<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 December 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 from 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 1,709,700 shares of the Registrant's common stock outstanding
as of February 13, 1998.
-----------------
<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 December 31, 1997 (Unaudited) and September 30, 1997 3
Consolidated Statements of Income for the
Three Months ended December 31, 1997 and 1996 (Unaudited) 4
Consolidated Statement of Changes in
Stockholders' Equity for the Three Months
ended December 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Three Months ended December 31, 1997 and 1996 (Unaudited) 6-7
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings 19
Item 2. Changes in Securities
Not applicable. 19
Item 3. Defaults Upon Senior Securities
Not applicable. 19
Item 4. Submission of Matters to a Vote of Security
Holders
Not applicable. 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature Page 20
Exhibits
Exhibit 11: Computation of per share earnings
Exhibit 27: Financial Data Schedule
<PAGE> 3
<TABLE>
<CAPTION>
Financial Bancorp, Inc.
And Subsidiaries
Consolidated Statements of Financial Condition
December 31, September 30,
1997 1997
-------------- ---------------
(Unaudited)
Assets
- ------
<S> <C> <C>
Cash and amounts due from depository institutions $2,546,481 $2,738,392
Federal funds sold 13,250,000 10,650,000
-------------- --------------
Total cash and cash equivalents 15,796,481 13,388,392
Investment securities available for sale 736,000 730,750
Investment securities held to maturity, net; estimated fair value of $54,959,000 and
$69,223,000 at December 31, 1997 and September 30, 1997, respectively 54,872,376 69,410,103
Mortgage-backed securities available for sale 30,018,650 9,357,048
Mortgage-backed securities held to maturity, net; estimated fair value of $36,751,000
and $39,129,000 at December 31, 1997 and September 30, 1997, respectively 36,222,302 38,521,050
Loans receivable, net 158,610,973 153,291,828
Real estate owned, net 600,423 471,417
Investments in real estate, net 3,560,397 3,543,453
Premises and equipment, net 2,372,731 2,431,570
Federal Home Loan Bank of New York stock, at cost 1,845,000 1,845,000
Accrued interest receivable, net 2,049,275 2,248,578
Other assets 1,562,981 1,716,727
-------------- --------------
Total assets $308,247,589 $296,955,916
============== ==============
Liabilities and stockholders' equity
- ------------------------------------
Deposits $219,640,479 $213,394,282
Advance payments by borrowers for taxes and insurance 1,128,004 1,267,896
Advances from Federal Home Loan Bank of New York 6,000,000 8,000,000
Securities sold under agreements to repurchase 32,000,000 25,000,000
Treasury tax and loan account and other short term borrowings 18,792,712 20,000,000
Other liabilities 3,155,642 2,437,504
-------------- --------------
Total liabilities 280,716,837 270,099,682
-------------- --------------
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,
1,709,700 shares outstanding at December 31, 1997 and
at September 30, 1997 21,850 21,850
Additional paid-in capital 20,296,007 20,239,758
Retained earnings - substantially restricted 14,651,260 14,111,882
Common stock acquried by Employee Stock Ownership Plan (ESOP) (971,102) (1,011,566)
Common stock acquired by Recognition & Retention Plan (RRP) (283,888) (317,955)
Unrealized gain on securities available for sale, net of income taxes 95,964 91,604
Treasury stock, at cost; 475,300 shares at December 31, 1997 and
at September 30, 1997 (6,279,339) (6,279,339)
-------------- --------------
Total stockholders' equity 27,530,752 26,856,234
-------------- --------------
Total liabilities and stockholders' equity $308,247,589 $296,955,916
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
<TABLE>
<CAPTION>
Financial Bancorp, Inc.
And Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended
----------------------------
December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Interest income:
Loans $3,200,084 $2,899,293
Mortgage-backed securities 983,736 955,509
Investments and other interest-earning assets 1,051,546 1,041,882
Federal funds sold 82,954 15,789
------------ ------------
Total interest income 5,318,320 4,912,473
------------ ------------
Interest expense:
Deposits 2,196,188 1,981,214
Borrowings 605,994 476,765
------------ ------------
Total interest expense 2,802,182 2,457,979
Net interest income 2,516,138 2,454,494
Provision for loan losses 109,650 99,600
------------ ------------
Net interest income after provision for loan losses 2,406,488 2,354,894
------------ ------------
Non-interest income (loss):
Fees and service charges 149,634 131,280
Gain on sale of investment securities 0 26,353
Gain (loss) from real estate operations 13,824 (28,053)
Miscellaneous 19,242 10,629
------------ ------------
Total non-interest income 182,700 140,209
------------ ------------
Non-interest expenses:
Salaries and employee benefits 705,350 742,047
Net occupancy expense of premises 122,129 132,511
Equipment 169,380 150,346
Advertising 38,867 9,587
Loss from real estate owned 16,422 18,384
Federal insurance premium 30,403 81,772
Miscellaneous 273,102 250,043
------------ ------------
Total non-interest expenses 1,355,653 1,384,690
------------ ------------
Income before income taxes 1,233,535 1,110,413
Income taxes 533,982 516,974
------------ ------------
Net income $699,553 $593,439
============ ============
Net income per common share:
Basic $0.43 $0.36
============ ============
Diluted $0.42 $0.35
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
Financial Bancorp, Inc.
And Subsidiaries
Consolidated Statements of Changes in Stockholder Equity
(Unaudited)
Unrealized
Gain on
Retained Common Common Securities
Additional Earnings - Stock Stock Available For
Common Paid-in Substantially Acquired Acquired Sale, Net of Treasury
Stock Capital Restricted By ESOP By RRP Income Taxes Stock Total
-------- ---------- ------------- -------- -------- ------------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 $21,850 $20,239,758 $14,111,882 $(1,011,566) $(317,955) $91,604 $(6,279,339) $26,856,234
Net Income for the three months
ended December 31, 1997 - - 699,553 - - - - 699,553
Amortization relating to
allocation of ESOP stock and
earned portion of RRP stock - 56,249 - 40,464 34,067 - - $130,780
Unrealized gain on
securities available for sale - - - - - 4,360 - $4,360
Cash dividends paid on common - - (160,175) - - - - (160,175)
stock
Balance at December 31, 1997 $21,850 $20,296,007 $14,651,260 $(971,102) $(283,888) $95,964 $(6,279,339) $27,530,752
========= ============ ============ ========== ========== ======== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
<TABLE>
<CAPTION>
Financial Bancorp, Inc.
And Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
--------------------------
December 31,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Cash flow from operating activities:
Net income $699,553 $593,439
Adjustments to reconcile net income to net cash
provided by operating activities
(Gain) on sale of investment securities 0 (26,353)
Net accretion of discounts on investment securities (52,273) (49,779)
Net amortization of premiums on mortgage-backed securities 18,594 8,559
Accretion of deferred loan fees and discounts (25,768) (23,136)
Amortization of intangibles 4,261 4,261
Depreciation 72,890 75,877
Provision for loan losses 109,650 99,600
Provision for losses on real estate owned 0 15,482
Cost of ESOP and RRP 130,780 92,496
Deferred income taxes 0 127,426
Decrease in accrued interest receivable, net 199,303 139,003
Increase in income taxes payable 418,463 206,276
(Increase) decrease in other assets (71,894) (342,869)
Increase (decrease) in other liabilities 517,628 (1,578,772)
------------- ------------
Net cash provided by operating activities 2,021,187 (658,490)
------------- ------------
Cash flows from investing activities:
Purchases of investment securities available for sale 0 (8,840,000)
Purchases of investment securities held to maturity (7,250,000) 0
Proceeds from sales of investment securities available for sale 0 2,947,031
Proceeds from maturities of investment securities 21,840,000 15,000,000
Purchases of mortgage-backed securities available for sale (21,719,234) 0
Proceeds from principal repayments on mortgage-backed securities 3,340,322 2,156,126
Loan originations, net of repayments (5,532,033) (5,244,006)
Additions to premises and equipment (10,995) (43,837)
Proceeds from sale of and insurance recoveries
on real estate owned 0 143,928
Purchase of Federal Home Loan Bank of N.Y. stock 0 (14,000)
Net (increase) decrease in investments in real estate (20,000) 25,000
------------- ------------
Net cash provided by investing activities (9,351,940) 6,130,242
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
<TABLE>
<CAPTION>
Financial Bancorp, Inc.
And Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
Three Months Ended
----------------------------
December 31,
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits $6,246,197 $616,049
Proceeds from FHLB of NY advances 0 2,800,000
Repayments of FHLB of NY advances (2,000,000) 0
Net (decrease) increase in short-term borrowings from FHLB of NY 0 (525,000)
Proceeds from reverse repurchase agreements 7,000,000 0
Repayments of reverse repurchase agreements 0 0
Net (decrease) increase in treasury tax account borrowings (1,207,288) (8,920,102)
(Decrease) increase in advance payments by
borrowers for taxes and insurance (139,892) (191,699)
Dividends paid (160,175) (123,982)
Reissuance of treasury stock 0 38,365
Purchase of treasury stock 0 (663,938)
----------- ------------
Net cash provided by financing activities 9,738,842 (6,970,307)
Net increase (decrease) in cash and cash equivalents 2,408,089 (1,498,555)
Cash and cash equivalents - beginning 13,388,392 5,102,223
----------- ------------
Cash and cash equivalents - ending $15,796,481 $3,603,668
=========== ============
Supplemental schedule of noncash investing and
financing activities:
Loans transferred to real estate owned $129,006 $0
=========== ============
Unrealized (loss) gain on securities available for sale $7,786 $61,906
Deferred income taxes (3,426) (27,238)
----------- ------------
$4,360 $34,668
=========== ============
Supplemental disclosures of cash flow information:
Cash paid (net of refunds received) during the year for:
Federal, state and city income taxes 115,519 156,034
=========== ============
Interest paid on deposits and borrowed funds $2,801,826 $2,441,301
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<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 "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, 1997.
The results of operations for the three months ended December 31, 1997 are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
Certain amounts for the three months ended December 31, 1996 have been
reclassified to conform with the current period's presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 requires that all items that are components
of "comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income is
defined as the "change in equity [net assets] of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners". Companies
will be required to (a) classify items of other comprehensive income by their
nature in the financial statements and (b) display the accumulated
<PAGE> 9
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997 and requires reclassification of prior periods presented. As the
requirements of SFAS No. 130 are disclosure-related, its implementation will
have no impact on the Company's financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 requires
disclosures for each segment that are similar to those required under current
standards with the addition of quarterly disclosure requirements and a finer
partitioning of geographic data by country, as opposed to broader geographic
regions as permitted under current standards. SFAS No. 131 is effective for
fiscal year beginning after December 15, 1997 with earlier application
permitted. As the requirements of SFAS No. 131 are disclosure-related, its
implementation will have no impact on the Company's financial condition or
results of operations.
The foregoing does not constitute a comprehensive summary of all anticipated
material changes or developments affecting the manner in which the Company keeps
its books and records and performs its financial accounting responsibilities. It
is intended only as a summary of some of the recent pronouncements made by the
FASB which are of particular interest to financial institutions.
EARNINGS PER SHARE
Basic EPS is computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shares in the earnings of the entity. Earnings per share
data for the quarter ended December 31, 1996 has been restated as the result of
the implementation of FAS 128.
INVESTMENT SECURITIES
The following table sets forth certain information regarding the carrying and
estimated fair value of the Company's investment securities at December 31, 1997
and September 30, 1997, respectively.
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1997
----------------- ------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- --------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Available for sale
Corporate preferred stock $701 $736 $701 $731
Less: Unrealized gain 35 - 30 -
-------- ------- ------- -------
Total investment securities available for sale $736 $736 $731 $731
======== ======= ======= =======
Held to maturity
U.S. Government and agency obligations $54,872 $54,959 $69,410 $69,223
-------- ------- ------- -------
Total investment securities held to maturity $54,872 $54,959 $69,410 $69,223
======== ======= ======= =======
</TABLE>
<PAGE> 10
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
December 31, 1997 and September 30, 1997, respectively.
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1997
----------------- ------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Available for sale
FHLMC certificates $17,203 $17,291 $4,422 $4,510
FNMA certificates 12,680 12,728 4,801 4,847
Add: Unrealized gain 136 - 134 -
--------- --------- -------- ---------
Total mortgage-backed securities available for sale $30,019 $30,019 $9,357 $9,357
========= ========= ======== =========
Held to maturity
GNMA certificates $22,075 $22,437 $23,335 $23,752
FHLMC certificates 10,377 10,540 11,299 11,480
FNMA certificates 1,881 1,885 1,988 1,998
Other pass-through certificates 1,889 1,889 1,899 1,899
--------- --------- -------- ---------
Total mortgage-backed securities held to maturity $36,222 $36,751 $38,521 $39,129
========= ========= ======== =========
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
LOANS RECEIVABLE, NET
The following table sets forth the composition of the Company's loan portfolio at December 31, 1997
and September 30, 1997, respectively.
December 31, September 30,
1997 1997
------------ -------------
(in thousands)
<S> <C> <C>
Real estate mortgages:
One-to-four family $129,120 $126,440
Equity and second mortgages 2,577 2,637
Multi-family 13,537 11,779
Commercial 14,427 13,217
----------- -----------
159,661 154,073
----------- -----------
Construction/land 275 574
----------- -----------
Consumer:
Passbook or certificate 201 176
Home improvement 3 4
Student education guaranteed by
the State of New York 222 214
Personal 22 23
----------- -----------
448 417
Commercial, including lines of credit 80 77
----------- -----------
Total loans 160,464 155,141
----------- -----------
Less: Loans in process 109 201
Allowance for loan losses 1,526 1,405
Deferred loan fees and discounts 218 243
----------- -----------
1,853 1,849
----------- -----------
Total loans receivable, net $158,611 $153,292
=========== ===========
</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 $29,657,700 at December 31, 1997. The following table sets forth
the composition of the Bank's FHLB advances as of December 31, 1997 and
September 30, 1997, respectively.
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------ ------------
(in thousands)
<S> <C> <C>
FHLB advances:
Fixed rate:
5.597% due December 1997 $0 $2,000
5.670% due December 1998 6,000 6,000
--------- ---------
Total fixed rate 6,000 8,000
--------- ---------
Overnight line of credit 0 0
--------- ---------
Total FHLB advances $6,000 $8,000
========= =========
</TABLE>
<PAGE> 12
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 December 31, 1997 and September 30, 1997,
respectively.
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------ -------------
(in thousands)
<S> <C> <C>
Securities sold under agreements to repurchase:
5.291% due December 2001, callable December 1997 $0 $5,000
5.813% due May 2002, callable May 1998 10,000 10,000
5.62% due August 2002, callable August 1999 10,000 10,000
5.963% due November 2004, callable October 2002 5,000 -
5.93% due December 2004, callable December 2002 7,000 -
------------ -----------
Total securities sold under agreements to repurchase $32,000 $25,000
============ ===========
</TABLE>
<PAGE> 13
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 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 December 31, 1997, the Company's total assets were $308.3 million,
representing an $11.3 million, or a 3.8%, increase from $297.0 million as of
September 30, 1997. Loans receivable increased by $5.3 million, or 3.5%, to
$158.6 million at December 31, 1997, from $153.3 million at September 30, 1997.
Mortgage-backed securities, inclusive of available for sale, increased by $18.3
million, or 38.4%, to $66.2 million at December 31, 1997, from $47.9 million at
September 30, 1997. The increase in total assets was offset by a $14.5 million,
or a 20.7% decreased in investment securities, inclusive of available for sale,
to $55.6 million at December 31, 1997, from $70.1 million at September 30, 1997.
Asset growth was funded by a $6.2 million, or a 2.9%, increase in deposits to
$219.6 million at December 31, 1997, from $213.4 million at September 30, 1997.
Furthermore, securities sold under agreements to repurchase increased by $7.0
million, or 28.0%, to $32.0 million at December 31, 1997, from $25.0 million at
September 30, 1997, while advances from the FHLB decreased by $2.0 million,
<PAGE> 14
or 25.0%, to $6.0 million, at December 31, 1997, as compared to $8.0 million at
September 30, 1997. The treasury tax and loan account borrowings decreased by
$1.2 million, or 6.0%, to $18.8 million at December 31, 1997, from $20.0 million
at September 30, 1997. The increase in deposits and borrowings enabled the Bank
to fund new loan originations and to purchase adjustable rate mortgage-backed
securities.
Total stockholders' equity was $27.5 million at December 31, 1997, reflecting a
$674,518, or 2.5%, increase from $26.8 million at September 30, 1997. The
increase in stockholders' equity was the result of earnings, partially offset by
the payment of the Company's quarterly cash dividend. At December 31, 1997, the
Company had, exclusive of shares repurchased, 1,709,700 common shares
outstanding. During the three months ended December 31, 1997, the Company's
tangible and stated book value per share of common stock increased by $0.40 and
$0.39, respectively, to $16.03 and $16.10, from $15.63 and $15.71, respectively,
at September 30, 1997.
Non-performing loans totaled $2.8 million, or 1.75% of total loans at December
31, 1997, as compared to $2.6 million, or 1.69% of total loans at September 30,
1997. At December 31, 1997, non-performing assets totalled $6.8 million, or
2.20% of total assets, as compared to $6.4 million, or 2.17% of total assets as
of September 30, 1997. The Company's allowance for loan losses totalled $1.5
million at December 31, 1997, which represents a ratio of allowance for loan
losses to non-performing assets and to total loans of 22.52% and 0.95%,
respectively, as compared to 21.8% and 0.91%, respectively, as of September 30,
1997.
ANALYSIS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Net income for the three months ended December 31, 1997, totalled $699,553, or
diluted earnings per share of $0.42, as compared to net income of $593,439, or
diluted earnings per share of $0.35 for the three months ended December 31,
1996. The $106,114, or 17.9% increase, was primarily attributable to a $61,644,
or a 2.5% increase in net interest income, a $42,491, or 30.3% increase in
non-interest income, and a $29,037, or 2.1% decrease in non-interest expense.
The return on average assets equalled 0.94% for the quarter ended December 31,
1997, as compared to 0.90% for the comparable period in 1996. For the quarter
ended December 31, 1997, the Company's return on average equity equalled 10.30%,
as compared to 9.21% for the same period in 1996.
Net interest income increased by $61,644, or 2.5%, to $2,516,138 for the quarter
ended December 31, 1997, from $2,454,494 for the quarter ended December 31,
1996. The increase in net interest income for the three months ended December
31, 1997 was primarily attributable to the continued leveraging of the balance
sheet, utilizing low cost borrowings and deposit growth to fund mortgage loan
originations and the purchase of mortgage-backed securities.
As a result, for the quarter ended December 31, 1997, average interest earning
assets increased
<PAGE> 15
by $28.1 million, or 11.1%, to $281.6 million, from $253.5 million for the
quarter ended December 31, 1996. The increase in average interest-earning assets
was partially offset by a $21.4 million, or a 9.3% increase in average
interest-bearing liabilities to $251.6 million for the quarter ended December
31, 1997, as compared to $230.2 million for the quarter ended December 31, 1996.
The average yield on interest-earnings assets was 7.55%, for the quarter ended
December 31, 1997, as compared to 7.75% for the same period in 1996, and the
average cost of interest-bearing liabilities was 4.44%, for the quarter ended
December 31, 1997, as compared to 4.23%, for the same period in 1996.
The Company's net interest margin decreased by 28 basis points to 3.59% for the
quarter ended December 31, 1997, as compared to 3.87% for the quarter ended
December 31, 1996. The net interest rate spread decreased by 41 basis points to
3.11% for the quarter ended December 31, 1997, from 3.52% from the same period
in 1996. The significant decrease in the net interest margin and the net
interest rate spread reflects the costs associated with the continued leveraging
of the balance sheet and deposit growth in higher cost certificate of deposit
accounts. In addition, the declining interest rate environment and overall
flattening of the yield curve contributed to $21.8 million of investment
securities being called . These callable investment securities were replaced
with lower yielding adjustable rate mortgage-backed securities.
The Company's provision for loan losses for the quarter ended December 31, 1997,
increased by $10,050, to $109,650, from $99,600 for the quarter ended December
31, 1996. The increase in provisions for loan losses reflects the increase in
loan originations and management's on-going effort to maintain adequate
allowances.
Non-interest income, for the quarter ended December 31, 1997, increased by
$42,491, or 30.3%, to $182,700, as compared to $140,209 for the quarter ended
December 31, 1996. This increase is primarily attributable to an $18,354
increase in income realized from additional service fee income from additional
demand deposit accounts and automated teller machines (ATM's) related service
fees. In addition, the increase in non-interest income is primarily attributable
to a decrease in provisions for losses on investments in real estate, in which a
subsidiary of the Bank has a one-third interest. The increase in non-interest
income was partially offset by a $26,353 decrease in the gain on sale of
investment securities to zero for the quarter ended December 31, 1997.
Non-interest expenses decreased $29,037, or 2.1%, to $1,355,653 for the quarter
ended December 31, 1997, as compared to $1,384,690 for the same period in 1996.
Salaries and employee benefits decreased by $36,697, or 4.9%, to $705,350 for
the quarter ended December 31, 1997, from $742,047 for the corresponding period
in 1996. The decrease in salaries and employee benefits is primarily
attributable to a reduction in costs associated with the Bank's pension and
medical plans, offset in part by costs associated with the Company's ESOP plan.
For the quarter ended December 31, 1997, occupancy expense decreased by $10,382,
or 7.8%, to $122,129, from $132,511 for the quarter ended December 31, 1996. The
decrease in occupancy expense is primarily attributable to the additional rental
income collected on Bank owned properties. Equipment expense increased by
$19,034, or 12.7%, to $169,380 for the quarter ended December 31, 1997, from
$150,346 for the same period in 1996. The increase in equipment expense
represents costs associated with the Company's data processing service,
<PAGE> 16
deposit and check processing servicing fees, automobile and equipment related
services and contracts. Advertising expense increased by $29,280, or 305.4%%, to
$38,867 for the quarter ended December 31, 1997, from $9,587 for the
corresponding period in 1996. The increase in advertising expense is primarily
attributable to costs associated with an increase in marketing efforts, in
addition to the Bank's 50th anniversary and related gift campaign. The ratio of
operating expenses to average assets decreased 27 basis points to 1.80% for the
quarter ended December 31, 1997, as compared to 2.07% for the same period last
year. The Company has been successful in controlling operating expenses, as
evidenced by the efficiency ratio 49.9% for the quarter ended December 31, 1997,
as compared to 52.6% for the same period in 1996. For the quarter ended December
31, 1997, income tax expense increased by $17,008, to $533,982, as compared to
$516,974 for the same quarter 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 specified 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 was 5% for fiscal 1997, but is
subject to change from time to time by the OTS to any amount within the range of
4% to 10% depending upon economic conditions and the savings flows of member
institutions. In 1997, OTS regulations also required each savings institution to
maintain an average daily balance of short-term liquid assets of at least 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 OTS has recently lowered the liquidity requirement
from 5% to 4% and eliminated the 1% short term liquid asset requirement. The
Bank's liquidity ratio for December 31, 1997 was 25.50%, which exceeded the
applicable requirements. The Bank has never been subject to monetary penalties
for failure to meet its liquidity requirements.
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 December 31, 1997, the Bank had outstanding loan commitments to originate
mortgage loans of $6.0 million. Management anticipates that it will have
sufficient funds available and borrowing capability to meet its current loan
originations and loan purchase commitments. Certificates of deposit, which are
scheduled to mature in one-year or less from December 31, 1997 totalled $78.5
million, of which $17.2 million represent "Silver Certificate of Deposit"
accounts, which allow one withdrawal of principal per quarter without an early
withdrawal
<PAGE> 17
penalty for direct deposit customers 62 years of age or older.
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 capital rules also require each savings institution to maintain capital
equal to at least 8.0% of its risk weighted assets. The Bank's tangible capital
and core capital totalled $20.0 million, or 6.6% at December 31, 1997, far in
excess of the regulatory requirements. The Bank's risk-based capital ratio as of
December 31, 1997 was $21.4 million, or 17.9%, also well in excess of the
regulatory capital requirement of 8.0%.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, a critical business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. In brief, many existing application software
products in the marketplace were designed to only accommodate a two digit date
position which represents the year (E.G., '95 is stored on the system and
represents the year 1995). The Company is in the process of implementing a
program designed to ensure that all software used in connection with the
Company's business will manage and manipulate data involving the transition with
data from 1999 to 2000 without functional or data abnormality and without
inaccurate results related to such data. To the extent the Company's systems are
not fully year 2000 compliant, there can be no assurance that potential systems
interruptions or the cost necessary to update software would not have a material
adverse effect on the Company's business.
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY ANALYSIS
The Bank does not purchase derivative financial instruments or other financial
instruments for trading purposes. Further, the Bank is not subject to any
foreign currency exchange rate risk, commodity price risk or equity price risk.
The Bank is, however, subject to interest rate risk to the extent that its
interest-bearing liabilities reprice or mature more or less frequently than its
interest-earning assets. The Bank's interest rate risk management policy has
been structured to monitor and maintain the Bank's interest rate sensitivity to
within Board prescribed limits while attempting to maximize net interest income.
In a connection with its interest rate risk management strategy, management has
emphasized the origination of shorter-term fixed-rate one- to four-family and
mixed-use mortgage loans and the purchase of adjustable rate-mortgage loans, or
mortgage-backed securities, along with limiting investment purchases to
securities with a final maturity of 5 years or less. However, there can be no
assurances that the Bank will be able to originate adjustable rate loans or
acquire mortgage-backed securities with terms and characteristics which conform
with the Bank's underwriting standards, investment criteria or interest rate
risk policies. This strategy is necessary to reduce the Bank's exposure to
interest rate risk. On the liability side, management has closely monitored the
pricing of its deposit products, and has made a conscious effort to extend
deposit maturities, and secure fixed-rate borrowings when market condition are
favorable.
The actual duration of mortgage loans, mortgage-backed securities and callable
investment securities can be significantly impacted by changes in mortgage
prepayment and market interest rates. Mortgage prepayment rates will vary due to
a number of factors, including the regional economy in the area where the
underlying mortgages were originated, seasonal factors, demographic variables
and the assumability of the underlying mortgages. However, the largest
determinants of prepayment rates are prevailing interest rates and related
mortgage refinancing opportunities. Management monitors interest rate
sensitivity so that adjustments in the asset and liability mix, when deemed
appropriate, can be made on a timely basis.
At December 31, 1997, $108.0 million, or 36.5%, of the Bank's interest- earning
assets were in adjustable-rate loans and mortgage-backed securities. The Bank's
mortgage loan portfolio totalled $158.6 million, of which $62.2 million, or
39.2%, were adjustable-rate loans and $96.5 million, or 60.8% were fixed-rate
loans. At December, 31, 1997, the mortgage-backed securities held-to-maturity
portfolio totalled $36.2 million, of which $19.8 million, or 54.6% of the
mortgage-backed portfolio was adjustable-rate securities and $16.4 million, or
45.4%, was fixed-rate securities. The mortgage-backed securities portfolio
classified as available- for-sale totalled $30.0 million, of which $26.0
million, or 86.8%, were adjustable rate securities and $4.0 million, or 13.2%,
were fixed-rate securities. During the quarter ended December 31, 1997, the Bank
purchased approximately $21.7 million of adjustable rate mortgage-back
securities.
<PAGE> 19
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 January 20, 1998, the Holding Company declared its quarterly cash
dividend for the period ended December 31, 1997, of $0.125 per
share, payable on February 19, 1998 to stockholders of record on
February 5, 1998.
Item 6. (A) Exhibits
3.1 Certificate of Incorporation of Financial Bancorp, Inc.*
3.2 Bylaws of Financial Bancorp, Inc.*
4.0 Stock Certificate of Financial Bancorp, Inc.*
10.1 Financial Federal Savings Bank Recognition and Retention Plan**
10.2 Financial Bancorp, Inc. 1995 Incentive Stock Option Plan***
10.3 Financial Bancorp, Inc. 1995 Stock Option Plan for Outside
Directors**
10.4 Financial Savings and Loan Association Employee Stock Ownership Plan
and Trust*
10.5 Amended and Restated Salary and Benefits Continuation Agreement
between Financial Bancorp, Inc., Financial Federal Savings Bank and
Frank S. Latawiec*****
10.6 Salary and Benefits Continuation Agreement between Financial Bancorp,
Inc., Financial Federal Savings Bank and Valerie M. Swaya *****
10.7 Employment Agreement between Financial Federal Savings and Loan
Association and P. James O'Gorman****
10.8 Employment Agreement between Financial Federal Savings and Loan
Association and Robert E. Adamec****
10.9 Employment Agreement between Financial Bancorp, Inc. and
P. James O'Gorman****
10.10 Employment Agreement between Financial Bancorp, Inc. and
Robert E. Adamec****
10.11 Financial Federal Savings and Loan Association Outside Directors'
Consultation and Retirement Plan*
11.0 Computation of earnings per share (filed herewith)
27.0 Financial Data Schedule (filed herewith)
--------------------
* Incorporated herein by reference into this document from the
Exhibits to Form S-1, Registration Statement and amendments thereto,
initially filed on March 18, 1994, Registration No. 33-76664.
** Incorporated herein by reference into this document from the Proxy
Statement for the January 17, 1996 Annual Meeting of Stockholders
filed on December 18, 1995.
*** Incorporated herein by reference into this document from the Proxy
Statement for the January 26, 1995 Annual Meeting of Stockholders
filed on December 15, 1994.
**** Incorporated herein by reference into this document from the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994
filed with the SEC on December 20, 1994.
***** Incorporated herein by reference into this document from the Annual
Report on Form 10-K for the fiscal year ended September 30, 1997
filed with the SEC on December 29, 1997.
(B) Reports on Form 8-K.
None
<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: February 17, 1998 By: /s/ Frank S. Latawiec
-------------------------
Frank S. Latawiec
President and Chief
Executive Officer
Date: February 17, 1998 By: /s/ P. James O'Gorman
----------------------------
P. James O'Gorman
Executive Vice President and
Chief Financial Officer
<PAGE> 1
Item 6.
- -------
Exhibit 11
----------
<TABLE>
<CAPTION>
Three Months
Ended
Computation of per share earnings December 31, 1997
-----------------
<S> <C>
Net income $699,553
--------
Weighted average common shares outstanding 1,609,900
---------
Common stock equivalents due to dilutive effect of stock options 70,200
------
Total weighted average common shares and equivalents outstanding 1,680,100
---------
Basic earnings per common share $0.43
-----
Diluted earnings per common share $0.42
-----
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial 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
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,546,481
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,754,850
<INVESTMENTS-CARRYING> 91,094,680
<INVESTMENTS-MARKET> 91,710,000
<LOANS> 158,610,973
<ALLOWANCE> 1,500,000
<TOTAL-ASSETS> 308,247,589
<DEPOSITS> 219,640,479
<SHORT-TERM> 56,792,712
<LIABILITIES-OTHER> 3,155,842
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 308,247,589
<INTEREST-LOAN> 3,200,084
<INTEREST-INVEST> 2,035,282
<INTEREST-OTHER> 82,954
<INTEREST-TOTAL> 5,318,320
<INTEREST-DEPOSIT> 2,196,188
<INTEREST-EXPENSE> 2,802,182
<INTEREST-INCOME-NET> 2,516,138
<LOAN-LOSSES> 109,650
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,355,653
<INCOME-PRETAX> 1,233,535
<INCOME-PRE-EXTRAORDINARY> 1,233,535
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 699,553
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 7.55
<LOANS-NON> 2,633,000
<LOANS-PAST> 167,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,405,000
<CHARGE-OFFS> 0
<RECOVERIES> 11,000
<ALLOWANCE-CLOSE> 1,526,000
<ALLOWANCE-DOMESTIC> 1,526,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,301,000
</TABLE>
