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, 1996
--------------------------------------------------
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 0-18764
-------
PULSE BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-3016360
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
6 JACKSON ST., SOUTH RIVER, N.J. 08882
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 908-257-2400
-----------------------------
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----------- -------------
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date August 5, 1996
--------------
CLASS OUTSTANDING
----- -----------
$1.00 par value common stock 3,049,878 Shares
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Index
Page Number
PART I - CONSOLIDATED FINANCIAL INFORMATION
Consolidated Statements of Financial Condition at September 30,
1995 and June 30, 1996 (unaudited) 1
Consolidated Statements of Income for the Three and Nine Months
Ended June 30, 1995 and 1996 (unaudited) 2
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 1995 and 1996 (unaudited) 3
Notes to Consolidated Financial Statements 4-6
Managements Discussion and Analysis of Financial Condition and
Results of Operations 7-11
PART II - OTHER INFORMATION 12
SIGNATURES 13
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996
ASSETS (Unaudited)
--------------------------
<S> <C> <C>
Cash and amounts due from depository institutions........... $4,836,510 $5,498,411
Federal funds sold.......................................... 3,925,000 8,250,000
--------------------------
Total cash and cash equivalents......................... 8,761,510 13,748,411
Investment securities held to maturity; estimated
fair value of $112,886,000 and $92,748,000, respectively.. 114,380,553 95,548,320
Mortgage backed securities held to maturity, net;
estimated fair value of $174,629,000 and $167,709,000,
respectively.............................................. 174,969,291 169,279,351
Securities available for sale at market..................... - 80,252,398
Loans receivable, net....................................... 134,276,842 132,396,126
Premises & equipment, net................................... 1,207,162 1,234,504
Real estate owned, net...................................... 2,627,864 2,488,314
Federal Home Loan Bank of New York stock, at cost........... 2,540,200 2,543,100
Interest receivable......................................... 4,071,079 4,420,747
Other assets................................................ 2,944,797 3,123,085
--------------------------
Total assets........................................... $445,779,298 $505,034,356
==========================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Deposits.................................................... $391,037,843 $398,098,821
Borrowings.................................................. - 65,368,256
Advance payments by borrowers for taxes & insurance......... 458,356 652,059
Other liabilities........................................... 2,009,508 1,577,275
--------------------------
Total liabilities...................................... 393,505,707 465,696,411
--------------------------
Stockholders' Equity:
Preferred stock; authorized 5,000,000 shares; issued and
outstanding - none....................................... - -
Common stock; par value $1.00; authorized 10,000,000 shares;
4,077,828 shares issued and 3,852,828 outstanding and
4,111,458 shares issued and 3,049,378 outstanding,
respectively............................................. 4,077,828 4,111,458
Paid in capital in excess of par value...................... 11,819,769 12,099,541
Retained earnings- substantially restricted................. 38,078,494 40,246,653
Unrealized (loss) on securities available for sale,
net of tax................................................ - (442,207)
Treasury Stock; at cost; 225,000 and 1,062,080 common
shares, respectively................................... (1,702,500) (16,677,500)
--------------------------
Total stockholders' equity............................. 52,273,591 39,337,945
--------------------------
Total liabilities and stockholders' equity............. $445,779,298 $505,034,356
==========================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------------------------
1995 1996 1995 1996
-------------------------------------------------
Interest income:
<S> <C> <C> <C> <C>
Loans ................................................... $3,077,806 $2,885,786 $9,357,865 $8,909,962
Mortgage-backed securities............................... 2,835,616 3,103,083 8,238,764 8,900,154
Investments and other interest-earning assets............ 1,888,733 2,264,674 5,232,890 6,144,963
-------------------------------------------------
Total interest income................................. 7,802,155 8,253,543 22,829,519 23,955,079
-------------------------------------------------
Interest expense:
Deposits................................................. 4,582,702 4,388,038 12,754,624 13,362,118
Borrowings............................................... - 405,499 - 405,499
-------------------------------------------------
Total interest expense............................... 4,582,702 4,793,537 12,754,624 13,767,617
-------------------------------------------------
Net interest income......................................... 3,219,453 3,460,006 10,074,895 10,187,462
-------------------------------------------------
Net interest income after provision for loan losses......... 3,219,453 3,460,006 10,074,895 10,187,462
-------------------------------------------------
Non-interest income:
Other fees and service charges on loans.................. 50,747 86,376 171,427 202,549
Income (expense) from real estate operations............. 24,388 (23,828) 15,520 (20,528)
Miscellaneous............................................ 26,117 2,695 56,317 54,609
-------------------------------------------------
Total non-interest income............................. 101,252 65,243 243,264 236,630
-------------------------------------------------
Non-interest expenses:
Salaries and employee benefits........................... 612,267 614,645 1,831,617 1,799,877
Occupancy expense........................................ 76,332 58,390 191,220 211,775
Equipment expense........................................ 130,089 123,302 399,373 399,740
Advertising.............................................. 43,831 90,653 178,333 223,634
Federal deposit insurance premium........................ 224,981 226,277 676,502 675,285
Miscellaneous............................................ 306,359 249,721 1,021,072 776,222
-------------------------------------------------
Total non-interest expenses........................... 1,393,859 1,362,988 4,298,117 4,086,533
-------------------------------------------------
Income before income taxes.................................. 1,926,846 2,162,261 6,020,042 6,337,559
Income taxes................................................ 691,000 773,000 2,130,384 2,279,634
-------------------------------------------------
Net income............................................ $1,235,846 $1,389,261 $3,889,658 $4,057,925
=================================================
Net income per common share and common stock equivalents.... $0.31 $0.36 $0.99 $1.03
=================================================
Dividends per common share.................................. $0.15 $0.175 $0.45 $0.525
=================================================
Weighted average number of common shares and common
stock equivalents outstanding............................ 3,928,551 3,873,129 3,919,270 3,923,419
=================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------------
1995 1996
--------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income............................................................. $3,889,658 $4,057,925
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of premises and equipment............................... 118,178 104,334
Provision for losses on real estate owned............................ 29,700 76,000
Amortization of premiums, discounts and fees, net.................... (111,516) (157,178)
Gain on sale of real estate owned.................................... (46,058) (62,462)
Increase in interest receivable...................................... (376,389) (349,668)
Decrease (increase) in other assets.................................. 4,210,442 (178,288)
Increase (decrease) in other liabilities............................. 51,789 (432,233)
--------------------------
Net cash provided by operating activities.......................... 7,765,804 3,058,430
--------------------------
Cash flows from investing activities:
Proceeds from maturities and calls of investment
securities held to maturity........................................ 8,550,000 55,000,000
Purchase of investment securities held to maturity................... (33,000,000) (65,951,545)
Proceeds from principal repayments of investment securities
available for sale................................................. - 3,830,530
Purchase of investment securities available for sale................. - (25,323,082)
Mortgage-backed securities purchased................................. (9,120,219) (40,624,538)
Mortgage-backed securities repayments................................ 10,867,635 17,339,831
Proceeds from sales of student loans................................. 90,093 4,454
Net decrease in loans receivable..................................... 6,704,222 847,062
Additions to premises and equipment.................................. (19,560) (131,676)
Proceeds from sale of real estate owned.............................. 1,351,374 868,762
Redemption (purchase) of Federal Home Loan Bank of New York Stock.... 170,100 (2,900)
--------------------------
Net cash used in investing activities.............................. (14,406,355) (54,143,102)
--------------------------
Cash flows from financing activities:
Net increase in deposits............................................. 1,312,658 7,060,978
Net increase in borrowings........................................... - 65,368,256
(Decrease) increase in advance payments by borrowers
for taxes and insurance............................................ (113,435) 193,703
Issuance of common stock............................................. 412,263 313,402
Purchase of treasury stock........................................... - (14,975,000)
Cash dividends paid.................................................. (1,732,902) (1,889,766)
--------------------------
Net cash (used in) provided by financing activities................ (121,416) 56,071,573
--------------------------
Net (decrease) increase in cash and cash equivalents..................... (6,761,967) 4,986,901
Cash and cash equivalents - beginning ................................... 16,125,664 8,761,510
--------------------------
Cash and cash equivalents - ending....................................... $9,363,697 $13,748,411
==========================
Supplemental schedule of non-cash investing activities:
Transfer of loans held for sale to loans receivable................ $3,586,035 -
==========================
Transfer of loans receivable to real estate owned.................. $24,561 $742,000
==========================
Transfer of mortgage-backed securities and investments held to
maturity to available for sale................................... - $58,764,618
==========================
Cash paid during the period for:
Income taxes....................................................... $575,000 $1,875,000
==========================
Interest........................................................... $12,754,624 $13,419,648
==========================
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
1. PRINCIPLES OF CONSOLIDATION
- ------------------------------
The consolidated financial statements include the accounts of Pulse Bancorp,
Inc. (the "Corporation") and its wholly owned subsidiary, Pulse Savings Bank
(the "Bank"). The Corporation's business is conducted principally through the
Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.
2. BASIS OF PRESENTATION
- ------------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, all adjustments, consisting
only of normal recurring adjustments, which, in the opinion of management, are
necessary for fair presentation of the consolidated financial statements, have
been included. The results of operations for the nine months ended June 30, 1996
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
3. MODIFIED DUTCH AUCTION
- -------------------------
On June 21, 1996, the Corporation completed a buyback of 837,080 shares of its'
common stock under a Modified Dutch Auction. The transaction resulted in the
recording of treasury stock of approximately $14.9 million.
<TABLE>
<CAPTION>
4. LOANS RECEIVABLE, NET September 30, June 30,
- ------------------------ 1995 1996
----------------------------
Real Estate Mortgage:
<S> <C> <C>
One-to-four family....................................... $58,203,379 $63,141,038
Multi family............................................. 32,922,376 28,374,410
Commercial............................................... 35,466,355 30,140,464
---------------------------
126,592,110 121,655,912
---------------------------
Construction Loans.......................................... 93,334 340,000
Consumer:
Home equity.............................................. 10,397,056 13,089,865
Passbook or certificate.................................. 287,604 258,008
Student education guaranteed by
the State of New Jersey................................ 6,864 210
---------------------------
10,691,524 13,348,083
---------------------------
Total loans......................................... 137,376,968 135,343,995
---------------------------
Less: Allowance for loan losses............................. 2,603,852 2,505,224
Deferred loan fees and discounts................... 496,274 442,645
---------------------------
3,100,126 2,947,869
---------------------------
$134,276,842 $132,396,126
===========================
</TABLE>
<TABLE>
<CAPTION>
An analysis of the allowance for loan losses is as follows: Nine Months Ended
June 30,
1995 1996
------------------------
<S> <C> <C>
Balance-beginning.................................. $3,368,816 $2,603,852
Provisions charged to operations................... - -
Losses charged to allowance........................ (238,850) (98,628)
------------------------
Balance-ending..................................... $3,129,966 $2,505,224
========================
</TABLE>
4
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
5. INVESTMENT SECURITIES HELD TO MATURITY, NET
- ----------------------------------------------
<TABLE>
<CAPTION>
September 30, 1995
--------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
--------------------------------------------------
U.S. Government
<S> <C> <C> <C> <C>
(including agencies $113,780,605 $216,315 $1,725,540 $112,271,380
Obligations of state and political
subdivisions 599,948 17,484 3,040 614,392
--------------------------------------------------
$114,380,553 $233,799 $1,728,580 $112,885,772
==================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
--------------------------------------------------
U.S. Government
<S> <C> <C> <C> <C>
(including agencies) $94,948,354 $57,750 $2,878,981 $92,127,123
Obligations of state and political
subdivisions 599,966 20,494 620,460
--------------------------------------------------
$95,548,320 $78,244 $2,878,981 $92,747,583
==================================================
</TABLE>
6. INVESTMENT SECURITIES AVAILABLE FOR SALE
- -------------------------------------------
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------
Government National
<S> <C> <C> <C> <C>
Mortgage Association $41,123,897 $314,009 $41,437,906
U.S. Government Agency Debentures 39,808,820 994,328 38,814,492
--------------------------------------------------
$80,932,717 $314,009 $994,328 $80,252,398
==================================================
</TABLE>
5
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
7. MORTGAGE-BACKED SECURITIES HELD TO MATURITY, NET
- ---------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1995
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
--------------------------------------------------
Government National
<S> <C> <C> <C> <C>
Mortgage Association $92,090,521 $1,311,106 $60,891 $93,340,736
Federal Home Loan Mortgage Corporat 31,374,816 301,287 275,237 31,400,866
Federal National Mortgage Associati 13,559,930 172,909 $249,221 13,483,618
Collateralized mortgage obligations 37,944,024 52,535 $1,592,850 36,403,709
--------------------------------------------------
$174,969,291 $1,837,837 $2,178,199 $174,628,929
==================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
--------------------------------------------------
Government National
<S> <C> <C> <C> <C>
Mortgage Association $69,350,300 $663,340 $319,496 $69,694,144
Federal Home Loan Mortgage Corporat 41,164,974 177,864 430,713 40,912,125
Federal National Mortgage Associati 22,066,336 97,850 615,608 21,548,578
Collateralized mortgage obligations 36,697,741 13,568 1,157,068 35,554,241
--------------------------------------------------
$169,279,351 $952,622 $2,522,885 $167,709,088
==================================================
</TABLE>
8. OTHER BORROWINGS
- -------------------
Other borrowings at June 30, 1996 are summarized as follows:
Interest
Maturity Rates Amount
-------- -----------------------
1996................................... 5.40-5.47% $36,968,256
1997................................... 5.79 14,600,000
1998................................... 6.17 4,500,000
1999................................... 6.40 9,300,000
-----------------------
Weighted average rate at June 30, 1996. 5.63% $65,368,256
=======================
9. NET INCOME PER COMMON SHARE
- ------------------------------
Net income per common share has been calculated based on the weighted average
number of shares outstanding plus the shares that would be outstanding assuming
the exercise of dilutive stock options, all of which are considered to be common
stock equivalents. The number of shares that would be issued from the exercise
of stock options has been reduced by the number of shares that could have been
purchased from the proceeds at the average price of the Corporation's common
stock.
6.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Corporation's assets at June 30, 1996 totaled $505.0 million, which
represents an increase of $59.2 million or 13.29% when compared with $445.8
million at September 30, 1995. The primary reason for the increase was an asset
growth strategy the Corporation implemented for the purpose of leveraging its'
capital whereby investments and mortgage-backed securities have been purchased
and funded with short and medium term borrowings. During the current 1996 fiscal
period, $49.9 million in investments and mortgage-backed securities had been
purchased as a result of this strategy. Total deposits at June 30, 1996
increased $7.1 million or 1.81% to $398.1 million when compared with $391.0
million at September 30, 1995. Investment securities held to maturity decreased
$18.8 million or 16.46% to $95.6 million at June 30, 1996 when compared with
$114.4 million at September 30, 1995. The decrease in investment securities held
to maturity was primarily due to the transfer of $29.8 million to investments
available for sale in December 1995, pursuant to the Special Report on FASB 115,
along with calls and maturities of investment securities of $55.0 million, which
more than made up for the purchase of $66.0 million of government agency
securities. Mortgage-backed securities held to maturity decreased by $5.7
million or 3.25% to $169.3 million at June 30, 1996 when compared to $175.0
million at September 30, 1995. The decrease was primarily due to the transfer of
$29.0 million of mortgage-backed securities to available for sale, pursuant to
the Special Report on FASB 115, along with principal repayments of $17.3
million, which more than offset the purchase of $40.6 million of mortgage-backed
securities. Purchases of investment securities available for sale totaled $25.3
million, which more than offset principal reductions of $3.8 million. Loans
receivable decreased $1.9 million or 1.40% to $132.4 million at June 30, 1996
when compared to $134.3 million at September 30, 1995. The decrease was a result
of loan principal repayments of $19.1 million and the transfer of $742,000 of
loans to real estate owned, which more than offset loan originations totaling
$17.9 million.
Other assets increased by $178,000 or 6.05% during the nine months ended June
30, 1996. Real estate owned, which consists of real estate acquired in
settlement of loans, totaled $2.5 million and $2.6 million at June 30, 1996 and
September 30, 1995, respectively. During the nine months ended June 30, 1996,
proceeds from sales of real estate owned totaled $0.9 million, resulting in
gains on such sales of $62,000, which more than offset the transfer of $0.7
million of mortgage loans to real estate owned. Stockholders' equity amounted to
$39.3 million and $52.3 million at June 30, 1996 and September 30, 1995,
respectively. The decrease of $13.0 million during the 1996 period was a direct
result of a Modified Dutch Auction the Corporation conducted whereby the
Corporation was seeking to buy back up to 1,000,000 shares of its common stock.
Shareholders were able to specify the price they were willing to tender their
shares within a range not less than $16.00 nor greater than $17.75 per share.
The Modified Dutch Auction concluded on June 21, 1996 with the Corporation
buying back 837,080 shares at $17.75 per share for a total of $14.9 million,
which was a direct reduction of stockholders' equity.
Results of operations for three months ended June 30, 1996 and 1995
Net income increased to $1.4 million for the three months ended June 30, 1996
when compared with $1.2 million for the same 1995 period, an increase of $0.2
million. The increase in the net income during the 1996 period resulted
primarily from an increase in interest income along with a decrease in
non-interest expense, which more than offset an increase in interest expense and
a decrease in non-interest income.
7
<PAGE>
Interest income on loans during the three months ended June 30, 1996 decreased
$192,000 or 6.24% to $2.9 million when compared to $3.1 million during the same
1995 period. The decrease during the 1996 period resulted from a decrease in the
average balance of loans outstanding, along with a decrease in the average yield
on the loan portfolio. Interest on mortgage-backed securities increased by
$267,000 or 9.43% during the three months ended June 30, 1996 when compared with
the same 1995 period as a result of increased balances along with an increase in
the average yield earned on the portfolio. Interest earned on investments and
other interest-earning assets increased $376,000 or 19.90% to $2.3 million
during the three months ended June 30, 1996 when compared to $1.9 million during
the same 1995 period. The increase during the 1996 period resulted primarily
from an increase in the average balance of investments and other
interest-earning assets outstanding, along with an increase in the yield earned
on investments and other interest-earning assets.
Interest on deposits decreased by $195,000 or 4.25% to $4.4 million during the
three months ended June 30, 1996 when compared to $4.6 million during the same
1995 period. The decrease during the 1996 period was primarily attributable to a
decrease in the Bank's cost of deposits. The decrease in the Bank's cost of
deposits reflected a decrease in general market interest rates paid on deposits.
Interest on borrowings was $405,000 for the three months ended June 30, 1996
compared with $-0- for the same 1995 period. During 1996 the Bank utilized
advances to fund both its Modified Dutch Auction and its asset growth strategy.
During the three months ended June 30, 1996 and 1995 the Bank did not make any
provisions for loan losses. Although no provisions were made because management
believes the levels of reserves were adequate, no assurances can be made that
future increases to the reserve will not be necessary. The allowance for loan
losses is based on management's evaluation of the risk inherent in its loan
portfolio and gives due consideration to the changes in general market
conditions and in the nature and volume of loan activity. At June 30, 1996 and
September 30, 1995, the Bank's non-performing loans, which includes loans
delinquent 90 days or more, totaled $2.1 million and $3.3 million, respectively.
Furthermore, the level of loan delinquencies less than 90 days declined to $3.4
million at June 30, 1996 compared to $4.1 million at September 30, 1995. The
allowance for loan losses amounted to $2.5 million or 1.85% of total loans at
June 30, 1996 and $2.6 million or 1.90% of total loans at September 30, 1995.
Non-interest income decreased $36,000 to $65,000 during the three months ended
June 30, 1996 when compared with $101,000 during the same 1995 period. The
decrease during the 1996 period resulted from decreases in income from real
estate operations and miscellaneous income of $48,000 and 23,000, respectively,
and was somewhat offset by an increase in fees and service charges on loans of
$35,000.
Non-interest expenses decreased $31,000 or 2.21% to $1.36 million during the
three months ended June 30, 1996 when compared with $1.39 million during the
same 1995 period. During the three months ended June 30, 1996, occupancy,
equipment, and miscellaneous expenses decreased by $18,000, $7,000, and $56,000,
respectively, and salaries and employee benefits, advertising, and FDIC deposit
insurance increased by $2,000, $47,000 and 1,000, respectively. The decrease in
miscellaneous expense was primarily due to a $50,000 write down of the
receivable relating to the fraudulent bridge loans during the 1995 period.
Income tax expense totaled $773,000 and $691,000 during the three months ended
June 30, 1996 and 1995, respectively. The increase during the 1996 period
resulted primarily from an increase in income before income taxes.
8
<PAGE>
Results of operations for nine months ended June 30, 1996 and 1995
Net income increased to $4.1 million for the nine months ended June 30, 1996
when compared with $3.9 million for the same 1995 period. The increase in the
net income during the 1996 period resulted primarily from an increase in
interest income and a decrease in non-interest expenses, which more than offset
an increase in interest expense and a decrease in non-interest income. Interest
income on loans during the nine months ended June 30, 1996 decreased $448,000 or
4.79% to $8.9 million when compared to $9.4 million during the same 1995 period.
The decrease during the 1996 period resulted from a decrease in the average
balance of loans outstanding, along with a decrease in the average yield on the
loan portfolio. Interest on mortgage-backed securities increased by $661,000 or
8.03% during the nine months ended June 30, 1996 when compared with the same
1995 period as a result of an increase in the average balance of mortgage-
backed securities outstanding, along with an increase in the average yield
earned on the portfolio. Interest earned on investments and other
interest-earning assets increased $912,000 or 17.43% to $6.1 million during the
nine months ended June 30, 1996 when compared to $5.2 million during the same
1995 period. The increase during the 1996 period resulted primarily from an
increase in the average balance of investments and other interest-earning assets
outstanding, along with an increase in the yield earned on investments and other
interest-earning assets.
Interest on deposits increased by $607,000 or 4.76% to $13.4 million during the
nine months ended June 30, 1996 when compared to $12.8 million during the same
1995 period. The increase during the 1996 period was primarily attributable to
an increase in the Bank's cost of deposits along with an increase in the average
balance of deposits outstanding. The increase in the Bank's cost of deposits
reflected an increase in general market interest rates paid on deposits.
Interest on borrowings was $405,000 for the nine months ended June 30, 1996
compared with $-0- for the same 1995 period. During 1996 the Bank utilized
advances to fund both its Modified Dutch Auction and its asset growth strategy.
During the nine months ended June 30, 1996 and 1995 the Bank did not make any
provisions for loan losses. Although no provisions were made because management
believes the levels of reserves were adequate, no assurances can be made that
future increases to the reserve will not be necessary. The allowance for loan
losses is based on management's evaluation of the risk inherent in its loan
portfolio and gives due consideration to the changes in general market
conditions and in the nature and volume of loan activity. At June 30, 1996 and
September 30, 1995, the Bank's non-performing loans totaled $2.1 million and
$3.3 million, respectively. The allowance for loan losses amounted to $2.5
million or 1.85% of total loans at June 30, 1996 and $2.6 million or 1.90% of
total loans at September 30, 1995.
Non-interest income decreased $7,000 to $237,000 during the nine months ended
June 30, 1996 when compared with $243,000 during the same 1995 period. The
decrease during the 1996 period resulted primarily from a decrease in income
from real estate operations and miscellaneous of $36,000 and $2,000,
respectively, which more than offset an increase in other fees and service
charges on loans of $31,000.
Non-interest expenses decreased $212,000 or 4.92% to $4.1 million during the
nine months ended June 30, 1996 when compared with $4.3 million during the same
1995 period. During the nine months ended June 30, 1996, salaries and employee
benefits, FDIC insurance premium, and miscellaneous expenses decreased by
$32,000, $1,000, and $245,000, respectively, and occupancy expense and
advertising increased by $21,000 and $45,000, respectively. The decrease in
miscellaneous expense was primarily due to a
9
<PAGE>
$202,000 write down of the receivable relating to the fraudulent bridge loans
during the 1995 period..
Income tax expense totaled $2.3 million and $2.1 million during the nine months
ended June 30, 1996 and 1995, respectively. The increase during the 1996 period
resulted primarily from an increase in income before income taxes.
Liquidity and Capital Resources
Liquidity is a measurement of the Bank's ability to generate sufficient cash
flow, in order to meet all current and future financial obligations and
commitments as they arise. The Bank adjusts its liquidity levels in order to
meet funding needs for deposit outflows, payment of real estate taxes from
escrow accounts on mortgage loans, repayments of borrowings, when applicable,
and loan funding commitments. The Bank also adjusts its liquidity level as
appropriate to meet its asset/liability objectives. The Bank's primary sources
of funds are deposits, amortization and prepayments of loan and mortgage- backed
securities principal, maturities of investment securities, and funds provided by
operations and short and medium term borrowings. While scheduled loan
amortization and maturing investment securities are a relatively predictable
source of funds, deposit flow and loan and mortgage-backed securities
prepayments are greatly influenced by market interest rates, economic conditions
and competition. The Bank manages the pricing of its deposits to maintain a
steady deposit balance. In addition, the Bank invests its excess funds in
federal funds and overnight deposits with the FHLB-NY which provides liquidity
to meet lending requirements. Federal funds sold at June 30, 1996 and September
30, 1995 totaled $8.2 million and $4.0 million, respectively. The Bank's
liquidity, represented by cash and cash equivalents, is a product of its
operating, investing and financing activities. These activities are summarized
as follows:
Nine months ended June 30,
1995 1996
------------------------
(In Thousands)
Cash and cash equivalents- beginning $ 16,126 $ 8,762
------------------------
Operating activities:
Net income 3,890 4,058
Adjustments to reconcile net
income to net cash provided
by operating activities 3,876 (1,000)
------------------------
Net cash provided by operating activities 7,766 3,058
Net cash used in investing activities (14,407) (54,143)
Net cash (used in) provided by
financing activities (121) 56,071
------------------------
Net (decrease) increase in cash and
cash equivalents (6,762) 4,986
------------------------
Cash and cash equivalents- ending $ 9,364 $ 13,748
========================
10
<PAGE>
Cash was generated by operating activities in each of the above periods. The
primary source of cash from operating activities during each of the periods was
net income. The primary sources and uses of investing activity of the Bank are
proceeds from net maturities and repayments and the purchase of investment and
mortgage-backed securities, net loan activity and from borrowing. Net loans
decreased $1.9 million during the nine months ended June 30, 1996 compared to a
decrease of $3.2 million during the same 1995 period. During the nine months
ended June 30, 1996 and 1995, purchases of mortgage-backed securities held to
maturity totaled $40.6 million and $9.1 million, respectively, and principal
repayments totaled $17.3 million and $10.9 million, respectively. During the
nine months ended June 30, 1996 and 1995, purchases of investment securities
held to maturity totaled $66.0 million and $33.0 million, respectively, and
maturities and calls totaled $55.0 million and $8.6 million, respectively. In
addition to funding new loan production and the purchase of investment and
mortgage-backed securities through operations and financing activities, new loan
production and purchases of investment and mortgage-backed securities were also
funded by principal repayments on existing loans and mortgage-backed securities
and also through short and medium term borrowings.
The primary source of financing activities during the 1996 period was from short
and medium term borrowings of $65.4 million. Another source of financing
activities during the 1996 and1995 periods were from an increase in deposits
outstanding amounting to $7.1 million and $1.3 million, respectively. During the
nine months ended June 30, 1996 and 1995, cash dividends of $1.9 million and
$1.7 million, respectively, were paid on the Corporation's common stock.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds and interest-bearing deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB-NY, which provides an additional source of funds.
The Bank anticipates that it will have sufficient funds available to meet its
current commitments to originate loans and to purchase mortgage-backed and
investment securities. At June 30, 1996, such outstanding commitments amounted
to $4.9 million. Certificates of deposit scheduled to mature in one year or
less, at June 30, 1996, totaled $205.8 million. Management believes that a
significant portion of such deposits will remain with the Bank.
The Bank is subject to regulatory capital requirements mandated by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank is required to maintain minimum
regulatory capital ratios, defined by the FDIC as risk-based ratio capital (Tier
1 and Total) and leverage ratio capital. The following table presents the
minimum capital requirement ratios and the actual ratios as of June 30, 1996:
Requirement Actual Excess
---------------------------------------
Risk-based Capital
Tier 1 4.00% 24.05% 20.05%
Total 8.00% 25.30% 17.30%
Leverage ratio 3.00% 7.39% 4.39%
11
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARY
Part II
ITEM 1. Legal Proceedings
- --------------------------
The Corporation and the Bank continue to pursue legal actions against
various named parties in an attempt to recoup and recover losses resulting from
the fraudulent bridge loans previously disclosed in the Form 10-Q for the
quarter ended December 31, 1995.
In April 1996 the Corporation reached an agreement with the former spouse
of Mr. Domenichetti and has agreed to release her as a defendant in the
continuing proceedings. The former spouse has also agreed to drop her suit
against the directors, officers, and former directors and officers of the Bank.
On May 24th the Bank received $35,000, according to the terms of the settlement
agreement, and reduced the receivable in other assets.
Also, on June 7th the Bank received $60,000 from the estate of Mr.
Domenichetti, further reducing the receivable in other assets.
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 Materially Important Events
- ------------------------------------------
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Not applicable
12
<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.
PULSE BANCORP, INC
Date:7/26/96 By: George T. Hornyak, Jr.
------- ----------------------
George T. Hornyak, Jr.
President
Chief Executive Officer
(Duly Authorized Officer)
Date:8/6/96 By: Thomas B. Konopacki
------ -------------------------
Thomas B. Konopacki
Executive Vice President
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,498,411
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 80,252,398
<INVESTMENTS-CARRYING> 264,827,671
<INVESTMENTS-MARKET> 260,457,000
<LOANS> 134,901,350
<ALLOWANCE> 2,505,224
<TOTAL-ASSETS> 505,034,356
<DEPOSITS> 398,098,821
<SHORT-TERM> 65,368,256
<LIABILITIES-OTHER> 2,229,334
<LONG-TERM> 0
0
0
<COMMON> 4,111,458
<OTHER-SE> 35,226,487
<TOTAL-LIABILITIES-AND-EQUITY> 505,034,356
<INTEREST-LOAN> 8,909,962
<INTEREST-INVEST> 15,045,117
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 23,955,079
<INTEREST-DEPOSIT> 13,362,118
<INTEREST-EXPENSE> 13,767,617
<INTEREST-INCOME-NET> 10,187,462
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,086,533
<INCOME-PRETAX> 6,337,559
<INCOME-PRE-EXTRAORDINARY> 6,337,559
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,057,925
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 1.17
<LOANS-NON> 1,025,648
<LOANS-PAST> 1,061,815
<LOANS-TROUBLED> 2,143,000
<LOANS-PROBLEM> 10,198,000
<ALLOWANCE-OPEN> 2,518,700
<CHARGE-OFFS> 13,476
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,505,224
<ALLOWANCE-DOMESTIC> 2,505,224
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
