71 210 211
---------- ---------- ---------- ----------
Total other expenses 659 610 1,978 1,955
---------- ---------- ---------- ----------
Income before income taxes 35 168 349 624
Provision for income taxes 17 15 118 174
---------- ---------- ---------- ----------
Net income 18 153 231 450
Other comprehensive income:
Unrealized gain on securities available-for-
sale, net of tax -- -- -- --
---------- ---------- ---------- ----------
Total comprehensive income $ 18 $ 153 $ 231 $ 450
========== ========== ========== ==========
Basic earnings per share $ .01 $ .05 $ .07 $ .14
Diluted earnings per share $ .01 $ .05 $ .07 $ .14
Weighted average shares outstanding - Basic 3,143,673 3,131,622 3,141,231 3,131,963
Weighted average shares outstanding - Diluted 3,212,120 3,194,080 3,212,434 3,179,498
See accompanying notes to consolidated financial statements.
2
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Nine months Ended December 31, 2002 (unaudited)
(Dollar amounts in thousands, except per share data)
Additional Unearned
Common Paid-in Treasury RSP Retained
Stock Capital Stock Shares Earnings Total
----- ------- ----- ------ -------- -----
Balance at March 31, 2002 $ 345 $9,778 $ (2,227) $ (4) $16,719 $24,611
Cash dividends declared, net
($.36 per share regular,
$.84 per share special) -- -- -- -- (1,496) (1,496)
Amortization of RSP liability -- -- -- 4 -- 4
Treasury stock purchased,
at cost (758 shares) -- -- (10) -- -- (10)
Options Exercised (12,711 shares) -- (1) 88 -- -- 87
Net income -- -- -- -- 231 231
------ ------ -------- ------ ------- -------
Balance at December 31, 2002 $ 345 $9,777 $ (2,149) $ -- $15,454 $23,427
====== ====== ======== ====== ======= =======
See accompanying notes to consolidated financial statements.
3
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine months Ended December 31, 2002 and 2001
(Dollar amounts in thousands)
2002 2001
-------- --------
(unaudited)
Operating activities:
Net income $ 231 $ 450
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 37 48
Compensation expense-Employee Stock Ownership Plan ("ESOP")
and RSP 4 196
Net accretion of premiums and discounts (104) (227)
Decrease in accrued interest receivable 204 322
Increase in prepaid expenses (206) (345)
Decrease in accrued interest payable (222) (150)
Increase (decrease) in accrued income taxes 173 (190)
Other, net 507 516
-------- --------
Net cash provided by operating activities 624 620
-------- --------
Investing activities:
Purchases of premises and equipment (22) (9)
Purchases of investment securities held-to-maturity (3,116) (8,600)
Purchases of mortgage-backed securities held-to-maturity (34,075) (31,784)
Proceeds from maturities/calls and principal repayments of:
Investment securities held-to-maturity 10,664 16,780
Mortgage-backed securities held-to-maturity 20,672 17,127
Loans purchased (4,475) (10,875)
Net principal repayments on loans 10,142 12,123
Increase in Federal Home Loan Bank stock (342) --
-------- --------
Net cash used in investing activities (552) (5,238)
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Financing activities:
Net increase in deposits 2,242 4,351
Net decrease in mortgage escrow (60) (41)
Treasury stock purchased (10) (140)
Options exercised, net 87 --
Cash dividends paid (1,496) (972)
-------- --------
Net cash provided by financing activities 763 3,198
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Net increase (decrease) in cash and cash equivalents 835 (1,420)
Cash and cash equivalents, beginning of period 4,577 9,212
-------- --------
Cash and cash equivalents, end of period $ 5,412 $ 7,792
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,297 $ 4,658
======== ========
Income taxes $ 136 $ 357
======== ========
Noncash investing activities:
Loans transferred to real estate owned $ 28 $ --
======== ========
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 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, 2002 are not necessarily indicative of the results to be expected for the
year ending March 31, 2003 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,
2002.
NOTE 2 - Dividends on Common Stock
-------------------------
On October 22, 2002, the Board of Directors of the Company declared a $0.20 per
share special cash dividend on the Company's outstanding shares of common stock,
payable to stockholders of record as of November 4, 2002. 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 November 15, 2002. On December 12, 2002, 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, 2002. 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, 2003. Under current regulations
of the Office of Thrift Supervision (the "OTS"), any waiver of dividends by the
M.H.C. will no longer cause 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, 2002 and 2001, the Company's total
comprehensive income was $18,000 and $153,000, respectively, and $231,000 and
$450,000, respectively, for the nine months ended December 31, 2002 and 2001.
Total comprehensive income is comprised of net income and other comprehensive
income. For both three and nine month periods ended December 31, 2002 and 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 SUBSIDIARIES
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,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Basic EPS computation:
Numerator-Net Income $ 18,000 $ 153,000 $ 231,000 $ 450,000
Denominator-Wt Avg common
shares outstanding 3,143,673 3,131,622 3,141,231 3,131,963
Basic EPS $ .01 $ .05 $ .07 $ .14
========== ========== ========== ==========
Diluted EPS computation:
Numerator-Net Income $ 18,000 $ 153,000 $ 231,000 $ 450,000
Denominator-Wt Avg
common shares outstanding 3,143,673 3,131,622 3,141,231 3,131,963
Dilutive Stock Options 68,447 57,339 71,203 44,925
Dilutive Unvested RSP -- 5,119 -- 2,610
---------- ---------- ---------- ----------
Weighted avg common shares
and common stock
equivalents 3,212,120 3,194,080 3,212,434 3,179,498
Diluted EPS $ .01 $ .05 $ .07 $ .14
========== ========== ========== ==========
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 $156,591,000 at December 31, 2002, are reflective
of an increase of $1,473,000 or 0.9%, as compared to $155,118,000 at March 31,
2002. The increase in total assets was primarily due to increases in
mortgage-backed securities, prepaid expenses and other assets, interest-bearing
deposits with other institutions, and FHLB stock, partially offset by decreases
in loans receivable, investment securities, and accrued interest receivable.
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 $5,412,000, an
increase of $835,000 or 18.2% as compared to $4,577,000 at March 31, 2002.
Investment Securities. Investment securities totaled $9,875,000 at December 31,
2002, a decrease of $7,546,000 or 43.3%, as compared to $17,421,000 at March 31,
2002. This was primarily a result of proceeds from maturities, calls and
repayments totaling $10.7 million, offset by purchases of $3.1 million of U.S.
Agency securities.
Mortgage-backed Securities. Mortgage-backed securities were $91,502,000 at
December 31, 2002, an increase of $13,438,000 or 17.2%, as compared to
$78,064,000 at March 31, 2002. The increase was due to purchases of $34.1
million, offset by principal repayments and maturities totaling $20.7 million.
Loans Receivable, net. Net loans receivable at December 31, 2002 totaled
$40,254,000, a decrease of $5,611,000 or 12.2%, as compared to $45,865,000 at
March 31, 2002. The decrease was primarily due to principal repayments totaling
$10.5 million, offset by originations of $316,000, which consisted entirely of
consumer loans, and purchases of $4.5 million. The Company purchased $2.6
million conventional one -to four-family mortgage loans and $1.3 million insured
Federal Housing Administration ("FHA") and Veterans Administration ("VA") one-
to four-family mortgage loans within its normal lending area. The Company also
purchased $461,000 United States Department of Agriculture ("USDA") mortgage
loans and $104,000 Government National Mortgage Association ("GNMA")
multi-family project loans primarily outside its normal lending area.
Deposits. Total deposits, after interest credited, increased by $2.2 million or
2.9% to $80,762,000 at December 31, 2002, as compared to $78,520,000 at March
31, 2002. The increase was due to increases in certificates of deposit, passbook
and Money Market accounts, offset by decreases in interest-bearing and
noninterest-bearing checking accounts.
FHLB Advances. FHLB advances totaled $48,000,000 at both December 31, 2002 and
March 31, 2002. The Company uses FHLB advances as a supplement to deposits to
fund its purchase of loans and investments.
Stockholders' Equity. Stockholders' equity totaled $23,427,000 at December 31,
2002, as compared to $24,611,000 at March 31, 2002. The decrease of $1.2 million
or 4.8% was primarily due to the payment of three $0.12 regular cash dividends,
one $0.14 special cash dividend, one $0.30 special cash dividend and two $0.20
special cash dividends, partially offset by earnings for the nine months ended
December 31, 2002.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operations for the Three Months Ended December 31, 2002 and 2001
Net Income. The Company recorded net income of $18,000 for the three months
ended December 31, 2002, as compared to net income of $153,000 for the three
months ended December 31, 2001. The $135,000 or 88.2% decrease in net income for
the three months ended December 31, 2002 was the result of a decrease in net
interest income and increases in other expenses and provision for income taxes,
partially offset by an increase in other income. Changes in the components of
income and expense are discussed herein.
Net Interest Income. Net interest income decreased $85,000 or 11.7% for the
three months ended December 31, 2002, as compared to the three month period
ended December 31, 2001. Although the average balance of interest-earning assets
increased $2.4 million or 1.6%, the average yield earned thereon decreased 73
basis points. The average balance of interest- bearing liabilities increased
$3.2 million or 2.6%, however, the average rate paid thereon decreased 59 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 1.10% for the three month period ended December 31,
2002 from 1.24% for the three month period ended December 31, 2001. 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 $236,000 or 10.7% to $1,972,000 for
the three month period ended December 31, 2002, as compared to $2,208,000 for
the three month period ended December 31, 2001.
Interest on loans receivable decreased $162,000 or 19.2% for the three months
ended December 31, 2002, as compared to the three month period ended December
31, 2001. This decrease was primarily the result of a $6.6 million decrease in
the average balance of loans receivable and a 46 basis point decrease in the
average yield earned thereon.
Interest income on mortgage-backed securities increased $121,000 or 12.1% for
the three months ended December 31, 2002, as compared to the three months ended
December 31, 2001. This increase was primarily the result of a $22.0 million
increase in the average balance of mortgage-backed securities, offset by a 93
basis point decrease in the average yield earned thereon.
Interest income on investment securities decreased $126,000 or 48.3% for the
three months ended December 31, 2002, as compared to the three months ended
December 31, 2001. The decrease in interest income on investment securities was
primarily due to a $6.7 million decrease in the average balance of such
securities and a 95 basis point decrease in the average yield earned thereon.
Interest income on other interest-earning assets decreased $69,000 or 65.7% for
the three months ended December 31, 2002, as compared to the three months ended
December 31, 2001. The decrease was primarily due to a $6.4 million decrease in
the average balance of other interest-earning assets and a 111 basis point
decrease in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 5.29%
and 6.02 % for the three month periods ended December 31, 2002 and 2001,
respectively.
Interest Expense. Interest expense totaled $1,330,000 for the three months ended
December 31, 2002, as compared to $1,481,000 for the three months ended December
31, 2001. Although the average balance of interest-bearing liabilities increased
$3.2 million, the average rate paid thereon decreased 59 basis points, resulting
in a $151,000 or 10.2% decrease in interest expense.
Interest expense on deposits (including escrows) decreased $151,000 or 18.6% for
the three months ended December 31, 2002, as compared to the three months ended
December 31, 2001. The decrease was due to a 93 basis point decrease in the
average rate paid thereon, offset by a $3.2 million increase in the average
balance of deposits.
Interest on FHLB advances totaled $670,000 for both three month periods ended
December 31, 2002 and 2001. The Company uses FHLB advances as a funding source
to supplement deposits, which are the Company's primary source of funds.
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 provisions for loan losses during the three month
periods ended December 31, 2002 and 2001.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
At December 31, 2002, the allowance for loan losses totaled $425,000 or 1.0% and
494.2% of total loans and total non- performing loans, respectively, as compared
to $425,000 or 0.9% and 376.1%, respectively, at March 31, 2002. The Company's
non-performing loans (non-accrual loans and accruing loans 90 days or more
overdue) totaled $86,000 and $113,000 at December 31, 2002 and March 31, 2002,
respectively, which represented 0.21% and 0.24% of the Company's total loans,
respectively. The Company's ratio of non-performing loans to total assets was
..05% and .07% at December 31, 2002 and March 31, 2002, respectively.
Other Income. During the three months ended December 31, 2002, other income
increased $1,000 or 2.0%, as compared to the three months ended December 31,
2001.
Other Expenses. Total other expenses increased by $49,000 or 8.0% during the
three months ended December 31, 2002, as compared to the three months ended
December 31, 2001. The increase was attributable to an increase of $64,000 or
13.1% in compensation and employee benefits expense, offset by decreases of
$4,000 or 8.3% in premises and occupancy costs, and $11,000 or 15.5% in other
operating expenses
Income Tax Expense. The provision for income tax increased $2,000 or 13.3% to
$17,000 for the three months ended December 31, 2002, as compared to $15,000 for
the three months ended December 31, 2001.
Results of Operations for the Nine Months Ended December 31, 2002 and 2001
Net Income. The Company recorded net income of $231,000 for the nine months
ended December 31, 2002, as compared to net income of $450,000 for the nine
months ended December 31, 2001. The $219,000 or 48.7% decrease in net income for
the nine months ended December 31, 2002 was primarily the result of decreases in
net interest income and increases in other expenses, offset by an increase in
other income and 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 $288,000 or 11.7% for the
nine months ended December 31, 2002, as compared to the nine month period ended
December 31, 2001. Although the average balance of interest-earning assets
increased $3.2 million or 2.2%, the average yield earned thereon decreased 78
basis points. The average balance of interest- bearing liabilities increased by
$3.7 million or 3.0%, however, the average rate paid thereon decreased 60 basis
points.
The net interest rate spread decreased to 1.31% for the three month period ended
December 31, 2002 from 1.49% for the three month period ended December 31, 2001.
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 $722,000 or 10.3% to $6,254,000 for
the nine month period ended December 31, 2002, as compared to $6,976,000 for the
nine month period ended December 31, 2001.
Interest on loans receivable decreased $380,000 or 14.5% for the nine months
ended December 31, 2002, as compared to the nine month period ended December 31,
2001. This decrease was primarily the result of a $5.1 million decrease in the
average balance of loans receivable and a 34 basis point decrease in the average
yield earned thereon.
Interest income on mortgage-backed securities increased $413,000 or 14.1% for
the nine months ended December 31, 2002, as compared to the nine months ended
December 31, 2001. This increase was primarily the result of a $23.3 million
increase in the average balance of mortgage-backed securities, partially offset
by a 109 basis point decrease in the average yield earned thereon.
Interest income on investment securities decreased $491,000 or 46.1% for the
nine months ended December 31, 2002, as compared to the nine months ended
December 31, 2001. The decrease in interest income on investment securities was
primarily due to a $8.4 million decrease in the average balance of such
securities and an 87 basis point decrease in the average yield earned thereon.
Interest income on other interest-earning assets decreased $264,000 or 72.1% for
the nine months ended December 31, 2002, as compared to the nine months ended
December 31, 2001. The decrease was primarily due to a $6.6 million decrease in
the average balance of other interest-earning assets and a 159 basis point
decrease in the average yield earned thereon. The average
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
yield on the average balance of interest-earning assets was 5.61% and 6.39% for
the nine month periods ended December 31, 2002 and 2001, respectively.
Interest Expense. Interest expense totaled $4,075,000 for the nine months ended
December 31, 2002, as compared to $4,509,000 for the nine months ended December
31, 2001. Although the average balance of interest-bearing liabilities increased
$3.7 million, the average rate paid thereon decreased 60 basis points, resulting
in a $434,000 or 9.6% decrease in interest expense. Interest expense on deposits
(including escrows) decreased $434,000 or 17.3% for the nine months ended
December 31, 2002, as compared to the nine months ended December 31, 2001.
Although the average balance of deposits increased $3.7 million, the average
rate paid thereon decreased 95 basis points.
Interest on FHLB advances totaled $2.0 million for both nine month periods ended
December 31, 2002 and 2001.
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, 2002 and 2001.
Other Income. During the nine months ended December 31, 2002, other income
increased $36,000 or 32.1%, as compared to the nine months ended December 31,
2001. This increase resulted from increased income from deferred loan fees and
increases in the cash surrender values of insurance policies held on the
participants of the SERP and DRP.
Other Expenses. Total other expenses increased by $23,000 or 1.2% during the
nine months ended December 31, 2002, as compared to the nine months ended
December 31, 2001. The increase was attributable to an increase of $33,000 in
compensation and employees benefit expense, offset by decreases of $1,000 in
other expenses, and $9,000 in premises and occupancy costs. The increase in
compensation and employee benefits expense was due to increases of $186,000 in
the Company's defined benefit plan, SERP and DRP costs due to a SERP amendment
made in September 2001 and $38,000 in compensation and employee benefits
expense, offset by decreases of $124,000 in ESOP expense due to the completion
of the ESOP awards on December 31, 2001, and $67,000 in RSP expense due to the
completion of the ESP awards on April 16, 2002.
Income Tax Expense. The provision for income tax totaled $118,000 for the nine
months ended December 31, 2002, as compared to $174,000 for the nine months
ended December 31, 2001. The $56,000 or 32.2% 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, 2002, the Bank was in compliance with its
three regulatory capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital........................ $23,651 15.11%
Tangible capital requirement............ 2,348 1.50
------- -----
Excess over requirement................. $21,303 13.61%
======= =====
Core capital............................ $23,651 15.11%
Core capital requirement................ 4,697 3.00
------- -----
Excess over requirement................. $18,954 12.11%
======= =====
Risk based capital...................... $24,076 58.87%
Risk based capital requirement.......... 3,272 8.00
------- -----
Excess over requirement................. $20,804 50.87%
======= =====
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.
10
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing date of this
Quarterly Report on Form 10-QSB, the Registrant's principal executive officer
and principal financial officer have concluded that the Registrant's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
Changes in Internal Controls
There were no significant changes in the Registrant's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
In June 2000, the Company's subsidiary First Carnegie Deposit
and other third parties were 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) Exhibit 99 Certification Pursuant to 18 U.S.C.ss.1350
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: January 30, 2003
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,
(Principal Executive Officer) Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: January 30, 2003 Date: January 30, 2003
SECTION 302 CERTIFICATION
I, Walter G. Kelly, President and Chief Executive Officer of Skibo
Financial Corp., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Skibo
Financial Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: January 30, 2003 /s/ Walter G. Kelly
-------------------------------------
Walter G. Kelly
President and Chief Executive Officer
SECTION 302 CERTIFICATION
I, Carol A. Gilbert, Chief Financial and Operating Officer, Treasurer and
Secretary of Skibo Financial Corp., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Skibo
Financial Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: January 30, 2003 /s/ Carol A. Gilbert
--------------------------------------
Carol A. Gilbert
Chief Financial and Operating Officer,
Treasurer and Secretary