UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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: FEBRUARY 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission File Number 0-17709
RCSB FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 16-1484699
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
235 EAST MAIN STREET, ROCHESTER, NEW YORK 14604
(Address of principal executive offices) (Zip Code)
(716) 423-7270
(Registrant's telephone number including area code)
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
---- ----
Number of shares of common stock outstanding on March 31, 1997: 14,475,280
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RCSB FINANCIAL, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended
February 28, 1997
INDEX
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Page
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
February 28, 1997 and November 30, 1996 3
Consolidated Statements of Income for the three
months ended February 28, 1997 and February 29, 1996 4
Consolidated Statements of Changes in Shareholders' Equity
for the three months ended February 28, 1997 and February 29, 1996 5
Consolidated Statements of Cash Flows for the three months
ended February 28, 1997 and February 29, 1996 6
Notes to Consolidated Financial Statements 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
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RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions)
FEBRUARY 28, November 30,
1997 1996
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ASSETS
Cash and due from banks $ 86.1 $ 56.6
Interest-bearing deposits in banks 3.7 7.7
Securities available for sale, at fair value (amortized cost $20.7
in 1997 and $21.1 in 1996) 18.4 18.8
Securities held to maturity, at amortized cost (fair value $1,591.0
in 1997 and $1,634.4 in 1996) 1,606.2 1,639.0
Loans receivable:
Residential mortgage 738.3 763.1
Automobile 1,059.8 994.8
Commercial mortgage 53.8 55.2
Consumer and other 86.0 85.3
Residential mortgage held for sale 108.6 150.5
-------------- --------------
Total loans receivable 2,046.5 2,048.9
Allowance for loan losses (28.2) (28.2)
-------------- --------------
Net loans receivable 2,018.3 2,020.7
Premises and equipment 38.9 39.6
Federal Home Loan Bank stock 41.6 34.7
Loan servicing assets 104.7 118.4
Other real estate 5.1 6.2
Other assets 109.4 72.6
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Total assets $ 4,032.4 $ 4,014.3
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 2,368.3 $ 2,368.7
Federal Home Loan Bank:
Repurchase agreements 434.3 390.6
Other borrowings 248.7 232.4
Other repurchase agreements and borrowings 469.9 484.8
Mortgagors' deposits under escrow agreements 73.7 66.2
Other liabilities 121.1 147.7
-------------- --------------
Total liabilities 3,716.0 3,690.4
-------------- --------------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY:
Common stock, at par value 15.4 15.4
Paid-in capital in excess of par value 159.8 159.5
Surplus fund 51.1 51.1
Undivided profits 114.3 106.9
Loans to employee stock plan (3.0) (3.2)
Net unrealized holding loss on securities, net of taxes (4.0) (4.2)
Treasury stock, at cost (.597 and .057 shares in
1997 and 1996, respectively) (17.2) (1.6)
-------------- --------------
Total shareholders' equity 316.4 323.9
-------------- --------------
Total liabilities and shareholders' equity $ 4,032.4 $ 4,014.3
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RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(millions, except per share amounts)
Three Months Ended
FEBRUARY 28, February 29,
1997 1996
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Interest income:
Interest and fees on loans $ 44.9 $ 43.6
Interest on mortgage-backed and other securities 29.3 27.4
Other interest income 0.1 0.2
------------- -------------
Total interest income 74.3 71.2
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Interest expense:
Interest on deposits 25.6 25.0
Interest on FHLB borrowings and
repurchase agreements 10.2 8.4
Interest on other repurchase agreements
and borrowings 6.3 6.1
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Total interest expense 42.1 39.5
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Net interest income 32.2 31.7
Provision for loan losses 4.0 2.7
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Net interest income after
provision for loan losses 28.2 29.0
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Noninterest income:
Mortgage banking 16.0 10.2
Retail banking 1.8 2.4
Automobile loan banking - 0.5
Net securities sale gains 0.1 -
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Total noninterest income 17.9 13.1
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Operating expenses:
Salaries, commissions and benefits 18.6 15.7
Occupancy 5.2 4.9
Marketing 0.7 0.2
Other 5.7 6.4
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Total operating expenses 30.2 27.2
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Income before income taxes 15.9 14.9
Provision for income taxes 6.2 5.2
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Net income $ 9.7 $ 9.7
============= =============
Net income per common share (fully diluted) $ 0.63 $ 0.53
============= =============
Net income applicable to common shares $ 9.7 $ 8.4
============= =============
Net income per common share (primary) $ 0.63 $ 0.61
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RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
(millions, except per share amounts)
Three Months Ended
FEBRUARY 28, February 29,
1997 1996
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Shareholders' equity at beginning of period $ 323.9 $ 375.9
Net income 9.7 9.7
Repurchase of RCSB common stock (15.6) (13.0)
Common stock options exercised 0.3 0.8
Dividends declared on preferred stock - (1.3)
Dividends declared on common stock ($0.15 and
$0.12 per share in 1997 and 1996, respectively) (2.3) (1.6)
Loan repayments from employee stock plan 0.2 0.4
Change in net unrealized holding loss on securities, net of taxes 0.2 0.4
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Shareholders' equity at end of period $ 316.4 $ 371.3
================ ================
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RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions)
Three Months Ended
FEBRUARY 28, February 29,
1997 1996
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OPERATING ACTIVITIES:
Net income $ 9.7 $ 9.7
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 4.0 2.7
Amortization of loan servicing rights 3.7 3.3
Gains on the sale of loans, securities, loan
servicing rights and other real estate (4.1) -
Amortization of intangible assets, hedging gains
or losses, and securities premiums or discounts 1.3 0.5
Depreciation and other amortization 2.1 2.2
Deferred income tax provision (benefit) 1.5 (0.8)
(Increase) decrease in mortgage loans held for sale 41.9 (39.5)
(Increase) decrease in other assets, net (39.7) 83.2
Increase (decrease) in accrued expenses 1.5 (0.5)
Decrease in loans to employee stock plan 0.2 0.4
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Net cash provided by operating activities 22.1 61.2
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INVESTING ACTIVITIES:
Decrease in interest-bearing deposits in banks 4.0 4.3
Purchases of:
Securities available for sale (24.7) -
Securities held to maturity (25.2) (301.9)
Premises and equipment, net (1.4) (2.2)
Loan servicing rights, including those on originated loans (6.3) (12.8)
Loan originations:
Residential mortgage (1.8) (0.5)
Automobile (174.3) (141.2)
Other (4.1) (4.4)
Proceeds from sales of:
Securities available for sale 24.8 -
Loan servicing rights 20.0 -
Other real estate 3.1 0.4
Principal repayments on:
Securities available for sale 0.4 2.0
Securities held to maturity 58.2 55.4
Loans 135.2 129.5
Increase in FHLB stock (6.9) -
---------------- ----------------
Net cash provided (used) by investing activities 1.0 (271.4)
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RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions)
Three Months Ended
FEBRUARY 28, February 29,
1997 1996
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(Continued)
FINANCING ACTIVITIES:
Increase (decrease) in deposits (0.4) 31.7
Increase in FHLB borrowings
and repurchase agreements 60.0 69.3
Increase (decrease) in other repurchase agreements
and borrowings (14.9) 196.0
Increase (decrease) in mortgagors' escrow deposits 7.5 (4.8)
Decrease in other liabilities (28.2) (47.3)
Net proceeds from exercise of stock options 0.3 0.8
Purchase of RCSB common stock (15.6) (13.0)
Dividends paid on preferred stock - (1.3)
Dividends paid on common stock (2.3) (1.7)
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Net cash provided by financing activities 6.4 229.7
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Increase in cash and cash equivalents 29.5 19.5
Cash and cash equivalents at beginning of period 56.6 78.9
---------------- ----------------
Cash and cash equivalents at end of period $ 86.1 $ 98.4
================ ================
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest $ 41.0 $ 38.4
Income taxes 1.1 2.6
Non-cash activities:
Additions to other real estate through foreclosure 1.5 1.8
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RCSB FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
FEBRUARY 28, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements, which include the accounts
of RCSB Financial, Inc. and its subsidiaries (RCSB or the Company), have been
prepared in accordance with the instructions for Form 10-Q, and therefore, do
not include all information and footnotes necessary for a complete
presentation of financial position, results of operations and cash flows in
accordance with generally accepted accounting principles. The financial
statements and the information under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" are prepared under
the presumption that the interim consolidated financial statements are read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
November 30, 1996.
In the opinion of management, the unaudited, consolidated interim financial
statements of RCSB Financial, Inc. and subsidiaries reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the statements. The results of operations for the interim period are not
necessarily indicative of the results of operations which may be expected for
the entire year. For consistency among the periods presented, certain amounts
in the prior year's consolidated financial statements have been reclassified
to conform with the 1997 presentation.
2. ACCOUNTING CHANGES
RCSB adopted Financial Accounting Standards Board (FASB) Statement No. 121
entitled "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" on December 1, 1996. The statement
requires that long-lived assets and certain identifiable intangibles to be
held and used by a company be reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, companies are
required to estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. Under Statement 121, an impairment
loss is recognized if the sum of the undiscounted future cash flows is less
than the carrying amount of the asset. The statement also establishes
standards for recording an impairment loss for certain assets subject to
disposal. Excluded from the scope of the statement are financial instruments,
mortgage and other loan servicing assets, deposit intangibles and deferred tax
assets. Implementing the provisions of Statement 121 had no material impact
on the Company's consolidated financial statements on the date of adoption.
RCSB adopted the disclosure requirements of FASB Statement No. 123 entitled
"Accounting for Stock-Based Compensation" effective December 1, 1996. Related
disclosures will be included in the Company's financial statements for the
full year ending November 30, 1997. Statement 123 permits, but does not
require, companies to use a fair-value-based method of accounting for
stock-based compensation plans including stock options and stock appreciation
rights. Under the fair value method, compensation cost is measured as of the
date stock awards are granted based on the value of the awards, and expense is
generally recognized over the vesting period. Companies such as RCSB that
elect to continue using the intrinsic-value-based method under Accounting
Principles Board (APB) Opinion No. 25, are required to provide pro forma
disclosures of net income and net income per share in annual financial
statements, as if the fair-
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value-based method had been applied. Under the intrinsic method, compensation
cost is the excess, if any, of the market price of the stock as of the grant
date over the amount employees must pay to acquire the stock or over the price
established for determining appreciation. Under RCSB's compensation policies,
there is no such excess on the dates of grant.
On January 1, 1997, RCSB adopted FASB Statement No. 125 entitled "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which provides guidance for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
The statement requires the application of a financial-components approach
which, following a transfer, results in recognizing in financial statements
the assets an entity controls and removing from financial statements assets it
no longer controls. A transferor has surrendered control, in general, only if
the transferred assets have been legally isolated from the transferor, the
transferee obtains the right to pledge or exchange the assets and there is no
agreement that entitles or obligates the transferor to repurchase the assets.
Liabilities are eliminated from financial statements only when they are
extinguished. The new standard applies to all transactions occurring after
December 31, 1996, except those involving collateral pledges and securities
repurchase agreements for which the rule change is delayed one year.
Application of the pronouncement had no material effect on the consolidated
financial position of RCSB.
3. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the FASB issued Statement No. 128 entitled "Earnings per
Share." The statement revises standards for computing and presenting net
income per share by (a) replacing primary net income per
share with basic net income per share, (b) requiring dual
presentation of basic and diluted net income per share for entities with
complex capital structures and (c) requiring a reconciliation of the basic net
income per share computation to diluted net income per share. Basic net income
per share is calculated by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding for
the period. Diluted net income per share includes the effect of potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common shares. This statement is
effective beginning in RCSB's 1998 fiscal year. The effect of Statement 128
on the Company's earnings per share calculations has not been determined.
4. CERTAIN COMMON STOCK TRANSACTIONS
In October 1996, RCSB's Board of Directors authorized the repurchase of up to
1.5 million shares of the Company's common stock. Through March 1997, 0.9
million shares have been repurchased at a cost of $28.9 million and the
Company is continuing to acquire shares under the program, subject to pricing
and other market considerations.
On March 26, 1997, the Board of Directors declared a cash dividend of $0.15
per common share, payable May 1, 1997 to shareholders of record on April 15,
1997.
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5. NET INCOME PER SHARE
Primary net income per common share amounts for the three months ended
February 28, 1997 and February 29, 1996 were computed by dividing net income,
reduced by preferred stock dividends in 1996, by the weighted average number
of common shares outstanding during the periods. The weighted average number
of common shares outstanding totaled 15,427,898 and 13,733,308 for the three
months ended February 28, 1997 and February 29, 1996, respectively, including
417,855 common stock equivalents in 1997 relating to outstanding stock
options.
Fully diluted net income per common share for the three months ended February
28, 1997 was computed by dividing net income by the weighted average number of
common and common equivalent shares outstanding. For the 1996 period, net
income was divided by the sum of the weighted average number of common shares
outstanding and the common shares issuable if all outstanding preferred shares
were converted to common at the beginning of the period. The weighted average
number of common shares utilized totaled 15,460,807 and 18,403,260 for the
three months ended February 28, 1997 and February 29, 1996, respectively,
including common stock equivalents of 450,764 shares in 1997. There were no
materially dilutive common stock equivalents in 1996.
6. POSSIBLE SALE OF COMMERCIAL MORTGAGE LOANS
In late March 1997, the Company began supplying information to parties who may
have an interest in purchasing certain identified commercial mortgage loans
currently in RCSB's portfolio. The identified loans have unpaid balances
totaling approximately $41.0 million. Potential buyers are being instructed
to submit bids in early May 1997 which may be accepted, rejected or countered
by RCSB at its sole discretion. While the outcome of any potential sale of
the offered loans is not determinable at this time, the Company believes
that its allowance for loan losses is sufficient to absorb any loss that
may result.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
RCSB Financial, Inc. and subsidiaries reported net income of $9.7 million or
$0.63 per fully diluted share for the three months ended February 28, 1997,
compared to $9.7 million or $0.53 per share in the first quarter of 1996.
While pretax earnings in the first quarter of 1997 rose by 6.6%, a higher
effective rate of income tax in the current year resulted in net income equal
to the amount earned in the 1996 first quarter. The improvement in pretax
earnings was aided by higher levels of net interest income and growth in
mortgage banking revenues, including a $3.6 million gain on the sale of
mortgage servicing rights. Revenue gains were partially offset by increased
operating expenses and a higher loan loss provision. Earnings per fully
diluted share increased by 18.9% in the 1997 first quarter, reflecting the
significant reduction in outstanding shares since the year-ago period.
Net interest income for the first quarter of 1997 was $32.2 million, up 1.6%
from $31.7 million in 1996. The increase resulted from a widening of the
average interest rate spread in RCSB's portfolios, purchases of
mortgage-backed securities during the latter three quarters of 1996 and a 23%
increase in average automobile loans outstanding. Asset growth was funded by
additional borrowings and higher levels of customer deposits. Net interest
income was also affected by interest expense on borrowings utilized by RCSB to
repurchase common stock.
Automobile loan originations increased 23.5% to $174.3 million in the first
quarter of 1997 from $141.2 million in 1996. Higher originations were
achieved in both existing and new markets. In December 1996, American Credit
Services, Inc. (ACSI), the Company's automobile lending subsidiary, expanded
into the mid-Atlantic market with the opening of a regional office in
Baltimore, Maryland. Opportunities for further expansion are considered by
ACSI on an ongoing basis.
RCSB's interest rate spread rose to 3.19% in 1997 from 2.98% in 1996 due to an
increase in the average yield on interest-earning assets and a decrease in the
average rate on interest-bearing liabilities. The spread was affected by a
widening during the past year in the average difference between market
interest rates on longer-term financial instruments and those on short-term
instruments. Because RCSB's assets generally have longer terms to maturity or
repricing than its liabilities, the increase experienced in general
marketplace spreads had a positive influence on the Company's interest rate
spread. Changes in the mix of interest-earning assets also contributed to a
wider overall spread. Automobile loans, which generally carry higher yields,
totaled 28.0% of average interest-earning assets in 1997, compared to 23.5% in
1996. Net interest margin, which is influenced by the interest rate spread
and changes in the relationship of interest-earning asset volumes to
interest-bearing liability volumes, decreased to 3.45% in 1997 from 3.50% in
1996, primarily due to the addition of borrowings utilized for common stock
repurchases.
The following table presents information for the first quarter of 1997 and
1996 regarding interest yields and rates, average earning asset and liability
volumes, and the allocation of interest variations between amounts caused by
volumes and amounts attributable to rates. No tax equivalent adjustments have
been made for minor amounts of tax-exempt income earned by RCSB.
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AVERAGE BALANCES, YIELDS AND RATES AND CHANGES IN INTEREST INCOME AND EXPENSE
(dollars in millions)
Three Months Ended
--------------------------------------------------------
FEBRUARY 28, 1997 February 29, 1996
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Change
Average Yield/ Average Yield/ in Change due to
Balance Interest Rate Balance Interest Rate Interest Volume Rate
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INTEREST-EARNING
ASSETS:
Federal funds and
interest-bearing deposits $ 8.0 $ 0.1 4.53% $ 14.1 $ 0.2 5.57% $ (0.1) $ (0.1) $ -
Mortgage-backed and
other securities 1,707.1 29.3 6.86 1,648.2 27.4 6.66 1.9 1.0 0.9
Loans receivable, net 2,019.8 44.9 8.90 1,967.3 43.6 8.86 1.3 1.2 0.1
-------- --------- -------- --------- ---------- -------- --------
Total interest-
earning assets $3,734.9 74.3 7.96 $3,629.6 71.2 7.85 3.1 2.1 1.0
======== --------- ======== --------- ---------- -------- --------
INTEREST-BEARING
LIABILITIES:
Transaction, money market
and savings deposits $1,057.0 6.4 2.44 $1,013.6 6.0 2.37 0.4 0.3 0.1
Term deposits 1,368.5 19.2 5.68 1,286.9 19.0 5.93 0.2 1.2 (1.0)
-------- --------- -------- --------- ---------- -------- --------
Total deposits 2,425.5 25.6 4.27 2,300.5 25.0 4.36 0.6 1.5 (0.9)
FHLB borrowings
and repurchase agreements 715.5 10.2 5.80 561.9 8.4 6.02 1.8 2.2 (0.4)
Other repurchase agreements
and borrowings 438.7 6.3 5.83 402.2 6.1 6.14 0.2 0.5 (0.3)
-------- --------- -------- --------- ---------- -------- --------
Total interest-
bearing liabilities $3,579.7 42.1 4.77% $3,264.6 39.5 4.87% 2.6 4.2 (1.6)
======== --------- ======== --------- ---------- -------- --------
Net interest income $ 32.2 $ 31.7 $ 0.5 $ (2.1) $ 2.6
========= ========= ========== ======== ========
Excess of interest-earning
assets over interest-bearing
liabilities $ 155.2 $ 365.0
RATIOS:
Interest rate spread 3.19% 2.98%
Net interest margin 3.45 3.50
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RCSB's first quarter provision for loan losses was $4.0 million in 1997,
compared to $2.7 million in 1996. The higher provision in 1997 was primarily
due to growth in automobile loan originations and increased charge-offs in the
auto loan portfolio, which is $195.3 million larger than in February 1996.
Nationwide trends in the collection of consumer loans have affected the
Company's automobile loan portfolio, resulting in somewhat higher
delinquencies and charge-offs. The adequacy of the Company's loan loss
allowance is evaluated quarterly with consideration given to the status of
particular loans, the risk characteristics of each loan portfolio, historical
charge-offs and recoveries, the regulatory environment, current appraisals and
economic and market conditions. RCSB's allowance for loan losses totaled $28.2
million at February 28, 1997 and November 30, 1996, representing 104.9% and
116.7%, respectively, of nonperforming loans.
Mortgage banking noninterest income increased 55.8% to $16.0 million in the
first quarter of 1997, from $10.2 million in 1996. The increase resulted from
several favorable trends and transactions: a gain on the sale of servicing
rights, increased revenue from servicing mortgage loans and improved results
from selling mortgage loans originated for sale. The February 1997 sale of
rights to service $1.1 billion of residential mortgage loans produced a gain
of $3.6 million. American Home Funding, Inc. (AHF), RCSB's mortgage banking
subsidiary, also held, on average, a larger portfolio of servicing than in the
first quarter of 1996 and earned a greater amount of servicing fee income.
Furthermore, the market for originating residential mortgage loans was more
favorable with respect to pricing in the 1997 quarter, resulting in improved
financial results from the sale of loans. The volume of loans originated for
sale decreased 2% from the year-ago quarter to $322.0 million in 1997. The
subsidiary's portfolio of loans serviced for others totaled $8.3 billion at
February 28, 1997, compared to $8.5 billion at February 29, 1996.
RCSB's retail banking unit, Rochester Community Savings Bank, generated
noninterest income of $1.8 million in the first quarter of 1997, compared to
$2.4 million in 1996. Earnings in this category represent fees and service
charges collected for various deposit-related activities and revenues from the
bank's insurance sales operation. Prior to September 1996, retail banking
noninterest revenues also included commissions from securities brokerage
activities. Deposit related fees and service charges rose by $0.2 million in
1997 due to the Company's continued expansion in the Buffalo, New York market.
One branch office was opened during the first quarter of 1997, bringing the
total number of RCSB branches in Buffalo to 15. The decrease in total retail
banking noninterest revenue relates to the September 1996 transfer of
securities brokerage activities to an independent third party which offers
securities products and services through RCSB's retail banking offices. RCSB
no longer receives commission revenues from securities activities but is
reimbursed by the independent securities firm for its use of the bank's
facilities.
Operating expenses were $30.2 million in the first quarter of 1997 compared to
$27.2 million in the prior year. The increase was primarily attributable to
the expansion of AHF's loan origination network and expenses associated with
higher loan origination and servicing volumes at ACSI. Costs associated with
recently opened retail banking branches and various information technology
enhancement projects also contributed to the rise in operating expenses.
While still slightly below a normal rate of income taxes for RCSB, the
Company's effective tax rate increased to 39.0% in the first quarter of 1997
from 35.0% in 1996. Reductions in RCSB's deferred tax valuation allowance
during both years accounted for most of the difference from normal rates..
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FINANCIAL CONDITION
- - --------------------
At February 28, 1997, RCSB's total assets were $4.03 billion, compared to
$4.01 billion at November 30, 1996. Loans totaled $2.02 billion at the end of
the first 1997 quarter and at November 30, 1996. Growth in the automobile
loan portfolio, which increased to $1.06 billion at February 28, 1997 from
$994.8 million at the end of the 1996 fiscal year, was offset by a decrease in
residential mortgage loans, including those held for sale.
Securities held to maturity declined slightly to $1.61 billion at February 28,
1997, compared to $1.64 billion at November 30, 1996. Deposits of $2.37
billion at February 28, 1997 were unchanged from November 30, 1996. Federal
Home Loan Bank borrowings, repurchase agreements and other borrowings totaled
$1.15 billion at February 28, 1997, compared to $1.11 billion at November 30,
1996.
At February 28, 1997, the Company's portfolios are liability sensitive to
interest rate changes in the one-year timeframe to the extent of 11.1% of
total assets. The one-year gap was liability sensitive to the extent of 6.9%
of assets at November 30, 1996. Shareholders' equity totaled $316.4 million
or $21.36 per common share at February 28, 1997, compared to $323.9 million or
$21.12 per common share at November 30, 1996. The decrease in shareholders'
equity resulted from ongoing purchases of RCSB common stock. Under the most
recent stock repurchase program, RCSB's Board of Directors authorized the
acquisition of up to 1.5 million common shares. As of February 28, 1997, 0.6
million common shares had been purchased at a cost of $17.2 million, and
through March 31, 1997, an aggregate of 0.9 million shares have been acquired
for $28.9 million.
In accordance with requirements of the FDIC and the New York State Banking
Department, the Company's subsidiary, Rochester Community Savings Bank and its
subsidiaries (collectively, the Bank), must meet certain measures of capital
adequacy with respect to leverage and risk-based capital. At December 31,
1996, the most recent FDIC reporting date, the Bank's capital ratios were in
excess of required levels.
On March 26, 1997, the Board of Directors declared a cash dividend of $0.15
per common share, payable May 1, 1997 to shareholders of record on April 15,
1997.
In late March 1997, the Company began supplying information to parties who may
have an interest in purchasing certain identified commercial mortgage loans
currently in RCSB's portfolio. The identified loans have unpaid balances
totaling approximately $41.0 million. Potential buyers are being instructed
to submit bids in early May 1997 which may be accepted, rejected or countered
by RCSB at its sole discretion. While the outcome of any potential sale of
the offered loans is not determinable at this time, the Company believes
that its allowance for loan losses is sufficient to absorb any loss that
may result.
- 14 -
<PAGE>
Allowance for Loan Losses and Nonperforming Assets
- - --------------------------------------------------------
The determination of the allowance for loan losses is based on ongoing
analyses of the loan portfolio and reflects an amount which, in management's
judgment, is adequate to provide for potential losses. While management used
all currently available information to determine the adequacy of the
allowance, future additions may be necessary based on changes in economic and
market conditions, possible changes in strategies for resolving problem loans
and specific borrower situations. In addition, various regulatory agencies,
as an integral part of the examination process, periodically review the
Company's allowance for losses on loans. Such agencies may require the
Company to recognize additions to the allowance based on their judgments about
information available at the time of their examinations. RCSB's allowance for
loan losses at February 28, 1997 equaled 104.9% of nonperforming loans, which
exceeded the average of approximately 72% for all publicly-held thrifts as of
December 31, 1996, the most recent date for which such information is
available. Activity in RCSB's loan loss allowance during the first three
months of 1997 and 1996 is presented below.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
( dollars in millions)
Three Months Ended
FEBRUARY 28, February 29,
1997 1996
----------- -------------
<S> <C> <C>
Beginning balance $ 28.2 $26.1
Provision for loan losses 4.0 2.7
Loan charge offs (5.0) (4.0)
Loan recoveries 1.0 1.2
----------- -------------
Ending balance $ 28.2 $26.0
=========== =============
Allowance as percent of:
Nonperforming loans 104.9% 91.0%
Nonperforming assets 88.3% 76.6%
Total loans 1.38% 1.27%
</TABLE>
- 15 -
<PAGE>
The Company's nonperforming asset disclosures include nonaccrual loans, loans
past due 90 days and accruing, restructured loans and other real estate.
Total nonperforming assets at February 28, 1997 were $32.0 million compared to
$30.4 million at November 30, 1996. The $1.6 million increase in
nonperforming assets in the first three months of 1997 reflects growth in
RCSB's automobile loan portfolio and a continued slowing noted nationally in
the repayment of consumer debt. The following table summarizes nonperforming
assets as of the end of the first quarter and the prior fiscal year.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
(dollars in millions)
FEBRUARY 28, November 30,
1997 1996
----------- ------------
<S> <C> <C>
Nonaccrual loans $21.4 $19.6
Loans past due 90 days and accruing 5.5 4.6
----------- ------------
Total nonperforming loans 26.9 24.2
Other real estate, net of allowances 5.1 6.2
----------- ------------
Total nonperforming assets $32.0 $30.4
=========== =============
Nonperforming loans as percent of
total loans 1.31% 1.18%
Nonperforming assets as percent of
total assets 0.79% 0.76%
</TABLE>
- 16 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit
Number Document
------ --------
27 Article 9 Financial Data Schedule
(B) Reports on Form 8-K
None
- 17 -
<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.
RCSB FINANCIAL, INC.
--------------------
(registrant)
April 14, 1997 /s/ Leonard S. Simon
---------------- --------------------
Date Leonard S. Simon
Chairman of the Board, President
and Chief Executive Officer
April 11, 1997 /s/ Paul R. Wuest
---------------- -----------------
Date Paul R. Wuest
Senior Vice President and
Chief Financial Officer
-18-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RCSB
FINANCIAL, INC'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED FEBRUARY
28, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000840068
<NAME> RCSB FINANCIAL, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 86,102
<INT-BEARING-DEPOSITS> 3,721
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,433
<INVESTMENTS-CARRYING> 1,606,196
<INVESTMENTS-MARKET> 1,591,028
<LOANS> 2,046,487
<ALLOWANCE> 28,217
<TOTAL-ASSETS> 4,032,365
<DEPOSITS> 2,368,339
<SHORT-TERM> 964,836
<LIABILITIES-OTHER> 194,710
<LONG-TERM> 188,040
0
0
<COMMON> 14,815
<OTHER-SE> 301,625
<TOTAL-LIABILITIES-AND-EQUITY> 4,032,365
<INTEREST-LOAN> 44,936
<INTEREST-INVEST> 29,269
<INTEREST-OTHER> 91
<INTEREST-TOTAL> 74,296
<INTEREST-DEPOSIT> 25,534
<INTEREST-EXPENSE> 42,066
<INTEREST-INCOME-NET> 32,230
<LOAN-LOSSES> 4,000
<SECURITIES-GAINS> 85
<EXPENSE-OTHER> 30,241
<INCOME-PRETAX> 15,889
<INCOME-PRE-EXTRAORDINARY> 9,692
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,692
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
<YIELD-ACTUAL> 3.45
<LOANS-NON> 21,374
<LOANS-PAST> 5,520
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 28,190
<CHARGE-OFFS> 4,969
<RECOVERIES> 996
<ALLOWANCE-CLOSE> 28,217
<ALLOWANCE-DOMESTIC> 28,217
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
