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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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-20187
MSB BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1341670
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Matthews Street, Goshen, New York 10924
(Address of principal executive offices)
(Zip Code)
(914) 294-8100
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed from last Report)
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 twelve 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 .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at
September 30, 1997
Common Stock,
par value $.01 2,844,153
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<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) -- September 30, 1997
and December 31, 1996..................................................1
Consolidated Statements of Income (Unaudited) -- Quarter and
Nine months ended September 30, 1997 and 1996..........................2
Consolidated Statements of Cash Flows (Unaudited) --Nine months
ended September 30, 1997 and 1996......................................3
Notes to Unaudited Consolidated Financial Statements...................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk.....................................................17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings ....................................................18
Item 2. Changes in Securities and Use of Proceeds.............................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
<PAGE>
Item 1. Financial Statements
MSB Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands) September 30, December 31,
1997 1996
------------ ------------
ASSETS
Cash and due from banks .......................... $ 16,901 $ 16,375
Federal funds sold ............................... 16,020 32,590
Securities available for sale .................... 58,315 50,685
Mortgage-backed securities available for sale .... 254,601 323,428
Loans, net ....................................... 372,282 338,491
Premises and equipment, net ...................... 14,304 14,869
Accrued interest receivable ...................... 4,740 5,552
Real estate owned ................................ 2,247 915
Goodwill ......................................... 29,734 32,835
Other assets ..................................... 4,847 5,176
--------- ---------
Total assets ............................... $ 773,991 $ 820,916
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits ................................. 684,018 736,161
Mortgagors' escrow deposits .................... 2,042 1,849
Accrued expenses and other liabilities ......... 11,521 11,684
ESOP obligations ............................... 273 432
--------- ---------
Total liabilities .............................. 697,854 750,126
--------- ---------
Stockholders' Equity
Preferred stock ($.01 par value; 1,000,000
shares authorized; 600,000 shares issued at
September 30, 1997 and December 31, 1996) ..... 6 6
Common stock ($.01 par value; 5,000,000
shares authorized; 3,045,000 shares issued
at September 30, 1997 and December 31, 1996) .. 30 30
Additional paid-in capital ....................... 48,059 48,163
Retained earnings ................................ 33,168 32,009
Treasury stock, at cost (200,847 shares and
211,064 shares at September 30, 1997 and ....... (3,941) (4,137)
December 31, 1996, respectively)
Unallocated ESOP stock ........................... (273) (432)
Unallocated BRP stock ............................ (75) (172)
Net unrealized loss on securities
available for sale ............................ (837) (4,677)
--------- ---------
Total stockholders' equity ................. 76,137 70,790
--------- ---------
Total liabilities and stockholders' equity . $ 773,991 $ 820,916
========= =========
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
MSB Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except shares and per share amounts)
For the Quarter Ended
September 30
----------------------------
1997 1996
----------------------------
INTEREST INCOME
Mortgage loans ................................. $ 6,745 $ 5,816
Other loans .................................... 725 567
Mortgage-backed securities ..................... 4,002 6,527
Securities ..................................... 897 892
Federal funds sold ............................. 749 51
----------- -----------
Total interest income .................... 13,118 13,853
INTEREST EXPENSE
Interest on deposits ........................... 7,001 7,755
Interest on borrowings ......................... 1 18
Interest on ESOP obligation .................... 5 12
----------- -----------
Total interest expense ................... 7,007 7,785
----------- -----------
Net interest income ............................ 6,111 6,068
Provision for loan losses ...................... 275 400
----------- -----------
Net interest income after provision for
loan losses ................................... 5,836 5,668
NON-INTEREST INCOME
Service fees ................................... 1,180 970
Net realized gains (losses) on sales of
securities and mortgage loans ................. 73 (8)
Other non-interest income ...................... 32 2
----------- -----------
1,285 964
NON-INTEREST EXPENSE
Salaries and employee benefits ................. 2,104 2,106
Occupancy and equipment ........................ 817 801
Federal deposit insurance premiums ............. 68 264
Goodwill amortization .......................... 909 920
Other non-interest expense ..................... 1,183 1,122
SAIF recapitalization assessment ................ -- 2,925
----------- -----------
Total non-interest expense ................ 5,081 8,138
----------- -----------
Income (loss) before income taxes ............. 2,040 (1,506)
Income tax expense (benefit) ................... 810 (648)
----------- -----------
Net income (loss) .............................. $ 1,230 $ (858)
=========== ===========
Earnings per share ............................. $ 0.33 $ (0.40)
Weighted average shares outstanding ............ 2,886,109 2,833,936
=========== ===========
<PAGE>
For the Nine Months Ended
September 30
---------------------------
1997 1996
--------------- -----------
INTEREST INCOME
Mortgage loans ................................. $ 19,804 $ 16,369
Other loans .................................... 1,953 1,553
Mortgage-backed securities ..................... 14,372 18,433
Securities ..................................... 2,604 3,334
Federal funds sold ............................. 1,608 1,029
----------- -----------
Total interest income .................... 40,341 40,718
INTEREST EXPENSE
Interest on deposits ........................... 21,900 22,982
Interest on borrowings ......................... 1 18
Interest on ESOP obligation .................... 21 41
----------- -----------
Total interest expense ................... 21,922 23,041
----------- -----------
Net interest income ............................ 18,419 17,677
Provision for loan losses ...................... 850 970
----------- -----------
Net interest income after provision for
loan losses ................................... 17,569 16,707
NON-INTEREST INCOME
Service fees ................................... 3,079 2,780
Net realized gains (losses) on sales of
securities and mortgage loans ................. 167 80
Other non-interest income ...................... 79 7
----------- -----------
3,325 2,867
NON-INTEREST EXPENSE
Salaries and employee benefits ................. 6,495 6,284
Occupancy and equipment ........................ 2,407 2,333
Federal deposit insurance premiums ............. 221 741
Goodwill amortization .......................... 2,751 2,596
Other non-interest expense ..................... 3,605 3,609
SAIF recapitalization assessment ............... -- 2,925
----------- -----------
Total non-interest expense ................ 15,479 18,488
----------- -----------
Income (loss) before income taxes ............. 5,415 1,086
Income tax expense (benefit) ................... 2,143 440
----------- -----------
Net income (loss) .............................. $ 3,272 $ 646
=========== ===========
Earnings per share ............................. $ 0.84 $ (0.06)
Weighted average shares outstanding ............ 2,878,031 2,808,124
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
MSB Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Nine Months Ended
September 30,
1997 1996
-------------- ------------
OPERATING ACTIVITIES
Net income ..................................... $ 3,272 $ 646
Adjustments to reconcile net income to net
cash provided by operating activities:
Realized losses (gains) ........................ (167) (80)
Amortization of premiums/discounts on securities 786 872
Proceeds from the sale of student loans ........ 1,209 1,149
Origination of mortgage loans held for sale .... (9,282) (7,909)
Proceeds from the sale of mortgage loans ....... 9,600 8,562
Amortization of net deferred loan origination
fees ........................................ (98) (137)
Depreciation and amortization .................. 951 932
Provisions for loan losses ..................... 850 970
Write-downs on real estate ..................... 66 171
Goodwill amortization .......................... 2,751 2,596
Decrease (increase) in accrued interest
receivable .................................. 812 (2,052)
Decrease (increase) in prepaid expenses and
other assets .................................. (2,572) 434
Increase (decrease) in accrued expenses and
other liabilities ............................. 183 (763)
Net change in Federal and State income tax
payables and receivables ...................... 481 (1,280)
Deferred income taxes .......................... (164) (479)
Other .......................................... 300 (454)
----------- -----------
Net cash provided by (used in) operating
activities .................................. 8,977 $ (3,178)
=========== ===========
INVESTING ACTIVITIES
Net (increase) decrease in loans ............... (38,043) (49,379)
Maturities and redemptions of debt securities .. 49 14,142
Purchases of securities available for sale ..... (9,623) (25,391)
Proceeds from the sale of securities available
for sale .................................... 3,000 31,082
Purchases of mortgage-backed securities
available for sale .......................... (53,590) (383,209)
Proceeds from the sale of mortgage-backed
securities available for sale ................. 109,599 26,368
Repayments of mortgage-backed securities
available for sale .......................... 17,505 14,365
Repayments of asset backed securities .......... -- 143
Proceeds from the sale of real estate owned, net 602 343
Purchases of property and equipment ............ (385) (3,980)
Cash received in branch acquisition ............ -- 380,299
----------- -----------
Net cash provided by investing activities .... $ 29,114 $ 5,503
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
MSB Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Nine Months Ended
September 30,
1997 1996
------------- ------------
FINANCING ACTIVITIES
Net change in deposits ......................... $ (52,143) $ (55,321)
Net increase (decrease) in mortgagors' escrow
deposits .................................... 193 (344)
Proceeds from borrowings ...................... -- 12,100
Repayment of ESOP loan ......................... (159) (223)
Proceeds from the sale of stock ................ -- 32,078
Payment of cash dividends on common and
preferred stock ............................. (2,128) (1,678)
Proceeds from the exercise of stock options .... 102 40
----------- -----------
Net cash used in financing activities .... $ (54,135) $ (13,348)
----------- -----------
Increase (decrease) in cash and cash equivalents $ (16,044) $ (4,667)
Cash and cash equivalents at beginning of period $ 48,965 $ 26,814
----------- -----------
Cash and cash equivalents at end of period ..... $ 32,921 $ 22,147
=========== ===========
SUPPLEMENTAL INFORMATION
Interest paid on savings deposits .............. $ 21,901 $ 22,969
Income taxes paid (received) ................... 1,558 2,203
Non-cash transactions:
Transfer of balances from loans receivable to
real estate owned ........................... $ 2,300 $ 778
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
MSB Bancorp, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In September 1992, MSB Bancorp, Inc. (the "Company") completed the issuance
of 1,840,000 shares of common stock in connection with the conversion of
Middletown Savings Bank (the "Bank") from a mutual to a stock savings bank (the
"Conversion"). Concurrent with the Conversion, the Company acquired all of the
Bank's common stock.
On January 10, 1996, the Company sold 1,100,000 shares of common stock
at $18 per share and 600,000 shares of its 8.75% Cumulative Convertible
Preferred Stock, Series A at $21.60 per share. On February 7, 1996, the Company
sold an additional 105,000 shares of Common Stock pursuant to the underwriters'
exercise of their over-allotment option. The issuance and sale of the shares of
Common Stock and Preferred Stock on January 10 and February 7 are hereinafter
collectively referred to as the "Offering." Net proceeds from the Offering
amounted to $32.1 million. The purpose of the Offering was to raise a
significant portion of the additional capital necessary to permit the Bank to
qualify as "adequately capitalized" for regulatory capital purposes immediately
following the consummation of the acquisition (the "Acquisition") of branches
from First Nationwide Bank, A Federal Savings Bank ("First Nationwide").
In September 1995, the Bank entered into an Asset Purchase and Sale
Agreement (as amended, the "First Nationwide Agreement") with First Nationwide
pursuant to which the Bank acquired certain assets and assumed certain
liabilities relating to seven First Nationwide branch offices located in Carmel,
Liberty, Mahopac, Monticello, Port Jervis, Warwick and Washingtonville, New York
(the "First Nationwide Branches"). The closing took place on January 12, 1996
(the "Closing Date"), whereupon the Bank assumed the deposits (the "First
Nationwide Deposits") of the First Nationwide Branches.
On January 12, 1996, the First Nationwide Deposits totaled $414.8
million. In addition, the Bank acquired certain assets related to the First
Nationwide Branches, including branch facilities and fixed operating assets
associated with the First Nationwide Branches at a purchase price of
approximately $2.9 million, and certain savings account and overdraft loans,
which totaled $1.0 million at January 12, 1996, at face value.
On October 27, 1995, the Bank converted from a New York state-chartered
savings bank to a federal savings bank in order to facilitate the Acquisition as
well as future expansion. In addition, the Bank changed its name to MSB Bank.
The Company is a savings and loan holding company subject to the
regulation, examination and supervision of the Office of Thrift Supervision (the
"OTS"). Prior to the conversion of the Bank to a federal savings bank, the
Company was a bank holding company subject to the regulation, examination and
supervision of the Federal Reserve Board ("FRB").
The Bank provides banking services to individual and corporate
customers, with its business activities concentrated in the New York counties of
Orange, Putnam and Sullivan, and the surrounding areas.
The consolidated financial statements included herein have been prepared
by the Company without audit. In the opinion of management, the quarterly
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the consolidated
financial position and results of operations for the periods presented. Certain
information and footnote disclosures normally included in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. The
Company believes that the disclosures are adequate to make the information
presented not misleading, however, the results for the periods presented are not
necessarily indicative of results to be expected for the entire year.
<PAGE>
The unaudited quarterly and year to date financial statements presented
herein should be read in conjunction with the annual audited consolidated
financial statements of the Company for the fiscal year ended December 31, 1996.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, MSB Bank and MSB Travel, Inc.,
and the Bank's wholly owned subsidiary, MSB Financial Services, Inc. Significant
inter-company transactions and amounts have been eliminated. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowances for losses and
real estate investments.
2. Earnings Per Share
Primary earnings per common share is calculated based upon the weighted
average common shares outstanding adjusted for common stock equivalents that
have a dilutive effect on the per share data. Earnings for the purpose of
computing primary earnings per share consists of net income for the period less
dividends on preferred stock. Common stock equivalents include stock options.
During the first quarter of 1996, the Company sold 600,000 shares of its 8.75%
Cumulative Convertible Preferred Stock, Series A in the Offering. This stock is
not considered a common stock equivalent but is used in the calculation of fully
diluted earnings per share. Since the preferred stock has an anti-dilutive
effect on earnings per share for the quarters and nine month periods ended
September 30, 1997 and 1996, it has not been incorporated in the calculation;
fully diluted and primary earnings per share are the same.
3. Allowance for Loan Losses
The allowance for loan losses is increased by provision charged to
operations and decreased by charge-offs (net of recoveries). Loans are charged
off when, in the opinion of management, the recorded investment in the loan is
uncollectible. Management's periodic evaluation of the adequacy of the allowance
considers factors such as the Bank's past loan experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrowers'
ability to repay, estimated value of any underlying collateral and current and
prospective economic conditions. Management believes that the allowance for loan
losses is adequate. While management estimates loan losses using the best
available information, such as independent appraisals for significant collateral
properties, no assurance can be made that future adjustments to the allowance
will not be necessary based on changes in economic and real estate market
conditions, further information obtained regarding known problem loans,
identification of additional problem loans and other factors, both within and
outside of management's control.
<PAGE>
Activity in the allowance for loan losses for the periods indicated is
summarized as follows:
Quarter Nine Year
Ended Months Ended Ended
September 30, September 30, December 31,
1997 1996 1997 1996 1996
------ ------- ------- ------- ------
(Dollars in thousands)
Balance at beginning of
period ...... ................ $2,238 $1,556 $1,960 $1,659 $1,659
Provision for loan
losses ....................... 275 400 850 970 1,400
LOANS CHARGED OFF
Real estate .............. 89 175 383 497 634
Other loans .............. 82 6 257 367 485
----- ------ ------ ------ ------
Total loans charged off ...... 171 181 640 864 1,119
----- ------ ------ ------ ------
RECOVERIES
Real estate .............. -- -- 148 1 1
Other loans .............. 11 7 35 16 19
----- ------ ------ ------ ------
Total recoveries ......... 11 7 183 17 20
----- ------ ------ ------ ------
Net charge-offs .......... 160 174 457 847 1,099
----- ------ ------ ------ ------
Balance at end of period ..... $2,353 $1,782 $2,353 $1,782 $1,960
====== ====== ====== ====== ======
Ratio of net charge-offs
to average net loans
outstanding (annualized) ... 0.17% 0.22% 0.26% 0.38% 0.36%
====== ====== ====== ====== ======
4. Legal Proceedings
Except as described below, the Company is not involved in any pending
legal proceedings other than routine legal proceedings occurring in the ordinary
course of business. Such routine legal proceedings in the aggregate are believed
by management to be immaterial to the Company's financial condition and results
of operations.
The Company and its directors are defendants in a lawsuit, Kahn Brothers
& Co., Inc. Profit Plan and Trust et al. v. MSB Bancorp, Inc. et al., commenced
by stockholders in the Delaware Court of Chancery, New Castle County, on
November 22, 1995. (The Company and its directors were defendants in a lawsuit,
Pohli v. MSB Bancorp, Inc. et al., commenced by a stockholder in the Delaware
Court of Chancery, New Castle County, on November 7, 1995. This action was
consolidated with the Kahn litigation.) The plaintiffs, who own in excess of 5%
of the outstanding shares of the Common Stock and purport to represent a class
consisting of all stockholders except the stockholder defendants, allege that
the defendant directors breached their duty of care by failing to become fully
informed about the expression of interest of HUBCO, Inc. ("HUBCO"); breached
their duty of disclosure to stockholders by not notifying the public or the
Company's stockholders of HUBCO's expression of interest; and breached their
duty of good faith and fair representation by, among other things, not
investigating whether the Acquisition constituted a reasonable alternative for
building stockholder value. The plaintiffs further allege that the Company's
offering of Common Stock in connection with the Acquisition (the "Common Stock
Offering") was not intended to enhance stockholder value, but rather was for the
purpose of diluting the ownership and voting strength of existing stockholders
and further entrenching existing management and the Board. The plaintiffs sought
to enjoin the Common Stock Offering and are also seeking damages equal to the
<PAGE>
difference between the market price of the Common Stock on September 7, 1995,
and $35 (approximately $14,989,000 in the aggregate) or, in the alternative, the
difference between the market price of the Common Stock on October 26, 1995, and
$25 (approximately $7,394,000 in the aggregate), including interest and
attorneys' and other professional fees. In connection with this action,
plaintiffs filed a motion seeking expedited discovery and scheduling. On
December 6, 1995, in response to the plaintiffs' motion for expedited
proceedings, which was treated by the court as an application for a temporary
restraining order with respect to the Common Stock Offering, the court denied
the plaintiffs' application for such order. On December 12, 1995, the court
denied the plaintiffs' motion for re-argument. On December 18, 1995, the Company
filed an answer denying all of the substantive allegations in the complaint and
seeking, among other things, an order dismissing the complaint with prejudice.
Plaintiffs amended their complaint to include allegations relating to an
unsolicited merger proposal received by the Company from the First Empire State
Corporation ("First Empire") on December 28, 1995. Specifically, the amended
complaint alleges, among other things, that the Company's Board of Directors, in
breach of its duties of care, loyalty and disclosure, relied on the advice of
Bear, Stearns & Co., Inc. ("Bear Stearns"), the Company's financial advisor and
underwriter for the Offering, knowing that Bear Stearns could not render
independent financial advice regarding the First Empire proposal. The plaintiffs
are seeking alternative damages based on these allegations in an amount equal to
the difference between the market price of the Common Stock on December 28, 1995
and $26 (approximately $11,560,000 in the aggregate). The Company filed its
amended answer on February 1, 1996 denying all of the substantive allegations in
the amended complaint and seeking, among other things, an order dismissing the
amended complaint with prejudice. The parties have engaged in substantial
written discovery and plaintiffs have deposed all of the directors and certain
representatives of Bear Stearns. On October 10, 1997, all the defendants served
and filed with the Court a motion for summary judgment which seeks the dismissal
of all the allegations in plaintiffs' amended complaint. The Company intends to
continue to vigorously contest the allegations of wrongdoing in this action.
While the Company believes that it has meritorious defenses in these
legal actions and is vigorously defending these suits, the legal responsibility
and financial impact with respect to these litigation matters cannot presently
be ascertained and, accordingly, there is risk that the final resolution of
these matters could result in the payment of monetary damages which would be
material in relation to the consolidated financial condition or results of
operations of the Company. The Company does not believe that the likelihood of
such a result is probable and has not established any specific litigation
reserves with respect to such matters.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
Results of Operations
General
MSB Bancorp, Inc. (the "Company") is the holding company for MSB Bank
("MSB" or the "Bank"). The financial conditions and results of operations of the
Company are primarily dependent upon the operations of the Bank.
On January 10, 1996, the Company sold 1,100,000 shares of Common Stock
at $18 per share and 600,000 shares of its Series A Preferred Stock at $21.60
per share. On February 7, 1996 the Company sold an additional 105,000 shares of
Common Stock pursuant to the underwriters' exercise of their over-allotment
option. The issuance and sales of the shares of Common Stock and Series A
Preferred Stock on January 10 and February 7 are hereinafter referred to,
collectively, as the "Offering." Net proceeds from the Offering amounted to
approximately $32.1 million. The purpose of the Offering was to raise a
significant portion of the additional capital necessary to permit the Bank to
qualify as "adequately capitalized" for regulatory capital purposes immediately
following the acquisition of seven branches (the "Acquired Branches") from First
Nationwide Bank, A Federal Savings Bank ("First Nationwide"), in January, 1996
(the "Acquisition"). The Acquisition closed on January 12, 1996 with the Bank
assuming $414.8 million of deposits. The Bank also acquired the related branch
facilities and operating assets at a purchase price of $2.9 million and certain
deposit-related loans with a face value of $1.0 million.
The Company announced a Reengineering Plan (the "Plan") on July 14, 1997
designed to increase the Company's earnings and stockholder value. The major
components of the Plan included (i) the reduction of employee costs primarily by
certain staff reductions and by reducing the number of hours worked by branch
personnel, (ii) reduction of various operating expenses, (iii) fee initiatives,
(iv) the introduction of trust and insurance services and (v) the repurchase of
up to 5% of the Company's outstanding common stock subject to market conditions.
Results of Operations
The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on its loan
and securities portfolios and its cost of funds, consisting primarily of the
interest paid on its deposits. The Bank's operating expenses principally consist
of employee compensation, occupancy expenses, goodwill amortization, federal
despoit insurance premiums and other general and administrative expenses. The
Bank's results of operations are also significantly affected by its periodic
provision for loan losses and write-downs of real estate owned. Such results are
also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
The Company is subject to certain legal proceedings that, if adversely
determined, could materially and adversely affect the Company's results of
operations. See Part II, Item 1, "Legal Proceedings."
The following tables set forth information relating to the Company's
consolidated balance sheet and consolidated statements of income for the three
and nine month periods ended September 30, 1997 and 1996 and reflect the average
yield (not on a tax equivalent basis) on assets and average cost of liabilities
for the periods indicated. Such yields and costs are derived by dividing income
or expense by the average balances of assets or liabilities, respectively, for
the periods shown. Average balances are derived from average daily balances. The
average balances of securities available for sale are calculated based on
amortized cost. The yields and costs include fees, which are considered
adjustments to yields.
<PAGE>
<TABLE>
For the Quarter Ended September 30,
--------------------------------------------------------------------------------------------
1997 1996
----------------------------------------------- -------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- ---------- ----------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans, net(1)........... $ 335,889 $ 6,745 7.97% $ 291,912 $ 5,816 7.93%
Other loans(1)................... 27,975 725 10.28 20,123 567 11.21
Mortgage-backed securities....... 245,338 4,002 6.47 396,285 6,527 6.55
Other securities................. 57,896 897 6.15 56,558 892 6.27
Federal funds, overnight......... 53,744 749 5.53 3,590 51 5.65
---------- ---------- ----------- ---------- ---------- ----------
Total interest-earning assets.... 720,842 13,118 7.22 768,468 13,853 7.17
Non-interest earning assets........ 67,612 65,608
---------- ----------
Total assets..................... $ 788,454 $ 834,076
========== ==========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits:
Savings accounts............... $ 209,640 1,694 3.21 $ 206,241 1,637 3.16
Super NOW accounts............. 40,332 190 1.87 41,869 202 1.92
Money market accounts.......... 53,038 546 4.08 50,348 523 4.13
Time deposits.................. 347,950 4,571 5.21 406,170 5,393 5.28
Borrowings....................... 72 1 5.51 1,466 18 4.88
ESOP obligation.................. 278 5 7.14 584 12 8.17
---------- ---------- ----------- ---------- ---------- ----------
Total interest-bearing
liabilities.................... 641,310 7,007 4.27 706,678 7,785 4.38
Other liabilities.................. 61,182 58,033
---------- ----------
Total liabilities............. 712,492 764,711
Retained earnings.................. 75,962 69,365
---------- ----------
Total liabilities and
retained earnings........... $ 788,454 $ 834,076
========== ==========
Net interest income/
interest rate spread(2)........... $ 6,111 2.95% $ 6,068 2.97%
========== =========== ========== ==========
Net earning assets/net
interest margin(3)................ $ 69,532 3.36% $ 61,790 3.14%
========== =========== ========== ==========
Ratio of interest-earning assets
to interest-bearing liabilities... 1.11x 1.09x
=========== ==========
</TABLE>
------------------------
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
<PAGE>
<TABLE>
For the Nine Months Ended September 30,
-------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------ -----------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans, net(1)........... $ 325,170 $ 19,804 8.14% $ 276,603 $ 16,369 7.90%
Other loans(1)................... 25,466 1,953 10.25 19,008 1,553 10.91
Mortgage-backed securities....... 291,076 14,372 6.60 374,829 18,433 6.57
Other securities................. 56,172 2,604 6.20 70,033 3,334 6.36
Federal funds, overnight......... 39,729 1,608 5.41 20,144 1,029 4.72
---------- ---------- --------- ---------- ---------- ----------
Total interest-earning assets.... 737,613 40,341 7.31 769,617 40,178 7.07
Non-interest earning assets........ 65,570 67,696
---------- ----------
Total assets..................... $ 803,183 $ 837,313
========== ==========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits:
Savings accounts............... $ 203,209 4,920 3.24 $ 203,490 4,585 3.01
Super NOW accounts............. 39,811 567 1.90 41,610 600 1.93
Money market accounts.......... 52,039 1,609 4.13 50,076 1,296 3.46
Time deposits.................. 375,946 14,803 5.26 409,025 16,501 5.39
Borrowings..................... 25 1 5.35 492 18 4.89
ESOP obligation.................. 354 21 7.93 655 41 8.36
---------- ---------- --------- ---------- ---------- ----------
Total interest-bearing
liabilities.................... 671,384 21,921 4.37 705,348 23,041 4.36
Other liabilities.................. 58,713 61,442
---------- ----------
Total liabilities............. 730,097 766,790
Retained earnings.................. 73,090 70,523
---------- ----------
Total liabilities and
retained earnings........... $ 803,187 $ 837,313
========== ==========
Net interest income/
interest rate spread(2)........... $ 18,420 2.95% $ 17,677 2.70%
========== ========= ========== =========
Net earning assets/net
interest margin(3)................ $ 66,229 3.34% $ 64,269 3.07%
========== ========= ========== =========
Ratio of interest-earning assets
to interest-bearing liabilities... 1.10x 1.09x
========= =========
</TABLE>
------------------------
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
<PAGE>
Financial Condition
The Company's total assets were $774.0 million at September 30, 1997, as
compared to $820.9 million at December 31, 1996. This decrease is due primarily
to a decrease in deposits. For those same dates, deposits decreased $52.1
million to $684.0 million at September 30, 1997, as compared to $736.2 million
at December 31, 1996. The decreases in the average balances of deposits are due
to Management's strategy to reduce the interest rate paid on certain time
deposits. Approximately $27.7 million of time deposits were withdrawn from the
Bank in the third quarter of 1997. Many of these time deposits were earning a
premium rate. The deposit outflow is also due to disintermediation which is
affecting many of the Bank's peer thrift institutions. Securities and
mortgage-backed securities available for sale decreased $61.2 million to $312.9
million at September 30, 1997, as compared to $374.1 million at December 31,
1996. Loans, net increased $33.8 million to $372.3 million at September 30,
1997, as compared to $338.5 million at December 31, 1996. Goodwill decreased
$3.1 million to $29.7 million at September 30, 1997, as compared to $32.8
million at December 31, 1996. Real estate owned increased $1.3 million to $2.2
million at September 30, 1997, as compared to December 31, 1996.
Total stockholders' equity increased $5.3 million to $76.1 million at
September 30, 1997, as compared to $70.8 million at December 31, 1996. This
increase is due primarily to a $3.8 million decrease in the net unrealized loss
on securities available for sale and a $1.2 million increase in retained
earnings. The Bank's Tier 1 leverage capital ratio was 6.23% at September 30,
1997.
Comparison of Results of Operations
General. Net income for the third quarter of 1997 amounted to $1.2 million
as compared to a net loss of ($858,000) for the comparable quarter in 1996. For
the nine months ended September 30, 1997, net income totaled $3.3 million as
compared to $646,000 for the same period in 1996. The results for the third
quarter and nine month periods ended September 30, 1996, included a pre-tax
charge of $2.9 million related to the recapitalization of the Savings
Association Insurance Fund ("SAIF").
Net Interest Income. Net interest income increased $43,000 to $6.1
million for the third quarter of 1997, as compared to the third quarter of 1996.
The Company's interest rate spread was 2.95% and 2.79% for the third quarters of
1997 and 1996, respectively. The Company's net interest margin was 3.36% and
3.14%, respectively, for those same periods. For the nine months ended September
30, 1997, net interest income totaled $18.4 million as compared to $17.7 million
for the same period in 1996. For the nine months ended September 30, 1997 and
1996, the interest rate spread was 2.95% and 2.70%, respectively. For those
periods, the net interest margin was 3.34% and 3.07%, respectively.
Interest Income. Interest income was $13.1 million for the third quarter
of 1997 as compared to $13.9 million for the same period in 1996. The yield
earned on interest-earning assets was 7.22% for the third quarter of 1997 as
compared to 7.17% for the same period in 1996. This increase in yield was offset
by a decrease of $47.6 million in average interest earnings assets to $720.8
million for the third quarter of 1997, as compared to $768.5 million for the
third quarter of 1996. The yield earned on interest-earning assets was 7.31% for
the nine months ended September 30, 1997, as compared to 7.07% for the same
period in 1996. For the nine month period ended September 30, 1997, average
interest earning assets decreased to $737.6 million as compared to $769.6
million for the nine months ended September 30, 1996.
The decreases in the balances of average interest-earning assets are due
primarily to decreases of $53.7 million and $33.2 million in the average
balances of deposits for the quarter and nine month periods of 1997,
respectively, as compared to the same periods in 1996. See "Interest Expense."
The increases in yields earned were a result of the redeployment of proceeds
from the sale of mortgage-backed and other securities into the loan portfolio.
<PAGE>
Interest income on mortgage loans amounted to $6.7 million in the third
quarter of 1997, as compared to $5.8 million for the comparable period in 1996.
This increase is due to a $44.0 million or 15.1% increase in the average balance
of mortgage loans to $335.9 million during the third quarter of 1997, as
compared to $291.9 million for the third quarter of 1996. The average yield
earned on mortgage loans remained virtually unchanged at 7.97% for the third
quarter of 1997 as compared to 7.93% for the third quarter of 1996. For the nine
months ended September 30, 1997, interest income on mortgage loans amounted to
$19.8 million, a $3.4 million or 21.0% increase over the $16.4 million earned
for the same period in 1996. This increase was due to an increase of $48.6
million in the average balance of mortgage loans to $325.2 million during the
nine months ended September 30, 1997 as compared to $276.6 million for the nine
months ended September 30, 1996. In addition, the average yield earned increased
24 basis points to 8.14% for those same periods.
The growth in the average balance of mortgage loans was due primarily to
Management's strategy to redeploy funds received in the Acquisition from the
securities portfolio to the loan portfolio and continued loan demand. The
increase in the yield earned during the 1997 nine month period is primarily a
result of a new ARM product that the Bank began to offer in 1996. These ARMs are
primarily 5-year fixed rate loans that convert to 1-year ARMs after the initial
5-year period. These loans are not offered at introductory rates. The increase
in yield is also due to the repricing of one-year ARMs that were originated in
1994 and 1995 at introductory rates. These ARMs repriced to higher rates due to
the expiration of their initial lower introductory rates.
Interest income on other loans amounted to $725,000 for the third
quarter of 1997, as compared to $567,000 for the third quarter of 1996. This
increase is due to a $7.9 million or 39.0% increase in the average balance of
other loans to $28.0 million, which was offset in part by a 93 basis point
decrease in the yield earned to 10.28%. For the nine months ended September 30,
1997, interest income on other loans totaled $2.0 million as compared to $1.6
million for the same period in 1996. This increase was primarily due to an
increase in the average balance of other loans to $25.5 million for the 1997
period as compared to $19.0 million for the same period in 1996. This increase
in the average balance of other loans was partially offset by a 66 basis point
decrease in the average yield earned to 10.25% for the nine months ended
September 30, 1997, as compared to 10.91% for the same period in 1996.
Interest income on mortgage-backed securities amounted to $4.0 million for
the third quarter of 1997, as compared to $6.5 million for the same quarter in
1996. This decrease was due primarily to a decrease in the average balance of
mortgage-backed securities. For the third quarter of 1997, the average balance
of mortgage-backed securities decreased $150.9 million or 38.1% to $245.4
million as compared to $396.3 million for the third quarter of 1996. For the
nine months ended September 30, 1997, interest income on mortgage-backed
securities totaled $14.4 million, a $4.1 million decrease from the $18.4 million
earned for the same period in 1996. For the nine months ended September 30,
1997, the average balance of mortgage-backed securities decreased $83.8 million
to $291.1 million as compared to $374.8 million for the same period in 1996. The
decrease in the average balances of mortgage-backed securities was a result of
Management's strategy to redeploy funds currently invested in securities into
the loan portfolio, which typically provides greater yields and to fund deposit
outflows.
<PAGE>
Interest income on other securities amounted to $897,000 for the third
quarter of 1997, virtually unchanged from the third quarter of 1996. For the
nine months ended September 30, 1997, interest income on other securities
totaled $2.6 million as compared to $3.3 million for the same period in 1996.
This decrease was primarily the result of a $13.9 million decrease in the
average balance of other securities to $56.2 million during the 1997 nine month
period as compared to the same period in 1996. In addition, the yield earned on
these securities decreased to 6.20% for the nine months ended September 30, 1997
as compared to 6.36% for the same period in the prior year. The decrease in the
average balance of other securities is a result of Management's strategy to
redeploy funds currently invested in securities into the loan portfolio, which
typically provides greater yields.
Interest income on Federal funds amounted to $749,000 for the third
quarter of 1997, as compared to $51,000 for the third quarter of 1996. This
increase in Federal funds interest is due to a $50.2 million increase in the
average balance to $53.7 million, which was partially offset by a 12 basis point
decrease in the average yield to 5.53%. For the nine months ended September 30,
1997, interest income on Federal funds amounted to $1.6 million as compared to
$1.0 million for the same period in 1996. This increase is due to a $10.6
million increase in the average balance of Federal funds to $39.7 million for
the nine months ended September 30, 1997, and a 69 basis point increase in the
yield earned to 5.41% for the same period. The increase in the average balance
of Federal funds is a result of the temporary investment of proceeds from the
sale of mortgage-backed and other securities. The securities were sold to
provide sufficient liquidity for loan originations and the anticipated outflow
of time deposits as a result of Management's decision to reduce the interest
rates paid on these deposits (see "Interest Expense").
Interest Expense. Interest expense was $7.0 million for the third
quarter of 1997, as compared to $7.8 million for the same quarter in 1996. For
the nine months ended September 30, 1997, interest expense totaled $21.9 million
as compared to $23.0 million for the same period in 1996. These decreases are
primarily due to decreases of $55.4 million and $34.0 million in average
interest-bearing liabilities to $641.3 million and $671.4 million for the
quarter and nine months ended September 30, 1997, respectively, as compared to
$706.7 million and $705.3 million, resepectively, for the quarter and nine
months ended September 30, 1996. In addition, for the 1997 third quarter, the
average cost of these liabilities was 4.27% as compared to 4.38% for the same
period in 1996. The average cost of interest-bearing liabilities remained
virtually unchanged in the nine month periods.
Interest expense on savings accounts increased $57,000 or 3.5% to $1.7
million for the third quarter of 1997, as compared to $1.6 million for the third
quarter 1996. For the nine months ended September 30, 1997, interest expense on
savings accounts increased to $4.9 million as compared to $4.6 million for the
same period in 1996. These increases were due primarily to increases in the
average rates paid on savings accounts. The average rate paid on savings
accounts was 3.21% for the third quarter of 1997, as compared to 3.16% for the
third quarter of 1996. For the nine months ended September 30, 1997, the average
rate paid on savings accounts was 3.24% as compared to 3.01% for the same period
of the prior year. The average balances of savings accounts were $209.6 million
and $203.2 million for the quarter and nine months ended September 30, 1997,
respectively, as compared to $206.2 million and $203.5 million for the same
respective periods in 1996.
<PAGE>
Interest expense on time deposits totaled $4.6 million for the third
quarter of 1997, as compared to $5.4 million for the third quarter of 1996. This
decrease is due to a $58.2 million or 14.3% decrease in the average balance to
$348.0 million and a 7 basis point decrease in the average rate paid to 5.21%
from the 1996 to the 1997 quarter. For the nine months ended September 30, 1997,
interest expense on time deposits totaled $14.8 million as compared to $16.5
million for the same period in 1996. This decrease was due to a decrease in the
average balance of time deposits of $33.1 million to $375.9 million for the 1997
nine month period as compared to $409.0 million for the same period in 1996. In
addition, the average cost of these deposits decreased 13 basis points to 5.26%.
The decreases in the average balances of deposits are due to
Management's strategy to reduce the interest rate paid on certain time deposits.
Approximately $27.7 million of time deposits were withdrawn from the Bank in the
third quarter of 1997. Many of these time deposits were earning a premium rate.
The deposit outflow is also due to disintermediation which is affecting many of
the Bank's peer thrift institutions.
Provision for Loan Losses. The provision for loan losses was $275,000 and
$400,000 for the third quarters of 1997 and 1996, respectively. For the nine
months ended September 30, 1997 and 1996, the provision for loan losses totaled
$850,000 and $970,000, respectively. Non-performing loans (loans that are 90
days or more past due) amounted to $3.2 million or 0.85% of total loans at
September 30, 1997, as compared to $4.8 million or 1.40% of total loans at
December 31, 1996 and $5.0 million or 1.53% of total loans at September 30,
1996. Non-performing assets amounted to $5.4 million or 0.70% of total assets,
$5.7 million or 0.69% of total assets and $6.0 million or 0.70% of total assets
at September 30, 1997, December 31, 1996 and September 30, 1996, respectively.
Real estate owned increased $1.3 million to $22.0 million at September 30, 1997,
as compared to December 31, 1996.
The allowance for loan losses amounted to $2.4 million and $1.8 million
at September 30, 1997 and 1996, respectively, which represented 74.3% and 35.4%
of non-performing loans at those respective dates. At December 31, 1996, the
allowance for loan losses amounted to $2.0 million or 41.1% of non-performing
loans. Charge-offs, net of recoveries, totaled $160,000 and $457,000 for the
quarter and nine months ended September 30, 1997, as compared to $174,000 and
$847,000 for the same respective periods in 1996.
In determining the adequacy of its allowance for loan losses, management
considers the level of non-performing loans, the current status of the Bank's
loan portfolio, changes in appraised values of collateral and general economic
conditions. Although the Bank maintains its allowance for loan losses at a level
which it considers to be adequate to provide for potential losses, there can be
no assurance that such losses will not exceed the current estimated amounts. As
a result, higher provisions for loan losses may be necessary in future periods
which would adversely affect operating results.
Non-Interest Income. Non-interest income amounted to $1.3 million and
$964,000 for the third quarters of 1997 and 1996, respectively. This increase is
due to a $210,000 increase in service fees, an $81,000 increase in net realized
gains on securities and mortgage loan sales and a $30,000 increase in other
non-interest income. For the nine months ended September 30, 1997 and 1996,
non-interest income totaled $3.3 million and $2.9 million, respectively. This
increase is due to a $299,000 increase in service fees, an $87,000 increase in
net realized gains on securities and mortgage loan sales and a $72,000 increase
in other non-interest income. The increases in service fees are due primarily to
changes in MSB's fee structure on deposit products and services. These changes
were part of the Plan announced earlier in the third quarter of 1997.
<PAGE>
Non-Interest Expense. Non-interest expense amounted to $5.1 million and
$15.5 million for the quarters and nine months ended September 30, 1997, as
compared to $5.2 million and $15.6 million for the same respective periods in
1996 (excluding the SAIF assessment of $2.9 million in 1996). Salaries and
employee benefits increased $211,000 or 3.4% to $6.5 million for the nine months
ended September 30, 1997, as compared to $6.3 million for the nine months ended
September 30, 1996. The increase in salaries and employee benefits for the
nine-month period is due primarily to normal salary increases. Federal deposit
insurance premiums decreased $196,000 to $68,000 in the third quarter of 1997 as
compared to $264,000 for the same period in the prior year and decreased
$520,000 to $221,000 for the 1997 nine month period as compared to $741,000 for
the same period in 1996. These decreases reflect the lower insurance rates that
resulted from the payment of the SAIF special assessment in the third quarter of
1996. The amortization of goodwill resulting primarily from the Company's
Acquisition that was completed in the first quarter of 1996 amounted to $909,000
in the third quarter of 1997, virtually unchanged from the third quarter of
1996. For the nine months ended September 30, 1997, goodwill amortization
increased $155,000 to $2.8 million, reflecting a full nine months of
amortization as compared to 1996.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, the proceeds from
principal and interest payments on loans and the proceeds from the maturities of
investments. Proceeds from securities and loan sales are also a source of funds.
While maturities and scheduled amortization of loans and investments are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
The Bank is required to maintain an average daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by the regulations of the OTS.
The minimum required liquidity and short-term liquidity ratios are currently
5.0% and 1.0%, respectively. At September 30, 1997, the Bank's liquidity ratio
under OTS regulations was 12.3%, and its short-term liquidity ratio was 9.8%.
The primary investing activity of the Company is the origination of
loans and the purchase of securities. For the quarter and nine months ended
September 30, 1997 and for the year ended December 31, 1996, the Company
originated mortgage loans totaling $29.7 million, $73.5 million and $100.1
million, respectively. For those same periods, the Company originated other
loans totaling $6.3 million, $15.6 million and $15.9 million, respectively. The
Company purchased securities, including mortgage-backed securities, totaling
$63.2 million and $408.6 million for the nine months ended September 30, 1997
and fiscal 1996, respectively.
The Company's most liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-term securities. The levels of these
assets are dependent on the Bank's operating, financing, lending and investing
activities during any given period. The Company's ratios of cash and due from
banks, Federal Funds and investment securities with remaining maturities of one
year or less to total deposits were 6.0% at September 30, 1997 and 6.7% at
December 31, 1996. At September 30, 1997, cash and cash equivalents, as defined
above, totaled $41.1 million as compared to $49.0 million at December 31, 1996.
Liquidity management for the Bank is both a daily and long-term function
of the Bank's management strategy. Excess funds are generally invested in
short-term investments such as Federal funds. In the event that the Bank should
require funds beyond its ability to generate them internally, additional sources
of funds are available through a $46.0 million line of credit from the Federal
Home Loan Bank of New York. In addition, the Bank may access funds, if
necessary, through the Federal Reserve Bank of New York discount window.
At September 30, 1997, the Bank had outstanding loan commitments of
$55.8 million. The Bank anticipates that it will have sufficient funds available
to meet its current loan commitments. Time deposits scheduled to mature in one
year or less from September 30, 1997, totaled $244.7 million. Management
believes that a significant portion of such deposits will remain with the Bank.
<PAGE>
The Bank is subject to certain minimum leverage, tangible and risk-based
capital requirements established by regulations of the OTS. These regulations
require savings associations to meet three minimum capital standards: a tangible
capital ratio requirement of 1.5% of total assets as adjusted under the OTS
regulations; a leverage ratio requirement of 3.0% of core capital to such
adjusted total assets; and a risk-based capital ratio requirement of 8.0% of
core and supplementary capital to total risk-based assets. The 3.0% core capital
requirement has been effectively superseded by the OTS prompt corrective action
regulations, which impose a 4.0% core capital requirement for treatment as an
"adequately capitalized" thrift and a 5.0% core capital requirement for
treatment as a "well capitalized" thrift. In determining the amount of
risk-weighted assets for purposes of the risk-based capital requirement, a
savings association must compute its risk-based assets by multiplying its assets
and certain off-balance sheet items by risk-weights, which range from 0% for
cash and obligations issued by the United States Government or its agencies to
100% for consumer and commercial loans, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of assets.
At September 30, 1997, the Bank exceeded all of the OTS minimum regulatory
capital requirements.
The following table sets forth the capital position of the Bank as
calculated at September 30, 1997.
Tangible Core Risk-Based
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
(Dollars in thousands)
Capital as calculated
under GAAP .......... $ 75,703 10.16% $ 75,703 10.16% $ 75,703 20.73%
Deduct goodwill ....... 29,734 3.99 29,734 3.99 29,734 8.14
Add qualifying general
loan loss allowance,
as limited by
regulation. .......... -- -- -- -- 2,352 0.64
Add unrealized loss on
securities available
for sale, net of taxes 798 0.10 798 0.10 798 0.22
Deduct equity
investments .......... -- -- -- -- 125 0.04
Deduct servicing rights 15 0.00 15 0.00 15 0.00
------- ----- ------- ----- ------- -----
Capital, as calculated 46,752 6.27% 46,752 6.27% 48,979 13.41%
Capital, as required .. 11,177 1.50 29,805 4.00 29,218 8.00
------- ----- ------- ----- ------- -----
Excess ................ $35,575 4.77% $16,947 2.27% $19,761 5.41%
======= ===== ======= ===== ======= ======
<PAGE>
The Board of Directors declared a cash dividend of $0.15 per common
share on September 19, 1997 that was payable to stockholders of record on
October 9, 1997. The Company has been paying a quarterly cash dividend of $0.15
per common share since the first quarter of 1995 and had been paying a quarterly
cash dividend of $0.13 per common share since the third quarter of 1994.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128") established standards for computing and presenting earnings
per share ("EPS") and applies to entities with publicly held common stock or
potential common stock. SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures. SFAS 128 requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods, and earlier
application is not permitted. SFAS 128 also requires restatement of all prior
period EPS data presented. Management does not expect the adoption of SFAS 128
to have a significant effect on the Company's EPS calculation.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. SFAS 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. SFAS 130 does not require a specific format for the financial
statement, but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131") requires that
public companies report information about segments of their business in their
annual financial statements and require them to report selected segment
information in their quarterly reports issued to shareholders. SFAS 131 requires
entity-wide disclosure about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. SFAS 131 supersedes FASB Statement 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS 131 is effective for fiscal years
beginning after December 15, 1997.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
<PAGE>
Part II--OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth in Note 4 to the unaudited consolidated financial
statements ("Legal Proceedings") in Part I, Item 1, hereto is incorporated
herein by reference.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11--Computation of Earnings Per Share
Exhibit 27--Financial Data schedule*
(b) Reports on Form 8-K
None
* Submitted only with filing in electronic format.
<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.
MSB Bancorp, Inc.
(Registrant)
By: /s/ Anthony J. Fabiano
Anthony J. Fabiano
Senior Vice President and Chief
Financial and Accounting Officer
November 10, 1997
<PAGE>
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
For The Quarter Ended
September 30, September 30,
1997 1996
----------- -----------
Net income ....................................... $ 1,230,000 $ (858,000)
Preferred stock dividends ...................... 283,500 283,500
----------- -----------
Net income applicable to common stock .......... $ 946,500 $(1,141,500)
=========== ===========
Weighted average common shares ................. 2,886,109 2,833,936
Earnings per common share ...................... $ 0.33 $ (0.40)
=========== ===========
For the Nine months Ended
September 30, September 30,
1997 1996
----------- -----------
Net income ....................................... $ 3,272,000 $ 646,000
Preferred stock dividends ...................... 850,500 819,000
----------- -----------
Net income applicable to common stock .......... $ 2,421,500 $ (173,000)
=========== ===========
Weighted average common shares ................. 2,878,031 2,808,124
Earnings per common share ...................... $ 0.84 $ (0.06)
=========== ===========
<PAGE>
Exhibit 27
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and the consolidated statement of income
and is qualified in its entirety by reference to such financial statements.
Item Number Item Description Amount
9-03(1) Cash and due from banks $ 16,901
9-03(2) Interest-bearing assets 0
9-03(3) Federal funds sold 16,020
9-03(4) Trading account assets 0
9-03(6) Investment and mortgage backed
securities held for sale 312,916
9-03(6) Investments held to maturity--
carrying value 0
9-03(6) Investments held to maturity--
market value 0
9-03(7) Loans 372,282
9-03(7)(2) Allowance for losses 2,353
9-03(11) Total assets 773,991
9-03(12) Deposits 684,018
9-03(13) Short-term borrowings 0
9-03(15) Other liabilities 13,563
9-03(16) Long-term debt 273
9-03(19) Preferred stock - mandatory
redemption 0
9-03(20) Preferred stock - no mandatory
redemption 6
9-03(21) Common Stock 30
9-03(22) Other stockholders' equity 76,101
9-03(23) Total liabilities and stockholders'
equity 773,991
9-04(1) Interest and fees on loans 21,757
9-04(2) Interest and dividends on investments 16,965
9-04(4) Other interest income 1,619
9-04(5) Total interest income 40,341
9-04(6) Interest on deposits 21,900
9-04((9) Total interest expense 21,922
9-04(10) Net interest income 18,419
9-04(11) Provision for loan losses 850
9-04(13)(h) Investment securities gains/losses 66
9-04(14) Other expenses 15,479
9-04(15) Income/loss before income tax 5,415
9-04(17) Income/loss before extraordinary items 5,415
9-04(18) Extraordinary items, less tax 0
9-04(19) Cumulative change in accounting
principles 0
9-04(20) Net income or loss 3,272
9-04(21) Earnings per share - primary 0.84
9-04(21) Earnings per share - fully diluted 0.84
1.B.5 Net yield - interest earning assets 3.34
III.C.1(a) Loans on non-accrual 3,167
III.C.1(b) Accruing loans past due 90 days 0
III.C.1(c) Troubled debt restructuring 601
III.C.2 Potential problem loans 5,631
IV.A.1 Allowance for loan loss-- beginning
of period 1,960
IV.A.2 Total charge-offs 640
IV.A.3 Total recoveries 183
IV.A.4 Allowance for loan loss-- end of period 2,353
IV.B.1 Loan loss allowance domestic 0
IV.B.2 Loan loss allowance foreign 0
IV.B.3 Loan loss allowance unallocated 2,353
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,901
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,020
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 312,916
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 372,282
<ALLOWANCE> 2,353
<TOTAL-ASSETS> 773,991
<DEPOSITS> 684,018
<SHORT-TERM> 0
<LIABILITIES-OTHER> 13,563
<LONG-TERM> 273
0
6
<COMMON> 30
<OTHER-SE> 76,101
<TOTAL-LIABILITIES-AND-EQUITY> 773,991
<INTEREST-LOAN> 21,757
<INTEREST-INVEST> 16,965
<INTEREST-OTHER> 1,619
<INTEREST-TOTAL> 40,341
<INTEREST-DEPOSIT> 21,900
<INTEREST-EXPENSE> 21,922
<INTEREST-INCOME-NET> 18,419
<LOAN-LOSSES> 850
<SECURITIES-GAINS> 66
<EXPENSE-OTHER> 15,479
<INCOME-PRETAX> 5,415
<INCOME-PRE-EXTRAORDINARY> 5,415
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,272
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 3.34
<LOANS-NON> 3,167
<LOANS-PAST> 0
<LOANS-TROUBLED> 601
<LOANS-PROBLEM> 5,631
<ALLOWANCE-OPEN> 1,960
<CHARGE-OFFS> 640
<RECOVERIES> 183
<ALLOWANCE-CLOSE> 2,353
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,353
</TABLE>
