UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 0-18620
JSB FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED ON ITS CHARTER)
DELAWARE 11-3000874
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
303 MERRICK ROAD, LYNBROOK, NEW YORK 11563
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(516) 887-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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. [X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT May 5, 1997
$.01 PAR VALUE 9,839,125
INDEX
PART I - FINANCIAL INFORMATION
Page
Number
ITEM 1. Financial Statements - Unaudited
Consolidated Statements of Financial Condition
at March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1997 and March 31, 1996 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and March 31, 1996 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities 15
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
Signatures 16
JSB FINANCIAL, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
March 31, DECEMBER 31,
1997 1996
ASSETS
- ------
Cash and due from banks .......................................... $ 13,586 $ 12,894
Federal funds sold ............................................... 39,000 86,500
---------- ----------
Cash and cash equivalents ................................... 52,586 99,394
Securities available-for-sale, at estimated fair value ........... 51,663 51,021
Securities held-to-maturity, net (estimated fair value of
$501,551 and $461,784, respectively) ............................ 501,628 460,509
Other investments ................................................ 7,645 6,859
Mortgage loans, net .............................................. 845,490 827,052
Other loans, net ................................................. 27,367 27,722
Premises and equipment, net ...................................... 16,717 16,829
Interest due and accrued ......................................... 10,656 9,310
Real estate held for investment, net ............................. 6,187 6,082
Real estate held for sale and Other real estate ("ORE") .......... 5,082 5,236
Other assets ..................................................... 5,881 6,002
---------- ----------
Total Assets ........................................ $1,530,902 $1,516,016
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Due to depositors ................................................ $1,140,982 $1,144,393
Advance payments for real estate taxes and insurance ............. 20,054 8,265
Official bank checks outstanding ................................. 6,903 9,644
Accrued expenses and other liabilities ........................... 23,592 18,415
---------- ----------
Total Liabilities .................................. 1,191,531 1,180,717
---------- ----------
Commitments and Contingencies (See Note 6.)
STOCKHOLDERS' EQUITY
- --------------------
Preferred stock ($.01 par value, 15,000,000 shares authorized;
none issued) .................................................... - -
Common stock ($.01 par value, 30,000,000 shares authorized;
16,000,000 issued; 9,830,205 and 9,783,031 outstanding,
respectively) ................................................... 160 160
Additional paid-in capital ....................................... 163,734 163,500
Retained income, substantially restricted ........................ 292,038 289,588
Net unrealized gain on securities available-for-sale, net of tax . 22,151 21,795
Common stock held by Benefit Restoration Plan Trust, at cost
(166,848 shares) ................................................ (3,278) (3,275)
Common stock held in treasury, at cost (6,169,795 and 6,216,969
shares, respectively) ........................................... (135,434) (136,469)
---------- ----------
Total Stockholders' Equity ......................... 339,371 335,299
---------- ----------
Total Liabilities and Stockholders' Equity ......... $1,530,902 $1,516,016
========== ==========
See accompanying Notes to the unaudited consolidated financial statements.
JSB FINANCIAL, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
March 31,
------------------
1997 1996
-------------------
Interest Income
- ---------------
Mortgage loans, net ................................ $17,957 $16,751
Debt & equity securities, net ...................... 5,013 6,289
Collateralized mortgage obligations, net ("CMOs") .. 2,151 2,316
Other loans, net ................................... 496 542
Mortgage-backed securities, net ("MBS")............. 141 206
Federal funds sold ................................. 925 801
------- -------
Total Interest Income ............................ 26,683 26,905
------- -------
Interest Expense
- ----------------
Deposits ........................................... 9,738 10,147
------- -------
Net Interest Income .............................. 16,945 16,758
Provision for Possible Loan Losses ................. 160 161
------- -------
Net Interest Income After Provision for
Possible Loan Losses ............................. 16,785 16,597
------- -------
Non-Interest Income
- -------------------
Real estate operations, net ........................ 356 377
Loan fees and service charges ...................... 707 871
Income on loaned securities ........................ 2 10
Miscellaneous income/(loss) ........................ 49 (43)
------- -------
Total Non-Interest Income ........................ 1,114 1,215
------- -------
Non-Interest Expense
- --------------------
Compensation and benefits .......................... 3,943 4,079
Occupancy and equipment expenses, net .............. 1,145 1,398
Federal deposit insurance premiums ................. 38 1
Advertising ........................................ 301 285
ORE expense/(income), net .......................... 33 (28)
Other general and administrative ................... 1,424 1,531
------- -------
Total Non-Interest Expense ....................... 6,884 7,266
------- -------
Income Before Provision for Income Taxes ........... 11,015 10,546
Provision for Income Taxes ......................... 4,567 4,468
------- -------
Net Income ......................................... $ 6,448 $ 6,078
======= =======
Earnings and Cash Dividends Per Share:
Earnings per common and common equivalent share .. $ .63 $ .56
===== =====
Cash Dividends ................................... $ .35 $ .30
===== =====
Weighted Average Number of Shares and Share
Equivalents Outstanding ........................... 10,266 10,877
====== ======
See accompanying Notes to the unaudited consolidated financial statements.
JSB FINANCIAL, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
------------------
Cash flows from operating activities
- ------------------------------------
Net income ........................................................ $ 6,448 $ 6,078
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible loan losses ................................ 160 161
Net gain on sale/redemption of equity securities................... - (4)
Decrease in deferred loan fees and discounts, net ................. (123) (118)
Accretion of discount in excess of amortization
of premium on MBS and CMOs ....................................... (133) (122)
Accretion of discount in excess of amortization of
premium on debt securities ....................................... (74) (56)
Depreciation and amortization on premises and equipment ........... 455 459
Mortgages loans originated for sale ............................... - (93)
Proceeds from sale of mortgage loans originated for sale .......... - 94
Gains on sale of mortgage and other loans ......................... - (1)
Tax benefit for stock plans credited to capital ................... 231 286
(Increase) decrease in interest due and accrued ................... (1,346) 62
Decrease in official bank checks outstanding ...................... (2,741) (14,050)
Other ............................................................. 5,012 4,643
-------- --------
Net cash provided by (used by) operating activities ............. 7,889 (2,661)
-------- --------
Net cash flow from investing activities
- ---------------------------------------
Loans originated:
Mortgage loans .................................................. (27,537) (43,543)
Other loans ..................................................... (4,644) (4,137)
Purchases of CMOs held-to-maturity ................................ (29,977) (66,577)
Purchases of debt securities held-to-maturity and securities
available-for-sale ............................................... (134,922) (50,009)
Principal payments on:
Mortgage loans .................................................. 9,064 13,048
Other loans ..................................................... 4,852 4,435
CMOs ............................................................ 28,644 22,879
MBS ............................................................. 343 514
Proceeds from maturities of U.S. Government and federal agency
securities ...................................................... 95,000 110,000
Proceeds from sale of other loans ................................. 145 25
Purchases of Federal Home Loan Bank stock ......................... (786) (558)
Proceeds from sale/redemption of equity securities ................ - 19
Purchases of premises and equipment, net of disposals ............. (343) (1,106)
Net (increase) decrease in real estate held for investment ........ (105) 114
Net decrease in investment in real estate held for sale ........... 154 365
-------- --------
Net cash used by activities ..................................... (60,112) (14,531)
-------- --------
Net cash flow from financing activities
- ---------------------------------------
Net (decrease) increase in due to depositors ...................... (3,411) 4,742
Increase in advance payments for real estate taxes and insurance .. 11,789 9,544
Proceeds upon exercise of common stock options .................... 472 550
Cash dividends paid to common stockholders ........................ (3,435) (3,121)
Payments to repurchase common stock ............................... - (7,225)
-------- --------
Net cash provided by financing activities ..... ................. 5,415 4,490
-------- --------
Decrease in cash and cash equivalents ............................. (46,808) (12,702)
Cash and cash equivalents at beginning of year .................... 99,394 85,893
-------- --------
Cash and cash equivalents at end of quarter ....................... $ 52,586 $ 73,191
======== ========
See accompanying Notes to the unaudited consolidated financial statements.
JSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The financial information for JSB Financial, Inc. (the "Company") as
consolidated with its wholly owned subsidiary Jamaica Savings Bank FSB (the
"Bank") is prepared in conformity with generally accepted accounting principles
for interim financial statements and with instructions to Form 10-Q and Article
10 of Regulation S-X. Such principles are applied on a basis materially
consistent with those reflected in the 1996 Annual Report filed with the
Securities and Exchange Commission. The financial information included herein,
other than the consolidated statement of financial condition as of December 31,
1996, has been prepared by management without audit by independent certified
public accountants who do not express an opinion thereon. The consolidated
statement of financial condition as of December 31, 1996, has been derived from,
but does not include all the disclosures contained in, the audited consolidated
financial statements for the year ended December 31, 1996. The information
furnished includes all adjustments and accruals consisting only of normal
recurring accrual adjustments which are in the opinion of management, necessary
for a fair presentation of results for the interim periods. The foregoing
interim results are not necessarily indicative of the results of operations for
the full year ending December 31, 1997.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto, included in the
Annual Report to Stockholders for JSB Financial, Inc. for the year ended
December 31, 1996.
2. Adoption of Accounting Standard
-------------------------------
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("Statement 125"), as amended.
Statement 125 established accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial components approach that focuses on
control. Under this approach, an entity, subsequent to a transfer of financial
assets, must recognize the financial and servicing assets it controls and the
liabilities it has incurred, derecognize financial assets when control has been
surrendered, and derecognize liabilities when extinguished. Standards for
distinguishing transfers of financial assets that are sales from those that are
secured borrowings are provided in Statement 125. A transfer not meeting the
criteria for a sale must be accounted for as a secured borrowing with pledged
collateral.
Statement 125 requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. It additionally requires that servicing
assets and other retained interests in transferred assets be measured by
allocating the previous carrying amount between the assets sold, if any, and
retained interests, if any, based on their relative fair values at the date of
transfer. Servicing assets and liabilities must be subsequently measured by
amortization in proportion to and over the period of estimated net servicing
income or loss and assessed for asset impairment, or increased obligation, based
on their fair value.
Statement 125 requires that a liability be derecognized if either (a) the
debtor pays the creditor and is relieved of its obligation for the liability or
(b) the debtor is legally released from being the primary obligor under the
liability either judicially or by the creditor.
Statement 125 provided implementation guidance for assessing isolation of
transferred assets and for accounting for transfers of partial interests,
servicing of financial assets, securitizations, transfers of sales-type and
direct financing lease receivables, securities lending transactions, repurchase
agreements including "dollar rolls", "wash sales", loan syndications and
participations, risk participations in banker's acceptances, factoring
agreements, transfers of receivables with recourse and extinguishments of
liabilities.
Statement 125 superseded Financial Accounting Standards Board ("FASB")
Statements No. 76, "Extinguishment of Debt" and No. 77, "Reporting by
Transferors for Transfer of Receivables with Recourse". Statement 125 amends
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("Statement 115"), to prohibit the classification of a debt security
as held-to-maturity if it can be prepaid or otherwise settled in such a way that
the holder of the security would not recover substantially all of its recorded
investment. Statement 125 further requires that loans and other assets that can
be prepaid or otherwise settled in such a way that the holder would not recover
substantially all of its recorded investment shall be subsequently measured like
debt securities classified as available-for-sale or trading under Statement 115,
as amended by Statement 125. Statement 125 also amends and extends to all
servicing assets and liabilities the accounting for mortgage servicing rights
now in Statement 65, and supersedes Statement No. 122, "Accounting for Mortgage
Servicing Rights".
In December 1996, the FASB issued SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement 125. As amended,
Statement 125 became effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, except
that its provisions with respect to securities lending, repurchase agreements
and dollar-roll transactions are effective for transfers occurring after
December 31, 1997.
The adoption of Statement 125 had no material effect on the consolidated
financial statements of the Company.
3. Impact of New Accounting Standards
----------------------------------
During the first quarter of 1997, the FASB issued SFAS No. 128, "Earnings
Per Share" ("Statement 128"). Statement 128 establishes standards for computing
and presenting earnings per share ("EPS") and applies to entities with publicly
held common stock or potential common stock. Statement 128 simplifies the
standards for computing EPS previously found in Accounting Principles Board
Opinion No. 15, "Earnings Per Share" ("Opinion 15"), and makes them comparable
to international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. Statement 128 requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
Statement 128 supersedes Opinion 15 and American Institute of Certified
Public Accountants Accounting Interpretations 1-102 of Opinion 15, as well as
other accounting pronouncements. The provisions in Statement 128 are
substantially the same as those in International Accounting Standard 33,
Earnings per Share, recently issued by the International Accounting Standards
Committee.
Statement 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. This Statement requires restatement of all prior-period EPS
data presented.
The basic EPS under Statement 128 will result in higher EPS than
previously disclosed under Opinion 15. Diluted EPS are expected to be similar to
fully diluted EPS.
4. Debt and Equity Securities
--------------------------
The following tables set forth information regarding the Company's debt and
equity securities as of:
March 31, 1997
--------------
Estimated Fair
Amortized Cost Value
-------------- -----
Held-to-Maturity (In Thousands)
----------------
U.S. Government and Federal
Agency securities $339,640 $339,645
CMOs, net 156,733 156,205
MBS, net 5,255 5,701
-------- --------
Total Securities held-to-maturity $501,628 $501,551
======== ========
Estimated
Fair
Cost Value
---- -----
Available-for-Sale (In Thousands)
------------------
Equity securities:
Common stock $ 11,107 $ 33,692
SLMA* stock 6 1,905
FHLMC* stock 576 16,023
FNMA* stock 2 43
-------- --------
Total equity securities $ 11,691 $ 51,663
======== ========
* Student Loan Marketing Association ("SLMA"), Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA").
5. Subsequent Events
-----------------
a. On April 8, 1997, the Company's Board of Directors declared a $.35 per share
dividend on its common stock. The dividend is to be paid on May 21, 1997, to
stockholders of record on May 7, 1997, and will total approximately $3.4
million.
b. During the first quarter of 1997, the Company approved the formation of a new
operating subsidiary, Tier Inc., intended to qualify as a real estate investment
trust. Tier Inc. may, among other things, be utilized by the Bank to raise
capital in the future. The Bank received regulatory approval from the Office of
Thrift Supervision ("OTS") to operate Tier Inc. during the second quarter of
1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
General
- -------
JSB Financial, Inc. is a Delaware-chartered holding company. The Company's
assets, which totaled approximately $1.53 billion at March 31, 1997, included
assets totaling $1.42 billion owned by its wholly owned subsidiary, Jamaica
Savings Bank (the "Bank"). In addition to the Bank's assets, the Company's
earning assets were comprised of $11.9 million in money market investments on
deposit with the Bank, $80.0 million in short-term U.S. Government and federal
agency securities and $15.2 million in mortgage loans secured by multi-family
rental properties.
Asset Quality
- -------------
At March 31, 1997, the Bank's non-performing assets, which totaled $14.7
million, included: non-performing loans of $14.0 million and $632,000 of ORE.
The $14.0 million of non-performing loans continues to include a $12.8 million
underlying cooperative mortgage loan that is under foreclosure and on
non-accrual status. The ratio of non-performing assets to total assets was .96%
and .98% at March 31, 1997 and December 31, 1996, respectively.
The Bank generally includes in non-performing loans, loans which are 90
days or more in arrears and loans which have been placed on non-accrual status.
In addition to non-performing loans, non-performing assets include ORE, as well
as any other investments on which the collection of contractual principal and
interest is uncertain. The ratio of non-performing loans to total loans was
1.59% and 1.64% (See Non-performing/Non-accrual Table, herein) at March 31, 1997
and December 31, 1996, respectively.
Loan Delinquency Table
- ----------------------
At March 31, 1997 and December 31, 1996, delinquencies in the loan
portfolios were as follows:
61-90 Days 90 Days and Over
---------- ----------------
Number Principal Number Principal
of balance of balance
loans of loans loans of loans
----- -------- ----- --------
(Dollars in Thousands)
At March 31, 1997:
- ------------------
Delinquent loans:
Guaranteed(1) 63 $ 281 121 $ 650
Non-guaranteed 13 95 15 13,398(2)
-- ------ --- -------
76 $ 376 136 $14,048
== ====== === =======
Ratio of delinquent loans
to total loans .04% 1.59%
==== =====
At December 31, 1996:
Delinquent loans
Guaranteed(1) 78 $ 390 144 $ 692
Non-guaranteed 9 20 15 13,459(2)
-- ----- --- -------
87 $ 410 159 $14,151
== ====== === =======
Ratio of delinquent loans
to total loans .05% 1.64%
==== =====
<FN>
(1) Loans which are Federal Housing Administration ("FHA"), Veterans
Administration ("VHA") or SLMA guaranteed.
(2) Includes a $12.8 million underlying cooperative mortgage loan that is under
foreclosure.
</FN>
Non-performing/Non-accrual Table
- --------------------------------
The following table sets forth information regarding non-accrual loans and
loans which are delinquent 90 days or more on which the Bank is accruing
interest at March 31, 1997 and December 31, 1996:
March 31, December 31,
1997 1996
---- ----
Mortgage loans:
- ---------------
Non-accrual loans (1) $12,753 $12,754
------- -------
Accruing loans 90 or more days overdue:
Conventional mortgages 631 686
VA and FHA mortgages (2) 406 361
------- -------
Total 1,037 1,047
------- -------
Other loans:
- ------------
Non-accrual loans - -
Accruing 90 or more days overdue:
Student loans 244 331
Consumer loans 14 19
------- -------
Total 258 350
------- -------
Total non-performing loans:
Non-accrual 12,753 12,754
Accruing 90 days or more overdue 1,295 1,397
------- -------
Total $14,048 $14,151
======= =======
Non-accrual loans to total loans 1.44% 1.48%
Accruing loans 90 or more days overdue
to total loans .15 .16
Non-performing loans to total loans 1.59 1.64
<FN>
(1) Represents a single underlying cooperative mortgage loan in arrears and
under foreclosure.
(2) The Bank's FHA and VA loans are guaranteed, seasoned loans. As such, these
loans, including the past due loans, do not present any significant collection
risk to the Bank, and therefore, are presented separately from conventional
mortgages.
</FN>
Loan Loss Activity Table
- ------------------------
Activity in the allowance for possible loan losses for the mortgage loan
portfolio and the other loan portfolio are summarized for the three months ended
March 31, 1997 and the year ended December 31, 1996, as follows,:
March 31, December 31,
1997 1996
------------- ------------
(Dollars in Thousands)
Mortgage Portfolio Loan Loss Allowance:
- ---------------------------------------
Balance at beginning of period $5,176 $4,575
Provision for possible loan losses 150 600
Loans charged off - -
Recoveries of loans previously charged off - 1
----- ------
Balance at end of period $5,326 $5,176
====== ======
Ratios for Mortgage Portfolio:
- ------------------------------
Net charge-offs to average mortgages - % - %
Allowance for possible loan losses to
net mortgage loans .63% .63%
Allowance for possible loan losses to
mortgage loans delinquent 90 days or more 38.62% 37.50%
Other Loan Portfolio Loss Allowance:
- ------------------------------------
Balance at beginning of period $ 151 $ 122
Provision for possible loan losses 10 40
Loans charged off (8) (33)
Recoveries of loans previously charged off 1 22
------ ------
Balance at end of period $ 154 $ 151
====== ======
Ratios for Other Loan Portfolio:
- --------------------------------
Net charge-offs to average other loans .02% .04%
Allowance for possible loan losses to
net other loans .56% .54%
Allowance for possible loan losses to
other loans delinquent 90 days or more 59.60% 43.14%
Liquidity and Capital Resources
- -------------------------------
The Company's funds are primarily obtained through dividends paid by the
Bank. The Bank's primary source of funds are deposits, proceeds from maturities
of debt securities, principal and interest payments on CMOs, mortgage and other
loans. During the three months ended March 31, 1997, purchases of U.S.
Government and agency securities represented the most significant use of funds
from investing activities. Mortgage originations, substantially all of which
were at fixed rates, decreased for the three months ended 1997 to $27.5 million,
from $43.5 million for the comparative period in 1996. The decrease is primarily
reflective of decreased originations of loans secured by multi-family
properties. For the three months ended March 31, 1997, maturities of U.S.
Government and agency securities generated $95.0 million, the most significant
cash inflow from investing activities, followed by principal payments on CMOs of
$28.6 million. Dividend payments of $3.4 million and net deposit outflows of
$3.4 million represent the net cash outflows from financing activities. The
increase in dividend payments reflects the increase in cash dividends paid per
share to $.35 for the first three months of 1997, compared to $.30 per share for
the first three months of 1996.
The net decrease in deposits of $3.4 million to $1.141 billion at March 31,
1997, from $1.144 billion at December 31, 1996, reflects decreases in passbook
accounts, money market accounts and demand deposit accounts of $8.4 million,
$1.7 million and $916,000, respectively, partially offset by a $6.7 million
increase in certificate accounts, a $563,000 increase in lease security accounts
and a $320,000 increase in negotiable order of withdrawal ("NOW") accounts.
Interest rates offered on passbook accounts remained relatively low compared to
alternative short-term investments offered by the Bank and the investment
community. This scenario has caused the trend of deposit shifts from passbook
accounts to short-term certificate accounts and the slow decline in net deposits
to continue. Management continues to monitor deposit levels and interest rates
in conjunction with asset structure and has evaluated and implemented various
strategies to provide for targeted objectives in various interest rate
scenarios. Net interest rate spread, net interest margin, liquidity, and related
asset quality are some of the key measures of financial performance that
management remains focused on. The Bank's assets are intended to be structured
such that a gradual decline in deposits, such as the current scenario, will not
adversely affect the Company. The Bank's liquidity ratios continue to exceed all
short and long term minimum regulatory requirements. Management is focused on
providing quality customer service as its main strategy for maintaining its
relationships with its customers. The Bank has expanded its range of services to
customers, including automated telephone banking and credit cards to its
depositors.
The Company did not repurchase shares of its common stock for the quarter
ended March 31, 1997, pursuant to its tenth repurchase program (the "current
program"), which began on June 12, 1996. As of December 31, 1996, 415,000 of the
900,000 shares targeted for repurchase under the current program were
repurchased at an aggregate cost of $13.7 million, or an average price of $33.00
per share. Pursuant to the Company's 1990 stock option plans, 47,174 shares of
treasury stock were reissued for option exercises during the first quarter of
1997.
Regulations
- -----------
As a condition of deposit account insurance, OTS regulations require that
the Bank calculate three regulatory net worth requirements on a quarterly basis,
and satisfy each requirement at the calculation date and throughout the ensuing
quarter. The three requirements are: tangible capital of 1.50%, leverage ratio
(or "core capital") of 3.00%, and a risk-based assets capital ratio of 8.00%.
Although the minimum core capital ratio is 3.00%, the OTS Prompt Corrective
Action Regulation stipulates that an institution with less than 4.00% core
capital is deemed to be undercapitalized. The Bank's capital ratios at March 31,
1997, were as follows:
Percentage Dollars
---------- -------
(In Thousands)
TANGIBLE CAPITAL
Required 1.50% $ 21,124
Actual 13.76 193,825
----- --------
Excess 12.26% $172,701
===== ========
CORE CAPITAL
Required 3.00% $ 42,249
Actual 13.76 193,825
----- --------
Excess 10.76% $151,576
===== ========
RISK BASED CAPITAL
Required 8.00% $ 74,562
Actual 20.17 188,014
----- --------
Excess 12.17% $113,452
===== ========
Comparison of Operating Results for the Three Months Ended
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March 31, 1997 and 1996
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Net income for the three months ended March 31, 1997, was $6.4 million, or
$.63 per share, compared with $6.1 million, or $.56 per share for the three
months ended March 31, 1996.
Net interest income for the three months ended March 31, 1997, was $16.9
million, compared to $16.8 million for the three months ended March 31, 1996.
This net increase reflects a $409,000 decrease in interest expense, partially
offset by a $222,000 decrease in interest income. The annualized yield on
interest earning assets increased slightly to 7.47%, compared to 7.45%, for the
quarters ended March 31, 1997 and 1996, respectively; while average interest
earning assets decreased by $15.5 million. The annualized cost of interest
bearing deposits decreased to 3.52% from 3.58% for the quarters ended March 31,
1997 and 1996, respectively and average interest bearing deposits decreased by
$26.6 million. For the quarter ended March 31, 1997, the net interest rate
spread and net interest margin increased to 3.95% and 4.75%, respectively,
compared to 3.87% and 4.64%, respectively for the quarter ended March 31, 1996.
Interest earned on mortgage loans increased by $1.2 million, or 7.2%, to
$18.0 million from $16.8 million, reflecting continued growth in the mortgage
portfolio, partially offset by a decrease in the yield on mortgage loans to
8.57% for the quarter ended March 31, 1997, from 8.83% for the quarter ended
March 31, 1996. During the quarter ended March 31, 1997, the Bank did not sell
any mortgage loans, compared to a sale of $93,000 during the quarter ended March
31, 1996, which resulted in a net gain of $1,000.
For the three months ended March 31, 1997, income from debt and equity
securities, net, decreased by $1.3 million, or 20.3%, to $5.0 million from $6.3
million for the three months ended March 31, 1996. This decrease is the result
of a decrease in the average investment in U.S. Government and federal agency
securities and other investments of $80.0 million, or 19.0%, to $340.3 million,
compared to $420.3 million for the three months ended March 31, 1996. The
annualized yield on the debt and equity security portfolio decreased to 5.89%
for the three months ended March 31, 1997 from 5.99% for the three months ended
March 31, 1996. The debt and equity securities portfolio activity for the
current period included purchases of $134.9 million and maturities of $95.0
million, compared with purchases of $50.0 million and maturities of $110.0
million each for the quarter ended March 31, 1996.
For the quarter ended March 31, 1997, income on CMOs decreased by 7.1%, to
$2.2 million, with an annualized yield of 5.84%, from $2.3 million with an
annualized yield of 5.49% for the quarter ended March 31, 1996. During the first
quarter of 1997, the Bank received principal payments of $28.7 million on CMOs,
compared with $22.9 million for the quarter ended March 31, 1996. CMO purchases
during the quarter ended March 31, 1997 totaled $30.0 million, compared to
purchases of $66.6 million for the quarter ended March 31, 1996. The Bank did
not sell any CMOs during either period.
Income on federal funds sold increased by $124,000, or 15.5% to $925,000
for the quarter ended March 31, 1997 from $801,000 for the quarter ended March
31, 1996. This increase resulted from an increase in the average investment in
federal funds of $10.6 million to $70.3 million for the current period, compared
with $59.7 million for the quarter ended March 31, 1996. The annualized yield on
federal funds sold decreased to 5.26% for the current quarter, compared to 5.37%
for the quarter ended March 31, 1996.
Interest expense on deposits decreased by 4.0%, to $9.7 million for the
quarter ended March 31, 1997, compared to $10.1 million for the quarter ended
March 31, 1996. This net decrease reflects the decrease in average interest
bearing deposits of $26.6 million, to $1.106 billion for the three months ended
March 31, 1997, compared to $1.133 billion for the three months ended March 31,
1996. The cost of interest bearing deposits decreased slightly to 3.52% from
3.58% from the comparative quarter.
The provision for possible loan losses for the three months ended March 31,
1997 remained relatively unchanged at $160,000 compared to $161,000 for the same
period in 1996. Management regularly evaluates the quality and performance of
the Company's asset portfolios, and thereby assesses the adequacy of loss
allowances.
Total non-interest income for the three months ended March 31, 1997,
decreased to $1.1 million from $1.2 million, a net decrease of $101,000, or
8.3%. The net change in non-interest income primarily reflects a $164,000
decrease in loan fees and service charges resulting from decreases in prepayment
penalties and mortgage loan late charges of $85,000 and $49,000, respectively.
This decrease was offset by a $92,000 increase in miscellaneous income as the
1996 quarter reflects an $83,000 loss incurred in connection with a robbery at
one of the branch offices.
Non-interest expense decreased by $382,000, or 5.3%, to $6.9 million during
the quarter ended March 31, 1997, from $7.3 million for the quarter ended March
31, 1996. The net change in non-interest expense is comprised of: (1) a $253,000
decrease in occupancy and equipment expense, primarily the result of the
completion of the renovations to the Company's headquarters during 1996; (2) a
$136,000 decrease in compensation and benefits expense resulting from an
insurance premium holiday, whereby a $115,000 medical and dental premium was
waived due to insurance reserve targets being met; (3) a $107,000 decrease in
other general and administrative expense reflecting decreases of $196,000 in
legal fees due to the sale of a property acquired through foreclosure during the
first quarter of 1996, offset by increases of $100,000 in tax consultation fees
relating to the Bank forming a new subsidiary (See Note 5b to the unaudited
consolidated financial statements.) and $65,000 in other professional fees (4) a
$61,000 increase in ORE expense, as the 1996 period included net income of
$68,000 from the sale of a real estate property acquired through foreclosure;
and (5) a $37,000 increase in Federal Deposit Insurance Corporation premiums in
connection with federal legislation assessing Bank Insurance Fund members a 1.3%
basis point charge per $100 of insurable deposits to meet the Financing
Corporation ("FICO") bond obligations.
The provision for income taxes increased by $99,000, or 2.2%, to $4.6
million for the three months ended March 31, 1997, from $4.5 million for the
three months ended March 31, 1996. This increase is reflective of the increase
in pretax income.
Private Securities Litigation Reform Act Safe Harbor Statement
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In addition to historical information, this Form 10-Q may include certain
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Bank's loan
and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. Further description of the risks and uncertainties to the business are
included in detail in Item 1, BUSINESS of the Company's 1996 Form 10-K.
PART II - OTHER INFORMATION
ITEM 1. Legal proceedings
The Bank is a defendant in several lawsuits arising out of the normal
conduct of business. In the opinion of management, after consultation with legal
counsel, the ultimate outcome of these matters is not expected to have a
material adverse effect on the Company's results of operations, business
operations or the consolidated financial condition 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 (Not Applicable)
ITEM 5. Other information (Not Applicable)
ITEM 6. Exhibits and Reports on Form 8-K
Page
Number
(a) Exhibits
3.01 Articles of Incorporation (1)
3.02 By-laws (2)
11.00 Computation of Earnings Per Share 18
27.00 Financial Data Schedule 19-20
(b) Reports on Form 8-K (Not Applicable)
(1) Incorporated herein by reference to Exhibits filed
with the Registration Statement on Form S-1, Registration
No. 33-33821.
(2) Incorporated herein by reference to Exhibits filed with the Form 10-Q
for the Quarter Ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Quarterly Report on the Form
10-Q for the quarter ended March 31, 1997, to be signed on its behalf by the
undersigned, thereunto duly authorized.
JSB Financial, Inc.
(By)
/s/ Park T. Adikes
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Park T. Adikes
Chief Executive Officer
Pursuant to the requirements 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.
DATE: May 7, 1997 /s/ Park T. Adikes
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Park T. Adikes
Chief Executive Officer
DATE: May 7, 1997 /s/ Thomas R. Lehmann
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Thomas R. Lehmann
Chief Financial Officer
Exhibit Index
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Exhibit No. Identification of Exhibit
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11.00 Statement Re: Computation of Per Share Earnings
27.00 Financial Data Schedule