<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0 - 25072
SJS BANCORP, INC.
------------------
(Exact name of small business issuer as specified in its charter)
Delaware 38-3203930
- -------- ----------
State or other jurisdiction of (IRS Employer Identification No.)
incorporation organization)
301 State Street, St. Joseph, Michigan 49085
--------------------------------------------
(address of principal executive offices)
616-983-0134
------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months ( or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes: x ; No:
- ---- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at February 10,1997
- ----- -------------------------------
Common stock, $.01 par value 917,622 Shares
Transitional Small Business Disclosure Format
Yes: ; No: x
- ---- ---
<PAGE>
SJS BANCORP, INC.
FORM 10-QSB
Quarter ended December 31, 1996
Part I - Financial Information
Interim Financial Information required by Item 310 (b) of Regulation S-B and
item 303 of Regulation S-B is included in this Form 10-QSB as referenced below:
Page
----
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition.......................1
Consolidated Statements of Operations................................2
Consolidated Statements of Shareholders' Equity......................3
Consolidated Statements of Cash Flow.................................4
Notes to Consolidated Financial Statements.........................5-9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ......................................10-13
PART II - Other Information
OTHER INFORMATION ......................................................14-15
SIGNATURES....................................................................15
EXHIBITS INDEX................................................................16
<PAGE>
SJS BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
December 31,1996 June 30, 1996
---------------- -------------
<S> <C> <C>
ASSETS
Cash and due from financial institutions $3,563,966 $3,116,085
Interest-bearing demand deposits in other financial institutions 241,767 14,832
------- ------
Total cash and cash equivalents 3,805,733 3,130,917
Interest-bearing deposits in other financial institutions 190,000 190,000
Mortgage-backed securities available for sale 17,691,278 26,831,702
Mortgage-backed securities held to maturity
(estimated fair value on December 31, 1996
$9,078,692; June 30, 1996 $9,351,120) 9,176,476 9,379,310
Equity securities available for sale 8,300 63,280
Investment securities available for sale 4,195,593 5,566,705
Investment securities held to maturity
(estimated fair value on December 31, 1996
$3,169,166; June 30, 1996 $3,630,989) 3,167,901 3,667,929
Federal Home Loan Bank stock 1,187,500 1,187,500
Loans, net 108,960,129 98,861,649
Accrued interest receivable 1,028,175 1,069,562
Premises and equipment 1,133,198 1,152,526
Other assets 825,079 795,564
--------- -------
Total assets $151,369,362 $151,896,644
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $111,369,070 $107,927,968
Federal Home Loan Bank Advances 21,887,762 23,750,000
Advance payments by borrowers for taxes and insurance 834,903 1,249,689
Accrued interest payable on deposits 234,982 251,385
Accrued expenses and other liabilities 931,483 1,807,216
------- ---------
Total liabilities 135,258,200 134,986,258
Common Stock 9,866 9,866
Paid in Surplus 9,543,524 9,519,762
Retained earnings, substantially restricted 9,294,399 9,635,294
Net unrealized gain(loss) on available-for-sale securities
(Applicable deferred income taxes on December 31,
1996 $159,600; June 30, 1996 $257,903) (309,811) (500,635)
Net unrealized gain(loss) on held-to-maturity securities
(Applicable deferred income taxes on December 31,
1996 $25,331; June 30, 1996 $26,777) (49,173) (51,979)
Employee Stock Ownership Plan (ESOP) (unallocated shares) (302,686) (322,140)
Management Recognition Plan (MRP)(unearned shares) (675,532) (675,532)
Treasury stock (December 31, 1966 69,000 shares;
June 30,1996 35,000 shares) (1,399,425) (704,250)
--------- --------
Total Shareholders' Equity 16,111,162 16,910,386
---------- ----------
Total Liabilities and Shareholders' Equity $151,369,362 $151,896,644
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
SJS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended December 31 Six months ended December 31
------------------------------ ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans $2,200,249 $1,828,430 $4,285,644 $3,435,735
Investment securities 112,558 198,686 249,468 385,682
Mortgage-backed securities 445,024 537,006 954,297 1,092,611
Other interest income 64,810 60,106 118,350 119,969
------ ------ ------- -------
2,822,641 2,624,228 5,607,759 5,033,997
Interest Expenses
Deposits 1,419,495 1,388,391 2,805,585 2,743,981
Federal Home Loan Bank advances 336,727 238,244 693,516 339,965
------- ------- ------- -------
1,756,222 1,626,635 3,499,101 3,083,946
Net interest income 1,066,419 997,593 2,108,658 1,950,051
Provision for loan losses 91,000 160,609 146,000 162,609
------ ------- ------- -------
Net interest income after provision for loan losses 975,419 836,984 1,962,658 1,787,442
------- ------- --------- ---------
Non-interest Income
Service charges and other fees 97,784 104,371 199,840 208,139
Gain on sale of loans 24,079 16,460 26,042 15,996
Loss on sale of investment securities (15,904) (3,738) (33,065) (3,738)
Other 75,475 31,495 115,440 62,349
------ ------ ------- ------
181,434 148,588 308,257 282,746
Non-interest expense
Compensation and benefits 373,126 321,484 777,775 658,056
Occupancy 53,162 52,162 106,788 107,752
Furniture, fixtures and equipment 21,421 17,655 44,554 36,005
Federal insurance premium 60,815 80,896 839,204 158,861
Data processing expense 83,440 73,633 158,345 148,766
Other operating expense 209,832 249,520 547,381 449,381
------- ------- ------- -------
801,796 795,350 2,474,047 1,558,821
Income before federal income tax expense (benefit) 355,057 190,222 (203,132) 511,367
Federal income tax expense (benefit) 132,933 (51,936) (57,029) 50,857
------- ------ ------ ------
Net income (loss) $222,124 $242,158 ($146,103) $460,510
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share:
Primary $.25 $.26 ($.16) $.50
---- ---- ---- ----
---- ---- ---- ----
Fully diluted $.25 $.26 ($.16) $.50
---- ---- ---- ----
---- ---- ---- ----
Dividends per common share $.11 $.10 $.22 $.20
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SJS BANCORP , INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional Net Unrealized
Common Paid-In Retained Gain (Loss)
Stock Capital Earnings on Securities
----- ------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 $ 9,866 $ 9,519,762 $ 9,635,294 $ (552,614)
Net loss for the six months
ended December 31, 1996 (146,103)
Cash dividends (194,792)
Shares committed to be released
under the ESOP 23,762
Acquisition of treasury shares
(at cost)
Change in net unrealized gain (loss)
on securities net of tax 193,630
---------- ------------ ------------ -----------
BALANCE AT DECEMBER 31, 1996 $ 9,866 $ 9,543,524 $ 9,294,399 $ (358,984)
---------- ------------ ------------ -----------
---------- ------------ ------------ -----------
<CAPTION>
Unallocated Unearned Total
ESOP MRP Treasury Shareholders'
Shares Shares Stock Equity
------ ------ ----- ------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 $ (322,140) $ (675,532) $ (704,250) $ 16,910,386
Net loss for the six months
ended December 31, 1996 (146,103)
Cash dividends (194,792)
Shares committed to be released
under the ESOP 19,454 43,216
Acquisition of treasury shares (695,175) (695,175)
(at cost)
Change in net unrealized gain (loss)
on securities net of tax 193,630
---------- ---------- ----------- -------------
BALANCE AT DECEMBER 31, 1996 $ (302,686) $ (675,532) $(1,399,425) $ 16,111,162
---------- ---------- ----------- -------------
---------- ---------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
SJS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended December 31
----------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (146,103) $ 460,510
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 44,298 40,209
Amortization 104,128 36,768
Provision for loan losses 146,000 162,609
ESOP expense 43,216 36,335
Gain on sale of loans (26,042) (15,996)
Loss on sale of securities and
mortgage-backed securities 33,065 3,738
Proceeds from sale of loans 1,270,800 5,855,166
Loans originated for sale (1,194,858) (5,894,323)
Changes in assets and liabilities
Changes in assets (184,785) (60,418)
Changes in liabilities (892,136) 416,525
------------ ------------
Net cash from operating activities (802,417) 1,041,123
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equity securities (280) (800)
Proceeds from sales of equity securities 101,636
Purchases of FHLB stock (23,900)
Purchase of securities held to maturity (1,450,000)
Proceeds from sales of securities available for sale 1,475,500
Proceeds from calls and maturities of securities
held to maturity 500,156 1,000,000
Purchase of mortgage-backed securities
available for sale (2,492,546) (3,164,808)
Proceeds from sales of mortgage-backed
securities available for sale 10,518,621 3,505,022
Principal payments on investment securities 1,322,478 1,863,181
Loans purchased (500,000)
Loan originations and principal payments
on loans, net (10,197,473) (15,581,547)
Premises and equipment expenditures (24,970) (12,068)
------------ ------------
Net cash from investing activities 1,203,122 (14,364,920)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ 3,441,102 $ 2,578,910
FHLB borrowing 2,700,000 14,250,000
Repayment of FHLB advances (4,562,238) (3,000,000)
Net change in advance payments by borrowers (414,786) (502,070)
Dividends paid (194,792) (190,440)
Treasury stock purchase (695,175) 0
------------ ------------
Net cash from financing activities 274,111 13,136,400
------------ ------------
Net change in cash and cash equivalents 674,816 (187,397)
Cash and cash equivalents at beginning of year 3,130,917 3,515,180
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,805,733 $ 3,327,783
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
SJS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED DECEMBER 31, 1996
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of SJS
Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, SJS Federal
Savings Bank (the "Bank"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the consolidated financial position of the Company at December 31, 1996, and its
results of operations and statement of cash flows for the periods presented.
All such adjustments are normal and recurring in nature. The results of the
periods presented are not necessarily representative of the results of
operations and cash flows which may be expected for the entire year. The
accompanying consolidated financial statements do not purport to contain all the
necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances and should be
read in conjunction with the consolidated financial statements and notes thereto
of SJS Bancorp, Inc. for the fiscal year ended June 30, 1996.
Earnings per Share:
Earnings per common share for the periods presented was computed by dividing net
income (loss) by the average number of shares outstanding during the period.
Employee and director stock options are considered common share equivalents. At
December 31, 1996 the Company had 30,265 unallocated ESOP shares which were
excluded from the weighted number of shares outstanding used to calculate the
earnings per common and common share equivalent. The weighted number of shares
outstanding for the calculation of primary earnings per common and common share
equivalent for three months and six month period ended December 31, 1996 was
902,419 and 897,519 respectively. The weighted number of shares outstanding for
the calculation of fully-diluted earnings per common share was 896,876 for the
three month period ended December 31,1995 and 901,330 for the six month period
ended December 31, 1996. The corresponding 1995 weighted outstanding shares
for both the calculation of primary earnings and fully-diluted earnings per
share was 917,586 for the three month period ended December 31, 1995 and
917,038 for the six month period ended December 31, 1995. Net income was
$222,124 for the three months ended December 31,1996 and $242,158 for the three
months ended December 31, 1995. Net income (loss) for the six months ended
December 31, 1996 was ($146,103) and $460,510 for the six months ended
December 31, 1995.
5
<PAGE>
NOTE 2 - PENDING MERGER
SJS Bancorp, Inc. on November 6, 1996 signed a plan of merger under which
SJS Bancorp, Inc. would merge with and into Shoreline Financial Corporation.
Under the agreement, which is subject to SJS Bancorp, Inc. shareholder and
regulatory approvals, SJS Bancorp, Inc. shareholders would receive $27.00 cash
for each share of SJS Bancorp, Inc. common stock, for a total value of
approximately $25.4 million. The transaction is expected to be completed in the
first half of 1997.
NOTE 3 - IMPACT OF NEW ACCOUNTING STANDARDS
Several new accounting standards have been issued by the Financial Accounting
Standards Board that were adopted in fiscal 1996. Statement of Financial
Accounting Standards. No. 121, "Accounting for the impairment of long-lived
assets", requires a review of long-term assets for impairment of recorded value
and resulting write-downs if value is impaired. Statement of Financial
Accounting Standards No. 122, "Accounting for mortgage servicing rights",
requires recognition of an asset when servicing rights are retained on in-house
originated loans that are sold. Statement of Financial Accounting Standards No.
123, "Accounting for stock-based compensation ", requires proforma disclosure of
the effect on net income of valuing future option grants at estimated fair value
of the option granted. These statements did not have a material effect on the
Company's financial position or results of operations for the three months ended
December 31, 1996 nor for the six months ended December 31, 1996.
NOTE 4 - LOANS
<TABLE>
<CAPTION>
Loans are classified as follows: December 31, 1996 June 30,1996
----------------- ------------
<S> <C> <C>
First mortgage loans (principally conventional):
Secured by one-to-four family residences $ 79,416,119 $ 70,034,958
Secured by other properties 2,568,996 1,945,655
Construction loans 5,058,945 6,747,880
----------- -----------
87,044,060 78,728,493
Less:
Undisbursed portion of construction loans (2,315,764) (4,029,790)
Deferred fees and costs (85,085) (60,318)
----------- -----------
Total first mortgage loans 84,643,211 74,638,385
Consumer and other loans:
Auto loans 15,355,255 16,117,610
Home equity 2,445,786 2,299,820
Other 7,224,346 6,451,925
----------- -----------
25,025,387 24,869,355
----------- -----------
109,668,598 99,507,740
Less allowance for loan losses (708,469) (646,091)
----------- -----------
Total loans, net $ 108,960,129 $ 98,861,649
------------- ------------
------------- ------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Allowance for loan losses:
<S> <C> <C>
Activity in the allowance for loan losses is summarized as
follows for the six months ended December 31: 1996 1995
---- ----
Balance - July 1, $ 646,091 $ 558,654
Provisions charged to income 146,000 162,609
Loans charged-off (99,847) (21,572)
Recoveries 16,225 16,038
------ ------
Balance - December 31, $ 708,469 $ 715,729
---------- ----------
---------- ----------
</TABLE>
The Company had no impaired loans at December 31, 1996 or December 31,
1995.
NOTE 5 - SAIF SPECIAL ASSESSMENT
On September 30, 1996, federal legislation was enacted that requires the SAIF to
be recapitalized with a one-time assessment on virtually all SAIF-insured
institutions, such as the Bank, equal to 65.7 basis points on SAIF-insured
deposits maintained by those institutions as of March 31, 1995. The SAIF
assessment, was paid to the FDIC on November 27, 1996 in the amount of $702,736
and expensed by the Bank at September 30, 1996.
As a result of the SAIF recapitalization, the FDIC amended its regulation
concerning the insurance premiums payable by SAIF-insured institutions. For the
period October 1, 1996 through December 31, 1996, the FDIC charge to the Bank
for the SAIF insurance premium was reduced to 18 basis points from 23 basis
points per $100 of domestic deposits. The Bank currently qualifies for the
minimum SAIF insurance premium. Under the amendment the FDIC further reduced
the SAIF insurance premium for the Bank to 6.48 basis points per $100 of
domestic deposits, effective January 1, 1997.
NOTE 6 - INCOME TAXES
The effective income tax (benefit) rate for the six month period ended December
31, 1996 is (28%) compared to 10% for the comparative period ended December 31,
1995. The income tax benefit for the six months ended December 31,1996 is due
to the net loss resulting primarily from the aforementioned SAIF special
assessment and an additional $151,000 of expense related to the sale of the
Company. The six month period ended December 31, 1995 effective tax rate of 10%
was the result of an adjustment in deferred taxes relating to the bad debt
deduction for thrift institutions. Loan portfolio balances at December 31, 1995
exceeded statutory June 30, 1988 base year loan levels thereby reducing the
deferred tax liability relative to bad debts.
With the discontinuance of the special bad debts deduction for thrift
institutions, the Bank as of July 1, 1996 uses the actual net-charge-off method
for tax purposes and has elected to defer the bad debt recapture over the
allowed six year statutory period. For the quarter ended December 31, 1996
taxes of $132,933 were within normal effective tax rates. Additionally future
quarterly period tax rates are also expected to be at normal levels.
7
<PAGE>
NOTE 7 - FHLB ADVANCES
At June 30, 1996 the Company had advances from the Federal Home Loan Bank of
Indianapolis totaling $23,750,000 with variable and fixed interest rates ranging
from 5.23% to 6.61%, respectively. At December 31, 1996, FHLB advances totaled
$21,887,762 with variable and fixed interest rates ranging from 5.23% to 6.61%,
respectively.
Maturities of Advances outstanding are as follows:
December 31, 1996 June 30, 1996
----------------- -------------
1996 $ 0 $ 3,650,000
1997 6,450,000 4,250,000
1998 8,050,000 8,050,000
2000 6,387,762 6,800,000
2001 1,000,000 1,000,000
---------- -------------
$ 21,887,762 $ 23,750,000
These advances are collateralized by Federal Home Loan Bank Stock and specific
securities with a carrying value of $25,843,334 for the period ended December
31, 1996 and $28,505,243 for the period ended June 30, 1996.
NOTE 8 - STOCK OPTION AND INCENTIVE PLAN ("SOP") AND MANAGEMENT
RECOGNITION PLAN ("MRP")
The Company's Board of Directors adopted a SOP and a MRP. The SOP and MRP are
administered by a Committee of directors of the Company. This Committee
selects recipients and terms of awards pursuant to the Plan. Total shares
available under the SOP and MRP plans were 95,220 and 38,088, respectively. The
Committee to-date has awarded under the SOP options to purchase 79,509 shares of
restricted common stock at an exercise price of $19.625 per share and awarded
under the MRP 34,422 shares of common stock. The SOP options granted vest
ratably over a five year period with a first award having vested October 1,
1996. The MRP awards vest in ten equal annual installments with the first
award to have vested on October 1, 1996, subject to the continuous employment of
the recipients and the achievement of specific performance criteria as defined
under such plans. No MRP awards vested on October 1, 1996 as the Company did
not meet the performance criteria under the plan. Accordingly, no compensation
expense was recorded during the fiscal 1996 period in connection with the MRP
award. For the six month period ended December 31, 1996, the Company has not
accrued any compensation expense under the MRP as performance criteria is not
expected to be attained primarily because of added expense relating to the sale
of the Company.
NOTE 9 - STOCK REPURCHASE PROGRAMS
During 1996, SJS Bancorp, Inc. received regulatory approval to repurchase up to
85,698 shares of its common stock. Through December 31, 1996, 69,000 shares had
been repurchased. The repurchase approval expires on March 1, 1997, however,
due to the pending merger the Company has ceased repurchasing stock under the
stock repurchase program.
Repurchased shares are treated as treasury shares and are available for general
company purposes, including issuance in connection with stock based compensation
plans.
8
<PAGE>
NOTE 10 - MORTGAGE SERVICING RIGHTS (MSRS)
Under Statement of Financial Accounting Standard (SFAS) No. 122 , implemented as
of the fiscal year beginning July 1, 1996, the Bank allocated $11,172 of basis
to mortgage servicing right assets. Estimated fair value of the servicing
rights at December 31, 1996 was $11,375. Fair value was determined by using
discounted cash flows over the projected estimated lives with a discount factor
based on similar market yield for like assets. The servicing rights retained
were stratified primarily on the basis of expected life and stated loan rates.
Loans sold during the six month period ended December 31, 1996, had an allocated
basis of $1,240,598 exclusive of MSRs. Amortization calculated on estimated
life of the MSRs for the six month period was negligible. No impairment exists
on the MSRs and no expense or valuation allowance has been recorded for the MSR
asset as of December 31, 1996. It is, however, difficult to assess the impact
on future periods as SFAS No. 122 results in larger gains on loans sold when
recognition of the MSR assets takes place. Subsequent periods are negatively
impacted by the MSR amortization. Additionally, origination and sales volume
of retained servicing along with impairment and market fluctuations affecting
valuation of the MSRs may be significant and difficult to predict.
9
<PAGE>
SJS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of SJS Bancorp, Inc.
(the "Company") and its wholly owned subsidiary, SJS Federal Savings Bank (the
"Bank") at December 31, 1996 to June 30, 1996 and the results of operations for
the three and six month periods ended December 31, 1996 with the same periods
in 1995. This discussion should be read in conjunction with the interim
consolidated condensed financial statements and notes thereto of SJS Bancorp for
the period ended December 31, 1996 included herein.
FINANCIAL CONDITION
Total assets of the Company decreased $527,282 from $151,896,644 at June 30,
1996 to $151,369,362 at December 31, 1996. Consistent with the Company's
strategic plan's focus on asset mix, net loans increased 10.2% from
$98,861,649 at June 30, 1996 to $108,960,129 at December 31, 1996. Growth
of the mortgage and consumer loan portfolios during this six month period
amounted to $10,004,826 and $156,032, respectively. The utilization of
commissioned loan originators and on going sales and marketing efforts
continue to create increased visibility and demand for the Company's mortgage
loan products. During the six month period ended December 31, 1996, the
Company continued to fund loan growth by decreasing its net holdings in
mortgage-backed and investment securities, whereas in the prior fiscal period
the primary source of funds were Federal Home Loan Bank advances. The
Company will continue to focus on its business plan and pursue additional
loan growth.
Securities, consisting of mortgage-backed, equity and investment securities
classified as available for sale and held to maturity, decreased $11,269,378
from $45,508,926 at June 30, 1996 to $34,239,548 as of December 31, 1996. As
indicated previously, these proceeds were deployed primarily into loans to
attain higher yields on interest earning assets.
Deposits increased $3,441,102 from $107,927,968 at June 30, 1996 to $111,369,070
at December 31, 1996, a 3.2% increase for the six month period. Growth in the
deposit area was focused on short and intermediate term certificates through
competitive pricing in the market area. Competition from other financial and
non-financial entities continues to limit deposit growth. The Bank will
continue to offer competitive interest rates on its products while continuing to
concentrate marketing efforts on establishing multiple deposit relationships
with individual customers.
Total shareholders' equity decreased by $799,224 from $16,910,386 at June 30,
1996 to $16,111,162 at December 31, 1996. This decrease was principally the
result of the net loss of $146,103, repurchases of common stock at a cost of
$695,175 and cash dividends of $194,792 paid on common stock offset by
$193,630 of net unrealized market investment portfolio gains.
10
<PAGE>
RESULTS OF OPERATIONS
NET INCOME: Net income for the three months ended December 31, 1996 decreased by
$20,034 or 8.3% compared to the three month period ended December 31, 1995. The
Company experienced a net loss for the six months ended December 31, 1996 of
$146,103 compared to net income of $460,510 for the six months ended December
31, 1995, a decrease of $606,613 over the prior six month period.
The loss for the six month period ended December 31, 1996 was the result of
$151,171 of expense associated with the pending sale of the Company along with
the one-time special SAIF recapitalization assessment of $702,736. Adjusted for
these two items, pre-federal income and state tax for the six month period ended
December 31, 1996 amounted to $631,133 compared to $511,367 for the six month
period, in 1995 an increase of $119,766 or 23.4%. Additionally, net income was
significantly impacted by the varying effective tax rates for these two periods.
Federal income tax related to the $631,133 for the current six month period
ended December 31, 1996 was $226,621, an effective rate of 36% while federal
income tax related to the $511,367 for the prior six month period ended
December 31, 1995 was $50,857, an effective rate of 10%. The 1995 effective tax
rate of 10% was the result of the deferred tax adjustment related to bad debts
for thrift institutions discussed in "Note 6 - Income Taxes" of "Notes to
Consolidated Financial Statements" for the period ended December 31, 1996
included herein.
NET INTEREST INCOME: Net interest income for the three month period ended
December 31, 1996 increased $68,826, or 6.9% over the same three month period
ended December 31, 1995. Net interest income increased $158,607 or 8.1%, from
$1,950,051 for the six month period ended December 31, 1995 to $2,108,658 for
the six month period ended December 31, 1996. Interest income increased
$573,762, or 11.4% , from $5,033,997 for the six month period ended December
31, 1996 to $5,607,759 for the same period ended December 31, 1996. This
improvement is attributable to a shift in the Company's interest earning assets
to loans which increased $21.2 million from $87.8 million at December 31, 1995
to $109.0 million at December 31, 1996 from lower yielding security portfolio
which decreases by $14.4 million. The interest income increase was partially
offset by a $415,155 or 13.5% increase in total interest expense attributable to
higher levels of FHLB advances and deposits during the period.
PROVISION (CREDIT) FOR LOAN LOSSES: The Company's provision for loan losses
decreased by $69,609 for the three month period ended December 31, 1996 compared
to the three month period ended December 31, 1995. The Company's provision for
the three month period ended December 31, 1996 was $91,000 compared to $160,609
for the three month period ended December 31, 1995. Provision for the six month
period ended December 31, 1996 of $146,000 was $16,609 less than the provision
for the comparable 1995 period. Current charge-offs (net of current recoveries)
for the three months ended December 31, 1996 amounted to $75,711 and for the six
month period ended December 31,1996 totaled $83,622. Continued strong loan
growth of 10.2% for the six month period ended December 31, 1996 totaling
$10,098,480 accounted for approximately $66,000 of the current fiscal year loan
loss provision. Current year net charge-offs are attributable primarily to
consumer installment debt levels and bankruptcy filings mirroring national
trends. Management reviews the adequacy of the loan loss reserve and credit
risk within the Company's loan portfolio on a quarterly basis. As of December
31, 1996, the allowance for loan losses totaled $708,469 representing .65% of
gross loans receivable and 252.3% of total non-performing loans. The Company
anticipates that as loan portfolio growth continues, provisions for loan losses
will continue to be made to maintain adequate loss reserves.
11
<PAGE>
NON-INTEREST INCOME: Non-interest income for the three month period ended
December 31, 1996 increased $32,846, or 22.1% , to $181,434 from $148,588 for
the three month period ended December 31, 1995. Non-interest income for the six
month period ended December 31, 1996 increased $25,551, or 9.0% to $308,257 from
$282,746 at December 31, 1995. The primary reason for these increases was a
dividend of prior years credit life insurance in the amount of $57,259 received
during the second quarter ended December 31, 1996 along with increased gains on
the sale of loans of $10,046 over the six month period ended December 31, 1996
offset in part by losses of $29,327 on investment securities and a reduction of
$8,299 in service charges and other fee income.
NON-INTEREST EXPENSE: Non-interest expense increased $6,446 for the three
months ended December 31, 1996 to $801,796 from $795,350 for the three months
ended December 31, 1995. For the six month period ended December 31, 1996,
non-interest expense increased $915,226 to $2,474,047 from $1,558,821 for the
six month period ended December 31, 1995. The major items of increase during
the six month 1996 period were from the one-time SAIF recapitalization charge of
$702,736 expensed on September 30, 1996, expenses associated with the sale of
the Company of $151,171 ( additional costs of $106,142 were capitalized pending
close of the merger) and increased compensation and benefits expense.
Compensation and benefit expenses increased $51,642 from $321,484 for the
three month period ended December 31, 1995 to $373,126 for the three month
period ended December 31, 1996. For the six month period ended December 31,
1996 expense increased $119,719 from $658,056 at December 31, 1995 to
$777,775 at December 31, 1996. The increase for the six month period is
primarily attributable to increases of $32,024 of directors' expense
resulting from the addition of four members to the board, ESOP expense of
$6,880 resulting from the Company's higher common share price, increased
employee compensation of $18,020, reduced deferred loan origination costs of
$54,957 the result of lower loan origination volume and net other sundry
items totaling $7,838.
Non-interest expense annualized as a percent of end-of-period assets for the
three month period ended December 31, 1996 was 2.12% compared to 2.21% for the
three months ended December 31, 1995. Corresponding six month annualized
non-interest expense as a percent of end-of period-assets was 3.27% and 2.17%
respectively. The SAIF special assessment ($702,736) and expenses for sale of
the Company ($151,171) account for 1.13% of the 3.27% six month 1996 annualized
non-interest expense. The Company does not expect any significant increases in
normal operating non-interest expenditure levels . The Company does, however,
expect additional cost relating to the completion of the sale of the Company.
INCOME TAX EXPENSE (BENEFIT): The effective income tax (benefit) rate for the
six month period ended December 31, 1996 was (28%) compared to 10% for the
period ended December 31, 1995. The tax benefit is due to the net loss resulting
from the one-time SAIF assessment and expenses associated with the sale of the
Company.
LIQUIDITY
The Company's principal sources of funds are deposits, principal and interest
payments on loans, interest-bearing deposits and securities classified as
available for sale. While scheduled loan repayments and maturing investments
are relatively predictable, deposit flows and early loan prepayments are more
influenced by interest rates, general economic conditions and competition.
Additional sources of funds may be obtained from the Federal Home Loan Bank (the
"FHLB") of Indianapolis by utilizing an array of available products to meet
funding needs. Management anticipates that it will have sufficient funds
available to meet current loan commitments.
12
<PAGE>
The Bank is required to maintain minimum levels of liquid assets as defined by
Bank regulators. The required percentage has varied from time to time based
upon economic conditions and savings flows and is currently 5% of net withdrawal
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. The Bank's average liquidity ratio for the six
month period ended December 31, 1996 was 5.63%. The $11.3 million net reduction
of securities along with deposit growth of $3.4 million were used to fund loan
demand.
Although management believes that deposit flows will continue to be a stable
source of funds, ongoing use of wholesale funding sources may be utilized to
meet demand in accordance with the Company's strategic plan. Wholesale funding
sources may allow the Company to obtain a lower cost of funds and create a more
efficient liability match to the asset being funded.
CAPITAL RESOURCES
The Bank is subject to three capital to asset requirements in accordance with
OTS regulations. The following table is a summary of the Bank's regulatory
capital requirements versus actual capital at December 31, 1996:
CAPITAL REQUIREMENTS:
Actual Required Excess
Amount/Percent Amount/Percent Amount/Percent
(Dollars in Thousands)
Tangible $ 14,292 9.43% $ 2,273 1.50% $ 12,019 7.93%
Core Leverage Capital 14,292 9.43% 6,061 4.00% 8,231 5.43%
Risk-Based Capital 14,545 18.56% 6,270 8.00% 8,275 10.56%
13
<PAGE>
SJS BANCORP, INC.
FORM 10-Q
Quarter Ended December 31, 1996
Part II- Other Information
Item 1 Legal Proceedings:
There are no new matters required to be reported under this item.
Item 2 Changes in Securities:
There are no new matters required to be reported under this item.
Item 3 Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 Submission of Matters to a Vote of Security Holders:
The Annual Meeting of shareholders was held on October 31, 1996. Two
proposals were submitted to a vote of shareholders: proposal #1
related to the election of three directors each for a three year term
and proposal #2 related to the ratification of the appointment of
Crowe, Chizek and Company LLP as auditors of the company for the
fiscal year ending June 30,1997.
Management's three nominees and election results were as follows:
Votes For Votes withheld
--------- --------------
W. Ford Kieft III 671,670 19,543
Stephen E. Ross 675,681 15,532
Larry D Schultz 676,406 14,807
The continuing directors are:
Robert C. Lucas James L. Behlen
James B. McQuillan Neil R. Berndt
Wallace D. Riley William F. Early
Thomas G. Watson Edgar F. Ross
Shareholders ratified the appointment of Crowe, Chizek and Company LLP
as the Company's auditors for the fiscal year ending June 30, 1997 by
a vote of 683,613 for, 5,400 against and 2,200 abstentions.
There are no other matters required to be reported under this item.
14
<PAGE>
Item 5 Other Information:
SJS Bancorp, Inc. announced on November 7, 1996 that they have signed
a plan of merger under which SJS Bancorp, Inc. would merge with and
into Shoreline Financial Corporation. Under the agreement, which is
subject to SJS Bancorp, Inc. shareholder and regulatory approvals, SJS
Bancorp, Inc. shareholders would receive $27.00 cash for each share of
SJS Bancorp, Inc. common stock, for a total value of approximately
$25.4 million. The transaction is expected to be completed in the
first half of 1997.
There are no other matters required to be reported under this item.
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits - Not applicable.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Registrant during the quarter ended December 31, 1996.
SIGNATURES
Pursuant to the requirement 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.
SJS BANCORP, INC.
Date: February 10, 1997 /s/ Thomas G. Watson
---------------------
President
Date: February 10, 1997 /s/ Arthur Skale
-----------------
Chief Financial Officer
15
<PAGE>
SJS BANCORP, INC.
FORM 10-Q
Quarter Ended December 31, 1996
EXHIBIT INDEX
Item no. Description
- -------- -----------
Item 27 Financial Data Schedule
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,805,733
<SECURITIES> 35,617,048
<RECEIVABLES> 111,521,852
<ALLOWANCES> 708,469
<INVENTORY> 0
<CURRENT-ASSETS> 151,653,102
<PP&E> 2,435,077
<DEPRECIATION> 1,301,879
<TOTAL-ASSETS> 151,369,362
<CURRENT-LIABILITIES> 135,258,200
<BONDS> 0
0
0
<COMMON> 9,866
<OTHER-SE> 16,101,296
<TOTAL-LIABILITY-AND-EQUITY> 151,369,362
<SALES> 0
<TOTAL-REVENUES> 5,916,016
<CGS> 0
<TOTAL-COSTS> 3,499,101
<OTHER-EXPENSES> 2,474,047
<LOSS-PROVISION> 146,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (203,132)
<INCOME-TAX> (57,029)
<INCOME-CONTINUING> (146,103)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,103)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
