<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 March 31, 1997
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 MAY 9,1997
- ----- --------------------------
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 March 31, 1997
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)
MARCH 31,1997 JUNE 30, 1996
------------- -------------
ASSETS
Cash and due from financial institutions $3,396,457 $3,116,085
Interest-bearing demand deposits
in other financial institutions 2,577,707 14,832
------------ ------------
Total cash and cash equivalents 5,974,164 3,130,917
Interest-bearing deposits in other
financial institutions 190,000 190,000
Mortgage-backed securities available for sale 16,901,825 26,831,702
Mortgage-backed securities held to maturity
(estimated fair value on March 31, 1997
$8,976,886; June 30, 1996 $9,351,120) 9,073,785 9,379,310
Equity securities available for sale 8,300 63,280
Investment securities available for sale 4,169,984 5,566,705
Investment securities held to maturity
(estimated fair value on March 31, 1997
$2,680,574 ; June 30, 1996 $3,630,989) 2,717,921 3,667,929
Federal Home Loan Bank stock 1,187,500 1,187,500
Loans, net 110,624,564 98,861,649
Accrued interest receivable 1,011,788 1,069,562
Premises and equipment 1,111,105 1,152,526
Other assets 795,963 795,564
------------ ------------
Total assets $153,766,899 $151,896,644
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $113,792,591 $107,927,968
Federal Home Loan Bank Advances 21,834,979 23,750,000
Advance payments by borrowers for
taxes and insurance 907,683 1,249,689
Accrued interest payable on deposits 190,537 251,385
Accrued expenses and other liabilities 840,002 1,807,216
------------ ------------
Total liabilities 137,565,792 134,986,258
Common Stock 9,866 9,866
Paid in Surplus 9,558,321 9,519,762
Retained earnings, substantially restricted 9,436,007 9,635,294
Net unrealized gain(loss) on available-for-sale
securities (Applicable deferred income
taxes on March 31, 1997 $ 199,516;
June 30, 1996 $257,903) (387,295) (500,635)
Net unrealized gain(loss) on held-to-maturity
securities (Applicable deferred income taxes on
March 31, 1997 $24,647; June 30, 1996 $26,777) (47,844) (51,979)
Employee Stock Ownership Plan (ESOP)
(unallocated shares) (292,991) (322,140)
Management Recognition Plan (MRP)(unearned shares) (675,532) (675,532)
Treasury stock at cost (March 31, 1967 69,000 shares;
June 30, 1996 35,000 shares) (1,399,425) (704,250)
Total Shareholders' Equity 16,201,107 16,910,386
------------ ------------
Total Liabilities and Shareholders' Equity $153,766,899 $151,896,644
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
1
<PAGE>
SJS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 NINE MONTHS ENDED MARCH 31
--------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans $2,246,291 $1,879,600 $6,531,936 $5,315,335
Investment securities 107,225 187,276 356,693 572,958
Mortgage-backed securities 421,847 523,922 1,376,144 1,616,533
Other interest income 54,121 55,215 172,470 175,184
---------- ---------- ---------- ----------
2,829,484 2,646,013 8,437,243 7,680,010
Interest expense
Deposits 1,430,118 1,391,578 4,235,702 4,135,558
Federal Home Loan Bank advances 326,210 273,682 1,019,727 613,648
---------- ---------- ---------- ----------
1,756,328 1,665,260 5,255,429 4,749,206
Net interest income 1,073,156 980,753 3,181,814 2,930,804
Provision for loan losses 69,000 0 215,000 162,609
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,004,156 980,753 2,966,814 2,768,195
---------- ---------- ---------- ----------
Non-interest income
Service charges and other fees 96,889 107,965 296,729 316,104
Gain on sale of loans 0 0 26,042 15,996
Gain (Loss) on sale of investment securities 1,454 1,232 (31,611) (2,506)
Other 18,597 17,029 134,037 79,378
---------- ---------- ---------- ----------
116,940 126,226 425,197 408,972
Non-interest expense
Compensation and benefits 388,806 357,082 1,166,581 1,015,137
Occupancy 60,522 57,745 167,310 165,496
Furniture, fixtures and equipment 19,248 21,990 63,802 57,996
Federal insurance premium 29,479 74,816 868,683 233,676
Data processing expense 86,254 82,410 244,599 231,176
Other operating expense 171,345 252,106 718,726 701,487
---------- ---------- ---------- ----------
755,654 846,149 3,229,701 2,404,968
Income before federal income tax expense 365,442 260,830 162,310 772,199
Federal income tax expense 126,438 91,999 69,409 142,856
---------- ---------- ---------- ----------
Net income $239,004 168,831 92,901 $629,343
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share:
Primary $.26 $.18 $.10 $.68
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted $.26 $.18 $.10 $.68
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Dividends per common share $.11 $.10 $.33 $.30
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SJS BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL NET UNREALIZED UNALLOCATED UNEARNED TOTAL
COMMON PAID-IN RETAINED GAIN (lOSS) ESOP MRP TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS ON SECURITIES SHARES SHARES STOCK EQUITY
---------- ----------- ----------- -------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 $ 9,866 $ 9,519,762 $ 9,635,294 $ (552,614) $ (322,140) $ (675,532) $ (704,250) $16,910,386
Net income for the nine
months ended
March 31, 1997 92,901 92,901
Cash dividends (292,188) (292,188)
Shares committed to be
released under the ESOP 38,559 29,149 67,708
Acquisition of treasury
shares (at cost) (695,175 (695,175)
Change in net unrealized
gain (loss) on
securities net of tax 117,475 117,475
-------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
BALANCE AT
MARCH 31, 1997 $ 9,866 $ 9,558,321 $ 9,436,007 $ (435,139) $ (292,991) $ (675,532) $ (1,399,425) $16,201,107
-------- ----------- ----------- ---------- ---------- ---------- ------------ -----------
-------- ----------- ----------- ---------- ---------- ---------- ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
SJS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- -------------------------------------------------------------------------------
NINE MONTHS ENDED MARCH 31
--------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 92,901 $ 629,342
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 66,391 60,713
Amortization 119,765 54,647
Provision for loan losses 215,000 162,609
ESOP expense 67,708 56,134
MRP expense 0 9,651
Gain on sale of loans (26,042) (15,996)
Loss on sale of securities and
mortgage-backed securities 31,611 2,506
Proceeds from sale of loans 1,270,800 5,855,166
Loans originated for sale (1,194,858) (5,960,719)
Changes in assets and liabilities
Changes in assets (96,783) (412,099)
Changes in liabilities (1,028,062) 583,964
----------- ------------
Net cash from operating activities (481,569) 1,025,918
----------- ------------
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equity securities (280) (800)
Proceeds from sales of equity securities 101,636
Purchases of FHLB stock (238,900)
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 950,156 2,680,000
Proceeds from sales of securities available
for sale 700,000
Purchase of morgage-backed securities
available for sale (2,981,969) (7,479,933)
Purchases of mortgage-backed securities
held to maturity (5,303,786)
Proceeds from sales of mortgage-backed
securities available for sale 11,418,929 8,985,562
Principal payments on investment securities 1,699,757 2,934,204
Loans purchased (500,000)
Loan originations and principal payments
on loans, net (11,934,176) (20,723,277)
Premises and equipment expenditures (24,970) (33,512)
----------- ------------
Net cash from investing activities 704,583 (20,430,442)
----------- ------------
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ 5,864,623 $ 3,035,951
FHLB borrowing 3,450,000 21,550,000
Repayment of FHLB advances (5,365,021) (4,000,000)
Net change in advance payments by borrowers (342,006) (500,221)
Dividends paid (292,188) (275,693)
Treasury stock purchase (695,175) 0
----------- ------------
Net cash from financing activities 2,620,233 19,810,037
----------- ------------
----------- ------------
Net change in cash and cash equivalents 2,843,247 405,513
Cash and cash equivalents at beginning of period 3,130,917 3,515,180
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,974,164 $ 3,920,693
----------- ------------
----------- ------------
See accompanying notes to consolidated financial statements
4
<PAGE>
SJS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 31, 1997
(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 March 31, 1997,
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 by the average number of shares outstanding during the period.
Employee and director stock options are considered common share equivalents.
At March 31, 1997 the Company had 29,780 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 month and nine month periods ended
March 31, 1997 was 905,341 and 900,126 respectively. The weighted number of
shares outstanding for the calculation of fully-diluted earnings per common
share was 906,754 for the three month period ended March 31,1997 and 903,138
for the nine month period ended March 31, 1997. The corresponding 1996
weighted outstanding shares for both the calculation of primary earnings and
fully-diluted earnings per share were 929,944 for the three month period
ended March 31, 1996 and 921,368 for the nine month period ended March 31,
1996. Net income was $239,004 for the three months ended March 31,1997 and
$168,831 for the three months ended March 31, 1996. Net income for the nine
months ended March 31, 1997 was $92,901 and $629,343 for the nine months
ended March 31, 1996.
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 was approved by SJS Bancorp, Inc. shareholders on
April 29, 1997 and by the Federal Reserve Board on April 21, 1997,
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 to be treated as a purchase is expected to be closed in June
of 1997, subject to receipt of customary regulatory approval.
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 (SFAS) 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.
SFAS 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.
SFAS No. 123, "Accounting for stock-based compensation", requires proforma
disclosure of the effect on net income and earning per share of recording
future option grants at the estimated fair value of the option granted.
SFAS No. 125, "Accounting for transfers and servicing of financial assets and
extinguishments of liabilities". This Statement provides authoritative
guidance as to the accounting and financial reporting for transfers and
servicing of financial assets and extinguishments of liabilities. Example
transactions covered by SFAS No. 125 include asset securitizations,
repurchase agreements, wash sales, loan participations, transfers of loans
with recourse and servicing of loans. The Standard is based on a consistent
application of a financial-components approach that focuses on control. The
Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
The Statement also requires measuring instruments that have a substantial
prepayment risk at fair value, much like debt instruments; classified as
available for sale or trading. While SFAS No. 125 supersedes SFAS No. 122,
"Accounting for Mortgage Servicing Rights", it only marginally modifies the
accounting and disclosure requirements of SFAS No. 122. SFAS No. 125, as
amended by SFAS No. 127, is effective on a prospective basis for some
transactions in 1997 and others in 1998.
SFAS No. 128, "Earnings per share". On March 3, 1997, the FASB issued
Statement No. 128, "Earnings Per Share", which is effective for financial
statements beginning with the year end 1997. The Statement requires dual
presentation of basic EPS and diluted EPS for entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing
income available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in earnings, such as stock options, warrants or
other common stock equivalents. All prior period EPS data must be restated to
conform with the new presentation. Pro forma disclosures of basic and diluted
EPS can be provided for interim periods of 1997, at the Company's election.
These statements did not have a material effect on the Company's consolidated
financial position or results of operations for the three months ended
March 31, 1997 nor for the nine months ended March 31, 1997.
6
<PAGE>
NOTE 4 - LOANS
<TABLE>
<CAPTION>
Loans are classified as follows: MARCH 31, 1997 JUNE 30,1996
-------------- ------------
<S> <C> <C>
First mortgage loans (principally conventional):
Secured by one-to-four family residences $ 82,218,955 $ 70,034,958
Secured by other properties 2,878,334 1,945,655
Construction loans 3,678,600 6,747,880
----------- ------------
88,775,889 78,728,493
Less:
Undisbursed portion of construction loans (1,710,096) (4,029,790)
Deferred fees and costs (77,319) (60,318)
----------- ------------
Total first mortgage loans 86,988,474 74,638,385
Consumer and other loans:
Auto loans 14,690,432 16,117,610
Home equity 2,499,727 2,299,820
Other 7,169,311 6,451,925
----------- ------------
24,359,470 24,869,355
----------- ------------
111,347,944 99,507,740
Less allowance for loan losses (723,380) (646,091)
----------- ------------
Total loans, net $110,624,564 $ 98,861,649
----------- ------------
----------- ------------
Allowance for loan losses:
Activity in the allowance for loan losses is summarized as
follows for the nine months ended March 31: 1997 1996
----------- ------------
Balance - July 1, $ 646,091 $ 558,654
Provisions charged to income 215,000 162,609
Loans charged-off (159,843) (119,516)
Recoveries 22,132 27,481
----------- ------------
Balance - March 31, $ 723,380 $ 629,228
----------- ------------
----------- ------------
</TABLE>
The Company had no impaired loans at March 31, 1997 or March 31, 1996.
NOTE 5 - SAIF SPECIAL ASSESSMENT
On September 30, 1996, federal legislation was enacted that required the SAIF
to be recapitalized with a
7
<PAGE>
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 rate for the nine month period ended March 31, 1997
is 43% compared to 18% for the comparative period ended March 31, 1996. The
43% effective tax rate for the nine month period ended March 31,1997 is the
result of the tax on permanent book and tax income differences applied to the
lower pretax earnings resulting from the SAIF special assessment and merger
related expenses. The nine month period ended March 31, 1996 effective tax
rate of 18% was the result of an adjustment in deferred taxes relating to the
bad debt deduction for thrift institutions. Loan portfolio balances at March
31, 1996 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 quarters ended March 31, 1997
and March 31, 1996 taxes of $126,438 and $91,999, respectively, both at
effective tax rates of 35%, were within normal effective tax rate levels.
Future quarterly period effective tax rates are expected to be at normal
levels.
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 March 31, 1997, FHLB advances
totaled $21,834,979 with variable and fixed interest rates ranging also from
5.23% to 6.61%, respectively.
Maturities of Advances outstanding are as follows:
MARCH 31, 1997 JUNE 30, 1996
-------------- -------------
1996 $ 0 $ 3,650,000
1997 6,000,000 4,250,000
1998 8,500,000 8,050,000
2000 6,387,762 6,800,000
2001 947,217 1,000,000
-------------- -------------
$ 21,834,979 $ 23,750,000
-------------- -------------
-------------- -------------
Advances for the period ended June 30, 1996 were collateralized by Federal
Home Loan Bank Stock and specific securities with a carrying value of
$28,505,243. On February 18, 1997 the Bank changed from the specific
securities collateral to a blanket collateral method. Under the blanket
collateral method for the
8
<PAGE>
period ended March 31, 1997, the eligible collateral assets were $80,959,395
of permanent 1-4 family
whole mortgage loans (Category 1 collateral) and $32,935,989 of government
and agency securities (Category 2 collateral).
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 nine month period ended
March 31, 1997, the Company has not accrued any compensation expense under
the MRP as performance criteria are not expected to be attained primarily
because of the added expense relating to the pending merger 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 March 1, 1997, the expiration
of the repurchase approval, 69,000 shares had been repurchased. Repurchased
shares are treated as treasury shares and are available for general company
purposes, including issuance in connection with stock based compensation
plans.
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 March 31, 1997 was $11,063. 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 nine month period ended March 31, 1997, had an
allocated basis of $1,240,598 exclusive of MSRs. Amortization calculated on
estimated life of the MSRs for the nine 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 March 31, 1997. 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 March 31, 1997 and June 30, 1996 and the results of
operations for the three and nine month periods ended March 31, 1997 with
the same periods in fiscal 1996. This discussion should be read in
conjunction with the interim consolidated condensed financial statements and
notes thereto of SJS Bancorp for the period ended March 31, 1997 included
herein.
FINANCIAL CONDITION
Total assets of the Company increased $1,870,255 from $151,896,644 at June
30, 1996 to $153,766,899 at March 31, 1997. Consistent with the Company's
strategic plan's focus on asset mix, net loans increased 11.9% from
$98,861,649 at June 30, 1996 to $110,624,564 at March 31, 1997. Growth of
the mortgage loan portfolio during this nine month period amounted to
$12,350,088 while the consumer loan portfolio decreased by $509,885 during
the same period. Ongoing utilization of commissioned loan originators along
with continued sales and marketing efforts have resulted in continued
visibility and demand for the Company's mortgage loan products. During the
nine month period ended March 31, 1997, 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
was Federal Home Loan Bank advances. The company will continue to and
pursue additional loan growth.
Securities, consisting of mortgage-backed, equity and investment securities
classified as available for sale and held to maturity, decreased $12,637,111
from $45,508,926 at June 30, 1996 to $32,871,815 as of March 31, 1997. As
indicated previously, these proceeds were deployed primarily into loans to
attain higher yields on interest earning assets.
Deposits increased $5,864,623 from $107,927,968 at June 30, 1996 to
$113,792,591 at March 31, 1997, a 5.4% increase for the nine 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 continues to offer competitive interest rates on its
products with continued marketing efforts on establishing multiple deposit
relationships with individual customers.
Total shareholders' equity decreased by $709,279 from $16,910,386 at June 30,
1996 to $16,201,107 at March 31, 1997. This decrease was the result of
repurchases of common stock at a cost of $695,175 and cash dividends of
$292,188 paid on common stock offset by $92,901 of net income, $117,475 of
net unrealized market appreciation on securities, and $67,708 of additional
equity from committed to be released ESOP shares.
10
<PAGE>
RESULTS OF OPERATIONS
NET INCOME: Net income for the three months ended March 31, 1997 increased
by $70,173, or 41.6% , to $239,004 compared to $168,831 for the three month
period ended March 31, 1996. Net income for the nine months ended March 31,
1997 was $92,901 compared to net income of $629,343 for the nine months ended
March 31, 1996, a decrease of $536,442 over the prior nine month period.
The decrease in net income for the nine month period ended March 31, 1997 was
the result of $155,008 of expense associated with the pending merger of the
Company along with the one-time special SAIF recapitalization assessment of
$702,736. Adjusted for these two items and the related federal income and
state tax, pre-federal income tax for the nine month period ended March 31,
1997 amounted to $1,000,327 compared to $772,199 for the nine month period in
1996 an increase of $228,128 or 29.5%. Additionally, net income was
significantly impacted by the varying effective tax rates for these two
periods. Federal income tax related to the $1,100,327 for the current nine
month period ended March 31, 1997 was 354,336, an effective rate of 35% while
federal income tax related to the $772,199 for the prior nine month period
ended March 31, 1996 was $142,856, an effective rate of 18%. The reduced
1996 effective tax rate of 18% 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
March 31, 1997 included herein.
NET INTEREST INCOME: Net interest income for the three month period ended
March 31, 1997 increased $92,403, or 9.4%, to $1,073,156 from $980,753 for
the same three month period ended March 31, 1996. Net interest income
increased $251,010 or 8.6%, from $2,903,804 for the nine month period ended
March 31, 1996 to $3,181,814 for the nine month period ended March 31, 1997.
Interest income increased $757,233 or 9.9% , from $7,680,010 for the nine
month period ended March 31, 1996 to $8,437,243 for the same period ended
March 31, 1997. This improvement was attributable to growth and a shift in
the Company's interest earning assets to loans which on an average daily
balance basis increased $22.3 million from $83.6 million at March 31, 1996 to
$105.9 million at March 31, 1997 from the lower yielding security portfolio
which decreased by $10.9 million from $51.4 million to $40.5 million over the
same period. The interest income increase was partially offset by a $506,233
or 10.7% 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 the three
month period ended March 31, 1997 was $69,000 compared to zero for the three
month period ended March 31, 1996. Provision for the nine month period ended
March 31, 1997 of $215,000 was $52,391 higher than the provision for the
comparable 1996 period. Current charge-offs (net of current recoveries) for
the three months ended March 31, 1997 totaled to $74,008 and for the nine
month period ended March 31,1997 totaled $157,630. Continued strong loan
growth of 11.9% for the nine month period ended March 31, 1997 totaling
$11,840,203 accounted for approximately $77,000 of the current fiscal year
loan loss provision. Current year net charge-offs continue to be
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 March 31, 1997, the allowance for loan losses totaled
$723,380 representing .65% of gross loans receivable and 143.8% 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
March 31, 1997 decreased $9,286 or 7.4% , to $116,940 from $126,226 for the
three month period ended March 31, 1996. Non-interest income for the nine
month period ended March 31, 1997 increased $16,225 or 4.0% to $425,197 from
$408,972 at March 31, 1996. The primary reason for the increases was a
dividend of prior years credit life insurance in the amount of $57,259
received during the second quarter of 1996 along with increased gains on the
sale of loans of $10,046 over the nine month period ended March 31, 1997
offset in part by increased losses of $29,105 on investment securities and a
reduction of $19,375 in service charges and other fee income.
NON-INTEREST EXPENSE: Non-interest expense decreased $90,495 for the three
months ended March 31, 1997 to $755,654 from $846,149 for the three months
ended March 31, 1996. For the nine month period ended March 31, 1997,
non-interest expense increased $824,733 to $3,229,701 from $2,404,968 for the
nine month period ended March 31, 1996. The major items of increase during
the nine month 1997 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 $155,008 (additional costs of $135,439 were
capitalized pending close of the merger) and increased compensation and
benefits expense.
Compensation and benefit expenses increased $31,724 from $357,082 for the
three month period ended December 31, 1996 to $388,806 for the three month
period ended March 31, 1997. For the nine month period ended March 31 ,1997
expense increased $151,444 from $1,015,137 at March 31, 1996 to $1,166,581 at
March 31, 1997. The increase for the nine month period is primarily
attributable to increases of $40,357 of directors' expense resulting from the
addition of four members to the board, ESOP expense of $11,573 resulting from
the Company's higher common share price, increased employee compensation of
$8,726, reduced deferred loan origination costs of $94,364 the result of
lower loan origination volume and net other sundry items totaling $6,824.
Non-interest expense annualized as a percent of end-of-period assets for the
three month period ended March 31, 1997 was 1.97% compared to 2.23% for the
three months ended March 31, 1996. Corresponding nine month annualized
non-interest expense as a percent of end-of period-assets was 2.80% and 2.11%
respectively. The SAIF special assessment ($702,736) and expenses for the
pending merger of the Company ($155,008) account for .75% of the 2.80% nine
month 1997 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: The effective income tax rate for the nine month period
ended March 31, 1997 was 43% compared to 18% for the period ended March 31,
1996. For further discussion, see "Note 6 - Income Taxes" of "Notes to
Consolidated Financial Statements" for quarter ended March 31, 1997 included
herein.
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
12
<PAGE>
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.
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 nine month period ended March 31, 1997 was 5.8 %. The $12.6
million net reduction of securities along with deposit growth of $5.9 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 March 31, 1997:
Capital Requirements:
- --------------------
Minimum Required
Minimum Required To Be Well Capitalized
for Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount/Percent Amount/Percent Amount/Percent
-------------- ----------------- -----------------------
(Dollars in Thousands)
Tangible $ 14,572 9.49% $ 2,303 1.50% $ 7,676 5.00%
Core Leverage Capital 14,572 9.49% 6,141 4.00% 9,511 6.00%
Risk-Based Capital 15,293 19.43% 6,297 8.00% 7,871 10.00%
13
<PAGE>
SJS BANCORP, INC.
FORM 10-Q
Quarter Ended March 31, 1997
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:
At the Special Meeting for Shareholders held on April 29,1997,
shareholder voted on the approval and adoption of the
Agreement and Plan of Merger dated November 6, 1996 by and
between SJS Bancorp, Inc., Shoreline Financial Corporation and
SJS Acquisition Corporation.
The election result votes were: For 672,271
Against 5,334
Abstain 3,600
There are no other matters required to be reported under this item.
Item 5 Other Information:
SJS Bancorp, Inc. announced on November 7, 1996 that they
signed a plan of merger under which SJS Bancorp, Inc. would
merge with and into Shoreline Financial Corporation. Under the
agreement, which was approved by SJS Bancorp, Inc. shareholder
on April 29, 1997 and the Federal Reserve Board on April 21,
1997, SJS Bancorp, Inc. shareholders will 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
still subject to customary regulatory approvals, however, the
transaction is expected to be completed in June of 1997,
subject to receipt of continued regulatory approvals.
There are no other matters required to be reported under this item.
14
<PAGE>
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K. No reports were filed during
the quarter ended March 31, 1997. An 8-K was filed April 30,
1997 which included a press release of SJS Bancorp, Inc.
announcing the pending merger with Shoreline Financial
Corporation.
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: May 9, 1997 /S/ Thomas G. Watson
----------------------
President
Date: May 9, 1997 /S/ Arthur Skale
----------------------
Chief Financial Officer
15
<PAGE>
SJS BANCORP, INC.
FORM 10-Q
Quarter Ended March 31, 1997
EXHIBIT INDEX
-------------
Item No. Description
- -------- -----------
Item 27 Financial Data Schedule
16
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 5,974,164
<SECURITIES> 34,249,315
<RECEIVABLES> 111,708,935
<ALLOWANCES> 723,380
<INVENTORY> 0
<CURRENT-ASSETS> 152,655,794
<PP&E> 2,435,077
<DEPRECIATION> 1,323,972
<TOTAL-ASSETS> 153,766,899
<CURRENT-LIABILITIES> 137,565,792
<BONDS> 0
0
0
<COMMON> 9,866
<OTHER-SE> 16,191,241
<TOTAL-LIABILITY-AND-EQUITY> 153,766,899
<SALES> 0
<TOTAL-REVENUES> 8,862,440
<CGS> 0
<TOTAL-COSTS> 5,255,429
<OTHER-EXPENSES> 3,229,701
<LOSS-PROVISION> 215,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 162,310
<INCOME-TAX> 69,409
<INCOME-CONTINUING> 92,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,901
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
