<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ------------------
Commission File Number: 0-18126
-------
FINANCIAL BANCORP, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1391814
-------- ----------
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
42-25 Queens Boulevard, Long Island City, NY 11104
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(718) 729-5002
--------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed 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. (1) X Yes No
--- ---
(2) X Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
There were 1,717,486 shares of the Registrant's common stock outstanding
as of May 12, 1997.
------------
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<PAGE> 2
FINANCIAL BANCORP, INC.
Form 10-Q
Index
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of March 31, 1997 (Unaudited) and September
30, 1996 3
Consolidated Statements of Income for the
Three and Six Months ended March 31, 1997
and 1996 (Unaudited) 4
Consolidated Statement of Changes in
Stockholders' Equity for the Six Months
ended March 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Six Months ended March 31, 1997 (Unaudited) 6-7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-17
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities
Not applicable. 18
Item 3. Defaults Upon Senior Securities
Not applicable. 18
Item 4. Submission of Matters to a Vote of Security
Holders 18
Item 5. Other Information 19
Item 6. Reports on Form 8-K 19
Exhibits 19
Exhibit 11: Computation of per share earnings 20
Signature Page 21
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<PAGE> 3
<TABLE>
<CAPTION>
FINANCIAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
1997 1996
-------------- -----------------
Assets
- ------
<S> <C> <C>
Cash and amounts due from depository institutions $2,462,256 $2,917,223
Federal funds sold and securities purchased under agreements to resell 2,975,000 2,185,000
-------------- -----------------
Total cash and cash equivalents 5,437,256 5,102,223
Investment securities available for sale
5,604,250 3,608,125
Investment securities held to maturity, net; estimated fair value of
$42,264,000 and $49,903,000 at March 31, 1997 and September 30, 1996,
respectively 44,058,872 51,122,128
Mortgage-backed securities available for sale 9,703,791 5,016,112
Mortgage-backed securities held to maturity, net; estimated fair value
of $45,264,000 and $49,901,000 at March 31, 1997 and September 30,
1996, respectively 45,206,529 49,836,734
Loans receivable, net 147,217,588 140,314,158
Real estate owned, net 0 377,910
Investments in real estate, net 3,492,565 3,493,153
Premises and equipment, net 2,528,406 2,522,264
Federal Home Loan Bank of New York stock, at cost 1,770,900 1,675,800
Accrued interest receivable, net 1,836,340 1,788,970
Other assets 2,340,636 1,904,945
-------------- -----------------
Total assets $269,197,133 $266,762,522
============== =================
Liabilities and stockholders' equity
- ------------------------------------
Deposits $206,179,787 $202,883,766
Advance payments by borrowers for taxes and insurance 1,282,000 1,063,036
Advances from Federal Home Loan Bank of New York 8,000,000 9,725,000
Securities sold under agreements to repurchase 5,000,000 14,046,000
Treasury tax and loan account and other short term borrowings 20,000,000 9,880,970
Other liabilities 2,543,230 3,376,552
-------------- -----------------
Total liabilities 243,005,017 240,975,324
-------------- -----------------
Stockholders' equity
Preferred stock, $0.01 par value, 2,500,000 shares authorized; none issued
Common stock, $0.01 par value, 6,000,000 shares authorized; 2,185,000 shares
issued, 1,747,686 and 1,790,622 shares outstanding at March 31, 1997
and September 30, 1996, respectively 21,850 21,850
Additional paid-in capital 20,186,367 20,151,858
Retained earnings - substantially restricted 13,092,823 12,218,607
Common stock acquried by Employee Stock Ownership Plan (ESOP) (1,092,494) (1,173,422)
Common stock acquired by Recognition & Retention Plan (RRP) (386,088) (454,221)
Unrealized gain (loss) on securities available for sale, net of income taxes (40,724) (488)
Treasury stock, at cost; 437,314 and 394,378 shares at March 31, 1997 and
at September 30, 1996, respectively (5,589,618) (4,976,986)
--------------- -----------------
Total stockholders' equity 26,192,116 25,787,198
--------------- -----------------
Total liabilities and stockholders' equity $269,197,133 $266,762,522
=============== =================
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE> 4
<TABLE>
<CAPTION>
FINANCIAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- -------------------------------
MARCH 31, MARCH 31,
---------------------------- -------------------------------
1997 1996 1997 1996
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans $2,966,415 $2,500,456 $5,865,708 $4,839,087
Mortgage-backed securities 970,279 1,014,461 1,925,788 2,084,692
Investments and other interest-earning assets 850,692 870,042 1,892,574 1,661,998
Federal funds sold and securities purchased
under agreements to resell 21,389 8,232 37,178 19,235
----------- ------------- ----------- -------------
Total interest income 4,808,775 4,393,191 9,721,248 8,605,012
----------- ------------- ----------- -------------
Interest expense:
Deposits 1,964,254 1,881,737 3,945,468 3,790,913
Borrowings 365,570 288,199 842,335 449,852
----------- ------------ ----------- ------------
Total interest expense 2,329,824 2,169,936 4,787,803 4,240,765
Net interest income 2,478,951 2,223,255 4,933,445 4,364,247
Provision for loan losses 96,000 76,000 195,600 130,000
----------- ------------ ----------- ------------
Net interest income after provision for
loan losses 2,382,951 2,147,255 4,737,845 4,234,247
----------- ------------ ----------- ------------
Non-interest income (loss):
Fees and service charges 136,075 83,772 267,355 171,844
Gain on sale of investment securities 0 20,020 26,353 20,020
Gain (loss) from real estate operations 26,081 (19,438) (1,972) (42,048)
Miscellaneous 8,761 7,590 19,390 19,288
----------- ------------ ----------- ------------
Total non-interest income 170,917 91,944 311,126 169,104
----------- ------------ ----------- ------------
Non-interest expenses:
Salaries and employee benefits 1,003,416 664,677 1,745,463 1,311,182
Net occupancy expense of premises 138,217 118,853 270,728 231,333
Equipment 160,999 138,760 311,345 276,410
Advertising 6,465 20,018 16,052 45,067
(Gain) Loss from real estate owned (10,071) 16,731 8,313 45,947
Federal insurance premium 30,456 98,636 112,228 187,781
Miscellaneous 329,966 295,607 580,009 557,017
------------ ------------ ----------- ------------
Total non-interest expenses 1,659,448 1,353,282 3,044,138 2,654,737
------------ ------------ ----------- ------------
Income before income taxes 894,420 885,917 2,004,833 1,748,614
Income taxes 314,894 391,316 831,868 770,255
------------ ------------ ----------- ------------
Net income $579,526 $494,601 $1,172,965 $978,359
============ ============ =========== ============
Net income per common share & common stock
equivalents $0.35 $0.27 $0.70 $0.53
============ ============ =========== ============
Weighted average number of common shares & common
stock equivalents 1,671,700 1,816,200 1,680,100 1,847,300
============ ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 5
<TABLE>
<CAPTION>
FINANCIAL BANCORP. INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Retained Common Common Unrealized (Loss) on
Additional Earnings - Stock Stock Investment Securities
Common Paid-in Substantially Acquired Acquired Available for sale, Treasury
Stock Capital Restricted By ESOP By RRP Net of Income Taxes Stock Total
------- --------- ------------ --------- --------- --------------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September
30, 1996 $21,850 $20,151,858 $12,218,607 ($1,173,422) ($454,221) ($488) ($4,976,986) $25,787,198
Net Income for the six
months ended March
31, 1997 - - 1,172,965 - - - - 1,172,965
Purchase of 47,000
shares of treasury
stock - - - - - - (663,938) ($663,938)
Amortization relating
to allocation of
ESOP stock and earned
portion of RRP stock - 47,451 - 80,928 68,133 - - $196,512
Adjustment to valuation
reserve on securities
available for sale - - - - - (40,236) - ($40,236)
Stock issued upon exercise
of stock options - (12,942) - - - - 51,306 $38,364
Cash dividends paid on
common stock - - (298,749) - - - - (298,749)
------- ----------- ------------ ----------- --------- --------- ---------- -----------
Balance at March 31,
1997 $21,850 $20,186,367 $13,092,823 ($1,092,494) ($386,088) ($40,724) ($5,589,618) $26,192,116
======= =========== =========== ============ ========== ========= ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
<TABLE>
<CAPTION>
FINANCIAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
----------------------------
MARCH 31,
----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Cash flow from operating activities:
Net income $1,172,965 $978,359
Adjustments to reconcile net income to net cash
provided by operating activities
Loss (Gain) on sale of real estate owned 5,411 (5,837)
(Gain) on sale of securities available for sale (26,353) (20,020)
Net amortization of premiums and accretion
of discounts on investment securities (99,291) 7,010
Net amortization of premiums and accretion
of discounts on mortgage-backed securities 17,270 1,368
Accretion of deferred loan fees and discounts (57,253) (34,565)
Depreciation and amortization of premises
and equipment 146,132 150,565
Provision for loan losses 195,600 130,000
Provision for losses on real estate owned 0 8,436
Cost of ESOP and RRP 196,512 174,494
Deferred income taxes (7,492) 18,827
(Increase) in accrued interest receivable, net (47,370) (411,211)
(Increase) in refundable income taxes (212,598) (134,452)
(Increase) in other assets (183,987) (61,142)
(Decrease) in other liabilities (833,322) (90,274)
------------ -------------
Net cash provided by operating activities 266,224 711,558
------------ -------------
Cash flows from investing activities:
Purchases of investment securities available for sale (4,938,672) (5,686,719)
Purchases of investment securities held to maturity (8,840,000) (30,566,875)
Proceeds from sales of investment securities available for sale 2,947,031 2,010,625
Proceeds from maturities of investment securities 16,000,000 21,430,000
Purchases of mortgage-backed securities available for sale (5,046,497) 0
Purchases of mortgage loans 0 (7,960,066)
Proceeds from principal repayments on
mortgage-backed securities 4,924,319 6,186,101
Loan originations, net of repayments (6,945,777) (8,377,946)
Additions to premises and equipment (158,686) (980,656)
Proceeds from sale of and insurance recoveries
on real estate owned 276,499 25,066
Capitalized expenses on real estate owned 0 (1,476)
Purchase of Federal Home Loan Bank of N.Y. stock (95,100) (252,800)
Net decrease in investments in real estate 7,000 0
------------ -------------
Net cash provided by investing activities (1,869,883) (24,174,746)
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
<TABLE>
<CAPTION>
FINANCIAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
-----------------------------
MARCH 31,
-----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits $3,296,021 $7,496,599
Proceeds from FHLB of NY advances 0 9,200,000
Repayments of FHLB of NY advances (1,725,000) 0
Net (decrease) in short-term borrowings from FHLB of NY 0 (4,200,000)
Proceeds from reverse repurchase agreements 5,000,000 18,100,000
Repayments of reverse repurchase agreements (14,046,000) (12,126,250)
Net increase in other short-term borrowings 10,119,030 4,867,356
Increase in advance payments by
borrowers for taxes and insurance 218,964 145,565
Dividends paid (298,750) (223,168)
Reissuance of treasury stock 38,365 0
Purchase of treasury stock (663,938) (1,286,186)
------------ -------------
Net cash provided by financing activities 1,938,692 21,973,916
------------ -------------
Net increase (decrease) in cash and cash equivalents 335,033 (1,489,272)
Cash and cash equivalents - beginning 5,102,223 7,853,316
------------ -------------
Cash and cash equivalents - ending $5,437,256 $6,364,044
============ =============
Supplemental schedule of noncash investing and financing activities:
Loans transferred to real estate owned $0 $47,360
============ =============
Loans to facilitate sale of real estate owned $96,000 $148,500
============ =============
Property transferred to investment in real estate $0 $195,724
============ =============
Transfer to investment securities available for sale
Investment securities $0 $1,989,839
============ =============
Unrealized (loss) gain on securities available for sale ($71,851) $22,978
Deferred income taxes 31,615 (10,110)
------------ -------------
($40,236) $12,868
============ =============
Supplemental disclosures of cash flow information:
Cash paid (net of refunds received) during the year for:
Federal, state and city income taxes 1,051,957 888,000
============ =============
Interest paid on deposits and borrowed funds $4,790,337 $4,099,891
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 8
FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Financial Bancorp, Inc. (the "Company"), its wholly owned
subsidiaries, 842 Manhattan Avenue Corp. which manages real property, and
Financial Federal Savings Bank (the "Bank") a federally chartered stock
association, and the Bank's wholly owned subsidiaries, Finfed Development Corp.,
which participates in a joint venture for the development of land and sale of
lots, Finfed Funding Ltd., which serves as a conduit for funding investments in
Finfed Development Corp., and F.S. Agency Inc., which is engaged in the sale of
annuities. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Certain information and footnote disclosures required under generally accepted
accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. Financial Bancorp, Inc. (the "registrant" or
the "Company") believes that the disclosures presented are adequate to assure
that the information presented is not misleading in any material respect. It is
suggested that the following consolidated financial statements be read in
conjunction with the year-end consolidated financial statements and notes
thereto included in the registrant's Annual Report on Form 10-K for the year
ended September 30, 1996.
The results of operations for the three and six months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the entire
fiscal year.
Certain amounts for the three and six months ended March 31, 1996 have been
reclassified to conform with the current period's presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for
Stock-Based Compensation," effective for fiscal years beginning after December
15, 1995. The Company has elected to continue to measure compensation cost using
the intrinsic value-based method of accounting prescribed by the Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Pro forma disclosures required for entities that elect to continue
to measure compensation cost using APB Opinion No. 25 must include the effects
of all awards granted in fiscal years that begin after December 15, 1994.
Management will implement the pro forma disclosure required by SFAS No. 123 with
the preparation of the annual financial statement for the fiscal year ending
September 30, 1997.
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<PAGE> 9
EARNINGS PER SHARE
Net income per common share and common stock equivalents is computed by dividing
net income by the weighted average number of shares of common stock outstanding
adjusted for the unallocated shares held by the ESOP. Stock options granted are
considered in earnings per share as common stock equivalents, if dilutive, using
the treasury stock method.
INVESTMENT SECURITIES
The following table sets forth certain information regarding the carrying and
estimated fair value of the Company's investment securities at March 31, 1997
and September 30, 1996, respectively.
<TABLE>
<CAPTION>
MARCH 31, 1997 SEPTEMBER 30, 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- --------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Available for sale
U.S. Treasury securities $4,939 $4,894 $2,919 $2,908
Corporate preferred stock 700 710 700 700
Less: Unrealized gain (loss) (35) - (11) -
---------- --------- ---------- ----------
Total investment securities available for sale $5,604 $5,604 $3,608 $3,608
========== ========= ========== ==========
Held to maturity
U.S. Government and agency obligations $44,059 $42,264 $51,122 $49,903
---------- --------- ---------- ----------
Total investment securities held to maturity $44,059 $42,264 $51,122 $49,903
========== ========= ========== ==========
</TABLE>
MORTGAGE-BACKED SECURITIES
The following table sets forth certain information regarding the carrying and
estimated fair value of the Company's mortgage-backed security portfolio at
March 31, 1997 and September 30, 1996, respectively.
<TABLE>
<CAPTION>
MARCH 31, 1997 SEPTEMBER 30, 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- --------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Available for sale
FHLMC certificates $4,704 $4,696 $5,006 $5,016
FNMA certificates 5,037 5,008 - -
Add: Unrealized (loss) gain (37) - 10 -
---------- --------- --------- --------
Total mortgage-backed securities available
for sale $9,704 $9,704 $5,016 $5,016
========== ========= ========= ========
Held to maturity
GNMA certificates $25,359 $25,473 $27,106 $27,198
FHLMC certificates 15,432 15,398 17,999 17,960
FNMA certificates 2,421 2,398 2,697 2,708
Other pass-through certificates 1,995 1,995 2,035 2,035
---------- --------- --------- --------
Total mortgage-backed securities held
to maturity $45,207 $45,264 $49,837 $49,901
========== ========= ========= ========
</TABLE>
-9-
<PAGE> 10
LOANS RECEIVABLE, NET
The following table sets forth the composition of the Company's loan portfolio
at March 31, 1997 and September 30, 1996, respectively.
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Real estate mortgages:
One-to-four family $120,113 $115,500
Equity and second mortgages 2,700 2,780
Multi-family 6,198 5,622
Commercial 17,330 15,301
--------- --------
146,341 139,203
--------- --------
Construction/land 2,806 4,920
--------- --------
Consumer:
Passbook or certificate 174 171
Home improvement 5 7
Student education guaranteed by
the State of New York 220 202
Personal 35 21
--------- --------
434 401
Commercial, including lines of credit 139 168
--------- --------
Total loans 149,720 144,692
--------- --------
Less: Loans in process 1,029 2,509
Allowance for loan losses 1,264 1,573
Deferred loan fees and discounts 209 296
--------- --------
2,502 4,378
--------- --------
Total loans receivable, net $147,218 $140,314
========= ========
</TABLE>
-10-
<PAGE> 11
ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK ("FHLB")
As a member of the FHLB, the Bank has an available overnight line of credit
subject to the terms and conditions of the lender's overnight advance program in
the amount of $26,398,500 at March 31, 1997. The following table sets forth the
composition of the Bank's FHLB advances as of March 31, 1997 and September 30,
1996, respectively.
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
FHLB advances:
Fixed rate:
5.133% due February 1997 $ - $1,200
5.597% due December 1997 2,000 2,000
5.670% due December 1998 6,000 6,000
-------- -------
Total fixed rate 8,000 9,200
Overnight line of credit:
6.125% due October 1996 - 525
-------- -------
Total overnight line of credit - 525
-------- -------
Total FHLB advances $8,000 $9,725
======== =======
</TABLE>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase consist of borrowings
collateralized by investment securities. The following table sets forth the
composition of the Company's borrowings collateralized by securities sold under
agreements to repurchase as of March 31, 1997 and September 30, 1996,
respectively.
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Securities sold under agreements to repurchase:
5.44% due December 1995 $ 0 $14,046
5.291% due December 2001, callable December 1997 5,000 -
---------- ----------
Total securities sold under agreements to repurchase $5,000 $14,046
========== ==========
</TABLE>
-11-
<PAGE> 12
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Financial Bancorp, Inc. is the holding company for Financial Federal Savings
Bank, which converted to a federally chartered stock savings association on
August 17, 1994 and to a federally chartered stock savings bank on October 20,
1994. The Bank is headquartered in Long Island City, New York and operates five
full service branches, four in Queens and one in Brooklyn. Deposits of the Bank
are insured up to the applicable limits of the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is subject to regulation by the Office of Thrift
Supervision ("OTS") and the FDIC. The Company is listed on The Nasdaq Stock
Market under the symbol "FIBC".
The Company's results of operations are generally dependent on the Bank. The
Bank's sources of earnings primarily consist of net interest income, which is
the difference between the income earned on interest-earning assets and the
expenses paid on interest-bearing liabilities. The results of operations are
also affected, to a lesser extent, by non-interest income, which includes loan
servicing fees and charges, and other miscellaneous income. In addition,
operations are impacted by non-interest expenses such as employee salaries and
benefits, office occupancy, data processing and federal deposit insurance
premiums.
The Bank is primarily engaged in the origination of one-to-four family
residential mortgage loans, multi-family and commercial real estate mortgage
loans, and to a lesser extent residential and commercial construction loans. As
a community-oriented institution, the Bank is generally engaged in attracting
retail deposits from the areas surrounding its branch offices. In addition, the
Bank may borrow funds from the FHLB or through reverse repurchase agreements.
These funds are then generally concentrated in lending activities throughout the
New York City metropolitan area.
FINANCIAL CONDITION
As of March 31, 1997, the Company's total assets were $269.2 million,
representing a $2.4 million, or a 0.9% increase from $266.8 million as of
September 30, 1996. Loans receivable increased by $6.9 million, or 4.9%, to
$147.2 million at March 31, 1997, from $140.3 million at September 30, 1996. The
increase in loans receivable was partially offset by a $5.0 million, or a 9.3 %
decrease in investment securities, inclusive of available for sale, to $49.7
million at March 31, 1997, from $54.7 million at September 30, 1996. Asset
growth was funded by a $3.3 million increase in deposits to $206.2 million at
March 31, 1997, from $202.9 million at September 30, 1996. Furthermore, advances
from the FHLB decreased by $1.7 million to $8.0 million, at March 31, 1997, as
compared to $9.7 million at September 30, 1996. Securities sold under agreements
to repurchase decreased by $9.0 million, to $5.0 million at March 31, 1997, from
$14.0 million at September 30, 1996. The treasury tax and loan account and other
short-
-12-
<PAGE> 13
term borrowings increased by $10.1 million, to $20.0 million at March 31, 1997,
from $9.9 million at September 30, 1996.
At March 31, 1997, investment securities, including available for sale,
consisted primarily of medium term U.S. Government Agency obligations, with
features such as calls and/or interest rate "step-ups". Investment securities
available for sale increased by $2.0 million, to $5.6 million at March 31, 1997,
from $3.6 million at September 30, 1996, while investment securities held to
maturity, decreased by $7.1 million to $44.0 million, at March 31, 1997, from
$51.1 at September 30, 1996. Mortgage-backed securities available for sale
increased by $4.7 million at March 31, 1997, to $9.7 million, from $5.0 million
at September 30, 1996, while mortgage-backed securities held to maturity
decreased by $4.6 million, at March 31, 1997, to $45.2 million, from $49.8
million at September 30, 1996. The decrease in the investment securities held to
maturity is due to $16.0 million of callable bonds which were called by their
issuer. The decrease in mortgage-backed securities held to maturity is due to
normal repayments experienced during the period. As of March 31, 1997, loans
receivable increased by $6.9 million, or 4.9%, to $147.2 million, from $140.3
million as of September 30, ]996. This increase in loans receivable primarily
resulted from $15.1 million of loan originations.
Non-performing loans totaled $5.3 million, or 3.53% of total loans at March
31, 1997 as compared to $4.6 million, or 3.15% of total loans at September 30,
1996. Of the $5.3 million in non-performing loans, $2.5 million consists of the
balance of Thrift Association Service Corporation ("TASCO") pass-through
securities. In May 1996, the FDIC stated that they would not continue the
pass-through of principal and interest payments whether or not collected. The
most recent information received stated that the scheduled principal and
interest payments would resume in April 1997, however, interest and principal in
arrears would not be paid. At March 31, 1997 non-performing assets totalled $7.4
million, or 2.77% of total assets, as compared to $7.1 million, or 2.67% of
total assets as of September 30, 1996. The Company's allowance for loan losses
to total assets and to total loans equalled 16.97% and 0.84%, respectively, as
compared to 22.11% and 1.09%, respectively, at September 30, 1996.
Total deposits at March 31, 1997, increased by $3.3 million, or 1.6%, to $206.2
million from $202.9 million at September 30, 1996. Furthermore, advances from
the FHLB, decreased by $1.7 million, or 17.7%, to $8.0 million at March 31,
1997. During the six month period ended March 31 1997, securities sold under
agreements to repurchase decreased by $9.0 million, to $5.0 million, or 64.4%,
from $14.0 million at September 30, 1996. The treasury tax and loan account and
other short term borrowings increased by $10.1 million to $20.0 million at March
31, 1997 from $9.9 million at September 30, 1996.
Total stockholders' equity was $26.2 million at March 31, 1997, reflecting a
$405,000 or a 1.6% increase from $25.8 million at September 30, 1996. The
increase in stockholders' equity was the result of retained earnings, partially
offset by the repurchase of the Company's common stock and the payment of the
Company's regular quarterly cash dividend. At March 31, 1997, the Company had
1,747,686 common shares outstanding. Since September 30, 1996, the Company's
tangible and stated book value per share of common stock increased by $0.59, to
$14.91 and $14.99, from $14.32 and $14.40, respectively, at September 30,
1996.
-13-
<PAGE> 14
ANALYSIS OF OPERATIONS
COMPARISON OF THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
Net income for the three months ended March 31, 1997 totalled $579,526, or $0.35
per share as compared to $494,601, or $0.27 per share for the quarter ended
March 31, 1996. The $84,925 or 17.2% increase was primarily attributable to a
$255,696, or 11.5% increase in net interest income and a $78,973, or an 85.9%
increase in non-interest income, offset in part by a $306,166 increase in
non-interest expense, during the quarter ended March 31, 1997. For the six month
period ended March 31, 1997, net income increased $194,606, or 19.9%, to
$1,172,965, or $0.70 per share, from $978,359, or $0.53 per share, for the same
period in 1996.
The return on average assets equalled 0.88% and 0.89% for the quarter and the
six months ended March 31, 1997, respectively, as compared to 0.82% and 0.83%
for the quarter ended and the six months ended March 31, 1996, respectively. The
Company's return on average equity equalled 8.92% and 9.06%, for the quarter and
six months ended March 31, 1997, respectively, compared with 7.35 % and 7.22 %,
for the quarter and the six months ended March 31, 1996, respectively.
Net interest income increased $255,696, or 11.5 %, to $2.5 million for the
quarter ended March 31, 1997, from $2.2 million for the quarter ended March 31,
1996. For the six month period ended March 31, 1997, net interest income
increased $569,198, or 13.0%, to $4.9 million, from $4.4 million for the same
period in 1996. The increase in net interest income for the quarter and six
months ended March 31, 1997, was primarily due to the continued leveraging of
the balance sheet, utilizing low cost borrowings and deposit growth to fund
mortgage loan originations and purchases of investment securities and
mortgage-backed securities.
As a result, for the quarter ended March 31, 1997, average interest-earning
assets were $250.7 million, which represents a $20.4 million, or an 8.9%
increase, from $230.3 million, for the same period in 1996. The increase in
average interest-earning assets was offset by a $16.6 million, or an 8.0%
increase in average interest-bearing liabilities to $224.2 million for the
quarter ended March 31, 1997, from $207.6 million for the same quarter last
year. For the six months ended March 31, 1997, average interest-earning assets
increased by $27.5 million, or 12.2%, to $252.8 million, from $225.3 million for
the same period last year. The increase in average interest-earning assets was
offset by a $26.1 million, or 13.0%, increase in average interest-bearing
liabilities to $227.4 million for the six months ended March 31, 1997, as
compared to $201.3 million for the same six month period in 1996.
The Company's net interest margin increased by 10 basis points to 3.96%, for the
quarter ended March 31, 1997, as compared to 3.86% for the quarter ended March
31, 1996. For the six month period ended March 31, 1997, the net interest margin
increased by 3 basis points to 3.90%, as compared to 3.87% for the same period
in 1996. The net interest spread increased 2 basis points and 3 basis points to
3.46% and 3.47%, for the quarter and the six months ended March 31, 1997,
respectively, as compared with 3.44% and 3.44% for the same periods in 1996,
respectively. The increase in the net interest margin and net interest spread is
reflective
-14-
<PAGE> 15
of the positive results obtained by the Company's continuing efforts to build
its loan portfolio. The average yield on interest-earning assets was 7.67% for
the quarter ended March 31, 1997, as compared to 7.64% for the quarter ended
March 31, 1996, and the average cost of interest bearing liabilities was 4.21%
for the quarter ended March 31, 1997, as compared to 4.19% for the quarter ended
March 31, 1996. For the six month period ended March 31, 1997, the average yield
on interest-earning assets was 7.69%, as compared to 7.64% for the same period
in 1996, and the average cost of interest-bearing liabilities was 4.22%, as
compared to 4.20% for the same period in 1996.
The Company's provision for loan losses for the quarter ended and the six months
ended March 31, 1997 increased by $20,000 and $65,600, to $96,000 and $195,600,
respectively. The increase in provisions for loan losses reflects managements
on-going effort to maintain adequate allowances.
Non-interest income, for the quarter ended March 31, 1997, increased $78,973, or
85.9%, to $170,917 as compared to $91,944 for the quarter ended March 31, 1996.
For the six month period ended March 31, 1997, non-interest income increased
$142,022, or 84.0%, to $311,126 from $169,104 for the six month period ended
March 31, 1996. The increase in non-interest income for the quarter ended March
31, 1997, is primarily attributable to the $52,303 increase in income realized
from additional fee income and automated teller machines (ATM's) related service
fees and a $45,519 increase in income realized from the Company's real estate
operations. The $142,022 increase in non-interest income for the six months
ended March 31, 1997, is primarily attributable to the $95,511 increase in fee
related income and the $40,076 increase in income realized from real estate
operations.
Non-interest expenses increased by $306,166, or 22.6%, to $1.7 million for the
quarter ended March 31. 1997, from $1.4 million for the same period in 1996.
During the six month period ended March 31, 1997, non-interest expenses
increased by $389,401, or 14.7%, to $3.0 million, from $2.7 million for the six
month period ended March 31, 1996.
For the quarter ended March 31, 1997, salaries and employee benefits increased
by $338,739, or 50.l% to $1.0 million, from $664,677 for the same period in
1996. The increase in salaries and employee benefits is primarily attributable
to a one-time charge of $268,000 pursuant to the employment contract with the
former Executive Vice President and Chief Operating Officer, in addition to the
reinstatement of the Company's bonus accrual and additional costs associated
from the amortization and appreciation of shares in the Company's stock-related
benefit plans. For the six months ended March 31, 1997, salaries and employee
benefits increased by $434,281, or 33.1%, to $1.7 million from $1.3 million for
the six months ended March 31, 1996.
For the quarter ended March 31, 1997, occupancy expense increased by $19,364 to
$138,217 from $118,853 for the same period last year. For the six months ended
March 31, 1997, occupancy expense increased by $39,395, to $270,728 from
$231,333 for the same period in 1996. The increase in occupancy cost is
primarily attributable to the increased rental costs associated with one of the
Bank's branch offices. Equipment expense for the quarter and six months ended
March 31, 1997, increased by $22,239 and $34,935, to $160,999 and $311,345,
-15-
<PAGE> 16
respectively, from $138,760 and $276,410, respectively for the same periods in
1996. The increase in equipment expense for the quarter and six months ended
March 31, 1997, represents costs associated with the Banks demand deposit and
check processing servicing fees and other vendor related services and contracts.
Advertising expense, for the quarter and six months ended March 31, 1997,
decreased by $13,553 and $29,015, to $6,645 and $16,052, respectively. The
Company has limited advertising expenditures in an effort to bolster current
earnings. Although non-interest expenses have increased, the ratio of operating
expenses to average assets, exclusive of the former executive's severance
payment, for the quarter and six months ended March 31, 1997, decreased 8 basis
points and 13 basis points, to 2.13% and 2.09%, respectively, as compared to
2.21 % and 2.22% for the same periods in 1996. During 1997 the Company has been
successful in controlling operating expenses, as evidenced by the efficiency
ratio of 53.4% and 53.0%, exclusive of the former executives severance payment,
for the quarter and six months ended March 31, 1997, respectively, as compared
to 57.7% and 57.2%, respectively for the same periods in 1996.
For the quarter ended March 31, 1997, income tax expense decreased by $76,422 to
$314,894 as compared to $391,316 for the same quarter in 1996, as a result of
the recent enactment of the New York State and New York City income tax
amendments. For the six month period ended March 31, 1997, income tax expense
increased by $61,613 to $831,868 as compared to $770,255 for the same period in
1996, as a result of the increase in income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain an average daily balance of liquid assets (as
defined in the regulations) equal to a monthly average of not less than the
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 5%. OTS regulations also
require each member savings institution to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1 %) of the total
of its net withdrawable deposit accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The liquidity of the Bank at March 31, 1997 was 11.5%, which
exceeded the then applicable 5% liquidity requirement. It's short-term liquidity
ratio at March 31. 1997, was 3.3%.
The primary investment activities of the Bank are the origination of mortgage
loans and the purchase of investment securities and mortgage-backed securities.
The Company's primary sources of funds are the Bank's deposit accounts, proceeds
from principal and interest payments on loans and investments, and to a lesser
extent, advances and overnight borrowings from the FHLB, as well as reverse
repurchase agreements. While maturities and scheduled amortization of loans,
mortgage-backed securities and investment securities are predictable sources of
funds, deposit flows, mortgage prepayments and callable investment securities
are greatly influenced by market interest rates, general economic conditions and
competition within the financial industry.
At March 31, 1997, the Bank had outstanding loan commitments to originate
mortgage loans of $5.2 million and $5.0 million in commitments to purchase
investment securities. Management anticipates that it will have sufficient funds
available and borrowing capability to meet its current
-16-
<PAGE> 17
loan originations and commitments to purchase investment securities.
Certificates of deposit, which are scheduled to mature in one-year or less from
March 31, 1997 totalled $54.6 million, of which $16.3 million represent "Silver
Certificate of Deposit" accounts, which allow one withdrawal of principal per
quarter without an early withdrawal penalty for direct deposit customers 62
years of age or older. The Bank generally maintains competitive pricing of its
deposits in order to maintain a steady deposit growth balance.
Although the OTS capital regulations require savings institutions to meet a 1.5%
tangible capital ratio and a 3.0% leverage (core) capital ratio, the prompt
corrective action standards also establish, in effect, a minimum 2.0% tangible
capital standard, a 4.0% leverage (core) capital ratio (3.0% for institutions
receiving the highest rating on the CAMEL financial institution rating system).
The Bank's tangible capital and core capital totalled $20.7 million, or 7.43% at
March 31, 1997, far in excess of the regulatory requirements. The Bank's
risk-based capital ratio as of March 31, 1997, was $20.7 million, or 18.94%,
also well in excess of the regulatory capital requirement of 8.0%.
-17-
<PAGE> 18
FINANCIAL BANCORP, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not presently engaged in any legal
proceeding of a material nature.
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
The Company held its Annual Meeting of Shareholders on January 22,
1997. At the said meeting 1,747,686 shares of Common Stock were
eligible to vote, of which 1,577,351 shares, were present in person
or by proxy. The following matters were voted upon at the Annual
Meeting and the number of affirmative votes, negative votes and
abstentions with respect to the matters are as follows:
1. At the Annual Meeting, one director was elected for a three year
term. The nominee was Peter S. Russo.
FOR WITHHELD
--- --------
Peter S. Russo 1,560,172 17,179
The names of each of the directors whose term of office continued
after the Annual Meeting and their respective term expirations are
as follows:
Dominick L. Segrete 1998
Frank S. Latawiec 1998
Richard J. Hickey 1999
Raymond M. Calamari 1999
2. The appointment of Radics & Co., LLC as independent auditors of
Financial Bancorp, Inc. for the fiscal year ending September 30,
1997, was ratified and approved in all respects.
FOR AGAINST ABSTAIN
--- ------- -------
1,566,484 9,267 1,600
Item 5. Other information
-18-
<PAGE> 19
On September 27, 1996, the Company announced that it received
regulatory approval from the Office of Thrift Supervision to
commence its fifth repurchase program. The Company is authorized to
purchase up to 89,531 or 5% of its common stock outstanding through
open-market transactions, subject to the availability of stock,
prior to August 17, 1997. Since September 27, 1996, the Company
repurchased 77,200 shares at an average price of $15.01.
On February 20, 1997, the Company announced that its Board of
Directors unanimously elected Peter S. Russo as Chairman of the
Board. In addition, the Company's Board of Directors unanimously
elected Salvatore Farenga as a member of the Board.
On April 23, 1997, the Holding Company declared its regular
quarterly cash dividend for the quarter ended March 31, 1997, of
$0.10 per share, payable on May 20, 1997 to stockholders of record
on May 6, 1997.
Item 6. (A) Exhibits
Exhibit 3.1 Certificate of Incorporation of Financial
Bancorp, Inc. *
Exhibit 3.2 Bylaws of Financial Bancorp, Inc. *
Exhibit 11 Earnings Per Share
Exhibit 27 Financial Data Schedule
(B) Reports on Form 8-K
On March 13, 1997 the Company filed a Report on Form 8-K related to
the resignation of its Executive Vice President and Chief Operating
Officer, Irene C. Greco in order to persue other business interests.
Ms. Greco received severance payments equivalent to the compensation
she would have received under her existing employment agreements
with the Company and Bank.
-19-
<PAGE> 20
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.
Financial Bancorp, Inc.
(Registrant)
Date: May 15, 1997 By: /s/ Frank S. Latawiec
------------------------------
Frank S. Latawiec
President and Chief
Executive Officer
Date: May 15, 1997 By: /s/ P. James O'Gorman
------------------------------
P. James O'Gorman
Executive Vice President and
Chief Financial Officer
-21-
<PAGE> 1
Item 6.
- -------
Exhibit 11
----------
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
March 31, 1997 March 31, 1997
----------------- ----------------
COMPUTATION OF PER SHARE EARNINGS
<S> <C> <C>
Net income $579,526 $1,172,965
======== ==========
Weighted average common shares outstanding 1,635,800 1,644,200
Common stock equivalents due to dilutive effect of stock options 35,900 35,900
------ ------
Total weighted average common shares and equivalents outstanding 1,671,700 1,680,100
========= =========
Earnings per common share and common share equivalent $0.35 $0.70
===== =====
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000855932
<NAME> FINANCIAL BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,462,256
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,975,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,308,041
<INVESTMENTS-CARRYING> 89,265,401
<INVESTMENTS-MARKET> 87,528,000
<LOANS> 147,217,588
<ALLOWANCE> 1,263,850
<TOTAL-ASSETS> 269,197,133
<DEPOSITS> 206,179,787
<SHORT-TERM> 33,000,000
<LIABILITIES-OTHER> 3,825,230
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 269,197,133
<INTEREST-LOAN> 5,865,708
<INTEREST-INVEST> 3,818,362
<INTEREST-OTHER> 37,178
<INTEREST-TOTAL> 9,721,248
<INTEREST-DEPOSIT> 3,945,468
<INTEREST-EXPENSE> 842,335
<INTEREST-INCOME-NET> 4,933,445
<LOAN-LOSSES> 195,600
<SECURITIES-GAINS> 26,353
<EXPENSE-OTHER> 3,046,110
<INCOME-PRETAX> 2,004,833
<INCOME-PRE-EXTRAORDINARY> 2,004,833
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,172,965
<EPS-PRIMARY> $0.70
<EPS-DILUTED> $0.70
<YIELD-ACTUAL> 7.67%
<LOANS-NON> 5,282,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,672,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,263,850
<ALLOWANCE-DOMESTIC> 1,263,850
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 711,850
</TABLE>
