-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UDEtgtFwQCccBCTC21OZqcaf2BR419hHaD8NBgA810jFaASyw1olgLcoRkbfAWOx uB9+iLed0oUPdw794y8t7w== /in/edgar/work/0001005477-00-007722/0001005477-00-007722.txt : 20001114 0001005477-00-007722.hdr.sgml : 20001114 ACCESSION NUMBER: 0001005477-00-007722 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICE BANCORP INC CENTRAL INDEX KEY: 0001063939 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24935 FILM NUMBER: 759147 BUSINESS ADDRESS: STREET 1: 81 MAIN STREET CITY: MEDWAY STATE: MA ZIP: 02053 MAIL ADDRESS: STREET 1: 81 MAIN STREET CITY: MEDWAY STATE: MA ZIP: 02053 10QSB 1 0001.txt FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 10-QSB |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission File Number 0-24935 ------- SERVICE BANCORP, INC. --------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3430806 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 81 Main Street, Medway, Massachusetts 02053 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (508) 533-4343 -------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ----------------------------------------------------- (Former name, former address and former fiscal year, if changed since last year.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during 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 |_| Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practical date. At November 6, 2000, there were 1,611,052 shares of common stock outstanding, par value $0.01 per share. SERVICE BANCORP, INC. AND SUBSIDIARY FORM 10-QSB Index PART I FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2000 and June 30, 2000 1 Consolidated Statements of Income for the three months ended September 30, 2000 and 1999 2 Consolidated Statements of Changes in Stockholders' Equity for the three months ended September 30, 2000 and 1999 3 Consolidated Statements of Cash Flows for the three months ended September 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signature Page 19 SERVICE BANCORP, INC. AND SUBIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except for per share amounts)
September 30, June 30, ASSETS 2000 2000 --------- --------- Cash and due from banks $ 7,767 $ 8,133 Short-term investments 5,443 6,112 --------- --------- Total cash and cash equivalents 13,210 14,245 --------- --------- Certificates of deposit 100 100 Securities available for sale, at fair value 84,082 81,596 Securities held to maturity, at cost 5,162 4,771 Federal Home Loan Bank stock, at cost 1,588 1,588 Loans 108,559 107,224 Less allowance for loan losses (860) (802) --------- --------- Loans, net 107,699 106,422 --------- --------- Banking premises and equipment, net 4,261 4,223 Accrued interest receivable 1,894 2,007 Bank-owned life insurance 2,087 2,070 Other assets 2,786 2,411 --------- --------- Total assets $ 222,869 $ 219,433 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 179,920 $ 176,345 Federal Home Loan Bank advances 25,263 26,350 Other liabilities 1,363 1,560 --------- --------- Total liabilities 206,546 204,255 --------- --------- Stockholders' equity: Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued -- -- Common stock, $.01 par value; 12,000,000 shares authorized, 1,712,630 issued 17 17 Additional paid-in capital 7,421 7,426 Retained earnings 11,855 11,630 Accumulated other comprehensive loss (1,753) (2,638) Treasury stock, at cost - 68,506 shares at September 30, 2000 and June 30, 2000 (560) (560) Unearned ESOP shares - 42,052 shares at September 30, 2000 and 43,662 shares at June 30, 2000 (421) (436) Unearned RRP Stock - 33,078 shares at September 30, 2000 and 36,482 shares at June 30, 2000 (236) (261) --------- --------- Total stockholders' equity 16,323 15,178 --------- --------- Total liabilities and stockholders' equity $ 222,869 $ 219,433 ========= =========
See accompanying notes to consolidated financial statements. 1 SERVICE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except for per share amounts)
Three Months Ended September 30, ----------------------- 2000 1999 ---------- ---------- Interest and dividend income: Interest and fees on loans $ 2,210 $ 1,758 Interest and dividends on securities 1,587 1,242 Interest on short-term investments and certificates of deposit 60 73 ---------- ---------- Total interest and dividend income 3,857 3,073 ---------- ---------- Interest expense: Interest on deposits 1,703 1,159 Interest on FHLB advances 371 311 ---------- ---------- Total interest expense 2,074 1,470 ---------- ---------- Net interest income 1,783 1,603 Provision for loan losses 56 45 ---------- ---------- Net interest income, after provision for loan losses 1,727 1,558 ---------- ---------- Other income: Customer service fees 246 180 Gain on sales of securities available for sale, net 76 19 Miscellaneous 35 16 ---------- ---------- Total other income 357 215 ---------- ---------- Operating expenses: Salaries and benefits 901 756 Occupancy and equipment expenses 380 328 Data processing expenses 132 92 Professional fees 53 62 Advertising expenses 51 69 Other general and administrative expenses 223 198 ---------- ---------- Total operating expenses 1,740 1,505 ---------- ---------- Income before income taxes 344 268 Provision for income taxes 119 100 ---------- ---------- Net income $ 225 $ 168 ========== ========== Weighted average common shares outstanding during the period - Basic and Diluted 1,565,694 1,643,187 ========== ========== Earnings per common share(Basic and Diluted) $ 0.14 $ 0.10 ========== ==========
See accompanying notes to consolidated financial statements. 2 SERVICE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Dollars in thousands)
Accumulated Additional Other Unearned Unearned Common Paid-in Retained Comprehensive Treasury ESOP RRP Stock Capital Earnings Loss Stock Shares Stock Total ------- ------- ------- ------- ------- ------- ------- ------- Balance at June 30, 2000 $ 17 $ 7,426 $11,630 $(2,638) $ (560) $ (436) $ (261) $15,178 Comprehensive income: Net Income -- -- 225 -- -- -- -- 225 Change in net unrealized loss on securities available for sale, net of tax and reclassification adjustment -- -- -- 885 -- -- -- 885 ------- Total comprehensive income 1,110 ------- Common stock held by ESOP released and committed to be released (1,610 shares) -- (5) -- -- -- 15 -- 10 Amortization of RRP stock -- -- -- -- -- -- 25 25 (3,404 shares) ------- ------- ------- ------- ------- ------- ------- ------- Balance at September 30, 2000 $ 17 $ 7,421 $11,855 $(1,753) $ (560) $ (421) $ (236) $16,323 ======= ======= ======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements. 3 SERVICE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Concluded) (Dollars in thousands)
Accumulated Additional Other Unearned Unearned Common Paid-in Retained Comprehensive Treasury ESOP RRP Stock Capital Earnings Loss Stock Shares Stock Total -------- -------- -------- -------- -------- -------- ----- -------- Balance at June 30, 1999 $ 17 $ 7,444 $ 10,784 $ (1,182) $ (83) $ (501) $ -- $ 16,479 Comprehensive loss: Net Income -- -- 168 -- -- -- -- 168 Change in net unrealized loss on securities available for sale, net of tax and reclassification adjustment -- -- -- (425) -- -- -- (425) -------- Total comprehensive loss (257) -------- Common stock held by ESOP released and committed to be released (1,612 shares) -- (3) -- -- -- 16 -- 13 Purchase of treasury stock (29,900 shares) -- -- -- -- (261) -- -- (261) -------- -------- -------- -------- -------- -------- ----- -------- Balance at September 30, 1999 $ 17 $ 7,441 $ 10,952 $ (1,607) $ (344) $ (485) $ -- $ 15,974 ======== ======== ======== ======== ======== ======== ===== ========
See accompanying notes to consolidated financial statements. 4 SERVICE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended (Dollars in thousands) Sept. 30, June 30, 2000 1999 -------- -------- Cash flows from operating activities: Net income $ 225 $ 168 Adjustments to reconcile net income to net cash used by operating activities: Provision for loan losses 56 45 Gain on sales of securities available for sale, net (76) (19) Accretion of securities, net (51) (27) Depreciation and amortization expense 167 147 Decrease in accrued interest receivable 113 112 Deferred tax benefit (71) (42) Loans originated for sale -- (5,809) Principal balance of loans sold -- 5,809 Other, net (996) (867) -------- -------- Net cash used by operating activities (633) (483) -------- -------- Cash flows from investing activities: Proceeds from sales of securities available for sale 317 143 Proceeds from maturities of and principal payments on securities available for sale 381 1,903 Purchase of securities available for sale (1,705) (11,046) Purchase of securities held to maturity (391) -- Net increase in loans (1,385) (585) Purchase of banking premises and equipment (205) (192) -------- -------- Net cash used by investing activities (2,988) (9,777) -------- -------- Cash flows from financing activities: Net increase in deposits 3,576 9,867 Proceeds from Federal Home Loan Bank advances 5,976 4,500 Repayment of Federal Home Loan Bank advances (7,063) (5,133) Release of common stock held by ESOP 10 13 Increase in mortgagors' escrow deposits 62 67 Amortization of RRP stock 25 -- Purchase of treasury stock -- (261) -------- -------- Net cash provided by financing activities 2,586 9,053 -------- -------- Net change in cash and cash equivalents (1,035) (1,207) Cash and cash equivalents at beginning of period 14,245 13,390 -------- -------- Cash and cash equivalents at end of period $ 13,210 $ 12,183 ======== ======== 5 SERVICE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended (Dollars in thousands) Sept. 30, June 30, Supplementary information: 2000 1999 ------ ------ Interest paid on deposits $1,712 $1,165 Interest paid on Federal Home Loan Bank advances 384 298 Income taxes paid 27 101 Decrease in due to/from broker -- 521 See accompanying notes to consolidated financial statements 6 SERVICE BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (1) Basis of Presentation and Consolidation The accompanying unaudited consolidated financial statements include the accounts of Service Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Strata Bank (the "Bank"), and the Bank's wholly-owned subsidiaries, Medway Securities Corp. and Franklin Village Security Corp., both of which engage solely in the purchase and sale of securities. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and the instructions for Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results that may be expected for the entire year. (2) Reorganization and Stock Offering The Company is a Massachusetts corporation that was organized in August 1998 at the direction of the Board of Directors of the Bank and the Board of Trustees of Service Bancorp, MHC (the "MHC"), the mutual holding company parent of the Bank, for the purpose of owning all of the outstanding capital stock of the Bank. The Company offered for sale 47% of the shares of its outstanding common stock in a public offering to eligible depositors, employees, and members of the general public (the "Offering"). The remaining 53% of the Company's shares of common stock were issued to the MHC. The Offering was completed on October 7, 1998. Prior to that date, the Company had no assets or liabilities. Completion of the Offering resulted in the issuance of 1,712,630 shares of common stock, 907,694 shares of which were issued to the MHC and 804,936 shares of which were sold to eligible depositors, employees, and the general public at $10.00 per share. The Company began trading on the OTC Bulletin Board under the symbol "SERC" on October 7, 1998. Costs related to the Offering (primarily marketing fees paid to an underwriting firm, professional fees, registration fees, and printing and mailing costs) aggregated $569,000. These costs together with funds loaned to purchase shares for the Bank's Employee Stock Ownership Plan (the "ESOP") were deducted to arrive at net proceeds of $6.8 million. The Company contributed 50% of the net proceeds of the Offering to the Bank for general corporate use. On October 7, 1998, the Company loaned approximately $644,000 to the ESOP to fund its purchase of 64,394 shares of common stock of the Company. (3) Earnings per Share Earnings per share is based on the weighted average number of shares outstanding during the period beginning July 1, 2000 through September 30, 2000 for the current fiscal year, and July 1, 1999 through September 30, 1999 for the prior year. The Company's "basic" and "diluted" earnings per share are identical as there were no material common stock equivalents outstanding during the periods covered by the report. 7 SERVICE BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (4) Commitments At September 30, 2000, the Company had outstanding commitments to originate loans of $3.3 million. Unused lines of credit available to customers amounted to $10.3 million, $9.5 million of which were equity lines of credit. (5) Securities The following table sets forth the Company's securities at the dates indicated.
September 30, 2000 June 30, 2000 ---------------------------------------------- (Dollars in thousands) Amortized Fair Amortized Fair Cost Value Cost Value ------- ------- ------- ------- Available for Sale Securities: Federal agency obligations $45,684 $44,317 $45,667 $43,633 Mortgage-backed securities 16,472 15,906 16,876 16,028 Other debt securities 20,354 19,930 19,359 18,621 ------- ------- ------- ------- Total debt securities 82,510 80,153 81,902 78,282 Marketable equity securities 4,229 3,929 3,724 3,314 ------- ------- ------- ------- Total available for sale securities $86,739 $84,082 $85,626 $81,596 ======= ======= ======= ======= Held to Maturity Securities: Other debt securities $ 5,162 $ 5,232 $ 4,771 $ 4,738 ======= ======= ======= =======
(6) Loans The following table presents data relating to the composition of the Company's loan portfolio by type of loans as at the date indicated. (Dollars in thousands) September 30, 2000 June 30, 2000 --------------------- --------------------- Amount Percent Amount Percent -------- ------- -------- ------- Real estate loans: Residential $ 60,504 55.75% $ 61,689 57.56% Commercial 26,018 23.97 25,035 23.36 Construction 3,657 3.37 2,742 2.56 -------- ------ -------- ------ Total real estate loans 90,179 83.10 89,466 83.47 Other loans: Consumer loans: Collateral 728 0.67 634 0.59 Home equity 8,524 7.85 7,685 7.17 Other 1,786 1.65 1,629 1.52 -------- ------ -------- ------ Total consumer loans 11,038 10.17 9,948 9.28 Commercial business loans 7,308 6.73 7,763 7.24 -------- ------ -------- ------ Total other loans 18,346 16.90 17,711 16.53 -------- ------ -------- ------ Total loans 108,525 100.00% 107,177 100.00% ====== ====== Net deferred loan fees 24 37 Deferred premium 10 10 Allowance for loan losses (860) (802) -------- -------- Total loans, net $107,699 $106,422 ======== ======== 8 SERVICE BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (7) Deposits and Borrowed Funds The following tables indicate types and balances in deposit accounts at the dates indicated.
September 30, 2000 June 30, 2000 --------------------- --------------------- (Dollars in thousands) Amount Percent Amount Percent -------- ------- -------- ------- Demand $ 21,488 11.94% $ 19,684 11.16% NOW 21,701 12.06 22,521 12.77 Money market deposits 14,605 8.12 12,992 7.37 Regular and other savings 29,718 16.52 28,998 16.44 -------- ------ -------- ------ Total non-certificate accounts 87,512 48.64 84,195 47.74 Term certificates 92,408 51.36 92,150 52.26 -------- ------ -------- ------ Total deposits $179,920 100.00% $176,345 100.00% ======== ====== ======== ======
The following is a list of advances from the Federal Home Loan Bank of Boston by maturity date.
September 30, 2000 June 30, 2000 -------------------- -------------------- (Dollars in thousands) Amount Percent Amount Percent ------- ------- ------- ------- Maturities less than one year $ 2,000 7.92% $ 85 0.32% Maturities greater than one year 23,263 92.08 26,265 99.68 ------- ------ ------- ------ Total borrowed funds $25,263 100.00% $26,350 100.00% ======= ====== ======= ======
9 SERVICE BANCORP, INC. AND SUBSIDIARY ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation General This quarterly report on Form 10-QSB contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believe", "anticipates", "plans", "expects" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those contemplated by such forward-looking statements. These important factors include, without limitation, the Bank's continued ability to originate quality loans, fluctuation in interest rates, real estate conditions in the Bank's lending areas, general and local economic conditions, the Bank's continued ability to attract and retain deposits, the Company's ability to control costs, new accounting pronouncements, and changing regulatory requirements. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Comparison of Financial Condition at September 30, 2000 and June 30, 2000 Assets increased by $3.4 million, or 1.6 %, from $219.4 million at June 30, 2000 to $222.9 million at September 30, 2000. The increase was funded by the $3.6 million, or 2.0%, increase in total deposits since June 30, 2000. Over the same timeframe, total borrowings decreased by $1.1 million, or 4.1%. The funds provided during the three months ended September 30, 2000 were invested in securities both available for sale and held to maturity and net loans which increased $2.9 million, or 3.3%, and $1.3 million, or 1.2% respectively. The investment categories which changed materially within the securities portfolios were other debt securities (primarily corporate debt), federal agency obligations, and marketable equity securities which increased $1.7million, or 7.3%, $684,000, or 1.6%, and $615,000, or 18.6%, respectively. Short-term investments, consisting of overnight funds investments with large area financial institutions located in the Boston area, decreased $669,000, or 10.1%, as the Bank deployed these funds into longer-term investment and loan portfolios. Net loans increased primarily because of increases of $983,000, or 3.9%, $915,000, or 33.4%, and $839,000, or 10.9%, in commercial mortgages, construction loans, and home equity loans, respectively, since June 30, 2000. During this same timeframe, residential loans and commercial business loans declined $1.2 million, or 1.9%, and $455,000, or 5.9%, respectively. It is the Bank's continued objective to increase its origination of the fixed and variable residential products through originations within the area serviced by the Bank's branch network. As the opportunities present themselves the Bank will consider purchasing loans from other financial institutions as opportunities arise. While no such purchases have occurred since July 1, 2000, $9.7 million in residential loans were purchased during the most recent fiscal year which ended June 30, 2000. The Bank considers many factors when deciding to purchase a loan package, including but not limited to the loan pricing, loan underwriting, interest rate risk, and the geographical location of the real estate securing the loans. In addition, the Bank continues to emphasize growth in the commercial loan and home equity loan products, which generally provides higher yields than residential and consumer loans. 10 SERVICE BANCORP, INC. AND SUBSIDIARY ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation(Continued) The increase of $3.6 million in deposits was primarily attributable to increases of $1.8 million, or 9.2%, and $1.6 million, or 12.4%, in demand deposits and money market deposits, respectively. Total non-certificate deposits increased $3.3 million, or 3.9%, while higher priced term certificates increased only $258,000, or 0.3%. Throughout its retail branching network the Bank has recently been emphasizing the acquiring of lower cost non-certificate deposits as a primary source of funding for the Bank. As loan activity increases, term certificates and borrowings will be used as an additional source of funding. During the quarter ended September 30, 2000, borrowings decreased $1.1 million, or 4.1% as the Bank used excess liquidity to reduce certain borrowing balances. Stockholders' equity increased from $15.2 million, or 6.92% of total assets at June 30, 2000 to $16.3 million, or 7.32% of total assets at September 30, 2000. This increase resulted primarily from a decrease of $885,000 in unrealized losses in the Company's securities available for sale portfolio and the Company's earnings for the period. Non-Performing Assets and Allowance for Loan Losses The following indicates the non-performing assets and related allowance for loan loss ratios at the dates indicated. (Dollars in thousands) Sept. 30, June 30, 2000 2000 ------ ------ Non-accrual loans: One-to-four family real estate loans $159 $160 Commercial loans 132 117 Commercial business loans 152 153 Consumer loans -- 2 ------ ------ Total non-accrual loans 443 432 Other real estate owned -- -- ------ ------ Total non-performing assets $443 $432 ====== ====== Allowance for loan losses $860 $802 ====== ====== Allowance for loan losses as a percent of total loans, net 0.80% 0.75% ====== ====== Allowance for loan losses as a percent of non-accrual loans 194.13% 185.65% ====== ====== Non-accrual loans as a percent of total loans, net 0.41% 0.41% ====== ====== Non-performing assets as a percent of total assets 0.20% 0.20% ====== ====== 11 SERVICE BANCORP, INC. AND SUBSIDIARY ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation(Continued) During the three months ended September 30, 2000 the Bank recorded a $56,000 to the loan loss provision due to the growth of the commercial loan portfolio. Generally ,commercial loans are considered to present a greater risk of loss than residential loans. During this period, there were $6,000 in loan charge-offs and $8,000 in recoveries from previously charged-off loans. While management believes that, based on information currently available, the allowance for loan losses is sufficient to cover losses in the Company's loan portfolio at this time, no assurances can be given that the level of the allowance will be sufficient to cover future loan losses or that future adjustments to the allowance will not be necessary if economic and/or other conditions differ substantially from the economic and other conditions considered by management in evaluating the adequacy of the current level of the allowance. Comparison of Operating Results for the Three Months Ended September 30, 2000 and 1999 General Operating results are primarily dependent on the Bank's net interest income, which is the difference between the interest earned on the Bank's earning assets (short-term investments, loans, and investment securities) and the interest paid on deposits and borrowings. Operating results are also affected by provisions for loan losses, the level of income from non-interest sources such as fees and sales of investment securities and other assets, operating expenses and income taxes. Operating results are also significantly affected by general economic conditions, particularly changes in interest rates, as well as government policies and actions of regulatory authorities. Net income for the three months ended September 30, 2000 was $225,000 as compared to $168,000 for the three months ended September 30, 1999, an increase of $57,000, or 33.9%. This increase was primarily attributable to increases of $180,000, or 11.2%, $66,000, or 36.7%,and $57,000, or 300.0%, in net interest income, customer service fees, and net gains on security sales, respectively. Partially offsetting these increases were increases of $235,000, or 15.6%, and $11,000, or 24.4%, in total operating expenses and the provision for loan losses, respectively. The Bank's interest rate spread (the difference between yields earned on earning assets and rates paid on deposits and borrowings) decreased from 3.46% for the three months ended September 30, 1999 to 3.10% for the three months ended September 30, 2000. Interest rate margin (net interest income divided by average earning assets) decreased from 3.88% to 3.58 %. The interest rate spread and margin decreased primarily as a result of the increase of 67 basis points in funding costs for both deposits and borrowings between periods due to Federal Reserve Board interest rate increases since June 1999. Partially offsetting this was an increase of 31 basis points in the yield on earning assets between periods. While core-based deposit growth will be emphasized, past experience indicates that such growth is achieved through a greater increase in higher-cost retail certificates than lower-cost core deposits. An increase in interest rates and continued competition from other financial institutions together with the aforementioned growth in retail certificates could cause further tightening in the interest rate spread. 12 SERVICE BANCORP, INC. AND SUBSIDIARY ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation(Continued) The interest rate spread and margin for the periods indicated are as follows: Three months ended September 30, ------------------- 2000 1999 ---- ---- Weighted average yield earned on: Short-term investments 6.71% 5.70% Investments 7.11% 6.73% Total loans, net 8.30% 8.14% ---- ---- All earning assets 7.74% 7.43% Weighted average rate paid on: Deposits 4.43% 3.73% Borrowed funds 5.89% 5.17% ---- ---- All interest-bearing liabilities 4.64% 3.97% ---- ---- Weighted average rate spread 3.10% 3.46% ==== ==== Net interest margin 3.58% 3.88% ==== ==== Earnings per share data for the three months ended September 30, 2000 was $0.14 for both "basic" and "diluted" calculations as compared to $0.10 per share for both "basic" and "diluted" calculations for the three months ended September, 1999. Interest and Dividend Income Total interest and dividend income increased by $784,000, or 25.5%, from $3.1 million for the three months ended September 30, 1999 to $3.9 million for the comparable period in 2000. This increase was primarily attributable to a $34.0 million, or 20.6%, increase in average earning assets between the two periods as well as a 31 basis point increase in the yield on earning assets between the two periods. The average balances in net loans increased $20.1 million, or 23.3%, while total loan yield increased by 16 basis points to 8.30%. The average loan balance within the loan portfolio for commercial loans and home equity loans increased by $3.1 million and $2.9 million, respectively, while residential loans increased by $13.7 million. The loans originated between periods were influenced by the increase in market interest rates since the end of 1999, thus accounting for some of the increase in earning asset yield. In addition, any existing prime-based loans, such as home equity loans, and certain commercial business loans, were repriced at higher rates during the same period due to the increase in interest rates. 13 SERVICE BANCORP, INC. AND SUBSIDIARY ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation(Continued) The average investment portfolio balance increased $15.3 million or 20.7% over this same period and the portfolio yield improved by 38 basis points to 7.11%. The Bank continued its strategy to invest in federal agency and corporate obligations with longer maturities and higher yields in order to improve the interest rate margin consistent with the interest rate profile objectives of the asset-liability management process discussed below. In addition, the average balance in short-term investments declined $1.4 million, or 27.9%, between periods while the portfolio yield increased by 101 basis points to 6.71 % between the two periods. This yield increase reflects the Federal Reserve Board's increase in short-term interest rates since June 1999. Interest Expense Interest expense on deposits increased $544,000, or 46.9%, from $1.1 million for the three months ended September 30, 1999, to $1.7 million for the three months ended September 30, 2000. This increase was attributable to a $29.6 million, or 23.8%, increase in average interest-bearing deposit balances between periods, while deposit rates increased from 3.73% to 4.43% over the same period. The increase in average interest rates was primarily attributable to the growth of $22.3 million, or 31.7%, in higher-priced certificate accounts during the Federal Reserve Board's increased interest rates. The Bank increased its use of borrowings from the FHLB as part of its management of interest rate risk. Average balances in these advances were $25.2 million during the three months ended September 30, 2000, an increase of $1.1 million, or 4.7 % from the average balances for the three months ended September 30, 1999. Over this same timeframe, average borrowing rates increased slightly from 5.17% to 5.89%. These borrowings were used primarily to fund the purchase of investment securities and residential mortgages. Interest expense on FHLB advances increased $60,000, or 19.3%, from $311,000 for the three months ended September 30, 1999 to $371,000 for the three months ended September 30, 2000. Other Income Total other income increased $142,000, or 66.1%, from $215,000 for the three months ended September 30, 1999 to $357,000 for the same period in 2000. This change was caused primarily by increases of $66,000, or 36.7%, and $57,000, or 300.0%, in customer service fees and net gains on sales of securities, respectively. Customer service fees increased primarily due to increases in Visa Debit Card income, ATM surcharge income, and NOW account and NSF ("Non-sufficient funds") fees between periods. Operating Expense Total operating expense increased $235,000, or 15.6%, from $1.5 million for the three months ended September 30, 1999 to $1.7 million for the three months ended September 30, 2000. Salaries and benefits and occupancy and equipment expenses increased $145,000, or 19.2%, and $52,000, or 15.9%, respectively. No other individual expense category increased materially between periods. Much of the increase in operating expense was attributed to the Company's asset growth as management added staff and incurred costs to service the full range of retail and loan products added to the Bank's product lines. Specifically, the Bank opened a new branch in Milford, Massachusetts in January 2000 and has installed 14 SERVICE BANCORP, INC. AND SUBSIDIARY ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation(Continued) Operating Expense(Continued) a wide-area computer network to improve communication within the Bank and better service the needs of the Bank's customers. Despite the increase in operating expenses, the ratio of operating expenses to average assets decreased from 3.39 % for the three months ended September 30, 1999 to 3.23% for the same period in 2000. Income Taxes The effective income tax rate was 34.6% and 37.3% for the three months ended September 30, 2000 and 1999, respectively. The effective tax rates are below the statutory combined state and federal income tax rates because the Bank's two security corporations take advantage of the lower state tax rate afforded to these types of entities. Asset/Liability Management A principal operating objective of the Bank is to produce stable earnings by achieving a favorable interest rate spread that can be sustained during fluctuations in prevailing interest rates. Since the Bank's principal interest-earning assets generally have longer terms to maturity than its primary source of funds, i.e., deposit liabilities, increases in general interest rates will generally result in an increase in the Bank's cost of funds before the yield on its asset portfolio adjusts upward. Financial institutions have generally sought to reduce their exposure to adverse changes in interest rates by attempting to achieve a closer match between the repricing periods of interest rate sensitive assets and liabilities. Such matching, however, is carefully monitored so as not to sacrifice net interest margin performance for the perfect matching of these interest rate sensitive instruments. The Bank has established an Asset/Liability Management Committee made up of members of senior management to assess the asset/liability mix and recommend strategies that will enhance income while managing the Bank's vulnerability to changes in interest rate. This committee meets regularly to discuss interest rate conditions and potential product lines that would enhance the Bank's income performance. Certain strategies have been implemented to improve the match between interest rate sensitive assets and liabilities. These strategies include, but are not limited to: daily monitoring of the Bank's cash requirements, originating adjustable and fixed rate mortgage loans, both residential and commercial, for the Bank's own portfolio, managing the cost and structure of deposits, and generally using the matched borrowings to fund specific purchases of loan packages and large loan originations. Occasionally, management may choose to deviate from specific matching of maturities of assets and liabilities, if an attractive opportunity to enhance yield becomes available. Quarterly, asset-liability management modeling is performed with the assistance of an outside investment advisor which projects the Bank's financial performance over the next twenty four months using loan and deposit projections, projections of changes in interest rates, and anticipated changes in other income and operating expenses to reveal the full impact of the Bank's operating strategies on financial performance. The results of the asset-liability management process are reported to the Board at least on a quarterly basis. 15 SERVICE BANCORP, INC. AND SUBSIDIARY ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation(Continued) Liquidity and Capital Resources The Bank's primary sources of funds consist of deposits, borrowings, repayment and prepayment of loans, sales of loans and investments, maturities and early calls of investments, and funds provided from operations. While scheduled repayments of loans and maturities of investments are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by the general level of interest rates, economic conditions, and competition. The Bank uses its liquidity resources primarily to fund existing and future loan commitments, to fund net deposit outflows, to invest in other interest-earning assets, to maintain liquidity, and to pay operating expenses. From time to time, the Bank utilizes advances from the FHLB primarily in connection with its management of the interest rate sensitivity of its assets and liabilities. Total advances outstanding at September 30, 2000 amounted to $25.3 million. The Bank's ability to borrow from the FHLB is dependent upon the amount and type of collateral the Bank has to secure the loans. Such collateral consists of, but is not limited to, one-to-four family owner-occupied residential property, mortgage-backed securities A major portion of the Bank's liquidity consists of cash and cash equivalents, short-term investments, U.S. Government and federal agency obligations, mortgage-backed securities, and other debt securities. The level of these assets is dependent upon the Bank's operating, lending, and financing activities during any given period. At September 30, 2000, the Bank had $3.3 million of outstanding commitments to originate loans. The Bank anticipates that it will have sufficient funds available to meet these commitments. Certificates of deposit, which are scheduled to mature in one year or less, totaled $82.9 million at September 30, 2000. Based upon historical experience, management believes that a significant portion of such deposits will remain with the Bank. At September 30, 2000, the Company and the Bank exceeded all regulatory capital requirements. 16 SERVICE BANCORP, INC. AND SUBSIDIARY PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involved amounts which are believed by management to be immaterial to the financial condition and operations of 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 On October 24, 2000, the Company held its annual meeting of stockholders for the purpose of the election of five Directors to three year terms and one Director to a two year term, and the ratification of Wolf & Company, P.C. as the Company's independent auditors for the fiscal year ending June 30, 2001. The number of votes cast at the meeting as to each matter acted upon was as follows:
NO. OF NO. OF VOTES FOR VOTES WITHHELD 1. Election of Directors: Kelly A. Verdolino 1,284,546 80,475 Kenneth C.A. Isaacs 1,284,546 80,475 Paul V. Kenney 1,284,546 80,475 Eugene R. Liscombe 1,284,546 80,475 Robert A. Matson 1,284,546 80,475 Pamela J. Mozynski 1,284,546 80,475 NO. OF NO. OF NO. OF VOTES FOR VOTES AGAINST VOTES ABSTAINING 2. Ratification of the Appointment of Wolf & Company, P.C. as the Company's Independent Auditors 1,338,146 22,325 4,550
17 SERVICE BANCORP, INC. AND SUBSIDIARY PART II - OTHER INFORMATION Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K Exhibit 27 EDGAR financial data schedule. There were no reports filed on Form 8-K. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SERVICE BANCORP, INC. Date: November 13, 2000 By: /s/ Eugene G. Stone ----------------- --------------------------------- Eugene G. Stone President and Chief Executive Officer Date: November 13, 2000 By: /s/ Warren W. Chase, Jr. ----------------- --------------------------------- Warren W. Chase, Jr. Senior Vice President and Treasurer 19 EX-27 2 0002.txt FDS
9 1,000 3-MOS JUN-30-2001 SEP-30-2000 7,767 100 5,443 0 84,082 5,162 5,232 108,559 (860) 222,869 179,920 0 1,363 25,263 0 0 17 16,306 222,869 2,210 1,587 60 3,857 1,703 2,074 1,783 56 76 1,740 344 344 0 0 225 0.14 0.14 7.74 443 556 30 0 802 6 8 860 768 0 92
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