<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
--------------
COMMISSION FILE NUMBER 1-13157
-------
JSB FINANCIAL, INC.
-------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED ON ITS CHARTER)
DELAWARE 11-3000874
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
303 MERRICK ROAD, LYNBROOK, NEW YORK 11563
------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(516) 887-7000
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT MAY 7, 1998
- --------------------- --------------------------
$.01 PAR VALUE 9,884,666
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
PART I - FINANCIAL INFORMATION
Page
Number
<S> <C>
ITEM 1. Financial Statements
Consolidated Statements of Financial Condition
at March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and March 31, 1997 4
Consolidated Statements of Comprehensive Income for
the Three Months Ended March 31, 1998 and March 31, 1997 5
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1998
and March 31, 1997 6-7
Notes to Consolidated Financial Statements 8-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities 18
ITEM 3. Defaults Upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Security Holders 18
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
Exhibit 11.00 Computation of Earnings Per Share 21
Exhibit 27.00 Financial Data Schedule for the Three Months Ended March 31, 1998 22
Exhibit 27.01 Restated Financial Data Schedule for the Three Months Ended March 31, 1997 23
</TABLE>
<PAGE> 3
<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,497 $ 12,924
Federal funds sold 76,000 62,000
---------- ----------
Cash and cash equivalents 88,497 74,924
Securities available-for-sale, at estimated fair value 69,641 62,243
Securities held-to-maturity, net (estimated fair value of
$317,397 and $353,996, respectively) 316,564 352,967
Other investments 8,922 7,645
Mortgage loans, net 1,013,159 970,737
Other loans, net 28,005 29,008
Premises and equipment, net 17,530 17,029
Interest due and accrued 9,735 9,278
Real estate held for sale and Other real estate ("ORE") 3,026 3,450
Other assets 8,877 7,750
---------- ----------
Total Assets $1,563,956 $1,535,031
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $1,127,623 $1,121,203
Advance payments for real estate taxes and insurance 23,357 10,322
Official bank checks outstanding 8,121 10,405
Deferred tax liability, net 18,891 15,628
Accrued expenses and other liabilities 13,515 9,959
---------- ----------
Total Liabilities 1,191,507 1,167,517
---------- ----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 15,000,000 shares authorized;
none issued) -- --
Common stock ($.01 par value, 30,000,000 shares authorized;
16,000,000 issued; 9,883,047 and 9,919,927 outstanding,
respectively) 160 160
Additional paid-in capital 166,706 165,112
Retained income, substantially restricted 314,209 311,436
Accumulated other comprehensive income:
Net unrealized gain on securities available-for-sale, net of tax 33,031 28,469
Common stock held by Benefit Restoration Plan Trust, at cost
(193,723 and 188,323 shares, respectively) (4,468) (4,199)
Common stock held in treasury, at cost (6,116,953 and 6,080,073
shares, respectively) (137,189) (133,464)
---------- ----------
Total Stockholders' Equity 372,449 367,514
---------- ----------
Total Liabilities and Stockholders' Equity $1,563,956 $1,535,031
========== ==========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<PAGE> 4
<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
---------------------------
<S> <C> <C>
Interest Income
Mortgage loans, net $20,541 $17,957
Debt and equity securities, net 3,605 5,013
Collateralized mortgage obligations ("CMOs"), net 1,446 2,151
Other loans, net 508 496
Mortgage-backed securities ("MBS"), net 93 141
Federal funds sold 1,205 925
------- -------
Total Interest Income 27,398 26,683
------- -------
Interest Expense
Deposits 9,642 9,738
------- -------
Net Interest Income 17,756 16,945
Provision for Possible Loan Losses 14 160
------- -------
Net Interest Income After Provision for
Possible Loan Losses 17,742 16,785
------- --------
Non-Interest Income
Real estate operations, net 77 356
Loan fees and service charges 527 707
Recovery of prior period expenses for troubled loans 1,000 -
Miscellaneous income 52 51
------- --------
Total Non-Interest Income 1,656 1,114
------- --------
Non-Interest Expense
Compensation and benefits 3,794 3,943
Occupancy and equipment expenses, net 1,126 1,145
Federal deposit insurance premiums 36 38
Advertising 290 301
ORE expense, net 18 33
Other general and administrative 1,522 1,424
------- --------
Total Non-Interest Expense 6,786 6,884
------- --------
Income Before Provision for Income Taxes 12,612 11,015
Provision for Income Taxes 4,948 4,567
------- --------
Net Income $ 7,664 $ 6,448
======= ========
Earnings and Cash Dividends Per Common Share:
Basic earnings per common share $ .78 $ .66
====== ======
Diluted earnings per common share $ .75 $ .63
====== ======
Basic weighted average common shares 9,886 9,809
====== ======
Diluted weighted average common & dilutive potential shares 10,202 10,158
====== ======
Cash dividends per common share $ .40 $ .35
====== =====
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<PAGE> 5
<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-----------------------------
<S> <C> <C>
Net Income $ 7,664 $ 6,448
Other Comprehensive Income, Net of Tax:
Unrealized Gain on Securities:
Unrealized holding gains arising during period 4,562 356
------- -------
Comprehensive Income $12,226 $ 6,804
======= =======
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<PAGE> 6
<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 7,664 $ 6,448
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible loan losses 14 160
Decrease in deferred loan fees and discounts, net (27) (123)
Accretion of discount in excess of amortization
of premium on MBS and CMOs (30) (133)
Accretion of discount in excess of amortization of
premium on debt securities (45) (74)
Depreciation and amortization on premises and equipment 489 455
Gain on sale of mortgage and other loans (4) -
Tax benefit for stock plans credited to capital 1,113 231
Increase in interest due and accrued (457) (1,346)
Decrease in official bank checks outstanding (2,284) (2,741)
Other, net 2,998 5,012
---------- ----------
Net cash provided by operating activities 9,431 7,889
---------- ----------
Net cash flow from investing activities Loans originated:
Mortgage loans (50,033) (27,537)
Other loans (4,314) (4,644)
Purchases of CMOs held-to-maturity (20,027) (29,977)
Purchases of debt securities held-to-maturity and securities
available-for-sale (75,000) (134,922)
Principal payments on:
Mortgage loans 7,636 9,064
Other loans 4,864 4,852
CMOs 21,180 28,644
MBS 325 343
Proceeds from maturities of U.S. Government and
federal agency securities 110,000 95,000
Proceeds from sale of other loans 445 145
Purchases of Federal Home Loan Bank stock (1,277) (786)
Purchases of premises and equipment, net of disposals (990) (343)
Net decrease in investment in real estate holdings, excluding sales 371 49
---------- ----------
Net cash used by investing activities (6,820) (60,112)
---------- ----------
<FN>
Continued
</FN>
</TABLE>
<PAGE> 7
<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-----------------------------------
<S> <C> <C>
Net cash flow from financing activities
Net increase (decrease) in deposits 6,420 (3,411)
Increase in advance payments for real estate
taxes and insurance 13,035 11,789
Proceeds from common stock option exercises 754 472
Cash dividends paid to common stockholders (3,967) (3,435)
Proceeds from stock offering 161 -
Payments to repurchase common stock (5,441) -
-------- --------
Net cash provided by financing activities 10,962 5,415
-------- --------
Net increase (decrease) in cash and cash equivalents 13,573 (46,808)
Cash and cash equivalents at beginning of year 74,924 99,394
-------- --------
Cash and cash equivalents at end of quarter $ 88,497 $ 52,586
======== ========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<PAGE> 8
JSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
- -------------------------
The financial information for JSB Financial, Inc. (the "Company") as
consolidated with its wholly owned subsidiary Jamaica Savings Bank FSB (the
"Bank") is prepared in conformity with generally accepted accounting principles
for interim financial statements and with instructions to Form 10-Q and Article
10 of Regulation S-X. Such principles are applied on a basis consistent with
those reflected in the 1997 Annual Report filed with the Securities and Exchange
Commission. The financial information included herein, other than the
consolidated statement of financial condition as of December 31, 1997, has been
prepared by management without an audit by independent certified public
accountants who do not express an opinion thereon. The consolidated statement of
financial condition as of December 31, 1997, has been derived from, but does not
include all the disclosures contained in, the audited consolidated financial
statements for the year ended December 31, 1997. The information furnished
includes all adjustments and accruals consisting only of normal recurring
accrual adjustments which are in the opinion of management, necessary for a fair
presentation of results for the interim periods. The foregoing interim results
are not necessarily indicative of the results of operations for the full year
ending December 31, 1998.
These consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto, included
in the Annual Report to Stockholders for JSB Financial, Inc. for the year ended
December 31, 1997.
2. Impact of New Accounting Standards
- --------------------------------------
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income"
("Statement 130"). Comprehensive income represents the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. Statement 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements.
Effective January 1, 1998, the Company addressed SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information"
("Statement 131"). The Company determined that it has no reportable segments
pursuant to the criteria presented in Statement 131, however if such reportable
segments should be determined to exist in the future, the disclosure as required
by Statement 131 would be provided.
<PAGE> 9
3. Debt and Equity Securities
- ------------------------------
<TABLE>
The following tables set forth information regarding the Company's debt
and equity securities as of:
<CAPTION>
March 31, 1998 December 31, 1997
--------------------------- ----------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------------------------- ----------------------------
Held-to-Maturity (In Thousands)
<S> <C> <C> <C> <C>
U.S. Government and Federal
Agency Securities $209,948 $210,197 $244,903 $245,367
CMOs, net 102,916 103,176 104,040 104,270
MBS, net 3,700 4,024 4,024 4,359
-------- -------- -------- --------
Total Securities held-to maturity $316,564 $317,397 $352,967 $353,996
======== ======== ======== ========
Estimated Estimated
Cost Fair Value Cost Fair Value
--------------------------- ----------------------------
Available-for-Sale (In Thousands)
Equity securities:
Common stock $ 10,422 $ 45,928 $ 10,422 $ 41,216
SLM* stock 4 2,290 4 2,087
Freddie Mac stock 441 21,347 441 18,872
FNMA* stock 2 76 2 68
-------- -------- -------- ---------
Total equity securities $ 10,869 $ 69,641 $ 10,869 $ 62,243
======== ======== ======== =========
<FN>
* SLM Holding Corporation ("SLM"), formerly known as Student Loan Marketing
Association, Federal National Mortgage Association ("FNMA").
</FN>
</TABLE>
4. Subsequent Events
- ---------------------
On April 14, 1998, the Company's Board of Directors declared a $.40 per
share dividend on its common stock. The dividend is to be paid on May 20, 1998,
to stockholders of record on May 6, 1998, and will total approximately $4.0
million.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General/Financial Condition
- ---------------------------
JSB Financial, Inc. is a Delaware-chartered holding company. The
Company's assets, which totaled approximately $1.56 billion at March 31, 1998,
included assets totaling $1.49 billion owned by its wholly owned subsidiary,
Jamaica Savings Bank FSB. In addition to the Bank's assets, the Company's
earning assets were comprised of $21.3 million in money market investments on
deposit with the Bank, $55.0 million in short-term federal agency securities,
and $15.2 million in mortgage loans secured by multi-family residential rental
properties.
Asset Quality
- -------------
At March 31, 1998, the Bank's non-performing assets, which totaled $13.6
million, included: non-performing loans of $13.2 million and $420,000 of ORE.
The $13.2 million of non-performing loans continues to include a $12.8 million
underlying cooperative mortgage loan that is under foreclosure and on
non-accrual status. On January 28, 1998, the Bank entered into a settlement
agreement with the borrower, that provides that the Bank be made whole for
unpaid principal, contractual interest, late charges and legal fees, no later
than May 28, 1998. In addition, the borrower is responsible for interest, which
will continue to accrue and for any additional legal fees that the Bank incurs
in connection with this credit. In accordance with the terms of the agreement,
the Bank received $1.3 million from the borrower, through April 9, 1998,
comprised of a $1.0 million payment, which could be applied against any portion
of the indebtedness other than principal, and was recorded in non-interest
income as a recovery of prior period expenses related to this loan, and $295,000
for interim interest, which is due monthly. The borrower is seeking to refinance
the loan with another lender. The ratio of non-performing assets to total assets
was .87% and .90% at March 31, 1998 and December 31, 1997, respectively.
The Bank generally includes in non-performing loans, loans which are 90
days or more in arrears and loans which have been placed on non-accrual status.
In addition to non-performing loans, non-performing assets include ORE, as well
as any other investments, if any, on which the collection of contractual
principal and interest is questionable. The ratio of non-performing loans to
total loans was 1.26% and 1.32% (See Non-performing/Non-accrual Table, herein)
at March 31, 1998 and December 31, 1997, respectively.
<PAGE> 11
Loan Delinquency Table
- ----------------------
<TABLE>
At March 31, 1998 and December 31, 1997, delinquencies in the loan
portfolios were as follows:
<CAPTION>
61-90 Days 90 Days and Over
----------------------- ----------------------
Number Principal Number Principal
of balance of balance
loans of loans loans of loans
----- -------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
At March 31, 1998:
- ------------------
Delinquent loans:
Guaranteed(1) 42 $ 230 78 $ 416
Non-guaranteed 5 4 8 12,774(2)
-- ------ -- ------
47 $ 234 86 $13,190
== ====== == =======
Ratio of delinquent loans
to total loans .02% 1.26%
At December 31, 1997:
- ---------------------
Delinquent loans
Guaranteed(1) 48 $ 221 82 $ 500
Non-guaranteed 5 10 5 12,769(2)
-- ------ -- -------
53 $ 231 87 $13,269
== ====== == =======
Ratio of delinquent loans
to total loans .02% 1.32%
<FN>
(1) Loans which are Federal Housing Administration ("FHA"), Veterans
Administration ("VA") or New York State Higher Education Services
Corporation guaranteed.
(2) Includes a $12,754,000 underlying cooperative mortgage loan. See
Asset Quality, herein.
</FN>
</TABLE>
<PAGE> 12
Non-performing/Non-accrual Table
- --------------------------------
<TABLE>
The following table sets forth information at March 31, 1998 and
December 31, 1997, regarding non-accrual loans and loans which were delinquent
90 days or more and accruing interest:
<CAPTION>
March 31, December 31,
1998 1997
------------------------------------
(In Thousands)
<S> <C> <C>
Mortgage loans:
- ---------------
Non-accrual loans (1) $12,754 $12,754
------- -------
Accruing loans 90 or more days overdue:
VA and FHA mortgages (2) 283 335
------- -------
Total 283 335
------- -------
Other loans:
- ------------
Non-accrual loans -- --
Accruing loans 90 or more days overdue:
Student loans 132 165
Consumer loans 21 15
------- -------
Total 153 180
------- -------
Total non-performing loans:
- ---------------------------
Non-accrual 12,754 12,754
Accruing loans 90 days or more overdue 436 515
------- -------
Total $13,190 $13,269
======= =======
Non-accrual loans to total loans 1.21% 1.26%
Accruing loans 90 or more days overdue
to total loans .05 .06
Non-performing loans to total loans 1.26 1.32
<FN>
(1) Represents a single underlying cooperative mortgage loan. (See Asset
Quality, page 10, herein.) There is no related allowance against this
mortgage, as management expects full repayment during the second
quarter of 1998.
(2) The Bank's FHA and VA loans are guaranteed, seasoned loans. It is
management's belief that these loans, including those in arrears, do
not present any significant collection risk to the Bank, and therefore,
are presented separately from conventional mortgages.
</FN>
</TABLE>
There were no loans included in the above table that were modified in a
trouble debt restructure. The entire balance included in impaired loans at March
31, 1998 and December 31, 1997 was $12,754,000 and was comprised of one loan
that was also on non-accrual status. Pursuant to the terms of an agreement with
the borrower, the impaired/non-accrual loan is expected to be satisfied during
1998. (See Asset Quality, page 10, herein.) The average balance of impaired
loans for the first quarter of 1998 and 1997 was $12,754,000. Interest-income
recorded for the impaired loan for the quarter ended March 31, 1998 was
$197,000; while no income was recorded on the impaired loan for the quarter
ended March 31, 1997. For the quarters ended March 31, 1998 and 1997, the
impaired loan resulted in foregone interest of $98,000 and $295,000,
respectively, which amounts are expected to be recovered during 1998. Loans
restructured in a trouble debt restructure, other than those classified as
impaired and/or non-accrual loans, were $1,840,000 at March 31, 1998 and
December 31, 1997. Interest forfeited attributable to these loans was $15,500
and $62,000 for the quarters ended March 31, 1998 and 1997, respectively.
<PAGE> 13
Loan Loss Activity Table
- ------------------------
<TABLE>
Activity in the allowance for possible loan losses for the mortgage
loan portfolio and the other loan portfolio are summarized for the three months
ended March 31, 1998 and the year ended December 31, 1997, as follows:
<CAPTION>
March 31, December 31,
1998 1997
--------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Mortgage Portfolio Loan Loss Allowance:
- ---------------------------------------
Balance at beginning of period $5,741 $5,176
Provision for possible loan losses -- 600
Loans charged off -- (35)
Recoveries of loans previously charged off -- --
------ ------
Balance at end of period $5,741 $5,741
====== ======
Ratios for Mortgage Portfolio:
- ------------------------------
Net charge-offs to average mortgages --% --%*
Allowance for possible loan losses to
net mortgage loans .57 .59
Allowance for possible loan losses to
mortgage loans delinquent 90 days or more 44.04 43.86
Other Loan Portfolio Loss Allowance:
- ------------------------------------
Balance at beginning of period $ 139 $ 151
Provision for possible loan losses 14 48
Loans charged off (7) (72)
Recoveries of loans previously charged off 3 12
------ ------
Balance at end of period $ 149 $ 139
====== ======
Ratios for Other Loan Portfolio:
- --------------------------------
Net charge-offs to average other loans .01% .21%
Allowance for possible loan losses to
net other loans .53 .48
Allowance for possible loan losses to
other loans delinquent 90 days or more 97.39 77.22
<FN>
* Is less than .01%.
</FN>
</TABLE>
<PAGE> 14
Liquidity and Capital Resources
- -------------------------------
The Company's funds are primarily obtained through dividends paid by
the Bank. The Bank's primary sources of funds are deposits, proceeds from
maturities of debt securities, principal and interest payments on CMOs,
mortgages and other loans. During the three months ended March 31, 1998, the
$75.0 million of purchases of U.S. Government and federal agency securities
represented the most significant use of funds in investing activities. Mortgage
originations, substantially all of which are at fixed rates, for the three
months ended March 31, 1998 were $50.0 million, compared to $27.5 million for
the three months ended March 31, 1997. CMO purchases for the first quarter of
1998 were $20.0 million, compared to $30.0 million for the first quarter of
1997. During the first quarter of 1998, maturities of U.S. Government and
federal agency securities generated $110.0 million, the most significant cash
inflow from investment activities, followed by principal payments on CMOs of
$21.2 million. For the three months ended March 31, 1998, advance payments for
real estate taxes and insurance increased $13.0 million, related to the timing
of escrow disbursements, and deposits increased by $6.4 million. The $5.4
million cost of repurchasing the Company's common stock represents the largest
use of funds in financing activities for the first quarter of 1998. The increase
in dividend payments reflects the increase in dividends paid per share to $.40
for the first three months of 1998, compared to $.35 per share for the first
three months of 1997.
March 31, 1998 was the first quarter end since March 31, 1996 that
deposits increased. The net increase in deposits of $6.4 million to $1.128
billion at March 31, 1998, from $1.121 billion at December 31, 1997, reflects
increases in certificate accounts, demand deposit accounts and lease security
accounts of $11.5 million, $1.2 million and $159,000, respectively, partially
offset by decreases of $4.9 million in passbook accounts, $980,000 in money
market accounts and $530,000 in negotiable order of withdrawal ("NOW") accounts.
Interest rates offered on passbook accounts remained relatively low compared to
alternative short-term certificate of deposits offered by the Bank and other
non-bank products available through various investment firms. This scenario has
caused the trend of deposit shifts from passbook accounts to short-term
certificate accounts. Management continues to monitor deposit levels and
interest rates in conjunction with asset structure and has evaluated and
implemented various strategies to provide for targeted objectives in various
interest rate scenarios. Interest rate spread, net interest margin, liquidity,
and related asset quality are some of the key measures of financial performance
that management remains focused on. The Bank's assets are structured such that a
gradual decline in deposits will not adversely affect the Company. The Bank's
liquidity ratios continue to exceed all short and long term minimum regulatory
requirements. Management is focused on providing quality customer service as its
main strategy for maintaining its relationships with its customers. The Bank has
expanded its range of services to customers, including automated telephone
banking and credit cards.
The Bank attempts to influence deposit levels and composition through
its interest rate structure. Management believes that the relatively low level
of interest rates and the strong performance and growth of the capital markets
are the primary contributors for the continued decline in deposits over the past
several years. Management chose to allow deposits to decline, rather than pay
rates that would result in a lower net income or necessitate modifying the
Bank's existing investment structure and guidelines. Rates offered on the Bank's
deposit accounts are competitive with those rates offered by other financial
institutions in its market area. While the highest percentage of deposits has
remained in passbook and lease security accounts, the trend of deposit shifts
has moved away from passbook accounts and towards certificate accounts.
Management cannot predict the future direction of deposits; however, if deposits
begin to decline again, interest earning assets may also decline, resulting in a
decrease in interest income, the primary component in the Company's net income.
The Company repurchased 114,100 shares of its common stock during the
three months ended March 31, 1998, pursuant to its tenth stock repurchase
program (the "current program"), which began on June 12, 1996. As of March 31,
1998, 529,100 of the 900,000 shares targeted for repurchase under the current
program were repurchased at an aggregate cost of $19.1 million, or at an average
price of $36.17 per share. Pursuant to the Company's stock option plans, 75,420
shares of treasury stock were reissued for option exercises during the three
months ended March 31, 1998. The Company issued 1,800 shares of treasury stock
for directors compensation.
<PAGE> 15
On January 6, 1998, the Company's Board of Directors declared a cash
dividend of $.40 per share to stockholders of record on February 4, 1998. The
dividend payment, which totaled $4.0 million, was made on February 18, 1998.
Regulations
- -----------
As a condition of deposit account insurance, Office of Thrift
Supervision ("OTS") regulations require that the Bank calculate three regulatory
net worth requirements on a quarterly basis, and satisfy each requirement at the
calculation date and throughout the ensuing quarter. The three requirements are:
tangible capital ratio of 1.50%, leverage ratio (or "core capital") of 3.00%,
and a risk-based assets capital ratio of 8.00%. Although the minimum core
capital ratio is 3.00%, the OTS Prompt Corrective Action Regulation stipulates
that an institution with less than 4.00% core capital is deemed to be
undercapitalized. The Bank's capital ratios at March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Percentage Dollars
---------- -------
(In Thousands)
<S> <C> <C>
TANGIBLE CAPITAL
Required 1.50% $ 21,570
Actual 16.54 237,916
----- --------
Excess 15.04% $216,346
===== ========
CORE CAPITAL
Required 3.00% $ 43,140
Actual 16.54 237,916
----- --------
Excess 13.54% $194,776
===== ========
RISK BASED CAPITAL
Required 8.00% $ 86,090
Actual 21.41 230,424
----- --------
Excess 13.41% $144,334
===== ========
</TABLE>
Comparison of Operating Results for the Three Months Ended
March 31, 1998 and 1997
- --------------------------------------------------------------------------------
Net income for the three months ended March 31, 1998, was $7.7 million,
or $.75 per diluted share, compared with $6.4 million, or $.63 per diluted share
for the three months ended March 31, 1997.
Net interest income for the three months ended March 31, 1998, was $17.8
million, compared to $16.9 million for the three months ended March 31, 1997.
The increase in net interest income reflects a $715,000 increase in interest
income and a $96,000 decrease in interest expense. The annualized yield on
interest earning assets increased to 7.60%, compared to 7.47%, for the quarters
ended March 31, 1998 and 1997, respectively; average interest earning assets
increased by $14.0 million. The annualized cost of interest bearing deposits
increased to 3.55% from 3.52% for the quarters ended March 31, 1998 and 1997,
respectively. Average interest bearing deposits decreased by $19.1 million for
the quarter ended March 31, 1998 compared to March 31, 1997. For the quarter
ended March 31, 1998, the interest rate spread and net interest margin increased
to 4.05% and 4.92%, respectively, compared to 3.95% and 4.75%, respectively for
the quarter ended March 31, 1997.
<PAGE> 16
Income earned on mortgage loans increased by 14.4%, to $20.5 million for
the three months ended March 31, 1998, compared to $18.0 million for the first
quarter of 1997, reflecting continued growth in the mortgage loan portfolio.
This increase was partially offset by a decrease in the yield to 8.28% for the
quarter ended March 31, 1998, from 8.57% for the quarter ended March 31, 1997.
For the three months ended March 31, 1998, income from debt and equity
securities decreased by $1.4 million, or 28.1%, to $3.6 million from $5.0
million for the three months ended March 31, 1997. This decrease is the result
of a decrease in the average investment in U.S. Government and federal agency
securities and other investments of $105.6 million, or 31.0%, to $234.7 million,
compared to $340.3 million for the three months ended March 31, 1997. The
annualized yield on the debt and equity securities portfolio increased to 6.14%
for the three months ended March 31, 1998 from 5.89% for the three months ended
March 31, 1997. The debt and equity securities portfolio activity for the
current period included purchases of $75.0 million and maturities of $110.0
million, compared with purchases of $134.9 million and maturities of $95.0
million for the quarter ended March 31, 1997.
For the quarter ended March 31, 1998, income on CMOs decreased by 32.8%,
to $1.4 million, with an annualized yield of 6.16%, from income of $2.2 million
with an annualized yield of 5.84% for the quarter ended March 31, 1997. During
the first quarter of 1998, the Bank received principal payments of $21.2 million
on CMOs, compared with principal payments of $28.6 million for the quarter ended
March 31, 1997. CMO purchases during the quarter ended March 31, 1998 totaled
$20.0 million, compared to purchases of $30.0 million for the quarter ended
March 31, 1997. The Bank did not sell any CMOs during either period.
Income on federal funds sold increased by $280,000, or 30.3%, to $1.2
million for the quarter ended March 31, 1998 from $925,000 for the quarter ended
March 31, 1997. This increase resulted from an increase in the average
investment in federal funds of $19.3 million to $89.6 million for the current
period, compared with $70.3 million for the quarter ended March 31, 1997. The
annualized yield on federal funds sold increased to 5.38% for the current
quarter, compared to 5.26% for the quarter ended March 31, 1997.
Interest expense on deposits decreased by $96,000 to $9.6 million for
the quarter ended March 31, 1998, compared to $9.7 million for the quarter ended
March 31, 1997. Average interest bearing deposits decreased by $19.1 million, to
$1.087 billion for the three months ended March 31, 1998, compared to $1.106
billion for the three months ended March 31, 1997, while the average rate paid
on interest bearing deposits increased slightly to 3.55% from 3.52% for the
comparative quarter in 1997.
The provision for possible loan losses for the quarter ended March 31,
1998 was $14,000, compared to $160,000 for the first quarter of 1997. The
provision for the first quarter of 1997 included provisions of $150,000 for the
general valuation mortgage allowance. During the first quarter of 1998,
management made no additions to the mortgage allowance, as reflected in the
decrease in the provision for possible loan losses for the first quarter of
1998, compared to the first quarter of 1997. Management regularly evaluates the
quality and performance of the Company's asset portfolios, and thereby assesses
the adequacy of loss allowances, which may be adjusted through the provisions.
Total non-interest income for the three months ended March 31, 1998,
increased to $1.7 million from $1.1 million for the three months ended March 31,
1997, a net increase of $542,000, or 48.7%. The $1.0 million recovery of prior
period expenses for troubled loans reflects a payment received during the first
quarter of 1998 resulting from a settlement agreement between the Bank and the
borrower on a $12.8 million underlying cooperative mortgage loan. (See Asset
Quality, herein.) Real estate operations decreased by $279,000, primarily the
result of a decrease in real estate properties owned by the Bank. The $180,000
decrease in loan fees and service charges reflects decreases in mortgage
prepayment penalties and personal check fees of $144,000 and $34,000,
respectively.
Non-interest expense remained relatively unchanged, decreasing to $6.8
million during the quarter ended March 31, 1998, from $6.9 million for the
quarter ended March 31, 1997. Compensation and benefit expense decreased by
$149,000, primarily reflecting a decrease in pension expense, due to an increase
in income earned on excess pension fund assets.
<PAGE> 17
The provision for income taxes increased by $381,000, or 8.3%, to $4.9
million for the three months ended March 31, 1998, from $4.6 million for the
three months ended March 31, 1997. This increase is reflective of the $1.6
million increase in pre-tax income, offset by the decrease in the Company's
effective tax rate from 41.5% for the quarter ended March 31, 1997, to 39.2% for
the quarter ended March 31, 1998. The reduction in the effective tax rate is
primarily reflective of certain state and city tax benefits associated with Tier
Inc., the Bank's real estate investment trust subsidiary. Subsequent to March
31, 1998 the Company determined to dissolve Tier Inc. This dissolution may
result in net tax benefits for the Company over the period of liquidation.
Private Securities Litigation Reform Act Safe Harbor Statement
- --------------------------------------------------------------
In addition to historical information, this Form 10-Q may include
certain forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Bank's loan
and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. Further description of the risks and uncertainties to the business are
included in detail in Item 1, BUSINESS of the Company's 1997 Form 10-K.
<PAGE> 18
<TABLE>
PART II - OTHER INFORMATION
<CAPTION>
<S> <C> <C>
ITEM 1. Legal proceedings
The Bank is a defendant in several lawsuits arising out of the
normal conduct of business. In the opinion of management, after
consultation with legal counsel, the ultimate outcome of these matters
is not expected to have a material adverse effect on the Company's
results of operations, business operations or the consolidated
financial condition of 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 information (Not Applicable)
ITEM 6. Exhibits and Reports on Form 8-K
Page
Number
(a) Exhibits
3.01 Articles of Incorporation (1)
3.02 By-laws (2)
11.00 Computation of Earnings Per Share 21
27.00 Financial Data Schedule for the Three Months Ended March 31, 1998 22
27.01 Restated Financial Data Schedule for the Three Months Ended March 31, 1997 23
(b) Reports on Form 8-K (Not Applicable)
<FN>
(1) Incorporated herein by reference to Exhibits filed with
the Registration Statement on Form S-1, Registration No.
33-33821.
(2) Incorporated herein by reference to Exhibits filed with
the Form 10-K for the Year Ended December 31, 1997.
</FN>
</TABLE>
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Quarterly Report on the Form
10-Q for the quarter ended March 31, 1998, to be signed on its behalf by the
undersigned, thereunto duly authorized.
JSB Financial, Inc.
(By)
/s/ Park T. Adikes
Park T. Adikes
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
DATE: May 12, 1998 /s/ Park T. Adikes
------------ --------------
Park T. Adikes
Chief Executive Officer
DATE: May 12, 1998 /s/ Thomas R. Lehmann
------------ -----------------
Thomas R. Lehmann
Chief Financial Officer
<PAGE> 20
<TABLE>
Exhibit Index
<CAPTION>
<S> <C>
Exhibit No. Identification of Exhibit
11.00 Statement Re: Computation of Per Share Earnings
27.00 Financial Data Schedule for the Three Months Ended March 31, 1998
27.01 Restated Financial Data Schedule for the Three Months Ended March 31, 1997
</TABLE>
<PAGE> 21
PART 1: EXHIBIT 11.00
<TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, except per share amounts)
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Basic earnings per share:
Basic weighted average common shares* 9,886 9,809
Net Income $7,664 $6,448
Basic earnings per common share* $.78 $.66
Diluted earnings per share:
Weighted average common and dilutive potential shares* 10,202 10,158
Net Income $7,664 $6,448
Diluted earnings per common share* $.75 $.63
<FN>
* As required, earnings per share for 1997 have been restated for the adoption
of Financial Accounting Standards Board Statement No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition as of March 31, 1998 and the
Consolidated Statement of Operations for the three months ended March 31, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000861499
<NAME> JSB Financial, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<CASH> 12,497
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 76,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,641
<INVESTMENTS-CARRYING> 316,564
<INVESTMENTS-MARKET> 317,397
<LOANS> 1,047,054
<ALLOWANCE> 5,890
<TOTAL-ASSETS> 1,563,956
<DEPOSITS> 1,127,623
<SHORT-TERM> 0
<LIABILITIES-OTHER> 63,884
<LONG-TERM> 0
0
0
<COMMON> 160
<OTHER-SE> 372,289
<TOTAL-LIABILITIES-AND-EQUITY> 1,563,956
<INTEREST-LOAN> 21,049
<INTEREST-INVEST> 5,144
<INTEREST-OTHER> 1,205
<INTEREST-TOTAL> 27,398
<INTEREST-DEPOSIT> 9,642
<INTEREST-EXPENSE> 9,642
<INTEREST-INCOME-NET> 17,756
<LOAN-LOSSES> 14
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,786
<INCOME-PRETAX> 12,612
<INCOME-PRE-EXTRAORDINARY> 7,664
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,664
<EPS-PRIMARY> .78
<EPS-DILUTED> .75
<YIELD-ACTUAL> 4.92
<LOANS-NON> 12,754
<LOANS-PAST> 436
<LOANS-TROUBLED> 1,840
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,880
<CHARGE-OFFS> 7
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 5,890
<ALLOWANCE-DOMESTIC> 5,890
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition as of March 31, 1997 and the
Consolidated Statement of Operations for the three months ended March 31, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000861499
<NAME> JSB Financial, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<CASH> 13,586
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 39,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,663
<INVESTMENTS-CARRYING> 501,628
<INVESTMENTS-MARKET> 501,551
<LOANS> 878,337
<ALLOWANCE> 5,480
<TOTAL-ASSETS> 1,530,902
<DEPOSITS> 1,140,982
<SHORT-TERM> 0
<LIABILITIES-OTHER> 50,549
<LONG-TERM> 0
0
0
<COMMON> 160
<OTHER-SE> 339,211
<TOTAL-LIABILITIES-AND-EQUITY> 1,530,902
<INTEREST-LOAN> 18,453
<INTEREST-INVEST> 7,305
<INTEREST-OTHER> 925
<INTEREST-TOTAL> 26,683
<INTEREST-DEPOSIT> 9,738
<INTEREST-EXPENSE> 9,738
<INTEREST-INCOME-NET> 16,945
<LOAN-LOSSES> 160
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,884
<INCOME-PRETAX> 11,015
<INCOME-PRE-EXTRAORDINARY> 6,448
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,448
<EPS-PRIMARY> .66
<EPS-DILUTED> .63
<YIELD-ACTUAL> 4.75
<LOANS-NON> 12,754
<LOANS-PAST> 1,295
<LOANS-TROUBLED> 1,862
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,327
<CHARGE-OFFS> 8
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 5,480
<ALLOWANCE-DOMESTIC> 5,480
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
