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, 2003
-----------------
| | 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
- -------------------------------------------- -----
(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 27, 2004
$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
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 2003 (unaudited) and March 31, 2003...............1
Consolidated Statements of (Loss) Income for the three and
nine months ended December 31, 2003 and 2002 (unaudited))......2
Consolidated Statement of Stockholders' Equity for the
nine months ended December 31, 2003 (unaudited)................3
Consolidated Statements of Cash Flows for the nine
months ended December 31, 2003 and 2002 (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
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)
December 31, March 31,
2003 2003
--------- ---------
ASSETS (Unaudited)
------
Cash and amounts due from depository institutions $ 521 $ 828
Interest-bearing deposits with other institutions 668 3,800
Investment securities:
Held-to-maturity (market value $14,683 and $8,465) 14,991 8,356
Mortgage-backed securities:
Held-to-maturity (market value $97,338 and $97,570) 95,831 95,305
Loans receivable, net 34,206 39,672
Real estate owned, net 39 28
Accrued interest receivable:
Investment securities 154 91
Mortgage-backed securities 424 506
Loans receivable 305 354
Federal Home Loan Bank stock, at cost 2,874 2,879
Premises and equipment, net 495 505
Prepaid expenses and other assets 5,183 4,935
--------- ---------
Total Assets $ 155,691 $ 157,259
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 80,811 $ 81,842
Federal Home Loan Bank advances 48,000 48,000
Advances from borrowers for taxes and insurance 39 77
Accrued expenses and other liabilities 3,589 3,863
--------- ---------
Total Liabilities 132,439 133,782
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 9,777
Treasury stock, at cost (308,470 shares at both December 31, 2003
and March 31, 2003)(1) (2,149) (2,149)
Retained earnings, substantially restricted 15,279 15,504
--------- ---------
Total Stockholders' Equity 23,252 23,477
--------- ---------
Total Liabilities and Stockholders' Equity $ 155,691 $ 157,259
========= =========
(1) Included are shares held by the Bank's RSP totaling 11,840 at both December
31, 2003 and March 31, 2003.
See accompanying notes to consolidated financial statements.
1
SKIBO FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of (Loss) Income
For the Three and Nine Months Ended December 31, 2003 and 2002
(Dollar amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Interest income:
Loans receivable $ 456 $ 682 $ 1,568 $ 2,234
Mortgage-backed securities 936 1,119 2,971 3,345
Investment securities 153 135 389 573
Other 13 36 62 102
----------- ----------- ----------- -----------
Total interest income 1,558 1,972 4,990 6,254
Interest expense:
Deposits 498 660 1,602 2,071
Federal Home Loan Bank advances 670 670 2,004 2,004
----------- ----------- ----------- -----------
Total interest expense 1,168 1,330 3,606 4,075
----------- ----------- ----------- -----------
Net interest income 390 642 1,384 2,179
Provision for loan losses -- -- -- --
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 390 642 1,384 2,179
Other income:
Fees and service charges 7 23 31 51
Other 31 29 562 97
----------- ----------- ----------- -----------
Total other income 38 52 593 148
Other expenses:
Compensation and employee benefits 472 552 1,469 1,622
Premises and occupancy costs 45 44 133 136
Federal insurance premiums 3 3 10 10
Other operating expenses 235 60 433 210
----------- ----------- ----------- -----------
Total other expenses 755 659 2,045 1,978
----------- ----------- ----------- -----------
(Loss) income before income taxes (327) 35 (68) 349
(Benefit from) provision for income taxes (112) 17 (157) 118
----------- ----------- ----------- -----------
Net (loss) income (215) 18 89 231
Other comprehensive (loss) income:
Unrealized gain on securities available-for-
sale, net of tax -- -- -- --
----------- ----------- ----------- -----------
Total comprehensive (loss) income $ (215) $ 18 $ 89 $ 231
=========== =========== =========== ===========
Basic (loss) earnings per share $ (.07) $ .01 $ .03 $ .07
Diluted (loss) earnings per share $ (.07) $ .01 $ .03 $ .07
Weighted average shares outstanding - Basic 3,153,344 3,143,673 3,153,344 3,141,231
Weighted average shares outstanding - Diluted 3,238,533 3,212,120 3,230,644 3,212,434
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, 2003 (unaudited)
(Dollar amounts in thousands, except per share data)
Additional
Common Paid-in Treasury Retained
Stock Capital Stock Earnings Total
-------- -------- -------- -------- --------
Balance at March 31, 2003 $ 345 $ 9,777 $ (2,149) $ 15,504 $ 23,477
Cash dividends declared, net
($.12 per share regular,
$.13 per share special) -- -- -- (314) (314)
Net income -- -- -- 89 89
-------- -------- -------- -------- --------
Balance at December 31, 2003 $ 345 $ 9,777 $ (2,149) $ 15,279 $ 23,252
======== ======== ======== ======== ========
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, 2003 and 2002
(Dollar amounts in thousands)
2003 2002
-------- --------
(unaudited)
Operating activities:
Net income $ 89 $ 231
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 32 37
Compensation expense-RSP -- 4
Net amortization (accretion) of premiums and discounts 54 (104)
Decrease in accrued interest receivable 68 204
Increase in prepaid expenses (74) (206)
Decrease in accrued interest payable (208) (222)
(Decrease) increase in accrued income taxes (381) 173
Other, net 117 507
-------- --------
Net cash (used in) provided by operating activities (303) 624
-------- --------
Investing activities:
Purchases of premises and equipment (22) (22)
Purchases of investment securities held-to-maturity (11,093) (3,116)
Purchases of mortgage-backed securities held-to-maturity (30,177) (34,075)
Proceeds from maturities/calls and principal repayments of:
Investment securities held-to-maturity 4,433 10,664
Mortgage-backed securities held-to-maturity 29,623 20,672
Loans purchased (7,854) (4,475)
Acquisition of interest in Real Estate Owned 28 --
Net principal repayments on loans 13,304 10,142
Decrease (increase) in Federal Home Loan Bank stock 5 (342)
-------- --------
Net cash used in investing activities (1,753) (552)
-------- --------
Financing activities:
Net (decrease) increase in deposits (1,031) 2,242
Net decrease in mortgage escrow (38) (60)
Treasury stock purchased -- (10)
Options exercised, net -- 87
Cash dividends paid (314) (1,496)
-------- --------
Net cash (used in) provided by financing activities (1,383) 763
-------- --------
Net (decrease) increase in cash and cash equivalents (3,439) 835
Cash and cash equivalents, beginning of period 4,628 4,577
-------- --------
Cash and cash equivalents, end of period $ 1,189 $ 5,412
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,814 $ 4,297
======== ========
Income taxes $ 289 $ 136
======== ========
Noncash investing activities:
Loans transferred to real estate owned $ 39 $ 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, 2003 are not necessarily indicative of the results to be expected for the
year ending March 31, 2004 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,
2003.
NOTE 2 - Comprehensive Income
--------------------
For the three months ended December 31, 2003 and 2002, the Company had total
comprehensive loss of $215,000 and total comprehensive income of $18,000,
respectively. For the nine months ended December 31, 2003 and 2002, the
Company's total comprehensive income was $89,000 and $231,000, respectively.
Total comprehensive (loss) income is comprised of net (loss) income and other
comprehensive income. For both three and nine month periods ended December 31,
2003 and 2002, there was no other comprehensive income.
NOTE 3 - 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.
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,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Basic EPS computation:
Numerator-Net (Loss) income $ (215,000) $ 18,000 $ 89,000 $ 231,000
Denominator-Wt Avg common
shares outstanding 3,153,344 3,143,673 3,153 344 3,141,231
Basic (loss) earnings per share $ (.07) $ .01 $ .03 $ .07
=========== =========== =========== ===========
Diluted EPS computation:
Numerator-Net (Loss) income $ (215,000) $ 18,000 $ 89,000 $ 231,000
Denominator-Wt Avg
common shares outstanding 3,153,344 3,143,673 3,153,344 3,141,231
Dilutive Stock Options 85,189 68,447 77,300 71,203
----------- ----------- ----------- -----------
Weighted avg common shares
and common stock
equivalents 3,238,533 3,212,120 3,230,644 3,212,434
Diluted EPS $ (.07) $ .01 $ .03 $ .07
=========== =========== =========== ===========
NOTE 4 - 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 $155,691,000 at December 31, 2003, are reflective
of a decrease of $1,568,000 or 1.0%, as compared to $157,259,000 at March 31,
2003. The decrease in total assets was primarily due to decreases in loans
receivable, cash and interest-bearing deposits with other institutions, FHLB
stock, premises and equipment and accrued interest receivable, partially offset
by increases in mortgage-backed securities, investment securities and prepaid
expenses and other assets.
The decrease in the Company's liabilities was due to decreases in savings
deposits, accrued expenses and other liabilities and advances from borrowers for
taxes and insurance. 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 $1,189,000, a
decrease of $3.4 million or 74.3% as compared to $4,628,000 at March 31, 2003.
This decrease was due to decreased interest-bearing deposits maintained at the
Federal Home Loan Bank and non-interest bearing deposits maintained at the
Federal Reserve Bank of Cleveland and a local bank, partially offset by an
increase in cash on hand.
Investment Securities. Investment securities totaled $14,991,000 at December 31,
2003, an increase of $6,635,000 or 79.4%, as compared to $8,356,000 at March 31,
2003. This was primarily a result of purchases of $11.1 million of U.S. Agency
securities, offset by proceeds from maturities, calls and repayments totaling
$4.4 million.
Mortgage-backed Securities. Mortgage-backed securities totaled $95,831,000 at
December 31, 2003, an increase of $526,000 or 0.6%, as compared to $95,305,000
at March 31, 2003. The increase was primarily due to purchases of $30.2 million,
partially offset by principal repayments and maturities totaling $29.6 million.
Loans Receivable, net. Net loans receivable at December 31, 2003 totaled
$34,206,000, a decrease of $5,466,000 or 13.8%, as compared to $39,672,000 at
March 31, 2003. The decrease was primarily due to principal repayments totaling
$13.5 million, offset by originations of $151,000, which consisted entirely of
consumer loans, and purchases of $7.9 million. The Company purchased $1.1
million conventional one -to four-family mortgage loans and $160,000 insured
Federal Housing Administration ("FHA") one- to four-family mortgage loans within
its normal lending area. The Company also purchased $5.1million United States
Department of Agriculture ("USDA") mortgage loans and $27,000 Government
National Mortgage Association ("GNMA") multi-family project loans, $1.2 million
insured Small Business Administration ("SBA") loans, and a $202,000 USDA insured
operating loan, primarily outside its normal lending area.
Deposits. Total deposits decreased by $1.0 million or 1.3% to $80,811,000 at
December 31, 2003, as compared to $81,842,000 at March 31, 2003. The decrease
was due to decreases in certificates of deposit, interest-bearing checking
accounts and Money Market accounts, offset by increases in passbooks and
noninterest-bearing checking accounts.
FHLB Advances. FHLB advances totaled $48,000,000 at both December 31, 2003 and
March 31, 2003. The Company uses FHLB advances as a supplement to deposits to
fund its purchase of loans and investments.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Stockholders' Equity. Stockholders' equity totaled $23,252,000 at December 31,
2003, as compared to $23,477,000 at March 31, 2003. The decrease of $225,000 or
1.0% was primarily due to the payment of a $0.12 regular cash dividend and a
$0.13 special cash dividend, partially offset by earnings for the nine months
ended December 31, 2003.
Results of Operations for the Three Months Ended December 31, 2003 and 2002
Net (Loss) Income. The Company recorded net loss of $215,000 for the three
months ended December 31, 2003, as compared to net income of $18,000 for the
three months ended December 31, 2002. The $233,000 or 1294.4% decrease in net
income for the three months ended December 31, 2003 was the result of decreases
in net interest income and other income and an increase in other expenses,
partially offset by a decrease in provision for income tax. Changes in the
components of income and expense are discussed herein.
Net Interest Income. Net interest income decreased $252,000 or 39.3% for the
three months ended December 31, 2003, as compared to the three month period
ended December 31, 2002. This decrease was primarily the result of a $488,000 or
0.3% decrease in the average balance of interest-earning assets and a 110 basis
point decrease in the average yield earned thereon. The average balance of
interest-bearing liabilities decreased $86,000 or 0.1% and the average rate paid
thereon decreased 51 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 0.51% for the three month period ended December 31,
2003 from 1.10% for the three month period ended December 31, 2002. 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 $414,000 or 21.0% to $1,558,000 for
the three month period ended December 31, 2003, as compared to $1,972,000 for
the three month period ended December 31, 2002.
Interest on loans receivable decreased $226,000 or 33.1% for the three months
ended December 31, 2003, as compared to the three month period ended December
31, 2002. This decrease was primarily the result of a $7.2 million decrease in
the average balance of loans receivable and a 124 basis point decrease in the
average yield earned thereon.
Interest income on mortgage-backed securities decreased $183,000 or 16.4% for
the three months ended December 31, 2003, as compared to the three months ended
December 31, 2002. This decrease was primarily the result of a 111 basis point
decrease in the average yield earned on mortgage-backed securities, partially
offset by a $6.6 million increase in the average balance of mortgage-backed
securities.
Interest income on investment securities increased $18,000 or 13.3% for the
three months ended December 31, 2003, as compared to the three months ended
December 31, 2002. The increase in interest income on investment securities was
primarily due to a $2.7 million increase in the average balance of such
securities, partially offset by a 48 basis point decrease in the average yield
earned thereon.
Interest income on other interest-earning assets decreased $23,000 or 63.9% for
the three months ended December 31, 2003, as compared to the three months ended
December 31, 2002. The decrease was primarily due to a $2.6 million decrease in
the average balance of other interest-earning assets and an 86 basis point
decrease in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 4.19%
and 5.29 % for the three month periods ended December 31, 2003 and 2002,
respectively.
Interest Expense. Interest expense totaled $1,168,000 for the three months ended
December 31, 2003, as compared to $1,330,000 for the three months ended December
31, 2002. The $162,000 or 12.2% decrease was due to an $86,000 decrease in the
average balance of interest-bearing liabilities and a 51 basis point decrease in
the average rate paid thereon.
Interest expense on deposits (including escrows) decreased $162,000 or 24.5% for
the three months ended December 31, 2003, as compared to the three months ended
December 31, 2002. The decrease was due to an $86,000 decrease in the average
balance of deposits and an 82 basis point decrease in the average rate paid
thereon.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Interest on FHLB advances totaled $670,000 for both three month periods ended
December 31, 2003 and 2002. The Company uses FHLB advances as a funding source
to supplement deposits, which are the Company's primary source of funds.
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, 2003 and 2002.
At December 31, 2003, the allowance for loan losses totaled $405,000 or 1.2% and
91.2% of total loans and total non- performing loans, respectively, as compared
to $425,000 or 1.1% and 904.3%, respectively, at March 31, 2003. The Company's
non-performing loans (non-accrual loans and accruing loans 90 days or more
overdue) totaled $444,000 and $47,000 at December 31, 2003 and March 31, 2003,
respectively, which represented 1.28% and 0.12% of the Company's total loans,
respectively. The Company's ratio of non-performing loans to total assets was
..29% and .03% at December 31, 2003 and March 31, 2003, respectively.
Other Income. During the three months ended December 31, 2003, other income
decreased $14,000 or 26.9%, as compared to the three months ended December 31,
2002.
Other Expenses. Total other expenses increased by $96,000 or 14.6% during the
three months ended December 31, 2003, as compared to the three months ended
December 31, 2002. The increase was attributable to increases of $175,000 in
other operating expenses, primarily due to increased legal fees and professional
services expense, and $1,000 in premises and equipment, offset by an $80,000
decrease in compensation and employee benefits expense.
Income Tax Expense. The income tax benefit totaled $112,000 for the three months
ended December 31, 2003, as compared to the provision for income tax of $17,000
for the three months ended December 31, 2002. The decrease of $129,000 or 758.8%
was due to decreased income.
Results of Operations for the Nine Months Ended December 31, 2003 and 2002
Net Income. The Company recorded net income of $89,000 for the nine months ended
December 31, 2003, as compared to net income of $231,000 for the nine months
ended December 31, 2002. The $142,000 or 61.5% decrease in net income for the
nine months ended December 31, 2003 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 $795,000 or 36.5% for the
nine months ended December 31, 2003, as compared to the nine month period ended
December 31, 2002. Although the average balance of interest-earning assets
increased $801,000 or 0.5%, the average yield earned thereon decreased 116 basis
points. The average balance of interest- bearing liabilities increased by $1.4
million or 1.1%, however, the average rate paid thereon decreased 54 basis
points.
The net interest rate spread decreased to 0.69% for the three month period ended
December 31, 2003 from 1.31% for the three month period ended December 31, 2002.
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 $1.3 million or 20.2% to $4,990,000
for the nine month period ended December 31, 2003, as compared to $6,254,000 for
the nine month period ended December 31, 2002.
Interest on loans receivable decreased $666,000 or 29.8% for the nine months
ended December 31, 2003, as compared to the nine month period ended December 31,
2002. This decrease was primarily the result of a $7.5 million decrease in the
average balance of loans receivable and a 105 basis point decrease in the
average yield earned thereon.
Interest income on mortgage-backed securities decreased $374,000 or 11.2% for
the nine months ended December 31, 2003, as compared to the nine months ended
December 31, 2002. This decrease was primarily the result of a 111 basis point
decrease in the average yield earned on mortgage-backed securities, partially
offset by a $10.7 million increase in the average balance of mortgage-backed
securities.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Interest income on investment securities decreased $184,000 or 32.1% for the
nine months ended December 31, 2003, as compared to the nine months ended
December 31, 2002. The decrease in interest income on investment securities was
primarily due to a $2.4 million decrease in the average balance of such
securities and a 98 basis point decrease in the average yield earned thereon.
Interest income on other interest-earning assets decreased $40,000 or 39.2% for
the nine months ended December 31, 2003, as compared to the nine months ended
December 31, 2002. The decrease was primarily due to a 92 basis point decrease
in the average yield earned on other interest-earning assets, partially offset
by an $11,000 increase in the average balance.
The average yield on the average balance of interest-earning assets was 4.45%
and 5.61% for the nine month periods ended December 31, 2003 and 2002,
respectively.
Interest Expense. Interest expense totaled $3,606,000 for the nine months ended
December 31, 2003, as compared to $4,075,000 for the nine months ended December
31, 2002. Although the average balance of interest-bearing liabilities increased
$1.4 million, the average rate paid thereon decreased 54 basis points, resulting
in a $469,000 or 11.5% decrease in interest expense. Interest expense on
deposits (including escrows) decreased $469,000 or 22.6% for the nine months
ended December 31, 2003, as compared to the nine months ended December 31, 2002.
Although the average balance of deposits increased $1.4 million, the average
rate paid thereon decreased 85 basis points.
Interest on FHLB advances totaled $2.0 million for both nine month periods ended
December 31, 2003 and 2002.
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, 2003 and 2002.
Other Income. During the nine months ended December 31, 2003, other income
increased $445,000 or 300.7%, as compared to the nine months ended December 31,
2002. In September 2003, the Company received a taxable cash distribution of
approximately $454,000 from the parent of General American Life Insurance
Company ("GALIC"), which was sold to Metropolitan Life Insurance Company in
2000. The Company owns various insurance policies with GALIC. This distribution
was based on the Company's ownership interest in the life insurance policies. It
is possible that additional distributions could be made in the future, but are
not able to be estimated at this time. This cash distribution was the primary
cause for the increase in other income. The increase was also partially
attributable to increases in the cash surrender values of insurance policies
held on the participants of the Supplemental Executive Retirement Plan ("SERP").
Other Expenses. Total other expenses increased by $67,000 or 3.4% during the
nine months ended December 31, 2003, as compared to the nine months ended
December 31, 2002. The increase was attributable to an increase of $223,000 in
other operating expenses, offset by decreases of $153,000 in compensation and
employees benefit expense, and $3,000 in premises and occupancy costs. The
increase in other operating expenses was primarily due to an increase in legal
fees and professional services expense. The decrease in compensation and
employee benefits expense was due to decreases of $133,000 in compensation and
employee benefits expense, $16,000 in the Company's defined benefit plan and
SERP costs and $4,000 in RSP expense due to the completion of the ESP awards on
April 16, 2002.
Income Tax Expense. The income tax benefit totaled $157,000 for the nine months
ended December 31, 2003, as compared to the provision for income tax of $118,000
for the nine months ended December 31, 2002. The $275,000 or 233.1% decrease was
due to an adjustment made to the tax accrual to reflect actual taxes paid and
decreased income.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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, 2003, the Bank was in compliance with its
three regulatory capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital..................................... $23,138 14.85%
Tangible capital requirement......................... 2,337 1.50
------- -----
Excess over requirement.............................. $20,801 13.35%
======= =====
Core capital......................................... $23,138 14.85%
Core capital requirement............................. 4,674 3.00
------- -----
Excess over requirement.............................. $18,464 11.85%
======= =====
Risk based capital................................... $23,543 64.62%
Risk based capital requirement....................... 2,931 8.00
------- -----
Excess over requirement.............................. $20,612 56.62%
======= =====
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.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation of the Company's disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")), the Company's principal executive officer and principal
financial officer have concluded that as of the end of the period covered by
this Quarterly Report on Form 10-QSB such disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
Changes in Internal Controls
During the quarter under report, there was no change in the Company's internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
There are various claims and lawsuits in which the Company is
periodically involved, such as claims to enforce liens,
condemnation proceedings on properties in which the Company
holds security interests, claims involving the making and
servicing of real property loans and other issues incident to
the Company's business.
In February 2003, the Company's subsidiary, First Carnegie
Deposit, was served as a defendant in a lawsuit regarding a
previously completed sale of foreclosed real estate and sheriff
sales of two other properties resulting from a deficiency
judgment in connection therewith. The complaint (Civil Action
No.: GD00-8816) was filed on February 28, 2003 in the Court of
Common Pleas of Allegheny County, Pennsylvania, Civil Division,
and amended on July 2, 2003. The complaint contains causes of
action against First Carnegie Deposit for Statutory Damages
Pursuant to 42 PA C.S.A. Sec. 8104 (Count I), Wrongful Use of
Civil Proceedings Pursuant to 42 PA C.S.A. Sec. 8351 (Count II),
Abuse of Civil Process (Count III), Conversion (Count IV) and
Civil Conspiracy (Count V). The plaintiffs seek damages for the
costs to defend the prior litigation related to the foreclosure
and sheriff sales of properties owned by the plaintiffs, loss of
reputation, loss of use of their properties and extreme
emotional distress, as well as punitive damages. The Company is
unable to express an opinion as to the outcome of this lawsuit
or any potential loss to the Company.
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.
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 27, 2004
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) Secretary and Treasurer
(Principal Financial and Accounting Officer)
Date: January 27, 2004 Date: January 27, 2004
13