SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
------------------
|_| 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
SKIBO FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 25-1820465
- ------------------------------------------------ -------------------
(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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of common stock
as of November 10, 1998
$0.10 Par Value Common Stock 3,450,000 Shares
- ---------------------------- --------------------
Class Outstanding
Transitional Small Business Disclosure Format (check one)
Yes No X
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FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Statements of Financial Condition (As of
September 30, 1998 (unaudited) and March 31, 1998)..........................................1
Consolidated Statements of Operations and Comprehensive Income (For
the three and six months ended September 30, 1998 and 1997 (unaudited)).....................2
Consolidated Statement of Stockholders' Equity (For the
six months ended September 30, 1998 (unaudited).............................................3
Consolidated Statements of Cash Flows (For the six
months ended September 30, 1998 and 1997 (unaudited)).......................................4
Notes to Consolidated Financial Statements..................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................................................10
PART 11. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings................................................................................16
Item 2. Changes in Securities............................................................................16
Item 3. Defaults Upon Senior Securities..................................................................16
Item 4. Submission of Matters to a Vote of Security-Holders..............................................16
Item 5. Other Information................................................................................17
Item 6. Exhibits and Reports on Form 8-K.................................................................17
Signatures
FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollar amounts in thousands, except per share data)
September 30, March 31,
1998 1998
------------- ----------
ASSETS (Unaudited)
------
Cash and amounts due from depository institutions $ 535 $ 523
Interest-bearing deposits with other institutions 6,367 2,748
Investment securities:
Held-to-maturity (market value $16,354 and $15,836) 16,152 15,777
Mortgage-backed securities:
Held-to-maturity (market value $49,362 and $54,903) 48,810 54,315
Loans receivable, net 64,961 67,884
Real estate owned, net -- 11
Accrued interest receivable:
Investment securities 199 224
Mortgage-backed securities 361 408
Loans receivable 802 800
Federal Home Loan Bank stock, at cost 2,307 2,307
Premises and equipment, net 736 759
Prepaid expenses and other assets 2,707 2,376
-------- --------
Total Assets $ 143,937 $ 148,132
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Savings deposits $ 75,932 $ 77,226
Federal Home Loan Bank advances 37,800 41,300
Bonds payable 1,441 1,618
Other borrowings 666 666
Advances from borrowers for taxes and insurance 66 166
Accrued expenses and other liabilities 3,381 2,176
-------- -------
Total Liabilities 119,286 123,152
Stockholders' Equity:
Common stock, $0.10 par value; 10,000,000 shares authorized;
2,300,000 issued and outstanding at September 30 and March 31 230 230
Additional paid-in capital 9,847 9,800
Unearned employee stock ownership plan (ESOP) shares (544) (625)
Unearned restricted stock plan (RSP) shares (662) --
Retained earnings, substantially restricted 15,780 15,575
------- -------
Total Stockholders' Equity 24,651 24,980
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Total Liabilities and Stockholders' Equity $ 143,937 $ 148,132
======= =======
See accompanying notes to consolidated financial statements.
1
FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
For the Three and Six Months Ended September 30, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
----- ---- ---- ----
(unaudited) (unaudited)
Interest income:
Loans receivable $ 1,198 $ 1,161 $ 2,435 $ 2,320
Mortgage-backed securities 833 1,018 1,724 1,997
Investment securities 255 295 517 648
Other 82 59 169 160
----- ------ ----- -----
Total interest income 2,368 2,533 4,845 5,125
Interest expense:
Savings deposits 872 903 1,751 1,799
Federal Home Loan Bank advances 501 588 1,077 1,175
Bonds payable 39 50 78 100
Other borrowings 14 18 28 35
----- -----
Total interest expense 1,426 1,559 2,934 3,109
----- ----- ----- -----
Net interest income 942 974 1,911 2,016
Provision for loan losses 12 15 15 30
----- ----- ----- -----
Net interest income after
provision for loan losses 930 959 1,896 1,986
Other income:
Fees and service charges 12 11 25 27
Loss on sale of securities -- (4) -- (7)
Other 14 128 22 134
--- --- ---- -----
Total other income 26 135 47 154
Other expenses:
Compensation and employee benefits 377 412 1,033 835
Premises and occupancy costs 55 36 111 113
Federal insurance premiums 12 16 24 29
Other operating expenses 81 100 188 181
--- --- ---
Total other expenses 525 564 1,356 1,158
--- --- ----- -----
Income before income taxes 431 530 587 982
Provision for income taxes 180 210 240 423
---- --- --- ---
Net income $ 251 $ 320 $ 347 $ 559
==== ==== === ===
Other comprehensive income:
Unrealized gain on securities available-
for-sale, net of tax -- 3 -- 11
--- --- --- ---
Total comprehensive income $ 251 $ 323 $ 347 $ 570
=== === === ===
Basic earnings per share $ .11 $ .14 $ .15 $ .25
Diluted earnings per share $ .11 $ .14 $ .15 $ .25
Average shares outstanding-basic 2,241,529 2,219,945 2,239,855 2,218,948
Average shares outstanding-diluted 2,241,529 2,219,945 2,239,855 2,218,948
See accompanying notes to consolidated financial statements.
2
FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Six Months Ended September 30, 1998 (unaudited)
(Dollar amounts in thousands, except per share data)
Common Stock Additional Unearned Unearned
Number of Paid-in ESOP RSP Retained
Shares Amount Capital Shares Shares Earnings Total
--------------------------------------------------------------------------------------------
Balance at March 31, 1998 2,300,000 $230 $9,800 $(625) $ -- $15,575 $24,980
Cash dividends declared net
($.15 per share) -- -- -- -- -- (142) (142)
Reduction of equity for restricted
stock plan (RSP) liability -- -- -- -- (843) -- (843)
Excess of fair value above cost of
ESOP shares released or
committed to be released -- -- 47 -- -- -- 47
Amortization of ESOP liability -- -- -- 81 -- -- 81
Amortization of RSP liability -- -- -- -- 181 -- 181
Net income -- -- -- -- -- 347 347
--------------------------------------------------------------------------------------------
Balance at September 30, 1998 2,300,000 $230 $9,847 $(544) $ (662) $15,780 $24,651
============================================================================================
See accompanying notes to consolidated financial statements.
3
FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended September 30, 1998 and 1997
(Dollar amounts in thousands)
1998 1997
---- ----
(unaudited)
Operating activities:
Net income $ 347 $ 559
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Provision for loan losses 15 30
Depreciation 44 34
Compensation expense-ESOP and RSP 309 52
Loss on sale of mortgage-backed securities available-for-sale -- 3
Loss on sale of investment securities available for-sale -- 4
Net amortization of premiums and discounts 120 86
Decrease (increase) in accrued interest receivable 70 (25)
Decrease (increase) in prepaid expenses (330) 121
Increase in accrued interest payable 316 338
Decrease (increase) in accrued income taxes (13) 29
Other, net 70 141
-------- --------
Net cash provided by operating activities 948 1,372
-------- --------
Investing activities:
Purchases of premises and equipment (21) (14)
Purchases of investment securities held-to maturity (5,598) (4,569)
Purchases of mortgage-backed securities held-to-maturity (3,028) (10,184)
Proceeds from sale of investment securities available-for-sale -- 721
Proceeds from sale of mortgage-backed securities available-for-sale -- 519
Proceeds from maturities/calls and principal repayments of:
Investment securities held-to-maturity 5,213 5,055
Mortgage-backed securities held-to-maturity 8,501 4,656
Mortgage-backed securities available-for-sale -- 33
Loans purchased (6,920) (4,653)
Net principal repayments on loans 9,749 3,849
Decrease in Federal Home Loan Bank stock -- 15
-------- --------
Net cash provided by (used in) investing activities $ 7,896 $ (4,572)
-------- --------
See accompanying notes to consolidated financial statements. (continued)
4
FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Six Months Ended September 30, 1998 and 1997
(Dollar amounts in thousands)
1998 1997
---- ----
(unaudited)
Financing activities:
Decrease of stock subscriptions $ -- $(13,606)
Net decrease in savings deposits (1,294) (10,796)
Proceeds from Federal Home Loan Bank advances 13,000 29,100
Repayment of Federal Home Loan Bank advances (16,500) (30,400)
Proceeds from other borrowings -- 828
Principal repayment of bonds payable (177) (253)
Net decrease in mortgage escrow (100) (126)
Common stock acquired by ESOP -- (828)
Capitalization of SKIBO Bancshares, M.H.C -- (100)
Cash dividends paid (142) (155)
Net proceeds from sale of common stock -- 9,849
-------- --------
Net cash used in financing activities (5,213) (16,487)
-------- --------
Net increase (decrease) in cash and cash equivalents 3,631 (19,687)
Cash and cash equivalents, beginning of period 3,271 22,701
-------- --------
Cash and cash equivalents, end of period 6,902 3,014
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest 2,618 2,581
======== ========
Income taxes 253 380
======== ========
Noncash investing activities:
Transfer of held-to-maturity investment securities
to available-for-sale -- 650
======== ========
See accompanying notes to consolidated financial statements.
5
FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of First Carnegie
Deposit and subsidiaries (the "Bank") 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 Bank's management, necessary for a fair statement of
results for the interim period. As discussed in Note 9, the Bank became the
wholly owned subsidiary of Skibo Financial Corp. on October 29, 1998.
The results of operations for the three and six months ended September 30, 1998
are not necessarily indicative of the results to be expected for the year ending
March 31, 1999 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, 1998.
NOTE 2 - Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements include the
accounts of First Carnegie Deposit and its wholly owned subsidiaries, Fedcar,
Inc. and Carnegie Federal Funding Corporation ("CFFC"). Fedcar, Inc. is a
service corporation that is currently inactive. CFFC is a special purpose
subsidiary that was formed for the issuance of collateralized mortgage
obligations. All significant intercompany transactions and balances have been
eliminated in consolidation.
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 Bank's common stock during the period. Common stock equivalents arise from
the assumed conversion of outstanding stock options and unvested RSP shares.
As required, all previously reported primary and fully diluted EPS have been
replaced with the presentation of basic and diluted EPS. The computation of
basic and diluted earnings per share is shown in the table below:
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Basic EPS computation:
Numerator-Net Income $ 251,000 $ 320,000 $ 347,000 $ 559,000
Denominator-Wt Avg common
shares outstanding 2,241,529 2,219,945 2,239,855 2,218,948
Basic EPS $ .11 $ .14 $ .15 $ .25
=========== ========= =========== ===========
Diluted EPS computation:
Numerator-Net Income 251,000 320,000 347,000 559,000
Denominator-Wt Avg
common stock outstanding 2,241,529 2,219,945 2,239,855 2,218,948
Dilutive Stock Options -- -- -- --
Dilutive Unvested RSP -- -- -- --
----------- ----------- ----------- -----------
Weighted avg common
shares and common stock
equivalents 2,241,529 2,219,945 2,239,855 2,218,948
Diluted EPS $ .11 $ .14 $ .15 $ .25
=========== =========== =========== ===========
6
FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Options to purchase 51,746 shares of common stock that were outstanding during
the three and six months ended September 30, 1998, were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares.
Shares outstanding for the three and six months ended September 30, 1998 and
1997 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 54,380 and 78,660 at
September 30, 1998 and 1997, respectively.
NOTE 4 - Reclassification of Prior Period's Statements
---------------------------------------------
Certain items previously reported have been reclassified to conform with the
current period's reporting format.
NOTE 5 - Dividends on Common Stock
-------------------------
On September 10, 1998, the Board of Directors of the Bank declared a $0.075 per
share cash dividend on the Bank's outstanding shares of common stock, payable to
stockholders of record as of September 30, 1998. Skibo Bancshares, M.H.C. (the
"Company") waived the receipt of dividends on its 1,265,000 shares. The cash
dividends on the remaining 1,035,000 outstanding shares were paid on October 15,
1998. There can be no assurance that the Office of Thrift Supervision ("OTS")
will permit future dividend waivers, or of the terms of such permitted waivers.
Furthermore, any waiver of dividends by the Company may result in an adjustment
to the ratio pursuant to which shares of Bank common stock are exchanged for
shares of a stock holding company should the Company convert from the mutual to
stock form of organization. Such an adjustment would have the effect of diluting
the minority stockholders of the Bank.
NOTE 6 - Employee Stock Ownership Plan ("ESOP")
--------------------------------------
The ESOP borrowed $828,000 from an independent third party lender to fund the
purchase of 82,800, or 8.0%, of the shares the Bank sold in the minority stock
offering. The Bank makes scheduled discretionary contributions to the ESOP
sufficient to service the debt over a ten year period. The cost of shares not
committed to be released and unallocated (suspense shares) is reported as a
reduction in stockholders' equity. Dividends on allocated and unallocated shares
are used for debt service. Shares are released to participants based on a
compensation formula.
In connection with the formation of the ESOP, the Bank adopted SOP 93-6. SOP
93-6 requires that (1) compensation expense be recognized based on the average
fair value of the ESOP shares committed to be released; (2) dividends on
unallocated shares used to pay debt service be reported as a reduction of debt
or of accrued interest payable and that dividends on allocated shares be charged
to retained earnings; and (3) ESOP shares which have not been committed to be
released not be considered outstanding for purposes of computing earnings per
share.
Compensation expense related to the ESOP amounted to $88,000 and $31,000 for the
three months ended September 30, 1998 and September 1997, respectively.
Compensation expense amounted to $129,000 and $52,000 for the six months ended
September 30, 1998 and September 1997, respectively. At September 30, 1998,
there were 12,210 ESOP shares committed to be released and 54,380 suspense
shares. ESOP shares totalling 16,210 were allocated as of September 30, 1998.
The fair value of unearned ESOP shares at September 30, 1998 totalled $605,000.
7
FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7 - Stock Based Compensation Plans
------------------------------
On April 16, 1998, after stockholder approval, the Bank implemented the "1998
Stock Option Plan" (the "Stock Option Plan") and the "1998 Restricted Stock
Plan"(the "Restricted Stock Plan").
The Stock Option Plan provides for authorizing the issuance of an additional
103,500 shares of common stock by the Bank upon the exercise of stock options
awarded to officers, directors, key employees and other persons providing
services to the Bank. The Bank may also purchase shares through the open market.
There were 103,500 shares of options granted under the Stock Option Plan and
they constitute either Incentive Stock Options or Non-Incentive Stock Options
and were first exercisable at a rate of 50% on the date of the grant and 50% one
year later. The Bank will use the "intrinsic value based method" as prescribed
by APB Opinion 25. Accordingly, common stock issuable pursuant to outstanding
options will be considered outstanding for purposes of calculating earnings per
share, if dilutive.
The Restricted Stock Plan provides for the purchase of 41,400 shares of common
stock in the open market. All of the Common Stock to be purchased by the
Restricted Stock Plan will be purchased at the fair market value of such stock
on the date of purchase. Awards under the Restricted Stock Plan were made in
recognition of expected future services to the Bank by its directors, officers
and key employees responsible for implementation of the policies adopted by the
Bank's Board of Directors and as a means of providing a further retention
incentive. Twenty and thirty-three percent of such awards were earned and
non-forfeitable at the date of the grant and twenty and thirty-three percent
annually thereafter, provided the recipient remains an employee. Executive
officers earn awards at a rate of thirty-three percent per year, while
directors, other officers, and key employees earn at a rate of twenty percent
per year.
NOTE 8 - Recent Accounting, Regulatory and Other Matters
-----------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as "the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners". The
comprehensive income and related cumulative equity impact of comprehensive
income items will be required to be disclosed as a separate statement or as a
component of the Bank's statement of operations. The Bank adopted SFAS 130 for
the quarter ended June 30, 1998.
For the three months ended September 30, 1998 and 1997, the Bank's total
comprehensive income was $251,000 and $323,000, respectively. Total
comprehensive income is comprised of net income of $251,000 and $320,000 and
other comprehensive income of $0 and $3,000, net of tax, respectively. For the
six months ended September 30, 1998 and 1997, the Bank's total comprehensive
income was $347,000 and $570,000, respectively. Total comprehensive income is
comprised of net income of $347,000 and $559,000 and other comprehensive income
of $0 and $11,000, net of tax, respectively. Other comprehensive income
consisted of unrealized gains on investment securities and mortgage-backed
securities available for sale.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information". SFAS No. 131 requires an entity to
disclose financial information in a manner consistent with internally used
information and requires more detailed disclosures of operating and reporting
segments that are currently in practice. SFAS No. 131 is applicable for years
beginning after December 15, 1997; however, presentation in interim financial
statements is not required for the quarterly reporting period ended September
30, 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure About
Pensions and Other Postretirement Benefits." SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. SFAS No. 132 is applicable
for years beginning after December 15, 1997. Management does not believe the
impact of the adoption will be significant.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative financial instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. Management
has not yet determined the impact, if any, the adoption of this statement will
have on the Bank's consolidated financial condition or results of operations.
SFAS 133 will be effective for all fiscal quarters beginning after June 15,
1999.
8
FIRST CARNEGIE DEPOSIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 - Subsequent Event - Reorganization to Stock Holding Company Form of
Organization
----------------------------------------------------------------------
At the Annual Meeting of Stockholders on July 30, 1998, the Bank's Stockholders
approved an Agreement and Plan of Reorganization ("the Plan" or
"Reorganization"), providing for the establishment of a mid-tier stock holding
company. The Plan provided for the establishment of Skibo Financial Corp. (Skibo
Financial) as a stock holding company parent of the Bank, which stock holding
company is majority-owned by Skibo Bancshares, M.H.C., the Bank's mutual holding
company. The former holders of the common stock of the Bank became stockholders
of Skibo Financial and each outstanding share of common stock, par value $.10
per share, of the Bank will be converted into shares of common stock, par value
$.10 per share of Skibo Financial on a three-for two basis. The Reorganization
was completed on October 29, 1998. Effective October 30, 1998, Skibo Financial
replaced the Bank's common stock on the Nasdaq SmallCap Market. For twenty (20)
trading days following the reorganization, the common stock of Skibo Financial
will trade under the symbol "SKBOD." Following the end of the twenty (20) day
period, Skibo Financial will trade under the Bank's old symbol "SKBO."
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Bank's results of operations are primarily dependent upon its net interest
income, which is the difference between the interest income earned on its
assets, primarily loans, mortgage-backed securities, and investments, and the
interest expense on its 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 Bank'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 Bank's total assets of $143,937,000 at September 30, 1998, reflected a
decrease of $4,195,000 or 2.8% from $148,132,000 at March 31, 1998. The decrease
in total assets was primarily due to decreases in mortgage-backed securities and
loans receivable, partially offset by increases in investments and interest
bearing deposits at other financial institutions.
The decrease in the Bank's liabilities was primarily due to decreases in savings
deposits and Federal Home Loan Bank ("FHLB") advances. Changes in the components
of assets, liabilities and equity are discussed herein.
Loans Receivable, net. Net loans receivable at September 30, 1998 totalled
$64,961,000, a decrease of $2,923,000 or 4.3%, as compared to $67,884,000 at
March 31, 1998. The decrease was primarily due to principal repayments totalling
$10.5 million, offset by originations of $766,000 and purchases of $6.9 million.
The Bank purchased $3.9 million one -to four-family mortgages and $198,000 farm
mortgages in its normal lending area. The Bank also purchased $1.6 million farm
mortgages and $1.2 million agricultural and Small Business Administration (SBA)
loans outside its normal lending area, primarily in Pennsylvania.
Mortgage-backed Securities. Mortgage-backed securities were $48,810,000 at
September 30, 1998, a decrease of $5,505,000 or 10.1%, as compared to
$54,315,000 at March 31, 1998. The decrease was due to principal repayments and
maturities totalling $8.5 million, offset by purchases of $3.0 million.
Investment Securities. Investment securities totalled $16,152,000 at September
30, 1998, an increase of $375,000 or 2.4%, as compared to $15,777,000 at March
31, 1998. This was primarily a result of purchases of $5.6 million of U.S.
Agency securities, offset by the proceeds from maturities, calls and payments
totalling $5.2 million.
Cash and Cash Equivalents. Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits, totalled $6,902,000, an
increase of $3,631,000 or 111.0% from the prior quarter. This increase was
primarily due to increased interest-bearing deposits at the FHLB.
Deposits. The Bank's deposits, after interest credited, decreased by $1,294,000
or 1.7% to $75,932,000 at September 30, 1998, as compared to $77,226,000 at
March 31, 1998. The decrease was primarily due to a decrease in certificate of
deposit accounts.
FHLB Advances. FHLB advances, at September 30, 1998, totalled $37,800,000, a
decrease of $3.5 million or 8.5%, as compared to $41,300,000 at March 31, 1998.
The Bank utilized funds received primarily from principal repayments of loans
and mortgage-backed securities to repay a portion of the advances.
Stockholders' Equity. The Bank's stockholders' equity totalled $24,651,000 at
September 30, 1998, as compared to $24,980,000 at March 31, 1998. The decrease
of $329,000 or 1.3% was primarily due to the Bank's implementation of a
restricted stock plan and additional ESOP shares committed to be released to
participant accounts, offset by earnings for the six months ended September 30,
1998. See Note 7 "Stock Based Compensation Plans".
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended September 30, 1998 and 1997
Net Income. The Bank recorded net income of $251,000 for the three months ended
September 30, 1998, as compared to net income of $320,000 for the three months
ended September 30, 1997. The $69,000 or 21.6% decrease in net income for the
three months ended September 30, 1998 was primarily the result of decreases in
net interest income and other income, which were partially offset by decreases
in other expenses, provision for income taxes and provision for loan losses.
Changes in the components of income and expense are discussed herein.
Net Interest Income. Net interest income decreased $32,000 or 3.3% for the three
months ended September 30, 1998, as compared to the three month period ended
September 30, 1997. The decrease was primarily due to a $3.7 million decrease in
the average interest-earning assets and a 28 basis point decrease in the average
yield earned thereon. The average balance of interest-bearing liabilities
decreased by $4.5 million or 3.7% with a 26 basis point decrease in the average
rate paid thereon. Changes in the components of net interest income are
discussed herein.
The interest rate spread, which is the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities,
declined to 1.88% for the three month period ended September 30, 1998 from 1.90%
for the three month period ended September 30, 1997. The decline in the interest
rate spread was primarily the result of purchased one- to four-family mortgages
at yields lower than the yields in the existing loan portfolio and a $2.7
million principal reduction in SBA loans with higher yields. The decline is also
attributable to a decrease in the yield of investments and other interest
earning assets. Such purchases will have an ongoing effect on the average yield
of the Bank's loan portfolio.
Interest Income. Interest income decreased $165,000 or 6.5% to $2,368,000 for
the three month period ended September 30, 1998, as compared to $2,533,000 for
the three month period ended September 30, 1997.
Interest on loans receivable increased $37,000 or 3.2% for the three months
ended September 30, 1998, as compared to the three month period ended September
30, 1997. This increase was primarily the result of a $4.0 million increase in
the average balance of loans receivable due to the addition of one -to
four-family, multi-family, farm mortgages, and agricultural and SBA loans,
offset by a 22 basis point decrease in the average yield earned thereon.
Interest income on mortgage-backed securities decreased $185,000 or 18.2% for
the three months ended September 30, 1998, as compared to the three months ended
September 30, 1997. This decrease was primarily the result of a $9.1 million
decrease in the average balance of such securities and a 22 basis point decrease
in the average yield earned thereon.
Interest income on investment securities decreased by $40,000 or 13.6% for the
three months ended September 30, 1998, as compared to the three months ended
September 30, 1997. The decrease in interest income on investment securities was
primarily due to a $1.9 million lower average balance of such securities, and a
decrease in the average yield of 21 basis points.
Interest income on other interest-earning assets increased by $23,000 or 39.0%
for the three months ended September 30, 1998, as compared to the three months
ended September 30, 1997. The increase was primarily due a $3.3 million increase
in the average interest-earning deposits at other financial institutions, offset
by a 190 basis point decrease in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 6.86%
and 7.14% for the three month periods ended September 30, 1998 and 1997,
respectively.
Interest Expense. Interest expense totalled $1,426,000 for the three months
ended September 30, 1998, as compared to $1,559,000 for the three months ended
September 30, 1997. The $133,000 or 8.5% decrease was primarily due to decreased
average balances in certificate of deposit accounts, FHLB advances and other
borrowings, and a 26 basis point decrease in the average rate paid on the total
average interest-bearing liabilities.
Interest expense on deposits (including escrows) decreased $31,000 or 3.4% for
the three months ended September 30, 1998, as compared to the three months ended
September 30, 1997. The decrease was primarily due to a $1.4 million decrease in
average deposits and a 7 basis point decrease in the average rate paid thereon.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest on FHLB advances decreased $87,000 or 14.8% for the three months ended
September 30, 1998, as compared to the three months ended September 30, 1997.
The decrease was primarily due to a $2.4 million decrease in the average balance
of such advances and a 54 basis point decrease in the rate paid thereon. The
Bank uses FHLB advances as a funding source and has in the past used borrowings
to supplement deposits, which are the Bank's primary source of funds.
Interest on bonds payable and other borrowings, a less significant portion of
interest expense, decreased by $15,000 or 22.1%, as the average principal amount
of other borrowings decreased by $585,000.
Provision for Loan Losses. During the three month periods ended September 30,
1998 and 1997, the Bank established provisions for loan losses of $12,000 and
$15,000, respectively. This reflected management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses.
At September 30, 1998, the allowance for loan losses totalled $565,000 or .87%
and 65.0% of total loans and total non-performing loans, respectively, as
compared to $549,000 or .81% and 48.6%, respectively, at March 31, 1998. The
Bank's non-performing loans (non-accrual loans and accruing loans 90 days or
more overdue) totalled $869,000 and $1,130,000 at September 30, 1998 and March
31, 1998 respectively, which represented 1.3% and 1.7% of the Bank's total
loans, respectively. The non-performing loans, however, include three Farm
Service Agency (FSA) guaranteed loans at September 30, 1998 and four at March
31, 1998, which represent 85.7% and 93.2% of the total non-performing loans at
September 30, 1998 and March 31, 1998, respectively. The Bank's ratio of
non-performing loans to total assets was .60% and .76% at September 30, 1998 and
March 31, 1998, respectively.
Other Income. During the three months ended September 30, 1998, other income
decreased $109,000 or 80.7%, as compared to the three months ended September 30,
1997. Other income recorded in the prior quarter included a partial settlement
of a real estate judgement in the amount of $120,000. Other income in the
current quarter included a final payment of $10,000 from the sale of property in
the same judgement.
Other Expenses. Total other expenses decreased by $39,000 or 6.9% during the
three months ended September 30, 1998, as compared to the three months ended
September 30, 1997. The decrease was primarily attributable to a decrease in
compensation expense, offset by an increase in premises and occupancy costs. The
reduction in compensation expense was primarily due to a $73,000 adjustment to
the cost of the upcoming purchase of shares of stock to fund the Restricted
Stock Plan (RSP) implemented in April 1998 and a reduction of employees'
salaries due to two employees on disability leave, offset by an increase of
$57,000 in ESOP expenses. With the implementation of the RSP, the portion of
awards that were earned and non-forfeitable (approximately one-fourth) were
expensed at fair market value in the June 1998 quarter in addition to 2 1/2
months of the awards that will vest in April 1999. The RSP expense for the
September quarter was adjusted because of the decline in the fair value of the
stock. Furthermore, the Bank committed to release 6,070 shares of stock in the
ESOP in the September 1998 quarter as compared to 2,070 shares in the September
1997 quarter, which had a negative effect on earnings.
Income Tax Expense. The provision for income tax totalled $180,000 for the three
months ended September 30, 1998, as compared to $210,000 for the three months
ended September 30, 1997. The $30,000 or 14.3% decrease was due to decreased
taxable income.
Results of Operations for the Six Months Ended September 30, 1998 and 1997
Net Income. The Bank recorded net income of $347,000 for the six months ended
September 30, 1998, as compared to net income of $559,000 for the six months
ended September 30, 1997. The $212,000 or 37.9% decrease in net income for the
six months ended September 30, 1998 was primarily the result of decreases in net
interest income and other income and an increase in compensation and employee
benefits expense, partially offset by decreases in provision for income taxes
and provision for loan losses. Changes in the components of income and expense
are discussed herein.
Net Interest Income. Net interest income decreased $105,000 or 5.2% for the six
months ended September 30, 1998, as compared to the six month period ended
September 30, 1997. The decrease was primarily due to a $1.2 million decrease in
the average interest-earning assets and a 34 basis point decrease in the average
yield earned thereon. The average balance of interest-bearing liabilities
decreased by $1.9 million with a 21 basis point decrease in the average rate
paid thereon. Changes in the components of net interest income are discussed
herein.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The interest rate spread declined to 1.88% for the six month period ended
September 30, 1998 from 2.01% for the six month period ended September 30, 1997.
The decline in the interest rate spread was primarily the result of purchased
one- to four-family mortgages at yields lower than the yields in the existing
loan portfolio and a $4.7 million principal reduction in SBA loans with higher
yields. The decline is also attributable to a decease in the yield of
investments and other interest earning assets. Such purchases will have an
ongoing effect on the average yield of the Bank's loan portfolio.
Interest Income. Interest income decreased $280,000 or 5.5% to $4,845,000 for
the six month period ended September 30, 1998, as compared to $5,125,000 for the
six month period ended September 30, 1997.
Interest on loans receivable increased $115,000 or 5.0% for the six months ended
September 30, 1998, as compared to the six month period ended September 30,
1997. This increase was primarily the result of a $5.7 million increase in the
average balance of loans receivable due to the addition of one- to four-family,
multi-family, farm mortgages, and agricultural and SBA loans, offset by a 29
basis point decrease in the average yield due to the lower interest rates on
such loans.
Interest income on mortgage-backed securities decreased $273,000 or 13.7% for
the six months ended September 30, 1998, as compared to the six months ended
September 30, 1997. This decrease was primarily the result of a $6.7 million
decrease in the average balance of such securities and a 16 basis point decrease
in the average yield earned thereon.
Interest income on investment securities decreased by $131,000 or 20.2% for the
six months ended September 30, 1998, as compared to the six months ended
September 30, 1997. The decrease in interest income on investment securities was
primarily due to a $2.7 million lower average balance of such securities and a
decrease in the average yield of 43 basis points.
Interest income on other interest-earning assets increased by $9,000 or 5.6% for
the six months ended September 30, 1998, as compared to the six months ended
September 30, 1997. The increase was primarily due a $2.5 million increase in
the average interest-earning deposits at other financial institutions, offset by
a 283 basis point decrease in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 6.88%
and 7.22% for the six month periods ended September 30, 1998 and 1997,
respectively.
Interest Expense. Interest expense totalled $2,934,000 for the six months ended
September 30, 1998, as compared to $3,109,000 for the six months ended September
30, 1997. The $175,000 or 5.6% decrease was primarily due to decreased average
balances in certificate of deposit accounts, FHLB advances and other borrowings
and a 21 basis point decrease in the average rate paid on the total average
interest-bearing liabilities.
Interest expense on deposits (including escrows) decreased $48,000 or 2.7% for
the six months ended September 30, 1998, as compared to the six months ended
September 30, 1997. The decrease was primarily due to a $1.3 million decrease in
the average balance of deposits and a 4 basis point decrease in the average rate
paid thereon.
Interest on FHLB advances decreased $98,000 or 8.3% for the six months ended
September 30, 1998, as compared to the six months ended September 30, 1997. The
decrease was primarily due to a 50 basis point decrease in the average rate paid
on advances. The average balances of advances increased $17,000.
Interest on bonds payable and other borrowings, a less significant portion of
interest expense, decreased by $29,000 or 21.5%, as the average principal amount
of other borrowings decreased by $597,000. The average rate paid on bonds
payable and other borrowings remained the same for both six month periods.
Provision for Loan Losses. During the six month periods ended September 30, 1998
and 1997, the Bank established provisions for loan losses of $15,000 and
$30,000, respectively. This reflected management's evaluation of the underlying
credit risk of the loan portfolio and the level of allowance for loan losses.
Other Income. During the six months ended September 30, 1998, other income
decreased $107,000 or 69.5%, as compared to the six months ended September 30,
1997. Other income recorded in the prior six months included a partial
settlement of a real estate judgement in the amount of $120,000. Other income in
the current six months included $15,000, representing a final settlement in the
same judgement.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Expenses. Total other expenses increased by $198,000 or 17.1% during the
six months ended September 30, 1998, as compared to the six months ended
September 30, 1997. The increase was primarily attributable to an increase in
compensation expense due to the implementation of a restricted stock plan (see
Note 7) and an increase of $77,000 in the ESOP expense, offset by decreases of
$23,000 in salaries expense and $34,000 in Supplemental Employee Pension Plan
(SERP) and Director's Retirement Plan (DRP) insurance costs. With the
implementation of the RSP, the portion of awards that were earned and
non-forfeitable (approximately one-fourth) were expensed at fair market value in
addition to 5 1/2 months of the awards that will vest in April 1999. The RSP
expense for the current six month period was $181,000. Future vesting will occur
over a two- to four-year period. The Bank committed to release 8,140 shares of
stock in the ESOP in the current period as compared to 4,140 shares in the
previous period.
Income Tax Expense. The provision for income tax totalled $240,000 for the six
months ended September 30, 1998, as compared to $423,000 for the six months
ended September 30, 1997. The $183,000 or 43.3% decrease was due to decreased
income.
Liquidity and Capital Requirements
The Bank is required to hold a prescribed amount of statutorily defined liquid
assets. The Director of the OTS may, by regulation, vary the amount of the
liquidity requirement, but only within pre-established statutory limits. The
requirement must be no less than four percent and no greater than ten percent of
the Bank's net withdrawable accounts and borrowings payable on demand or with
unexpired maturities of one year or less. The minimum required liquidity is
currently 4%. The Bank's average liquidity ratio was 96.99% and 77.98%, at
September 30, 1998 and March 31, 1998, respectively.
The Bank is subject to federal regulations that impose certain minimum capital
requirements. Quantitative measures, established by regulation to ensure capital
adequacy, require the Bank to maintain amounts and ratios of tangible and core
capital to adjusted total assets and of total risk-basked capital to
risk-weighted assets. On September 30, 1998, the Bank was in compliance with its
three regulatory capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital........................ $24,651 17.13%
Tangible capital requirement............ 2,159 1.50%
------- ------
Excess over requirement................. $22,492 15.63%
====== =====
Core capital............................ $24,651 17.13%
Core capital requirement................ 4,318 3.00%
------- ------
Excess over requirement................. $20,333 14.13%
====== =====
Risk based capital...................... $25,216 54.05%
Risk based capital requirement.......... 3,732 8.00%
------- ------
Excess over requirement................. $21,484 46.05%
====== =====
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.
At September 30, 1998, the most recent notification from the OTS, the Bank was
categorized as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum Tier I (leverage), Tier I risk-basked, and total risk-based capital
ratios of 5.0%, 6.0%, and 10.0%, respectively. At September 30, 1998, the Bank's
Tier I (leverage), Tier I risk-based, and total risk-basked capital ratios
amounted to 17.13%, 52.84%, and 54.05%, respectively. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are presented at
March 31, 1998 in the Bank's 1998 Annual Report. See "Market Risk &
Asset/Liability Management". Management believes there have been no material
changes in the Bank's market risk since March 31, 1998.
Year 2000 Compliance Issues
The Bank formed a committee to implement an action plan designed to ensure the
Bank's computer systems, software applications and other date reliant equipment
would function properly after December 31, 1999. This process involves
identifying all equipment, software and third party providers, deemed critical
to the Bank's daily operations, and ascertaining if these products or product
providers are Year 2000 compliant. For items or vendors that were not compliant
and had not achieved significant progress toward compliance by October 1, 1998,
the committee has implemented contingency plans to either replace the product or
vendor, or implement an alternative procedure to mitigate the affected area.
The Bank utilizes an in-house computer system, with all software applications
being developed and modified internally. The Bank first acknowledged and
addressed the potential problem associated with the Year 2000 early in 1990. The
Bank completed renovation of its in-house data processing system prior to
testing in October 1992. Once testing was complete, the Bank began operating
under the year 2000 revisions that pertain to any date related issues spanning
the millennium. The Bank has also received vender certification confirming year
2000 compliance for its hardware and operating system. Management continues to
monitor and test all computerized applications of its in-house system in the
unlikely event that something has been overlooked. Management believes that
remaining efforts towards Year 2000 compliance will require minimal expense and,
therefore, will not have a material impact on the Bank's financial condition or
results of operations.
In addition, management believes that substantially all date reliant equipment
and software will be tested and, if needed, upgraded or replaced by December 31,
1998. Assessments of significant vendors, service providers and customers will
also be completed. Management has developed a contingency plan in regard to all
mission-critical vendors, servicers, and applications. Despite the best efforts
of management to address this issue, the vast number of external entities that
have direct and indirect business relationships with the Bank, such as
customers, vendors, payment system providers and other financial institutions,
makes it impossible to assure that a failure to achieve compliance by one or
more of these entities would not have a material adverse impact on the
operations of the Bank. Successful and timely completion of Year 2000 issues is
based on management's best estimates derived from various assumptions of future
events, which are inherently uncertain, including the progress and results of
companies outside the control of the Bank, testing plans, and all vendors,
suppliers, and customer readiness.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
The Bank was not engaged in any legal proceeding of a material nature
at September 30, 1998. From time to time, the Bank is a party to
routine legal proceedings in the ordinary course of business, such as
claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interest, claims involving the making
and servicing of real property loans, and other issues incident to the
business of the Bank. There were no lawsuits pending or known to be
contemplated against the Bank at September 30, 1998 that would have a
material effect on the operations or income of the Bank.
Item 2. Changes in Securities.
----------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
--------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
----------------------------------------------------
The Annual Meeting of Stockholders of the Bank was held on July 30,
1998. There were outstanding on the record date (June 1, 1998) and
entitled to vote at the meeting 2,300,000 shares of common stock, of
which 1,265,000 were held by the Mutual Holding Company ("MHC"). There
were present at the Meeting in person or by proxy the holders of
2,150,066 shares of Common Stock of the Bank, representing 93.5% of
the total votes eligible to be cast, constituting a majority and more
than a quorum of the outstanding shares entitled to vote. The matters
voted upon at the Special Meeting and the vote for each were as
follows:
1. The election of directors, Mr. Layne W. Craig and Mr. John T.
Mendenhall, Jr., for 3-year term expiring in 2001.
FOR WITHHOLD
---------------------- --------------------
Percentage Percentage
Number of Votes Number of Votes
of Votes Cast of Votes Cast
-------- ---- -------- ----
Layne W. Craig 2,137,365 99.4 12,701 .6
John T. Mendenhall, Jr. 2,140,090 99.5 9,976 .5
Accordingly, the proposal described above, having received the
favorable votes of at least a majority of the shares outstanding, and
a majority of the votes cast by stockholders other than the MHC was
declared to be duly adopted by the stockholders of the Bank.
16
PART II - OTHER INFORMATION
2. The approval of the Agreement and Plan of Reorganization to form a
Mid-Tier Stock Holding Company.
Number % OF VOTES CAST
------ ---------------
FOR 1,887,651 82.1 %
AGAINST 17,170 .7 %
ABSTAIN 7,090 .3 %
Accordingly, the proposal described above, having received the
favorable votes of at least a majority of the shares outstanding, and
a majority of the votes cast by stockholders other than the MHC was
declared to be duly adopted by the stockholders of the Bank.
3. The ratification of the appointment of KPMG Peat Marwick LLP as
auditor for the Bank for the fiscal year ending March 31, 1999.
Number % OF VOTES CAST
------ ---------------
FOR 2,141,365 99.6 %
AGAINST 7,101 .3 %
ABSTAIN 1,600 .1 %
Accordingly, the proposal described above, having received the
favorable votes of at least a majority of the shares outstanding, and
a majority of the votes cast by stockholders other than the MHC was
declared to be duly adopted by the stockholders of the Bank.
Item 5. Other Information.
------------------
See Note 9 regarding the completion the Bank's stock holding company
reorganization.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) 2.0 Agreement and Plan of Reorganization
3.1 Charter of Skibo Financial Corp.
3.2 Bylaws of Skibo Financial Corp.
4.0 Form of Stock Certificate of Skibo Financial Corp.
10.1 Employment Agreement between the Bank and Walter G. Kelly
10.2 1998 Restricted Stock Plan
10.3 1998 Stock Option Plan
11.0 Earnings Per Share Calculation (see note 3 to the Notes
to the Unaudited Consolidated Financial Statements in
this Form 10-QSB.
27.0 Financial Data Schedule (in electronic filing only)
b) Not applicable
17
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: November 10, 1998 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
(Duly Authorized Representative) (Principal Financial and Accounting Officer)
Date: November 10, 1998 Date: November 10, 1998
18