1
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 JUNE 30, 1999
-------------
COMMISSION FILE NUMBER 1-13157
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 AUGUST 5, 1999
- --------------------- -----------------------------
$.01 PAR VALUE 9,286,897
2
INDEX
PART I - FINANCIAL INFORMATION
Page
Number
------
ITEM 1. Financial Statements - Unaudited
--------------------------------
Consolidated Statements of Financial Condition
at June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the Three
Months and Six Months Ended June 30, 1999
and June 30, 1998 4
Consolidated Statements of Stockholders' Equity for the
Six Months ended June 30, 1999 5
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1999 and June 30, 1998 6 - 7
Notes to the Consolidated Financial Statements 8 - 9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 19
----------------------------------------------
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 20 - 22
----------------------------------------------------------
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 23
ITEM 2. Changes in Securities and Use of Proceeds 23
ITEM 3. Defaults Upon Senior Securities 23
ITEM 4. Submission of Matters to a Vote of Security Holders 23
ITEM 5. Other Information 23
ITEM 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Exhibit Index 26
3
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1999 1998
----------- -------------
ASSETS
- ------
Cash and due from banks $ 14,393 $ 13,849
Federal funds sold 64,500 99,000
---------- ----------
Cash and cash equivalents 78,893 112,849
Securities available-for-sale, at estimated fair value 86,697 83,592
Securities held-to-maturity, net (estimated fair value of
$220,883 and $208,906, respectively) 221,364 208,457
Other investments 10,833 8,922
Mortgage loans, net 1,164,041 1,146,915
Other loans, net 20,147 22,744
Premises and equipment, net 18,702 18,340
Interest due and accrued 9,005 8,773
Real estate held for sale and other real estate ("ORE") 266 785
Other assets 10,073 10,272
---------- ----------
Total Assets $1,620,021 $1,621,649
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $1,110,116 $1,124,166
Federal Home Loan Bank of New York ("FHLB-NY") advances 50,000 50,000
Advance payments for real estate taxes and insurance 14,654 13,993
Official bank checks outstanding 27,893 11,604
Deferred tax liability, net 27,533 25,476
Accrued expenses and other liabilities 14,910 13,934
---------- -----------
Total Liabilities 1,245,106 1,239,173
---------- -----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
- --------------------
Preferred stock ($.01 par value, 15,000,000 shares authorized;
none issued) -- --
Common stock ($.01 par value, 65,000,000 shares authorized;
16,000,000 issued; 9,273,842 and 9,505,923 outstanding,
respectively) 160 160
Additional paid-in capital 170,072 168,663
Retained income, substantially restricted 342,633 337,474
Common stock held by Benefit Restoration Plan Trust, at cost
(196,823 and 193,723 shares, respectively) (4,758) (4,477)
Common stock held in treasury, at cost (6,726,158 and 6,494,077
shares, respectively) (175,809) (160,215)
Accumulated other comprehensive income:
Net unrealized gain on securities available-for-sale, net of tax 42,617 40,871
---------- ----------
Total Stockholders' Equity 374,915 382,476
---------- ----------
Total Liabilities and Stockholders' Equity $1,620,021 $1,621,649
========== ==========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
4
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------
Interest Income
- ---------------
Mortgage loans, net $22,800 $21,820 $45,757 $42,361
Debt & equity securities, net 1,867 3,076 3,795 6,681
Collateralized mortgage obligations ("CMOs") and
mortgage-backed securities ("MBS"), net 1,752 1,706 3,295 3,245
Other loans, net 350 502 720 1,010
Federal funds sold 709 1,173 1,585 2,378
------- ------- ------- -------
Total Interest Income 27,478 28,277 55,152 55,675
------- ------- ------- -------
Interest Expense
- ----------------
Deposits 8,629 9,742 17,348 19,384
FHLB-NY advances 700 - 1,393 -
------- ------- -------- -------
Total Interest Expense 9,329 9,742 18,741 19,384
------- ------- -------- --------
Net Interest Income 18,149 18,535 36,411 36,291
Provision for Loan Losses 5 14 12 28
------- ------- ------- -------
Net Interest Income After Provision for
Loan Losses 18,144 18,521 36,399 36,263
------- ------- ------- -------
Non-Interest Income
- -------------------
Real estate operations, net 544 38 1,119 115
Loan fees and service charges 583 2,065 1,970 2,592
Recovery of prior period expenses for troubled loans - 3,346 - 4,346
Miscellaneous (loss)/income (30) 355 (13) 407
------- ------- ------- -------
Total Non-Interest Income 1,097 5,804 3,076 7,460
------- ------- ------- -------
Non-Interest Expense
- --------------------
Compensation and benefits 3,942 3,980 8,038 7,774
Occupancy and equipment expenses, net 1,335 1,217 2,714 2,503
Federal deposit insurance premiums 35 36 70 72
Other general and administrative 1,774 1,648 3,490 3,318
------- ------- ------- -------
Total Non-Interest Expense 7,086 6,881 14,312 13,667
------- ------- ------- -------
Income Before Provision for Income Taxes 12,155 17,444 25,163 30,056
Provision for Income Taxes 5,262 2,258 10,791 7,206
------- ------- ------- -------
Net Income $ 6,893 $15,186 $14,372 $22,850
======= ======= ======= =======
Earnings and Cash Dividends Per Common Share:
- --------------------------------------------
Basic earnings per common share $ .74 $ 1.54 $ 1.54 $ 2.31
======= ======= ======= =======
Diluted earnings per common share $ .73 $ 1.49 $ 1.51 $ 2.24
======= ======= ======= =======
Basic weighted average common shares 9,288 9,878 9,337 9,882
======= ======= ======= =======
Diluted weighted average common & dilutive
potential shares 9,470 10,184 9,540 10,193
======= ======= ======= =======
Cash dividends per common share $ .45 $ .40 $ .90 $ .80
======= ======= ======= =======
Comprehensive Income:
- --------------------
Net Income $ 6,893 $15,186 $14,372 $22,850
Other comprehensive income, net of tax:
Net unrealized appreciation in securities 3,654 881 1,746 5,443
------- ------- -------- -------
Comprehensive Income $10,547 $16,067 $16,118 $28,293
======= ======= ======= =======
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
5
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED
JUNE 30, 1999
-------------
Common Stock (Par value: $.01)
- ------------------------------
Balance at beginning and end of period $ 160
-------------
Additional Paid-in Capital
- --------------------------
Balance at beginning of period 168,663
Net allocation of common stock for Benefit Restoration Plan 281
Tax benefit for stock plans 1,079
Issuance of common stock for Director's compensation 49
-------------
Balance at end of period 170,072
Retained Income, Substantially Restricted
- -----------------------------------------
Balance at beginning of period 337,474
Net income 14,372
Loss on reissuance of treasury stock (751)
Cash dividends on common stock ($.90) (8,462)
-------------
Balance at end of period 342,633
Common Stock Held by Benefit Restoration Plan Trust, at Cost
- ------------------------------------------------------------
Balance at beginning of period (4,477)
Common stock acquired (359)
Common stock distributed 78
-------------
Balance at end of period (4,758)
Common Stock Held in Treasury, at Cost
- --------------------------------------
Balance at beginning of period (160,215)
Common stock reacquired (17,995)
Common stock reissued for options exercised 2,359
Common stock reissued for Director's compensation 42
-------------
Balance at end of period (175,809)
Accumulated Other Comprehensive Income:
- ---------------------------------------
Balance at beginning of period 40,871
Net unrealized appreciation on securities
available-for-sale, net of tax effect of $1,360 1,746
-------------
Balance at end of period 42,617
-------------
Total Stockholders' Equity $ 374,915
=============
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
6
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
------------------------------
Cash flows from operating activities
- ------------------------------------
Net income $ 14,372 $ 22,850
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 12 28
Decrease in deferred loan fees and discounts, net (365) (480)
Accretion of discount less than (in excess of) amortization
of premium on MBS and CMOs 73 (38)
Accretion of discount in excess of amortization of
premium on debt securities (4) (78)
Depreciation and amortization on premises and equipment 1,244 978
Mortgage loans originated for sale (274) (1,199)
Proceeds from sale of mortgage loans originated for sale 369 1,192
Gains on sale of mortgage and other loans (2) (58)
Tax benefit for stock plans credited to capital 1,079 2,082
(Increase) decrease in interest due and accrued (232) 304
Increase in official bank checks outstanding 16,289 5,688
Other, net 1,964 (1,260)
-------- --------
Net cash provided by operating activities 34,525 30,009
-------- --------
Cash flows from investing activities
- ------------------------------------
Loans originated:
Mortgage loans (62,639) (135,904)
Other loans (5,014) (8,990)
Purchases of CMOs held-to-maturity (50,244) (34,987)
Purchases of debt securities held-to-maturity and securities
available-for-sale (225,000) (154,000)
Principal payments on:
Mortgage loans 45,783 48,348
Other loans 7,508 9,033
CMOs 26,665 35,593
MBS 603 724
Proceeds from maturities of U.S. Government and
federal agency securities 235,000 270,000
Proceeds from sale of other loans 93 5,043
Purchases of FHLB-NY stock (1,911) (1,277)
Purchases of premises and equipment, net of disposals (1,606) (1,942)
Net decrease in investment in real estate holdings 519 1,214
-------- --------
Net cash (used by) provided by investing activities (30,243) 32,855
-------- --------
<FN>
(CONTINUED)
</FN>
7
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
------------------------------
Cash flow from financing activities
- -----------------------------------
Net (decrease) increase in deposits (14,050) 493
Increase in advance payments for real estate
taxes and insurance 661 5,174
Proceeds from common stock option exercises 1,608 1,302
Cash dividends paid to common stockholders (8,462) (7,921)
Payments to repurchase common stock (17,995) (11,510)
--------- --------
Net cash used by financing activities (38,238) (12,462)
--------- --------
Net (decrease) increase in cash and cash equivalents (33,956) 50,402
Cash and cash equivalents at beginning of year 112,849 74,924
--------- --------
Cash and cash equivalents at end of quarter $ 78,893 $125,326
========= ========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
8
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 consistent with
those reflected in the 1998 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, 1998, 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, 1998, has been derived from, but does not
include all the disclosures contained in, the audited consolidated financial
statements for the year ended December 31, 1998. 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, 1999.
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, 1998.
2. Impact of New Accounting Standard Not Yet Adopted
- -----------------------------------------------------
In June of 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). Statement 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. Statement 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction.
The issuance of Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133",
delayed the effective date of Statement 133 to all fiscal quarters beginning
after June 15, 2000. Earlier application of all of the provisions of Statement
133 is encouraged, but it is permitted only as of the beginning of any fiscal
quarter that begins after the issuance of this Statement. Statement 133 should
not be applied retroactively to financial statements of prior periods. Upon
implementation of Statement 133, hedging relationships must be designated anew
and documented pursuant to the provisions of Statement 133. The Company does not
expect the adoption of Statement 133 to have a material affect on its financial
condition or results of operations.
9
3. Debt and Equity Securities
- ------------------------------
The following tables set forth information regarding the Company's debt and
equity securities as of:
June 30, 1999 December 31, 1998
------------------------------ ------------------------
Amortized Cost/ Estimated Amortized Cost/ Estimated
Carrying Value Fair Value Carrying Value Fair Value
-------------- ---------- -------------- ----------
Held-to-Maturity (In Thousands)
- ----------------
U.S. Government and federal
agency securities $100,000 $ 99,963 $109,996 $110,026
CMOs, net 119,295 118,699 95,790 95,997
MBS, net 2,069 2,221 2,671 2,883
-------- -------- -------- --------
Total Securities held-to-maturity $221,364 $220,883 $208,457 $208,906
======== ======== ======== ========
Estimated Estimated
Fair Value/ Fair Value/
Cost Carrying Value Cost Carrying Value
---- -------------- ---- --------------
Available-for-Sale (In Thousands)
- ------------------
Marketable equity securities $ 10,869 $ 86,697 $ 10,869 $ 83,592
======== ======== ======== ========
4. Subsequent Events
- ---------------------
On July 20, 1999, the Company's Board of Directors declared a $.45 per share
dividend on its common stock. The dividend, which is estimated to total $4.2
million, will be paid on August 18, 1999, to stockholders of record on August 4,
1999.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
General/Financial Condition
- ---------------------------
JSB Financial, Inc. is a Delaware-chartered savings and loan holding company,
which owns 100% of the outstanding common stock of Jamaica Savings Bank FSB. The
Company's assets, including the assets of the Bank, totaled $1.62 billion at
June 30, 1999. In addition to the Company's investment in the Bank, at June 30,
1999, the Company had $19.5 million in money market investments and $15.0
million in short-term federal agency securities.
Asset Quality
- -------------
The Bank's non-performing assets may include: (1) loans which are 90 days or
more in arrears; (2) loans which have been placed on non-accrual status; (3)
ORE; and (4) any other investments on which the collection of contractual
principal and interest is questionable. At June 30, 1999, the Bank's
non-performing assets, which totaled $674,000, included: non-performing loans of
$485,000 and ORE of $189,000, representing 27 cooperative apartments. The ratio
of non-performing assets to total assets was .04% at both June 30, 1999 and
December 31, 1998, respectively. The ratio of non-performing loans to total
loans at both June 30, 1999 and December 31, 1998 was .04%, well below industry
averages. (See Non-performing/Non-accrual Table, herein.)
Year 2000 Issues
- ----------------
The following discussion and tables contain certain forward-looking statements
and information with respect to management's expectations for implementation and
compliance with year 2000 ("Y2K") issues and requirements. Management has
inventoried and analyzed the Company's internal and outsourced computer
hardware, operating systems and applications, including both information
technology systems and non-information technology systems, such as telephone,
air conditioning, electrical, etc. The actual readiness of these systems may
differ materially from what is presented herein. Factors that may cause
differences between anticipated Y2K readiness and actual Y2K readiness include
failure of outside vendors to provide upgrades on a timely basis, and/or failure
of the Bank's hardware, operating systems and applications to meet Y2K readiness
requirements as planned. In addition, the actions of depositors and borrowers in
anticipation of Y2K complications may adversely impact the Company, regardless
of the Company's actual state of Y2K readiness.
The Company completed its assessment of all of its critical computer systems by
September 30, 1997, which included both information technology systems and
non-information technology systems. In January 1999, for reasons unrelated to
Y2K, the Bank substantially replaced its mainframe system with a Windows NT(R)
Client/Server system. This new system had Y2K capabilities built into its
design. All of the Bank's system upgrades and/or programming changes have been
made within the normal course of business, therefore, no material costs specific
to attaining Y2K capability have been incurred. In accordance with Y2K
disclosure requirements, the Company has analyzed the cost impact of Y2K
compliance issues and does not expect related future costs to be material to the
Company's future results of operations or financial condition.
Management has contacted all outside vendors inquiring as to the status of Y2K
compliance and is not aware of any vendor who does not expect to be Y2K
compliant. Management will continue to require updates from all vendors who are
not yet Y2K compliant. The Bank has many non-critical applications, which will
be tested for Y2K compliance during 1999, encompassing the majority of the dates
outlined by the Federal Financial Institutions Examination Council.
The Company believes the required upgrades and testing will ensure completion of
the Y2K project by September 1999. However, given the broad spectrum of
potential Y2K problems, including the ultimate state of readiness of the
Company's local utilities and other third parties, including governmental and
quasi-governmental agencies on which the Company relies, an amount of
11
uncertainty remains with respect to the actual affect of Y2K. Like all other
financial institutions, a failure to correct a material Y2K problem could result
in an interruption in, or a failure of, certain normal business activities or
operations of the Company. Such failures could materially and adversely affect
the Company's results of operations and financial condition. In addition, the
long term effect of poorly managing Y2K problems that may arise, or failure of
critical computer systems to be Y2K compliant could result in a decline in
business, depositors and confidence in the Company. The Company's Y2K project
was designed and is expected to significantly reduce the Company's level of
uncertainty about internal and external Y2K implications.
As of June 30, 1999 the Company had renovated and tested all of its critical
computer systems. The following table presents the Company's Y2K contingency
plan for the Bank's systems which are identified as critical, should they fail
to meet Y2K compliance deadlines, or ultimately fail to be Y2K compliant in the
future.
System Contingency Plan
- ------ ----------------
Relational Data Base No contingency plan is considered necessary
Local Area Network No contingency plan is considered necessary
Accounting system Use system in prior date mode
Check Processing Manual processing
ATMs Customers to use branches
NYCE Customers to use the Bank's ATM's or branches
Loan Delinquency Table
- ----------------------
At June 30, 1999 and December 31, 1998, 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 June 30, 1999:
- -----------------
Delinquent loans:
Guaranteed(1) 8 $ 215 11 $ 271
Non-guaranteed 2 46 3 214
-- ------ -- -------
10 $ 261 14 $ 485
== ====== =======
Ratio of delinquent loans
to total loans .02% .04%
At December 31, 1998:
- ---------------------
Delinquent loans
Guaranteed(1) 11 $ 212 10 $ 233
Non-guaranteed 5 63 5 216
-- ------ -- -------
16 $ 275 15 $ 449
== ====== == =======
Ratio of delinquent loans
to total loans .02% .04%
<FN>
(1) Loans which are Federal Housing Administration ("FHA"), Veterans
Administration ("VA") or New York State Higher Education Services
Corporation guaranteed.
</FN>
12
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 continued to accrue
interest at the dates indicated:
June 30, December 31,
1999 1998
---- ----
(In Thousands)
Mortgage loans:
- ---------------
Non-accrual loans $ 213 $ 213
Accruing loans 90 or more days overdue (1) 271 233
--------- ---------
Total 484 446
--------- ---------
Other loans: (2)
- ----------------
Accruing loans 90 or more days overdue:
Consumer loans 1 3
--------- --------
Total 1 3
--------- --------
Total non-performing loans:
- ---------------------------
Non-accrual 213 213
Accruing loans 90 days or more overdue 272 236
--------- --------
Total $ 485 $ 449
========= ========
Non-accrual loans to total loans .02% .02%
Accruing loans 90 or more days overdue
to total loans .02 .02
Non-performing loans to total loans .04 .04
<FN>
(1) Represents seasoned FHA and VA loans, which are guaranteed. Management
does not believe that these loans, including those in arrears, present
any significant collection risk to the Bank.
(2) There were no non-accrual loans in the other loan portfolio at June 30, 1999 or December 31, 1998.
</FN>
Information regarding impaired loans at or for the year to date periods
indicated is as follows:
June 30, December 31, June 30,
1999 1998 1998
----------------------------------------
(Dollars in Thousands)
Impaired loans
- --------------
Number of loans 1 1 -
Balance of impaired loans 213 213 -
Average balance for the year to date period ended 213 5,491 10,358
Interest income recorded for the year to date periods ended 0 397 387
Unrecorded interest on impaired loans 9 509 -
There were no loans included in the above table that were modified in a trouble
debt restructure ("TDRs"). TDRs other than those classified as impaired and/or
non-accrual loans, were $557,000 and $1,842,000 at June 30, 1999 and December
31, 1998, respectively. Interest forfeited attributable to these loans was
$12,000 and $33,000 for the six months ended June 30, 1999 and 1998,
respectively.
13
Loan Loss Activity Table
- ------------------------
Activity in the allowance for loan losses for the mortgage loan portfolio and
the other loan portfolio are summarized for the six months ended June 30, 1999
and the year ended December 31, 1998, as follows:
June 30, December 31,
1999 1998
---- ----
(Dollars in Thousands)
Mortgage Portfolio Loan Loss Allowance:
- ---------------------------------------
Balance at beginning of period $5,741 $5,741
Provision for loan losses - -
Loans charged off - -
Recoveries of loans previously charged off - -
------ ------
Balance at end of period $5,741 $5,741
====== ======
Ratios for Mortgage Portfolio:
- ------------------------------
Net charge-offs to average mortgages -% -%
Allowance for loan losses to net mortgage loans .49 .50
Allowance for loan losses to mortgage loans
delinquent 90 days or more 11.86x 12.87x
Other Loan Portfolio Loss Allowance:
- ------------------------------------
Balance at beginning of period $ 183 $ 139
Provision for loan losses 12 51
Loans charged off (13) (25)
Recoveries of loans previously charged off 20 18
------ ------
Balance at end of period $ 202 $ 183
====== ======
Ratios for Other Loan Portfolio:
- --------------------------------
Net (recoveries) charge-offs to average other loans (.04)% .03%
Allowance for loan losses to net other loans 1.00% .80%
Allowance for loan losses to other loans
delinquent 90 days or more 202.00x 61.00x
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 is deposits. Cash flow is provided by
proceeds from maturities of and interest payments on debt securities, principal
and interest payments on mortgage loans, CMOs and other loans. In accordance
with the Company's policy, there were no sales of investments designated as
held-to-maturity during the periods presented. Overall liquidity is affected by
the Company's operating, financing and investing activities, as well as the
interest rate environment, economic conditions and competition.
The Company's overall asset/liability structure and level of non-performing
assets affects interest rate spreads and margins, which are considered key
measures of the Company's financial performance. As deposits continue to
decrease and migrate into higher cost term accounts, interest rate spreads and
margins are likely to decline. Should the Bank take additional advances
available from the FHLB-NY, the change in liability structure would likely
increase the Company's cost of funds, further narrowing future net interest
margins and interest rate spreads. In determining whether additional advances
will be taken, management will assess deposit levels and trends, loan demand,
the Company's overall liquidity and other market conditions in the future.
During the six months ended June 30, 1999, the $225.0 million of purchases of
U.S. Government and federal agency securities represented the most significant
use of funds in investing activities. Mortgage originations for the portfolio,
substantially all of which were at fixed rates, for the six months ended June
30, 1999 totaled $62.6 million, compared to $135.9 million for the six months
ended June 30, 1998. The decrease in mortgage origination activity can be
attributed to the increase in market interest rates. CMO purchases for the six
months ended June 30, 1999 were $50.2 million, compared to $35.0 million for the
six months ended June 30, 1998. During the first half of 1999, maturities of
U.S. Government and federal agency securities generated $235.0 million, the most
significant source of funds from investment activities, followed by principal
payments on mortgage loans and CMOs of $45.8 million and $26.7 million,
respectively. The $18.0 million cost of repurchasing the Company's common stock
represented the most significant use of funds in financing activities for the
first half of 1999. The increase in cash used for dividend payments reflected
the increase in dividends paid per share to $.90 for the first half of 1999,
compared to $.80 per share for the first half of 1998.
Management monitors deposit levels and interest rates in conjunction with asset
structure and has evaluated and implemented various strategies aimed at
achieving targeted objectives in various interest rate scenarios. Interest rate
spread, net interest margin, liquidity, and related asset quality are some of
the key factors that management considers in determining its investment strategy
and underwriting standards. The Bank's assets are structured such that the
gradual changes in deposits has not materially affected the Company. The Bank's
liquidity ratios continue to exceed all short and long term minimum regulatory
requirements. Management remains focused on providing quality customer service
as its primary strategy for maintaining its relationships with its depositors.
The Bank aims to influence deposit levels and composition through its interest
rate structure. Management believes that the relatively low level of interest
rates and the strong performance and growth of the capital markets sparked and
continues to be the primary cause of deposit runoff over the past several years.
Management decided to allow deposits to decline, rather than offer rates that
would result in lowering net income or necessitate modifying the Bank's existing
investment structure and credit quality standards. Rates offered on the Bank's
deposit accounts are competitive with rates offered by other financial
institutions in its market area. Historically the highest percentage of the
Bank's deposits has been in passbook accounts; however, deposits have continued
to migrate from passbook accounts to certificate of deposit accounts ("CDs"). At
June 30, 1999, deposits were comprised as follows: passbook accounts 45.8%, CDs
39.4%, money market accounts 6.4%, non-interest bearing checking accounts 3.4%,
negotiable order of withdrawal ("NOW") accounts 3.1% and lease security accounts
1.9%. While the Company cannot predict the future direction of deposits,
management expects the current trend to continue provided that, among other
factors, the low interest rate environment continues.
15
The net decrease in deposits of $14.1 million to $1.110 billion at June 30,
1999, from $1.124 billion at December 31, 1998, reflected decreases of $14.1
million in passbook accounts, $9.2 million in non-interest bearing checking
accounts and $3.1 million in NOW accounts, partially offset by increases in
money market accounts, CDs and lease security accounts of $8.6 million, $3.3
million and $468,000, respectively.
The Company repurchased 326,600 shares of its common stock during the six months
ended June 30, 1999, pursuant to its eleventh stock repurchase program (the
"Eleventh Program"), which began on October 16, 1998. Under the Eleventh
Program, 461,700 shares of the 900,000 shares targeted for repurchase were
acquired at an aggregate cost of $25.1 million, or an average price of $54.33
per share through June 30, 1999. The Company reissued 92,863 shares of treasury
stock for common stock options exercised and reissued 1,656 shares of treasury
stock for Director's compensation during the six months ended June 30, 1999.
On April 13, 1999, the Company's Board of Directors declared a cash dividend of
$.45 per share to stockholders of record on May 5, 1999. The dividend payment,
which totaled $4.2 million, was made on May 19, 1999.
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%
(4.00%, pursuant to the OTS Prompt Corrective Action Regulations), and a
risk-based assets capital ratio of 8.00%. The Bank's capital ratios at June 30,
1999 were as follows:
Percentage Dollars
---------- -------
(In Thousands)
TANGIBLE CAPITAL
Required 1.50% $ 23,038
Actual 19.12 293,613
----- --------
Excess 17.62% $270,575
===== ========
CORE CAPITAL
Required 3.00% $ 46,075
Actual 19.12 293,613
----- --------
Excess 16.12% $247,538
===== ========
RISK BASED CAPITAL
Required 8.00% $ 99,867
Actual 25.78 321,779
----- --------
Excess 17.78% $221,912
===== ========
16
Comparison of Operating Results for the Three Months
Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Net income for the three months ended June 30, 1999, was $6.9 million, or $.74
per basic share ($.73 per diluted share), compared with $15.2 million, or $1.54
per basic share ($1.49 per diluted share), for the three months ended June 30,
1998.
Earnings for the second quarter ended June 30, 1998 were significantly improved
by non-recurring items. The Company recognized additional pre-tax income of $3.3
million for the three months ended June 30, 1998 in connection with the final
settlement on a $12.8 million non-performing underlying cooperative mortgage
loan, whereby all contractual principal, interest, legal and other fees were
received. In addition, the Company experienced a lower effective tax rate
attributable to the realignment of an operating subsidiary of the Bank, which
resulted in tax savings of $5.0 million for the quarter ended June 30, 1998.
Net interest income for the three months ended June 30, 1999, was $18.1 million,
compared to $18.5 million for the three months ended June 30, 1998. This
decrease reflects a $799,000 decrease in interest income partially offset by a
$413,000 decrease in interest expense. Comparing the quarter ended June 30, 1999
to the quarter ended June 30, 1998, the annualized yield on interest earning
assets decreased to 7.33%, from 7.74%; average interest earning assets increased
by $38.0 million; the cost of funds decreased to 3.32% from 3.58%. The interest
rate spread decreased to 4.02%, from 4.16% for the quarters ended June 30, 1999
and 1998, respectively and the net interest margin decreased to 4.84% from 5.07%
for the same periods, respectively.
Income earned on mortgage loans increased by 4.5%, to $22.8 million for the
three months ended June 30, 1999, compared to $21.8 million for the quarter
ended June 30, 1998. The net increase reflects the continued growth in the
mortgage loan portfolio, partially offset by a decrease in the mortgage
portfolio yield to 7.88% for the quarter ended June 30, 1999, from 8.38% for the
quarter ended June 30, 1998.
For the three months ended June 30, 1999, income from debt and equity securities
decreased by $1.2 million, or 39.3%, to $1.9 million from $3.1 million for the
three months ended June 30, 1998. This decrease resulted from a decline in the
average investment in U.S. Government and federal agency securities and other
investments of $57.9 million, or 29.5%, to $138.4 million, compared to $196.3
million for the three months ended June 30, 1998. The annualized yield on the
debt and equity securities portfolio decreased to 5.39% for the three months
ended June 30, 1999 from 6.27% for the three months ended June 30, 1998. The
debt and equity securities portfolio activity for the current period included
purchases of $100.0 million and maturities of $125.0 million, compared with
purchases of $79.0 million and maturities of $160.0 million for the quarter
ended June 30, 1998.
For the quarter ended June 30, 1999 income on CMOs increased by 4.9%, to $1.7
million, with an annualized yield of 5.72%, from income of $1.6 million with an
annualized yield of 6.17% for the quarter ended June 30, 1998. During the second
quarter of 1999, the Bank received principal payments of $9.6 million on CMOs,
compared with principal payments of $14.4 million for the quarter ended June 30,
1998. CMO purchases during the quarter ended June 30, 1999 totaled $10.0
million, compared to purchases of $15.0 million for the quarter ended June 30,
1998. Income on MBS declined by $33,000 to $51,000 for the quarter ended June
30, 1999, from income of $84,000 for the quarter ended June 30, 1998, reflecting
the amortizing portfolio.
Income on federal funds sold decreased by $464,000, or 39.6% to $709,000 for the
quarter ended June 30, 1999 from $1.2 million for the quarter ended June 30,
1998. This decrease resulted from a decrease in the average investment in
federal funds of $25.8 million to $60.6 million for the current period, compared
with $86.4 million for the quarter ended June 30, 1998. In addition, the
annualized yield on federal funds sold decreased to 4.67% for the current
quarter, compared to 5.43% for the quarter ended June 30, 1998.
Interest expense on deposits decreased by $1.1 million to $8.6 million for the
quarter ended June 30, 1999, compared to $9.7 million for the quarter ended June
30, 1998. Average interest bearing deposits decreased by $12.8 million, to
$1.076 billion for the three months ended June 30, 1999, compared to $1.088
billion for the three months ended June 30, 1998. Further, the cost of interest
bearing deposits decreased to 3.21% from 3.58% for the comparative quarter in
1998.
17
On December 8, 1998, the Bank borrowed $50.0 million from the FHLB-NY, at a
fixed rate of 5.62%. Interest expense on this advance for the second quarter of
1999 totaled $700,000. The advance will mature on December 7, 2008, at which
time the entire $50.0 million is due. The Bank did not have any borrowed funds
during the second quarter of 1998.
The provision for loan losses for the quarter ended June 30, 1999 was $5,000,
compared to $14,000 for the quarter ended June 30, 1998, comprised entirely of
provisions against the other loan portfolio. Based on management's internal loan
review analysis, no adjustments have been made to the mortgage allowance since
January of 1998. Management will continue to monitor the performance of the loan
portfolios and may adjust allowances accordingly.
Non-interest income for the three months ended June 30, 1999, decreased by $4.7
million to $1.1 million from $5.8 million for the three months ended June 30,
1998. This decrease primarily reflects the impact of non-recurring items. The
second quarter of 1998 included a $3.3 million recovery on the settlement on a
$12.8 million underlying cooperative mortgage loan. Pursuant to the settlement,
all past due interest, legal and other fees were recovered by the Bank. For the
second quarter of 1999, the Company realized $120,000 in prepayment penalties on
investor type mortgages compared to $1.6 million for the second quarter of 1998,
when prepayment activity soared as borrowers sought to benefit from lower
interest rates then available. The Company reported a miscellaneous net loss of
$30,000 for the second quarter of 1999, compared to miscellaneous income of
$355,000 for the second quarter of 1998. Included in the $355,000 miscellaneous
income was a $264,000 refund of real estate taxes on the Company's headquarters
and $60,000 of gains on sales of student loans. These comparative decreases in
components of non-interest income were slightly offset by a $506,000 increase in
income from real estate operations, which increased to $544,000 for the second
quarter of 1999 from $38,000 for the second quarter of 1998. This increase
primarily reflects gains of $426,000 realized on the sale of condominium and
cooperative apartments owned by the Bank's real estate subsidiaries. At June 30,
1999, the real estate subsidiaries held 121 cooperative apartments, which are
carried at zero value, and no condominium apartments.
Non-interest expense increased to $7.1 million, or 3.0%, during the quarter
ended June 30, 1999, from $6.9 million for the quarter ended June 30, 1998. This
increase primarily reflects the $126,000 increase in other general and
administrative expense, which was almost substantially comprised of increases in
professional fees, and the $118,000 increase in occupancy and equipment expense,
which was related to a new computer system.
The provision for income taxes increased by $3.0 million, to $5.3 million for
the three months ended June 30, 1999, from $2.3 million for the three months
ended June 30, 1998. This increase reflected an increase in the Company's
effective tax rate to 43.3% for the quarter ended June 30, 1999, from 12.9% for
the quarter ended June 30, 1998. During 1998, the Company realized tax benefits
in connection with an operating subsidiary, which were not realized during the
second quarter of 1999, as the subsidiary was liquidated during the first
quarter of 1999.
18
Comparison of Operating Results for the Six Months Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Net income for the six months ended June 30, 1999, was $14.4 million, or $1.54
per basic share ($1.51 per diluted share), compared with $22.9 million, or $2.31
per basic share ($2.24 per diluted share), for the six months ended June 30,
1998.
Earnings for the six months ended June 30, 1998 were significantly improved by
non-recurring items. The Company recognized additional pre-tax income of $4.3
million for the six months ended June 30, 1998 in connection with the settlement
on a $12.8 million non-performing underlying cooperative mortgage loan, whereby
all contractual principal, interest and legal and other fees were received. In
addition, the Company experienced a lower effective tax rate attributable to the
realignment of an operating subsidiary of the Bank, which resulted in tax
savings of $5.0 million for the six months ended June 30, 1998.
Net interest income for the six months ended June 30, 1999, increased slightly
to $36.4 million, compared to $36.3 million for the six months ended June 30,
1998. The increase in net interest income reflects a $643,000 decrease in
interest expense partially offset by a $523,000 decrease in interest income.
Comparing the six months ended June 30, 1999 to the six months ended June 30,
1998, the annualized yield on interest earning assets decreased to 7.37%,
compared to 7.67%. Average interest earning assets increased by $44.7 million
while the cost of funds decreased to 3.33% from 3.56%. Average interest bearing
deposits were $1.074 billion for the six months ended June 30, 1999 compared to
$1.088 billion for the six months ended June 30, 1998. For the six months ended
June 30, 1999, the interest rate spread decreased to 4.04%, compared to 4.11%
and the net interest margin decreased to 4.87% compared to 5.00%.
Income earned on mortgage loans increased by $3.4 million, or 8.0%, to $45.8
million for the six months ended June 30, 1999, compared to $42.4 million for
the six months ended June 30, 1998, reflecting continued growth in the mortgage
loan portfolio. This increase was partially offset by a decrease in the mortgage
portfolio yield to 7.94% for the six months ended June 30, 1999, from 8.33% for
the six months ended June 30, 1998, reflecting originations at the lower market
rates.
For the six months ended June 30, 1999, income on debt and equity securities
decreased by $2.9 million, or 43.2%, to $3.8 million from $6.7 million for the
six months ended June 30, 1998. This decrease resulted from a decline in the
average investment in U.S. Government and federal agency securities and other
investments of $74.7 million, or 34.7%, to $140.8 million for the first half of
1999, compared to $215.5 million for the first half of 1998. The annualized
yield on the debt and equity security portfolio decreased to 5.39% from 6.20%
for the comparative six month periods. The debt and equity securities portfolio
activity for the current period included purchases of $225.0 million and
maturities of $235.0 million, compared with purchases of $154.0 million and
maturities of $270.0 million for the six months ended June 30, 1998.
For the six months ended June 30, 1999, income on CMOs increased slightly by
3.8%, to $3.2 million, with an annualized yield of 5.72%, from income of $3.1
million with an annualized yield of 6.17% for the six months ended June 30,
1998. This increase is reflective of the increase in the average investment in
the CMO portfolio of $11.9 million, or 12.0% for the comparative six month
period. During the six months ended June 30, 1999, the Bank received principal
payments of $26.7 million on CMOs, compared with $35.6 million for the six
months ended June 30, 1998. CMO purchases during the first six months of 1999
totaled $50.2 million, compared to $35.0 million for the first half of 1998.
Income on MBS declined by $66,000 to $111,000 for the six months ended June 30,
1999, from income of $177,000 for the six months ended June 30, 1998, reflecting
the amortizing portfolio.
Income on federal funds decreased by $793,000, or 33.3%, to $1.6 million for the
six months ended June 30, 1999, from $2.4 million for the six months ended June
30, 1998. This decrease resulted from a decrease in the average investment in
federal funds of $20.2 million, to $67.8 million for the current period,
compared with $88.0 million for the six months ended June 30, 1998. The
annualized yield on federal funds sold decreased to 4.67% for the current six
month period, compared to 5.40% for the six month period ended June 30, 1998.
Interest expense on deposits decreased by 10.5%, to $17.3 million for the six
months ended June 30, 1999, compared to $19.4 million for the six months ended
June 30, 1998. Average interest bearing deposits decreased by $13.7 million, or
1.3%, to $1.074 billion for the six months ended June 30, 1999, compared to
$1.088 billion for the six months ended June 30, 1998, and the average rate paid
on interest bearing deposits decreased to 3.23% from 3.56% for the comparative
six month periods.
19
Interest expense on the $50.0 million FHLB-NY advance for the six months ended
June 30, 1999 was $1.4 million, reflecting interest at the fixed rate of 5.62%.
The Bank did not have any borrowed funds during the six months ended June 30,
1998.
The provision for loan losses for the six months ended June 30, 1999 was
$12,000, compared to $28,000 for the six months ended June 30, 1998, comprised
entirely of provisions against the other loan portfolio. Based on management's
internal loan review analysis, no adjustments to the mortgage allowance were
made during the first six months of 1999 or during calendar 1998. Management
will continue to monitor the performance and characteristics of the loan
portfolios and may adjust future loan loss provisions accordingly.
Total non-interest income for the six months ended June 30, 1999, decreased by
$4.4 million, to $3.1 million from $7.5 million for the six months ended June
30, 1998. Non-interest income for the 1998 period included a $4.3 million
recovery of prior period expenses in accordance with the settlement of a $12.8
million underlying cooperative mortgage loan. Real estate operations increased
by $1.0 million, primarily reflecting gains of $920,000 on the sale of
condominium and cooperative apartments. Loan fees and service charges decreased
by $622,000, primarily reflecting the $478,000 decrease in mortgage loan
prepayment penalties. Miscellaneous income decreased by $420,000 as the 1998
period included a refund of $264,000 for real estate taxes from prior years on
the Company's headquarters and $64,000 in profits realized on sales of student
loans.
Non-interest expense increased by $645,000, or 4.7%, to $14.3 million for the
first six months of 1999, compared to $13.7 million for the first six months of
1998. Compensation and benefits expense increased by $264,000, reflecting salary
adjustments and increases in the cost of benefits, partially offset by a
$318,000 increase in income earned on excess pension fund assets. The $211,000
increase in occupancy and equipment expense reflects an increase in computer
depreciation, related to the new computer system installed in January 1999. The
$172,000 increase in other general and administrative expense primarily reflects
an increase in professional fees.
The provision for income taxes increased by $3.6 million, or 49.8%, to $10.8
million for the six months ended June 30, 1999, from $7.2 million for the six
months ended June 30, 1998. During 1998, the Company realized tax benefits in
connection with an operating subsidiary, which were not realized during the
first half of 1999, as the subsidiary had been liquidated during the first
quarter of 1999. As a result, the Company's effective tax rate was 42.9% for the
six months ended June 30, 1999, compared to 24.0% for the six months ended June
30, 1998.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring the Company's interest rate sensitivity "gap". An asset or liability
is said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest earning assets maturing
or repricing within a specific time period and the amount of interest bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities. A gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income while a positive gap would
tend to result in an increase in net interest income. During a period of
declining interest rates, a negative gap would tend to result in an increase in
net interest income while a positive gap would tend to adversely affect net
interest income.
The following table sets forth, as of June 30, 1999, repricing information on
earning assets and interest bearing liabilities. The data reflects estimated
principal amortization and prepayments on mortgage loans based on historical
performance. Approximate prepayment rate assumptions for fixed rate one-to
four-family mortgage loans and MBS are based upon the remaining term to
contractual maturity as follows: (a) 26% if less than six months; (b) 11% if six
months to one year, three to five years and for five to ten years; (c) 8% if one
to three years; (d) 9% if ten to twenty years; and (e) 17% if beyond 20 years.
Adjustable-rate mortgages are assumed to prepay at 15% and second mortgages at
18%. All other fixed rate first mortgage loans are assumed to prepay at 3%. All
deposit accounts, which are subject to immediate withdrawal/repricing, except
CDs, are assumed to reprice in the earliest period presented. Marketable equity
securities and other investments which do not have a fixed maturity date or a
stated yield, are reflected as repricing in the more than five years category.
The table does not necessarily indicate the impact of general interest rate
movements on the Company's net interest income because the repricing of certain
categories of assets and liabilities, is beyond the Company's control. As a
result, certain assets and liabilities indicated as repricing within a stated
period may in fact reprice at different times and at different rate levels.
While management regularly reviews the Company's gap analysis, the gap is
considered an analytical tool, which has limited value.
21
At June 30, 1999
----------------
More More More More
Than Than Than Than
1 Year 2 Years 3 Years 4 Years More
1 Year to to to to Than
or Less 2 Years 3 Years 4 Years 5 Years 5 Years Total
-----------------------------------------------------------------------------------
(Dollars in Thousands)
Interest earning assets:
Mortgage loans, net 1 $ 48,400 $ 61,715 $ 72,982 $ 99,447 $ 101,466 $ 785,772 $1,169,782
Average interest rate 8.59% 8.54% 8.72% 8.08% 8.01% 7.85%
U.S. Government and federal
agency securities, net 100,000 - - - - - 100,000
Average interest rate 4.79% - - - - -
Marketable equity securities
and other investments, net 2 - - - - - 97,530 97,530
Average interest rate - - - - - N/A
CMOs, net - - - - 3,958 115,337 119,295
Average interest rate - - - - 5.75% 5.95%
MBS, net - 297 - - - 1,772 2,069
Average interest rate - 10.50% - - - 9.68%
Other loans, net 1 8,326 1,157 1,543 1,535 968 6,820 20,349
Average interest rate 4.50% 8.04% 8.15% 7.74% 7.84% 8.14%
Federal funds sold 64,500 - - - - - 64,500
Average interest rate 5.16% - - - - -
-----------------------------------------------------------------------------------
Total interest earning assets 221,226 63,169 74,525 100,982 106,392 1,007,231 1,573,525
-----------------------------------------------------------------------------------
Interest bearing deposit accounts:
Passbook 508,542 - - - - - 508,542
Average interest rate 2.22% - - - - -
Lease security accounts 21,499 - - - - - 21,499
Average interest rate 2.22% - - - - -
CDs 365,804 40,370 11,871 8,697 10,130 - 436,872
Average interest rate 4.62% 5.17% 5.68% 5.75% 5.26% -
Money market accounts 71,366 - - - - - 71,366
Average interest rate 2.32% - - - - -
NOW accounts 33,868 - - - - - 33,868
Average interest rate 1.24% - - - - -
FHLB-NY advances - - - - - 50,000 50,000
Average interest rate - - - - - 5.62%
-----------------------------------------------------------------------------------
Interest bearing liabilities 1,001,079 40,370 11,871 8,697 10,130 50,000 1,122,147
-----------------------------------------------------------------------------------
Interest sensitivity gap
per period $ (779,853) $ 22,799 $ 62,654 $ 92,285 $ 96,262 $ 957,231 $ 451,378
===================================================================================
Cumulative interest
sensitivity gap $ (779,853) $ (757,054) $ (694,400) $(602,115) $(505,853) $ 451,378 $ -
===================================================================================
Percentage of gap per period
to total assets (48.14%) 1.41% 3.87% 5.70% 5.94% 59.09%
Percentage of cumulative gap
to total assets (48.14%) (46.73%) (42.86%) (37.16%) (31.22%) 27.87%
<FN>
N/A - Does not apply, as none of the securities in the marketable equity securities portfolio carry a stated rate of return.
1 Balance includes non-performing loans, as amount is immaterial and is not reduced for the allowance for loan losses.
2 Securities available-for-sale are shown including the market value appreciation of $75.8 million, before tax.
</FN>
22
The Company's interest rate sensitivity is also monitored by management through
the use of a model which internally generates estimates of the net portfolio
value ("NPV") over a range of interest rate change scenarios. NPV is the present
value of expected cash flows from assets, liabilities and off-balance sheet
contracts. The NPV ratio, under any interest rate scenario, is defined as the
NPV in that scenario divided by the market value of assets in the same scenario.
Based upon data submitted on the Bank's quarterly Thrift Financial Reports,
which does not include the assets, liabilities or off-balance sheet contracts of
the Company, the OTS produces a similar analysis using its own model and
assumptions. Due to differences in assumptions applied in the Bank's internal
model and the OTS model, including estimated loan prepayment rates, reinvestment
rates and deposit decay rates, the results of the OTS model may vary from the
Bank's internal model. For purposes of the NPV table, the Company applied
prepayment speeds similar to those used in the Gap table. Reinvestment rates
applied were rates offered for similar products at the time the NPV was
calculated. The discount rates applied for CDs and borrowings were based on
rates that approximate the rates offered by the Bank for deposits and borrowings
of similar remaining maturities. The following table sets forth the Company's
NPV as of June 30, 1999, as calculated by the Company.
Net Portfolio Value Portfolio Value of Assets
Rate Changes in ------------------- -------------------------
Basis Points Dollar Dollar Percent NPV Percent
(Rate Shock) Amount Change Change Ratio Change1
- ------------ ------ ------ ------ ----- -------
(Dollars in Thousands)
+200 $352,720 $(59,012) (14.33)% 22.25% (4.24)%
+100 380,570 (31,162) (7.57) 23.51 (2.24)
0 411,732 - - 24.87 -
-100 456,501 44,769 10.87 26.74 3.11
-200 507,286 95,554 23.21 28.73 6.63
<FN>
1 Reflects the percentage change in the portfolio value of the Company's assets
for each rate shock compared to the portfolio value of the Company's assets
under the zero rate change scenario.
Note: As in the case with the Gap table, certain shortcomings are inherent in
the methodology used in the above interest rate risk measurements. Modeling
changes in NPV require certain assumptions which may or may not reflect the
manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the NPV model presented assumes that the composition of
the Company's interest sensitive assets and liabilities existing at the
beginning of a period remains constant over the period being measured and also
assumes that a particular change in interest rates is reflected uniformly across
the yield curve regardless of the duration to maturity or repricing of specific
assets and liabilities. Accordingly, although the NPV measurements and net
interest income models provide an indication of the Company's interest rate risk
exposure at a particular point in time, such measurements are not intended to
and do not provide a precise forecast of the effect of changes in market
interest rates on the Company's net interest income, as actual results will
differ.
</FN>
Private Securities Litigation Reform Act Safe Harbor Statement
- --------------------------------------------------------------
In addition to historical information, this Form 10-Q may contain certain
forward looking statements and may be identified by the use of such words as
"believe(s)", "expect(s)", "anticipate(s)", "should", "planned", "estimated" and
"potential". The Company's discussion regarding the anticipated future direction
of its net interest margin and interest rate spread are considered forward
looking statements, which are subject to various factors which could cause
actual results to differ materially from those statements made. These factors
include, but are not limited to: general economic conditions; changes in
interest rates; deposit flows; loan demand; real estate values; the actual
impact of Y2K; and other economic; competitive; governmental; regulatory and
technological factors affecting the Company's operations, pricing, products and
services. Further description of the risks and uncertainties to the business are
included in detail in Item 1, BUSINESS, in the Company's 1998 Form 10-K.
23
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 and Use of Proceeds (Not Applicable)
ITEM 3. Defaults upon Senior Securities (Not Applicable)
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 11, 1999, present in
person or by proxy were 8,420,667 of 9,288,963 shares of Common Stock
of JSB Financial, Inc. entitled to vote at such meeting.
Resolution I. All nominees to serve as a Director on the Company's
Board were elected as follows*:
For Withheld
--------- --------
Joseph C. Cantwell 8,190,948 229,719
James E. Gibbons, Jr. 8,175,609 245,058
Edward P. Henson 8,155,328 265,339
*There were no broker non-votes.
The continuing directors were: Park T. Adikes, Richard M. Cummins,
Howard J. Dirkes, Jr., Cynthia Gibbons, Alfred F. Kelly, Richard W.
Meyer and Arnold B. Pritcher.
Resolution II. Ratification of the appointment of KPMG LLP, as
independent auditors for the year ending December 31, 1999, as
follows*:
For: 8,310,411
Against: 95,901
Abstain: 14,355
*There were no broker non-votes.
ITEM 5. Other information (Not Applicable)
24
ITEM 6. Exhibits and Reports on Form 8-K
Page Number
-----------
(a) Exhibits
3.01 Articles of Incorporation (1)
3.02 By-laws (2)
Employment Agreement, filed herewith, between the Company and
-------------------------------------------------------------
10.01 Park T. Adikes 27- 45
10.02 Edward P. Henson 46- 64
10.03 John F. Bennett 65- 83
10.04 Jack Connors 84-102
10.05 John J. Conroy 103-121
10.06 Joanne Corrigan 122-140
10.07 Teresa Covello 141-159
10.08 Bernice Glaz 160-178
10.09 Joseph J. Hennessy 179-197
10.10 Daniel J. Huber 198-216
10.11 Lawrence J. Kane 217-235
10.12 Thomas R. Lehmann 236-254
10.13 Philip Pepe 255-273
10.14 Laurel M. Romito 274-292
Employment Agreement, filed herewith, between the Bank and
----------------------------------------------------------
10.15 Park T. Adikes 293-311
10.16 Edward P. Henson 312-330
10.17 John F. Bennett 331-349
10.18 Jack Connors 350-368
10.19 John J. Conroy 369-387
10.20 Joanne Corrigan 388-406
10.21 Teresa Covello 407-425
10.22 Bernice Glaz 426-444
10.23 Joseph J. Hennessy 445-463
10.24 Daniel J. Huber 464-482
10.25 Lawrence J. Kane 483-501
10.26 Thomas R. Lehmann 502-520
10.27 Philip Pepe 521-539
10.28 Laurel M. Romito 540-558
11.00 Statement Re: Computation of Earnings Per Share 559
27.00 Financial Data Schedule for the Six Months Ended June 30, 1999 560
<FN>
(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-K for the
Year Ended December 31, 1997.
</FN>
25
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 June 30, 1999, to be signed on its behalf by the
undersigned, thereunto duly authorized.
JSB Financial, Inc.
(By)
/s/ Park T. Adikes
--------------
Park T. Adikes
Chairman of the Board and
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: August 6, 1999 /s/ Park T. Adikes
-------------- --------------
Park T. Adikes
Chairman of the Board and
Chief Executive Officer
DATE: August 6, 1999 /s/ Thomas R. Lehmann
-------------- -----------------
Thomas R. Lehmann
Chief Financial Officer
Executive Vice President
(Principal Accounting Officer)
26
Exhibit Index
-------------
Exhibit No. Identification of Exhibit
10.01 Employment Agreement between the Company and Park T. Adikes
10.02 Employment Agreement between the Company and Edward P. Henson
10.03 Employment Agreement between the Company and John F. Bennett
10.04 Employment Agreement between the Company and Jack Connors
10.05 Employment Agreement between the Company and John J. Conroy
10.06 Employment Agreement between the Company and Joanne Corrigan
10.07 Employment Agreement between the Company and Teresa Covello
10.08 Employment Agreement between the Company and Bernice Glaz
10.09 Employment Agreement between the Company and Joseph J. Hennessy
10.10 Employment Agreement between the Company and Daniel J. Huber
10.11 Employment Agreement between the Company and Lawrence J. Kane
10.12 Employment Agreement between the Company and Thomas R. Lehmann
10.13 Employment Agreement between the Company and Philip Pepe
10.14 Employment Agreement between the Company and Laurel M. Romito
10.15 Employment Agreement between the Bank and Park T. Adikes
10.16 Employment Agreement between the Bank and Edward P. Henson
10.17 Employment Agreement between the Bank and John F. Bennett
10.18 Employment Agreement between the Bank and Jack Connors
10.19 Employment Agreement between the Bank and John J. Conroy
10.20 Employment Agreement between the Bank and Joanne Corrigan
10.21 Employment Agreement between the Bank and Teresa Covello
10.22 Employment Agreement between the Bank and Bernice Glaz
10.23 Employment Agreement between the Bank and Joseph J. Hennessy
10.24 Employment Agreement between the Bank and Daniel J. Huber
10.25 Employment Agreement between the Bank and Lawrence J. Kane
10.26 Employment Agreement between the Bank and Thomas R. Lehmann
10.27 Employment Agreement between the Bank and Philip Pepe
10.28 Employment Agreement between the Bank and Laurel M. Romito
11.00 Statement Re: Computation of Per Share Earnings
27.00 Financial Data Schedule for the Six Months Ended June 30, 1999