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, 1998
------------------------------------------------
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
--------------------
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) Identification No.)
6 JACKSON ST., SOUTH RIVER, N.J. 08882
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 732-257-2400
- --------------------------------------------------------------------------------
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 7, 1998
CLASS OUTSTANDING
----- -----------
$1.00 par value common stock 3,120,300 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,
1997 and March 31, 1998 (unaudited) 1
Consolidated Statements of Income for the Three and Six Months
Ended March 31, 1997 and 1998 (unaudited) 2
Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 1997 and 1998 (unaudited) 3
Notes to Consolidated Financial Statements 4-6
Managements Discussion and Analysis of Financial Condition and
Results of Operations 7-12
Quantitative and Qualitative Disclosures about Market Risk 12
PART II - OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
<S> <C> <C>
ASSETS (Unaudited)
------------------------------
Cash and amounts due from depository institutions............................ $3,550,908 $4,456,445
Federal funds sold........................................................... 11,925,000 7,150,000
------------------------------
Total cash and cash equivalents.......................................... 15,475,908 11,606,445
Investment securities held to maturity; estimated fair value of
$96,386,850 and $61,697,667, respectively.................................. 96,551,885 61,549,509
Mortgage backed securities held to maturity, net; estimated fair
value of $163,645,986 and $143,105,507, respectively....................... 162,763,525 142,150,608
Investment securities available for sale..................................... 60,741,955 126,654,858
Mortgage-backed securities available for sale................................ 53,393,335 45,501,015
Loans receivable, net........................................................ 127,310,525 140,269,982
Premises & equipment, net.................................................... 1,322,718 1,569,580
Real estate owned, net....................................................... 136,491 2,081,999
Federal Home Loan Bank of New York stock, at cost............................ 2,775,500 2,836,700
Interest receivable.......................................................... 4,584,337 4,911,973
Other assets................................................................. 959,530 875,477
------------------------------
Total assets............................................................ $526,015,709 $540,008,146
==============================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Deposits..................................................................... $411,020,719 $428,132,602
Borrowings................................................................... 67,675,000 63,675,000
Advance payments by borrowers for taxes & insurance.......................... 805,394 824,235
Other liabilities............................................................ 3,308,037 2,345,637
------------------------------
Total liabilities....................................................... 482,809,150 494,977,474
------------------------------
Stockholders' Equity:
Preferred stock; authorized 5,000,000 shares; issued and
outstanding - none........................................................ - -
Common stock; par value $1.00; authorized 10,000,000 shares;
4,112,128 shares issued and 3,050,048 outstanding and 4,173,380 shares
issued and 3,111,300 outstanding,
respectively.............................................................. 4,142,628 4,173,380
Paid in capital in excess of par value....................................... 12,293,206 12,647,740
Retained earnings- substantially restricted.................................. 42,676,884 44,161,424
Unrealized gain on securities available for sale, net of tax................. 771,341 725,628
Treasury Stock; at cost; 1,062,080 common shares, respectively............... (16,677,500) (16,677,500)
------------------------------
Total stockholders' equity.............................................. 43,206,559 45,030,672
------------------------------
Total liabilities and stockholders' equity.............................. $526,015,709 $540,008,146
==============================
</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,
------------------------------------------------------------
1997 1998 1997 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans ........................................................ $2,788,005 $ 2,868,976 $ 5,707,892 $ 5,604,199
Mortgage-backed securities.................................... 3,586,640 3,272,407 6,940,531 6,774,455
Investments and other interest-earning assets................. 2,640,485 3,211,135 5,209,609 6,261,916
------------------------------------------------------------
Total interest income...................................... 9,015,130 9,352,518 17,858,032 18,640,570
------------------------------------------------------------
Interest expense:
Deposits...................................................... 4,576,517 4,811,550 9,101,957 9,587,061
Borrowings.................................................... 929,246 972,969 1,890,889 2,096,339
------------------------------------------------------------
Total interest expense..................................... 5,505,763 5,784,519 10,992,846 11,683,400
------------------------------------------------------------
Net interest income.............................................. 3,509,367 3,567,999 6,865,186 6,957,170
------------------------------------------------------------
Net interest income after provision for loan losses.............. 3,509,367 3,567,999 6,865,186 6,957,170
------------------------------------------------------------
Non-interest income:
Other fees and service charges on loans....................... 62,524 70,741 143,256 139,838
(Loss) gain from real estate operations....................... (13,255) (30,528) 77,311 (6,088)
Miscellaneous................................................. 13,344 18,050 43,033 40,690
------------------------------------------------------------
Total non-interest income.................................. 62,613 58,263 263,600 174,440
------------------------------------------------------------
Non-interest expenses:
Salaries and employee benefits................................ 671,098 747,387 1,324,797 1,483,219
Occupancy expense............................................. 74,915 94,275 151,662 212,053
Equipment expense............................................. 150,230 164,732 281,423 306,369
Advertising................................................... 99,357 118,667 194,064 216,658
Federal deposit insurance premium............................. 63,312 63,917 240,156 128,538
Miscellaneous................................................. 284,560 314,736 607,533 571,638
------------------------------------------------------------
Total non-interest expenses................................ 1,343,472 1,503,714 2,799,635 2,918,475
------------------------------------------------------------
Income before income taxes....................................... 2,228,508 2,122,548 4,329,151 4,213,135
Income taxes..................................................... 798,000 760,000 1,566,372 1,488,756
------------------------------------------------------------
Net income................................................. $1,430,508 $ 1,362,548 $ 2,762,779 $ 2,724,379
===========================================================
Basic earnings per common share.................................. $ 0.47 $ 0.44 $ 0.90 $ 0.88
===========================================================
Diluted earnings per common share ............................... $ 0.45 $ 0.42 $ 0.88 $ 0.84
===========================================================
Dividends per common share....................................... $ 0.175 $ 0.20 $ 0.35 $ 0.40
===========================================================
Diluted common shares outstanding................................ 3,148,444 3,234,281 3,136,650 3,229,694
===========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
PULSE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended
March 31,
------------------------------
1997 1998
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................. $2,762,779 $2,724,379
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of premises and equipment............................................... 74,622 85,985
Provision for losses on real estate owned............................................ 32,850 -
Amortization of premiums, discounts and fees, net.................................... (77,046) (59,246)
Gain on sale of real estate owned.................................................... (119,141) -
Increase in interest receivable...................................................... (210,535) (327,636)
Decrease in other assets............................................................. 18,630 84,053
Increase (decrease) in other liabilities............................................. 1,752,259 (962,400)
------------------------------
Net cash provided by operating activities.......................................... 4,234,418 1,545,135
------------------------------
Cash flows from investing activities:
Proceeds from maturities and calls of investment securities held to maturity......... 7,002,500 35,010,000
Purchase of investment securities held to maturity................................... (10,000,000) -
Principal repayments of investment securities available for sale - 8,943,556
Purchase of investment securities available for sale................................. - (74,841,875)
Purchase of mortgage-backed securities held to maturity.............................. (23,838,620) (1,007,187)
Purchase of mortgage-backed securities available for sale............................ (4,940,719) -
Principal repayments on mortgage-backed securities held to maturity.................. 9,839,918 21,606,829
Principal repayments on mortgage-backed securities available for sale................ 2,626,241 7,896,155
Net decrease (increase) in loans receivable.......................................... 4,818,014 (14,904,199)
Additions to premises and equipment.................................................. (59,313) (332,847)
Proceeds from sale of real estate owned.............................................. 2,332,115 -
Purchase of Federal Home Loan Bank of New York Stock................................. (232,400) (61,200)
------------------------------
Net cash provided by used in investing activities.................................. (12,452,264) (17,690,768)
------------------------------
Cash flows from financing activities:
Net increase in deposits............................................................. 15,125,776 17,111,883
Net decrease in borrowings........................................................... (1,725,000) (4,000,000)
Decrease in advance payments by borrowers
for taxes and insurance............................................................ 17,652 18,841
Issuance of common stock............................................................. 88,210 385,286
Cash dividends paid.................................................................. (1,069,442) (1,239,840)
------------------------------
Net cash provided by financing activities.......................................... 12,437,196 12,276,170
------------------------------
Net increase (decrease) in cash and cash equivalents..................................... 4,219,350 (3,869,463)
Cash and cash equivalents - beginning ................................................... 4,749,883 15,475,908
------------------------------
Cash and cash equivalents - ending....................................................... $8,969,233 $11,606,445
==============================
Supplemental schedule of non-cash investing activities:
Transfer of loans receivable to real estate owned.................................. $208,500 $1,950,508
==============================
Cash paid during the period for:
Income taxes....................................................................... $300,000 $1,614,140
==============================
Interest........................................................................... $10,987,659 $11,484,126
==============================
</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, 1998
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
<TABLE>
<CAPTION>
3. LOANS RECEIVABLE, NET September 30, March 31,
- ------------------------ 1997 1998
------------------------------
<S> <C> <C>
Real Estate Mortgage:
One-to-four family................................................. $77,761,695 $89,397,057
Multi family....................................................... 15,088,127 12,534,710
Commercial......................................................... 22,321,707 23,267,889
------------------------------
115,171,529 125,199,656
------------------------------
Construction Loans.................................................... 219,256 145,590
Consumer:
Home equity....................................................... 14,348,020 16,973,356
Passbook or certificate........................................... 229,173 179,894
------------------------------
14,577,193 17,153,250
------------------------------
Total loans................................................... 129,967,978 142,498,496
---------------------------
Less: Allowance for loan losses....................................... 2,357,396 2,005,552
Deferred loan fees and discounts............................. 300,057 222,962
------------------------------
2,657,453 2,228,514
------------------------------
$127,310,525 $140,269,982
==============================
</TABLE>
<TABLE>
<CAPTION>
An analysis of the allowance for loan losses is as follows: Six Months Ended
March 31,
-------------------------------
1997 1998
---- ----
<S> <C> <C>
Balance-beginning........................................ $2,458,777 $2,357,396
Provisions charged to operations......................... - -
Losses charged to allowance.............................. (101,381) (351,844)
-------------------------------
Balance-ending........................................... $2,357,396 $2,005,552
===============================
</TABLE>
4
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
4. INVESTMENT SECURITIES
<TABLE>
<CAPTION>
September 30, 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) $95,954,388 $313,494 $503,532 $95,764,350
Obligations of state and political
subdivisions 597,497 25,003 - 622,500
-------------------------------------------------------------
$96,551,885 $338,497 $503,532 $96,386,850
=============================================================
Available For Sale
U.S. Government Agency Debentures $59,822,275 $333,264 $237,084 $59,918,455
Equity securities 800,000 23,500 - 823,500
-------------------------------------------------------------
$60,622,275 $356,764 $237,084 $60,741,955
=============================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Held To Maturity Value Gains Losses Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government (including agencies) $60,961,998 $255,535 $129,045 $61,088,488
Obligations of state and political 587,511 21,668 - 609,179
subdivisions
-------------------------------------------------------------
$61,549,509 $277,203 $129,045 $61,697,667
=============================================================
Available For Sale
U.S. Government Agency Debentures $124,678,734 $473,200 $240,926 $124,911,008
Equity securities 1,638,750 105,100 - 1,743,850
-------------------------------------------------------------
$126,317,484 $578,300 $240,926 $126,654,858
=============================================================
</TABLE>
5
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
5. MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Held To Maturity Value Gains Losses Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $62,595,447 $1,404,217 - $63,999,664
Federal Home Loan Mortgage Corporation 35,726,553 409,980 265,291 35,871,242
Federal National Mortgage Association 30,556,079 182,409 $ 155,962 30,582,526
Collateralized mortgage obligations 33,885,446 1,836 $ 694,728 33,192,554
-------------------------------------------------------------
$162,763,525 $1,998,442 $1,115,981 $163,645,986
=============================================================
Available For Sale
Government National Mortgage Association $33,217,483 $774,300 $ - $33,991,783
Federal Home Loan Mortgage Corporation 9,473,817 189,614 - 9,663,431
Federal National Mortgage Association 9,616,497 121,624 - 9,738,121
-------------------------------------------------------------
$52,307,797 $1,085,538 $ - $53,393,335
=============================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Held To Maturity Value Gains Losses Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 53,534,764 $1,105,000 $ 15,688 $ 54,624,076
Federal Home Loan Mortgage Corporation 29,883,622 419,324 204,588 30,098,358
Federal National Mortgage Association 27,385,094 238,707 129,145 27,494,656
Collateralized mortgage obligations 31,347,128 1,471 460,182 30,888,417
-------------------------------------------------------------
$142,150,608 $1,764,502 $ 809,603 $143,105,507
=============================================================
Available For Sale
Government National Mortgage Association $ 27,564,662 $ 475,575 $ - $ 28,040,237
Federal Home Loan Mortgage Corporation 8,849,924 243,190 - 9,093,114
Federal National Mortgage Association 8,290,011 85,918 8,265 8,367,664
-------------------------------------------------------------
$ 44,704,597 $ 804,683 $ 8,265 $ 45,501,015
=============================================================
</TABLE>
6. NET INCOME PER COMMON SHARE
- ------------------------------
The Corporation adopted SFAS No. 128 (SFAS 128) "Earnings per Share" as of
December 31, 1997 and basic earnings per common share has been calculated based
on the weighted average number of shares outstanding. Diluted earnings per share
includes common stock 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 purchased from the proceeds at the average
price of the Corporation's common stock. Earnings per share data for the three
and six months ending March 31, 1997 has been restated pursuant to the
provisions of SFAS 128.
6.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Corporation may from time to time make written or oral "forward-looking
statements", including statements contained in the Corporation's filings with
the Securities and Exchange Commission (including this quarterly report on Form
10-Q and the exhibits thereto), in its reports to stockholders and in other
communications by the Corporation, which are made in good faith by the
Corporation pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Corporation's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Corporation's control). The following factors, among
others, could cause the Corporation's financial performance to differ materially
from the plans, objectives, expectations, estimates and intentions expressed in
such forward-looking statements: the strength of the United States economy in
general and the strength of the local economies in which the Corporation
conducts operations; the effect of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the Board of Governors of
the Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Corporation and the perceived overall value of these products
and services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Corporation's products and services;
the success of the Corporation in gaining regulatory approval of its products
and services, when required; the impact of changes in financial services' laws
and regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and savings habits; and the success of the Corporation at managing the risks
involved in the foregoing.
The Corporation cautions that the foregoing list of important factors is not
exclusive. The Corporation does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Corporation.
FINANCIAL CONDITION
The Corporation's assets at March 31, 1998 totaled $540.0 million, which
represents an increase of $14.0 million or 2.7% when compared with $526.0
million at September 30, 1997. Total deposits at March 31, 1998 increased $17.1
million or 4.2% to $428.1 million when compared with $411.0 million at September
30, 1997. Investment securities held to maturity decreased $35.0 million or
36.3% to $61.5 million at March 31, 1998 when compared with $96.6 million at
September 30, 1997. Investment securities available for sale increased $65.9
million or 108.5% to $126.7 million at March 31, 1998 when compared to $60.7
million at September 30, 1997. The increase was a result of purchases of $74.8
million, which more than offset principal repayments of $8.9 million.
Mortgage-backed securities held to maturity decreased by $20.6 million or 12.7%
to $142.2 million at March 31, 1998 when compared to $162.8 million at September
30, 1997. The decrease in mortgage-backed securities held to maturity was
primarily due to repayments of $21.6 million, which more than offset purchases
of $1.0 million. Mortgage-backed securities available for sale decreased $7.9
million or 14.8% to $45.5 million at March 31, 1998 compared to $53.4 million at
September 30, 1997. The decrease in mortgage-backed securities available for
sale was due to principal repayments of $7.9 million. Loans receivable increased
$13.0 million or 10.2% to $140.3
7
<PAGE>
million at March 31, 1998 when compared to $127.3 million at September 30, 1997.
The increase was a result of loan originations of $20.7 million and the
purchases of 1-4 family loans totaling $3.2 million, which more than offset
principal repayments of $8.9 million, along with the transfer of $2.0 million in
loans to real estate owned. Other liabilities decreased by $1.0 million or 29.1%
to $2.3 million at March 31, 1998 compared to $3.3 million at September 30,
1997. The decrease was primarily due to a decrease in the Corporation's income
tax liability. Other assets remained relatively unchanged at $875,000 at March
31, 1998. Real estate owned, which consists of real estate acquired in
settlement of loans, totaled $2.1 million and $136,000 at March 31, 1998 and
September 30, 1997, respectively. The increase was due to three non-accrual
multi-family mortgage loans totaling $2.0 million that transferred during the
period. Stockholders' equity amounted to $45.0 million and $43.2 million at
March 31, 1998 and September 30, 1997, respectively.
Results of operations for three months ended March 31, 1998 and 1997
Net income decreased $68,000 or 4.8% to $1.36 million for the three months ended
March 31, 1998 compared to $1.43 million for the same 1997 period. The decrease
was attributable to increases in interest and non-interest expenses, which more
than offset an increase in interest income. Interest income on loans during the
three months ended March 31, 1998 increased $81,000 or 2.9% to $2.9 million when
compared to $2.8 million during the same 1997 period. The increase during the
1998 period resulted from an increase in the average balance of loans
outstanding, which more than offset a decrease in the average yield on the loan
portfolio. Interest on mortgage-backed securities decreased by $314,000 or 8.8%
during the three months ended March 31, 1998 when compared with the same 1997
period as a result of decreased balances. Interest earned on investments and
other interest-earning assets increased $571,000 or 21.6% to $3.2 million during
the three months ended March 31, 1998 when compared to $2.6 million during the
same 1997 period. The increase during the 1998 period resulted primarily from an
increase in the average balance of investments and other interest-earning assets
outstanding.
Interest on deposits increased $235,000 or 5.1% to $4.8 million for the three
months ended March 31, 1998 compared to $4.6 million during the same 1997 period
primarily as a result of increased deposits outstanding. Interest on borrowings
was $973,000 for the three months ended March 31, 1998 compared with $929,000
for the same 1997 period. The increase was due to an increase in the Bank's cost
of borrowing, along with a higher average balance outstanding of securities sold
under repurchase agreements during the 1998 period.
During the three months ended March 31, 1998 and 1997 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, 1998 and
September 30, 1997, the Bank's non-performing loans, which includes loans
delinquent 90 days or more, totaled $1.2 million and $1.7 million, respectively.
The allowance for loan losses amounted to $2.0 million or 1.43% of total loans
at March 31, 1998 and $2.4 million or 1.82% of total loans at September 30,
1997.
Non-interest income decreased $4,000 or 7.0% to $58,000 during the three months
ended March 31, 1998 when compared with $62,000 during the same 1997 period.
Non-interest expenses increased $160,000 or
8
<PAGE>
12.0% to $1.5 million during the three months ended March 31, 1998 when compared
with $1.3 million during the same 1997 period. During the three months ended
March 31, 1998, salaries and employee benefits, miscellaneous, occupancy,
advertising, and equipment increased by $76,000, $30,000, $19,000, $19,000 and
$15,000, respectively. The increase in salaries and employee benefits resulted
from an increase in the number of full-time equivalent staff required due to the
addition of our East Brunswick office, along with a general increase in
compensation levels.
Income tax expense totaled $760,000 and $798,000 during the three months ended
March 31, 1998 and 1997, respectively. The decrease was primarily due to a
decrease in taxable income.
Results of operations for six months ended March 31, 1998 and 1997
Net income decreased $38,000 or 1.4% to $2.72 million for the six months ended
March 31, 1998 compared to $2.76 million for the same 1997 period. The decrease
was attributable to an increase in interest and non-interest expenses, along
with a decrease in non-interest income, which more than offset an increase in
interest income. Interest income on loans during the six months ended March 31,
1998 decreased $104,000 or 1.8% to $5.6 million when compared to $5.7 million
during the same 1997 period. The decrease during the 1998 period resulted in a
decrease in the average yield on the loan portfolio. Interest on mortgage-backed
securities decreased by $166,000 or 2.4% during the six months ended March 31,
1998 when compared with the same 1997 period as a result of decreased balances.
Interest earned on investments and other interest-earning assets increased $1.1
million or 20.2% to $6.3 million during the six months ended March 31, 1998 when
compared to $5.2 million during the same 1997 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 $485,000 or 5.3% to $9.6 million for the six
months ending March 31, 1998 compared to $9.1 million during the same 1997
period primarily as a result of increased deposits outstanding along with an
increase in the bank's cost of funds. Interest on borrowings was $2.1 million
for the six months ended March 31, 1998 compared with $1.9 million for the same
1997 period. The increase was due to a higher average balance outstanding of
securities sold under repurchase agreements during the 1997 period, along with
an increase in the Bank's cost of borrowing.
During the six months ended March 31, 1998 and 1997 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, 1998 and
September 30, 1997, the Bank's non-performing loans, which includes loans
delinquent 90 days or more, totaled $1.2 million and $1.7 million, respectively.
The allowance for loan losses amounted to $2.0 million or 1.43% of total loans
at March 31, 1998 and $2.4 million or 1.82% of total loans at September 30,
1997.
Non-interest income decreased $89,000 or 33.8% to $174,000 during the six months
ended March 31, 1998 when compared with $263,000 during the same 1997 period.
The decrease during the 1998 period resulted from decreases in income from real
estate operations, other fees and service charges on loans and miscellaneous
income of $83,000, $3,000 and 2,000, respectively. The decrease in income from
real estate operations was mostly due to a gain of $119,000 recorded on a sale
during the 1997 period.
9
<PAGE>
Non-interest expenses increased $119,000 or 4.2% to $2.9 million during the six
months ended March 31, 1998 when compared with $2.8 million during the same 1997
period. During the six months ended March 31, 1998, salaries and employee
benefits, occupancy, equipment, and advertising increased by $158,000, $60,000,
$25,000 and $23,000, respectively, which more than offset decreases to federal
deposit insurance and miscellaneous expenses of $112,000 and $36,000,
respectively. The increase in salaries and employee benefits resulted from an
increase in the number of full-time equivalent staff required due to the
addition of our East Brunswick office, along with a general increase in
compensation levels. Furthermore, the increases in occupancy and equipment
expenses were also the result of the new office. 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 Savings Association
Insurance Fund.
Income tax expense totaled $1.5 million and $1.6 million during the six months
ended March 31, 1998 and 1997, respectively. The decrease was primarily due to a
decrease in taxable income.
Year 2000
The Company has a year 2000 committee in place that is comprised of senior
management that is diligently working towards the remediation of any year 2000
problems with any of the Bank's internal or external computer systems. All
automated systems have been assessed and all third party vendors have been
contacted for their responses on the matter. Any vendor not responding to our
compliance efforts will have their system replaced with one that is year 2000
certified in the quarter ending December 31, 1998.
Most of the critical data processing of the Bank that could be impacted by this
problem is provided by a third party national service bureau. The service bureau
has advised the Bank that they expect all modifications to the system to be 100%
completed during May, 1998. During that month live testing of the core system
will occur at the service bureau by representative users of the system. During
the quarter ending September 30, 1998, the Bank expects to test in a live
environment, operating on a date in the year 2000, the compatablity of the
Bank's internal systems with that of the service bureau's core system.
As of April 1998, the Bank has completed replacing all of it's computers at a
cost of approximately $100,000. The replacement of these machines was a project
that was anticipated in the normal course of business, not just a result of the
year 2000.
The Bank continues to evaluate appropriate courses of corrective action. Based
on current analysis, the Bank does not expect additional expenses to have a
material effect on it's financial position or results of operations. However,
despite our best efforts, factors outside our control could possibly weigh on
our ability to process data, possibly leading to an adverse impact on the Bank's
results of operations
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
10
<PAGE>
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, 1998 and September 30, 1997 totaled $15.5
million and $11.6 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,
--------------------------
1997 1998
(In Thousands)
Cash and cash equivalents- beginning $ 4,750 $ 15,476
--------------------
Operating activities:
Net income 2,763 2,724
Adjustments to reconcile net
income to net cash provided
by operating activities 1,471 (1,179)
--------------------
Net cash provided by operating activities 4,234 1,545
Net cash used in investing activities (12,452) (17,691)
Net cash provided by financing activities 12,437 12,276
--------------------
Net increase (decrease) in cash and
cash equivalents 4,219 (3,870)
--------------------
Cash and cash equivalents- ending $ 8,969 $ 11,606
====================
Cash was generated by operating activities during the 1998 and 1997 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
increased $14.9 million during the six months ended March 31, 1998 compared to a
decrease of $4.8 million during the same 1997 period. During the six months
ended March 31, 1998 and 1997, purchases of mortgage-backed securities totaled
$1.0 million and $28.7 million, respectively, and principal repayments totaled
$29.5 million and $12.4 million, respectively. During the six months ended March
31, 1998 and 1997, purchases of investment securities totaled $74.8 million and
$10.0 million, respectively, and maturities and calls totaled $43.9 million and
$7.0 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 1998 and 1997 periods was
from an increase in deposits outstanding amounting to $17.1 million and $15.1
million, respectively. Net borrowings decreased $4 million and $1.7 million
during 1998 and 1997, respectively. During the six months ended March 31, 1998
and 1997, cash dividends of $1.24 million and $1.07 million, respectively, were
paid on
11
<PAGE>
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, 1998, such outstanding commitments amounted
to $7.3 million. Certificates of deposit scheduled to mature in one year or
less, at March 31, 1998, totaled $236.3 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, 1998:
<TABLE>
<CAPTION>
Requirement Actual Excess
-------------------------------------------
<S> <C> <C> <C>
Risk-based Capital
Tier 1 4.00% 25.41% 21.41%
Total 8.00% 26.65% 18.65%
Leverage ratio 4.00% 7.64% 3.64%
</TABLE>
Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
12
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARY
Part II
ITEM 1. Legal Proceedings
- --------------------------
Not applicable.
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 22, 1998 stockholders annual
meeting was disclosed in the Form 10-Q for the quarter ended December
31, 1997.
ITEM 5. Other Materially Important Events
- ------------------------------------------
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Not applicable
13
<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: May 14, 1998 By:/s/ George T. Hornyak
------------------------ -----------------------------------
George T. Hornyak, Jr.
President
Chief Executive Officer
(Duly Authorized Officer)
Date: May 14, 1998 By:/s/ Thomas B. Konopacki
------------------------ ----------------------------------
Thomas B. Konopacki
Executive Vice President
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,456,445
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,150,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 172,155,873
<INVESTMENTS-CARRYING> 203,700,117
<INVESTMENTS-MARKET> 204,803,174
<LOANS> 140,269,982
<ALLOWANCE> 2,005,552
<TOTAL-ASSETS> 540,008,146
<DEPOSITS> 428,132,602
<SHORT-TERM> 63,675,000
<LIABILITIES-OTHER> 3,169,872
<LONG-TERM> 0
0
0
<COMMON> 4,173,380
<OTHER-SE> 40,857,292
<TOTAL-LIABILITIES-AND-EQUITY> 540,008,146
<INTEREST-LOAN> 5,604,199
<INTEREST-INVEST> 12,681,940
<INTEREST-OTHER> 354,431
<INTEREST-TOTAL> 18,640,570
<INTEREST-DEPOSIT> 9,587,061
<INTEREST-EXPENSE> 11,683,400
<INTEREST-INCOME-NET> 6,957,170
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,918,475
<INCOME-PRETAX> 4,213,135
<INCOME-PRE-EXTRAORDINARY> 4,213,135
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,724,379
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 1.02
<LOANS-NON> 67,544
<LOANS-PAST> 1,111,798
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,921,000
<ALLOWANCE-OPEN> 2,357,396
<CHARGE-OFFS> 351,844
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,005,552
<ALLOWANCE-DOMESTIC> 2,005,552
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
