SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----------
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----------- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-18764
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PULSE BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-3016360
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(State or other jurisdiction of (IRS Employer Identification No.)
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
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The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date August 5, 1997
CLASS OUTSTANDING
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$1.00 par value common stock 3,080,548 Shares
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I - CONSOLIDATED FINANCIAL INFORMATION
Consolidated Statements of Financial Condition at September 30,
1996 and June 30, 1997 (unaudited) 1
Consolidated Statements of Income for the Three and Nine Months
Ended June 30, 1996 and 1997 (unaudited) 2
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 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, June 30,
1996 1997
(Unaudited)
------------------------------
<S> <C> <C>
ASSETS
- ------
Cash and amounts due from depository institutions ................. $ 4,249,883 $ 4,665,138
Federal funds sold ................................................ 500,000 14,200,000
------------------------------
Total cash and cash equivalents ............................... 4,749,883 18,865,138
Investment securities held to maturity; estimated fair value of
$103,192,000 and $101,310,000, respectively ..................... 105,549,457 102,550,654
Mortgage backed securities held to maturity, net; estimated fair
value of $162,617,000 and $172,260,000, respectively ............ 164,091,984 172,403,439
Investment securities available for sale .......................... 39,054,697 39,397,990
Mortgage-backed securities available for sale ..................... 40,255,064 56,081,073
Loans receivable, net ............................................. 134,547,804 119,703,988
Premises & equipment, net ......................................... 1,235,135 1,188,487
Real estate owned, net ............................................ 2,232,624 113,400
Federal Home Loan Bank of New York stock, at cost ................. 2,543,100 2,775,500
Interest receivable ............................................... 4,527,354 4,724,167
Other assets ...................................................... 3,712,747 2,398,763
------------------------------
Total assets ................................................. $ 502,499,849 $ 520,202,599
==============================
LIABILITIES AND
- ---------------
STOCKHOLDERS' EQUITY
--------------------
Liabilities:
Deposits .......................................................... $ 394,580,611 $ 413,003,415
Borrowings ........................................................ 64,275,000 60,900,000
Advance payments by borrowers for taxes & insurance ............... 628,243 706,146
Other liabilities ................................................. 4,557,461 3,728,373
------------------------------
Total liabilities ............................................ 464,041,315 478,337,934
------------------------------
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
4,132,628 shares issued and 3,070,548 outstanding,
respectively ................................................... 4,111,958 4,132,628
Paid in capital in excess of par value ............................ 12,105,541 12,236,019
Retained earnings- substantially restricted ....................... 39,147,609 41,782,091
Unrealized (loss) gain on securities available for sale, net of tax (229,074) 391,427
Treasury Stock; at cost; 1,062,080 common shares, respectively .... (16,677,500) (16,677,500)
------------------------------
Total stockholders' equity ................................... 38,458,534 41,864,665
------------------------------
Total liabilities and stockholders' equity ................... $ 502,499,849 $ 520,202,599
==============================
</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,
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1996 1997 1996 1997
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<S> <C> <C> <C> <C>
Interest income:
Loans ............................................... $ 2,885,786 $ 2,678,398 $ 8,909,962 $ 8,386,290
Mortgage-backed securities .......................... 3,103,083 3,753,811 8,900,154 10,694,342
Investments and other interest-earning assets ....... 2,264,674 2,653,990 6,144,963 7,863,599
-----------------------------------------------------------
Total interest income ............................ 8,253,543 9,086,199 23,955,079 26,944,231
-----------------------------------------------------------
Interest expense:
Deposits ............................................ 4,388,038 4,734,047 13,362,118 13,836,004
Borrowings .......................................... 405,499 913,435 405,499 2,804,324
-----------------------------------------------------------
Total interest expense ........................... 4,793,537 5,647,482 13,767,617 16,640,328
-----------------------------------------------------------
Net interest income .................................... 3,460,006 3,438,717 10,187,462 10,303,903
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Net interest income after provision for loan losses .... 3,460,006 3,438,717 10,187,462 10,303,903
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Non-interest income:
Other fees and service charges on loans ............. 86,376 79,734 202,549 222,990
Income (expense) from real estate operations ........ (23,828) 5,284 (20,528) 82,595
Miscellaneous ....................................... 2,695 113,079 54,609 156,112
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Total non-interest income ........................ 65,243 198,097 236,630 461,697
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Non-interest expenses:
Salaries and employee benefits ...................... 614,645 690,984 1,799,877 2,015,781
Occupancy expense ................................... 58,390 55,842 211,775 207,504
Equipment expense ................................... 123,302 132,179 399,740 413,602
Advertising ......................................... 90,653 118,927 223,634 312,991
Federal deposit insurance premium ................... 226,277 64,591 675,285 304,747
Miscellaneous ....................................... 249,721 270,799 776,222 878,332
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Total non-interest expenses ...................... 1,362,988 1,333,322 4,086,533 4,132,957
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Income before income taxes ............................. 2,162,261 2,303,492 6,337,559 6,632,643
Income taxes ........................................... 773,000 825,000 2,279,634 2,391,372
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Net income ....................................... $ 1,389,261 $ 1,478,492 $ 4,057,925 $ 4,241,271
===========================================================
Net income per common share and common stock equivalents $ 0.36 $ 0.47 $ 1.03 $ 1.35
===========================================================
Dividends per common share ............................. $ 0.175 $ 0.175 $ 0.525 $ 0.525
===========================================================
Weighted average number of common shares and common
stock equivalents outstanding ....................... 3,873,129 3,171,827 3,923,419 3,145,585
===========================================================
</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,
----------------------------
1996 1997
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................... $ 4,057,925 $ 4,241,271
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of premises and equipment ..................................... 104,334 110,973
Provision for losses on real estate owned .................................. 76,000 32,850
Amortization of premiums, discounts and fees, net .......................... (157,178) (85,115)
Gain on sale of real estate owned .......................................... (62,462) (124,951)
Increase in interest receivable ............................................ (349,668) (196,813)
(Increase) decrease in other assets ........................................ (178,288) 1,313,984
Decrease in other liabilities .............................................. (432,233) (829,088)
----------------------------
Net cash provided by operating activities ................................ 3,058,430 4,463,111
----------------------------
Cash flows from investing activities:
Proceeds from maturities and calls of investment securities held to maturity 55,000,000 13,002,500
Purchase of investment securities held to maturity ......................... (65,951,545) (10,000,000)
Purchase of investment securities available for sale ....................... (10,000,000)
Purchase of mortgage-backed securities held to maturity .................... (40,624,538) (35,089,594)
Purchase of mortgage-backed securities available for sale .................. (15,323,082) (19,960,979)
Principal repayments on mortgage-backed securities held to maturity ........ 17,339,831 26,758,186
Principal repayments on mortgage-backed securities available for sale ...... 3,830,530 4,524,286
Net decrease in loans receivable ........................................... 851,516 14,624,578
Additions to premises and equipment ........................................ (131,676) (64,325)
Proceeds from sale of real estate owned .................................... 868,762 2,419,825
Purchase of Federal Home Loan Bank of New York Stock ....................... (2,900) (232,400)
----------------------------
Net cash used in investing activities .................................... (54,143,102) (4,017,923)
----------------------------
Cash flows from financing activities:
Net increase in deposits ................................................... 7,060,978 18,422,804
Net decrease in borrowings ................................................. 65,368,256 (3,375,000)
Increase in advance payments by borrowers
for taxes and insurance .................................................. 193,703 77,903
Issuance of common stock ................................................... 313,402 151,148
Purchase of treasury stock ................................................. (14,975,000)
Cash dividends paid ........................................................ (1,889,766) (1,606,788)
----------------------------
Net cash provided by financing activities ................................ 56,071,573 13,670,067
----------------------------
Net increase in cash and cash equivalents ...................................... 4,986,901 14,115,255
Cash and cash equivalents - beginning .......................................... 8,761,510 4,749,883
----------------------------
Cash and cash equivalents - ending ............................................. $ 13,748,411 $ 18,865,138
============================
Supplemental schedule of non-cash investing activities:
Transfer of loans receivable to real estate owned ........................ $ 742,000 $ 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 ............................................................. $ 1,875,000 $ 1,000,000
============================
Interest ................................................................. $ 13,419,648 $ 16,580,635
============================
</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 nine months ended June 30, 1997
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
3. LOANS RECEIVABLE, NET
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<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
------------------------------
<S> <C> <C>
Real Estate Mortgage:
One-to-four family ................................................................. $ 65,509,636 $ 68,261,779
Multi family ....................................................................... 28,190,149 16,582,041
Commercial ......................................................................... 29,882,549 23,077,846
------------------------------
123,582,334 107,921,666
------------------------------
Construction Loans .................................................................... 125,000 332,190
Consumer:
Home equity ........................................................................ 13,543,650 14,013,311
Passbook or certificate ............................................................ 184,185 192,006
------------------------------
13,727,835 14,205,317
------------------------------
Total loans ................................................................... 137,435,169 122,459,173
------------------------------
Less: Allowance for loan losses ....................................................... 2,458,777 2,357,396
Deferred loan fees and discounts ............................................. 428,588 397,789
------------------------------
2,887,365 2,755,185
------------------------------
$ 134,547,804 $ 119,703,988
==============================
</TABLE>
An analysis of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------------------
1996 1997
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<S> <C> <C>
Balance-beginning ................................................ $ 2,603,852 $ 2,458,777
Provisions charged to operations ................................. -- --
Losses charged to allowance ...................................... (98,628) (101,381)
------------------------------
Balance-ending ................................................... $ 2,505,224 $ 2,357,396
==============================
</TABLE>
4
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
4. INVESTMENT SECURITIES
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<TABLE>
<CAPTION>
September 30, 1996
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Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
Held To Maturity
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>
June 30, 1997
---------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
Held To Maturity
U.S. Government (including agencies) $101,953,163 $ 141,451 $ 1,406,600 $100,688,014
Obligations of state and political 597,491 24,229 $ 621,720
subdivisions
---------------------------------------------------------
$102,550,654 $ 165,680 $ 1,406,600 $101,309,734
=========================================================
Available For Sale
U.S. Government Agency Debentures $ 39,828,896 $ 76,620 $ 507,526 $ 39,397,990
---------------------------------------------------------
$ 39,828,896 $ 76,620 $ 507,526 $ 39,397,990
=========================================================
</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
Value Gains Losses Value
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held To Maturity
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>
June 30, 1997
----------------------------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held To Maturity
Government National Mortgage Association $66,010,948 $1,203,927 $57,611 $67,157,264
Federal Home Loan Mortgage Corporation 39,140,621 216,320 323,091 39,033,850
Federal National Mortgage Association 31,665,069 104,405 310,943 31,458,531
Collateralized mortgage obligations 35,586,801 3,922 979,943 34,610,780
---------------------------------------------------------------------------
$172,403,439 $1,528,574 $1,671,588 $172,260,425
===========================================================================
Available For Sale
GNMA ARMs $35,339,441 $802,462 $ - $36,141,903
FNMA ARMs 5,016,099 35,950 - 5,052,049
FNMA fixed 4,996,166 55,944 - 5,052,110
FHLMC fixed 9,696,266 138,745 - 9,835,011
$55,047,972 $1,033,101 $0 $56,081,073
===========================================================================
</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 June 30, 1997 totaled $520.2 million, which
represents an increase of $17.7 million or 3.52% when compared with $502.5
million at September 30, 1996. Total deposits at June 30, 1997 increased $18.4
million or 4.67% to $413.0 million when compared with $394.6 million at
September 30, 1996. Investment securities held to maturity decreased $3.0
million or 2.84% to $102.6 million at June 30, 1997 when compared with $105.6
million at September 30, 1996. Investment securities available for sale were
$39.4 million and $39.1 million at June 30, 1997 and Sept. 30, 1996,
respectively. Mortgage- backed securities held to maturity increased by $8.3
million or 5.07% to $172.4 million at June 30, 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 $35.1 million, which more than
offset principal repayments of $26.8 million. Mortgage-backed securities
available for sale increased $15.8 million or 39.31% to $56.1 million at June
30, 1997 compared to $40.3 million at September 30, 1996. The increase in
mortgage-backed securities available for sale was primarily due to the purchase
of $20.0 million, which more than offset principal repayments of $4.5 million.
Loans receivable decreased $14.9 million or 11.0% to $119.7 million at June 30,
1997 when compared to $134.6 million at September 30, 1996. The decrease was a
result of loan principal repayments of $30.0 million and the transfer of
$208,000 of loans to real estate owned, which more than offset loan originations
totaling $15.3 million. Other liabilities decreased by $.8 million or 18.2% to
$3.7 million at June 30, 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 $1.3 million or 35.4% during the nine months ended
June 30, 1997, primarily from the partial receipt of proceeds from the
settlement of the litigation of the fraudulent bridge loan matter. The
litigation has been concluded with no additional loss to the Company. Additional
proceeds in full settlement of the litigation are expected in the near term.
Real estate owned, which consists of real estate acquired in settlement of
loans, totaled $113,000 and $2.2 million at June 30, 1997 and September 30,
1996, respectively. The decrease was a direct result of sales of real estate
owned that generated proceeds of $2.4 million and gains on such sales of
$125,000, which more than offset the transfer of $208,000 of loans to other real
estate owned during the period. Stockholders' equity amounted to $41.9 million
and $38.5 million at June 30, 1997 and September 30, 1996, respectively.
Results of operations for three months ended June 30, 1997 and 1996
Net income increased $89,000 or 6.42% to $1.48 million for the three months
ended June 30, 1997 compared to $1.39 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. Interest income on loans during the three months ended June 30, 1997
decreased $207,000 or 7.19% to $2.7 million when compared to $2.9 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 $651,000 or 20.97% during the three months ended June 30, 1997 when
compared with the same 1996 period as a result of increased balances. Interest
earned on investments and other interest-earning assets increased $389,000 or
17.19% to $2.7 million during the three months ended June 30, 1997
7
<PAGE>
when compared to $2.3 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.
Interest on deposits increased $346,000 or 7.89% to 4.73 million for the three
months ending June 30, 1997 compared to $4.39 million during the same 1996
period primarily as a result of increased deposits outstanding. Interest on
borrowings was $913,000 for the three months ended June 30, 1997 compared with
$406,000 for the same 1996 period. The increase was due to a higher average
balance outstanding of securities sold under repurchase agreements during the
1997 period.
During the three months ended June 30, 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 June 30, 1997 and
September 30, 1996, the Bank's non-performing loans, which includes loans
delinquent 90 days or more, totaled $1.4 million and $1.8 million, respectively.
Furthermore, the level of loan delinquencies less than 90 days declined to $3.3
million at June 30, 1997 compared to $3.8 million at September 30, 1996. The
allowance for loan losses amounted to $2.4 million or 1.96% of total loans at
June 30, 1997 and $2.5 million or 1.79% of total loans at September 30, 1996.
Non-interest income increased $133,000 or 203.63% to $198,000 during the three
months ended June 30, 1997 when compared with $65,000 during the same 1996
period. The increase during the 1997 period resulted from increases in income
from real estate operations and miscellaneous income of $29,000 and 110,000,
respectively, and was somewhat offset by an increase in income from other fees
and service charges on loans of $7,000. The increase in miscellaneous income was
mostly due to a settlement of $100,000 the bank received in exchange for the
release of its' first mortgage lien on a residential property which was deemed
to be an environmental hazard.
Non-interest expenses decreased $30,000 or 2.18% to $1.33 million during the
three months ended June 30, 1997 when compared with $1.36 million during the
same 1996 period. During the three months ended June 30, 1997, FDIC deposit
insurance, and occupany expense decreased by $162,000 and 3,000, 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 $76,000, 28,000, $9,000, and
21,000, respectively..
Income tax expense totaled $825,000 and $773,000 during the three months ended
June 30, 1997 and 1996, respectively. The increase during the 1997 period
resulted primarily from the increase in income before income taxes.
Results of operations for nine months ended June 30, 1997 and 1996
Net income increased $46,000 or 1.14% to $4.13 million for the nine months ended
June 30, 1997 compared to $4.09 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-
<PAGE>
interest expense. Interest income on loans during the nine months ended
June 30, 1997 decreased $524,000 or 5.88% to $8.4 million when compared to $8.9
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 $1.8 million or 20.16% during the
nine months ended June 30, 1997 when compared with the same 1996 period as a
result of increased balances. Interest earned on investments and other
interest-earning assets increased $1.7 million or 27.97% to $7.8 million during
the nine months ended June 30, 1997 when compared to $6.1 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.
Interest on deposits increased $474,000 or 3.55% to $13.8 million for the nine
months ending June 30, 1997 compared to $13.4 million during the same 1996
period. Interest on borrowings was $2.8 million for the nine months ended June
30, 1997 compared with $405,000 for the same 1996 period. During 1997 the Bank
utilized securities sold under repurchase agreements to fund its asset growth
strategy. The increase was due to a higher average balance outstanding of
securities sold under repurchase agreements during the 1997 period.
During the nine months ended June 30, 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 June 30, 1997 and
September 30, 1996, the Bank's non-performing loans, which includes loans
delinquent 90 days or more, totaled $1.4 million and $1.8 million, respectively.
Furthermore, the level of loan delinquencies less than 90 days declined to $3.3
million at June 30, 1997 compared to $3.8 million at September 30, 1996. The
allowance for loan losses amounted to $2.4 million or 1.96% of total loans at
June 30, 1997 and $2.5 million or 1.79% of total loans at September 30, 1996.
Non-interest income increased $225,000 or 95.11% to $462,000 during the nine
months ended June 30, 1997 when compared with $237,000 during the same 1996
period. The increase during the 1997 period resulted from increases in income
from real estate operations, miscellaneous, and other fees and service charges
on loans of $103,000, 102,000, and $20,000, respectively. The increase in
miscellaneous income was mostly due to a settlement of $100,000 the bank
received in exchange for the release of its' first mortgage lien on a
residential property which was deemed to be an environmental hazard.
Non-interest expenses increased $46,000 or 1.14% to $4.13 million during the
nine months ended June 30, 1997 when compared with $4.09 million during the same
1996 period. During the nine months ended June 30, 1997 salaries and employee
benefits, advertising, equipment, and miscellaneous expenses increased by
$216,000, $89,000, $14,000 and $102,000, respectively. FDIC deposit insurance
premium and occupancy expenses decreased by $371,000 and $4,000, respectively.
The large decrease in FDIC insurance expense was a direct result of the lower
insurance premiums during the 1997 period as a result of the recapitalization of
the SAIF insurance fund.
Income tax expense totaled $2.39 million and $2.28 million during the nine
months ended June 30, 1997 and 1996, respectively. The increase during the 1997
period resulted primarily from the increase in income before income taxes.
9
<PAGE>
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, 1997 and September
30, 1996 totaled $14.2 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:
Nine months ended June 30,
1996 1997
-----------------
(In Thousands)
Cash and cash equivalents- beginning $ 8,762 $4,750
------------------------------
Operating activities:
Net income 4,058 4,241
Adjustments to reconcile net
income to net cash provided
by operating activities (1,000) 222
------------------------------
Net cash provided by operating activities 3,058 4,463
Net cash used in investing activities (54,143) (4,018)
Net cash provided by financing activities 56,071 13,670
------------------------------
Net increase in cash and
cash equivalents 4,986 14,115
------------------------------
Cash and cash equivalents- ending $ 13,748 $ 18,865
==============================
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 $14.6 million during the nine months ended June 30, 1997 compared to a
decrease of $.85 million during the same 1996 period. During the nine months
ended June 30, 1997 and 1996, purchases of mortgage-backed securities
10
<PAGE>
held to maturity totaled $55.1 million and $55.9 million, respectively, and
principal repayments totaled $31.3 million and $21.2 million, respectively.
During the nine months ended June 30, 1997 and 1996, purchases of investment
securities totaled $10.0 million and $76.0 million, respectively, and maturities
and calls totaled $13.0 million and $55.0 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 $18.4 million and $7.1
million, respectively. During the nine months ended June 30, 1997 and 1996, cash
dividends of $1.61 million and $1.89 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, 1997, such outstanding commitments amounted
to $11.1 million. Certificates of deposit scheduled to mature in one year or
less, at June 30, 1997, totaled $217.6 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, 1997:
Requirement Actual Excess
---------------------------------------
Risk-based Capital
Tier 1 4.00% 26.78% 22.78%
Total 8.00% 28.03% 20.03%
Leverage ratio 4.00% 7.54% 3.54%
11
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARY
Part II
ITEM 1. Legal Proceedings
- --------------------------
During July 1997, all litigation had been concluded with no additional
loss to the Company.
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: August 5, 1997 By: /s/ George T. Hornyak, Jr.
-------------- ---------------------------------
George T. Hornyak, Jr.
President
Chief Executive Officer
(Duly Authorized Officer)
Date: August 5, 1997 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,665,138
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,479,063
<INVESTMENTS-CARRYING> 274,954,093
<INVESTMENTS-MARKET> 273,570,000
<LOANS> 119,703,988
<ALLOWANCE> 2,357,396
<TOTAL-ASSETS> 520,202,599
<DEPOSITS> 413,003,415
<SHORT-TERM> 60,900,000
<LIABILITIES-OTHER> 4,434,519
<LONG-TERM> 0
0
0
<COMMON> 4,132,628
<OTHER-SE> 37,732,037
<TOTAL-LIABILITIES-AND-EQUITY> 520,202,599
<INTEREST-LOAN> 8,386,290
<INTEREST-INVEST> 18,100,897
<INTEREST-OTHER> 457,044
<INTEREST-TOTAL> 26,944,231
<INTEREST-DEPOSIT> 13,836,004
<INTEREST-EXPENSE> 16,640,328
<INTEREST-INCOME-NET> 10,303,903
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<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,132,957
<INCOME-PRETAX> 6,632,643
<INCOME-PRE-EXTRAORDINARY> 6,632,643
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,241,271
<EPS-PRIMARY> $1.35
<EPS-DILUTED> $1.35
<YIELD-ACTUAL> 1.08
<LOANS-NON> 721,536
<LOANS-PAST> 670,408
<LOANS-TROUBLED> 2,110,000
<LOANS-PROBLEM> 7,572,000
<ALLOWANCE-OPEN> 2,458,777
<CHARGE-OFFS> 101,381
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<ALLOWANCE-CLOSE> 2,357,396
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