<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 MARCH 31, 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 MARCH 31, 1997:
5,661,849 SHARES OF COMMON STOCK, $0.01 PAR VALUE.
<PAGE>
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------
Item 1: Financial Statements
------
Consolidated Statements of Condition
March 31, 1997 and December 31, 1996 ..................... 1
Consolidated Statements of Income Three Months
Ended March 31, 1997 and March 31, 1996 .................. 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997
and March 31, 1996 ....................................... 3
Consolidated Statements of Changes in
Shareholders' Equity Three Months Ended
March 31, 1997 and March 31, 1996 ........................ 4
Notes to Consolidated Financial Statements ............... 5
Item 2: Management's Discussion and Analysis of
- ------ Financial Condition and Results of Operations ............ 6-13
PART II. OTHER INFORMATION
- ---------------------------
Item 1-6 ................................................. 14
Signature Page ........................................... 15
<PAGE>
Item 1 - Financial Statements
- ----------------------------------------------------------------------------
BSB BANCORP, INC. (IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF CONDITION
- -----------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 31,178 $ 46,427
Investment securities available for sale 257,463 263,602
Investment securities held to maturity
(market value $25,801 and $24,822) 25,125 24,062
Mortgages held for sale 2,903 1,567
Loans:
Commercial 585,326 536,779
Consumer 229,822 217,068
Real estate 258,221 254,693
- -----------------------------------------------------------------------------
Total loans 1,073,369 1,008,540
Less: Unearned discounts 551 594
Allowance for possible credit losses 17,556 17,054
- -----------------------------------------------------------------------------
Net loans 1,055,262 990,892
Bank premises and equipment 8,842 9,007
Accrued interest receivable 10,321 9,352
Other real estate 1,273 1,393
Intangible assets 2,114 2,188
Other assets 19,315 14,630
- -----------------------------------------------------------------------------
$ 1,413,796 $ 1,363,120
=============================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Due to depositors $ 1,119,656 $ 1,118,052
Borrowings 165,695 120,502
Other liabilities 17,798 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; 7,396,977
shares and 7,344,427 shares issued 74 73
Additional paid-in capital 28,481 27,824
Undivided profits 114,060 111,466
Unrealized depreciation in
securities available for sale, net (2,211) (877)
Treasury stock, at cost: 1,735,128
and 1,735,128 shares (29,757) (29,757)
- -----------------------------------------------------------------------------
Total Shareholders' Equity 110,647 108,729
- -----------------------------------------------------------------------------
$ 1,413,796 $ 1,363,120
=============================================================================
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
Item 1 - continued
- -------------------------------------------------------------------------------
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS-EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
1997 1996
- -------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 23,620 $ 20,963
Interest on investment securities 5,058 4,254
Interest on mortgages held for sale 13 51
- -------------------------------------------------------------------------------
Total interest income 28,691 25,268
- -------------------------------------------------------------------------------
Interest expense:
Interest on savings deposits 945 1,010
Interest on time accounts 8,329 7,742
Interest on money market deposit accounts 2,770 2,445
Interest on NOW accounts 194 193
Interest on borrowed funds 2,131 1,292
- -------------------------------------------------------------------------------
Total interest expense 14,369 12,682
- -------------------------------------------------------------------------------
Net interest income 14,322 12,586
Provision for credit losses 2,460 2,073
- -------------------------------------------------------------------------------
Net interest income after provision for credit losses 11,862 10,513
Gains (losses) on sale of securities (4) 35
Gains (losses) on sale of loans (1) 156
Non-interest income:
Service charges on deposit accounts 519 419
Credit card fees 141 801
Mortgage servicing fees 279 271
Fees and commissions-brokerage services 117 118
Trust fees 159 140
Other charges, commissions, and fees 163 185
- -------------------------------------------------------------------------------
Total non-interest income 1,378 1,934
- -------------------------------------------------------------------------------
Non-interest expense:
Salaries, pensions, and other employee benefits 3,375 3,214
Building occupancy 696 594
Computer service fees 213 221
Services 441 571
FDIC insurance 19 18
Goodwill 74 74
Interchange fees 105 440
Other real estate 250 136
Other expenses 1,444 1,434
- -------------------------------------------------------------------------------
Total non-interest expense 6,617 6,702
- -------------------------------------------------------------------------------
Income before income taxes 6,618 5,936
Provision for income taxes 2,609 2,363
- -------------------------------------------------------------------------------
NET INCOME $ 4,009 $ 3,573
===============================================================================
Earnings per share: $ 0.71 $ 0.57
===============================================================================
Average shares outstanding 5,630,763 6,216,018
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Item I - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
- -----------------------------------------------------------------------------------------
Three Months Ended March 31,
1997 1996
- -----------------------------------------------------------------------------------------
Operating activities:
<S> <C> <C>
Net income $ 4,009 $ 3,573
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 2,460 2,073
Realized losses (gains) on available for sale
investment securities 4 (35)
Other (gains) and losses, net (3) (161)
Depreciation and amortization 440 329
Net amortization of premiums and discounts
on investment securities 95 1
Net accretion of premiums and discounts on loans (44) (18)
Sales of loans originated for sale 5,599 6,055
Net increase in loans originated for sale (6,936) (7,126)
Writedowns of other real estate 81 145
Increase (decrease) in other assets and liabilities (2,737) 1,867
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 2,968 6,703
- -----------------------------------------------------------------------------------------
Investing activities:
Proceeds from calls of held to maturity investment securities 171 500
Purchases of held to maturity investment securities (1,304) (10,620)
Principal collected on held to maturity investment securities 377 1,086
Proceeds from sales of available for sale investment securities 36,362 41,363
Purchases of available for sale investment securities (39,475) (47,406)
Principal collected on available for sale investment securities 6,556 5,368
Net increase in longer-term loans (71,421) (26,838)
Proceeds from sales of loans 4,557 15,894
Proceeds from sales of other real estate 109 332
Other (189) (436)
- -----------------------------------------------------------------------------------------
Net cash used by investing activities (64,257) (20,757)
- -----------------------------------------------------------------------------------------
Financing activities:
Net decrease in demand deposits, NOW accounts, savings
accounts, and money market deposit accounts
(net of deposits acquired) (733) (216)
Net increase in time deposits (net of deposits acquired) 2,337 27,726
Net increase (decrease) in short-term borrowings (90 days) 45,193 (17,650)
Proceeds from exercise of stock options 657 240
Purchases of treasury stock 0 (3,208)
Dividends paid (1,414) (1,243)
- -----------------------------------------------------------------------------------------
Net cash provided by financing activities 46,040 5,649
- -----------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (15,249) (8,405)
Cash and cash equivalents at beginning of year 46,427 43,826
- -----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,178 $ 35,421
========================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest credited on deposits and paid on other borrowings $ 13,157 $ 12,016
- -----------------------------------------------------------------------------------------
Income taxes $ 597 $ 215
- -----------------------------------------------------------------------------------------
Non-cash investing activity:
Securitization of mortgage loans and transfers
to other real estate $ 79 $ 291
- -----------------------------------------------------------------------------------------
Unrealized depreciation in securities $ (2,290) $ (2,318)
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
BSB BANCORP, INC. (IN THOUSANDS-EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------
Unrealized
Appreciation
(Depreciation)
Additional In Marketable
Three Months Ended March 31, Common Paid-In Undivided Treasury Equity
1996 Stock Capital Profits Stock Securities Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 73 $ 26,861 $101,519 $(11,848) $ 169 $116,774
Increase in unrealized depreciation in
available for sale securities (1,351) (1,351)
Net income 3,573 3,573
Stock options exercised 240 240
Cash dividend paid on common
stock ($0.20 per share) (1,243) (1,243)
Treasury stock purchased (3,208) (3,208)
- ----------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $ 73 $ 27,101 $103,849 $(15,056) $(1,182) $114,785
==========================================================================================================
Three Months Ended March 31,
1997
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 73 $ 27,824 $111,465 $(29,757) $ (876) $108,729
Increase in unrealized depreciation in
available for sale securities (1,335) (1,335)
Net income 4,009 4,009
Stock options exercised 1 657 658
Cash dividend paid on common
stock ($0.25 per share) (1,414) (1,414)
- ----------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $ 74 $ 28,481 $114,060 $(29,757) $(2,211) $110,647
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Item - continued
BSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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) Outstanding stock options were excluded from the weighted average number
of shares because their dilutive effect is not material. Fully diluted
earnings per common share have not been presented because it is not
significantly different from primary earnings per share.
(3) In February 1997, the Financial Accounting Standards 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 any effect on the calculation of basic earnings per share,
and diluted earnings per share is expected to reflect less than 3%
dilution.
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 $4,009,000, or $0.71 per share,
for the quarter ended March 31, 1997, as compared to net income of $3,573,000,
or $0.57 per share, for the quarter ended March 31, 1996. All references to the
Company herein are intended to include the activities of the Bank, the Company's
wholly owned subsidiary.
On April 28, 1997, the Board of Directors announced the quarterly cash
dividend of $0.25, payable June 10, 1997 to shareholders of record at the close
of business on May 23, 1997.
Financial Condition
- -------------------
During the first three months of 1997, the Bank originated $52.4 million
commercial loans, which contributed to a net increase in the commercial loan
portfolio from $536.8 million at December 31, 1996 to $585.3 million at March
31, 1997. The interest rates on these loans are generally tied to the Company's
Prime Rate. Consumer loans increased from $217.1 million to $229.8 million, and
during this period, the Bank originated $38.8 million in consumer loans and sold
$387,000 in student loans. Real estate loans increased from $254.7 million at
December 31, 1996 to $258.2 million at March 31, 1997. During this period, the
Bank originated $21.1 million of real estate loans and sold $9.8 million. Total
assets increased from $1,363.1 million at December 31, 1996 to $1,413.8 million
at March 31, 1997.
Total deposits increased from $1,118.1 million at December 31, 1996 to
$1,119.7 million at March 31, 1997. The Company's borrowings increased from
$120.5 million at December 31, 1996 to $165.7 million at March 31, 1997.
Shareholders' equity increased from $108.7 million to $110.6 million during
the first three months of 1997. This increase is a result of a $1.3 million
increase in unrealized depreciation in securities available for sale, as
required under SFAS No. 115, "Accounting For Certain Investments in Debt and
Equity Securities", and cash dividends paid to shareholders of $1.4 million.
This was offset by Company earnings of $4.0 million and $0.7 million of stock
options exercised during the period.
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 March 31,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans $ 547,288 $ 13,044 9.53% $ 449,365 $10,767 9.58%
Consumer loans 221,090 5,171 9.36 198,578 4,671 9.41
Real estate loans 254,333 5,405 8.50 268,138 5,525 8.24
Investment securities 289,607 5,058 6.99 248,190 4,254 6.86
Mortgages held for sale 1,735 13 3.00 1,184 51 17.23
- ------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,314,053 28,691 8.73 1,165,455 25,268 8.67
- ------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 69,996 72,748
- ------------------------------------------------------------------------------------------------------------------------
Total assets $1,384,049 $1,238,203
========================================================================================================================
Interest-bearing liabilities:
Deposits and mortgage escrow funds $1,096,120 $ 12,238 4.47% $1,012,874 $11,390 4.50%
Borrowings 158,016 2,131 5.39 91,343 1,292 5.66
- ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,254,136 $ 14,369 4.58 1,104,217 $12,682 4.59
- ------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities 18,112 16,686
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,272,248 1,120,903
- ------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 111,801 117,300
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,384,049 $1,238,203
========================================================================================================================
Net interest income/net interest rate spread $ 14,322 4.15% $12,586 4.08%
========================================================================================================================
Net earnings assets/net interest rate margin $ 59,917 4.36% $61,238 4.32%
========================================================================================================================
Ratio of interest-earning assets to
interest-bearing liabilities 1.05X 1.06X
========================================================================================================================
</TABLE>
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 March 31,
1997 Compared to 1996
Increase (Decrease)
Volume Rate Net
- ---------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Interest income on interest-earning assets:
Commercial loans $ 2,663 $ (386) $ 2,277
Consumer loans 667 (167) 500
Real estate loans (939) 819 (120)
Investment securities 722 82 804
Mortgages held for sale 108 (146) (38)
- ---------------------------------------------------------------------------------
Total $ 3,221 $ 202 $ 3,423
=================================================================================
Interest expense on interest-bearing liabilities:
Deposits and mortgage escrow funds $ 1,347 $ (499) $ 848
Borrowings 1,251 (412) 839
- ---------------------------------------------------------------------------------
2,598 (911) 1,687
- ---------------------------------------------------------------------------------
Total $ 623 $ 1,113 $ 1,736
=================================================================================
</TABLE>
7
<PAGE>
Item 2 - continued
Interest Income
- ---------------
The Company's interest income on earning assets increased from $25.3 million
for the three months ended March 31, 1996 to $28.7 million for the three months
ended March 31, 1997. This increase in interest income was the result of an
increase in the average balance of earning assets from $1,165.5 million to
$1,314.1 million and an increase in the yield on earning assets from 8.67% to
8.73% for the three months ended March 31, 1996 and 1997, respectively. The
commercial loan average balance increased $97.9 million from the first quarter
of 1996 to $547.3 million for the first quarter of 1997. The yield on commercial
loans declined from 9.58% to 9.53% for the same period. The volume change for
the commercial loan portfolio was the largest contributor to the increase in
interest income. 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. Despite such competition and coupled with the continued softness in
the local economy, the average balance of consumer loans increased 11.3% to
$221.1 million for the three-month period ended March 31, 1997 compared to the
three months ended March 31, 1996, which contributed to increases in interest
income of $0.5 million for the three months ended March 31, 1997. Average
balances of real estate loans decreased $13.8 million to $254.3 million for the
quarter ended March 31, 1997 compared to the quarter ended March 31, 1996. This
period reflected an increase in yield from 8.24% to 8.50%, but the reduced
average balances resulted in a decline of $120,000 in interest income from real
estate loans to $5.4 million. The average balance of investment securities
increased from $248.2 million for the first quarter of 1996 to $289.6 million
for the first quarter of 1997,and yields increased for this same period from
6.86% to 6.99%. These two events contributed to an increase in interest income
of $0.8 million comparing the respective quarters.
Interest Expense
- ----------------
Total interest expense increased by $1.7 million for the quarter ended March
31, 1997 as compared to the same period in 1996. The average balance of all
interest-bearing liabilities increased from $1,104.2 million for the quarter
ended March 31, 1996 to $1,254.1 million for the quarter ended March 31, 1997.
This increase accompanies a decrease in the average rate paid on all
interest-bearing liabilities from 4.59% to 4.58% during the respective period.
One component of the change in interest-bearing liabilities is the average
balance of borrowings increasing from $91.3 million for the three months ended
March 31, 1996 to $158.0 million for the three months ended March 31, 1997. The
borrowing balance augments deposits to fund the loan growth principally in the
commercial loan area when needed. This increase in average balance was coupled
with a decrease in the rate paid on borrowings from 5.66% to 5.39% during this
period to reflect higher borrowing costs from $1.3 million for the three months
ended March 31, 1996 to $2.1 million for the same period in 1997. The average
balance of deposits increased from $1,012.9 million during the three months
ended March 31, 1996 to $1,096.1 million during the same period in 1997. The
increase in the average balance of deposits, despite the 3 basis point decrease
in the average rate paid on such funds, resulted in an increase in interest paid
on deposits from $11.4 million for the first quarter of 1996 to $12.2 million
for the first quarter of 1997.
Provision for Credit Losses
- ---------------------------
The provision for credit losses increased from $2.1 million to $2.5 million
for the quarters ended March 31, 1996 and March 31, 1997, respectively. The
allowance for possible credit losses increased to $17.6 million as of March 31,
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 $1.9 million to $1.4 million for the three
months ended March 31, 1996 to March 31, 1997, respectively. This decline was
largely attributable to the loss of one large merchant credit card relationship
in the fourth
8
<PAGE>
Item 2 - continued
quarter of 1996; a reduction of future income is expected to be substantially
offset by a reduction in the processing fee expenses associated with that
merchant.
Gains (Losses) On Sale of Securities
- ------------------------------------
Losses on sale of securities was $4,000 for the first quarter of 1997
compared to gains of $35,000 for the same quarter of 1996.
Gains (Losses) On Sale of Loans
- -------------------------------
The practice of the Bank has been to sell or securitize long-term, fixed-rate
residential mortgage loans. As a result of this practice, the Bank securitized
or sold $9.8 million of mortgage loans for the first three months of 1997 as
compared to having sold $12.2 million for the first three months of 1996. Of the
$12.0 million of residential mortgage loans originated in the first three months
of 1997, only $1.7 million were adjustable-rate loans. During the first quarter
of 1997, losses of $1,000 were realized. This was the combined activity of gains
on residential mortgage sales of $45,000 and gains from recording originating
mortgage servicing rights of $27,000 for the quarter. The balance was
adjustments on mortgages available for sale that were marked to market and
adjustments of previously recorded mortgage servicing gains.
Non-interest Expense
- --------------------
Non-interest expense decreased from $6.7 million to $6.6 million for the
quarters ended March 31, 1996 and 1997, respectively. The major change in
components of non-interest expense was a decrease in the credit card merchant
transaction base expense associated with the loss of servicing one large credit
card customer and the ensuing decreased transactions. These interchange fee
expenses decreased from $0.4 million for the first quarter of 1996 to $0.1
million for the same quarter of 1997. There was also an increase of $114,000 in
ORE expenses. Services for the quarter ended March 31, 1996 were $571,000
decreasing to $441,000 for the same quarter of 1997.
Income Taxes
- ------------
The income tax expense was $2.4 million and $2.6 million for the quarters
ended March 31, 1996 and March 31, 1997, respectively.
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. 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.
9
<PAGE>
Item 2 - continued
The following table sets forth information regarding non-performing loans
which are 90 days or more overdue and other real estate owned held by the
Company at the dates indicated.
MARCH 31, DECEMBER 31,
1997 1996
- -------------------------------------------------------------------------------
(In Thousands)
Commercial loans:
Non-accrual loans $ 5,623 $ 6,130
Consumer loans:
Accruing loans 90 days overdue 93 236
Residential real estate loans:
Non-accrual loans 1,768 1,556
Commercial real estate loans:
Non-accrual loans 4,430 4,295
- -------------------------------------------------------------------------------
Total non-performing loans and accruing
loans 90 days overdue $11,914 $12,217
- -------------------------------------------------------------------------------
Total non-performing loans to total gross loans 1.11% 1.21%
===============================================================================
Total real estate acquired in settlement of
loans at lower of cost or fair value $ 1,273 $ 1,393
Total non-performing loans and real estate
acquired in settlement
of loans at fair value to total assets 0.93% 1.00%
Total non-performing loans and other real estate owned decreased to $13.2
million, or 0.93% of total assets at March 31, 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 March 31, 1997, non-performing residential real estate loans
totaled $1.8 million and included 29 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 March 31, 1997, non-performing commercial real estate loans remained stable
at $4.4 million and consisted of 9 loans ranging in size from $123,000 to $1.8
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 March
31, 1997, non-performing commercial loans decreased to $5.6 million and
consisted of 32 individual loans ranging in size from $7,000 to $1.6 million.
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 greater
than 90 days past due on which it was accruing interest, as compared to $93,000
at March 31, 1997. As of each date, the only such loans were consumer loans.
At March 31, 1997, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $7,961,564 with a
corresponding valuation allowance of $2,513,441.
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 totaling
$712,000 and 7 local commercial real estate properties with a book value of
$682,000. At March 31, 1997, ORE totaled $1.3 million, which consisted of 9
single-family residential properties totaling $601,000 and 7 local commercial
real estate properties with a book value of $672,000.
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 of characteristics of
various categories and concentrations of loans, transfer risks and other
pertinent factors.
10
<PAGE>
The following table summarizes activity in the Company's allowance for
possible credit losses during the periods indicated:
Three Months Ended
March 31,
1997 1996
- -------------------------------------------------------------------------------
(In Thousands)
Average gross loans outstanding $1,040,528 $931,109
===============================================================================
Allowance at beginning of period $ 17,054 $ 14,065
- -------------------------------------------------------------------------------
Charge-offs:
Commercial loans 1,297 1,243
Consumer loans 409 348
Residential real estate loans 33 30
Commercial real estate loans 489 176
- -------------------------------------------------------------------------------
Total loan charge-offs 2,228 1,797
Recoveries:
Commercial loans 105 138
Consumer loans 160 111
Residential real estate loans 0 0
Commercial real estate loans 5 122
- -------------------------------------------------------------------------------
Total recoveries 270 371
- -------------------------------------------------------------------------------
Net charge-offs 1,958 1,426
- -------------------------------------------------------------------------------
Provision for credit losses charged to operating expenses 2,460 2,073
- -------------------------------------------------------------------------------
Allowance at end of period $ 17,556 $ 14,712
===============================================================================
Ratio of net charge-offs to:
Average total loans outstanding (annualized) 0.75% 0.61%
Ratio of allowance to:
Non-performing loans 147.36% 108.51%
Period-end total loans outstanding 1.64 % 1.57 %
During the first quarter of 1997, the Bank charged-off $2.2 million of loans
compared to $1.8 million for the first quarter of 1996. Charge-offs on
commercial loans increased from $1.2 million for the quarter ended March 31,
1996 to $1.3 million for the three months ended March 31, 1997. 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 average balance of all
interest-bearing liabilities increased from $1,104.2 million for the three-month
period ended March 31, 1996 to $1,254.1 million for the same period ended March
31, 1997, an increase of $149.9 million. With the conversion of the Bank to a
state-chartered commercial bank in 1995, the Bank was allowed to accept deposits
from local municipalities. This significant source of funds has contributed to
the increase in all interest-bearing liabilities by showing an increase in
average balance from $42.1 million for the quarter ended March 31, 1996 to
$101.2 million for the quarter ended March 31, 1997, an
11
<PAGE>
Item - continued
increase of $59.1 million. To further fund loan growth, borrowings increased
from an average balance of $91.3 million to $158.0 million for the quarter ended
March 31, 1996 to the same quarter ended March 31, 1997. Of this $66.7 million
increase, $61.7 million was from the Federal Home Loan Bank of New York
("FHLB"). Of the remaining $24.1 million increase in average balance of all
interest-bearing liabilities, a $23.4 million increase was reflected for money
market certificates. The net changes in average balances of the deposit types,
savings deposits, certificates of deposit, and brokered deposits accounted for
the small remainder of the increase in interest-bearing balances of $0.7
million.
Liquidity and Capital Resources
- -------------------------------
A fundamental objective of the Company is to effectively manage 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 longand short-term
borrowings, and sales of investment securities, loans, and mortgage-backed
securities. At March 31, 1997, the total of approved loan commitments amounted
to $76.7 million. Scheduled maturities of borrowings during the next twelve
months are $165.7 million. Savings certificates, which are scheduled to mature
during the next twelve months, totaled $407.5 million. Management expects that a
substantial portion of these maturing certificates will remain on deposit with
the Company. At March 31, 1997, the Company had no long-term borrowings.
At March 31, 1997, the Company's Tier I leverage ratio, as defined in
guidelines, was 7.96%, which exceeds the current requirements for the Company.
March 31, 1997, the Company's total capital-to-risk-weighted assets ratio,
calculated under the Federal Reserve Board's risk-based capital requirements,
was 11.01%.
The Company's book value per common share increased from $19.38 at December
31, 1996 to $19.54 at March 31, 1997.
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 March 31, 1997, the Company had 1,537
shareholders of record and 5,661,849 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.
12
<PAGE>
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 $26.50 $21.75 $0.20
Second Quarter 26.75 25.25 $0.22
Third Quarter 26.25 24.75 $0.22
Fourth Quarter 27.75 25.38 $0.25
1997
- -------------------------------------------------------------------
First Quarter $32.00 $25.75 $0.25
13
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
-----------------
Not applicable
Item 2 - Change 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
14
<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.
BSB BANCORP, INC.
Date: May 13, 1997 By: /s/ Alex S. DePersis
--------------------- ------------------------
ALEX S. DEPERSIS
President and Chief Executive
Officer
Date: May 13, 1997 By: /s/ Edward R. Andrejko
--------------------- ---------------------------
EDWARD R. ANDREJKO
Senior Vice President and
Chief Financial Officer
15
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