SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
------------------------------------------------
OR
X 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 of incorporation (IRS Employer
or organization) Idenitification No.)
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 May 2, 1997
-------------------
CLASS OUTSTANDING
----- -----------
$1.00 par value common stock 3,067,048 Shares
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Page Number
PART I - CONSOLIDATED FINANCIAL INFORMATION
<S> <C>
Consolidated Statements of Financial Condition at September 30,
1996 and March 31, 1997 (unaudited) 1
Consolidated Statements of Income for the Three and Six Months
Ended March 31, 1996 and 1997 (unaudited) 2
Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 1996 and 1997 (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
</TABLE>
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, March 31,
1996 1997
ASSETS (Unaudited)
- ------ -------------------------------
<S> <C> <C>
Cash and amounts due from depository institutions ...................................... $ 4,249,883 $ 4,069,233
Federal funds sold ..................................................................... 500,000 4,900,000
-------------------------------
Total cash and cash equivalents .................................................... 4,749,883 8,969,233
Investment securities held to maturity; estimated fair value of
$103,192,000 and $105,814,000, respectively .......................................... 105,549,457 108,549,373
Mortgage backed securities held to maturity, net; estimated fair
value of $162,617,000 and $176,348,000, respectively ................................. 164,091,984 178,077,203
Investment securities available for sale ............................................... 39,054,697 39,087,890
Mortgage-backed securities available for sale .......................................... 40,255,064 42,290,819
Loans receivable, net .................................................................. 134,547,804 126,339,199
Premises & equipment, net .............................................................. 1,235,135 1,219,826
Real estate owned, net ................................................................. 2,232,624 195,300
Federal Home Loan Bank of New York stock, at cost ...................................... 2,543,100 2,775,500
Interest receivable .................................................................... 4,527,354 4,737,889
Other assets ........................................................................... 3,712,747 3,694,117
-------------------------------
Total assets....................................................................... $502,499,849 $ 515,936,349
===============================
LIABILITIES AND
- ---------------
STOCKHOLDERS' EQUITY
--------------------
Liabilities:
Deposits................................................................................ $394,580,611 $ 409,706,387
Borrowings ............................................................................. 64,275,000 62,550,000
Advance payments by borrowers for taxes & insurance .................................... 628,243 645,895
Other liabilities ...................................................................... 4,557,461 2,805,202
-------------------------------
Total liabilities ................................................................. 464,041,315 475,707,484
-------------------------------
Stockholders' Equity:
Preferred stock; authorized 5,000,000 shares; issued and
outstanding - none .................................................................. -- --
Common stock; par value $1.00; authorized 10,000,000 shares;
4,111,958 shares issued and 3,049,878 outstanding and
4,123,128 shares issued and 3,061,048 outstanding,
respectively ........................................................................ 4,111,958 4,123,128
Paid in capital in excess of par value ................................................. 12,105,541 12,182,581
Retained earnings- substantially restricted ............................................ 39,147,609 40,840,945
Unrealized loss on securities available for sale, net of tax ........................... (229,074) (240,289)
Treasury Stock; at cost; 1,062,080 common shares, respectively ......................... (16,677,500) (16,677,500)
-------------------------------
Total stockholders' equity ........................................................ 38,458,534 40,228,865
-------------------------------
Total liabilities and stockholders' equity......................................... $502,499,849 $ 515,936,349
===============================
</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 Six Months Ended
--------------------------------------------------
March 31, March 31,
--------------------------------------------------
1996 1997 1996 1997
--------------------------------------------------
Interest income:
<S> <C> <C> <C> <C>
Loans ..................................................... $3,007,228 $2,788,005 $6,024,176 $5,707,892
Mortgage-backed securities................................. 2,962,497 3,586,640 5,797,071 6,940,531
Investments and other interest-earning assets.............. 1,887,293 2,640,485 3,880,289 5,209,609
---------- ---------- ---------- ----------
Total interest income................................... 7,857,018 9,015,130 15,701,536 17,858,032
---------- ---------- ---------- ----------
Interest expense:
Deposits................................................... 4,451,551 4,576,517 8,974,080 9,101,957
---------- ---------- ---------- ----------
Borrowings................................................. - 929,246 - 1,890,889
Total interest expense.................................. 4,451,551 5,505,763 8,974,080 10,992,846
---------- ---------- ---------- ----------
Net interest income........................................... 3,405,467 3,509,367 6,727,456 6,865,186
---------- ---------- ---------- ----------
Net interest income after provision for loan losses........... 3,405,467 3,509,367 6,727,456 6,865,186
---------- ---------- ---------- ----------
Non-interest income:
Other fees and service charges on loans.................... 59,097 62,524 116,173 143,256
Income (expense) from real estate operations............... 8,404 (13,255) 3,300 77,311
Miscellaneous.............................................. 15,204 13,344 51,914 43,033
---------- ---------- ---------- ----------
Total non-interest income............................... 82,705 62,613 171,387 263,600
---------- ---------- ---------- ----------
Non-interest expenses:
Salaries and employee benefits............................. 590,215 671,098 1,185,233 1,324,797
Occupancy expense.......................................... 82,419 74,915 153,385 151,662
Equipment expense.......................................... 145,045 150,230 276,438 281,423
Advertising................................................ 72,624 99,357 132,981 194,064
Federal deposit insurance premium.......................... 222,655 63,312 449,007 240,156
Miscellaneous.............................................. 275,033 284,560 526,501 607,533
---------- ---------- ---------- ----------
Total non-interest expenses............................. 1,387,991 1,343,472 2,723,545 2,799,635
---------- ---------- ---------- ----------
Income before income taxes.................................... 2,100,181 2,228,508 4,175,298 4,329,151
Income taxes.................................................. 755,000 798,000 1,506,634 1,566,372
---------- ---------- ---------- ----------
Net income.............................................. $1,345,181 $1,430,508 $2,668,664 $2,762,779
==================================================
Net income per common share and common stock equivalents...... $ 0.34 $ 0.45 $ 0.67 $ 0.88
==================================================
Dividends per common share.................................... $ 0.175 $ 0.175 $ 0.35 $ 0.35
==================================================
Weighted average number of common shares and common
stock equivalents outstanding.............................. 3,955,549 3,148,444 3,954,565 3,136,650
==================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-----------------------------------------
1996 1997
-----------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income .................................................................. $ 2,668,664 $ 2,762,779
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of premises and equipment .................................... 68,710 74,622
Provision for losses on real estate owned ................................. 76,000 32,850
Amortization of premiums, discounts and fees, net ......................... (119,342) (77,046)
Gain on sale of real estate owned ......................................... (62,462) (119,141)
Decrease (increase) in interest receivable ................................ 536,982 (210,535)
(Increase) decrease in other assets ....................................... (162,097) 18,630
(Decrease) increase in other liabilities .................................. (165,676) 1,752,259
-----------------------------------------
Net cash provided by operating activities ............................... 2,840,779 4,234,418
-----------------------------------------
Cash flows from investing activities:
Proceeds from maturities and calls of investment securities held to maurity 53,000,000 7,002,500
Purchase of investment securities held to maturity ........................ (48,979,670) (10,000,000)
Purchase of mortgage-backed securities held to maturity ................... (25,507,350) (23,838,620)
Purchase of mortgage-backed securities available for sale ................. -- (4,940,719)
Principal repayments on mortgage-backed securities held to maturity ....... 10,669,731 9,839,918
Principal repayments on mortgage-backed securities available for sale ..... 1,686,777 2,626,241
Net decrease in loans receivable .......................................... 2,429,079 4,818,014
Additions to premises and equipment ....................................... (65,996) (59,313)
Proceeds from sale of real estate owned ................................... 868,762 2,332,115
Purchase of Federal Home Loan Bank of New York Stock ...................... (2,900) (232,400)
-----------------------------------------
Net cash used in investing activities ................................... (5,901,567) (12,452,264)
-----------------------------------------
Cash flows from financing activities:
Net increase in deposits .................................................. 5,206,486 15,125,776
Net decrease in borrowings ................................................ -- (1,725,000)
Decrease in advance payments by borrowers
for taxes and insurance ................................................. 132,138 17,652
Issuance of common stock .................................................. 313,402 88,210
Cash dividends paid ....................................................... (1,356,125) (1,069,442)
-----------------------------------------
Net cash provided by financing activities ............................... 4,295,901 12,437,196
-----------------------------------------
Net increase in cash and cash equivalents ..................................... 1,235,113 4,219,350
Cash and cash equivalents - beginning ......................................... 8,761,510 4,749,883
-----------------------------------------
Cash and cash equivalents - ending ............................................ $ 9,996,623 $ 8,969,233
=========================================
Supplemental schedule of non-cash investing activities:
Transfer of loans receivable to real estate owned ....................... $ 628,000 $ 208,500
=========================================
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 ............................................................ $ 1,255,000 $ 300,000
=========================================
Interest ................................................................ $ 8,987,738 $ 10,987,659
=========================================
</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 subsidiaries, Pulse Savings Bank,
Pulse Insurance Services, Pulse Real Estate, and Pulse Investment, Inc. 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 six months ended March 31, 1997
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
3. LOANS RECEIVABLE, NET
- ------------------------
<TABLE>
<CAPTION>
September 30, March 31,
1996 1997
---------------------------
Real Estate Mortgage:
<S> <C> <C>
One-to-four family ................................................................. $ 65,509,636 $ 66,627,928
Multi family ....................................................................... 28,190,149 20,099,633
Commercial ......................................................................... 29,882,549 28,671,137
---------------------------
123,582,334 115,398,698
---------------------------
Construction Loans .................................................................... 125,000 195,000
Consumer:
Home equity ........................................................................ 13,543,650 13,281,936
Passbook or certificate ............................................................ 184,185 229,679
---------------------------
13,727,835 13,511,615
---------------------------
Total loans ................................................................... 137,435,169 129,105,313
---------------------------
Less: Allowance for loan losses ....................................................... 2,458,777 2,357,396
Deferred loan fees and discounts ............................................. 428,588 408,718
----------------------------
2,887,365 2,766,114
----------------------------
$134,547,804 $126,339,199
============================
</TABLE>
<TABLE>
<CAPTION>
An analysis of the allowance for loan losses is as follows: Six Months Ended
March 31,
-----------------------
1996 1997
---- ----
<S> <C> <C>
Balance-beginning.................................. $2,603,852 $2,458,777
Provisions charged to operations................... - -
Losses charged to allowance........................ (85,152) (101,381)
Balance-ending..................................... $2,518,700 $2,357,396
</TABLE>
4
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
4. INVESTMENT SECURITIES
- ------------------------
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Held To Maturity Value Gains Losses Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies) $104,949,486 $ 104,420 $2,483,349 $102,570,557
Obligations of state and political
subdivisions 599,971 21,789 -- 621,760
-------------------------------------------------------------
$105,549,457 $ 126,209 $2,483,349 $103,192,317
=============================================================
Available For Sale
U.S. Government Agency Debentures $ 39,813,748 $ 12,500 $ 771,551 $ 39,054,697
-------------------------------------------------------------
$ 39,813,748 $ 12,500 $ 771,551 $ 39,054,697
=============================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Held To Maturity Value Gains Losses Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies) $107,951,889 $41,996 $2,799,877 $105,194,008
Obligations of state and political 597,484 22,276 $619,760
subdivisions
---------------------------------------------------------
$108,549,373 $64,272 $2,799,877 $105,813,768
=========================================================
Available For Sale
U.S. Government Agency Debentures $39,823,787 $43,800 $ 779,697 $ 39,087,890
---------------------------------------------------------
$39,823,787 $43,800 $ 779,697 $ 39,087,890
=========================================================
</TABLE>
5
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
5. MORTGAGE-BACKED SECURITIES
- -----------------------------
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Held To Maturity Value Gains Losses Value
- ---------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 67,075,905 $ 743,542 $ 194,683 $ 67,624,764
Federal Home Loan Mortgage Corporation 39,159,809 174,932 402,384 38,932,357
Federal National Mortgage Association 21,470,218 95,144 $ 603,746 20,961,616
Collateralized mortgage obligations 36,386,052 10,191 $ 1,298,317 35,097,926
----------------------------------------------------------
$164,091,984 $1,023,809 $ 2,499,130 $162,616,663
==========================================================
Available For Sale
GNMA ARMs $ 39,848,435 $ 406,629 $ -- $ 40,255,064
----------------------------------------------------------
$ 39,848,435 $ 406,629 $ -- $ 40,255,064
==========================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Held To Maturity Value Gains Losses Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 68,759,079 $ 638,162 $ 30,686 $ 69,366,555
Federal Home Loan Mortgage Corporation 40,955,202 118,645 569,719 40,504,128
Federal National Mortgage Association 32,474,041 56,663 $ 772,397 31,758,307
Collateralized mortgage obligations 35,888,882 8,455 $ 1,178,818 34,718,519
----------------------------------------------------------
$178,077,204 $ 821,925 $ 2,551,620 $176,347,509
==========================================================
Available For Sale
GNMA ARMs $ 36,983,845 $ 435,867 $ -- $ 37,419,712
FHLMC fixed 4,940,751 $ -- 69,639 4,871,112
----------------------------------------------------------
$ 41,924,596 $ 435,867 $ 69,639 $ 42,290,824
==========================================================
</TABLE>
6. 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 March 31, 1997 totaled $515.9 million, which
represents an increase of $13.4 million or 2.67% when compared with $502.5
million at September 30, 1996. Total deposits at March 31, 1997 increased $15.1
million or 3.83% to $409.7 million when compared with $394.6 million at
September 30, 1996. Investment securities held to maturity increased $3.0
million or 2.84% to $108.5 million at March 31, 1997 when compared with $105.6
million at September 30, 1996. Investment securities available for sale were
$39.1 million at both March 31, 1997 and Sept. 30, 1996, respectively.
Mortgage-backed securities held to maturity increased by $14.0 million or 8.52%
to $178.1 million at March 31, 1997 when compared to $164.1 million at September
30, 1996. The increase in mortgage-backed securities held to maturity was
primarily due to the purchase of $23.8 million, which more than offset principal
repayments of $9.8 million. Mortgage-backed securities available for sale
increased $2.0 million or 5.06% to $42.3 million at March 31, 1997 compared to
$40.3 million at September 30, 1996. Loans receivable decreased $8.2 million or
6.10% to $126.3 million at March 31, 1997 when compared to $134.6 million at
September 30, 1996. The decrease was a result of loan principal repayments of
$17.3 million and the transfer of $208,000 of loans to real estate owned, which
more than offset loan originations totaling $9.2 million. Other liabilities
decreased by $1.8 million or 38.5% to $2.8 million at March 31, 1997 compared to
$4.6 million at September 30, 1996. The decrease was primarily due to the FDIC's
one-time special insurance assessment of $2.6 million that the Bank paid in
November.
Other assets decreased by $19,000 or 2.67% during the six months ended March 31,
1997. Real estate owned, which consists of real estate acquired in settlement of
loans, totaled $195,000 and $2.2 million at March 31, 1997 and September 30,
1996, respectively. The decrease was a direct result of sales of real estate
owned that generated proceeds of $2.3 million and gains on such sales of
$119,000, which more than offset the transfer of $208,000 of loans to other real
estate owned during the period. Stockholders' equity amounted to $40.2 million
and $38.5 million at March 31, 1997 and September 30, 1996, respectively.
Results of operations for three months ended March 31, 1997 and 1996
Net income increased $85,000 or 6.34% to $1.43 million for the three months
ended March 31, 1997 compared to $1.35 million for the same 1996 period. The
increase was attributable to 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. Interest income on loans during
the three months ended March 31, 1997 decreased $219,000 or 7.29% to $2.8
million when compared to $3.0 million during the same 1996 period. The decrease
during the 1997 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 $624,000 or 21.07% during
the three months ended March 31, 1997 when compared with the same 1996 period as
a result of increased balances. Interest earned on investments and other
interest-earning assets increased $753,000 or 39.91% to $2.6 million during the
three months ended March 31, 1997 when compared to $1.9 million during the same
1996 period. The increase during the 1997 period resulted primarily from an
increase in the average balance of investments and other interest-earning assets
outstanding.
7
<PAGE>
Interest on deposits increased $124,000 or 2.81% to 4.58 million for the three
months ending March 31, 1997 compared to $4.45 million during the same 1996
period. Interest on borrowings was $929,000 for the three months ended March 31,
1997 compared with $-0- for the same 1996 period. During 1997 the Bank utilized
securities sold under repurchase agreements to fund its asset growth strategy.
During the three months ended March 31, 1997 and 1996 the Bank did not make any
provisions for loan losses. Although no provisions were made, as 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 March 31, 1997 and
September 30, 1996, the Bank's non-performing loans, which includes loans
delinquent 90 days or more, totaled $1.6 million and $1.8 million, respectively.
Furthermore, the level of loan delinquencies less than 90 days declined to $3.5
million at March 31, 1997 compared to $3.8 million at September 30, 1996. The
allowance for loan losses amounted to $2.4 million or 1.86% of total loans at
March 31, 1997 and $2.5 million or 1.79% of total loans at September 30, 1996.
Non-interest income decreased $20,000 or 24.29% to $63,000 during the three
months ended March 31, 1997 when compared with $83,000 during the same 1996
period. The decrease during the 1997 period resulted from decreases in income
from real estate operations and miscellaneous income of $21,000 and 2,000,
respectively, and was somewhat offset by an increase in income from other fees
and service charges on loans of $3,000.
Non-interest expenses decreased $45,000 or 3.21% to $1.34 million during the
three months ended March 31, 1997 when compared with $1.39 million during the
same 1996 period. During the three months ended March 31, 1997, FDIC deposit
insurance, and occupany expense decreased by $159,000 and 8,000, respectively.
The large decrease in FDIC insurance expense was a direct result of the lower
insurance premiums that took effect January 1, 1997 due to the recapitalization
of the SAIF insurance fund. Salaries and employee benefits, advertising,
equipment, and miscellaneous expenses increased by $81,000, 27,000, $5,000, and
9,000, respectively..
Income tax expense totaled $798,000 and $755,000 during the three months ended
March 31, 1997 and 1996, respectively. The increase during the 1997 period
resulted primarily from the increase in income before income taxes.
Results of operations for six months ended March 31, 1997 and 1996
Net income increased $94,000 or 3.53% to $2.76 million for the six months ended
March 31, 1997 compared to $2.67 million for the same 1996 period. The increase
was attributable to an increase in interest income and non-interest income,
which more than offset increases in interest expense and non-interest expense.
Interest income on loans during the six months ended March 31, 1997 decreased
$316,000 or 5.25% to $5.7 million when compared to $6.0 million during the same
1996 period. The decrease during the 1997 period resulted from a decrease in the
average balance of loans outstanding, . Interest on mortgage-backed securities
increased by $1.1 million or 19.72% during the six months ended March 31, 1997
when compared with the same 1996 period as a result of increased balances.
Interest earned on investments and other interest-earning assets increased $1.3
million or 34.26% to $5.2 million during the six months ended March 31, 1997
when compared to $3.9 million during the same 1996 period.
8
<PAGE>
The increase during the 1997 period resulted primarily from an increase in the
average balance of investments and other interest-earning assets outstanding.
Interest on deposits increased $128,000 or 1.42% to $9.1 million for the six
months ending March 31, 1997 compared to $9.0 million during the same 1996
period. Interest on borrowings was $1.9 million for the six months ended March
31, 1997 compared with $-0- for the same 1996 period. During 1997 the Bank
utilized securities sold under repurchase agreements to fund its asset growth
strategy.
During the six months ended March 31, 1997 and 1996 the Bank did not make any
provisions for loan losses. Although no provisions were made, as 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 March 31, 1997 and
September 30, 1996, the Bank's non-performing loans, which includes loans
delinquent 90 days or more, totaled $1.6 million and $1.8 million, respectively.
Furthermore, the level of loan delinquencies less than 90 days declined to $3.5
million at March 31, 1997 compared to $3.8 million at September 30, 1996. The
allowance for loan losses amounted to $2.4 million or 1.86% of total loans at
March 31, 1997 and $2.5 million or 1.79% of total loans at September 30, 1996.
Non-interest income increased $92,000 or 53.80% to $264,000 during the six
months ended March 31, 1997 when compared with $171,000 during the same 1996
period. The increase during the 1997 period resulted from increases in income
from real estate operations and other fees and service charges on loans of
$74,000 and 27,000, respectively, and was somewhat offset by a decrease in
miscellaneous income of $9,000.
Non-interest expenses increased $76,000 or 2.79% to $2.80 million during the six
months ended March 31, 1997 when compared with $2.72 million during the same
1996 period. During the six months ended March 31, 1997 salaries and employee
benefits, advertising, equipment, and miscellaneous expenses increased by
$139,000, $61,000, $5,000 and $81,000, respectively. FDIC deposit insurance
premium and occupancy expenses decreased by $209,000 and $2,000, respectively.
The large decrease in FDIC insurance expense was a direct result of the lower
insurance premiums as a result of the recapitalization of the SAIF insurance
fund.
Income tax expense totaled $1.57 million and $1.51 million during the six months
ended March 31, 1997 and 1996, respectively. The increase during the 1997 period
resulted primarily from the 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
9
<PAGE>
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 March 31,
1997 and September 30, 1996 totaled $4.9 million and $0.5 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:
Six months ended March 31,
--------------------------
1996 1997
---------------
(In Thousands)
Cash and cash equivalents- beginning $ 8,762 $ 4,750
--------------------
Operating activities:
Net income 2,669 2,763
Adjustments to reconcile net
income to net cash provided
by operating activities 172 1,471
Net cash provided by operating activities 2,841 4,234
--------------------
Net cash used in investing activities (5,902) (12,452)
Net cash provided by financing activities 4,296 12,437
--------------------
Net increase in cash and
cash equivalents 1,235 4,219
--------------------
Cash and cash equivalents- ending $ 9,997 $ 8,969
====================
Cash was generated by operating activities during the 1997 and 1996 periods. The
primary source of cash from operating activities during both 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 $8.2 million during the six months ended March 31, 1997 compared to a
decrease of $3.1 million during the same 1995 period. During the six months
ended March 31, 1997 and 1996, purchases of mortgage-backed securities held to
maturity totaled $23.8 million and $25.5 million, respectively, and principal
repayments totaled $9.8 million and $10.7 million, respectively. During the six
months ended March 31, 1997 and 1996, purchases of investment securities held to
maturity totaled $7.0 million and $53.0 million, respectively, and maturities
and calls totaled $10.0 million and $49.0 million, respectively. In addition to
funding new loan production and the purchase of investment and mortgage-backed
securities through operations and financing activities, these activities 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 1997 and 1996 periods was
from an increase in deposits outstanding amounting to $15.1 million and $5.2
million, respectively. During the six months
10
<PAGE>
ended March 31, 1997 and 1996, cash dividends of $1.07 million and $1.36
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 March 31, 1997, such outstanding commitments amounted
to $3.3 million. Certificates of deposit scheduled to mature in one year or
less, at March 31, 1997, totaled $219.1 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 March 31, 1997:
Requirement Actual Excess
Risk-based Capital ----------- ------ ------
Tier 1 4.00% 25.71% 21.71%
Total 8.00% 26.96% 18.96%
Leverage ratio 4.00% 7.31% 3.31%
11
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARY
Part II
ITEM 1. Legal Proceedings
- --------------------------
As indicated under "Item 1. Legal Proceedings" of the Registrant's
Form 10-Q for the quarter ended December 31, 1996, the Registrant and
its subsidiary, Pulse Savings Bank, had filed claims under their
malpractice insurance coverage to recover losses associated with
fictitious bridge loans, and a trial date of April 14, 1997 had been
established for the litigation. The trial was indefinitely postponed
by the presiding judge and a settlement is actively being pursued in
case management negotiations.
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
- ------------------------------------------------------------
Information concerning the January 23, 1997 stockholders annual
meeting was disclosed in the Form 10-Q for the quarter ended December
31, 1996.
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: 5/2/97 By:/s/ George T. Hornyak, Jr.
----------- --------------------------------------
George T. Hornyak, Jr.
President
Chief Executive Officer
(Duly Authorized Officer)
Date: 5/2/97 By:/s/ Thomas B. Konopacki
----------- --------------------------------------
Thomas B. Konopacki
Executive Vice President
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,069,233
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,900,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81,378,709
<INVESTMENTS-CARRYING> 286,626,576
<INVESTMENTS-MARKET> 282,162,000
<LOANS> 128,696,595
<ALLOWANCE> 2,357,396
<TOTAL-ASSETS> 515,937,349
<DEPOSITS> 409,706,387
<SHORT-TERM> 62,550,000
<LIABILITIES-OTHER> 3,451,097
<LONG-TERM> 0
0
0
<COMMON> 4,123,128
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<TOTAL-LIABILITIES-AND-EQUITY> 515,937,349
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<EXPENSE-OTHER> 2,799,635
<INCOME-PRETAX> 4,329,151
<INCOME-PRE-EXTRAORDINARY> 4,329,151
<EXTRAORDINARY> 0
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<NET-INCOME> 2,762,779
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
<YIELD-ACTUAL> 1.08
<LOANS-NON> 721,537
<LOANS-PAST> 854,812
<LOANS-TROUBLED> 2,118,000
<LOANS-PROBLEM> 9,595,000
<ALLOWANCE-OPEN> 2,458,777
<CHARGE-OFFS> 101,381
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<ALLOWANCE-CLOSE> 2,357,396
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