<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
[_] 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.: 000-23809
FIRST SOURCE BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 22-3566151
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1000 Woodbridge Center Drive, Woodbridge, New Jersey 07095
(Address of principal executive offices)
Registrant's telephone number, including area code: (732) 726-9700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
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
----- -----.
Yes X No
----- -----.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number or shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: No shares were
outstanding as of March 31, 1998.
<PAGE>
INDEX
PART I FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements.............................................3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................3
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......3
PART II OTHER INFORMATION
SIGNATURES
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- -----------------------------
First Source Bancorp, Inc. (also referred to as the "Company") was
incorporated under Delaware law on December 15, 1997 at the direction of the
Board of Directors of First Savings Bank, SLA (the "Bank") and the Bank's mutual
holding company, First Savings Bancshares, MHC (the "MHC"). The Company was
formed in connection with the conversion and reorganization of the Bank and the
MHC into the stock holding company form of organization. As part of the
conversion and reorganization, the Company filed an application with the Office
of Thrift Supervision ("OTS") to become a savings and loan holding company and
acquire all of the assets and liabilities of the Bank. That application was
conditionally approved by the OTS on February 12, 1998. The Company also filed a
Registration Statement on Form S-1 with the Securities and Exchange Commission
("SEC") to register the Company's common stock, par value $.01, to be issued in
connection with the conversion and reorganization. The Registration Statement
was declared effective by the SEC on February 11, 1998.
The conversion and reorganization was completed on April 8, 1998,
whereby the Company became the parent holding company of the Bank, holding all
of the Bank's issued and outstanding common stock.
Prior to completion of the conversion and reorganization, and as of
March 31, 1998, the Company was a shell corporation, with no assets, no
liabilities, no common stock outstanding and no operations. Therefore, the
Company has no information to report pursuant to Parts I or II hereof. Under
Part II, the Company has filed as an exhibit the Quarterly Report on Form 10-Q
of First Savings Bank, SLA, which became the Company's wholly-owned subsidiary
upon completion of the conversion and reorganization on April 8, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
-------------
See Item 1.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
- -------------------------------------------------------------------
See Item 1.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
- --------------------------
None.
Item 2. Changes in Securities.
- ------------------------------
None.
Item 3. Defaults Upon Senior Securities.
- ----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
None.
Item 5. Other Information.
- --------------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
3
<PAGE>
The following exhibits are filed as part of this report:
Exhibit 3.1 Certificate of Incorporation of First Source Bancorp,
Inc.*
Exhibit 3.2 Bylaws of First Source Bancorp, Inc.*
Exhibit 4.0 Stock Certificate of First Source Bancorp, Inc.*
Exhibit 11.0 Statement regarding computation of per share earnings.**
Exhibit 27.0 Financial Data Schedule
Exhibit 99.0 Quarterly report on Form 10-Q for First Savings Bank,
SLA for the quarter ended March 31, 1998.
*Incorporated herein by reference to the Exhibits to Form S-1, Registration
Statement, and Pre-Effective Amendment No. 1, filed on December 19, 1997 and
February 9, 1998, respectively, Registration No. 333-42757.
**Not applicable.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FIRST SOURCE BANCORP, INC.
By: /s/ John P. Mulkerin
--------------------
John P. Mulkerin
DATED: May 15, 1998 President, Chief Executive
Officer and Director
(Principal Executive Officer)
By: /s/ Christopher P. Martin
-------------------------
Christopher P. Martin
DATED: May 15, 1998 Executive Vice President,
Chief Operating and
Financial Officer and
Director
<PAGE>
Exhibit 99.0
Form 10-Q of First Savings Bank, SLA
for the quarter ended March 31, 1998
<PAGE>
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
-----------------------------------------
Form 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period___________to___________.
OTS Docket Number: 05056
-----
First Savings Bank, SLA
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3188940
- --------------------------------------------------------------------------------
State or other jurisdiction IRS Employer Identification No.
of Incorporation or Organization
1000 Woodbridge Center Drive, Woodbridge, NJ, 07095
- --------------------------------------------------------------------------------
Address of Principal Executive Offices
(732) 726-9700
- --------------------------------------------------------------------------------
Registrant's Telephone No.
Not Applicable
- --------------------------------------------------------------------------------
Former Name, Address, and 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 and 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) had been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 1998
---------------------------------- ----------------------------------
Common Stock 8,016,351 shares
<PAGE>
FIRST SAVINGS BANK, SLA
INDEX TO FORM 10-Q
- --------------------------------------------------------------------------------
Page #
------
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 1. Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Consolidated Statements of Financial Condition as of March 31,
1998 (unaudited) and December 31, 1997 (audited) 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Consolidated Statements of Income for the three months ended
March 31, 1998 and 1997 (unaudited) 4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1998 and 1997 (unaudited) 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (unaudited) 6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Unaudited Consolidated Financial Statements 7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosure About Market Risk 13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION 15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURES 16
- --------------------------------------------------------------------------------
2
<PAGE>
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31 December 31,
-------- -----------
1998 1997
-------------- --------------
(unaudited) (audited)
<S> <C> <C>
Assets
Cash and due from banks......................................................... $ 70,206 $ 8,377
Federal funds sold.............................................................. 23,550 6,050
-------------- --------------
Total cash and cash equivalents............................................ 93,756 14,427
Federal Home Loan Bank of New York (FHLB-NY) stock, at cost..................... 8,352 8,045
Investment securities, at amortized cost (estimated fair value of $20,114
and $31,150 at 3/31/98 and 12/31/97, respectively)......................... 19,995 31,031
Investment securities available for sale........................................ 31,690 17,701
Mortgage-backed securities, net (estimated fair value of $193,553 and
$210,683 at 3/31/98 and 12/31/97, respectively)............................ 191,812 207,157
Mortgage-backed securities available for sale................................... 177,716 147,137
Loans receivable, net........................................................... 609,779 588,500
Interest and dividends receivable............................................... 7,457 7,882
Premises and equipment, net..................................................... 12,807 13,087
Excess of cost over fair value of net assets acquired........................... 8,593 8,806
Other assets.................................................................... 6,478 5,543
-------------- --------------
Total assets............................................................... $ 1,168,435 $ 1,049,316
============== ==============
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Liabilities
Deposits........................................................................ $ 819,453 $ 816,283
Borrowed funds.................................................................. 122,994 118,444
Employee Stock Ownership Plan (ESOP) debt....................................... 521 546
Advances by borrowers for taxes and insurance................................... 5,887 5,444
Other liabilities............................................................... 115,331 6,913
-------------- --------------
Total liabilities............................................................. 1,064,186 947,630
-------------- --------------
Stockholders' Equity
Preferred Stock; authorized 1,000,000 shares; issued and outstanding - none..... - -
Common Stock, $.01 par value, 10,000,000 shares authorized;
8,016,351 shares issued and outstanding at March 31, 1998 and
December 31, 1997, respectively............................................ 80 80
Paid-in capital................................................................. 43,376 43,302
Retained earnings............................................................... 60,886 58,509
Accumulated other comprehensive Income.......................................... 585 524
Less: Common Stock acquired by the ESOP......................................... (521) (546)
Common Stock acquired by the Recognition and
Retention Plan (RRP)................................................. (157) (183)
-------------- --------------
Total stockholders' equity................................................. 104,249 101,686
-------------- --------------
Total liabilities and stockholders' equity................................. $ 1,168,435 $ 1,049,316
============== ==============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Income
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended March 31,
--------------------------------
1998 1997
-------------- --------------
(unaudited)
<S> <C> <C>
Interest income:
Loans................................................. $ 11,637 $ 10,281
Mortgage-backed securities............................ 3,441 4,181
Investment securities................................. 784 988
Investment and mortgage-backed securities and
loans available for sale............................ 2,755 2,341
-------------- --------------
Total interest income.............................. 18,617 17,791
-------------- --------------
Interest expense:
Deposits:
NOW and money market demand.......................... 1,464 1,322
Savings.............................................. 775 823
Certificates of deposit.............................. 6,226 6,149
-------------- --------------
Total interest expense - deposits.................. 8,465 8,294
Borrowed funds........................................ 1,967 1,534
-------------- --------------
Total interest expense............................. 10,432 9,828
-------------- --------------
Net interest income..................................... 8,185 7,963
Provision for loan losses............................... 375 300
-------------- --------------
Net interest income after provision for loan losses..... 7,810 7,663
-------------- --------------
Other operating income:
Fees and service charges.............................. 485 405
Net gain on sales of loans and securities............. 107 5
Net gain on sale of deposits.......................... 1,084 -
Other, net............................................ 110 115
-------------- --------------
Total other operating income....................... 1,786 525
-------------- --------------
Operating expenses:
Compensation and benefits............................. 2,421 2,285
Occupancy............................................. 418 527
Equipment............................................. 320 265
Advertising........................................... 119 145
Federal deposit insurance............................. 122 28
Amortization of intangibles........................... 213 212
General and administrative............................ 680 662
-------------- --------------
Total operating expenses........................... 4,293 4,124
-------------- --------------
Income before income tax expense........................ 5,303 4,064
Income tax expense...................................... 1,964 1,563
-------------- --------------
Net income.............................................. $ 3,339 $ 2,501
============== ==============
Basic earnings per share................................ $ 0.42 $ 0.32
============== ==============
Weighted average shares outstanding..................... 7,951,088 7,886,471
============== ==============
Diluted earnings per share.............................. $ 0.41 $ 0.31
============== ==============
Weighted average shares outstanding
including potential common stock..................... 8,051,825 8,030,205
============== ==============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
(Dollars in thousands) (unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Common Common
Compre- Stock Stock Total
Common Paid In Retained hensive Acquired Acquired Stockholder's
Stock Capital Earnings Income by ESOP by RRP Equity
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............ $72 $27,427 $66,299 ($3) ($646) ($286) $92,863
Net income for the quarter
ended March 31, 1997................. - - 2,501 - - - 2,501
Cash dividends.......................... - - (349) - - - (349)
Net change in unrealized gain/loss
on securities available for sale..... - - - (867) - - (867)
Amortization of RRP..................... - - - - - 26 26
Principal payments on ESOP loan......... - - - - 25 - 25
Exercise of stock options............... - 1 - - - - 1
------------------------------------------------------------------------------------
Balance at March 31, 1997............... 72 27,428 68,451 (870) (621) (260) 94,200
====================================================================================
Balance at December 31, 1997............ $80 $43,302 $58,509 $524 ($546) ($183) $101,686
Net income for the quarter
ended March 31, 1998................. - - 3,339 - - - 3,339
Cash dividends.......................... - - (962) - - - (962)
Net change in unrealized gain/loss
on securities available for sale..... - - - 61 - - 61
Amortization of RRP..................... - - - - - 26 26
Principal payments on ESOP loan......... - 74 - - 25 - 99
------------------------------------------------------------------------------------
Balance at March 31, 1998............... $80 $43,376 $60,886 $585 ($521) ($157) $104,249
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................ 3,339 2,501
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment................................................ 284 220
Amortization of excess of cost over fair value of assets acquired..................... 213 212
Amortization of ESOP.................................................................. 99 25
Amortization of RRP................................................................... 26 26
Net accretion and amortization of deferred loan fees.................................. 78 (66)
Provision for loan losses............................................................. 375 300
Provision for losses on real estate owned............................................. 10 10
Net gain on sales of investment securities available for sale......................... (8) (5)
Net loss on market adjustment to investment securities held for trading............... - 33
Loans originated for sale............................................................. (2,239) (1,386)
Proceeds from sales of mortgage loans available for sale.............................. 2,245 1,508
Net gain on sales of mortgage loans available for sale................................ (6) (5)
Net gain on sales of mortgage-backed securities available for sale.................... (93) (28)
Net gain on sales of real estate owned................................................ (1) (1)
Investment securities purchased for trading........................................... - (1,989)
Net accretion of premiums and amortization of discounts............................... (273) 253
Decrease (increase) in interest and dividends receivable.............................. 425 (116)
Increase (decrease) in other liabilities.............................................. 1,910 (35)
Increase in other assets.............................................................. (344) (218)
------------- -------------
Net cash provided by operating activities....................................... 6,040 1,239
------------- -------------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale....................... 2,008 1,016
Proceeds from sales of mortgage-backed securities available for sale.................. 15,763 39,892
Proceeds from sales of real estate owned.............................................. 82 370
Investment securities purchased for sale.............................................. (15,999) (1,012)
Mortgage-backed securities purchased for sale......................................... (51,719) (60,112)
Purchases of investment securities.................................................... (1,880) (6,000)
Maturities/calls of investment securities............................................. 13,000 4,000
Origination of loans.................................................................. (61,697) (24,995)
Purchases of mortgage loans........................................................... - (596)
Purchases of mortgage-backed securities............................................... (4,534) (8,498)
Principal repayments on loans......................................................... 39,249 13,899
Principal payments on mortgage-backed securities...................................... 25,643 19,604
Purchase of FHLB-NY stock............................................................. (307) (617)
Purchases of premises and equipment................................................... (4) (1,961)
------------- -------------
Net cash used in investing activities.......................................... (40,395) (25,010)
------------- -------------
Cash flows from financing activities:
Payment on ESOP debt.................................................................. (25) (25)
Stock orders received................................................................. 106,508 -
Stock options exercised............................................................... - 1
Cash dividends paid................................................................... (962) (349)
Net increase in deposits.............................................................. 3,170 11,643
Net increase in borrowed funds........................................................ 4,550 24,234
Net increase in advances by borrowers for taxes and insurance......................... 443 446
------------- -------------
Net cash provided by financing activities.................................... 113,684 35,950
------------- -------------
Net increase in cash and cash equivalents.................................... 79,329 12,179
Cash and cash equivalents at beginning of period......................................... 14,427 9,042
------------- -------------
Cash and cash equivalents at end of period............................................... 93,756 21,221
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.......................................................................... 10,129 9,428
Income taxes...................................................................... - -
Non cash investing and financing activities for the period:
Transfer of loans to real estate owned............................................ 716 310
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
FIRST SAVINGS BANK, SLA
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and in conformity with the instructions to Form 10-Q and
Article 10 of Regulation S-X for First Savings Bank, SLA and its wholly-owned
subsidiaries, FSB Financial Corp., and 1000 Woodbridge Center Drive, Inc. (the
"Bank").
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial condition, results
of operations, and changes in cash flows and equity have been made at and for
the three months ended March 31, 1998 and 1997. The results of operations for
the three months ended March 31, 1998 are not necessarily indicative of results
that may be expected for the entire fiscal year ended December 31, 1998. These
interim financial statements should be read in conjunction with the December 31,
1997 financial statements.
(2) Net Income Per Share
Basic earnings per share is calculated by dividing net income by the daily
average number of common shares outstanding during the period. Common stock
equivalents are not included in the calculation.
Diluted earnings per share is computed similar to that of basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potential
dilutive common shares were issued.
Per share data reflects 10% stock dividends paid on December 16, 1996, and
October 30, 1997, applied retroactively.
As a result of the conversion and reorganization, the existing outstanding
shares (8,016,351 at March 31, 1998) were converted, at an exchange ratio of
3.9133, into shares of First Savings Bancorp, Inc. on April 8, 1998. Basic and
diluted earnings per shares restated for the effects of this conversion are
presented below.
Three Months Ended
March 31, 1998 March 31, 1997
Net income.................................. $3,339 $2,501
Basic earnings per share.................... $0.11 $0.08
Weighted average basic shares outstanding... 31,114,993 30,862,127
Diluted earnings per share.................. $0.11 $0.08
Weighted average diluted shares outstanding. 31,509,207 31,424,601
(3) Dividends
Based upon current operating results, the Bank declared a cash dividend of $.12
per share on January 28, 1998, payable February 27, 1998, to stockholders of
record on February 13, 1998.
7
<PAGE>
(4) Commitments and Contingencies
At March 31, 1998, the Bank had the following commitments: (i) to originate
loans totaling $51.8 million; (ii) to purchase mortgage-backed securities
totaling $46.0 million; (iii) to purchase investment securities totaling $4.5
million, (iv) unused equity lines of credit totaling $15.9 million; (v) unused
construction lines of credit totaling $19.4 million, (vi) unused credit card
lines totaling $927,000, (vi) unused other lines of credit totaling $2.1 million
and (vii) letters of credit outstanding totaling $2.1 million. There were also
commitments to sell loans totaling $2.5 million at March 31, 1998. Further,
certificates of deposits, which are scheduled to mature and/or rollover in one
year or less, totaled $337.5 million at March 31, 1998.
(5) Allowance for Loan Losses
<TABLE>
<CAPTION>
For the three months For the three months
ended March 31, 1998 ended March 31, 1997
----------------------- -----------------------
(unaudited) (in thousands)
<S> <C> <C>
Balance at beginning of period $6,097 $5,322
Provision charged to operations 375 300
Recoveries --- ---
Loans charged - off (66) (74)
----------------------- -----------------------
Balance at end of period $6,406 $5,548
======================= =======================
</TABLE>
(6) Comprehensive Income
Effective January 1, 1998, the company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Under SFAS 130, comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items previously
recorded directly in equity, such as unrealized gains or losses on securities
available for sale. Comparative financial statements provided for earlier
periods are required to be reclassified to reflect application of the provisions
of SFAS 130.
SFAS 130 requires total comprehensive income and its components to be displayed
on the face of a financial statement for annual financial statements. For
interim financial statements, SFAS 130 requires only total comprehensive income
to be reported and allows such disclosure to be presented in the notes to the
interim financial statements. Total comprehensive income for the three months
ended March 31, 1998 and March 31, 1997, amounted to $3.4 million and $1.6
million, respectively.
8
<PAGE>
FIRST SAVINGS BANK, SLA
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General.
Conversion and reorganization. On April 8, 1998 First Savings Bank, SLA and
its mutual holding company, First Savings Bancshares, MHC, completed a
conversion and reorganization into the stock holding company structure and also
completed the offering of the common stock of First Source Bancorp, Inc., the
new stock holding company of First Savings Bank. Through a Subscription and
Community Offering, First Source Bancorp, Inc. raised approximately $165.6
million in gross proceeds. First Source Bancorp, Inc. trades on the Nasdaq
National Market under the symbol "FSLA."
Assets. Total assets increased by $119.1 million, or 11.4%, to $1.2 billion at
March 31, 1998, from $1.0 billion at December 31, 1997. Cash and cash
equivalents increased $79.3 million to $93.8 million as of March 31, 1998, from
$14.4 million at December 31, 1997. This increase was directly due to the large
number of stock orders received at the end of March from the stock offering in
conjunction with the Bank's conversion and plan of reorganization. The majority
of these orders were received on March 31, 1998, and this accounts for the
particularly large increase in the "cash and due from banks" caption. Cash and
cash equivalents will continue to remain at a high level until the funds
received from the subsequent stock sale are deployed in longer term assets. The
majority of the balance, however, is currently invested in Federal Funds sold.
Investment securities, including those available for sale, increased $3.0
million, or 6.1%, to $51.7 million as of March 31, 1998. Federal Home Loan Bank
of New York ("FHLB-NY") stock increased $307,000, or 3.8%, to $8.4 million at
March 31, 1998, due to an increase in the amount of outstanding mortgage loans
and mortgage-backed securities, which necessitated the purchase of additional
stock pursuant to the requirements of the FHLB-NY. Loans increased $21.3
million, or 3.6%, to $609.8 million as of March 31, 1998, from $588.5 million at
December 31, 1997. The increase was due primarily to loan originations exceeding
loan amortization and prepayments, particularly with regard to residential
single family five- and seven-year adjustable rate and fifteen-year fixed rate
mortgages. Mortgage-backed securities, including those available for sale,
increased $15.2 million, or 4.3%, to $369.5 million at March 31, 1998, from
$354.3 million at December 31, 1997, primarily due to purchases of $56.3 million
partially offset by sales totaling $15.8 million and prepayments of $25.6
million. Other assets increased $935,000, or 16.9%, to $6.5 million at March 31,
1998 from $5.5 million at December 31, 1997. This increase was primarily due to
conversion costs capitalized pending the closing of the conversion and
reorganization.
Liabilities. Deposits increased $3.2 million, or 0.4%, to $819.5 million at
March 31, 1998, from $816.3 million at December 31, 1997. This increase was net
of the sale of $25.2 million in deposits. On February 26, 1998, the Bank sold
the deposits and certain assets of its Eatontown branch office to another
financial institution. The Eatontown location was considered outside the Bank's
primary market area, which was the principal reason for the sale. Other
contributing factors were the high cost to service the branch and a high cost of
funds. Borrowed funds increased $4.6 million, or 3.8%, to $123.0 million at
March 31, 1998, from $118.4 million at December 31, 1997. Other liabilities
increased $108.4 million to $115.3 million at March 31, 1998, from $6.9 million
at December 31, 1997. This increase was primarily due to the receipt of
non-refundable stock orders for the pending conversion and reorganization.
Capital. The Bank's stockholders' equity increased $2.6 million for the three
months ended March 31, 1998, due primarily to earnings of $3.3 million,
partially offset by dividends declared and paid during the first quarter of 1998
of $962,000.
The OTS requires that the Bank meet minimum tangible, core, and risk-based
capital requirements. At March 31, 1998, the Bank exceeded all regulatory
capital requirements, as follows:
9
<PAGE>
<TABLE>
<CAPTION>
Required Actual
--------------------- --------------------- Excess of Actual
% of % of over Regulatory
Amount Assets Amount Assets Requirements
----------- --------- ----------- --------- ------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible Capital $17,415 1.50% $95,016 8.18% $77,601
Core Capital 34,829 3.00% 95,016 8.18% 60,187
Risk-based Capital 37,661 8.00% 100,971 21.20% 63,310
</TABLE>
Liquidity and Capital Resources. The Bank's primary sources of funds are
deposits; proceeds from principal and interest payments on loans and
mortgage-backed securities; sales of loans, mortgage-backed securities and
investments available for sale; maturities of investment securities and
short-term investments; and, to an increasing extent, advances from the FHLB-NY
and other borrowed funds. While maturities and scheduled amortization of loans
and mortgage-backed securities are a predictable source of funds, deposit cash
flows and mortgage prepayments are greatly influenced by general interest rates,
competition, and economic conditions.
The most significant primary source of funds for the first three months of 1998
was principal repayment and prepayment of mortgage loans and mortgage-backed
securities, totaling $64.9 million. Funds for the first quarter of 1998 were
also positively impacted by stock orders received by the Bank for the offering
of common stock for First Source Bancorp, Inc. in conjunction with the
conversion and reorganization, as evidenced by the $108.4 million increase in
other liabilities for the quarter.
The primary investing activities of the Bank for the first three months of 1998
were the origination of loans totaling $63.9 million. Other significant
investing activities of the Bank for the quarter ended March 31, 1998, were the
purchases of mortgage-backed securities available for sale totaling $51.7
million, purchases of investment securities available for sale totaling $16.0
million, purchases of mortgage-backed securities held to maturity totaling $4.5
million and purchases of investment securities held to maturity totaling $1.9
million.
The Bank is required to maintain an average daily balance of liquid assets as
defined by OTS regulations. This ratio is based upon a percentage of deposits
and short-term borrowings. The required minimum ratio is currently 4.00%. The
Bank's liquidity ratio at March 31, 1998, was 46.37%. The definition of assets
considered liquid was recently redefined by the OTS. As of March 31, 1998,
assets qualifying for liquidity purposes totaled $392.8 million.
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997.
Results of Operations. Net income for the quarter ended March 31, 1998, was $3.4
million. This represents a 33.5% increase over the comparable 1997 earnings of
$2.5 million. Basic and diluted earnings per share were $0.42 and $0.41,
respectively, for the 1998 period. For the comparable 1997 period, basic and
diluted earnings per share were $0.32 and $0.31, respectively. Earnings for the
1998 quarter were enhanced by a $687,000 gain, net of taxes, on the sale of a
branch office located in Eatontown, NJ, to another financial institution.
Earnings for the 1998 quarter, excluding the effect of this transaction, would
have been $2.7 million, with basic and diluted earnings per share of $0.33.
Interest income. Interest income increased by $826,000, or 4.6%, to $18.6
million for the three months ended March 31, 1998, compared to $17.8 million for
the same period in 1997. Interest on loans increased $1.4 million, or 13.2%, to
$11.6 million for the three months ended March 31, 1998, from $10.3 million for
the same period in 1997. The increase was due primarily to an increase in the
average size of the loan portfolio to $595.4 million for the three month period
ended March 31, 1998, from $515.1 million for the same period in 1997, partially
offset by a 17 basis point decrease in the yield of the portfolio to 7.82%. The
decrease in yield was due to the Bank's emphasis on adjustable-rate loan
originations, which tend to earn lower rates of interest (during their
10
<PAGE>
initial terms) than fixed-rate mortgages, prepayments and refinancings of higher
yielding mortgage loans and a general decrease in long-term interest rates.
Interest on mortgage-backed securities ("MBS") decreased $740,000, or 17.7%, to
$3.4 million for the three months ended March 31, 1998, compared to $4.2 for
1997. The decrease was due primarily to the decreased average balance of the MBS
portfolio to $204.1 million for the first three months of 1998, from $246.9
million for the same period in 1997. Interest and dividends on investment
securities decreased $204,000, or 20.6%, to $784,000 for the three months ended
March 31, 1998. The decrease was due primarily to the decreased average size of
the investment securities portfolio to $46.1 million for the first three months
of 1998, from $57.6 million for the same period in 1997, augmented by a decrease
in the yield on the portfolio of 7 basis points to 6.80%. Interest on
investments available for sale increased $414,000, or 17.7%, to $2.8 million for
the three months ended March 31, 1998, as compared to $2.3 million for the same
period in 1997. The increase was due primarily to an increase in the average
size of the portfolio to $180.4 million for the three month period ended March
31, 1998, from $148.7 million for the same period in 1997, partially offset by a
decrease in the yield of the portfolio of 19 basis points to 6.11%. The decrease
in the yield on the portfolio was primarily due to the prepayment of higher
yielding mortgage-backed securities, calls of higher yielding investment
securities and the general decrease in long-term interest rates.
Interest Expense. Interest expense increased $604,000, or 6.1%, to $10.4 million
for the three months ended March 31, 1998, compared to $9.8 million for the same
period in 1997. Interest expense on deposits increased $171,000, or 2.1%, to
$8.5 million for the three months ended March 31, 1998, compared to $8.3 million
for the same period in 1997. The increase was due primarily to an increase in
the average balance of deposits to $788.4 million for the quarter ended March
31, 1998, from $779.8 million for the comparable 1997 quarter, in conjunction
with an increase in the average cost of deposits to 4.29% for the three months
ended March 31, 1998, from 4.25% for the same period in 1997. The increased
average cost of deposits was primarily due to increased costs associated with
certificates of deposits. The overall cost of funds on this product rose 9 basis
points between the periods. This increase was due to the Bank raising the rates
paid on several certificate programs in conjunction with local market rates.
Local market rates increased due to the presence of new competition. The overall
cost of deposits was mitigated through an increase in non-interest bearing
deposits, the quarterly average balance of which increased to $28.3 million at
March 31, 1998 from $20.6 million at March 31, 1997. The increase in the average
balance of deposits and the average cost of deposits would have been greater
without the effects of the sale of the Eatontown branch location, discussed
previously. Interest expense on borrowed funds increased $433,000, or 28.2%, to
$2.0 million for the three months ended March 31, 1998, compared to $1.5 million
for the comparable 1997 period. The increase was due primarily to the growth in
the average balance of borrowings, which was $133.3 million for the three months
ended March 31, 1998, as compared to $103.2 million for the comparable 1997
period, partially offset by a 5 basis point decrease in average cost of borrowed
funds to 5.90%. The increase in the average balance was attributable to
management's continuing strategy to fund the purchase of investment and
mortgage-backed securities through the use of borrowed funds, where accretive to
earnings. The decrease in average cost was reflective of the decrease in
borrowing rates.
Net Interest Income Before Provision. Net interest income before provision for
loan losses increased $222,000, or 2.8%, to $8.2 million for the three months
ended March 31, 1998, compared to $8.0 million for the same period in 1997. The
increase was due primarily to the $19.0 million increase in the average balance
of net interest-earning assets for the 1998 period, partially offset by a 17
basis point decrease in interest rate spread to 2.73% as of March 31, 1998, from
2.90% as of March 31, 1997.
Provision for Loan Losses. The provision for loan losses increased $75,000 to
$375,000 for the three months ended March 31, 1998, compared to $300,000 for the
same period in 1997. The increase was primarily attributable to the $80.3
million increase in the average balance of the loan portfolio from March 31,
1997 to March 31, 1998. The related allowance for loan losses balance was $6.4
million at March 31, 1998 as compared to $5.5 million at March 31, 1997. The
allowance for loan losses as a percentage of total loans was 1.04% at March 31,
1998, as compared to 1.05% at March 31, 1997.
11
<PAGE>
Total foreclosed real estate ("REO") increased $625,000 during the three month
period ended March 31, 1998. Over the three month period, the Bank acquired
seven residential properties, with a carrying value of $716,000, as REO. Two
residential REO properties were sold over the period with net proceeds of
$82,000. At March 31, 1998, REO consisted of 18 residential properties totaling
$2.0 million. Six of these properties, with a carrying value of $784,000, were
under contract for sale at March 31, 1998. Management continues to pursue the
sale of REO properties in an expedient manner.
The following table sets forth ratios regarding nonaccrual loans, and loans
which are 90 days or more delinquent, but on which the Bank is accruing interest
at the dates indicated. The Bank discontinues accruing interest on delinquent
loans when collection of interest is considered doubtful, generally 90 days or
more delinquent, and loan-to-value ratios exceed 55%, at which time all accrued
but uncollected interest is reversed.
<TABLE>
<CAPTION>
March 31, Dec. 31, Sept. 30, June 30, March 31,
1998 1997 1997 1997 1997
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans....................... $2,911 $3,706 $3,547 $4,839 $4,466
Non-accrual other loans.......................... 38 29 14 82 11
-----------------------------------------------------------
Total non-accrual loans....................... 2,949 3,735 3,561 4,921 4,477
-----------------------------------------------------------
Loans 90 days or more delinquent and still
accruing......................................... 407 597 379 335 83
-----------------------------------------------------------
Total non-performing loans....................... 3,356 4,332 3,940 5,256 4,560
Total foreclosed real estate, net of related
allowance for loss............................... 2,005 1,380 1,398 1,541 1,448
-----------------------------------------------------------
Total non-performing assets...................... $5,361 $5,712 $5,338 $6,797 $6,008
===========================================================
Non-performing loans to loans, receivable........ 0.55% 0.74% 0.69% 0.95% 0.88%
Non-performing assets to total assets............ 0.46% 0.54% 0.51% 0.66% 0.59%
</TABLE>
In management's opinion, the allowance for loan losses, totaling $6.4 million,
is adequate to cover losses inherent in the portfolio. The amount of the
provision is based on management's evaluation of the risk inherent in the loan
portfolio. Management will continue to review the need for additions to its
allowance for loan losses based upon its quarterly review of the loan portfolio,
the level of delinquencies, and general market and economic conditions, and will
make adjustments to the allowance as necessary.
Other Operating Income. Other operating income increased $1.3 million, or
240.2%, to $1.8 million for the three months ended March 31, 1998, compared to
$525,000 for the same period in 1997. The increase in this category was
primarily due to the gain on sale of deposits of $1.1 million for the three
months ended March 31, 1998. This amount represents the pre-tax gain realized by
the Bank on the sale of its Eatontown branch office. There was no such activity
in the 1997 period. Fees and service charges increased $80,000, or 19.8%, to
$485,000 for the quarter ended March 31, 1998, from $400,000 for the comparable
1997 period. This increase was primarily attributable to the growth in checking
accounts. Net gain on the sales of loans and securities increased $102,000 to
$107,000 for the quarter ended March 31, 1998, from $5,000 for the comparable
1997 period. Activity in the 1998 quarter primarily consisted of the sale of
mortgage-backed securities which, management believed, contained exceptionally
high prepayment risk.
Operating Expenses. Operating expenses increased $169,000, or 4.1%, to $4.3
million for the three months ended March 31, 1998, from $4.1 million for the
comparable 1997 period. Compensation and employee benefits increased $136,000,
or 6.0%, to $2.4 million for the quarter ended March 31, 1998, from $2.3 million
for the comparable 1997 period The increase was primarily attributable to
increased compensation costs, due to cost of living increases, and increased
benefit costs due to the accounting for shares contributed to the ESOP plan.
During the 1998 quarter, the Bank became affected by the provisions of Statement
of Position 93-6, which requires that compensation expense be recognized for the
market value of shares to be distributed or released to an ESOP. Federal deposit
insurance premiums increased $94,000 to $122,000 for the quarter ended March 31,
1998, from $28,000 for the comparable 1997 period The 1997 period benefited from
reduced insurance premiums due to the then recent funding of the Savings
Associations Insurance Fund ("SAIF"). The Bank's
12
<PAGE>
assessment rate for the quarter ended March 31, 1998, was 6.48 basis points, as
compared to an effective rate, after including a credit issued by the SAIF in
1997, of 1.62 basis points for the comparable 1997 quarter. These increases were
partially offset by a decrease in Occupancy costs. Occupancy expense decreased
$109,000, or 20.7%, to $418,000 for the quarter ended March 31, 1998, from
$527,000 for the comparable 1997 period. This decrease was due to reduced costs
associated with the move to the Bank's new corporate headquarters in April,
1997. The new headquarters replaced three administrative offices. The 1997
period was also affected by certain costs associated with the pending move.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
The Bank's market risk arises primarily from interest rate risk inherent in its
lending, investment and deposit taking activities. The Bank's profitability is
affected by fluctuations in interest rates. A sudden and substantial increase in
interest rates may adversely impact the Bank's earnings to the extent that the
interest rates borne by assets and liabilities do not change at the same speed,
to the same extent or on the same basis. To that end, management actively
monitors and manages its interest rate risk exposure.
The Bank utilizes the following strategies to manage interest rate risk: (1)
emphasizing the origination and retention of fixed-rate mortgage loans having
effective terms to maturity of not more than 25 years, adjustable-rate loans and
consumer loans consisting primarily of home equity loans and lines of credit;
(2) selling substantially all fixed-rate conforming mortgage loans with terms of
thirty years without recourse and on a servicing-retained basis; and (3)
investing primarily in adjustable-rate mortgage-backed securities, which may
generally bear lower yields as compared to longer term investments, but which
better position the Bank for increases in market interest rates, and holding the
majority of these securities as available for sale. The Bank currently does not
participate in hedging programs, interest rate swaps or other activities
involving the use of off-balance sheet derivative financial instruments, but may
do so in the future to mitigate interest rate risk.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored by
management through the use of the OTS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios, and
the Federal Home Loan Bank of Atlanta Asset/Liability Model. The NPV is defined
as the current market value of assets, minus the current market value of
liabilities, plus or minus the current value of off-balance sheet items. The OTS
uses, as a critical point, a change of plus or minus 200 basis points in order
to set its "normal" institutional results and peer comparisons. The greater the
change, positive or negative, in NPV, the more interest rate risk is assumed to
exist within the institution. The following table lists the Bank's percentage
change in NPV assuming an immediate change of plus or minus of up to 400 basis
points from the level of interest rates at March 31, 1998, as calculated by the
OTS. As the table shows, increases in interest rates would result in decreases
in the Bank's NPV, while decreases in interest rates would result in increases
in the Bank's NPV. All market risk instruments presented in this table are held
to maturity or available for sale. The Bank had no trading securities at March
31, 1998.
13
<PAGE>
<TABLE>
<CAPTION>
NPV as a % of Portfolio
Changes In Net Portfolio Value Value of Assets
Interest Rates -----------------------------------------------------------------------------------------
In Basis Points NPV
(Rate Shock) Amount $ Change % Change Ratio Change (1)
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 $ 79,072 $(52,396) (40)% 6.77% (448)
+300 95,326 (36,142) (27) 8.16 (309)
+200 111,580 (19,888) (15) 9.55 (170)
+100 121,524 (9,944) (8) 10.40 (85)
Static 131,468 - - 11.25 -
-100 136,181 4,713 4 11.65 40
-200 140,894 9,426 7 12.06 81
-300 146,448 14,980 11 12.53 128
-400 152,002 20,534 16 13.01 176
</TABLE>
(1) Expressed in basis points.
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of 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 Bank'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 Bank'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 Bank's net
interest income and will differ from actual results.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are various claims and lawsuits in which the Registrant is
periodically involved incidental to the Registrant's business. In the
opinion of management, no material loss is expected from any of such
pending claims and lawsuits.
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
A special meeting of stockholders was held on April 2, 1998. The
following proposals were voted on by the stockholders:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
1. Approval of the Plan of Conversion
and Plan of Reorganization between
First Savings Bancshares, MHC and
the Bank 7,194,970 20,208 -
2. Authorization to Adjourn the
Special Meeting 6,845,793 363,708 -
</TABLE>
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
a.) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
------ ----------- ---------
<S> <C> <C>
3.1 Certificate of Incorporation of First Savings *
Bank, SLA
3.2 Bylaws of First Savings Bank, SLA *
4.0 Stock Certificate of First Savings Bank, SLA *
</TABLE>
* Incorporated herein by reference into this document from the
Application for Conversion on Form AC and exhibits thereto of First
Savings Bancshares, MHC, and any amendments or supplements thereto
filed with the OTS on December 19, 1997 and amended on February 9,
1998, Docket No. 05056.
b.) Reports on Form 8 - K
---------------------
No Form 8 - K was filed during the quarter.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST SAVINGS BANK, SLA
Date: May 15, 1998 By: /s/ John P. Mulkerin
--------------------
John P. Mulkerin
President
Chief Executive Officer
Director
Date: May 15, 1998 By: /s/ Christopher P. Martin
-------------------------
Christopher P. Martin
Executive Vice President
Chief Operating and Financial Officer
Corporate Secretary
Director
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 70,206
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 23,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 209,406
<INVESTMENTS-CARRYING> 211,807
<INVESTMENTS-MARKET> 213,667
<LOANS> 609,779
<ALLOWANCE> 6,406
<TOTAL-ASSETS> 1,168,435
<DEPOSITS> 819,453
<SHORT-TERM> 24,994
<LIABILITIES-OTHER> 121,218
<LONG-TERM> 98,521
0
0
<COMMON> 80
<OTHER-SE> 104,169
<TOTAL-LIABILITIES-AND-EQUITY> 1,168,435
<INTEREST-LOAN> 11,637
<INTEREST-INVEST> 6,980
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 18,617
<INTEREST-DEPOSIT> 8,465
<INTEREST-EXPENSE> 10,432
<INTEREST-INCOME-NET> 8,185
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 107
<EXPENSE-OTHER> 4,293
<INCOME-PRETAX> 5,303
<INCOME-PRE-EXTRAORDINARY> 3,339
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,339
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
<YIELD-ACTUAL> 3.19
<LOANS-NON> 2,949
<LOANS-PAST> 407
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,097
<CHARGE-OFFS> 66
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 6,406
<ALLOWANCE-DOMESTIC> 6,406
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
