<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, 1998
--------------
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: 0-17177
-------
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 April 27,
1997: 8,598,303 shares of common stock, $0.01 par value.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1: Financial Statements
-------
<S> <C> <C>
Consolidated Statements of Condition
March 31, 1998 and December 31, 1997........................ 1
Consolidated Statements of Income Three Months
Ended March 31, 1998 and March 31, 1997..................... 2
Consolidated Statements of Comprehensive Income Three
Months Ended March 31, 1998 and March 31, 1997.............. 3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998
and March 31, 1997.......................................... 4
Consolidated Statements of Changes in
Shareholders' Equity Three Months Ended
March 31, 1997 and March 31, 1998........................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2: Management's Discussion and Analysis of
------- Financial Condition and Results of Operations............... 7-15
PART II. OTHER INFORMATION
- ---------------------------
Items 1-6................................................... 16
Signature Page.............................................. 17
</TABLE>
<PAGE>
Item 1 - Financial Statements
<TABLE>
<CAPTION>
BSB BANCORP, INC. (Dollars In Thousands-Except Per Share Data)
CONSOLIDATED STATEMENTS OF CONDITION
- ---------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 41,786 $ 36,066
Investment securities available for sale 310,651 271,120
Investment securities held to maturity (market value $14,669
and $14,141) 14,299 13,868
Mortgages held for sale 14,089 7,459
Loans:
Commercial 711,022 654,243
Consumer 312,261 299,307
Real estate 249,093 252,247
- ---------------------------------------------------------------------------------------------------------------------------
Total loans 1,272,376 1,205,797
Less: Unearned discounts 759 595
Allowance for possible credit losses 19,854 19,207
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 1,251,763 1,185,995
Bank premises and equipment 9,626 9,500
Accrued interest receivable 11,182 11,118
Other real estate 2,757 2,784
Intangible assets 1,819 1,893
Other assets 21,792 20,768
- ---------------------------------------------------------------------------------------------------------------------------
$1,679,764 $1,560,571
===========================================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Due to depositors $1,323,992 $1,239,508
Borrowings 211,653 178,644
Other liabilities 20,053 21,553
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; 11,197,474
and 11,159,924 shares issued 112 112
Additional paid-in capital 29,625 29,215
Undivided profits 124,649 122,029
Accumulated other comprehensive income (563) (733)
Treasury stock, at cost: 2,602,692 and 2,602,692 shares (29,757) (29,757)
- ---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 124,066 120,866
- ---------------------------------------------------------------------------------------------------------------------------
$1,679,764 $1,560,571
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
Item 1 - Financial Statements
<TABLE>
<CAPTION>
BSB BANCORP, INC. (Dollars In Thousands-Except Per Share Data)
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $28,391 $23,620
Interest on investment securities 4,963 5,058
Interest on mortgages held for sale 175 13
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 33,529 28,691
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on savings deposits 934 945
Interest on time accounts 10,359 8,329
Interest on money market deposit accounts 3,024 2,770
Interest on NOW accounts 215 194
Interest on borrowed funds 2,714 2,131
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 17,246 14,369
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 16,283 14,322
Provision for credit losses 2,785 2,460
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 13,498 11,862
Gains (losses) on sale of securities (144) (4)
Gains (losses) on sale of loans (247) (1)
Non-interest income:
Service charges on deposit accounts 595 519
Credit card fees 241 141
Mortgage servicing fees 279 279
Fees and commissions-brokerage services 83 117
Trust fees 230 159
Other charges, commissions, and fees 255 163
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest income 1,683 1,378
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries, pensions, and other employee benefits 3,676 3,375
Building occupancy 680 696
Dealer commission expense 225 244
Computer service fees 257 213
Services 745 441
FDIC insurance 39 19
Goodwill 74 74
Interchange fees 168 105
Other real estate 20 250
Other expenses 1,472 1,200
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 7,356 6,617
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,434 6,618
Provision for income taxes 2,925 2,609
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 4,509 $ 4,009
===========================================================================================================================
Earnings per share:
Basic $ 0.53 $ 0.47
Diluted $ 0.51 $ 0.46
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
BSB BANCORP, INC. (Dollars In Thousands)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $4,509 $4,009
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities,
net of reclassification adjustment (Note 3) 170 (1,335)
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income 170 (1,335)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income $4,679 $2,674
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
BSB BANCORP, INC. (Dollars In Thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 4,509 $ 4,009
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses 2,785 2,460
Realized losses (gains) on available
for sale investment securities 144 4
Other (gains) and losses, net 237 (3)
Depreciation and amortization 437 440
Net amortization of premiums and
discounts on investment securities (281) 95
Net accretion of premiums and discounts on loans 164 (44)
Sales of loans originated for sale 13,109 5,599
Net increase in loans originated for sale (19,947) (6,936)
Writedowns of other real estate 160 81
Decrease in other assets and liabilities (2,711) (2,737)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (1,394) 2,968
- ---------------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from calls of held to maturity investment securities 794 171
Purchases of held to maturity investment securities (1,572) (1,304)
Principal collected on held to maturity investment securities 344 377
Proceeds from sales of available for sale investment securities 59,356 36,362
Purchases of available for sale investment securities (96,947) (39,475)
Principal collected on available for sale investment securities 9,845 6,556
Net increase in longer-term loans (83,385) (71,421)
Proceeds from sales of loans 2,984 4,557
Proceeds from sales of other real estate 159 109
Other (478) (189)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (108,900) (64,257)
- ---------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net decrease in demand deposits, NOW accounts, savings
accounts, and money market deposit accounts (2,172) (733)
Net increase in time deposits 86,656 2,337
Net increase (decrease) in short-term borrowings (90 days) (1,991) 45,193
Proceeds from long-term borrowings 35,000
Proceeds from exercise of stock options 410 657
Dividends paid (1,889) (1,414)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 116,014 46,040
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents 5,720 (15,249)
Cash and cash equivalents at beginning of year 36,066 46,427
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $41,786 $ 31,178
===========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest credited on deposits and paid on other borrowings $16,727 $ 13,157
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes $ 789 $ 597
- ---------------------------------------------------------------------------------------------------------------------------
Non-cash investing activity:
Securitization of mortgage loans and transfers to other real estate $11,644 $ 79
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) in securities $ 292 $ (2,290)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
BSB BANCORP, INC. (Dollars In Thousands-Except Per Share Data)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated
Three Months Ended Additional Other
March 31, Common Paid-In Undivided Treasury Comprehensive
1997 Stock Capital Profits Stock Income Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 73 $27,824 $111,465 $(29,757) $ (876) $108,729
Comprehensive income:
Net income 4,009 4,009
Other comprehensive income:
Unrealized depreciation in
available for sale securities,
net of reclassification amount
(Note 3) (1,335) (1,335)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income 4,009 (1,335) 2674
Stock options exercised 1 657 658
Cash dividend paid on common
stock ($0.17 per share) (1,414) (1,414)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $ 74 $28,481 $114,060 $(29,757) $(2,211) $110,647
===========================================================================================================================
1998
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $112 $29,215 $122,029 $(29,757) $ (733) $120,866
Comprehensive income:
Net income 4,509 4,509
Other comprehensive income:
Unrealized appreciation in
available for sale securities,
net of reclassification amount
(Note 3) 170 170
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income 4,509 170 4,679
Stock options exercised 410 410
Cash dividend paid on common
stock ($0.22 per share) (1,889) (1,889)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 $112 $29,625 $124,649 $ (29,757) $ (563) $124,066
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Item 1 - continued
BSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(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, 1997 data in the Consolidated Statements of Condition is derived from
the consolidated financial statements included in the Company's 1997 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 1997 Annual Report to Shareholders.
(2) Basic earnings per share is computed based on the weighted average shares
outstanding. Diluted earnings per share is computed based on the weighted
average shares outstanding adjusted for the dilutive effect of the assumed
exercise of stock options during the period.
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the quarters ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Quarter ended March 31, Net Income Weighted Average Shares Earnings Per Share
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Basic earnings per share $4,509,066 8,581,253 $0.53
Effect of stock options 311,632
-----------------------------------------------------------------------------------------------------------------
Diluted earnings per share $4,509,066 8,892,885 $0.51
=================================================================================================================
1997
Basic earnings per share $4,009,273 8,446,144 $0.47
Effect of stock options 240,586
-----------------------------------------------------------------------------------------------------------------
Diluted earnings per share $4,009,273 8,686,730 $0.46
=================================================================================================================
</TABLE>
(3) Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, " Reporting Comprehensive Income." This
pronouncement requires the Company to report the effects of unrealized
investment holding gains or losses on comprehensive income. The following
reflects the components of "Other Comprehensive Income" on a net of tax
basis:
<TABLE>
<CAPTION>
Quarters ended March 31, (Dollars in Thousands)
------------------------------------------------------------------------------------------------------------------
Before Tax Tax (Expense) Net of Tax
Amount or Benefit Amount
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Unrealized gains on securities:
Unrealized holding gains arising during period $ 436 $(182) $ 254
Less: Reclassification adjustment for losses realized in net income (144) 60 (84)
-------------------------------------------------------------------------------------------------------------------
Net unrealized gains 292 (122) 170
-------------------------------------------------------------------------------------------------------------------
Other comprehensive income $ 292 $(122) $ 170
===================================================================================================================
1997
Unrealized gains on securities:
Unrealized holding gains arising during period $(2,286) $954 $ (1,332)
Less: Reclassification adjustment for losses realized in net income (4) 1 (3)
-------------------------------------------------------------------------------------------------------------------
Net unrealized gains (2,290) 955 (1,335)
-------------------------------------------------------------------------------------------------------------------
Other comprehensive income $(2,290) $955 $(1,335)
===================================================================================================================
</TABLE>
6
<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 $4,509,000, or diluted
earnings per share of $0.51 for the quarter ended March 31, 1998, as compared to
net income of $4,009,000, or diluted earnings per share of $0.46 for the quarter
ended March 31, 1997.
On April 27, 1998, the Board of Directors announced a quarterly cash
dividend of $0.22 per share payable on June 10, 1998 to shareholders of record
at the close of business on May 22, 1998.
Financial Condition
- -------------------
During the first three months of 1998, the Company originated $70.5
million of commercial loans, which contributed to a net increase in the
commercial loan portfolio from $654.2 million at December 31, 1997 to $711.0
million at March 31, 1998. The interest rates on these loans are generally tied
to the Bank's Prime Rate. Consumer loans increased from $299.3 million at
December 31, 1997 to $312.3 million at March 31, 1998, and during this period,
the Company originated $48.7 million in consumer loans. Real estate loans
decreased from $252.2 million at December 31, 1997 to $249.1 million at March
31, 1998. During the above mentioned period, the Company originated $45.5
million of real estate loans and sold $15.8 million with an additional $11.4
million of residential real estate loans securitized. Total assets of the
Company increased from $1,560.6 million at December 31, 1997 to $1,679.8 million
at March 31, 1998.
Total deposits increased from $1,239.5 million at December 31, 1997 to
$1,324.0 million at March 31, 1998. Interest credited during that three-month
period totalled $14.5 million. The Company's borrowings increased from $178.6
million at December 31, 1997 to $211.7 million at March 31, 1998. Borrowings at
March 31, 1998 consisted of $115.0 million of Federal Home Loan Bank advances
and $72.5 million of a Federal Home Loan Bank line of credit. Of the remaining
$24.2 million, $22.3 million are securities sold under agreement to repurchase.
These borrowings are used to fund the Company's lending activities.
Shareholders' equity increased from $120.9 million to $124.1 million
during the first three months of 1998. This increase is a result of earnings of
$4.5 million, $410,000 of stock options exercised during the period, and a
$170,000 decrease in unrealized depreciation in securities available for sale.
This increase in shareholders' equity was partially offset by cash dividends
paid to shareholders of $1.9 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.
7
<PAGE>
Part II -continued
<TABLE>
<CAPTION>
Three Months Ended March 31,
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
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 $ 657,407 $15,865 9.65 % $ 547,288 $13,044 9.53%
Consumer loans:
Passbook 214 6 11.22 308 12 15.58
Overdraft checking 791 38 19.22 914 45 19.69
Business line of credit 942 23 9.77
Credit cards 9,401 371 15.79 8,720 331 15.18
Personal-direct 47,469 1,206 10.16 35,614 880 9.88
Personal-indirect-new auto 48,098 1,024 8.52 44,102 895 8.12
Personal-indirect-used auto 115,628 2,647 9.16 71,278 1,613 9.05
Personal-indirect-mobile homes 45,730 1,086 9.50 28,184 673 9.55
Personal-indirect-other 3,759 87 9.26 4,254 106 9.97
Home equity line of credit 25,229 578 9.16 24,579 570 9.28
Checkcard reserve 1,277 93 29.13 700 40 22.86
Student 4,170 76 7.29 2,437 6 0.98
- ----------------------------------------------------------------------------------------------------------------------------
Total consumer loans 302,708 7,235 9.56 221,090 5,171 9.36
- ----------------------------------------------------------------------------------------------------------------------------
Real estate loans:
Residential-fixed 51,399 1,003 7.81 37,440 785 8.39
Commercial-fixed 4,602 106 9.21 5,092 118 9.27
Residential-adjustable 61,408 1,156 7.53 72,935 1,399 7.67
Commercial-adjustable 130,343 3,026 9.29 138,866 3,103 8.94
- ----------------------------------------------------------------------------------------------------------------------------
Total real estate loans 247,752 5,291 8.54 254,333 5,405 8.50
- ----------------------------------------------------------------------------------------------------------------------------
Investment securities 298,385 4,963 6.65 289,607 5,058 6.99
Mortgages held for sale 9,397 175 7.45 1,735 13 3.00
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,515,649 $33,529 8.85% 1,314,053 $28,691 8.73%
- ----------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 82,973 69,996
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $1,598,622 $1,384,049
============================================================================================================================
<CAPTION>
Interest-bearing liabilities:
Deposits:
Savings $ 131,898 $ 934 2.83% $ 132,088 $ 945 2.86%
Money market 267,806 3,024 4.52 247,119 2,770 4.48
Certificates of deposit 734,435 10,359 5.64 608,814 8,329 5.47
NOW 62,403 215 1.38 60,174 194 1.29
Commercial checking 63,352 47,925
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 1,259,894 14,532 4.61 1,096,120 12,238 4.47
Borrowings 193,742 2,714 5.60 158,016 2,131 5.39
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,453,636 17,246 4.75 1,254,136 14,369 4.58
- ----------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities 21,641 18,112
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,475,277 1,272,248
- ----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 123,345 111,801
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $1,598,622 $1,384,049
============================================================================================================================
Net interest income/net interest rate spread $16,283 4.10% $14,322 4.15%
============================================================================================================================
Net earnings assets/net interest rate margin $62,013 4.30% $59,917 4.36%
============================================================================================================================
Ratio of interest-earning assets to
interest-bearing liabilities 1.04X 1.05X
============================================================================================================================
</TABLE>
8
<PAGE>
Part II -continued
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,
1998 Compared to 1997
Increase (Decrease)
Volume Rate Net
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Interest income on interest-earning assets:
Commercial loans $2,655 $ 166 $2,821
Consumer loans 1,951 113 2,064
Real estate loans (269) 155 (114)
Investment securities 320 (415) (95)
Mortgages held for sale 121 41 162
- ----------------------------------------------------------------------------------------------------------------------------
Total $4,778 $ 60 $4,838
============================================================================================================================
Interest expense on interest-bearing liabilities:
Deposits and mortgage escrow funds $1,896 $ 398 $2,294
Borrowings 497 86 583
- ----------------------------------------------------------------------------------------------------------------------------
2,393 484 2,877
- ----------------------------------------------------------------------------------------------------------------------------
Total $2,385 $(424) $1,961
============================================================================================================================
</TABLE>
Interest Income
- ---------------
The Company's interest income on earning assets increased from $28.7
million for the three months ended March 31, 1997 to $33.5 million for the three
months ended March 31, 1998. This increase in interest income was the result of
an increase in the average balance of earning assets from $1,314.1 million to
$1,515.6 million for the three months ended March 31, 1997 and March 31, 1998,
respectively, and the increase in the average yield on earning assets from 8.73%
to 8.85% for the three months ended March 31, 1997 and 1998, respectively. 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 $110.1 million from the first quarter of 1997 to $657.4
million for the first quarter of 1998. The average yield on commercial loans
increased from 9.53% for the first quarter of 1997 to 9.65% for the first
quarter of 1998. Despite high levels of competition in the Company's lending
markets for indirect and direct auto 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 36.9%
to $302.7 million for the three-month period ended March 31, 1998 compared to
$221.1 million for the three-month period ended March 31, 1997. The average
balance of real estate loans decreased $6.6 million to $247.8 million for the
quarter ended March 31, 1998 compared to the quarter ended March 31, 1997. This
period reflected an increase in yield from 8.50% to 8.54%, but the reduced
average balance resulted in a net decline of $114,000 in interest income from
real estate loans to $5.3 million. The average balance of investment securities
increased from $289.6 million for the first quarter of 1997 to $298.4 million
for the first quarter of 1998. Yields on investment securities decreased for
this same period from 6.99% to 6.65% and contributed to a decline in interest
income on investment securities of $95,000 for the comparative quarters.
Interest Expense
- ----------------
Total interest expense increased by $2.9 million for the quarter ended
March 31, 1998 as compared to the same period in 1997. The average balance of
all interest-bearing liabilities increased from $1,254.1 million for the quarter
ended March 31, 1997 to $1,453.6 million for the quarter ended March 31, 1998.
This increase accompanies an increase in the average rate paid on all
9
<PAGE>
Part II -continued
interest-bearing liabilities from 4.58% to 4.75% during the respective period.
The average balance of deposits increased from $1,096.1 million during the three
months ended March 31, 1997 to $1,259.9 million during the same period in 1998.
The increase in the average balance of deposits was the major factor
contributing to an increase in interest paid on deposits from $12.2 million for
the first quarter of 1997 to $14.5 million for the first quarter of 1998.
Another component of the change in interest-bearing liabilities is the average
balance of borrowings increasing from $158.0 million for the three months ended
March 31, 1997 to $193.7 million for the three months ended March 31, 1998. 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 5.39% to 5.60%
during the three-month period to reflect higher borrowing costs from $2.1
million for the three months ended March 31, 1997 to $2.7 million for the same
period in 1998. 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 increased from $2.5 million to $2.8
million for the quarters ended March 31, 1997 and March 31, 1998, respectively.
The allowance for possible credit losses increased to $19.9 million as of March
31, 1998, compared to $19.2 million as of December 31, 1997. 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 increased 22.1%, from $1.4 million to $1.7 million
for the three months ended March 31, 1997 to March 31, 1998, respectively. The
major factors attributing to this increase comparing first quarter of 1997 to
the same quarter of 1998 were a $100,000 increase in credit card fees, a $76,000
increase in service charges on deposit accounts, a $71,000 increase in trust
fees, and a $92,000 increase in other charges, commissions, and fees.
Gains (Losses) On Sale of Securities
- ------------------------------------
Losses on sale of securities were $144,000 for the first quarter of
1998. This compares to losses of $4,000 for the same quarter of 1997. 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 $27.2 million and $9.8 million for the first quarter of 1998 and 1997,
respectively. This resulted in losses of $247,000 and $1,000 for the same two
periods. Of the $247,000 of losses taken in the first quarter of 1998 sales,
$238,000 resulted from the recognition of deferred expenses at the time of sale.
10
<PAGE>
Part II -continued
Non-interest Expense
- --------------------
Non-interest expense increased from $6.6 million for the quarter ended
March 31, 1997 to $7.4 million for the quarter ended March 31, 1998. Several
factors contributed to this increase. As volumes of transaction rise due to
growth in assets, such as credit card loans and with greater levels of deposits,
such as brokered deposits, service expenses associated with these assets and
liabilities also rise. This attributed to approximately a $120,000 increase in
expense from the first quarter of 1997 compared to the same quarter in 1998. New
customer services and products needed to manage these services contributed
approximately $86,000 to the increase in services expense. Expenses associated
with the Bank's conversion to another core processing vendor amounted to
approximately $80,000 of the increase in all other non-interest expenses.
Income Taxes
- ------------
The income tax expense was $2.6 million and $2.9 million for the
quarters ended March 31, 1997 and March 31, 1998, respectively. This increase
was due to increased levels of taxable income.
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>
March 31, December 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C>
Commercial loans:
Non-accrual loans $10,506 $10,542
Consumer loans:
Accruing loans 90 days overdue 213 304
Residential real estate loans:
Non-accrual loans 1,812 1,309
Commercial real estate loans:
NON-ACCRUAL LOANS 1,002 821
- ---------------------------------------------------------------------------------------------------------------------------
Total non-performing loans and accruing loans 90 days overdue $13,533 $12,976
===========================================================================================================================
Total non-performing loans to total gross loans 1.06% 1.08%
Total real estate acquired in settlement of
loans at lower of cost or fair value $ 2,757 $ 2,784
Total non-performing loans and real estate acquired in settlement
of loans at fair value to total assets 0.97% 1.01%
</TABLE>
11
<PAGE>
Part II -continued
Total non-performing loans and ORE, which is defined to include property
acquired by foreclosure or by deed in lieu of foreclosure, increased to $16.3
million, or 0.97% of total assets at March 31, 1998, compared to $15.8 million,
or 1.01% of total assets at December 31, 1997.
At December 31, 1997, 28 non-performing residential real estate loans
totaled $1.3 million. At March 31, 1998, non-performing residential real estate
loans totaled $1.8 million and included 37 loans.
At December 31, 1997, non-performing commercial real estate loans
totaled $0.8 million, and included 3 loans ranging in size from $78,000 to
$594,000. At March 31, 1998, non-performing commercial real estate loans
increased to $1.0 million and consisted of 4 loans ranging in size from $41,000
to $592,000.
Non-performing commercial loans at December 31, 1997 totaled $10.5
million and included 35 individual loans ranging in size from $5,000 to $1.3
million. At March 31, 1998, non-performing commercial loans remained at $10.5
million and consisted of 37 individual loans ranging in size from $4,000 to $1.2
million.
The Company's policy is to charge-off all consumer loans before they
become non-accrual. At December 31, 1997, the Company had $304,000 of loans 90
days or more past due on which it was accruing interest, as compared to $213,000
at March 31, 1998. As of each date, the only such loans were consumer loans.
At March 31, 1998, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS No. 114 totaled $10.4 million with a
corresponding valuation allowance of $3.6 million.
At December 31, 1997, ORE totaled $2.8 million, which consisted of 10
single-family residential properties with a book value totaling $474,000 and 9
local commercial real estate properties with a book value totaling $2.3 million.
At March 31, 1998, ORE totaled $2.8 million, which consisted of 13 single-family
residential properties totalling $386,000 and 10 local commercial real estate
properties with a book value of $2.4 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.
12
<PAGE>
Part II -continued
The following table summarizes activity in the Company's allowance for
possible credit losses during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C>
Average gross loans outstanding $1,228,316 $1,040,528
===========================================================================================================================
Allowance at beginning of period $ 19,207 $ 17,054
- ---------------------------------------------------------------------------------------------------------------------------
Charge-offs:
Commercial loans 1,510 1,297
Consumer loans 884 409
Residential real estate loans 56 33
Commercial real estate loans 19 489
- ---------------------------------------------------------------------------------------------------------------------------
Total loans charged-off 2,469 2,228
Recoveries:
Commercial loans 145 105
Consumer loans 178 160
Residential real estate loans 0 0
Commercial real estate loans 8 5
- ---------------------------------------------------------------------------------------------------------------------------
Total recoveries 331 270
- ---------------------------------------------------------------------------------------------------------------------------
Net charge-offs 2,138 1,958
- ---------------------------------------------------------------------------------------------------------------------------
Provision for credit losses charged to operating expenses 2,785 2,460
- ---------------------------------------------------------------------------------------------------------------------------
Allowance at end of period $ 19,854 $ 17,556
===========================================================================================================================
Ratio of net charge-offs to:
Average total loans outstanding (annualized) 0.70% 0.75%
Ratio of allowance to:
Non-performing loans 146.71% 147.36%
Period-end total loans outstanding 1.56% 1.64%
</TABLE>
Charge-offs increased to $2.5 million for the first quarter of 1998
compared to $2.2 million for the first quarter of 1997 with recoveries remaining
at $0.3 million for the first quarter of 1997 and the first quarter of 1998.
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
$1,254.1 million for the three-month period ended March 31, 1997 to $1,453.6
million for the same period ended March 31, 1998, an increase of $199.5 million.
The most significant increase in interest-bearing liabilities for the quarter
ended March 31, 1997 compared to March 31, 1998, was an increase in the average
balance of certificates of deposit of $125.6 million from the first quarter of
1997 to the first quarter of 1998 from $608.8 million to $734.4 million,
respectively. This was combined with an increase in the average rate on these
deposits from 5.47% for the first quarter of 1997 to 5.64% for the same quarter
of 1998. This caused interest expense to increase $2.0 million to $10.4 million
for the first quarter of 1998. To further fund loan growth, borrowings increased
from an average balance of $158.0 million to $193.7 million for the quarter
ended March 31, 1997 to the same quarter ended March 31, 1998. Of this $35.7
million increase, $19.7 million was from the Federal Home Loan Bank of New York
("FHLB"). An increase in the average rate paid on borrowings from 5.39% for the
quarter ended March 31, 1997 to 5.60% for the same quarter in 1998 caused
interest expense on these borrowings to increase from $2.1 million for the first
quarter of 1997 to $2.7 million for the first quarter of 1998.
13
<PAGE>
Part II -continued
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.
There were no material changes in the Company's liquidity or interest rate
sensitivity since December 31, 1997.
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 March 31, 1998, the total of approved loan commitments amounted
to $132.6 million. Long-term borrowings of $35.0 million are scheduled to mature
in 2008. Savings certificates, which are scheduled to mature during the next
twelve months, totaled $592.3 million. Management expects that a substantial
portion of these maturing certificates will remain on deposit with the Company.
At March 31, 1998, the Company's Tier I leverage ratio, as defined
in regulatory guidelines, was 7.58%, which exceeds the current requirements for
the Company. At March 31, 1998, the Company's total capital-to-risk-weighted
assets ratio, calculated under the Federal Reserve Board's risk-based capital
requirements, was 10.18%. The Company's book value per common share increased
from $14.12 at December 31, 1997 to $14.44 at March 31, 1998.
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.
Year 2000
- ---------
The Company made continued progress on its Year 2000 compliance program
during the first three months of 1998. Because much of the program involves
technology enhancements, specific costs to correct current and ongoing systems
are not material.
Forward-Looking Statements
- --------------------------
This quarterly report, including certain statements made in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, may include "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Any statements with regard to
the Company's expectations as to its financial results, and other aspects of its
business, and general economic conditions, may constitute forward-looking
statements. Although the Company makes such statements based on assumptions
which it believes to be reasonable, there can be no assurance that actual
results will not differ materially from the Company's expectations.
Market Prices and Related Shareholder Matters
- ---------------------------------------------
The stock of the Company is listed on The Nasdaq Stock Market under the
symbol BSBN. As of March 31, 1998, the Company had 1,712 shareholders of record
and 8,594,782 shares of common stock outstanding . 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.
14
<PAGE>
Part II -continued
<TABLE>
<CAPTION>
Cash
Price Range Dividends
1997 High Low Per Share
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $21.33 $17.17 $0.17
Second Quarter 26.00 19.50 0.17
Third Quarter 29.00 23.83 0.20
Fourth Quarter 37.25 25.75 0.22
1998
- -------------------------------------------------------------------------------------------------------------------
First Quarter $36.00 $28.00 $0.22
</TABLE>
15
<PAGE>
Part II -continued
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
16
<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: May 14, 1998 By: Alex S. DePersis
------------ -----------------------------
ALEX S. DEPERSIS
President
and Chief Executive Officer
Date: May 14, 1998 By: Edward R. Andrejko
------------ ----------------------------------
EDWARD R. ANDREJKO
Senior Vice President and
Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 41,786
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 310,651
<INVESTMENTS-CARRYING> 14,299
<INVESTMENTS-MARKET> 325,320
<LOANS> 1,286,465
<ALLOWANCE> 19,854
<TOTAL-ASSETS> 1,679,764
<DEPOSITS> 1,323,992
<SHORT-TERM> 176,653
<LIABILITIES-OTHER> 20,053
<LONG-TERM> 35,000
0
0
<COMMON> 112
<OTHER-SE> 123,954
<TOTAL-LIABILITIES-AND-EQUITY> 1,679,764
<INTEREST-LOAN> 28,566
<INTEREST-INVEST> 4,963
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 33,529
<INTEREST-DEPOSIT> 14,532
<INTEREST-EXPENSE> 2,714
<INTEREST-INCOME-NET> 16,283
<LOAN-LOSSES> 2,785
<SECURITIES-GAINS> (144)
<EXPENSE-OTHER> 7,356
<INCOME-PRETAX> 7,434
<INCOME-PRE-EXTRAORDINARY> 7,434
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,509
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.51
<YIELD-ACTUAL> 8.85
<LOANS-NON> 13,320
<LOANS-PAST> 213
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,207
<CHARGE-OFFS> 2,469
<RECOVERIES> 331
<ALLOWANCE-CLOSE> 19,854
<ALLOWANCE-DOMESTIC> 19,854
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
