<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
---------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: O-17177
-------
BSB Bancorp, Inc.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1327860
----------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer Number)
incorporation or organization)
58-68 Exchange Street, Binghamton, New York 13902
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 779-2492
--------------
n/a
---------------------------------------------------------------
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: [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of October 28, 1997:
8,544,250 shares of common stock, $0.01 par value.
<PAGE>
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1: Financial Statements
- ------
<S> <C>
Consolidated Statements of Condition
September 30, 1997 and December 31, 1996......................... 1
Consolidated Statements of Income Three Months
and Nine Months Ended September 30, 1997 and September 30, 1996.. 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997
and September 30, 1996........................................... 3
Consolidated Statements of Changes in
Shareholders' Equity Nine Months Ended
September 30, 1996 and September 30, 1997........................ 4
Notes to Consolidated Financial Statements....................... 5
Item 2: Management's Discussion and Analysis of
-------
Financial Condition and Results of Operations.................... 6-14
PART II. OTHER INFORMATION
- ---------------------------
Items 1-6........................................................ 15
Signature Page................................................... 16
</TABLE>
<PAGE>
Item 1 - Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
BSB BANCORP, INC. (DOLLARS IN THOUSANDS)
CONSOLIDATED STATEMENTS OF CONDITION
- ---------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 36,362 $ 46,427
Investment securities available for sale 262,828 263,602
Investment securities held to maturity (market value $15,292
and $24,822) 14,992 24,062
Mortgages held for sale 4,527 1,567
Loans:
Commercial 603,720 536,779
Consumer 284,318 217,068
Real estate 252,549 254,693
- ---------------------------------------------------------------------------------------------
Total loans 1,140,587 1,008,540
Less: Unearned discounts 106 594
Allowance for possible credit losses 18,564 17,054
- ---------------------------------------------------------------------------------------------
Net loans 1,121,917 990,892
Bank premises and equipment 9,505 9,007
Accrued interest receivable 10,097 9,352
Other real estate 3,125 1,393
Intangible assets 1,967 2,188
Other assets 19,082 14,630
- ---------------------------------------------------------------------------------------------
$1,484,402 $1,363,120
=============================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Due to depositors $1,118,137 $1,118,052
Borrowings 225,972 120,502
Other liabilities 21,822 15,837
Commitments
Shareholders' Equity:
Preferred Stock, par value $0.01 per share;
authorized 2,500,000 shares; none issued 0 0
Common Stock, par value $0.01 per share;
authorized 30,000,000 shares; 11,146,867
shares and 7,344,427 shares issued 111 73
Additional paid-in capital 28,964 27,824
Undivided profits 119,431 111,466
Unrealized depreciation
in securities available for sale, net (278) (877)
Treasury stock, at cost: 2,602,692 and 1,735,128 shares (29,757) (29,757)
- ---------------------------------------------------------------------------------------------
Total Shareholders' Equity 118,471 108,729
- ---------------------------------------------------------------------------------------------
$1,484,402 $1,363,120
=============================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS-EXCEPT SHARE DATA)
- ---------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 26,429 $ 22,481 $ 75,134 $ 65,231
Interest on investment
securities 4,530 4,295 14,433 12,738
Interest on mortgages
held for sale 123 88 208 218
- ---------------------------------------------------------------------------------------------
Total interest income 31,082 26,864 89,775 78,187
Interest expense:
Interest on savings
deposits 1,000 1,033 2,926 3,068
Interest on time accounts 8,909 8,123 25,938 23,748
Interest on money market
deposit accounts 2,951 2,775 8,621 7,812
Interest on NOW accounts 198 203 595 598
Interest on borrowed funds 2,801 1,192 7,397 3,529
- ---------------------------------------------------------------------------------------------
Total interest expense 15,859 13,326 45,477 38,755
- ---------------------------------------------------------------------------------------------
Net interest income 15,223 13,538 44,298 39,432
Provision for credit losses 2,538 3,048 7,351 7,726
- ---------------------------------------------------------------------------------------------
Net interest income after
provision for credit
losses 12,685 10,490 36,947 31,706
Gains (losses) on sale of
securities 126 951 107 1,300
Gains (losses) on sale of
loans (94) 20 (183) (55)
Non-interest income:
Service charges on
deposit accounts 579 562 1,646 1,462
Credit card fees 225 893 582 2,680
Mortgage servicing fees 254 254 811 761
Fees and
commissions-brokerage
services 105 191 313 552
Trust fees 183 138 504 428
Other charges, commissions, and fees 182 182 675 531
- ---------------------------------------------------------------------------------------------
Total non-interest income 1,528 2,220 4,531 6,414
Non-interest expense:
Salaries, pensions and
other employee benefits 3,340 3,133 10,061 9,523
Building occupancy 596 558 1,981 1,727
Dealer commission expense 487 324 1,252 770
Computer service fees 253 218 691 649
Services 600 643 1,623 1,893
FDIC insurance 39 230 99 270
Goodwill 74 74 221 221
Interchange fees 155 691 396 1,841
Other real estate 192 130 639 274
Other expenses 1,426 1,245 4,038 3,988
- ---------------------------------------------------------------------------------------------
Total non-interest expense 7,162 7,246 21,001 21,156
- ---------------------------------------------------------------------------------------------
Income before income taxes 7,083 6,435 20,401 18,209
Provision for income taxes 2,705 2,585 7,895 7,177
- ---------------------------------------------------------------------------------------------
NET INCOME $ 4,378 $ 3,850 $ 12,506 $ 11,032
=============================================================================================
Primary earnings per share: $0.51 $0.45 $1.47 $1.22
Fully diluted earnings per share: $0.50 $0.44 $1.42 $1.19
=============================================================================================
Average shares outstanding 8,534,591 8,614,688 8,495,449 9,015,558
</TABLE>
All share and per share amounts have been adjusted to reflect the three-for-two
stock split on September 10, 1997.
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
BSB BANCORP, INC. (IN THOUSANDS)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 12,506 $ 11,032
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses 7,351 7,726
Realized losses (gains) on available for sale investment securities (107) (1,300)
Other (gains) losses, net 108 88
Depreciation and amortization 1,301 1,005
Net amortization of premiums and discounts on investment securities (152) 47
Net amortization (accretion) of premiums and discounts on loans (488) (73)
Sales of loans originated for sale 26,554 20,144
Net increase in loans originated for sale (29,689) (22,191)
Writedowns of other real estate 762 522
Decrease in other assets and liabilities 358 378
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,504 17,378
- ------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from calls of held to maturity investment securities 11,375 14,589
Purchases of held to maturity investment securities (3,463) (23,644)
Principal collected on held to maturity investment securities 1,466 3,611
Proceeds from sales of available for sale investment securities 132,021 114,013
Purchases of available for sale investment securities (147,024) (118,371)
Principal collected on available for sale investment securities 16,757 21,543
Net increase in longer-term loans (164,298) (123,528)
Proceeds from sales of loans 22,992 28,211
Proceeds from sales of other real estate 979 1,171
Other (1,566) (1,861)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (130,761) (84,266)
- ------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase in demand deposits, NOW accounts, savings
accounts, and money market deposit accounts 6,678 24,290
Net increase in time deposits (6,593) 69,511
Net increase in short-term borrowings 105,474 (16,650)
Repayment of long-term borrowings (4) (300)
Proceeds from exercise of stock options 1,178 716
Purchases of treasury stock 0 (17,909)
Dividends paid (4,541) (3,855)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 102,192 55,803
- ------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (10,065) (11,085)
Cash and cash equivalents at beginning of year 46,427 43,826
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,362 $ 32,741
==============================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest credited on deposits and paid on other borrowings $ 44,325 $ 38,181
- ------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 7,396 $ 8,626
- ------------------------------------------------------------------------------------------------------------------------------
Non-cash investing activity:
Securitization of mortgage loans and transfers to other real estate $ 3,410 $ 16,628
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized (depreciation) in securities $ 1,027 $ (3,177)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------
Unrealized
Depreciation
(Appreciation)
Nine Months Ended Additional In Marketable
September 30, Common Paid-in Undivided Treasury Equity
1996 Stock Capital Profits Stock Securities Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands-Except Per Share Data)
Balance at December 31, 1995 $ 73 $26,861 $101,519 $(11,848) $ 169 $116,774
Increase in unrealized
depreciation in available
for sale securities (1,852) (1,852)
Net income 11,032 11,032
Stock options exercised 716 716
Cash dividend paid on common
stock ($0.43 per share) (3,855) (3,855)
Treasury stock purchased (17,909) (17,909)
- ----------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ 73 $27,577 $108,696 $(29,757) $(1,683) $104,906
================================================================================================================
1997
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 73 $27,824 $111,466 $(29,757) $ (877) $108,729
Decrease in unrealized
depreciation in available
for sale securities 599 599
Net income 12,506 12,506
Effect of three-for-two stock split 37 (37)
Stock options exercised 1 1,177 1,178
Cash dividend paid on common
stock ($0.54 per share) (4,541) (4,541)
- ----------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $111 $28,964 $119,431 $(29,757) $ (278) $118,471
================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Item 1 - continued
BSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(1) In the opinion of management, the interim financial statements reflect all
adjustments which are of a normal recurring nature necessary to a fair
statement of the results for the interim periods presented. The December
31, 1996 data in the Consolidated Statements of Condition is derived from
the consolidated financial statements included in the Company's 1996 Annual
Report to Shareholders. The accompanying unaudited interim consolidated
financial statements and related notes should be read in conjunction with
the Consolidated Financial Statements and related notes included in the
Company's 1996 Annual Report to Shareholders.
(2) For primary earnings per share, outstanding stock options were excluded
from the weighted average number of shares because their dilutive effect is
not material. The weighted average shares outstanding for calculating
primary earnings per share, were 8,534,591 and 8,614,688 for three months
ended September 30, 1997 and 1996, and 8,495,449 and 9,015,558 for nine
months ended September 30, 1997 and 1996, respectively. Fully diluted
earnings per share include the dilutive effect of the Company's outstanding
stock options. The weighted average shares outstanding for calculating
fully diluted earnings per share were 8,838,305 and 8,824,494 for three
months ended September 30, 1997 and 1996, respectively, and 8,820,464 and
9,243,619 for nine months ended September 30, 1997 and 1996, respectively.
(3) In February 1997, the Financial Accounting Standard Board issued Statement
No. 128 "Earnings Per Share". This pronouncement will be required to be
implemented in the Company's Annual Report to Shareholders for the year
ended December 31, 1997. The pronouncement will not have a material effect
on the calculation of basic earnings per share, and will not have a
material effect on diluted earnings per share.
5
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
BSB Bancorp, Inc. (the "Company"), the bank holding company for BSB Bank &
Trust Company (the "Bank"), earned net income of $4,378,000, or fully diluted
earnings per share of $0.50 for the quarter ended September 30, 1997, as
compared to net income of $3,850,000, or fully diluted earnings per share of
$0.44 for the quarter ended September 30, 1996. Net income for the first nine
months of 1997 totalled $12,506,000, or $1.42 fully diluted earnings per share,
compared to net income of $11,032,000, or $1.19 fully diluted earnings per share
for the first nine months of 1996.
On October 27, 1997, the Board of Directors announced a 10% increase in the
quarterly cash dividend. The quarterly dividend is $0.22 per share and is
payable on December 10, 1997 to shareholders of record at the close of business
on November 21, 1997.
Financial Condition
- -------------------
During the first nine months of 1997, the Company originated $162.1 million of
commercial loans, which contributed to a net increase in the commercial loan
portfolio from $536.8 million at December 31, 1996 to $603.7 million at
September 30, 1997. The interest rates on these loans are generally tied to the
Bank's Prime Rate. Consumer loans increased from $217.1 million at December 31,
1996 to $284.3 million at September 30, 1997, and during this period, the
Company originated $156.7 million in consumer loans. Real estate loans
decreased from $254.7 million at December 31, 1996 to $252.5 million at
September 30, 1997. During the above mentioned period, the Company originated
$83.0 million of real estate loans and sold $48.3 million. Total assets of the
Company increased from $1,363.1 million at December 31, 1996 to $1,484.4 million
at September 30, 1997.
Total deposits remained stable at $1,118.1 million from December 31, 1996 to
September 30, 1997. Interest credited during that nine-month period totalled
$38.1 million. The Company's borrowings increased from $120.5 million at
December 31, 1996 to $226.0 million at September 30, 1997. Borrowings at
September 30, 1997 consisted of $135.0 million of Federal Home Loan Bank
advances and $73.0 million of a Federal Home Loan Bank line of credit. Of the
remaining $18.0 million, $16.0 million are securities sold under agreement to
repurchase. These borrowings are used to fund the Company's lending activities.
Shareholders' equity increased from $108.7 million to $118.5 million during
the first nine months of 1997. This increase is a result of earnings of $12.5
million, $1.2 million of stock options exercised during the period, and a $0.6
million decrease in unrealized depreciation in securities available for sale.
This increase in shareholders' equity was partially offset by cash dividends
paid to shareholders of $4.5 million.
Results of Operations
- ---------------------
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, primarily loans and investments, and interest expense on interest-
bearing liabilities, primarily deposits and borrowings. The Company's operating
results also are affected by credit loss requirements, operating expenses, the
level of other income, including gains or losses on sale of loans and
securities, and other fees.
The following tables set forth, for and at the periods indicated, information
regarding (i) the Company's average balance sheet, (ii) the total dollar amount
of interest income from interest-earning assets and the resulting average
yields, (iii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average cost, (iv) net interest income, (v)
interest rate margin and interest rate spread, (vi) net interest-earning assets,
(vii) net yield on interest-earning assets, and (viii) ratio of interest-earning
assets to interest-bearing liabilities. Average balances are based on daily or
month-end balances. No tax equivalent adjustments were made.
6
<PAGE>
Item 2 - continued
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans $ 580,441 $ 14,368 9.90% $ 499,103 $ 11,741 9.41%
Consumer loans 270,041 6,575 9.74 211,594 5,069 9.58
Real estate loans 249,742 5,486 8.79 261,760 5,672 8.67
Investment securities 282,857 4,530 6.41 245,595 4,295 7.00
Mortgages held for sale 5,271 123 9.33 3,934 87 8.85
- --------------------------------------------------------------------------------------------------
Total interest-earning
assets 1,388,352 31,082 8.96 1,221,986 26,864 8.79
- --------------------------------------------------------------------------------------------------
Non-interest-earning assets 80,027 70,574
- --------------------------------------------------------------------------------------------------
Total assets $1,468,379 $1,292,560
==================================================================================================
Interest-bearing liabilities:
Deposits and mortgage escrow
funds $1,136,363 $13,058 4.60 % $1,080,647 $12,134 4.49%
Borrowings 194,517 2,801 5.76 84,792 1,192 5.62
- --------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,330,880 15,859 4.77 1,165,439 13,326 4.57
- --------------------------------------------------------------------------------------------------
Non-interest-bearing
liabilities 20,350 17,576
- --------------------------------------------------------------------------------------------------
Total liabilities 1,351,230 1,183,015
- --------------------------------------------------------------------------------------------------
Shareholders' equity 117,149 109,545
- --------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,468,379 $1,292,560
==================================================================================================
Net interest income/net
interest rate spread $ 15,223 4.19% $ 13,538 4.22%
==================================================================================================
Net earnings assets/net
interest rate margin $ 57,472 4.39% $ 56,547 4.43%
==================================================================================================
Ratio of interest-earning
assets to interest-bearing
liabilities 1.04X 1.05X
==================================================================================================
- --------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
- --------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Interest-earning assets:
Commercial loans $ 565,512 $ 41,380 9.76% $ 474,086 $ 34,167 9.61%
Consumer loans 245,075 17,528 9.54 203,523 14,469 9.48
Real estate loans 252,513 16,226 8.57 265,697 16,595 8.33
Investment securities 289,079 14,433 6.66 246,561 12,738 6.89
Mortgages held for sale 3,663 208 7.57 2,841 218 10.23
- --------------------------------------------------------------------------------------------------
Total interest-earning
assets 1,355,842 89,775 8.83 1,192,708 78,187 8.74
- --------------------------------------------------------------------------------------------------
Non-interest-earning assets 74,932 70,865
- --------------------------------------------------------------------------------------------------
Total assets $1,430,774 $1,263,573
==================================================================================================
Interest-bearing liabilities:
Deposits and mortgage
escrow funds $1,122,050 $ 38,079 4.52% $1,047,375 $ 35,226 4.48%
Borrowings 175,255 7,398 5.63 83,826 3,529 5.61
- --------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,297,305 45,477 4.67 1,131,201 38,755 4.57
- --------------------------------------------------------------------------------------------------
Non-interest-bearing
liabilities 19,028 18,177
- --------------------------------------------------------------------------------------------------
Total liabilities 1,316,333 1,149,378
- --------------------------------------------------------------------------------------------------
Shareholders' equity 114,441 114,195
- --------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,430,774 $1,263,573
==================================================================================================
Net interest income/net
interest rate spread $ 44,298 4.16% $ 39,432 4.17%
==================================================================================================
Net earnings assets/net
interest rate margin $ 58,537 4.36% $ 61,507 4.41%
==================================================================================================
Ratio of interest-earning
assets to interest-bearing
liabilities 1.05X 1.05X
==================================================================================================
</TABLE>
7
<PAGE>
The following table presents changes in interest income and interest expense
attributable to (i) changes in volume (change in volume multiplied by old rate),
and (ii) changes in rate (change in rate multiplied by old volume). The net
change attributable to the combined impact of volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1997 Compared To 1996 1997 Compared To 1996
Increase (Decrease) Increase (Decrease)
Volume Rate Net Volume Rate Net
- -------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income on
interest-
earning assets:
Commercial loans $1,991 $ 636 $ 2,627 $ 6,673 $ 540 $7,213
Consumer loans 1,420 86 1,506 2,967 92 3,059
Real estate loans (626) 440 (186) (1,040) 671 (369)
Investment securities 1,301 (1,066) 235 2,370 (675) 1,695
Mortgages held for sale 31 5 36 74 (84) (10)
- -------------------------------------------------------------------------------------------
$4,117 $ 101 $ 4,218 $11,044 $ 544 $11,588
- -------------------------------------------------------------------------------------------
Interest expense on
interest-
bearing liabilities:
Deposits $ 626 $ 298 $ 924 $ 2,535 $ 318 $2,853
Borrowings 1,579 30 1,609 3,856 13 3,869
- -------------------------------------------------------------------------------------------
2,205 328 2,533 6,391 331 6,722
- -------------------------------------------------------------------------------------------
Net Interest Income $1,912 $(227) $1,685 $4,653 $213 $4,866
===========================================================================================
</TABLE>
Interest Income
- ---------------
The Company's interest income on earning assets increased from $26.9 million
for the three months ended September 30, 1996 to $31.1 million for the three
months ended September 30, 1997, and from $78.2 million to $89.8 million for the
nine months ended September 30, 1996 and 1997, respectively. These increases
in interest income were the result of an increase in the average balance of
earning assets from $1,222.0 million to $1,388.4 million for the three months
ended September 30, 1996 and September 30, 1997, respectively, and from $1,192.7
million to $1,355.8 million for the nine months ended September 30, 1996 and
September 30, 1997, respectively. The increase in the average yield on earning
assets from 8.79% to 8.96% for the three months ended September 30, 1996 and
1997, respectively, and from 8.74% for the nine months ended September 30, 1996
to 8.83% for the nine months ended September 30, 1997, also contributed to these
increases in interest income for those periods. The increase in the average
balance of the commercial loan portfolio was the largest contributor to the
increase in interest income. The commercial loan average balance increased
$81.3 million from the third quarter of 1996 to $580.4 million for the third
quarter of 1997, and increased $91.4 million for the first nine months of 1997
compared to the first nine months of 1996. The average yield on commercial
loans increased from 9.41% for the third quarter of 1996 to 9.90% for the third
quarter of 1997, and from 9.61% for the first nine months of 1996 to 9.76% for
the first nine months of 1997. Despite high levels of competition in the
Company's lending markets for indirect auto and direct loans, the Company
continues to emphasize origination of these loans, which add to the Company's
market base for potential business and provides some of the highest yielding
assets for the Company. Despite such competition, the average balance of
consumer loans increased 27.6% to $270.0 million for the three-month period
ended September 30, 1997 compared to $211.6 million for the three-month period
ended September 30, 1996, and 20.4% to $245.1 million for the nine-month period
ended September 30, 1997 compared to $203.5 million for the nine-month period
ended September 30, 1996. The average balance of real estate loans decreased
$12.0 million to $249.7 million for the quarter ended September 30, 1997
compared to the quarter ended September 30, 1996. This period reflected an
increase in yield from 8.67% to 8.79%, but the reduced average balance resulted
in a net decline of $186,000 in interest income from real estate loans to $5.5
8
<PAGE>
Item 2 - continued
million. The average balance of real estate loans decreased $13.2 million to
$252.5 million for the nine months ended September 30, 1997 compared to the nine
months ended September 30, 1996. The decrease in real estate loans is consistent
with the Company's emphasis on origination of higher yielding commercial and
consumer loans. This nine-month period reflected an increase in yield from 8.33%
to 8.57%, but the reduced average balance resulted in a net decline of $369,000
in interest income from real estate loans to $16.2 million. The average balance
of investment securities increased from $245.6 million for the third quarter of
1996 to $282.9 million for the third quarter of 1997. This contributed to a net
increase in interest income of $235,000 comparing the respective quarters
despite yields that decreased for this same period from 7.00% to 6.41%. The
average balance of investment securities increased from $246.6 million for the
nine months ended September 30, 1996 to $289.1 million for the nine months ended
September 30, 1997. This contributed to a net increase in interest income of
$1.7 million comparing the respective period. Yields decreased for this same
period from 6.89% to 6.66%.
Interest Expense
- ----------------
Total interest expense increased by $2.5 million for the quarter ended
September 30, 1997 as compared to the same period in 1996. The average balance
of all interest-bearing liabilities increased from $1,165.4 million for the
quarter ended September 30, 1996 to $1,330.9 million for the quarter ended
September 30, 1997. This increase accompanies an increase in the average rate
paid on all interest-bearing liabilities from 4.57% to 4.77% during the
respective period. The average balance of deposits increased from $1,080.6
million during the three months ended September 30, 1996 to $1,136.4 million
during the same period in 1997, and from $1,047.4 million for the nine-month
period ended September 30, 1996 to $1,122.1 for the nine-month period ended
September 30, 1997. The increase in the average balance of deposits was the
major factor contributing to an increase in interest paid on deposits from $12.1
million for the third quarter of 1996 to $13.1 million for the third quarter of
1997, and from $35.2 million to $38.1 million for the nine-month period ended
September 30, 1997 and 1996. Another component of the change in interest-
bearing liabilities is the average balance of borrowings increasing from $84.8
million for the three months ended September 30, 1996 to $194.5 million for the
three months ended September 30, 1997. A similar increase reflected average
balances of $83.8 million for the nine-month period ended September 30, 1996 to
$175.3 million for the nine-month period ended September 30, 1997. The
borrowing balance augments deposits to fund the loan growth principally in the
commercial and consumer loan area when needed. This increase in average balance
was coupled with an increase in the rate paid on borrowings from 5.62% to 5.76%
during the three-month period to reflect higher borrowing costs from $1.2
million for the three months ended September 30, 1996 to $2.8 million for the
same period in 1997. An increase in rates from 5.61% for nine months ended
September 30, 1996 to 5.63% for nine months ended September 30, 1997 had a small
impact in the growth of borrowing expense. The utilization of borrowings to
fulfill the demand in loan growth has contributed to higher interest expense.
With generally higher costs than retail deposits, borrowing costs have
contributed to a narrowing of the spread between the Company's interest-earning
assets and interest-bearing liabilities. Though the interest rate spread is
narrowed by these higher costs, this relationship provides continued growth in
net interest income.
Provision for Credit Losses
- ---------------------------
The provision for credit losses decreased from $3.0 million to $2.5 million
for the quarters ended September 30, 1996 and September 30, 1997, respectively,
and decreased from $7.7 million to $7.4 million for the nine months ended
September 30, 1996 and September 30, 1997, respectively. The allowance for
possible credit losses increased to $18.6 million as of September 30, 1997,
compared to $17.1 million as of December 31, 1996. See "Non-performing Loans
and Other Real Estate Owned". Management considers this level of reserves
adequate to cover potential credit losses.
Non-interest Income
- -------------------
Non-interest income decreased from $2.2 million to $1.5 million for the three
months ended September 30, 1996 to September
9
<PAGE>
Item 2 - continued
30, 1997, respectively, and decreased from $6.4 million to $4.5 million for the
nine-month period ended September 30, 1996 to September 30, 1997, respectively.
This decline was largely attributable to the loss of one large merchant credit
card relationship in the fourth quarter of 1996. The reduction of income from
this relationship is substantially offset by a reduction in the processing fee
expenses associated with that merchant. This is reflected in a 78.3% decline in
credit card fee income, from $2.7 million to $0.6 million for the nine months
ended September 30, 1996 compared to the same period in 1997. As a result, the
Company also benefited from a 78.5% decline on interchange fee expenses from
$1.8 million to $0.4 million for the same respective periods. A similar
relationship is noted for the three-month period.
Gains (Losses) On Sale of Securities
- ------------------------------------
Gains on sale of securities was $126,000 for the third quarter of 1997 and
$107,000 for nine months ended September 30, 1997. This compares to gains of
$1.0 million for the same quarter of 1996 and $1.3 million for the nine months
ended September 30, 1996. The Company's investment portfolio is used to
maintain its liquidity position; from time to time, securities are sold when
deemed prudent by management, to adjust the interest rate sensitivity of the
Company's balance sheet.
Gains (Losses) On Sale of Loans
- -------------------------------
The practice of the Company has been to sell or securitize long-term, fixed-
rate residential mortgage loans. This provides liquidity to fund shorter-term,
or more rate-sensitive assets, and collateral to provide borrowing for lending
activities. As a result of this practice, the Company securitized or sold $22.1
million and $18.6 million for the third quarter of 1997 and 1996, respectively.
This resulted in losses of $94,000 and gains of $20,000 for the same two
periods. For the nine-month period ended September 30, 1997 and 1996, the
Company securitized or sold $48.3 million and $53.7 million, respectively, of
residential mortgage loans. These sales generated losses of $183,000 and
$55,000 for the same nine-month periods.
Non-interest Expense
- --------------------
Non-interest expense remained stable at $7.2 million for the quarters ended
September 30, 1996 and 1997, respectively. For the comparative nine-month
periods, non-interest expense declined $155,000 from $21.2 million to $21.0
million. This was due to the loss of one large merchant credit card
relationship in the fourth quarter of 1996 that caused a decline in interchange
fee expense associated with these transactions from $691,000 to $155,000 for the
quarter ended September 30, 1996 to September 30, 1997. This same decline is
shown in the decrease in this expense from $1.8 million to $396,000 for the
nine-month period ended September 30, 1996 to the same period ended September
30, 1997. Increase in non-interest expense was noted in dealer commission
expenses which are costs paid to dealers to originate automobile and mobile home
loans for the Company. The significant growth in the consumer loan portfolio is
largely due to this indirect lending strategy and its associated cost. This
expense increased 50.3% from $324,000 for the third quarter of 1996 to $487,000
for the third quarter of 1997. For the nine-month periods ended September 30,
1996 and 1997, the expense increased from $0.8 million to $1.3 million.
Income Taxes
- ------------
The income tax expense was $2.6 million and $2.7 million for the quarters
ended September 30, 1996 and September 30, 1997, respectively, and $7.2 million
and $7.9 million for the nine-month periods ended September 30, 1996 and
September 30, 1997, respectively. These increases were due to increased levels
of taxable income.
10
<PAGE>
Item 2 - continued
Non-Performing Loans and Other Real Estate Owned ("ORE")
- --------------------------------------------------------
When a borrower fails to make a scheduled payment on a loan, the Company
attempts to cure the deficiency by contacting the borrower and seeking payment.
Contacts are generally made within five business days after the expiration of
the payment grace period, set forth in the loan contract. In most cases,
deficiencies are cured promptly. If a delinquency extends beyond 60 days, the
loan and payment histories are reviewed and legal proceedings may be instituted
to remedy the default. While the Company generally prefers to work with
borrowers to resolve such problems, the Company does initiate foreclosure
proceedings or pursues other legal collection procedures, as necessary, to
minimize any potential loss. Once the Company takes legal title to the
property, it is classified as other real estate owned ("ORE") on the Statement
of Condition.
Loans are placed on a non-accrual status when, in the judgment of management,
the probability of collection of interest is deemed to be insufficient to
warrant further accrual. Such loans include potential problem loans where known
information about possible credit problems of borrowers has caused management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is deducted from interest income. Other than with
respect to consumer loans, the Company does not accrue interest on loans greater
than 90 days or more past due for the payment of interest unless the value of
the collateral and active collection efforts ensure full recovery. Consumer
loans are charged-off before they become non-accrual.
The following table sets forth information regarding non-performing loans
which are 90 days or more overdue and ORE held by the Company at the dates
indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
- -------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C>
Commercial loans:
Non-accrual loans $6,568 $6,130
Consumer loans:
Accruing loans 90 days overdue 129 236
Residential real estate loans:
Non-accrual loans 1,737 1,556
Commercial real estate loans:
Non-accrual loans 1,624 4,295
- -------------------------------------------------------------------
Total non-performing loans
and accruing loans 90 days overdue $10,058 $12,217
===================================================================
Total non-performing loans
to total gross loans 0.88% 1.21%
Total real estate acquired
in settlement of loans at net
realizable value $3,125 $1,393
Total non-performing loans
and real estate acquired in
settlement of loans at net
realizable value to total assets 0.89% 1.00%
</TABLE>
Total non-performing loans and ORE decreased to $13.2 million, or 0.89% of
total assets at September 30, 1997, compared to $13.6 million, or 1.00% of total
assets at December 31, 1996.
At December 31, 1996, 36 non-performing residential real estate loans totaled
$1.6 million. At September 30, 1997, non-performing residential real estate
loans totaled $1.7 million and included 36 loans.
At December 31, 1996, non-performing commercial real estate loans totaled $4.3
million, and included 8 loans ranging in size from $62,000 to $1.8 million. At
September 30, 1997, non-performing commercial real estate loans declined to $1.6
million and consisted of 7 loans ranging in size from $89,000 to $596,000. Two
loans totalling $2.9 million were removed from non-accrual in the second quarter
of 1997. These loans were subsequently retained as ORE after writedowns of $0.8
million.
Non-performing commercial loans at December 31, 1996 totaled $6.1 million and
included 41 individual loans ranging in size from $600 to $1.6 million. At
September 30, 1997, non-performing commercial loans increased to $6.6 million
and consisted of 28 individual loans ranging in size from $2,000 to $1.6
million.
11
<PAGE>
Item 2 - continued
The Company's policy is to charge-off all consumer loans before they become
non-accrual. At December 31, 1996, the Company had $236,000 of loans 90 days or
more past due on which it was accruing interest, as compared to $129,000 at
September 30, 1997. As of each date, the only such loans were consumer loans.
At September 30, 1997, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS No. 114 totaled $8,027,807 with a
corresponding valuation allowance of $2,374,587.
At December 31, 1996, ORE, which is defined to include property acquired by
foreclosure or by deed in lieu of foreclosure, totaled $1.4 million, which
consisted of 12 single-family residential properties with a book value
totalling $712,000 and 7 local commercial real estate properties with a book
value of $682,000. At September 30, 1997, ORE totaled $3.1 million, which
consisted of 9 single-family residential properties totalling $347,000 and 9
local commercial real estate properties with a book value of $2.8 million. The
addition of the two local commercial real estate properties into ORE and out of
a non-accrual loan status accounted for the increase in this property type.
Management reviews the adequacy of the allowance for possible credit losses at
least quarterly, applying projected loss ratios to the risk-ratings of loans
both individually and by category. The projected loss ratios incorporate such
factors as recent loss experience, current economic conditions and trends,
trends in past due and non-accrual amounts, the risk characteristics of various
categories and concentrations of loans, transfer risks and other pertinent
factors.
The following table summarizes activity in the Company's allowance for
possible credit losses during the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Average gross loans outstanding $1,119,037 $988,753 $1,081,472 $958,930
==================================================================================================
Allowance at beginning of period $ 17,915 $ 15,025 $ 17,054 $ 14,065
- ---------------------------------------------------------------------------------------------------
Charge-offs:
Commercial loans 1,045 1,007 3,613 4,095
Consumer loans 562 436 1,410 1,147
Residential real estate loans 20 50 65 79
Commercial real estate loans 744 697 1,982 1,148
- ---------------------------------------------------------------------------------------------------
Total loan charge-offs 2,371 2,190 7,070 6,469
Recoveries:
Commercial loans 348 108 529 301
Consumer loans 134 151 442 384
Residential real estate loans 0 0 0 0
Commercial real estate loans 0 18 258 153
- ---------------------------------------------------------------------------------------------------
Total recoveries 482 277 1,229 838
- ---------------------------------------------------------------------------------------------------
Net charge-offs 1,889 1,913 5,841 5,631
- ---------------------------------------------------------------------------------------------------
Provision for credit losses
charged to operating expenses 2,538 3,048 7,351 7,726
- ---------------------------------------------------------------------------------------------------
Allowance at end of period $ 18,564 $ 16,160 $ 18,564 $ 16,160
==================================================================================================
Ratio of net charge-offs to:
Average gross loans
outstanding (annualized) 0.68% 0.77% 0.72% 0.78%
Ratio of allowance to:
Non-performing loans 184.57% 111.53% 184.57% 111.53%
Period-end loans outstanding 1.63% 1.62% 1.63% 1.62%
</TABLE>
Charge-offs increased to $2.4 million for the third quarter of 1997 compared
to $2.2 million for the third quarter of 1996 with
12
<PAGE>
Item 2 - continued
recoveries increasing to $0.5 million for the third quarter of 1997 from $0.3
million for the third quarter of 1996. For the nine- month period ended
September 30, 1996 compared to September 30, 1997, net charge-offs increased
from $5.6 million to $5.8 million. Management considers the current level of
loan loss reserves to be adequate to cover potential credit losses
Sources of Funds
- ----------------
Funding for the Company's assets is derived primarily from demand and time
deposits and long and short-term borrowings. The competition for deposits
continues to be very strong in the market area and remains a focus of the Bank's
effort. The average balance of all interest-bearing liabilities increased from
$1,165.4 million for the three-month period ended September 30, 1996 to $1,330.9
million for the same period ended September 30, 1997, an increase of $165.5
million. Deposits from local municipalities, a significant source of funds,
has contributed to the increase in all interest-bearing liabilities by showing
an increase in average balance from $75.6 million for the quarter ended
September 30, 1996 to $77.6 million for the quarter ended September 30, 1997,
an increase of $2.0 million. Certificates of deposit increased $34.4 million
from the third quarter of 1996 to the third quarter of 1997. To further fund
loan growth, borrowings increased from an average balance of $84.8 million to
$194.5 million for the quarter ended September 30, 1996 to the same quarter
ended September 30, 1997. Of this $109.7 million increase, $99.2 million was
from the Federal Home Loan Bank of New York ("FHLB"). The most significant
other increase in interest-bearing liabilities for the quarter ended September
30, 1996 compared to September 30, 1997, was an increase in money-market
accounts of $14.5 million to $257.4 million. The average balance of total
interest-bearing liabilities increased from $1,131.2 million for the nine months
ended September 30, 1996 compared to $1,297.3 million for the nine months ended
September 30, 1997. The increase in municipal deposits was $32.2 million in the
nine-month period from September 30, 1996 to September 30, 1997, and the nine
month average ended September 30, 1997 was $93.3 million. Certificates of
deposit increased from $566.8 million for the nine months ended September 30,
1996 to $617.9 million for the same period in 1997. For the nine-month period
ended September 30, 1996, the average balance of borrowings was $83.8 million
compared to $175.3 million for the nine months ended September 30, 1997, an
increase of $91.5 million. The average balance of money market accounts during
the nine month comparative periods increased $19.8 million to $253.0 million at
September 30, 1997.
Liquidity and Capital Resources
- -------------------------------
A fundamental objective of the Company is to manage effectively its liquidity.
Prudent liquidity management insures that the Company can meet all of its
contractual obligations, meet its customers' loan demands, fund all of its
operations and minimize the effects of interest rate fluctuation on earnings.
The Company's primary sources of funds have consisted of deposits,
amortization and prepayments of outstanding loans and mortgage-backed
securities, bond maturities, and such other sources as long- and short-term
borrowings, and sales of investment securities, loans, and mortgage-backed
securities. At September 30, 1997, the total of approved loan commitments
amounted to $102.4 million. All borrowings are scheduled to mature during the
next twelve months. Savings certificates, which are scheduled to mature during
the next twelve months, totalled $408.9 million. Management expects that a
substantial portion of these maturing certificates will remain on deposit with
the Company. At September 30, 1997, the Company had no long-term borrowings.
At September 30, 1997, the Company's Tier I leverage ratio, as defined in
regulatory guidelines, was 7.84%, which exceeds the current requirements for the
Company. At September 30, 1997, the Company's total capital-to-risk-weighted
assets ratio, calculated under the Federal Reserve Board's risk-based capital
requirements, was 10.68%.
The Company's book value per common share increased from $12.92 at December
31, 1996 to $13.87 at September 30, 1997.
13
<PAGE>
Item 2 - continued
Impact of Inflation and Changing Prices
- ---------------------------------------
The financial statements and related data presented herein have been prepared
in accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities
of a financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the price of goods and
services.
Market Prices and Related Shareholder Matters
- ---------------------------------------------
The stock of the Company is listed on The NASDAQ Stock Market National Market
System under the symbol "BSBN". As of September 30, 1997, the Company had 1,641
shareholders of record and 8,544,175 shares of outstanding common stock. The
number of shareholders does not reflect persons or entities who hold their stock
in nominee or "street" name through various brokerage firms.
The following table sets forth the market price information as reported by The
NASDAQ Stock Market for the common stock.
Cash
Price Range Dividends
1996 High Low Per Share
- ------------------------------------------------
First Quarter $17.67 $14.50 $0.13
Second Quarter 17.83 16.83 0.15
Third Quarter 17.50 16.50 0.15
Fourth Quarter 18.50 16.92 0.17
1997
- ------------------------------------------------
First Quarter $21.33 $17.17 $0.17
Second Quarter 26.00 19.50 0.17
Third Quarter 29.00 23.83 0.20
14
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings
-----------------
Not applicable
Item 2 - Changes in Securities
---------------------
Not applicable
Item 3 - Defaults upon Senior Securities
-------------------------------
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5 - Other Information
-----------------
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
15
<PAGE>
Part II - continued
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.
BSB Bancorp, Inc.
Date: November 14, 1997 By: Alex S. DePersis
--------------------- -------------------------
ALEX S. DEPERSIS
President
and Chief Executive Officer
Date: November 14, 1997 By: Edward R. Andrejko
---------------------- ---------------------
EDWARD R. ANDREJKO
Senior Vice President and
Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 36362
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 262828
<INVESTMENTS-CARRYING> 14992
<INVESTMENTS-MARKET> 15292
<LOANS> 1145114
<ALLOWANCE> 18564
<TOTAL-ASSETS> 1484402
<DEPOSITS> 1118137
<SHORT-TERM> 225972
<LIABILITIES-OTHER> 21822
<LONG-TERM> 0
0
0
<COMMON> 111
<OTHER-SE> 118360
<TOTAL-LIABILITIES-AND-EQUITY> 1484402
<INTEREST-LOAN> 75342
<INTEREST-INVEST> 14433
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 89775
<INTEREST-DEPOSIT> 38080
<INTEREST-EXPENSE> 7397
<INTEREST-INCOME-NET> 44298
<LOAN-LOSSES> 7351
<SECURITIES-GAINS> 107
<EXPENSE-OTHER> 21001
<INCOME-PRETAX> 20401
<INCOME-PRE-EXTRAORDINARY> 20401
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12506
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.42
<YIELD-ACTUAL> 8.83
<LOANS-NON> 9929
<LOANS-PAST> 129
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17054
<CHARGE-OFFS> 7070
<RECOVERIES> 1229
<ALLOWANCE-CLOSE> 18564
<ALLOWANCE-DOMESTIC> 18564
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
