<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 13901
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(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 26, 1999:
8,671,866 shares of common stock, $0.01 par value.
<PAGE>
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1: Financial Statements
- ------
<S> <C>
Consolidated Statements of Condition
March 31, 1999 and December 31, 1998.............................. 1
Consolidated Statements of Income Three Months
Ended March 31, 1999 and March 31, 1998........................... 2
Consolidated Statements of Comprehensive Income Three
Months Ended March 31, 1999 and
March 31, 1998.................................................... 3
Consolidated Statements of Cash Flows Three Months
Ended March 31, 1999 and March 31, 1998........................... 4
Consolidated Statements of Changes in Shareholders' Equity Three
Months Ended March 31, 1998 and March 31, 1999.................... 5
Notes to Consolidated Financial Statements........................ 6-7
Item 2: Management's Discussion and Analysis of
------
Financial Condition and Results of Operations.................... 8-18
Item 3: Quantitative and Qualitative Disclosures About Market Risk......... 19
------
PART II. OTHER INFORMATION
- ---------------------------
Items 1-6 ...................................................... 20-21
Signature Page................................................... 22
</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,
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 43,721 $ 36,630
Investment securities available for sale 378,044 398,643
Investment securities held to maturity (market value $7,543
and $8,768) 7,028 8,522
Mortgages held for sale 4,695 16,806
Loans:
Commercial 871,756 772,793
Consumer 372,900 359,191
Real estate 240,708 230,901
- ---------------------------------------------------------------------------------------------------------------
Total loans 1,485,364 1,362,885
Less: Net deferred costs (277) (186)
Allowance for possible credit losses 23,185 22,168
- ---------------------------------------------------------------------------------------------------------------
Net loans 1,462,456 1,340,903
Bank premises and equipment 10,327 10,101
Accrued interest receivable 13,155 14,818
Other real estate 2,073 2,122
Intangible assets 1,524 1,598
Other assets 26,031 28,936
- ---------------------------------------------------------------------------------------------------------------
$1,949,054 $1,859,079
===============================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Due to depositors $1,521,588 $1,472,746
Borrowings 246,781 213,759
Other liabilities 13,288 7,583
Company obligated mandatorily redeemable preferred securities of
subsidiary, Capital Trust I, holding solely junior subordinated
debentures of the Company 30,000 30,000
Shareholders' Equity:
Preferred Stock, par value $0.01 per share;
authorized 2,500,000 shares; none issued
Common Stock, par value $0.01 per share;
authorized 30,000,000 shares; 11,274,703
and 11,237,470 shares issued 113 112
Additional paid-in capital 30,445 30,145
Undivided profits 137,174 134,066
Accumulated other comprehensive income (549) 454
Treasury stock, at cost: 2,603,587 and 2,603,587 shares (29,786) (29,786)
- ---------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 137,397 134,991
- ---------------------------------------------------------------------------------------------------------------
$1,949,054 $1,859,079
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
BSB BANCORP, INC. (In Thousands-Except Per Share Data)
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $30,683 $28,391
Interest on investment securities 6,534 4,963
Interest on mortgages held for sale 295 175
- -------------------------------------------------------------------------------------------------------
Total interest income 37,512 33,529
Interest expense:
Interest on savings deposits 843 934
Interest on time accounts 12,115 10,359
Interest on money market deposit accounts 2,710 3,024
Interest on NOW accounts 303 215
Interest on borrowed funds 2,652 2,714
Interest on mandatorily redeemable securities of subsidiary 624
- -------------------------------------------------------------------------------------------------------
Total interest expense 19,247 17,246
- -------------------------------------------------------------------------------------------------------
Net interest income 18,265 16,283
Provision for credit losses 3,236 2,785
- -------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 15,029 13,498
Losses on sale of securities (396) (144)
Losses on sale of loans (44) (247)
Non-interest income:
Service charges on deposit accounts 689 609
Credit card fees 279 241
Mortgage servicing fees 343 279
Fees and commissions-brokerage services 148 83
Trust fees 251 230
Other charges, commissions, and fees 498 268
- -------------------------------------------------------------------------------------------------------
Total non-interest income 2,208 1,710
- -------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries, pensions, and other employee benefits 4,017 3,676
Building occupancy 741 680
Dealer commission expense 238 225
Computer service fees 334 257
Services 1,068 745
FDIC insurance 50 39
Goodwill 74 74
Interchange fees 212 168
Other real estate 17 20
Other expenses 1,544 1,499
- -------------------------------------------------------------------------------------------------------
Total non-interest expense 8,295 7,383
- -------------------------------------------------------------------------------------------------------
Income before income taxes 8,502 7,434
Provision for income taxes 3,226 2,925
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 5,276 $ 4,509
=======================================================================================================
Earnings per share:
Basic $ 0.61 $ 0.53
Diluted $ 0.60 $ 0.51
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
BSB BANCORP, INC. (In Thousands)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- -----------------------------------------------------------------------------------------------
Three Months Ended March 31,
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 5,276 $ 4,509
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities,
net of reclassification adjustment (Note 3) (1,003) 170
- -----------------------------------------------------------------------------------------------
Other comprehensive income (1,003) 170
- -----------------------------------------------------------------------------------------------
Comprehensive income $ 4,273 $ 4,679
===============================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
BSB BANCORP, INC. (In Thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 5,276 $ 4,509
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 3,236 2,785
Realized losses on available for sale investment securities 396 144
Other losses, net 31 237
Depreciation and amortization 495 437
Net amortization of premiums and discounts on investment securities (127) (281)
Net amortization (accretion) of premiums and discounts on loans (91) 164
Sales of loans originated for sale 23,889 13,109
Net increase in loans originated for sale (12,532) (19,947)
Writedowns of other real estate 95 160
Net change in other assets and liabilities 10,991 (2,711)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 31,659 (1,394)
- -----------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from calls of held to maturity investment securities 1,775 794
Purchases of held to maturity investment securities (312) (1,572)
Principal collected on held to maturity investment securities 136 344
Proceeds from sales of available for sale investment securities 32,105 59,356
Purchases of available for sale investment securities (20,329) (96,947)
Principal collected on available for sale investment securities 6,729 9,845
Net increase in longer-term loans (147,043) (83,385)
Proceeds from sales of loans 22,950 2,984
Proceeds from sales of other real estate 72 159
Other (648) (478)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (104,565) (108,900)
- -----------------------------------------------------------------------------------------------------------------------
Financing activities:
Net decrease in demand deposits, NOW accounts, savings
accounts, and money market deposit accounts (13,111) (1,645)
Net increase in time deposits 61,953 86,129
Net increase (decrease) in short-term borrowings 33,022 (1,991)
Proceeds from long-term borrowings 35,000
Proceeds from exercise of stock options 301 410
Dividends paid (2,168) (1,889)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 79,997 116,014
- -----------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents 7,091 5,720
Cash and cash equivalents at beginning of year 36,630 36,066
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 43,721 $ 41,786
=======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest credited on deposits and paid on other borrowings $ 19,596 $ 16,727
- -----------------------------------------------------------------------------------------------------------------------
Income taxes $ 161 $ 789
- -----------------------------------------------------------------------------------------------------------------------
Non-cash investing activity:
Securitization of mortgage loans and transfers to other real estate $ 105 $ 11,644
- -----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) in securities $ (1,722) $ 292
- -----------------------------------------------------------------------------------------------------------------------
</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
1998 Stock Capital Profits Stock Income Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
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
==================================================================================================================================
1999
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $112 $30,145 $134,066 $(29,786) $ 454 $134,991
Comprehensive income:
Net income 5,276 5,276
Other comprehensive income:
Unrealized appreciation in
available for sale securities,
net of reclassification
amount (Note 3) (1,003) (1,003)
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 5,276 (1,003) 4,273
Stock options exercised 1 300 301
Cash dividend paid on common
stock ($0.25 per share) (2,168) (2,168)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $113 $30,445 $137,174 $(29,786) $ (549) $137,397
==================================================================================================================================
</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, 1999
(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, 1998 data in the Consolidated Statements of Condition is derived from
the audited consolidated financial statements included in the Company's
1998 Annual Report to Shareholders. The accompanying unaudited interim
consolidated financial statements and related notes should be read in
conjunction with the audited consolidated financial statements and related
notes included in the Company's 1998 Annual Report to Shareholders.
(2) Basic earnings per share are computed based on the weighted average shares
outstanding. Diluted earnings per share are 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, 1999 and 1998.
<TABLE>
<CAPTION>
Quarters Ended March 31, Net Income Weighted Average Shares Earnings Per Share
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Basic earnings per share $5,275,841 8,662,368 $0.61
Effect of stock options 202,438
-------------------------------------------------------------------------------------
Diluted earnings per share $5,275,841 8,864,806 $0.60
=====================================================================================
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
=====================================================================================
</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 before and net
of tax basis:
<TABLE>
<CAPTION>
Quarters ended March 31, (In Thousands)
------------------------------------------------------------------------------------------------
Tax
Before Tax (Expense) Net of Tax
Amount or Benefit Amount
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period $(1,326) $ 554 $ (772)
Less: Reclassification adjustment
for losses realized in net income (396) 165 (231)
------------------------------------------------------------------------------------------------
Net unrealized gains (1,722) 719 (1,003)
------------------------------------------------------------------------------------------------
Other comprehensive income $(1,722) $ 719 $(1,003)
================================================================================================
1998
Unrealized gains on securities:
Unrealized holding gains (losses) 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
================================================================================================
</TABLE>
6
<PAGE>
Item 1 - continued
4. On July 24, 1998, the Company placed $30 million of 30-year 8.125%
capital securities through BSB Capital Trust I (the "Trust"), a Delaware
business trust. The Trust was formed by the Company solely to invest the
proceeds from the sale of the capital securities in 8.125% junior
subordinated debentures issued by the Company with a principal amount of
$30 million and a maturity date of July 31, 2028. The junior
subordinated debentures are the sole assets of the Trust. The net
proceeds from the sale of the capital securities qualify as Tier I
Capital for the Company.
5. On January 25, 1999, the Company entered into an agreement to acquire
Skaneateles Bancorp, Inc., the holding company for Skaneateles Savings
Bank, in a tax-free, stock-for-stock exchange. The Company expects to
issue approximately 1.4 million shares of stock in exchange for the
outstanding shares of Skaneateles Bancorp stock which is estimated to
result in a .970 exchange ratio. The transaction is subject to
regulatory and shareholder approval. Skaneateles Savings Bank operates
nine banking offices in the Onondaga and Oswego Counties of New York
State and had $276.1 million of assets and $19.1 million of
shareholders' equity at December 31, 1998. Pending approval of the
Skaneateles Savings Bank shareholders on June 24, 1999, this transaction
is expected to be completed in the second or third quarter of 1999.
7
<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 $5.3 million, or diluted
earnings per share of $0.60 for the quarter ended March 31, 1999, as compared to
net income of $4.5 million, or diluted earnings per share of $0.51 for the
quarter ended March 31, 1998.
On April 26, 1999, the Board of Directors announced a quarterly cash dividend
of $0.25 per share payable on June 10, 1999 to shareholders of record at the
close of business on May 25, 1999.
Financial Condition
- -------------------
Total assets of the Company increased from $1,859.1 million at December 31,
1998 to $1,949.1 million at March 31, 1999. During the first three months of
1999, the Company originated $86.0 million of commercial loans, which
contributed to a net increase in the commercial loan portfolio of $99.0 million
from $772.8 million at December 31, 1998 to $871.8 million at March 31, 1999.
The interest rates on these loans are generally tied to the Bank's Prime Rate.
Consumer loans increased from $359.2 million at December 31, 1998 to $372.9
million at March 31, 1999, and during this period, the Company originated $51.5
million in consumer loans. Real estate loans increased from $230.9 million at
December 31, 1998 to $240.7 million at March 31, 1999. During the above
mentioned period, the Company originated $55.4 million of real estate loans, of
which $46.9 million were sold. Investment securities decreased from $407.2
million at December 31, 1998 to $385.1 million at March 31, 1999.
Total deposits increased from $1,472.7 million at December 31, 1998 to
$1,521.6 million at March 31, 1999. This growth came mainly from certificates
of deposits originated through the money desk which was established in the
second half of 1997. These funds grew to $260.2 million at March 31, 1999 from
$199.1 million at December 31, 1998, and successfully provided the Bank with the
funds needed for the growth in assets. Interest credited to depositors and
interest paid on borrowings totaled $19.2 million during that three-month
period, as compared to $17.2 million for the first quarter of 1998. The
Company's borrowings increased from $213.8 million at December 31, 1998 to
$246.8 million at March 31, 1999. Borrowings at March 31, 1999 consisted of
$120.0 million of Federal Home Loan Bank advances and $86.9 million of a Federal
Home Loan Bank line of credit. Of the remaining $39.9 million, $38.0 million
are securities sold under agreement to repurchase. These borrowings are used to
fund the Company's lending and investing activities.
Shareholders' equity increased from $135.0 million to $137.4 million during
the first three months of 1999. This increase is a result of earnings of $5.3
million, $301,000 of stock options exercised during the period, and a $1.0
million decrease in unrealized appreciation in securities available for sale.
This increase in shareholders' equity was partially offset by cash dividends
paid to shareholders of $2.2 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 losses and provisions for future such
losses, operating expenses, the level of other income, including gains or losses
on sale of loans and securities, and other fees.
8
<PAGE>
Item 2 - continued
The following tables set forth, for 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.
<PAGE>
Item 2 - continued
<TABLE>
<CAPTION>
Three Months Ended March 31,
- ------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------
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 $ 794,221 $17,283 8.70% $ 657,407 $15,865 9.65%
Consumer loans:
Passbook 146 4 10.96 214 6 11.22
Overdraft checking 608 29 19.08 791 38 19.22
Business line of credit 916 25 10.92 942 23 9.77
Credit cards 9,569 382 15.97 9,401 371 15.79
Personal-direct 55,275 1,394 10.09 47,469 1,206 10.16
Personal-indirect-new auto 51,403 1,088 8.47 48,098 1,024 8.52
Personal-indirect-used auto 156,640 3,728 9.52 115,628 2,647 9.16
Personal-indirect-mobile homes 55,032 1,313 9.54 45,730 1,086 9.50
Personal-indirect-other 3,263 80 9.81 3,759 87 9.26
Home equity line of credit 24,632 519 8.43 25,229 578 9.16
Checkcard reserve 1,775 133 29.97 1,277 93 29.13
Student 2,495 41 6.57 4,170 76 7.29
- ------------------------------------------------------------------------------------------------------------------
Total consumer loans 361,754 8,736 9.66 302,708 7,235 9.56
- ------------------------------------------------------------------------------------------------------------------
Real estate loans:
Residential-fixed 50,646 901 7.12 51,399 1,003 7.81
Commercial-fixed 4,412 102 9.25 4,602 106 9.21
Residential-adjustable 46,323 860 7.43 61,408 1,156 7.53
Commercial-adjustable 129,059 2,801 8.68 130,343 3,026 9.29
- ------------------------------------------------------------------------------------------------------------------
Total real estate loans 230,440 4,664 8.10 247,752 5,291 8.54
- ------------------------------------------------------------------------------------------------------------------
Investment securities 399,063 6,534 6.55 298,385 4,963 6.65
Mortgages held for sale 13,884 295 8.50 9,397 175 7.45
- ------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,799,362 $37,512 8.34% 1,515,649 $33,529 8.85%
- ------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 91,596 82,973
- ------------------------------------------------------------------------------------------------------------------
Total assets $1,890,958 $1,598,622
==================================================================================================================
Interest-bearing
liabilities:
Deposits:
Savings $ 131,642 $ 843 2.56% $ 131,898 $ 934 2.83%
Money market 275,136 2,710 3.94 267,806 3,024 4.52
Certificates of deposit 922,675 12,115 5.25 734,435 10,359 5.64
NOW 78,808 303 1.54 62,403 215 1.38
Commercial checking 83,938 63,352
- ------------------------------------------------------------------------------------------------------------------
Total deposits 1,492,199 15,971 4.28 1,259,894 14,532 4.61
- ------------------------------------------------------------------------------------------------------------------
Borrowings 219,905 2,652 4.82 193,742 2,714 5.60
Mandatorily redeemable
preferred securities 30,000 624 8.32
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,742,104 $19,247 4.42% 1,453,636 $17,246 4.75%
- ------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities 13,005 21,641
Total liabilities 1,755,109 1,475,277
- ------------------------------------------------------------------------------------------------------------------
Shareholders' equity 135,849 123,345
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $1,890,958 $1,598,622
==================================================================================================================
Net interest income/net
interest rate spread $18,265 3.92% $16,283 4.10%
==================================================================================================================
Net earnings assets/net $57,258 4.06% $62,013 4.30%
interest rate margin
==================================================================================================================
Ratio of interest-earning
assets to interest-bearing
liabilities 1.03X 1.04X
==================================================================================================================
</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
10
<PAGE>
Item 2 - continued
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,
1999 Compared to 1998
Increase (Decrease)
Volume Rate Net
- -----------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Interest income on interest-earning assets:
Commercial loans $ 9,442 $(8,024) $1,418
Consumer loans 1,425 76 1,501
Real estate loans (361) (266) (627)
Investment securities 2,075 (504) 1,571
Mortgages held for sale 93 27 120
- -----------------------------------------------------------------------------------------
Total $12,674 $(8,691) $3,983
=========================================================================================
Interest expense on interest-bearing liabilities:
Deposits and mortgage escrow funds $ 7,027 $(5,588) $1,439
Borrowings 1,601 (1,039) 562
- -----------------------------------------------------------------------------------------
Total 8,628 (6,627) 2,001
- -----------------------------------------------------------------------------------------
Net interest income $ 4,046 $(2,064) $1,982
=========================================================================================
</TABLE>
Interest Income
- ---------------
The Company's interest income on interest-earning assets increased from $33.5
million for the three months ended March 31, 1998 to $37.5 million for the three
months ended March 31, 1999. This increase in interest income was the result of
an increase in the average balance of interest-earning assets from $1,515.6
million to $1,799.4 million for the three months ended March 31, 1998 and March
31, 1999, respectively. The average yield on interest-earning assets decreased
from 8.85% to 8.34% for the three months ended March 31, 1998 and 1999,
respectively. This was impacted by three decreases in the Company's Prime Rate
of 25 basis points each during the 4th quarter of 1998.
The increase in the average balance of the commercial loan portfolio was the
largest contributor to the increase in interest income. The average balance of
commercial loans increased $136.8 million from the first quarter of 1998 to
$794.2 million for the first quarter of 1999. The average yield on commercial
loans decreased from 9.65% for the first quarter of 1998 to 8.70% for the first
quarter of 1999. The Prime Rate was 8.50% for all of the first quarter of 1998
and fell to 7.75% during 1998, which was in effect for all of the first quarter
of 1999. Despite this decline in rates, interest income on commercial loans
rose to $17.3 million for the first quarter of 1999 from $15.9 million for the
same period in 1998.
Despite high levels of competition in the Company's lending markets, the
average balance of consumer loans increased 19.5% to $361.8 million for the
three-month period ended March 31, 1999 compared to $302.7 million for the
three-month period ended March 31, 1998. This was accompanied by a rise in
yield on these assets to 9.66% from 9.56% for the first quarter of 1998. The
Company continues to emphasize origination of indirect and direct auto loans,
which adds to the Company's market base for potential business and provides some
of the highest yielding assets for the Company. This provided an increase in
interest income to $8.7 million from $7.2 millions in the first quarter of 1998.
The average balance of real estate loans decreased $17.3 million to $230.4
million for the quarter ended March 31, 1999 compared to the quarter ended March
31, 1998. This period reflected a decrease in yield from 8.54% to 8.10%, and the
reduced average balance resulted in a net decline of $627,000 in interest income
from real estate loans to $4.7 million. Although residential mortgage loans
reflect a steadily declining percentage of the Bank's total loan portfolio, the
Bank continues to originate a significant amount of fixed-rate residential
mortgage loans for sale in the secondary market, while retaining servicing
rights for most of the sales in order to generate fee income.
The average balance of investment securities increased from $298.4 million for
the first quarter of 1998 to $399.1 million for the first quarter of 1999.
Yields on investment securities decreased for this same period from 6.65% to
6.55%; the interest income
11
<PAGE>
Item 2 - continued
on investment securities increased $1.6 million for the comparative quarters.
Interest Expense
- ----------------
Total interest expense increased by $2.0 million for the quarter ended March
31, 1999 as compared to the same period in 1998. The average balance of all
interest-bearing liabilities increased from $1,453.6 million for the quarter
ended March 31, 1998 to $1,742.1 million for the quarter ended March 31, 1999.
This increase accompanies a decrease in the average rate paid on all interest-
bearing liabilities from 4.75% to 4.42% during the respective period. The
average balance of deposits increased from $1,259.9 million during the three
months ended March 31, 1998 to $1,492.2 million during the same period in 1999.
The increase in the average balance of deposits was the major factor
contributing to an increase in interest paid on deposits from $14.5 million for
the first quarter of 1998 to $16.0 million for the first quarter of 1999.
Another component of the change in interest-bearing liabilities is the increase
in average balance of borrowings from $193.7 million for the three months ended
March 31, 1998 to $219.9 million for the three months ended March 31, 1999. This
increase offset a decrease in the rate paid on borrowings from 5.60% to 4.82%
during the three-month period as borrowing costs remained stable at $2.7 million
for the three months ended March 31, 1999. 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 $2.8 million to $3.2 million
for the quarters ended March 31, 1998 and March 31, 1999, respectively. The
allowance for possible credit losses increased to $23.2 million as of March 31,
1999, compared to $22.2 million as of December 31, 1998. The increase in
provisions reflects, in part, the Bank maintaining an allowance to period
ending loans at a level management, based on its experience, deems adequate to
cover potential credit losses. See "Non-performing Loans and ORE". Management
considers this level of reserves adequate to cover potential credit losses.
Non-interest Income
- -------------------
Non-interest income increased 29.1% from $1.7 million to $2.2 million for the
three months ended March 31, 1998 to March 31, 1999, respectively. The major
factors attributing to this increase comparing first quarter of 1998 to the same
quarter of 1999 were an increase of $230,000 in miscellaneous other charges,
commissions, and fees, a $80,000 increase in service charges on deposit
accounts, a $65,000 increase in fees and commissions on brokerage services, a
$64,000 increase in mortgage servicing fees, $38,000 in credit card fees, and a
$21,000 increase in trust fees. A non-recurring income item of $146,000 was
also received during the quarter.
Gains (Losses) On Sale of Securities
- ------------------------------------
Losses on sale of securities were $144,000 for the first quarter of 1998 and
$396,000 for the three months ended March 31, 1999. 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.
12
<PAGE>
Item 2 - continued
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 $46.9
million and $27.2 million for the first quarter of 1999 and 1998, respectively.
This resulted in losses of $44,000 and $247,000 for the same two periods,
respectively.
Operating Expense
- -----------------
Non-interest expense increased from $7.4 million for the quarter ended March
31, 1998 to $8.3 million for the quarter ended March 31, 1999. Several factors
contributed to this increase. Salaries, pensions, and other employee benefits
rose $341,000 from the first quarter of 1998. Of this increase, $160,000 was
attributed to increased costs associated with pension and health care benefits.
As the volume of transactions rises 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 resulted
in approximately a $56,000 increase in expense in the first quarter of 1999
compared to the same quarter in 1998. New customer services and products needed
to manage these services contributed approximately $310,000 to the increase in
services expense, with corresponding increases in the number of employees to
handle the new services and expanded growth of the Bank.
Income Taxes
- ------------
The income tax expense was $2.9 million and $3.2 million for the quarters
ended March 31, 1998 and March 31, 1999, respectively. These increases were
mainly due to increased levels of taxable income and changes in tax-exempt
investment and loan portfolios.
Non-Performing Loans and 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 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.
13
<PAGE>
Item 2 - continued
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C>
Commercial loans:
Non-accrual loans $12,069 $11,423
Consumer loans:
Accruing loans 90 days overdue 1,208 513
Residential real estate loans:
Non-accrual loans 1,759 1,701
Commercial real estate loans:
Non-accrual loans 277 276
- ------------------------------------------------------------------------------------------------------------
Total non-performing loans and accruing loans 90 days overdue $15,313 $13,913
============================================================================================================
Total non-performing loans to total gross loans 1.03% 1.02%
Total real estate acquired in settlement of
loans at lower of cost or fair value $ 2,073 $ 2,122
Total non-performing loans and real estate acquired in settlement
of loans at fair value to total assets 0.89% 0.86%
</TABLE>
Total non-performing loans and ORE, which is defined to include property
acquired by foreclosure or by deed in lieu of foreclosure, increased to $17.4
million, or 0.89% of total assets at March 31, 1999, compared to $16.0 million,
or 0.86% of total assets at December 31, 1998.
At December 31, 1998, 36 non-performing residential real estate loans totalled
$1.7 million. At March 31, 1999, non-performing residential real estate loans
totalled $1.8 million and included 34 loans.
At December 31, 1998, non-performing commercial real estate loans totalled
$276,000. At March 31, 1999, non-performing commercial real estate loans
increased to $277,000 and consisted of two loans of $87,000 and $190,000.
Non-performing commercial loans at December 31, 1998 totalled $11.4 million
and included 62 individual loans ranging in size from $2,000 to $1.2 million.
At March 31, 1999, non-performing commercial loans increased to $12.1 million
and consisted of 63 individual loans ranging in size from $2,000 to $1.2
million.
The Company's policy is to charge-off all consumer loans before they become
non-accrual. At December 31, 1998, the Company had $513,000 of loans 90 days or
more past due on which it was accruing interest, as compared to $1.2 million at
March 31, 1999.
At March 31, 1999, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totalled $12.1 million with a
corresponding valuation allowance of $4.4 million.
At December 31, 1998, ORE totalled $2.1 million, which consisted of three
single-family residential properties with a book value totalling $77,000 and
eight commercial real estate properties with a book value totalling $2.0
million. At March 31, 1999, ORE totalled $2.1 million, which consisted of five
single-family residential properties totalling $169,000 and seven commercial
real estate properties with a book value of $1.9 million. A sale of one of the
commercial properties that is carried in ORE at $1.0 million is pending, but not
consummated. If the transaction is to be carried out, minimal gain or loss is
expected on the sale.
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.
14
<PAGE>
Item 2 - 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,
1999 1998
- -----------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C>
Average gross loans outstanding $1,408,942 $1,228,316
===========================================================================================================
Allowance at beginning of period $ 22,168 $ 19,207
Charge-offs:
Commercial loans 1,394 1,510
Consumer loans 798 884
Residential real estate loans 118 56
Commercial real estate loans 339 19
- -----------------------------------------------------------------------------------------------------------
Total loans charged-off 2,649 2,469
Recoveries:
Commercial loans 284 145
Consumer loans 146 178
Residential real estate loans
Commercial real estate loans 8
- -----------------------------------------------------------------------------------------------------------
Total recoveries 430 331
- -----------------------------------------------------------------------------------------------------------
Net charge-offs 2,219 2,138
- -----------------------------------------------------------------------------------------------------------
Provision for credit losses charged to operating expenses 3,236 2,785
- -----------------------------------------------------------------------------------------------------------
Allowance at end of period $23,185 $19,854
===========================================================================================================
Ratio of net charge-offs to:
Average total loans outstanding (annualized) 0.63% 0.70%
Ratio of allowance to:
Non-performing loans 151.41% 146.71%
Period-end total loans outstanding 1.56% 1.56%
</TABLE>
Net charge-offs increased from $2.1 million for the first quarter of 1998
to $2.2 million for the same quarter in 1999. Management continues to take an
aggressive approach to the charge-off of problem loans and continues to add to
the level of reserves to maintain a level of loan loss reserves that is
considered 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
$1,453.6 million for the three-month period ended March 31, 1998 to $1,742.1
million for the same period ended March 31, 1999, an increase of $288.5 million.
The most significant increase in interest-bearing liabilities for the quarter
ended March 31, 1998 compared to March 31, 1999, was an increase in the average
balance of certificates of deposit of $188.3 million from the first quarter of
1998 to the first quarter of 1999 from $734.4 million to $922.7 million,
respectively. To fund loan growth, the Bank looked to other areas to augment
retail deposits as a source of funds. Certificates of deposits from a money desk
have grown to an average balance of $238.1 million in the first quarter of 1999
from a $75.0 million average balance in the same quarter in 1998. Municipal
deposits have grown from an average balance of $92.3 million for the first
quarter of 1998 to $96.9 million for the first quarter of 1999. With the use of
funds that normally carry somewhat higher rates, the overall cost of funds for
all certificates of deposits declined from 5.64% to 5.25% from the first quarter
of 1998 to the same period in 1999. Total borrowings increased from an average
balance of $193.7 million to $219.9 million for
15
<PAGE>
Item 2- continued
the quarter ended March 31, 1998 to the same quarter ended March 31, 1999. With
a decrease in the average rate paid on borrowings from 5.60% for the quarter
ended March 31, 1998 to 4.82% for the same quarter in 1999 offset by the
increase in average balance, interest expense on these borrowings remained
stable at $2.7 million for the first quarter of 1998 and the first quarter of
1999.
Liquidity and Capital Resources
- -------------------------------
A fundamental objective of the Company is to manage its liquidity effectively.
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, 1998.
On July 24, 1998, the Company placed $30 million of 30-year 8.125% capital
securities through BSB Capital Trust I (the "Trust"), a Delaware business. The
Trust was formed by the Company to invest the proceeds from the sale of the
capital securities in 8.125% junior subordinated debentures issued by the
Company. The junior subordinated debentures, which have a principal amount of
$30.0 million and a maturity date of July 31, 2028, are the sole assets of the
Trust. The net proceeds from the sale of the capital securities qualify as Tier
I Capital for the Company.
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, 1999, the total of approved loan commitments amounted
to $129.3 million. Long-term borrowings of $70.0 million are scheduled to
mature in 2008. Savings certificates, which are scheduled to mature during the
next 12 months, totalled $818.4 million. Management expects that a substantial
portion of these maturing certificates will remain on deposit with the Company.
At March 31, 1999, the Company's Tier I leverage ratio, as defined in
regulatory guidelines, was 7.54%, which exceeds the current requirements for the
Company. At March 31, 1999, the Company's total capital-to-risk-weighted assets
ratio, calculated under the Federal Reserve Board's risk-based capital
requirements, was 10.25%.
The Company's book value per common share increased from $15.64 at December
31, 1998 to $15.85 at March 31, 1999.
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 do
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 Compliance
- --------------------
The Year 2000 brings with it potential issues to all organizations who use
computers in the conduct of their business or depend on business associates who
use computers. To the extent computer use is date-sensitive, hardware or
software that recognizes the year by the last two digits may erroneously
recognize "00" as 1900 rather than 2000, which could result in errors or system
failures.
The Company utilizes a number of computers and computer software (systems) in
the conduct of its business. Many systems are for specific business segments and
others have broader corporate-wide use. In 1995, the Company initiated a review
of Year 2000 and its impact. With this review, a strategic plan to address the
issues and maintain the technological standards of the hardware and software
within the Company was incorporated. This plan was initiated and approved by
senior officers
16
<PAGE>
Item 2 - continued
within the Company and is revisited at least quarterly to ensure portions of the
plan are completed as scheduled and progress is continuing with any problems
being addressed. This plan included the following steps:
. Awareness: Since 1995, the Company has been aware of the Year 2000 problem
and increased the awareness of all staff, vendors, and customers to the
problem.
. Assessment: Inventories of all systems, hardware, media, interfaces, internal
programs and databases, vendor packages, and networks have been made and are
updated as needed. Communication with vendors to ascertain their status, plan
and upgrades for Year 2000 compliance was implemented.
. Renovation: Since 1995, the Company has formulated and completed two
initiatives to maintain high quality data processing on an on-going basis.
Year 2000 issues were addressed within the larger issue of maintaining the
highest quality data processing available. In 1995, a Branch Automation
Project was started and continued into 1996. In 1996, a Back Office
Automation Project was completed. This provided the Company with Year 2000
compliant back office hardware and most software to address the concerns of
both technology modernization and Year 2000 issues. In October 1998, the
Company converted to M&I Data Services, which provides data service to all
core processing and delivery systems. The M&I system is certified compliant
by the Information Technology Association of America.
. Validation: Testing of all hardware and software is being conducted on an
independent Local Area Network that has been established at the Company
solely for that purpose. All systems have been renovated and are Year 2000
operational including computer equipment and peripherals, internal data
processing and information systems, vendor provided software, outsourced EDP
solutions, business equipment, and physical systems. The Company and its
vendors have tested all systems for Year 2000 readiness. In addition, the
Company has upgraded its Business Recovery Plan and has developed a Year 2000
Contingency Plan.
. Implementation: Saturday, January 1, 2000 will be treated as a data
processing conversion. Contingency plans have been developed and much of the
testing has been completed. The Bank has tested its capability to handle
communication and power outages as well as auxiliary Bank software systems
malfunctions. The testing has been successful with the remainder to be
completed in 1999.
Contact with significant vendors and commercial loan customers was made.
Commercial loan customers were asked to fill out a survey so assessment of their
status with regard to the complications of the upcoming Year 2000 issues and
their readiness for that time could be determined. Significant vendors were
queried as to their ability to continue to supply their product without delay
with the passing of Year 2000. Of course, the response of certain third parties
is beyond control of the Company.
Year 2000 compliance costs pertaining to internal staff incurred cumulatively
through March 31, 1999 have been approximately $85,000. An additional $40,000 is
expected in 1999 for these same costs. Direct capital expenditures have neared
$70,000 thru 1998 with an additional $30,000 expected in 1999. These costs do
not include normal ongoing costs for computer hardware (including ATM's) and
software that have been incurred or would be replaced in the next year even
without the presence of the Year 2000 Issue as these pertain to the ongoing
programs for updating the Company's delivery infrastructure.
Despite the Company's efforts in regards to the Year 2000 Issue, there can be
no assurance that partial or total systems interruptions or the costs necessary
to update hardware and software would not have a material adverse effect upon
the Company's business, financial condition, results of operations, and business
prospects.
17
<PAGE>
Item 2 - continued
Forward-Looking Statements
- --------------------------
Statements in Management's Discussion and Analysis are forward-looking
statements within the meaning of the Securities Act of 1933 as amended and the
Securities Exchange Act of 1934 as amended. Actual results, performance, or
developments may differ materially from those expressed or implied by such
forward-looking statements as a result of market uncertainties and other factors
related to Internet-based businesses. The financial services market generally,
and the market for the Company's products and services specifically, is
characterized by a high degree of competition and rapidly changing local,
national, and global market, financial and economic conditions. Such
developments, as well as unforeseen developments in the financial services
industry, could have an adverse impact on the Company's financial position and
results of operations.
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, 1999, the Company had 1,736 shareholders of record and
8,671,116 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.
<TABLE>
<CAPTION>
Cash
Price Range Dividends
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $36.00 $28.00 $0.22
Second Quarter 35.25 27.50 0.22
Third Quarter 32.75 25.63 0.22
Fourth Quarter 33.00 22.00 0.25
1999
- --------------------------------------------------------------------------------
First Quarter $32.68 $24.25 $0.25
</TABLE>
18
<PAGE>
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's consolidated results of operations depend to a large extent on
the level of its net interest income, which is the difference between interest
income from interest-earnings assets (such as loans and investments) and
interest expense on interest-bearing liabilities (such as deposits and
borrowings). If interest-rate fluctuations cause the Company's cost of funds to
increase faster than the yield on its interest-bearing assets, net interest
income will decrease. In addition, the market values of most of its financial
assets are sensitive to fluctuations in market interest rates. The Company
measures and manages its interest-rate risk by focusing on the Company's "gap",
which is the measure of the mismatch between the dollar amount of the Company's
interest-earning assets and interest-bearing liabilities which mature or reprice
within certain time frames.
Based on the Company's latest analysis of asset/liability mix (August 31,
1998), management's simulation analysis of the effects of changing interest
rates projected that a gradual 200 basis point increase in interest rates over
the 12 months ending August 31, 1999 would decrease net interest income for that
period by 4.27% or less and that a similar decrease in interest rates would
increase net interest income by 4.31% or less. The test is based on a number of
assumptions and there can be no assurance that if interest rates did move by two
percent that the Company's results of operations would be impacted as estimated.
Although the Company uses various monitors of interest-rate risk, the Company is
unable to predict future fluctuations in interest rates or the specific impact
thereof.
Changes in interest rates can also affect the amount of loans the Company
originates, as well as the value of its loans and other interest-earning assets
and its ability to realize gains on the sale of such assets and liabilities.
Prevailing interest rates also affect the extent to which borrowers prepay loans
owned by the Company. When interest rates increase, borrowers are less likely
to prepay their loans, and when interest rate decrease, borrowers are more
likely to prepay loans. Funds generated by prepayment might be invested at less
favorable interest rates. Prepayments may adversely affect the value of
mortgage loans, the levels of such assets that are retained in the Company's
portfolio, net interest income and loan servicing income. Similarly,
prepayments on mortgage-backed securities can adversely affect the value of such
securities and the interest income generated by them.
Increases in interest rates might cause depositors to shift funds from
accounts that have a comparatively lower cost (such as regular savings accounts)
to accounts with a higher cost (such as certificates of deposits). If the cost
of deposits increases at a rate greater than yields on interest-earning assets
increase, the interest-rate spread will be negatively affected. Changes in the
asset and liability mix also affect the Company's interest-rate risk.
The Company faces substantial competition for deposits and loans throughout
its market area both from local financial institutions and from out-of-state
financial institutions that either solicit deposits or maintain loan production
offices in the Company's market area. The Company competes for deposits and
loans primarily with other financial service providers such as savings
institutions, commercial banks, credit unions, money market funds, and other
investment alternatives. The Company believes that its ability to compete
effectively depends largely on its ability to compete with regard to interest
rates, as well as service fees, personalized services, quality and range of
financial products and services offered, convenience of office hours and
locations, and automated services.
19
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
-----------------
Not applicable
Item 2 - Changes in Securities
---------------------
Not applicable
Item 3 - Defaults upon Senior Securities
-------------------------------
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
20
<PAGE>
Part II
Item 5 - Other Information
-----------------
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3 Amendment to the Bylaws of the Company, which are
incorporated by reference herein from Exhibit 3.2
to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1994.
10.1 Amendment Number 2 to 1996 Long-Term Incentive and
Capital Accumulation Plan.
10.2 Junior Subordinated Indenture between BSB Bancorp,
Inc. and Bankers Trust Company, dated as of July
24, 1998 (incorporated by reference herein from
Exhibit 4.1 to the Registration Statement on Form
S-4, filed with the Securities and Exchange
Commission on September 25, 1998).
27 Financial Data Schedule
(b) Not applicable
21
<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, 1999 By: Alex S. DePersis
---------------------------- -----------------------------------
ALEX S. DEPERSIS
President
and Chief Executive Officer
Date: May 13, 1999 By: Rexford C. Decker
---------------------------- -----------------------------------
REXFORD C. DECKER
Senior Vice President
and Chief Financial Officer
22
<PAGE>
Exhibit 3
---------
CERTIFICATION
-------------
I, LARRY G. DENNISTON, Senior Vice President and Corporate Secretary of BSB
BANCORP, INC., do hereby certify that the following is a true and correct copy
of a Resolution adopted at a Special Meeting of the Board of Directors of said
company duly convened and held on April 23, 1999, at which meeting a quorum was
present and voting throughout and that such Resolution is in full force and
effect.
WHEREAS, it is the desire of the Board of Directors to provide that a
shareholder may elect to vote its proxy at any annual meeting of the
Company, in any matter permitted by Delaware law;
NOW, THEREFORE, BE IT RESOLVED, that Article II, Section 2.10 is hereby
amended and restated in its entirety as follows:
PROXIES: A shareholder may vote in person or by proxy executed in
writing by the shareholder or his or her duly authorized attorney-in-fact.
A shareholder may also authorize another person or persons to act for such
shareholder as proxy (a) by transmitting or authorizing the transmission of
a telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such transmission,
provided that any such telegram, cablegram or other means of electronic
transmission must either set forth or be submitted with information from
which it can be determined that the telegraph, cablegram or other
electronic transmission was authorized by the shareholder, or (b) as
otherwise permitted by law. No proxy shall be valid after eleven months
from the date of its execution, unless otherwise provided in the proxy.
IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of April,
1999.
/s/ Larry G. Denniston
----------------------
Senior Vice President and
Corporate Secretary
<PAGE>
Exhibit 10.1
BSB Bancorp, Inc.
AMENDMENT NUMBER 2
TO
1996 LONG-TERM INCENTIVE AND CAPITAL ACCUMULATION PLAN
RESOLVED, that the first sentence of Section 6.01 is amended by substituting
the figure "1,300,000" for the figure "875,000".
RESOLVED, that the last sentence of Section 7.02 is deleted and replaced by
the following sentence: "Notwithstanding the foregoing, the maximum number of
shares of Common Stock subject to Options that may be granted under the Plan to
any Employee in any Plan Year is 100,000 shares (subject to adjustment as
provided in Article X hereof).
This Amendment Number 2 was duly adopted and approved by the Board of
Directors of BSB Bancorp, Inc. by resolution at a meeting held on the 25th day
of January, 1999.
/s/ Larry G. Denniston
----------------------
Larry G. Denniston
Corporate Secretary
This Amendment Number 2 was duly approved by the shareholders of BSB Bancorp,
Inc. at a meeting held on the 26th day of April, 1999.
/s/ Larry G. Denniston
----------------------
Larry G. Denniston
Corporate Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 43,721
<INT-BEARING-DEPOSITS> 0
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0
0
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</TABLE>
