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 June 30, 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 (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 1,722,031 shares of the Registrant's common stock
outstanding as of August 13, 1997.
1
<PAGE>
FINANCIAL BANCORP, INC.
Form 10-Q
Index
<TABLE>
<CAPTION>
Part I - Financial Information Page
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of June 30, 1997 (Unaudited) and September 30, 1996 3
Consolidated Statements of Income for the
Three and Nine Months ended June 30, 1997 and 1996 (Unaudited) 4
Consolidated Statement of Changes in
Stockholders' Equity Nine Months
ended June 30, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Nine Months ended June 30, 1997 and 1996 (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
Not applicable.
Item 5. Other Information 18
Item 6. Reports on Form 8-K
None. 18
Exhibits 18
Exhibit 11: Computation of per share earnings 19
Signature Page 20
</TABLE>
2
<PAGE>
FINANCIAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
--------------- ---------------
<S> <C>
Assets
Cash and amounts due from depository institutions $2,960,078 $2,917,223
Federal funds sold and securities purchased under agreements to resell 5,350,000 2,185,000
--------------- ---------------
Total cash and cash equivalents 8,310,078 5,102,223
Investment securities available for sale 722,750 3,608,125
Investment securities held to maturity, net; estimated fair value of $54,861,000 and
$49,903,000 at June 30, 1997 and September 30, 1996, respectively 55,359,764 51,122,128
Mortgage-backed securities available for sale 9,731,836 5,016,112
Mortgage-backed securities held to maturity, net; estimated fair value of $43,472,500
and $49,901,000 at June 30, 1997 and September 30, 1996, respectively 42,975,576 49,836,734
Loans receivable, net 153,223,601 140,314,158
Real estate owned, net 137,006 377,910
Investments in real estate, net 3,516,509 3,493,153
Premises and equipment, net 2,503,736 2,522,264
Federal Home Loan Bank of New York stock, at cost 1,835,000 1,675,800
Accrued interest receivable, net 1,841,838 1,788,970
Other assets 2,327,396 1,904,945
--------------- ---------------
Total assets $282,485,090 $266,762,522
=============== ===============
Liabilities and stockholders' equity
Deposits $209,377,801 $202,883,766
Advance payments by borrowers for taxes and insurance 1,136,854 1,063,036
Advances from Federal Home Loan Bank of New York 8,000,000 9,725,000
Securities sold under agreements to repurchase 15,000,000 14,046,000
Treasury tax and loan account and other short term borrowings 19,951,645 9,880,970
Other liabilities 2,578,274 3,376,552
--------------- ---------------
Total liabilities 256,044,574 240,975,324
--------------- ---------------
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,
1,722,031 and 1,790,622 shares outstanding at June 30, 1997
and September 30, 1996, respectively 21,850 21,850
Additional paid-in capital 20,197,251 20,151,858
Retained earnings - substantially restricted 13,602,887 12,218,607
Common stock acquried by Employee Stock Ownership Plan (ESOP) (1,052,030) (1,173,422)
Common stock acquired by Recognition & Retention Plan (RRP) (352,021) (454,221)
Unrealized gain (loss) on securities available for sale, net of income taxes 47,591 (488)
Treasury stock, at cost; 462,969 and 394,378 shares at June 30, 1997 and
at September 30, 1996, respectively (6,025,012) (4,976,986)
--------------- ---------------
Total stockholders' equity 26,440,516 25,787,198
--------------- ---------------
Total liabilities and stockholders' equity $282,485,090 $266,762,522
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
FINANCIAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------------------------------------
JUNE 30, JUNE 30,
-------------------------------- ---------------------------------
1997 1996 1997 1996
-------------- -------------- --------------- ---------------
<S> <C>
Interest income:
Loans $3,088,028 $2,723,674 $8,953,736 $7,562,761
Mortgage-backed securities 938,701 957,329 2,864,489 3,042,021
Investments and other interest-earning assets 1,024,865 837,766 2,917,439 2,499,764
Federal funds sold and securities purchased
under agreements to resell 18,217 13,086 55,395 32,321
-------------- -------------- --------------- ---------------
Total interest income 5,069,811 4,531,855 14,791,059 13,136,867
-------------- -------------- --------------- ---------------
Interest expense:
Deposits 2,034,239 1,867,413 5,979,707 5,658,326
Borrowings 492,858 263,534 1,335,193 713,386
-------------- -------------- --------------- ---------------
Total interest expense 2,527,097 2,130,947 7,314,900 6,371,712
Net interest income 2,542,714 2,400,908 7,476,159 6,765,155
Provision for loan losses 111,000 159,453 306,600 289,453
-------------- -------------- --------------- ---------------
Net interest income after provision for loan losses 2,431,714 2,241,455 7,169,559 6,475,702
-------------- -------------- --------------- ---------------
Non-interest income (loss):
Fees and service charges 145,392 111,026 412,747 282,870
Gain on sale of investment securities 3,034 31,009 29,387 51,029
Gain (loss) from real estate operations 15,400 (265,797) 13,428 (307,845)
Miscellaneous 11,898 14,225 31,288 33,513
-------------- -------------- --------------- ---------------
Total non-interest income 175,724 (109,537) 486,850 59,567
-------------- -------------- --------------- ---------------
Non-interest expenses:
Salaries and employee benefits 734,612 647,863 2,480,075 1,959,045
Net occupancy expense of premises 126,445 121,744 397,173 353,077
Equipment 159,002 141,559 470,347 417,969
Advertising 7,952 12,880 24,004 57,947
(Gain) Loss from real estate owned (79) 36,768 8,234 82,715
Federal insurance premium 30,425 98,051 142,653 285,832
Miscellaneous 387,066 272,470 967,075 829,487
-------------- -------------- --------------- ---------------
Total non-interest expenses 1,445,423 1,331,335 4,489,561 3,986,072
-------------- -------------- --------------- ---------------
Income before income taxes 1,162,015 800,583 3,166,848 2,549,197
Income taxes 500,637 295,388 1,332,505 1,065,643
-------------- -------------- --------------- ---------------
Net income $661,378 $505,195 $1,834,343 $1,483,554
============== ============== =============== ===============
Net income per common share & common stock equivalents $0.40 $0.29 $1.10 $0.82
============== ============== =============== ===============
Weighted average number of common shares & common
stock equivalents 1,652,600 1,748,700 1,670,800 1,805,300
============== ============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
FINANCIAL BANCORP. INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Retained Common Common
Additional Earnings - Stock Stock
Common Paid-in Substantially Acquired Acquired
Stock Capital Restricted By ESOP By RRP
----------- -------------- ---------------- ----------------- ------------
<S> <C>
Balance at September 30, 1996 $21,850 $20,151,858 $12,218,607 ($1,173,422) ($454,221)
Net Income for the nine months
ended June 30, 1997 - - 1,834,343 - -
Purchase of 77,200 shares of
treasury stock - - - - -
Amortization relating to allocation of
ESOP stock and earned portion
of RRP stock - 74,560 - 121,392 102,200
Adjustment to valuation reserve on
securities available for sale - - - - -
Stock issued upon exercise of stock options - (29,167) - - -
Cash dividends paid on common stock - - (450,063) - -
----------- -------------- ---------------- ----------------- ------------
Balance at June 30, 1997 $21,850 $20,197,251 $13,602,887 ($1,052,030) ($352,021)
=========== ============== ================ ================= ============
</TABLE>
<TABLE>
<CAPTION>
Unrealized (Loss) Gain
on Securities
Available For Sale, Treasury
Net of Income Taxes Stock Total
--------------------- -------------- --------------
<S> <C>
Balance at September 30, 1996 ($488) ($4,976,986) $25,787,198
Net Income for the nine months
ended June 30, 1997 - - 1,834,343
Purchase of 77,200 shares of
treasury stock - (1,158,463) ($1,158,463)
Amortization relating to allocation of
ESOP stock and earned portion
of RRP stock - - $298,152
Adjustment to valuation reserve on
securities available for sale 48,079 - $48,079
Stock issued upon exercise of stock options - 110,437 $81,270
Cash dividends paid on common stock - - (450,063)
------------------- -------------- --------------
Balance at June 30, 1997 $47,591 ($6,025,012) $26,440,516
=================== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FINANCIAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------------
JUNE 30,
----------------------------------------------
1997 1996
----------------- ---------------
<S> <C>
Cash flow from operating activities:
Net income $1,834,343 $1,483,554
Adjustments to reconcile net income to net cash
provided by operating activities
(Gain) on sale of real estate owned (9,262) (5,837)
(Gain) on sale of securities available for sale (29,387) (51,029)
Net accretion of discounts on investment securities (150,205) (38,317)
Net amortization of premiums on mortgage-backed securities 27,303 4,923
Accretion of deferred loan fees and discounts (89,911) (67,587)
Depreciation and amortization of premises
and equipment 226,841 223,998
Provision for loan losses 306,600 289,453
Provision for losses on real estate owned 0 43,229
Cost of ESOP and RRP 298,152 226,763
Writedown of investment in real estate 14,673 262,500
Deferred income taxes (76,881) 18,282
(Increase) in accrued interest receivable, net (52,866) (199,298)
(Increase) in refundable income taxes (240,000) (251,524)
(Increase) decrease in other assets (143,348) 30,726
(Decrease) in other liabilities (798,278) (82,843)
--------------------- ---------------------
Net cash provided by operating activities 1,117,774 1,886,993
--------------------- ---------------------
Cash flows from investing activities:
Purchases of investment securities available for sale (4,938,672) (8,596,719)
Purchases of investment securities held to maturity (20,091,000) (43,040,000)
Proceeds from sales of investment securities available for sale 7,890,781 7,028,594
Proceeds from maturities of investment securities 16,000,000 31,930,000
Purchases of mortgage-backed securities available for sale (5,046,497) (5,068,148)
Proceeds from principal repayments on
mortgage-backed securities 7,216,705 9,718,721
Purchases of mortgage loans (6,668,211) (14,873,829)
Loan originations, net of repayments (6,498,927) (12,403,138)
Additions to premises and equipment (199,774) (1,088,198)
Proceeds from sale of and insurance recoveries
on real estate owned 276,499 65,486
Capitalized expenses on real estate owned 0 (10,873)
Purchase of Federal Home Loan Bank of N.Y. stock (159,200) (252,800)
Net decrease in investments in real estate (31,895) (29,500)
--------------------- ---------------------
Net cash provided by investing activities (12,250,191) (36,620,404)
--------------------- ---------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
FINANCIAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------------
JUNE 30,
-----------------------------------------------
1997 1996
------------------- ---------------------
<S> <C>
Cash flows from financing activities:
Net increase in deposits $6,494,035 $14,154,567
Proceeds from FHLB of NY advances 0 9,200,000
Repayments of FHLB of NY advances (1,200,000) 0
Net (decrease) increase in short-term borrowings from FHLB of NY (525,000) 1,250,000
Proceeds from reverse repurchase agreements 15,000,000 25,828,750
Repayments of reverse repurchase agreements (14,046,000) (25,226,250)
Net increase in other short-term borrowings 10,070,675 9,437,203
Increase in advance payments by
borrowers for taxes and insurance 73,818 67,201
Dividends paid (450,063) (353,476)
Reissuance of treasury stock 81,270 0
Purchase of treasury stock (1,158,463) (2,304,319)
------------------- ---------------------
Net cash provided by financing activities 14,340,272 32,053,676
------------------- ---------------------
Net increase (decrease) in cash and cash equivalents 3,207,855 (2,679,735)
Cash and cash equivalents - beginning 5,102,223 7,853,316
------------------- ---------------------
Cash and cash equivalents - ending $8,310,078 $5,173,581
=================== =====================
Supplemental schedule of noncash investing and financing activities:
Loans transferred to real estate owned $137,006 $247,469
=================== =====================
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 $85,855 ($13,084)
Deferred income taxes (37,776) 5,757
------------------- ---------------------
$48,079 ($7,327)
=================== =====================
Supplemental disclosures of cash flow information:
Cash paid (net of refunds received) during the year for:
Federal, state and city income taxes 1,649,384 1,299,000
=================== =====================
Interest paid on deposits and borrowed funds $7,255,336 $6,361,568
=================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
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 "registrant" or 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. 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 nine months ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the entire
fiscal year.
Certain amounts for the three and nine months ended June 30, 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.
In February 1997, the FASB issued SFAS No. 128, "Earnings per share." SFAS No.
128 establishes standards for computing and presenting earnings per share
("EPS") and applies to
8
<PAGE>
entities with publicly held common stock or potential common stock. SFAS No.
128 supersedes the standards for computing EPS previously found in Accounting
Principles ("APS") Opinion No. 15, "Earnings per Share." SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. SFAS No.
128 requires reinstatement of all prior-period EPS data presented. SFAS No.
128, when adopted, is not expected to have material adverse effect on the
Company's consolidated financial condition and statement of operations.
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 June 30, 1997 and
September 30, 1996, respectively.
<TABLE>
<CAPTION>
JUNE 30, 1997 SEPTEMBER 30, 1996
---------------------------------- --------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------------- --------------- -------------- ---------------
(in thousands)
<S> <C>
Investment Securities:
Available for sale
U.S. Treasury securities $0 $0 $2,919 $2,908
Corporate preferred stock 700 723 700 700
Less: Unrealized gain (loss) 23 - (11) -
--------------- -------------- --------------- ---------------
Total investment securities available for sale $723 $723 $3,608 $3,608
=============== ============== =============== ===============
Held to maturity
U.S. Government and agency obligations $55,360 $54,861 $51,122 $49,903
--------------- -------------- --------------- ---------------
Total investment securities held to maturity $55,360 $54,861 $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 June
30, 1997 and September 30, 1996, respectively.
<TABLE>
<CAPTION>
JUNE 30, 1997 SEPTEMBER 30, 1996
---------------------------------- --------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------------- --------------- -------------- ---------------
(in thousands)
<S> <C>
Mortgage-backed securities:
Available for sale
FHLMC certificates $4,651 $4,701 $5,006 $5,016
FNMA certificates 5,019 5,031 - -
Add: Unrealized gain 62 - 10 -
------------ -------------- ---------------- ----------------
Total mortgage-backed securities available for sale $9,732 $9,732 $5,016 $5,016
============ ============== ================ ================
Held to maturity
GNMA certificates $24,440 $24,792 $27,106 $27,198
FHLMC certificates 14,379 14,523 17,999 17,960
FNMA certificates 2,212 2,213 2,697 2,708
Other pass-through certificates 1,945 1,945 2,035 2,035
------------ -------------- ---------------- ----------------
Total mortgage-backed securities held to maturity $42,976 $43,473 $49,837 $49,901
============ ============== ================ ================
</TABLE>
9
<PAGE>
Loans Receivable, net
The following table sets forth the composition of the Company's loan portfolio
at June 30, 1997 and September 30, 1996, respectively.
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
--------------- ---------------
(in thousands)
<S> <C>
Real estate mortgages:
One-to-four family $125,473 $115,500
Equity and second mortgages 2,555 2,780
Multi-family 6,123 5,622
Commercial 18,583 15,301
--------------- --------------
152,734 139,203
--------------- --------------
Construction/land 2,189 4,920
--------------- --------------
Consumer:
Passbook or certificate 176 171
Home improvement 4 7
Student education guaranteed by
the State of New York 216 202
Personal 31 21
--------------- --------------
427 401
Commercial, including lines of credit 137 168
--------------- --------------
Total loans 155,487 144,692
--------------- --------------
Less: Loans in process 643 2,509
Allowance for loan losses 1,375 1,573
Deferred loan fees and discounts 245 296
--------------- --------------
2,263 4,378
--------------- --------------
Total loans receivable, net $153,224 $140,314
=============== ==============
</TABLE>
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 June 30, 1997. The following table sets forth the
composition of the Bank's FHLB advances as of June 30, 1997 and September 30,
1996, respectively.
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
------------------- -------------------
(in thousands)
<S> <C>
FHLB advances:
Fixed rate:
5.133% due February 1997 $0 $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>
10
<PAGE>
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 June 30, 1997 and September 30, 1996,
respectively.
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
------------------- -------------------
(in thousands)
<S> <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 -
5.813% due May 2002, callable May 1998 10,000 -
------------------- -------------------
Total securities sold under agreements to repurchase $15,000 $14,046
=================== ===================
</TABLE>
11
<PAGE>
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. Financial Federal is headquartered in Long Island City, New York and
operates four full service branches 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
interest 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 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 June 30, 1997, the Company's total assets were $282.5 million,
representing a $15.7 million, or a 5.9%, increase from $266.8 million as of
September 30, 1996. Loans receivable increased by $12.9 million, or 9.2%, to
$153.2 million at June 30, 1997, from $140.3 million at September 30, 1996.
Investment securities, inclusive of available for sale, increased by $1.4
million to $56.1 million at June 30, 1997, from $54.7 million at September 30,
1996. The increase in total assets was modestly offset by a $2.1 million, or a
3.9% decrease in mortgage-backed securities, inclusive of available for sale, to
$52.7 million at June 30, 1997, from $54.8 million at September 30, 1996. Asset
growth was funded by a $6.5 million increase in deposits to $209.4 million at
June 30, 1997, from $202.9 million at September 30, 1996. Furthermore, advances
from the FHLB decreased by $1.7 million, to $8.0 million, at June 30, 1997, as
compared to $9.7 million at September 30, 1996. Securities sold under agreements
to repurchase increased by $1.0 million, to $15.0 million at June 30, 1997, from
$14.0 million at
12
<PAGE>
September 30, 1996. The treasury tax and loan account and other short-term
borrowings increased by $10.1 million, to $20.0 million at June 30, 1997, from
$9.9 million at September 30, 1996.
Total deposits at June 30, 1997, increased by $6.5 million, or 3.2%, to $209.4
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 June 30, 1997,
from $9.7 million at September 30, 1996. During the nine month period ended June
30, 1997, the treasury tax and loan account and other short-term borrowings
increased by $10.1 million, to $20.0 million at June 30, 1997, from $9.9 million
at September 30, 1996. In addition, securities sold under agreements to
repurchase increased by $1.0 million, or 6.8%, to $15.0 million at June 30,
1997, from $14.0 million at September 30, 1996. The increase in deposits and
borrowings enabled the Bank to fund new loan originations, to purchase
one-to-four family adjustable rate loans and to purchase investment and
mortgage-backed securities.
Total stockholders' equity was $26.4 million at June 30, 1997, reflecting a
$653,000, or a 2.5% increase, from $25.8 million at September 30, 1996. The
increase in stockholders' equity was the result of earnings, partially offset by
the repurchase of the Company's common stock and the payment of the Company's
quarterly cash dividend. At June 30, 1997, the Company had 1,722,031 common
shares outstanding. During the nine months ended June 30, 1997, the Company's
tangible and stated book value per share of common stock increased by $0.96 and
$0.95, respectively, to $15.28 and $15.35, from $14.32 and $14.40, respectively,
at September 30, 1996.
Non-performing loans totaled $3.0 million, or 1.94% of total loans at June 30,
1997, as compared to $5.5 million, or 3.79% of total loans at September 30,
1996. At June 30, 1997, non-performing assets totalled $5.4 million, or 1.89% of
total assets, as compared to $8.0 million, or 3.01% of total assets as of
September 30, 1996. The decrease in non-performing loans and non-performing
assets is primarily attributable to the $2.3 million balance of Thrift
Association Service Corporation ("TASCO") pass-through securities, which in
April 1997, the FDIC reinstated the pass-through of principal and interest
payments on these securities. The Company's allowance for loan losses to
non-performing assets and to total loans equalled 25.69% and 0.88%,
respectively, as compared 19.57% and 1.09%, respectively, at September 30, 1996.
ANALYSIS OF OPERATIONS
COMPARISON OF THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1997 AND 1996
Net income for the three months ended June 30, 1997 totalled $661,378, or $0.40
per share as compared to net income of $505,195, or $0.29 per share for the
quarter ended June 30, 1996. The $156,183, or 30.9% increase was primarily
attributable to a $141,806, or 5.9%, increase in net interest income and a
$285,261 increase in non-interest income, offset in part by a $114,088, or an
8.6% increase in non-interest expenses. For the nine month period ended June 30,
1997, net income increased $350,789, or 23.6%, to $1,834,343, or $1.10 per
share, from $1,483,554, or $0.82 per share for the same period in 1996. The
$350,789, or 23.7% increase
13
<PAGE>
was primarily attributable to a $711,004, or a 10.5%, increase in net interest
income and a $427,283 increase in non-interest income, offset in part by a
$503,489, or a 12.6% increase in non-interest expenses.
The return on average assets equalled 0.97% and 0.91% for the quarter ended and
the nine months ended June 30, 1997, respectively, as compared to 0.81% and
0.83% for the quarter ended and the nine months ended June 30, 1996,
respectively. The Company's return on average equity equalled 10.08% and 9.40%
for the quarter ended and nine months ended June 30, 1997, respectively,
compared with 7.57% and 7.34% for the quarter ended and the nine months ended
June 30, 1996, respectively.
Net interest income increased $141,806, or 5.9%, to $2.5 million for the quarter
ended June 30, 1997, from $2.4 million for the quarter ended June 30, 1996. For
the nine month period ended June 30, 1997, net interest income increased
$711,004, or 10.5%, to $7.5 million, from $6.8 million for the same period in
1996. The increase in net interest income for the three and nine months ended
June 30, 1997, was primarily due to the continued leveraging of the balance
sheet, by utilizing low cost borrowings and deposit growth to fund new loan
originations, loan purchases and the purchase of investment and mortgage-backed
securities.
As a result, for the quarter ended June 30, 1997, average interest-earning
assets increased by $23.6 million, or 9.9%, to $261.6 million from $238.0
million for the quarter ended June 30, 1996. The increase in average
interest-earning assets was offset by a $23.7 million, or 11.3%, increase in
average interest-bearing liabilities to $234.0 million for the quarter ended
June 30, 1997, from $210.3 million for the quarter ended June 30, 1996. For the
nine months ended June 30, 1997, average interest-earning assets increased by
$26.4 million, or 11.5%, to $256.1 million from $229.7 million for the same
period in 1996. The increase in average interest-earning assets was offset by a
$25.4 million, or 12.4%, increase in interest-bearing liabilities to $229.7
million for the nine months ended June 30, 1997, as compared to $204.3 million
for the same period in 1996.
The Company's net interest margin decreased by 14 basis points to 3.90%, for the
quarter ended June 30, 1997, as compared to 4.04% for the quarter ended June 30,
1996. For the nine month period ended June 30, 1997, the net interest margin
decreased by 4 basis points to 3.89%, from 3.93% for the same period in 1996.
The Company's net interest spread decreased 13 basis points and 3 basis points
to 3.42% and 3.44%, for the quarter ended and the nine months ended June 30,
1997, respectively, compared with 3.55% and 3.47% for the same periods in 1996,
respectively. The decline in the net interest margin and net interest rate
spread, for the quarter and nine months ended June 30, 1997, reflects the
increased leveraging of the balance sheet.
The average yield on interest-earning assets was 7.75%, for the quarter ended
June 30, 1997, as compared to 7.62% for the same period in 1996, and the average
cost of interest-bearing liabilities was 4.33% for the quarter ended June 30,
1997, as compared to 4.07% for the same period in 1996. During the nine months
ended June 30, 1997, the average yield on interest-earning assets was 7.70%, as
compared to 7.63% for the same period in 1996, and the average cost of
interest-bearing liabilities was 4.26% for the nine months ended June 30, 1997,
as compared to 4.16% for the same period in 1996.
14
<PAGE>
The Company's provision for loan losses for the quarter ended June 30, 1997,
decreased by $48,453, to $111,000, from $159,453 for the quarter ended June 30,
1996. For the nine month period ended June 30, 1997, provisions for loan losses
increased by $17,147, to $306,600, from $289,453 for the same period in 1996.
The increased provisions in fiscal 1996 was reflective of the significant
increase in loan originations and the purchase of one-to-four family mortgage
loans.
Non-interest income, for the quarter ended June 30, 1997, increased by $285,261,
to $175,724 from a loss of $109,537 for the quarter ended June 30, 1996. For the
nine months ended June 30, 1997, non-interest income increased by $427,283, to
$486,850, as compared to $59,567 for the same period in 1996. The increase in
non-interest income is primarily attributable a reduction in losses sustained on
the Bank's real estate operation, in which a service corporation of Financial
Federal Savings Bank has a one-third interest. In addition, for the three months
ended and the nine months ended June 30, 1997, fees and service charges
increased by $34,366 and $129,877, respectively, to $145,392 and $412,747,
respectively, from $111,026 and $282,870, respectively, for the same periods in
1996.
Non-interest expenses increased by $114,088, or 8.6%, for the quarter ended June
30, 1997, to $1.4 million, from $1.3 million for the same period in 1996. During
the nine month period ended June 30, 1997, non-interest expenses increased by
$503,489, or 12.6%, to $4.5 million, from $4.0 million for the same period in
1996.
For the quarter ended June 30, 1997, salaries and employee benefits increased by
$86,749, or 13.4%, to $734,612, from $647,863 for the same period 1996. For the
nine months ended June 30, 1997, salaries and employee benefits increased by
521,030, or 26.6%, to $2.5 million, from $2.0 million for the same period in
1996. The increase in salaries and employee benefits includes a one-time charge
of $268,000 pursuant to the employment contract with the former Executive Vice
President and Chief Operating Officer. The increase is also attributable to the
reinstatement of the Company's bonus accrual and additional costs associated
with the amortization and appreciation of shares in the Company's stock-related
benefit plans.
For the quarter ended June 30, 1997, occupancy expense increased by $4,701, to
$126,445 from $121,744 for the quarter ended June 30, 1996. For the nine months
ended June 30, 1997, occupancy expense increased by $44,096, to $397,173, from
$353,077 for the same period in 1996. The increase in occupancy expense is
primarily attributable to the increased rental costs associated with the Bank's
branch offices. Equipment expense, for the quarter and nine months ended June
30, 1997, increased by $17,443 and $52,378, to $159,002 and $470,347,
respectively, from $141,559 and $417,969, respectively, for the same periods in
1996. The increase in equipment expense for the quarter and nine months ended
June 30, 1997, represents increased costs associated with demand deposit and
check processing servicing fees and other vendor related services and contracts.
Advertising expense, for the quarter and nine months ended June 30, 1997,
decreased by $4,928 and $33,943, to $7,952 and $24,004, respectively, from
$12,880 and $57,947, respectively, for the same periods in 1996.
15
<PAGE>
For the quarter ended June 30, 1997, miscellaneous expense increased by
$114,596, to $387,066 from $272,470 for the quarter ended June 30, 1996. For the
nine months ended June 30, 1997, miscellaneous expense increased by $137,588 to
$967,075, from $829,487 for the same period in 1996. The increase in
miscellaneous expense for the quarter and nine months ended June 30, 1997,
represents increased compensation related legal fees and additional general and
administrative costs.
For the quarter ended and nine months ended June 30, 1997, the ratio of
operating expenses to average assets equalled 2.11% and 2.10%, exclusive of a
one-time charge for a former executive officer's severance payment,
respectively, as compared to 2.08% and 2.17%, respectively, for the same periods
in 1996. Furthermore, the Company's efficiency ratio, for the quarter and nine
months ended June 30, 1997, was 53.54% and 53.20%, exclusive of a one-time
charge for a former executive officer's severance payment, respectively, as
compared to 51.08% ad 54.29%, respectively, for the same periods in 1996.
For the quarter ended June 30, 1997, income tax expense increased by $205,249,
to $500,637 as compared to $295,388, for the same quarter in 1996. For the nine
month period ended June 30, 1997, income tax expense increased by $266,862, to
$1,332,505, from $1,065,643 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 June 30, 1997 was 12.6%, which
exceeded the applicable 5% liquidity requirement. Its short-term liquidity ratio
at June 30, 1997, was 4.9%.
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 June 30, 1997, the Bank had outstanding loan commitments to originate
mortgage loans of $5.8 million. Management anticipates that it will have
sufficient funds available and borrowing capability to meet its current loan
originations. Certificates of deposit, which are scheduled to mature in one-year
or less from June 30, 1997 totalled $70.2 million, of which $15.9 million
16
<PAGE>
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
and, when necessary supplements its deposit base with advances and other
borrowings.
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 $20.4 million, or 7.32% at
June 30, 1997, far in excess of the regulatory requirements. The Bank's
risk-based capital ratio as of June 30, 1997, was $21.6 million, or 18.86%, also
well in excess of the regulatory capital requirement of 8.0%.
17
<PAGE>
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
Not applicable.
Item 5. Other information
On July 22, 1997, the Holding Company declared its regular quarterly
cash dividend for the period ended June 30, 1997, of $0.10 per share,
payable on August 20, 1997 to stockholders of record on August 6,
1997.
Item 6. (A) Exhibits
Exhibit 3.1 Certificate of Incorporation of Financial Bancorp, Inc. *
Exhibit 3.2 By-laws of Financial Bancorp, Inc. *
Exhibit 11 Earnings Per Share
Exhibit 27 Financial Data Schedule
(B) Reports on Form 8-K
Not applicable.
* Incorporated herein by reference to Form S-1, Registration Statement, as
amended, filed on March 18, 1994, Registration Number 33-76664
18
<PAGE>
Item 6.
Exhibit 11
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
COMPUTATION OF PER SHARE EARNINGS JUNE 30, 1997 JUNE 30, 1997
----------------- -----------------
<S> <C>
Net income $661,378 $1,834,343
======== ==========
Weighted average common shares outstanding 1,620,600 1,636,300
Common stock equivalents due to dilutive effect of stock options 32,000 34,500
------ ------
Total weighted average common shares and equivalents outstanding 1,652,600 1,670,800
========= =========
Earnings per common share and common share equivalent $0.40 $1.10
===== =====
</TABLE>
19
<PAGE>
SIGNATURES
Pursuant to the requirements of The Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Financial Bancorp, Inc.
(Registrant)
Date: August 14, 1997 By: /s/ Frank S. Latawiec
________________________
Frank S. Latawiec
President and Chief
Executive Officer
Date: August 14, 1997 By: /s/ P. James O'Gorman
________________________
P. James O'Gorman
Executive Vice President and
Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This legend contains summary information extracted from
the Form 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,960,078
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,350,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,454,586
<INVESTMENTS-CARRYING> 98,335,340
<INVESTMENTS-MARKET> 98,333,500
<LOANS> 153,223,601
<ALLOWANCE> 0
<TOTAL-ASSETS> 282,485,090
<DEPOSITS> 209,377,801
<SHORT-TERM> 42,951,645
<LIABILITIES-OTHER> 3,715,128
<LONG-TERM> 0
0
0
<COMMON> 21,850
<OTHER-SE> 20,197,251
<TOTAL-LIABILITIES-AND-EQUITY> 282,485,090
<INTEREST-LOAN> 8,953,736
<INTEREST-INVEST> 5,781,928
<INTEREST-OTHER> 55,395
<INTEREST-TOTAL> 14,791,059
<INTEREST-DEPOSIT> 5,979,707
<INTEREST-EXPENSE> 7,314,900
<INTEREST-INCOME-NET> 7,476,159
<LOAN-LOSSES> 306,600
<SECURITIES-GAINS> 29,387
<EXPENSE-OTHER> 4,489,561
<INCOME-PRETAX> 3,166,848
<INCOME-PRE-EXTRAORDINARY> 3,166,848
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,834,343
<EPS-PRIMARY> $1.10
<EPS-DILUTED> $1.10
<YIELD-ACTUAL> 7.70
<LOANS-NON> 2,507,000
<LOANS-PAST> $273,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,264,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,374,854
<ALLOWANCE-DOMESTIC> 1,374,854
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,168,000
</TABLE>
