SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
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FORM 10-Q
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(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________________ to_____________
COMMISSION FILE NO. 0-22499
BAYONNE BANCSHARES, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3511899
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
568 Broadway, Bayonne, New Jersey 07002
---------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 437-1000
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
AS OF FEBRUARY 12, 1998, THERE WERE 9,088,581 SHARES OF THE
REGISTRANTS COMMON STOCK OUTSTANDING
<PAGE>
BAYONNE BANCSHARES, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition as of 1
December 31, 1997, and March 31, 1997
Consolidated Statements of Operations for the three 2
and nine months ended December 31, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the nine 3
months ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the nine 4-5
months ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial 8-12
Condition and Results of Operations
PART II. OTHER INFORMATION 13-14
<PAGE>
PART 1 FINANCIAL INFORMATION
Item 1
Consolidated Financial Statements
BAYONNE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands of dollars)
<TABLE>
<CAPTION>
ASSETS
------
December 31, 1997 March 31, 1997
------------------ --------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents:
Cash on hand and in banks $ 4,245 $ 6,828
Deposits with financial institutions 8,500
AMF short-term fund 5 144
------------------ --------------
Total cash and cash equivalents 4,250 15,472
Securities available for sale, at market value 342,342 290,614
Securities held to maturity 10,273 11,277
Loans receivable, net 232,177 235,624
Accrued interest receivable, net 3,907 3,720
Federal Home Loan Bank stock, at cost 7,460 7,460
Real estate acquired in settlement of loans 568 364
Office properties and equipment, net 5,437 5,812
Prepaid expenses 231 816
Other assets 3,994 5,845
------------------ --------------
Total Assets $ 610,639 $ 577,004
================== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 422,765 $ 444,139
Borrowings 84,950 75,000
ESOP loan 435 598
Advance payment by borrowers for taxes and insurance 1,936 1,539
Accrued expenses and other liabilities 4,352 7,649
------------------ --------------
Total Liabilities $ 514,438 $ 528,925
================== ==============
Stockholders' equity:
Common stock 90 307
Additional paid in capital 59,445 12,426
Common stock acquired by ESOP and MRP (4,599) (976)
Retained earnings-substantially restricted 42,698 40,658
Net unrealized loss on securities available for sale, net of tax (1,433) (4,336)
------------------ --------------
Total stockholders' equity 96,201 48,079
------------------ --------------
Total liabilities and stockholders' equity $ 610,639 $ 577,004
================== ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
1
<PAGE>
Bayonne Bancshares, Inc.
and Subsidiaries
Consolidated Statements of Operations
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
------------------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 4,904 $ 4,968 $14,705 $14,933
Securities available for sale 4,759 4,012 14,330 14,813
Securities held to maturity 302 313 904 934
Overnight deposits with financial institutions 105 354 383 530
------- ------- ------- -------
Total interest and dividend income $10,070 $ 9,647 $30,322 $31,210
------- ------- ------- -------
Interest expense:
Interest on deposits 5,011 5,223 15,388 15,719
Interest on other borrowings 1,042 1,449 3,410 5,581
------- ------- ------- -------
Total interest expense 6,053 6,672 18,798 21,300
------- ------- ------- -------
Net interest income 4,017 2,975 11,524 9,910
Provision for loan losses 45 30 135 90
------- ------- ------- -------
Net interest income after provision for loan losses 3,972 2,945 11,389 9,820
------- ------- ------- -------
Other income: (loss):
Loan fees and service charges 62 58 194 235
Loss on securities available for sale, net 421 (5) (2,812)
Gain (loss) on sales of real estate acquired in
settlement of loans, net (7) (23) 4 (52)
Other 243 234 787 690
------- ------- ------- -------
Total other income (loss) 298 690 980 (1,939)
------- ------- ------- -------
Operating expenses:
Compensation and employee benefits 1,352 1,521 4,294 4,256
Occupancy 199 196 572 574
Equipment 293 308 952 831
Advertising and promotion 38 10 71 46
Federal insurance premiums 141 296 428 883
SAIF Assessment - - - 2,895
Other 445 241 1,336 1,070
------- ------- ------- -------
Total operating expenses 2,468 2,572 7,653 10,555
------- ------- ------- -------
Income (loss) before income tax expense 1,802 1,063 4,716 (2,674)
Income tax expense (benefit) 667 396 1,728 297
------- ------- ------- -------
Net income (loss) $ 1,135 $ 667 $ 2,988 $(2,971)
======= ======= ======= =======
Basic earnings (loss) per share $ 0.13 $ 0.23 $ 0.51 $ (1.01)
======= ======= ======= =======
Fully diluted earnings (loss) per share $ 0.13 $ 0.22 $ 0.50 $ (1.01)
======= ======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
Bayonne Bancshares, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
Nine Month Periods ended December 31, 1997 and 1996
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Common Additional Unallocated MRP Retained Net Total
Stock Paid in ESOP Shares Earnings Unrealized Stockholders'
Capital Shares Substantially Loss on Equity
Restricted Securities
Available for
Sale
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 $ 306 $ 12,216 $ (815) $ (495) $ 44,575 $ (6,268) $ 49,519
Net (loss) income for the
nine month period ended
December 31, 1996 - - - - (2,971) - -
Amortization of ESOP - 85 163 - - - 248
Amortization of MRP - 15 - 87 - - 102
Net change in unrealized
loss on securities available
for sale, net of tax - - - - - 3,037 -
Dividends paid - - - - (350) - -
------ --------- -------- ------ --------- ---------- ---------
Balance at
December 31, 1996 $ 306 $ 12,316 $ (652) $ (408) $ 41,254 $ (3,231) $ 49,869
------ --------- -------- ------ --------- ---------- ---------
Balance at March 31, 1997 $ 307 $ 12,426 $ (598) $ (378) $ 40,658 $ (4,336) $ 48,079
Net income for the nine
month period ended
December 31, 1997 - - - - 2,988 - 2,988
Amortization of ESOP - 351 163 - - - 514
Amortization of MRP - 124 - 109 - - 233
Dividend Paid - - - - (948) - (948)
Net change in unrealized
losses on securities
available for sale, net of tax - - - - - 2,903 2,903
Exercise of stock options - 61 - - - - 61
Issuance and exchange of
common stock as a result
of the conversion/organization (217) 46,483 (3,895) - - - 42,371
------ --------- -------- ------ --------- ---------- ----------
Balance at December 31, 1997 $ 90 $ 59,445 $ (4,330) $ (269) $ 42,698 $ (1,433) $ 96,201
------ --------- -------- ------ --------- ---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
Bayonne Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
------------------------------
1997 1996
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,988 $ (2,971)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation of office properties and equipment 404 425
Loss on securities available for sale 5 (373)
Provision for loan losses 135 90
Gain (Loss) on real estate operations 4 (11)
Amortization of premiums and discounts on
investment securities and mortgage backed securities 612 (1,803)
Amortization of ESOP and MRP shares 747 352
Net decrease in deferred loan fees (154) (116)
Net increase (decrease) in accrued interest receivable (187) 115
Net decrease in prepaid expenses 586 272
Net decrease in other assets (218) (1,202)
Net (decrease) increase in accrued expenses and other liabilities (3,296) 1,031
-------- -------
Total adjustments (1,362) (1,220)
-------- -------
Net cash provided by (used in) operating activities 1,626 (4,191)
-------- -------
Cash flows from investing activities:
Principal payments and maturities on securities
available for sale $ 45,301 $ 21,061
Proceeds from securities available for sale - 142,227
Purchases of securities available for sale (93,530) (60,877)
Net increase in loans receivable 3,661 (15,792)
Maturities of securities held to maturity 1,004 78
Proceeds from sales of real estate acquired in
settlement of loans 452 207
Purchases/Sales of FHLB/FHLMC/FNMA stock - 66
Purchases of premises and equipment (29) (371)
-------- --------
Net cash used in investing activities (43,141) 86,599
-------- --------
Cash flows from financing activities:
Net decrease in deposits (21,375) (4,134)
Net increase in advance payments by borrowers for
taxes and insurance 397 348
Dividends paid (948) (351)
Increase (decrease) in borrowings and repurchase agreements 9,950 (70,519)
Payment on ESOP debt (163) (163)
Issuance of common stock as a result of the
conversion/reorganization 42,371 -
Exercise of stock options 61 -
-------- --------
Net cash provided by (used in) financing activities $ 30,293 $(74,819)
-------- --------
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
Bayonne Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash flows
(continued)
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
----------------------------------
1997 1996
------- -------
<S> <C> <C>
Net decrease in cash and cash equivalents (11,222) 7,589
Cash and cash equivalents at start of period 15,472 11,791
------- -------
Cash and cash equivalents at end of period $ 4,250 $19,380
======= =======
Supplemental schedule of cash flow
information:
Real estate acquired in settlement of loans $ 704 $ 653
Taxes Paid $ 1,419 $ 1,100
Interest Paid $15,366 $21,252
Write-down of Securities available for sale $ - $ 3,186
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
BAYONNE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in conformity with the instructions to Form 10-Q and
Article 10 of Regulation S-X for Bayonne Bancshares, Inc. and Subsidiaries (the
Bank).
2) NON-PERFORMING LOANS
Non-performing loans at December 31, 1997, and March 31, 1997 are as
follows:
(in thousands of dollars):
December 31, 1997 March 31, 1997
----------------- --------------
Loans delinquent 90 days or more and
other non-performing loans $5,623 $5,609
------ ------
Loans delinquent 90 days or more and
other non-performing loans as a
percentage of net loans receivable 2.42% 2.38%
An analysis of the allowance for loan losses for the nine month periods
ended December 31, 1997 and 1996 is as follows (in thousands of dollars):
December 31, 1997 December 31, 1996
----------------- -----------------
Balance at start of period $3,158 $2,979
Provision charged to operations 135 90
Net (Charge-offs) recoveries (316) (140)
------ ------
Balance at end of period $2,977 $2,929
------ ------
3) Earnings Per Share
The Bank adopted SFAS No.128, "Earnings Per Share" on December 31, 1997.
SFAS No.128 established the new standard for computation and presentation of net
income per common share. Under the new requirements both basic and diluted net
income per common share is presented. All prior period net income per common
share data has been restated.
6
<PAGE>
Basic net income per common share is calculated by dividing net income,
less the dividends on preferred stocks, if any, by the average common shares
outstanding during the period.
Diluted net income per common share is computed similar to that of the
basic net income per common share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if all potentially dilutive common shares arising from unexercised stock
options were issued during the reporting period.
Per share information reflects the Company's reorganization and stock
offering completed August 22, 1997 and the Issuance of 4,869,190 shares of
common stock in connection with its conversion and reorganization. Prior period
per share data has not been adjusted for shares issued in the conversion and
reorganization.
4) PLAN OF CONVERSION
On August 22, 1997, Bayonne Bancshares, Inc. in accordance with its plan
of conversion and reorganization sold 4,869,190 shares of common stock at a
price per share of $10.00. In addition, each of the 1,410,735 shares of common
stock of First Savings Bank of New Jersey, SLA held by public stockholders were
exchanged for 2.933 shares of common stock of Bayonne Bancshares, Inc. in
accordance with the Plan of Conversion and Agreement and Plan of Reorganization.
At December 31, 1997 the Company had 9,050,264 shares of common stock
outstanding.
5) SAIF INSURANCE RECAPITALIZATION
The deposits of the Bank are presently insured by the Savings Association
Insurance Fund (SAIF), which together with the Bank Insurance Fund (BIF), are
the two insurance funds administered by the FDIC. In the third quarter of 1995
the FDIC lowered the premium schedule for BIF-insured institutions in
anticipation of the BIF achieving its statutory reserve ratio. The reduced
premium created a significant disparity in deposit insurance expense causing a
competitive advantage for BIF members. Legislation enacted on September 30,
1996, provided for a one-time special assessment of .657% of all SMF insured
deposits, such as the Bank's at March 31, 1995. The purpose of the assessment is
to bring the SAIF to its statutory reserve ratio. Based on the above formula,
the Bank's SAIF assessment of $2.9 million was recorded in the quarter ended
September 30, 1996. Although the special one-time assessment significantly
increased non-interest expense for the quarter ended September 30, 1996, the
reduction in the premium schedule has reduced the Bank's federal insurance
premiums for the 1997 periods.
6) RECENT ACCOUNTING PRONOUNCEMENTS
On March 3, 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.128, "Earnings
Per Shares." SFAS No. 128 establishes new standards for the computation and
presentation of
7
<PAGE>
earnings per share ("EPS") by simplifying the standards prescribed in APB
Opinion No.15. Under the new requirements, the Bank will be required to present
both basic and diluted EPS on the face of the income statement. Basic EPS will
replace the current EPS terminology and continue to be computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding. Diluted EPS will include any additional common shares as if
all potentially dilutive common shares were issued. The Bank adopted SFAS No.128
on December 31, 1997. All prior period EPS data has been restated. The impact of
adopting SFAS No.128 was not material to previously reported per share data.
In June 1997, the FASB issued SFAS No.130, "Reporting Comprehensive
Income." SFAS No.130 establishes the reporting and display requirements of total
comprehensive income and other comprehensive income in a full set of
general-purpose financial statements. The statement defines total comprehensive
income as all changes in equity during a period, except those resulting from
investments by owners and distributions to owners. Other comprehensive income
would include revenues, expenses, gains and losses that, under GAAP, are
included in comprehensive income but excluded from net income. SFAS No.130 is
effective for fiscal years beginning after December 15, 1997 and comparative
financial statements will be reclassified to reflect the provisions of SFAS
No.130.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Stockholders' equity increased by $48.1 million to $96.2 million at
December 31, 1997 from $48.1 million at March 31, 1997. The increase in total
stockholders' equity was primarily attributed to additional capital of $42.4
million realized in the conversion and reorganization effective August 22, 1997
and retained earnings.
Total assets increased by $33.6 million to $610.6 million at December 31,
1997 compared to $577.0 million at March 31, 1997. Securities available for
sale at market value increased by $51.7 million or 17.8% to $342.3 million at
December 31, 1997 from $290.6 million at March 31, 1997. The increase was
primarily attributed to the purchase of mortgage backed securities totaling
$45.2 million in anticipation of the proceeds of the stock offering in August
1997. In addition, there was a $4.5 million decrease in the net unrealized loss
in securities available for sale. Loans receivable, net decreased by $3.4
million or 1.4% to $232.2 million at December31 1997 from $235.6 million at
March 31, 1997. The decrease was primarily due to net amortization and payoffs
on mortgage loans.
Total liabilities decreased by $14.5 million to $514.4 million at December
31, 1997 compared to $528.9 million at March 31, 1997. Total deposits decreased
by $21.3 million to $422.8 million at December 31, 1997 from $444.1 million at
March 31, 1997 due primarily to the withdrawal of funds by Bank depositors to
purchase stock in the conversion and reorganization. In addition, certificates
of deposit decreased to $234.2 million at
8
<PAGE>
December 31, 1997 from $251.6 million at March 31, 1997 due to the maturing of
$22.8 million of high rate 10 year certificates of deposit during the quarter
ended December 31, 1997.
Results of Operations
Net income was $1.1 million for the three months ended December 31, 1997,
compared to $667,000 for the quarter ended December 31, 1996, an increase of
$468,000 or 70%. Total interest and dividend income increased by $423,000 or
4.4% to $10.1 million for the three months ended December 31, 1997, compared to
$9.6 million for the three months ended December 31, 1996. This increase
resulted from an increase in the average yield on interest earning assets to
6.86% for the three month period ended December 31, 1997 from 6.57% for the
three month period ended December 31, 1996 partially offset by a decrease of
$523,000 in average interest earning assets.
Total interest expense decreased by $619,000 or 9.3% to $6.1 million for
the three months ended December 31, 1997, compared to $6.7 million for the three
months ended December 31, 1996. The decrease was primarily attributable to a
decrease of $48.0 million or 8.7% on the average balance of interest bearing
liabilities to $503.3 million at December 31, 1997, compared to $551.3 million
for the three months ended December 31, 1996. The Bank's average borrowings were
reduced by $33.6 million in connection with the restructuring of the investment
portfolio.
The provision for loan losses totaled $45,000 and $30,000 for the three
month period ended December 31, 1997 and 1996, respectively. The provision is a
result of management's judgment based on a review of its loans and consideration
of a variety of factors including, 1) the risk characteristic of its loan
portfolio, 2) current economic conditions, 3) actual losses previously
experienced and 4) the existing levels of reserves for possible loan losses in
the future. Non-performing loans at December 31, 1997 and March 31, 1997 were
$5.6 million and $5.6 million or 2.42% and 2.38% of net loans receivable,
respectively.
Total operating expenses decreased by $104,000 to $2.5 million for the
three months ended December 31, 1997, compared to $2.6 million for the three
months ended December 31, 1996. The decrease was primarily attributable to the
decrease in compensation and employee benefits of$169,000 and reduced Federal
Insurance premiums of $155,000 partially offset by increases in other operating
expenses of $204,000 and advertising and promotion of $29,000.
Income tax expense increased by $271,000 to $667,000 for the three months
ended December 31, 1997, compared to $396,000 for the comparable prior year
period, as a result of additional taxable income earned during the current
fiscal quarter.
Nine Months of Operations
Net income increased by $5.9 million to $2.9 million for the nine months
ended December 31, 1997, from a net loss $3.0 million for the nine months
ended December 31,
9
<PAGE>
1996. This increase was primarily due to the $2.9 million assessment for the
recapitalization for the SMF insurance fund and $2.8 million loss on securities
available for sale recognized during the nine months ended December 31, 1996.
Total interest income decreased by $888,000 or 2.8% to $30.3 million for
the nine months ended December 31, 1997, from $31.2 for the nine months ended
December 31, 1996. The decrease was primarily due to a decrease in average
earning assets to $579.1 million for the nine months ended December 31, 1997
from $613.2 million for the nine months ended December 3 1, 1996, partially
offset by an increase in the average yield of interest earning assets to 6.97%
for the nine months ended December 31, 1997, from 6.79% for the nine months
ended December 31, 1996. The average yield has increased as result of
management's efforts to restructure the Bank's investment portfolio in 1997 and
the investment of $42.4 million from the stock offering into adjustable rate
mortgage backed securities.
Total interest expense decreased by $2.5 million or 11.8% to $18.8 million
for the nine months ended December 31, 1997, from $21.3 million for the nine
months ended December 31, 1996. The decrease resulted primarily from a decrease
in average interest bearing liabilities to $518.0 million for the nine months
ended December 31, 1997 from $578.1 million for the comparable prior year
period, combined with a decrease in the average cost of interest bearing
liabilities to 4.83% for the nine months ended December 31, 1997 from 4.91% for
the nine months ended December 31, 1996. During the nine months ended December
31, 1997, average borrowings decreased by $51.9 million as part of the Bank's
restructuring of the investment portfolio and deposits decreased by $7.9 million
primarily as a result of reinvestment of the maturing high yielding 10%
certificates of deposit.
The provision for loan losses totaled $135,000 and $90,000 for the nine
month periods ended December 31, 1997 and 1996, respectively. The provision is a
result of management's judgment based on its loans and consideration of a
variety of factors including 1) the risk characteristics of its loan portfolio,
2) current economic conditions, 3) actual losses previously experienced and 4)
the existing levels of reserves for possible loan losses in the future.
Total other income increased by $2.9 million to $980,000 for the nine
months ended December 31, 1997 from a loss of $1.9 million for the nine months
ended December 31, 1996. The difference was primarily attributable to the $2.8
million loss on securitieS available for sale experienced in nine months ended
December 31, 1996.
Total operating expenses decreased by $2.9 million or 27.5% to $7.7
million for the nine months ended December 31, 1997 from $10.6 million for the
nine months ended December 31, 1996. Excluding the $2.9 million assessment for
the recapatilization of the SAIF insurance fund, total operating expenses
decreased by $7,000 on a reduction of $455,000 in Federal Insurance premiums,
which were partially offset by increases in other operating expenses of $266,000
and $121,000 relating to equipment charges.
10
<PAGE>
Income tax expense increased by $1.4 million to $1.7 million for the nine
months ended December 31, 1997 from $297,000 for the nine months ended December
31, 1996 as a result of higher pretax income for the nine months ended December
31, 1997, as compared to a loss from operations of $2.7 million for the nine
months ended December 31,1996. The effective tax rate for the nine months ended
December 31, 1997 was 36.6%.
Capital
The OTS requires that the Bank meet minimum tangible, core and risk-based
capital requirements. As of December 31, 1997, the Bank exceeded all regulatory
capital requirements. The Bank's required, actual arid excess capital levels as
of December 31, 1997 are as follows (in thousands of dollars):
Excess of
Actual Over
Required % of Actual % of Regulatory
Amount Assets Amount Assets Requirements
-------- ------ ------- ------ ------------
Tangible Capital $ 9,092 1.50% $73,777 12.17% $64,685
Core Capital $18,183 3.00% $73,777 12.17% $55,594
Risk-based Capital $17,533 8.00% $76,520 34.91% $58,987
If the allowance for marketable debt and equity securities was included in
capital, the Bank's tangible, core and risk-based capital ratios would be
11.96%, 11.96% and 34.49%, respectively, at December 31, 1997.
Liquidity
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio currently is 5.0%. The
Bank's liquidity ratio averaged 39.83% during the month of December 1997 and
40.64% during nine months ended December 31, 1997. The Bank adjusts liquidity as
appropriate to meet its asset and liability management objectives.
Year 2000 Consideration
The Bank relies on computers for the daily conduct of its business and for
data processing. There is concern among industry experts that on January 1, 2000
computers will be unable to "read" the new year and there may be widespread
computer malfunctions. The Bank generally relies on independent third parties
to provide data processing services to the Bank, and has been advised by its
data processing service center
11
<PAGE>
that the issue has been addressed. The bank recognized that a comprehensive and
coordinate plan of action was needed to ensure readiness to perform year 2000
processing. A year 2000 Committee has been formed to implement the year 2000
project, policies, document readiness of the Bank to accommodate year 2000
processing, and to track and test progress towards full compliance. The Bank
contracts with service bureaus to provide the majority of its data processing
and is dependent upon purchased application software. In house applications are
limited to word-processing and spreadsheet functions. The Bank is in the
process of ensuring that external vendors and services are adequately addressing
the system and software issues related to the year 2000 by obtaining written
system certifications that the systems are fully year 2000 compliant or that
the vendor has a plan to become fully compliant in the very near future.
Beginning in the third quarter of the calendar year of 1998, the Bank will
coordinate with primary servicer end-to-end tests which allow the Bank to
simulate daily processing on sensitive century dates. In the evaluation the bank
will ensure that critical operations will continue if servicers or vendors are
unable to achieve the year 2000 requirements. The committee completed a system
inventory and obtained vendor certification. The committee identified critical
applications and developed detailed plans for hardware/system upgrades and
system replacements where necessary. The committee has budgeted $250,000 for
hardware system upgrades and system replacements which has been approved by the
Board of Directors. All upgrades are scheduled to be substantially implemented
by December 31, 1998 to allow a full year for system testing.
12
<PAGE>
PART II. OTHER INFORMATION
Legal Proceedings
In the normal course of business, the Company may be a party to various
outstanding legal proceedings and claims. In the opinion of management, the
financial position of the Company will not be materially affected by the outcome
of such legal proceeding and claims.
Changes in Securities
Not applicable.
Defaults upon Senior Securities
Not applicable.
Submission of Matters to Vote of Security Holders
None.
Other Information
Not applicable.
Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
3.1--Certificate of Incorporation of Bayonne Bancshares, Inc.*
3.2--Bylaws of Bayonne Bancshares, Inc.*
4.0--Stock Certificate of Bayonne Bancshares, Inc.*
11--Computation of earnings per share (filed herewith)
27--Financial Data Schedule (filed herewith)
(b) No reports on Form 8-K were filed this quarter.
*Incorporated herein by reference in this document from the Exhibits to the Form
S-1 Registration Statement, filed on March 13, 1997, and any amendments thereto
(Registration No. 333-23199).
13
<PAGE>
EXHIBIT 11
Computation of Earnings (Loss) Per Share
<TABLE>
<CAPTION>
Quarter Ended December 31, Nine Months Ended December 31,
------------------------------- ---------------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common stock
and common stock equivalents (in thousands) $ 1,135 $ 667 $ 2,988 ($2,971)
========= ========= ========= =========
Basic Earnings (Loss) Per Share
- -------------------------------
Average shares of common stock outstanding 8,417,155 2,959,475 5,738,194 2,949,515
========= ========= ========= =========
Basic Earnings (Loss) Per Share $ 0.13 $ 0.23 $ 0.51 $ (1.01)
========= ========= ========= =========
Fully Diluted Earnings (Loss) Per Share
- ---------------------------------------
Average shares of common stock outstanding 8,481,453 2,959,475 5,738,888 2,949,515
Common stock equivalents of stock options
and management recognition plans 101,754 6,426 99,694 819
--------- --------- --------- ---------
Average shares of common stock outstanding 8,583,207 2,965,901 5,837,888 2,950,334
========= ========= ========= =========
Fully Diluted Earnings (Loss) Per Share $ 0.13 $ 0.22 $ 0.50 $ (1.01)
========= ========= ========= =========
</TABLE>
Note:
Per share data reflects the Company's reorganization and stock offering
completed August 22, 1997 and the issuance of 4,869,190 shares of common stock
in connection with its conversion and reorganization.
Prior period per share data has been adjusted for the shares issued in the
conversion and reorganization.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Bank has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BAYONNE BANCSHARES, INC.
Date: February 13, 1997 By:/s/ MICHAEL NILAN
-------------------------------------
Michael Nilan
President and Chief Executive Officer
Date: February 13, 1997 By:/s/ EUGENE V. MALINOWSKI
-------------------------------------
Eugene V. Malinowski
Vice President and
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-30-1997
<CASH> 4,245
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 342,342
<INVESTMENTS-CARRYING> 10,273
<INVESTMENTS-MARKET> 0
<LOANS> 232,177
<ALLOWANCE> 2,977
<TOTAL-ASSETS> 610,639
<DEPOSITS> 422,765
<SHORT-TERM> 85,385
<LIABILITIES-OTHER> 6,288
<LONG-TERM> 0
0
0
<COMMON> 90
<OTHER-SE> 96,111
<TOTAL-LIABILITIES-AND-EQUITY> 610,639
<INTEREST-LOAN> 24,705
<INTEREST-INVEST> 15,234
<INTEREST-OTHER> 383
<INTEREST-TOTAL> 30,322
<INTEREST-DEPOSIT> 15,388
<INTEREST-EXPENSE> 18,798
<INTEREST-INCOME-NET> 4,017
<LOAN-LOSSES> 45
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 7,653
<INCOME-PRETAX> 4,716
<INCOME-PRE-EXTRAORDINARY> 4,716
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,988
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
