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 SEPTEMBER 30, 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 NOVEMBER 7, 1997
- --------------------- -------------------------------
$.01 PAR VALUE 9,918,412
INDEX
PART I - FINANCIAL INFORMATION
Page
Number
ITEM 1. Financial Statements
Consolidated Statements of Financial Condition
at September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 1997
and September 30, 1996 4
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1997
and September 30, 1996 5- 6
Notes to Consolidated Financial Statements 7-10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-19
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 2. Changes in Securities 20
ITEM 3. Defaults Upon Senior Securities 20
ITEM 4. Submission of Matters to a Vote of Security Holders 20
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
Exhibit 11.00 Computation of Earnings Per Share 23
Exhibit 27.00 Financial Data Schedule 24-25
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
- ------
Cash and due from banks $ 11,298 $ 12,894
Federal funds sold 43,500 86,500
---------- ----------
Cash and cash equivalents 54,798 99,394
Securities available-for-sale, at estimated fair value 62,469 51,021
Securities held-to-maturity, net (estimated fair value of
$433,636 and $461,784, respectively) 432,190 460,509
Other investments 7,645 6,859
Mortgage loans, net 899,968 827,052
Other loans, net 28,732 27,722
Premises and equipment, net 17,076 16,829
Interest due and accrued 10,470 9,310
Real estate held for investment, net -- 6,082
Real estate held for sale and Other real estate ("ORE") 10,679 5,236
Other assets 7,041 6,002
---------- ----------
Total Assets $1,531,068 $1,516,016
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Due to depositors $1,122,798 $1,144,393
Advance payments for real estate taxes and insurance 10,281 8,265
Official bank checks outstanding 7,473 9,644
Accrued expenses and other liabilities 35,097 18,415
---------- ----------
Total Liabilities 1,175,649 1,180,717
---------- ----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
- --------------------
Preferred stock ($.01 par value, 15,000,000 shares authorized;
none issued) -- --
Common stock ($.01 par value, 30,000,000 shares authorized;
16,000,000 issued; 9,898,160 and 9,783,031 outstanding,
respectively) 160 160
Additional paid-in capital 164,988 163,500
Retained income, substantially restricted 300,187 289,588
Net unrealized gain on securities available-for-sale, net of tax 28,218 21,795
Common stock held by Benefit Restoration Plan Trust, at cost
(188,323 and 166,848 shares, respectively) (4,192) (3,275)
Common stock held in treasury, at cost (6,101,840 and 6,216,969
shares, respectively) (133,942) (136,469)
---------- ----------
Total Stockholders' Equity 355,419 335,299
---------- ----------
Total Liabilities and Stockholders' Equity $1,531,068 $1,516,016
========== ==========
<FN>
See accompanying Notes to the consolidated financial statements.
</FN>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------------
Interest Income
- ---------------
Mortgage loans $18,431 $17,553 $54,650 $51,435
Debt & equity securities 4,919 4,783 15,193 16,868
Collateralized mortgage obligations ("CMOs") 1,893 2,746 6,175 7,546
Other loans 528 523 1,539 1,617
Mortgage-backed securities ("MBS") 119 177 390 574
Federal funds sold 906 1,166 2,525 2,771
------- ------- ------- -------
Total Interest Income 26,796 26,948 80,472 80,811
------- ------- ------- -------
Interest Expense
- ----------------
Deposits 10,094 10,060 29,764 30,248
------- ------- ------- -------
Net Interest Income 16,702 16,888 50,708 50,563
Provision for Possible Loan Losses 162 160 483 481
------- ------- ------- -------
Net Interest Income After Provision for
Possible Loan Losses 16,540 16,728 50,225 50,082
------- ------- ------- -------
Non-Interest Income
- -------------------
Real estate operations, net 260 752 1,096 1,573
Loan fees and service charges 1,024 736 2,746 2,248
Gain/(loss) on sale of investments, net 2,874 (2) 2,874 2
Miscellaneous income 355 160 447 173
------- ------- ------- -------
Total Non-Interest Income 4,513 1,646 7,163 3,996
------- ------- ------- -------
Non-Interest Expense
- --------------------
Compensation and benefits 4,049 4,208 11,962 12,438
Occupancy and equipment expenses, net 1,181 1,169 3,443 3,771
Federal deposit insurance premiums 37 1 112 2
Advertising 269 310 838 889
ORE expense/(income), net 1 23 56 (795)
Other general and administrative 1,526 1,254 4,287 3,988
------- ------- ------- -------
Total Non-Interest Expense 7,063 6,965 20,698 20,293
------- ------- ------- -------
Income Before Provision for Income Taxes 13,990 11,409 36,690 33,785
Provision for Income Taxes 5,436 4,847 14,579 14,347
------- ------- ------- -------
Net Income $ 8,554 $ 6,562 $22,111 $19,438
======= ======= ======= =======
Earnings and Cash Dividends Per Share:
- --------------------------------------
Earnings per common and common
equivalent share - Primary $ .83 $ .64 $2.14 $ 1.83
===== ===== ===== ======
Earnings per common and common
equivalent share - Fully Diluted $ .82 $ .64 $2.13 $ 1.82
===== ===== ===== ======
Cash Dividends $ .35 $ .30 $1.05 $ .90
===== ===== ===== =====
Weighted Average Number of Shares and
Share Equivalents Outstanding - Primary 10,346 10,264 10,313 10,627
====== ====== ====== ======
Weighted Average Number of Shares and
Share Equivalents Outstanding - Fully Diluted 10,374 10,286 10,367 10,657
====== ====== ====== ======
<FN>
See accompanying Notes to the consolidated financial statements.
</FN>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
Cash flows from operating activities 1997 1996
- ------------------------------------ ----------------------------------------
Net income $ 22,111 $ 19,438
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible loan losses 483 481
Net gain on sale/redemption of equity securities (2,874) (2)
Decrease in deferred loan fees and discounts, net (330) (430)
Accretion of discount in excess of amortization
of premium on MBS and CMOs (265) (412)
Accretion of discount in excess of amortization of
premium on debt securities (256) (175)
Depreciation and amortization on premises and equipment 1,385 1,312
Mortgages loans originated for sale (1,240) (977)
Proceeds from sale of mortgage loans originated for sale 1,259 1,083
Net gains on sale of mortgage and other loans (27) (19)
Tax benefit for stock plans credited to capital 571 517
(Increase) decrease in interest due and accrued (1,160) 2,645
Payments received against Nationar claim -- 4,082
Net gain on sale of other real estate (1) (705)
Decrease in official bank checks outstanding (2,171) (17,590)
Other, net 10,580 3,374
-------- ---------
Net cash provided by operating activities 28,065 12,622
-------- ---------
Net cash flow from investing activities
- ---------------------------------------
Loans originated:
Mortgage loans (120,249) (106,104)
Other loans (15,452) (13,671)
Purchases of CMOs held-to-maturity (55,035) (124,275)
Purchases of debt securities held-to-maturity and securities
available-for-sale (389,920) (439,569)
Principal payments on:
Mortgage loans 46,741 33,332
Other loans 14,046 14,350
CMOs 82,597 82,076
MBS 1,198 1,672
Proceeds from maturities of U.S. Government and
federal agency securities 390,000 590,000
Proceeds from sale of other loans 388 317
Purchases of Federal Home Loan Bank stock (786) (558)
Proceeds from sale/redemption of equity securities 3,016 30
Purchases of premises and equipment, net of disposals (1,632) (2,952)
Net decrease in real estate held holdings (excluding ORE) 984 1,540
Proceeds from sale of ORE 7 2,225
-------- ---------
Net cash (used by) provided by investing activities (44,097) 38,413
-------- ---------
<FN>
(CONTINUED)
</FN>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996
-------------------------------
Net cash flow from financing activities
- ---------------------------------------
Net decrease in due to depositors (21,595) (12,407)
Increase in advance payments for real estate
taxes and insurance 2,016 7,329
Proceeds from common stock option exercises 1,350 1,046
Cash dividends paid to common stockholders (10,335) (9,156)
Payments to repurchase common stock -- (27,650)
-------- --------
Net cash used by financing activities (28,564) (40,838)
-------- --------
(Decrease) increase in cash and cash equivalents (44,596) 10,197
Cash and cash equivalents at beginning of year 99,394 85,893
-------- --------
Cash and cash equivalents at end of quarter $ 54,798 $ 96,090
======== ========
<FN>
See accompanying Notes to the consolidated financial statements.
</FN>
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 an 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. Common Stock Listing
- ------------------------
Effective August 7, 1997, the Company's common stock began trading on
the New York Stock Exchange (the "NYSE") under the symbol "JSB". Prior to
listing on the NYSE, the Company's stock was listed on the Nasdaq Stock Market
under the symbol "JSBF". Stock price quotations can be found in the Wall Street
Journal and New York Times under a contraction of the Company's name, such as
"JSB Fn". The Company's common stock initially began trading on June 27, 1990.
3. Impact of New Accounting Standards
- --------------------------------------
Earnings Per Share
- ------------------
During the first quarter of 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("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
the standards 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 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. Statement 128 requires restatement of all prior-period EPS
data presented.
The basic EPS under Statement 128 will result in higher EPS than
previously reported under Opinion 15. Diluted EPS are expected to be similar to
fully diluted EPS.
Reporting Comprehensive Income
- ------------------------------
In June of 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("Statement 130"). Statement 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Statement 130 does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
Statement 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
Statement 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Management has not yet determined the impact
that Statement 130 will have on the Company.
Disclosures about Segments of an Enterprise and Related Information
- -------------------------------------------------------------------
In June of 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("Statement 131"). Statement
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. This statement supersedes FASB Statement No. 14, "Financial Reporting
for Segments of a Business Enterprise", but retains the requirement to report
information about major customers. It amends FASB Statement No. 94,
"Consolidation of All Majority-Owned Subsidiaries", to remove the special
disclosure requirements for previously unconsolidated subsidiaries. Statement
131 does not apply to nonpublic business enterprises or to not-for-profit
organizations.
Statement 131 requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
Statement 131 requires that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. This statement requires reconciliations of total segment
revenues, total segment profit or loss, total segment assets, and other amounts
disclosed for segments to corresponding amounts in the enterprise's
general-purpose financial statements. It requires that all public business
enterprises report information about the revenues derived from the enterprise's
products or services (or groups of similar products and services), about the
countries in which the enterprise earns revenues and holds assets, and about
major customers regardless of whether that information is used in making
operating decisions. However, this statement does not require an enterprise to
report information that is not prepared for internal use if reporting it would
be impracticable.
Statement 131 also requires that a public business enterprise report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.
Statement 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This statement need
not be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of application.
The Company does not expect the adoption of Statement 131 to have
a material affect on its financial condition or results of operations.
4. Debt and Equity Securities
- ------------------------------
The following tables set forth information regarding the Company's debt
and equity securities as of:
September 30, 1997 December 31, 1996
------------------ -----------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
Held-to-Maturity (In Thousands)
U.S. Government and Federal
Agency Securities $299,822 $300,497 $299,645 $300,262
CMOs, net 127,958 128,354 155,272 155,421
MBS, net 4,410 4,785 5,592 6,101
-------- -------- -------- --------
Total Securities held-to maturity $432,190 $433,636 $460,509 $461,784
======== ======== ======== ========
Estimated Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
Available-for-Sale (In Thousands)
Equity securities:
Common stock $ 11,051 $ 41,698 $ 11,108 $ 32,888
SLM* stock 6 3,090 6 1,863
Freddie Mac stock 490 17,625 576 16,225
FNMA* stock 2 56 2 45
-------- -------- -------- ---------
Total equity securities $ 11,549 $ 62,469 $ 11,692 $ 51,021
======== ======== ======== =========
<FN>
* SLM Holding Corporation ("SLM"), formerly known as Student Loan Marketing
Association, Federal National Mortgage Association ("FNMA").
</FN>
5. Subsequent Events
- ---------------------
a. On October 21, 1997, the Company's Board of Directors declared a $.35 per
share dividend on its common stock. The dividend is to be paid on November 19,
1997, to stockholders of record on November 5, 1997, and will total
approximately $3.5 million.
b. On October 1, 1997, the Bank sold $4.8 million of equity securities, with a
cost basis of $681,000 from its available for sale portfolio, realizing a pretax
gain of $4.1 million.
c. On October 29, 1997, a subsidiary of the Bank, 1995 Associates, sold for
$15.1 million, an office tower condominium located at 1995 Broadway, New York
City. The sale generated a pretax net gain of $9.2 million. The Bank retained an
$11.1 million first mortgage loan secured by the property.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
General/Financial Condition
- ---------------------------
JSB Financial, Inc. is a Delaware-chartered holding company. The
Company's assets, which totaled approximately $1.53 billion at September 30,
1997, included assets totaling $1.44 billion owned by its wholly owned
subsidiary, Jamaica Savings Bank FSB. In addition to the Bank's assets, the
Company's earning assets were comprised of $12.0 million in money market
investments on deposit with the Bank, $75.0 million in short-term federal agency
securities, and $15.2 million in mortgage loans secured by multi-family
residential rental properties.
During the second quarter of 1997, all real estate properties held for
investment were reclassified to real estate held for sale. These properties are
no longer considered as held for investment as management will consider purchase
offers for these properties. The properties are carried at cost, net of
accumulated depreciation, which is estimated to be less than the properties'
fair value net of estimated selling costs.
Subsidiary Activities
- ---------------------
During the second quarter of 1997, the Bank's subsidiary, Tier Inc.,
began operating as a real estate investment trust, which may, among other
things, be utilized by the Bank to raise capital in the future. The bank
initially transferred approximately $360.0 million of mortgage loans to Tier
Inc.
On October 29, 1997, a subsidiary of the Bank, 1995 Associates, sold for
$15.1 million, an office tower condominium located at 1995 Broadway, New York
City. The sale generated a pretax net gain of $9.2 million. The Bank holds an
$11.1 million first mortgage loan secured by the property.
Asset Quality
- -------------
At September 30, 1997, the Bank's non-performing assets, which totaled
$14.5 million, included: non-performing loans of $13.5 million and $991,000 of
ORE. The $13.5 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 .94%
and .98% at September 30, 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, if any, on which the collection of contractual
principal and interest is uncertain. The ratio of non-performing loans to total
loans was 1.44% and 1.64% (See Non-performing/Non-accrual Table, herein) at
September 30, 1997 and December 31, 1996, respectively.
Loan Delinquency Table
- ----------------------
At September 30, 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 September 30, 1997:
- ----------------------
Delinquent loans:
Guaranteed(1) 52 $ 339 87 $ 545
Non-guaranteed 3 8 13 12,927(2)
-- ------ --- -------
55 $ 347 100 $13,472
== ====== === =======
Ratio of delinquent loans
to total loans .04% 1.44%
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 ("VA") or New York State Higher Education Services
Corporation 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 were delinquent 90 days or more on which the Bank was accruing
interest at September 30, 1997 and December 31, 1996:
September 30, December 31,
1997 1996
------------ -----------
(In Thousands)
Mortgage loans:
- ---------------
Non-accrual loans (1) $12,754 $12,754
------- -------
Accruing loans 90 or more days overdue:
Conventional mortgages 140 686
VA and FHA mortgages (2) 318 361
------- -------
Total 458 1,047
------- -------
Other loans:
- ------------
Non-accrual loans -- --
Accruing loans 90 or more days overdue:
Student loans 227 331
Consumer loans 33 19
------- -------
Total 260 350
------- -------
Total non-performing loans:
Non-accrual 12,754 12,754
Accruing loans 90 days or more overdue 718 1,397
------- -------
Total $13,472 $14,151
======= =======
Non-accrual loans to total loans 1.36% 1.48%
Accruing loans 90 or more days overdue
to total loans .08 .16
Non-performing loans to total loans 1.44 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. It is
management's belief that these loans, including those in arrears, do
not present any significant collection risk to the Bank, and therefore,
are presented separately from conventional mortgages.
Note: At September 30, 1997 and December 31, 1996, loans restructured in a
trouble debt restructure, other than those classified as impaired
loans and/or non-accrual loans, were $1,862,000 and $1,874,000,
respectively. These loans are performing in accordance with the
restructure agreements and are not included in the above table.
</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 nine months
ended September 30, 1997 and the year ended December 31, 1996, as follows:
September 30, 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 450 600
Loans charged off (35) --
Recoveries of loans previously charged off -- 1
------ ------
Balance at end of period $5,591 $5,176
====== ======
Ratios for Mortgage Portfolio:
- ------------------------------
Net charge-offs to average mortgages --% --%
Allowance for possible loan losses to
mortgage loans .62 .63
Allowance for possible loan losses to
mortgage loans delinquent 90 days or more 42.32 37.50
Other Loan Portfolio Loss Allowance:
- ------------------------------------
Balance at beginning of period $ 151 $ 122
Provision for possible loan losses 33 40
Loans charged off (43) (33)
Recoveries of loans previously charged off 8 22
------ ------
Balance at end of period $ 149 $ 151
====== ======
Ratios for Other Loan Portfolio:
- --------------------------------
Net charge-offs to average other loans .12% .04%
Allowance for possible loan losses to
net other loans .52 .54
Allowance for possible loan losses to
other loans delinquent 90 days or more 57.31 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,
mortgages and other loans. During the nine months ended September 30, 1997, the
$390.0 million of purchases of U.S. Government and agency securities represented
the most significant use of funds from investing activities, which replaced
maturities of an equal amount. Mortgage originations, substantially all of which
are at fixed rates, for the nine months ended September 30, 1997 were $120.2
million, compared to $106.1 million for the nine months ended September 30,
1996. Principal payments on CMOs totaled $82.6 million and principal payments on
mortgage loans were $46.7 million for the first nine months of 1997. Net deposit
outflows of $21.6 million and dividend payments of $10.3 million represent the
most significant cash outflows from financing activities. The increase in
dividend payments reflects the increase in dividends paid per share to $1.05 for
the first nine months of 1997, compared to $.90 per share for the first nine
months of 1996.
The net decrease in deposits of $21.6 million to $1.123 billion at
September 30, 1997, from $1.144 billion at December 31, 1996, reflects decreases
in passbook accounts, money market accounts, negotiable order of withdrawal
("NOW") accounts and demand deposit accounts of $29.9 million, $8.6 million,
$1.6 million and $1.4 million, respectively, partially offset by an $18.5
million increase in certificate accounts and a $1.4 million increase in lease
security accounts. Interest rates offered on passbook accounts remained
relatively low compared to alternative short-term CD's offered by the Bank and
products of the investment community. This scenario has caused the trend of
deposit shifts from passbook accounts to short-term certificate accounts and the
trend of 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
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.
The Company did not repurchase shares of its common stock during the
nine months ended September 30, 1997, pursuant to its tenth stock 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 at an
average price of $33.00 per share. Pursuant to the Company's stock option plans,
115,129 shares of treasury stock were reissued for option exercises during the
nine months ended September 30, 1997.
On July 8, 1997, the Company's Board of Directors declared a cash
dividend of $.35 per share to stockholders of record on August 6, 1997. The
dividend payment, which totaled $3.5 million, was made on August 20, 1997.
Regulations
- -----------
As a condition of deposit account insurance, Office of Thrift
Supervision ("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 ratio 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 September 30, 1997 were as
follows:
Percentage Dollars
---------- -------
(In Thousands)
TANGIBLE CAPITAL
Required 1.50% $ 20,812
Actual 15.07 209,105
----- --------
Excess 13.57% $188,293
===== ========
CORE CAPITAL
Required 3.00% $ 41,625
Actual 15.07 209,105
----- --------
Excess 12.07% $167,480
===== ========
RISK BASED CAPITAL
Required 8.00% $ 78,404
Actual 20.78 203,611
----- --------
Excess 12.78% $125,207
===== ========
Comparison of Operating Results for the Three Months Ended September 30, 1997
- -----------------------------------------------------------------------------
and 1996
- ---------
Net income for the three months ended September 30, 1997, was $8.6 million,
or $.83 per share, compared with $6.6 million, or $.64 per share for the three
months ended September 30, 1996.
Net interest income for the three months ended September 30, 1997, was
$16.7 million, compared to $16.9 million for the three months ended September
30, 1996. This net decrease reflects a $152,000 decrease in interest income and
a $34,000 increase in interest expense. The annualized yield on interest earning
assets decreased nominally to 7.51%, compared to 7.53%, for the quarters ended
September 30, 1997 and 1996, respectively; and average interest earning assets
decreased by $18.9 million. The annualized cost of interest bearing deposits
increased to 3.69% from 3.57% for the quarters ended September 30, 1997 and
1996, respectively and average interest bearing deposits decreased by $31.3
million. For the quarter ended September 30, 1997, the net interest rate spread
and net interest margin decreased to 3.82% and 4.68%, respectively, compared to
3.96% and 4.72%, respectively for the quarter ended September 30, 1996.
Income earned on mortgage loans increased by 5.0%, to $18.4 million for
the three months ended September 30, 1997, compared to $17.6 million for the
comparative 1996 period, reflecting continued growth in the mortgage loan
portfolio. This increase was partially offset by a decrease in the yield to
8.39% for the quarter ended September 30, 1997, from 8.71% for the quarter ended
September 30, 1996.
For the three months ended September 30, 1997, income from debt and
equity securities increased by $136,000, or 2.8%, to $4.9 million from $4.8
million for the three months ended September 30, 1996. This increase is the
result of an increase in the average investment in U.S. Government and federal
agency securities and other investments of $14.4 million, or 4.6%, to $325.5
million, compared to $311.1 million for the three months ended September 30,
1996. The annualized yield on the debt and equity securities portfolio decreased
to 6.05% for the three months ended September 30, 1997 from 6.15% for the three
months ended September 30, 1996. The debt and equity securities portfolio
activity for the current period included purchases of $145.0 million and
maturities of $140.0 million, compared with purchases of $209.7 million and
maturities of $265.0 million for the quarter ended September 30, 1996. During
the quarter ended September 30, 1997, the Bank sold $3.0 million of equity
securities, with a cost basis of $142,000 from its available for sale portfolio,
realizing a gain of $2.9 million. Net of taxes, this gain increased net income
by $1.6 million, or 16 cents per common share.
For the quarter ended September 30, 1997, income on CMOs decreased by
31.1%, to $1.9 million, with an annualized yield of 5.98%, from income of $2.7
million with an annualized yield of 5.70% for the quarter ended September 30,
1996. During the third quarter of 1997, the Bank received principal payments of
$26.6 million on CMOs, compared with principal payments of $28.9 million for the
quarter ended September 30, 1996. CMO purchases during the quarter ended
September 30, 1997 totaled $25.1 million, compared to purchases of $30.8 million
for the quarter ended September 30, 1996. The Bank did not sell any CMOs during
either period.
Income on federal funds sold decreased by $260,000, or 22.3%, to
$906,000 for the quarter ended September 30, 1997 from $1.2 million for the
quarter ended September 30, 1996. This decrease resulted from a decrease in the
average investment in federal funds of $22.0 million to $64.8 million for the
current period, compared with $86.8 million for the quarter ended September 30,
1996. The annualized yield on federal funds sold increased to 5.59% for the
current quarter, compared to 5.37% for the quarter ended September 30, 1996.
Interest expense on deposits remained level at $10.1 million for the
quarters ended September 30, 1997 and September 30, 1996, respectively. Average
interest bearing deposits decreased by $31.3 million, to $1.095 billion for the
three months ended September 30, 1997, compared to $1.126 billion for the three
months ended September 30, 1996, while the average rate paid on interest bearing
deposits increased to 3.69% from 3.57% for the comparative quarter in 1996.
The provision for possible loan losses remained relatively unchanged at
$162,000 compared to $160,000 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 September 30, 1997,
increased to $4.5 million from $1.6 million for the three months ended September
30, 1996, a net increase of $2.9 million, or 174.2%. The net change in
non-interest income primarily reflects a $2.9 million profit from the sale of
Freddie Mac stock.
Non-interest expense remained relatively unchanged, increasing by
$98,000, or 1.4%, to $7.1 million during the quarter ended September 30, 1997,
from $7.0 million for the quarter ended September 30, 1996. Other general and
administrative expense increased by $272,000, resulting from an increase in
consultation fees in connection with the formation of Tier Inc. Compensation and
benefit expense decreased by $159,000, primarily reflecting a decrease in
pension fund expense, as a result of an increase in income earned on excess
pension fund assets.
The provision for income taxes increased by $589,000, or 12.2%, to $5.4
million for the three months ended September 30, 1997, from $4.8 million for the
three months ended September 30, 1996. This increase is reflective of the $2.6
million increase in pre-tax income, offset by the decrease in the Company's
effective tax rate from 42.5% for the quarter ended September 30, 1996, to 38.9%
for the quarter ended September 30, 1997. The reduction in the effective tax
rate is primarily reflective of certain state and city tax benefits associated
with Tier Inc.
Comparison of Operating Results for the Nine Months Ended September 30, 1997
- ----------------------------------------------------------------------------
and 1996
--------
Net income for the nine months ended September 30, 1997, was $22.1 million,
or $2.14 per share, compared with $19.4 million, or $1.83 per share for the nine
months ended September 30, 1996.
Net interest income for the nine months ended September 30, 1997, was
$50.7 million, compared to $50.6 million for the nine months ended September 30,
1996. This net increase reflects a $484,000 decrease in interest expense, and a
$339,000 decrease in interest income. The annualized yield on interest earning
assets increased to 7.50%, compared to 7.46%, for the nine months ended
September 30, 1997 and 1996, respectively; while average interest earning assets
decreased by $12.6 million. The average annualized cost of interest bearing
deposits remained relatively stable, increasing to 3.60% for the nine months
ended September 30, 1997, compared to 3.57% for the nine months ended September
30, 1996, and average interest bearing deposits decreased by $30.1 million. For
the nine months ended September 30, 1997, the net interest rate spread and net
interest margin were 3.89% and 4.73%, respectively, compared to 3.90% and 4.67%,
respectively for the year to date period ended September 30, 1996.
Income earned on mortgage loans increased by $3.2 million, or 6.3%, to
$54.6 million for the nine months ended September 30, 1997 compared to $51.4
million for the comparative 1996 period, reflecting continued growth in the
mortgage portfolio. This increase was partially offset by a decrease in the
mortgage portfolio yield to 8.49% for the nine months ended September 30, 1997,
from 8.75% for the nine months ended September 30, 1996.
For the nine months ended September 30, 1997, income on the debt and
equity securities portfolio decreased by $1.7 million, or 9.9%, to $15.2
million, from $16.9 million for the nine months ended September 30, 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 $35.7 million,
or 9.6%, to $338.7 million, compared to $374.4 million for the nine months ended
September 30, 1996. The annualized yield on the debt and equity securities
portfolio remained relatively stable, decreasing to 5.98% from 6.01% for the
comparative nine month periods. The debt and equity securities portfolio
activity for the current period included purchases of $389.9 million essentially
matching maturities of $390.0 million.
For the nine months ended September 30, 1997, income on CMOs decreased
by 18.2%, to $6.2 million, with an annualized yield of 5.92%, from $7.5 million
with an annualized yield of 5.55% for the nine months ended September 30, 1996.
This decrease is reflective of the decrease in the average investment in the CMO
portfolio of $42.0 million, or 23.2% for the comparative nine month period.
During the nine months ended September 30, 1997, the Bank received principal
payments of $82.6 million on CMOs, compared to $82.1 million for the nine months
ended September 30, 1996. CMO purchases for the current period totaled $55.0
million, compared to $124.3 million for the period ended September 30, 1996. The
Bank did not sell any CMOs during either period.
Income on federal funds sold decreased by $246,000, or 8.9%, to $2.5
million, for the nine months ended September 30, 1997, compared to $2.8 million
for the nine months ended September 30, 1996. This decrease resulted from a
decrease in the average investment in federal funds of $7.1 million, to $62.0
million for the current period, compared with $69.1 million for the nine months
ended September 30, 1996. This annualized yield on federal funds sold increased
to 5.43% for the current nine month period, compared to 5.35% for the nine month
period ended September 30, 1996.
Interest expense on deposits decreased by $484,000, to $29.8 million for
the nine months ended September 30, 1997, compared to $30.2 million for the nine
months ended September 30, 1996. This net decrease reflects the decrease in
average interest bearing deposits of $30.1 million, or 2.7%, to $1.101 billion
for the nine months ended September 30, 1997, compared to $1.131 billion for the
nine months ended September 30, 1996. The cost of interest bearing deposits
remained relatively stable, increasing to 3.60% from 3.57% for the comparative
nine month periods.
The provision for possible loan losses remained relatively stable,
increasing to $483,000 for the nine months ended September 30, 1997, compared to
$481,000 for the nine months ended September 30, 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 nine months ended September 30, 1997,
increased to $7.2 million from $4.0 million for the nine months ended September
30, 1996, a net increase of $3.2 million, or 79.3%. During the nine months ended
September 30, 1997, $2.9 million of gains were realized on the sale of equity
securities, compared to $2,000 for the nine months ended September 30, 1996. The
$498,000 increase in loans fees and service charges for the current nine month
period reflects an increase in prepayment penalties on commercial mortgage
loans. The $477,000 decrease in income from real estate operations primarily
reflects the impact of a $437,000 non-recurring property tax refund received
during the nine months ended September 30, 1996.
Non-interest expense increased by $405,000, or 2.0%, to $20.7 million
for the first nine months of 1997, from $20.3 million for the first nine months
of 1996. ORE expense was $56,000 for the nine months ended September 30, 1997,
compared to income of $795,000 for the nine months ended September 30, 1996,
which included a non-recurring gain of $705,000 recognized on the sale of a
property acquired through foreclosure. Compensation and benefits expense
decreased by $476,000 during the nine months ended September 30, 1997, primarily
as a result of a $510,000 decrease in pension fund expense, resulting from the
increase in income on excess pension fund assets. Occupancy and equipment
expense decreased by $328,000, as renovations to the Company's headquarters were
completed during 1996. Other general and administrative expense increased by
$299,000, reflecting an increase in professional fees incurred in connection
with Tier Inc. Federal Deposit Insurance Corporation premiums increased by
$110,000 in connection with federal legislation assessing Bank Insurance Fund
members a 1.3% basis point charge per $100 of insurable deposits.
The provision for income taxes increased by $232,000, or 1.6%, to $14.6
million for the nine months ended September 30, 1997, from $14.3 million for the
nine months ended September 30, 1996. This increase is reflective of the $2.9
million increase in pre-tax income, offset by the decrease in the Company's
effective tax rate from 42.5% for the nine months ended September 30, 1996, to
39.7% for the nine months ended September 30, 1997. The reduction in the
effective tax rate is primarily attributed to certain state and city tax
benefits associated with the Bank's subsidiary, Tier Inc.
Private Securities Litigation Reform Act Safe Harbor Statement
- --------------------------------------------------------------
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 23
27.00 Financial Data Schedule 24-25
(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 September 30, 1997, to be signed on its behalf by the
undersigned, thereunto duly authorized.
JSB Financial, Inc.
(By)
/s/ Park T. Adikes
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: November 10, 1997 /s/ Park T. Adikes
----------------- --------------
Park T. Adikes
Chief Executive Officer
DATE: November 10, 1997 /s/ Thomas R. Lehmann
----------------- -----------------
Thomas R. Lehmann
Chief Financial Officer
Exhibit Index
-------------
Exhibit No. Identification of Exhibit
----------- -------------------------
11.00 Statement Re: Computation of Per Share Earnings
27.00 Financial Data Schedule