UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997 Commission File No. 0-25994
SFS BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3366295
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
251-263 STATE STREET, SCHENECTADY, NY 12305
(Address of principal executive offices)
Registrant's telephone number, including area code: (518) 395-2300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares of outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of shares outstanding
Class of Common Stock as of October 31, 1997
--------------------- ----------------------------
Common Stock, Par $.01 1,200,997
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [ X ]
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
SEPTEMBER 30, 1997
INDEX
Part I FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements.............................
Consolidated Statements of Income for the Three
months ended September 30, 1997 and 1996, (Unaudited)...............
Consolidated Statements of Income for the Nine
months ended September 30, 1997 and 1996, (Unaudited)...............
Consolidated Statements of Financial Condition as
of September 30, 1997, (Unaudited) and December 31, 1996............
Consolidated Statements of Changes in Stockholders' Equity for
the Nine months ended September 30, 1997 and 1996, (Unaudited).....
Consolidated Statements of Cash Flows for the Nine
months ended September 30, 1997 and 1996 (Unaudited)...............
Notes to unaudited consolidated interim financial statements........
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations....................
Part II OTHER INFORMATION
Item 1. Legal Proceedings.....................................................
Item 2. Changes in Securities.................................................
Item 3. Defaults Upon Senior Securities.......................................
Item 4. Submission of Matters to a Vote of Security Holders...................
Item 5. Other Information.....................................................
Item 6. Exhibits and Reports on Form 8-K......................................
Signatures......................................................................
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Item 1. - Consolidated Interim Financial Statements
SFS Bancorp, Inc. (the "Company") was formed in March of 1995 for the
purpose of acquiring all of the common stock of Schenectady Federal Savings Bank
(the "Bank"), concurrent with its conversion from mutual to stock form of
ownership. SFS Bancorp, Inc. completed its initial public stock offering of
1,495,000 shares of $.01 par value stock on June 29, 1995. The Company utilized
approximately one half of the net stock sale proceeds to acquire all of the
common stock issued by the Bank. For additional discussion of the Company's
formation and intended operations, see the Form S-1 Registration Statement (No.
33-95422) filed with the Securities and Exchange Commission.
The interim financial statements presented in this Form 10-QSB reflect
the consolidated financial condition and results of operations of the Company
and its subsidiary.
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Interest income:
Real estate loans ........................................ $ 2,482 2,233
Other loans .............................................. 11 12
Mortgage-backed securities ............................... 292 345
Debt securities .......................................... 220 255
Federal funds sold and cash deposits ..................... 37 67
Securities available for sale ............................ 99 47
Stock in Federal Home Loan Bank .......................... 23 20
------- -------
Total interest income ............................. 3,164 2,979
Interest expense:
Deposits ................................................. 1,705 1,546
------- -------
Net interest income ............................... 1,459 1,433
Provision for loan losses ...................................... 30 30
------- -------
Net interest income after provision for loan losses 1,429 1,403
------- -------
Noninterest income:
Gain on sale of securities ............................... -- 44
Service fee income ....................................... 4 5
Other loan charges ....................................... 49 35
Bank fees and service charges ............................ 38 35
Other .................................................... 29 27
------- -------
Total noninterest income .......................... 120 146
------- -------
</TABLE>
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<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(continued)
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Noninterest expense:
Compensation and employee benefits ....................... 673 634
Advertising and business promotion ....................... 12 28
Office occupancy and equipment expense ................... 156 124
Federal deposit insurance premiums ....................... 23 1,010
Other insurance premiums ................................. 27 28
Mortgage servicing fees .................................. 8 10
Data processing fees ..................................... 43 41
Professional service fees ................................ 59 49
Other .................................................... 68 63
------- -------
Total noninterest expense ......................... 1,069 1,987
------- -------
Income (loss) before taxes ........................ 480 (438)
Income tax expense (benefit) ................................... 184 (313)
------- -------
Net income (loss) ................................. $ 296 (125)
======= =======
Primary earnings (loss) per share .............................. $ .25 (.10)
======= =======
Fully diluted earnings (loss) per share ........................ $ .25 (.10)
======= =======
</TABLE>
See accompanying notes to unaudited consolidated interim financial
statements.
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Interest income:
Real estate loans ........................................... $7,157 6,436
Other loans ................................................. 31 34
Mortgage-backed securities .................................. 913 1,087
Debt securities ............................................. 681 806
Federal funds sold and cash deposits ........................ 140 224
Securities available for sale ............................... 224 278
Stock in Federal Home Loan Bank ............................. 64 58
------ ------
Total interest income ................................ 9,210 8,923
Interest expense:
Deposits .................................................... 4,892 4,639
------ ------
Net interest income .................................. 4,318 4,284
Provision for loan losses ......................................... 90 90
------ ------
Net interest income after provision for loan losses .. 4,228 4,194
------ ------
Noninterest income:
Gain on sale of securities .................................. -- 8
Service fee income .......................................... 12 14
Other loan charges .......................................... 132 120
Bank fees and service charges ............................... 120 101
Other ....................................................... 53 67
------ ------
Total noninterest income ............................. 317 310
------ ------
</TABLE>
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<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(continued)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Noninterest expense:
Compensation and employee benefits .......................... 2,032 1,893
Advertising and business promotion .......................... 74 87
Office occupancy and equipment expense ...................... 465 388
Federal deposit insurance premiums .......................... 51 1,172
Other insurance premiums .................................... 70 73
Mortgage servicing fees ..................................... 25 31
Data processing fees ........................................ 131 124
Other real estate writedown ................................. -- 7
Professional service fees ................................... 180 189
Other ....................................................... 220 219
------ ------
Total noninterest expense ............................ 3,248 4,183
Income before taxes .................................. 1,297 321
Income tax expense (benefit) ...................................... 508 (136)
------ ------
Net income ........................................... $ 789 457
====== ======
Primary earnings per share ........................................ $ .67 .36
====== ======
Fully diluted earnings per share .................................. $ .66 .35
====== ======
</TABLE>
See accompanying notes to unaudited consolidated interim financial
statements.
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
September 30, December 31,
1997 1996
--------- ---------
Assets (Unaudited)
<S> <C> <C>
Cash and due from banks ......................................................... $ 1,177 1,296
Federal funds sold .............................................................. 3,400 1,600
--------- ---------
Total cash and cash equivalents ..................................... 4,577 2,896
Securities available for sale, at fair value .................................... 4,050 1,990
Investment securities:
Debt securities (approximate fair value of $12,975
at September 30, 1997 and $15,642 at December 31, 1996) ............ 12,983 15,746
Mortgage-backed securities (approximate fair value of
$18,091 at September 30, 1997 and $20,322 at December 31, 1996) ..... 18,018 20,434
Investment required by law, stock in Federal Home Loan Bank of NY, at cost ...... 1,338 1,215
Loans receivable, net ........................................................... 128,777 118,455
Accrued interest receivable ..................................................... 1,060 1,137
Premises and equipment, net ..................................................... 2,243 1,921
Real estate owned ............................................................... 111 178
Prepaid expenses and other asset ................................................ 936 916
--------- ---------
Total Assets ........................................................ $ 174,093 164,888
Liabilities and Stockholders' Equity
Liabilities:
Due to depositors:
Demand deposits ....................................................... $ 11,752 10,496
Savings accounts ...................................................... 44,991 43,226
Time deposit accounts ................................................. 93,111 86,894
--------- ---------
Total Deposits ...................................................... 149,854 140,616
Advance payments by borrowers for property taxes and insurance ............. 851 1,160
Accrued expenses and other liabilities ..................................... 1,672 1,441
--------- ---------
Total Liabilities ................................................... 152,377 143,217
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
(continued)
September 30, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Stockholders' Equity:
Preferred stock, $.01 par value. Authorized 500,000 shares; none issued ..... -- --
Common stock, $.01 par value. Authorized 2,500,000 shares; 1,495,000
shares issued; 1,230,997 shares outstanding at September 30, 1997 and
1,270,997 shares at December 31, 1996 ............................... 15 15
Additional paid-in capital ................................................... 14,260 14,260
Retained earnings, substantially restricted .................................. 12,227 11,687
Common stock acquired by :
Employee stock ownership plan ("ESOP") (95,680 shares) ....................... (957) (957)
Recognition and retention plan ("RRP") (34,205 shares) ....................... (345) (540)
Treasury stock, at cost (264,003 shares at September 30, 1997
and 224,003 at December 31, 1996) ................................... (3,540) (2,840)
Net unrealized gain on securities available for sale, net of tax ................ 56 46
--------- ---------
Total Stockholders' Equity ................................................. 21,716 21,671
--------- ---------
Total Liabilities and Stockholders' Equity ................................. $ 174,093 164,888
========= =========
</TABLE>
See accompanying notes to unaudited consolidated interim financial
statements.
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands) (Unaudited)
NET
UNREALIZED
GAIN (LOSS)
COMMON COMMON ON
ADDITIONAL STOCK STOCK SECURITIES
COMMON PAID-IN RETAINED ACQUIRED ACQUIRED AVAILABLE TREASURY
STOCK CAPITAL EARNINGS BY ESOP BY RRP FOR SALE STOCK TOTAL
----- ------- -------- ------- ------ -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended
September 30, 1997
Balance at December 31, 1996 $ 15 14,260 11,687 (957) (540) 46 (2,840) 21,671
Net income -- -- 789 -- -- -- -- 789
Net change in unrealized
gain on securities available -- -- -- -- -- 10 10
for sale --
Amortization of RRP award -- -- -- -- 195 -- -- 195
Cash dividends declared -- -- (249) -- -- -- -- (249)
Exercise of stock options -- -- -- -- -- -- 94 94
Purchase of treasury shares -- -- -- -- -- -- (794) (794)
----- ------ ------ ---- ----- -- ----- ------
Balance at September 30, 1997 $ 15 14,260 12,227 (957) (345) 56 (3,540) 21,716
===== ====== ====== ====== ==== == ====== ======
Nine Months Ended
September 30, 1996
Balance at December 31, 1995 $ 15 14,221 11,013 (1,076) -- 88 -- 24,261
Net income -- -- 457 -- -- -- -- 457
Net change in unrealized
gain on securities -- -- -- -- -- (46) -- (46)
available for sale
RRP shares issued -- -- -- -- (672) -- 672 --
Cash dividends declared -- -- (80) -- -- -- -- (80)
Purchase of Treasury shares -- -- -- -- -- -- (3,418) (3,418)
----- ------ ------ ------ ---- -- ------ ------
Balance at September 30, 1996 $ 15 14,221 11,390 (1,076) (672) 42 (2,746) 21,174
===== ====== ====== ====== ==== == ====== ======
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
September 30,
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Reconciliation of net income to net cash provided
by operating activities:
Net income ............................................................. $ 789 457
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ..................................... 140 103
Net accretion on investment securities ............................ (38) (10)
Amortization of award of RRP .......................................... 195 --
Provision for loan losses ......................................... 90 90
Loss on sale of real estate owned ..................................... 3 --
Writedown of real estate owned .................................... -- 7
Gain on disposition of fixed assets ................................... -- (11)
Proceeds from disposition of fixed assets ......................... -- 19
Gain on sale of available for sale securities ..................... -- (8)
Decrease in accrued interest receivable ........................... 77 158
Increase in prepaid expense and other assets .......................... (20) (580)
Increase in accrued expense and other liabilities ................. 231 1,119
------- -------
Total adjustments ............................................ 678 887
------- -------
Net cash provided by operating activities ...................... 1,467 1,344
------- -------
Cash flows from investing activities:
Proceeds from maturity/paydown of investment securities ..................... 4,501 8,792
Proceeds from maturity/paydown of securities available for sale ............. 2,000 --
Purchase of investment securities ........................................... (1,700) (6,000)
Purchase of securities available for sale ................................... (4,050) --
Purchase of Federal Home Loan Bank Stock .................................... (123) (99)
Principal repayments on mortgage-backed securities .......................... 2,416 3,196
Net increase in loans receivable ............................................ (7,340) (11,272)
Purchase of loans receivable ................................................ (3,110) (5,185)
Capital expenditures, net of disposals ...................................... (462) (525)
Proceeds from sale of available for sale securities ......................... -- 5,952
Proceeds from the sale of real estate owned ................................. 102 193
------- -------
Net cash used by investing activities .................................. (7,766) (4,948)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
September 30,
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits .................................................... 9,238 2,195
Net decrease in advance payments by borrowers for
property taxes and insurance ........................................... (309) (726)
Proceeds upon exercise of common stock options .............................. 94 --
Dividends paid .............................................................. (249) (80)
Purchase of Treasury stock .................................................. (794) (3,418)
------- -------
Net cash provided (used) in financing activities ............................ 7,980 (2,029)
------- -------
Net increase (decrease) in cash and cash equivalents ................... 1,681 (5,633)
Cash and cash equivalents at beginning of period ............................ 2,896 10,453
------- -------
Cash and cash equivalents at end of period .................................. $ 4,577 4,820
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid $ 4,892 4,622
Taxes paid 371 509
Transfer of loans to other real estate owned 38 88
Net change in unrealized gain on securities available for sale, net of tax 10 (46)
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. Presentation of Financial Information
The accompanying unaudited consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying unaudited consolidated interim financial
statements should be read in conjunction with the financial statements and the
related management's discussion and analysis of financial condition and results
of operations filed with the 1996 Form 10-KSB of SFS Bancorp, Inc. and
Subsidiary (the "Company"). Amounts in prior periods' unaudited consolidated
interim financial statements are reclassified whenever necessary to conform to
the current periods' presentation. The results of operations for the three and
nine months ended September 30, 1997, are not necessarily indicative of results
that may be expected for the entire year ending December 31, 1997.
The unaudited consolidated interim financial statements include the accounts of
SFS Bancorp, Inc. (the "Holding Company") and its wholly owned subsidiary,
Schenectady Federal Savings Bank and subsidiary (the "Bank").
NOTE 2. Earnings Per Share
Earnings per share was computed by dividing net income applicable to common
stock by the weighted average number of shares outstanding less unallocated
employee stock ownership plan shares, and the dilutive effect of stock options
outstanding during the respective periods. The dilutive effect of stock options
are considered in both primary and fully diluted computations using the treasury
stock method. Earnings per share has been computed based on the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- -------------------------
1997 1996 1997 1996
---- ---- ----- ----
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 1,135,697 1,202,824 1,152,331 1,276,410
Weighted average number of
common shares and common
equivalent shares outstanding 1,173,915 1,205,196 1,183,595 1,276,410
Weighted average number of
common shares and common
equivalent shares outstanding,
assuming full dilution 1,184,456 1,214,811 1,202,724 1,287,741
</TABLE>
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
SEPTEMBER 30, 1997
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
SFS Bancorp, Inc. (the "Holding Company") is the holding company for Schenectady
Federal Savings Bank and its subsidiary (the "Bank"), a federally chartered
stock savings bank. Collectively, these entities are referred to herein as the
"Company". On June 29, 1995, the Bank completed its conversion from a federal
mutual savings and loan association to a federal stock savings bank. On that
date, the Holding Company issued and sold 1,495,000 shares of its common stock
at $10.00 per share in connection with the conversion. Net proceeds to the
Holding Company were $14.2 million after reflecting conversion expenses of
$750,000. The Holding Company used $7.1 million of the net proceeds to acquire
all of the issued and outstanding stock of the Bank.
The Bank operates as a thrift institution with the principal business being the
solicitation of deposits from the general public; these deposits, together with
funds generated from operations, are invested primarily in single-family, owner
occupied adjustable-rate mortgage loans. The Bank is a member of the Federal
Home Loan Bank of New York ("FHLB") and is subject to certain regulations of the
Board of Governors of the Federal Reserve System with respect to reserves
required to be maintained against deposits and certain other matters. The Bank's
deposit accounts are insured by the Savings Association Insurance Fund ("SAIF"),
as administered by the Federal Deposit Insurance Corporation ("FDIC"), up to the
maximum amount permitted by law. The Bank is subject to regulation by the Office
of Thrift Supervision ("OTS"). The Bank conducts its business through a four
branch network located in Schenectady County situated in eastern upstate New
York. 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 mortgage-backed securities portfolios, debt securities and securities
available for sale portfolios and other earning assets, and its cost of funds,
consisting of the interest paid on its deposits. The Bank's operating results
are also impacted by the provision for loan losses, and to a lesser extent, by
gains and losses on the sale of its securities available for sale portfolio and
other noninterest income. The Bank's operating expenses principally consist of
employee compensation and benefits, federal deposit insurance premiums,
occupancy expense and other general and administrative expenses. The Bank's
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of the regulatory authorities.
<PAGE>
Except for historical information contained herein, the matters contained in
this quarterly report are "forward-looking statements" that involve risk and
uncertainties, including statements concerning future events or performance and
assumptions and other statements of historical facts. The Company wishes to
caution its readers that the following important factors, among others, could
cause the Company's actual results for subsequent periods to differ materially
from those expressed in any forward-looking statement made by or on behalf of
the Company herein:
the effect of changes in laws and regulations, including federal and state
banking laws and regulations, with which the Company and its banking
subsidiary must comply, the cost of such compliance and the potential
material adverse effect if the Company or any of its banking subsidiary
were not in substantial compliance either currently or in the future as
applicable;
the effect of changes in accounting policies and practices, as may be
adopted by the regulatory agencies as well as by the Financial
Accounting Standards Board, or changes in the Company's organization,
compensation and benefit plans;
the effect on the Company's competitive position within its market area of
increasing consolidation within the banking industry and increasing
competition from "larger regional" and out-of-state banking
organizations as well as non-bank providers of various financial
services;
the effect of unforeseen changes in interest rates;
the effect of changes in business cycles and downturns in the local,
regional, or national economies.
LIQUIDITY AND CAPITAL RESOURCES
The Company's most liquid assets are cash and cash equivalents and available for
sale securities. The level of these assets is dependent on the Company's
operating, financing and investing activities during any given period. Cash and
cash equivalents of $2.9 million at December 31, 1996, increased $1.7 million to
$4.6 million at September 30, 1997 primarily as a result of increases in federal
funds sold. The Company's primary sources of funds are deposits and principal
and interest payments on its loan and securities portfolios. While maturities
and scheduled amortization of loans and securities are, in general, a
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition.
The Bank is required to maintain minimum levels of liquid assets as defined by
OTS Regulations. This requirement, which may vary at the direction of the OTS
depending on economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio of liquid assets to
deposits and short-term borrowings is currently 5%. The Bank's liquidity ratio
at September 30, 1997, was 21.80%.
<PAGE>
The Company's cash flows are comprised of three classifications: cash flows from
operating activities; cash flows from investing activities; and cash flows from
financing activities. Net cash flows provided by operating activities,
consisting primarily of interest and dividends received on earning assets less
interest paid on deposits, was $1.5 million and $1.3 million for the nine months
ended September 30, 1997 and 1996, respectively. Net cash used by investing
activities, consisting primarily of disbursements for the origination and
purchase of loans and the acquisition of securities available for sale partially
offset by principal collections on loans and mortgage-backed securities, and the
proceeds from the maturity and paydowns of investment securities and securities
available for sale, was $7.8 million and $4.9 million for the nine months ended
September 30, 1997 and 1996, respectively. Net cash provided by financing
activities for the nine months ended September 30, 1997 of $8.0 million
consisted primarily of net increases in deposit accounts during the period
offset by the purchase of treasury stock, the payment of dividends and the
decrease in advance payments by borrowers for property taxes and insurance. Net
cash used in financing activities for the nine months ended September 30, 1996
of $2.0 million consisted primarily of the purchase of treasury stock, the
payment of dividends and the decrease in advance payments by borrowers for
property taxes and insurance offset by a net increase in deposit accounts.
During the nine month period ended September 30, 1997 the Company repurchased
47,475 shares. The average price of treasury shares purchased was $16.73
totaling $794,000. The average price paid of $16.73 was approximately 94.8% of
the Company's book value per share of $17.64 at September 30, 1997. The
Company's book value per share as of December 31, 1996 was $17.05. Management
believes that the repurchase of shares at less than book value is an appropriate
utilization of excess capital. The Office of Thrift Supervision (OTS) restricts
the number of shares which may be repurchased during the three year period
following conversion. Generally, only 5% of shares outstanding may be
repurchased annually during the first three years following conversion. However,
the OTS has allowed additional share repurchases of 5% annually based on
extenuating facts and circumstances.
At September 30, 1997, the Bank's capital exceeded each of the capital
requirements of the OTS. At September 30, 1997, the Bank's tangible and core
capital levels were both $18.5 million (10.6% of total adjusted assets) and its
risk-based capital level was $19.2 million (20.8% of total risk-weighted
assets). The current minimum regulatory capital ratio requirements are 1.5% for
tangible capital, 3.0% for core capital and 8.0% for risk-weighted capital.
FINANCIAL CONDITION
Total assets increased $9.2 million (5.6%) to $174.1 million at September 30,
1997 from $164.9 million at December 31, 1996. This increase occurred as loans
receivable, net, grew $10.3 million (8.7%) to $128.8 million at September 30,
1997. The growth in the loan portfolio consisted primarily of residential
mortgage loans. Securities available for sale increased $2.1 million (103.5%) to
$4.1 million at September 30, 1997. Federal funds sold increased $1.8 million to
$3.4 million as of September 30, 1997 due primarily to the receipt of proceeds
from the call of securities available for sale totaling $2.0 million late in the
quarter. Offsetting these increases was a decrease in investment securities of
$5.2 million (14.3%) to $31.0 million resulting primarily from maturities and
principal payments.
<PAGE>
At September 30, 1997, total liabilities were $152.4 million representing an
increase of $9.2 million (6.4%) from December 31, 1996. The increase was
primarily attributable to an increase in retail deposits much of which resulted
from the opening of the Bank's fourth branch in March 1997. Stockholders' equity
increased $45,000 to $21.7 million at September 30, 1997 due in part to the
change in retained earnings and treasury stock. Retained earnings increased by
$540,000 primarily as a result of net income of the Company for the nine month
period ended September 30, 1997 offset by cash dividends declared during the
same period. Treasury stock increased $700,000 as a result of the Company's
repurchase of common stock less common stock issued in satisfaction of the
exercise of stock options.
Nonperforming assets increased $301,000 (29.8%) totaling $1.3 million at
September 30, 1997, compared with $1.0 million at December 31, 1996 as a result
of two residential mortgages placed in nonaccrual status which are believed to
possess adequate levels of collateral. Management of the Bank does not view this
increase as a significant adverse trend. The ratio of nonperforming loans to
total loans receivable, net was .93% at September 30, 1997, compared with .70%
at December 31, 1996. The ratio of nonperforming assets to total assets at
September 30, 1997, was .75% compared with .61% at December 31, 1996.
Loan Receivable, Net
A summary of loans receivable, net at September 30, 1997 and December 31, 1996
is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Loans secured by real estate:
Residential:
Conventional ............................ $ 95,605 84,840
Home Equity ............................. 22,899 22,904
FHA Insured ............................. 2,935 3,511
VA Guaranteed ........................... 2,196 2,810
Commercial and multi-family ................ 5,381 4,532
-------- --------
129,016 118,597
Other loans ................................... 536 523
-------- --------
129,552 119,120
-------- --------
Less:
Unearned discount and net deferred loan fees 23 23
Allowance for loan losses .................. 752 642
-------- --------
775 665
-------- --------
Loans receivable, net ......................... $128,777 118,455
======== ========
</TABLE>
<PAGE>
The following table sets forth the information with regard to nonperforming
assets.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------ ------
<S> <C> <C>
Loans on a nonaccrual status .................. $1,133 801
Loans contractually past due 90 days or
more and still accruing interest ........... 68 32
------ ------
Total nonperforming loans ............... 1,201 833
Other real estate owned ....................... 111 178
------ ------
Total nonperforming assets .............. $1,312 1,011
====== ======
</TABLE>
The following table sets forth the information with regard to changes in the
allowance for loan losses.
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------
1997 1996
------- -----
<S> <C> <C>
Balance, beginning of period $ 642 572
Provision charged to operations 90 90
Loans charged off (9) (45)
Recoveries on loans previously charged off 29 29
------- -----
Balance, end of period $ 752 646
======= =====
</TABLE>
Average Balance Data, Interest Rates and Interest Differential and Rate/Volume
Analysis
The following information regarding average balances and rates earned/paid and
the rate/volume analysis is an integral component of the discussion of operating
results for the three months and nine months ended September 30, 1997, compared
with the corresponding periods of the prior year.
The average balance data that follows reflects the average yield on assets and
average cost of liabilities for the periods indicated. All average balances are
daily average balances. Such yields and costs are derived by dividing income or
expenses by the average balance of assets or liabilities, respectively, for the
periods shown. The yields and costs include fees which are considered
adjustments to yields. Securities available for sale are shown at fair value.
<PAGE>
The rate/volume analysis table presents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and interest expense during
the periods indicated. Information is provided in each category with respect to
(i) changes attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (iii) the net change. The changes attributable
to the combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Average Balance Data, Interest Rates and Interest Differential
(Dollars in Thousands) (Unaudited)
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- -------------------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1) ..... $ 126,834 $ 2,493 7.80% $ 114,978 $ 2,245 7.77%
Mortgage-backed securities .... 18,408 292 6.29 21,807 345 6.29
Securities available for sale . 5,864 99 6.70 3,105 47 6.02
Debt securities ............... 13,428 220 6.50 15,902 255 6.38
Other interest-earning asset
including cash equivalents 2,671 37 5.50 5,136 67 5.19
FHLB stock ................... 1,338 23 6.82 1,216 20 6.54
---------- --------- -------- -------
Total interest-earning assets ....... 168,543 3,164 7.45 162,144 2,979 7.31
---------- --------- -------- -------
Savings accounts .............. 37,306 283 3.01 38,507 292 3.02
Money market accounts ......... 7,712 70 3.60 5,641 46 3.24
Demand and NOW accounts (2) ... 11,137 42 1.50 10,489 39 1.48
Certificate accounts .......... 91,843 1,301 5.62 85,918 1,161 5.38
Escrow ........................ 1,736 9 2.06 1,570 8 2.03
---------- --------- -------- -------
Total interest-bearing liabilities .. 149,734 1,705 4.52 142,125 1,546 4.33
---------- --------- -------- -------
Net interest income $ 1,459 $ 1,433
========= =======
Net interest rate spread 2.93% 2.98%
==== ====
Net earning assets $ 18,809 $ 20,019
========== =========
Net yield on average
interest-earning assets 3.43% 3.52%
==== ====
Average interest-earning
assets to average
interest-bearing liabilities 1.13 1.14
==== ====
</TABLE>
(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Average Balance Data, Interest Rates and Interest Differential
(Dollars in Thousands) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- -------------------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1) .......... $122,668 $ 7,18 7.83% $108,902 $ 6,470 7.94%
Mortgage-backed securities ......... 19,241 913 6.34 22,929 1,087 6.33
Securities available for sale ...... 4,560 224 6.57 6,236 278 5.95
Debt securities .................... 14,085 681 6.46 17,010 806 6.33
Other interest-earning assets
including cash equivalents .... 3,486 140 5.37 5,693 224 5.26
FHLB stock ......................... 1,316 64 6.50 1,199 58 6.46
---------- --------- -------- -------
Total interest-earning assets ............ 165,356 9,210 7.45 161,969 8,923 7.36
---------- --------- -------- -------
Interest-bearing liabilities:
Savings accounts ................... 37,209 837 3.01 39,377 889 3.02
Money market accounts .............. 6,962 181 3.48 5,004 114 3.04
Demand and NOW accounts (2) ........ 10,626 120 1.51 9,866 108 1.46
Certificate accounts ............... 90,561 3,734 5.51 85,229 3,507 5.50
Escrow ............................. 1,255 20 2.13 1,257 21 2.23
---------- --------- -------- -------
Total interest-bearing liabilities ....... 146,613 4,892 4.46 140,733 4,639 4.40
---------- --------- -------- -------
Net interest income $4,318 $ 4,284
====== =======
Net interest rate spread 2.99% 2.96%
==== ====
Net earning assets $ 18,743 $ 21,236
======== ========
Net yield on average
interest-earning assets 3.49% 3.53%
===== =====
Average interest-earning
assets to average
interest-bearing liabilities 1.13 1.15
==== ====
</TABLE>
(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
RATE VOLUME ANALYSIS
(In Thousands) (Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1996
INCREASE (DECREASE)
--------------------------------
DUE TO
VOLUME RATE NET
------ ---- ---
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net ................. $ 239 9 248
Mortgage-backed securities ............ (53) 0 (53)
Securities-available for sale ......... 47 5 52
Debt securities ....................... (40) 5 (35)
Other interest-earning assets ......... (34) 4 (30)
FHLB stock ............................ 2 1 3
----- ----- -----
Total interest-earning assets ........... $ 161 24 185
===== ===== =====
Interest-bearing liabilities:
Savings deposits ...................... $ (8) (1) (9)
Money market accounts ................. 20 4 24
Demand and NOW deposits ............... 3 0 3
Certificate accounts .................. 84 56 140
Escrow ................................ 1 0 1
----- ----- -----
Total interest-bearing liabilities ...... $ 100 59 159
===== ===== =====
Change in net interest income ........... $ 26
=====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 1996
INCREASE (DECREASE)
--------------------------------
DUE TO
VOLUME RATE NET
------ ---- ---
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net ................. $ 799 (81) 718
Mortgage-backed securities ............ (176) 2 (174)
Securities-available for sale ......... (80) 26 (54)
Debt securities ....................... (143) 18 (125)
Other interest-earning assets ......... (89) 5 (84)
FHLB stock ............................ 6 0 6
----- ----- -----
Total interest-earning assets ........... $ 317 (30) 287
===== ===== =====
Interest-bearing liabilities:
Savings deposits ...................... $ (50) (2) (52)
Money market accounts ................. 54 13 67
Demand and NOW deposits ............... 9 3 12
Certificate accounts .................. 217 10 227
Escrow ................................ 0 (1) (1)
----- ----- -----
Total interest-bearing liabilities ...... $ 230 23 253
===== ===== =====
Change in net interest income ........... $ 34
=====
</TABLE>
COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
Three months ended September 30, 1997 compared with three months ended September
30, 1996
Net income for the quarter ended September 30, 1997, was $296,000 or $.25 per
share on both a primary and fully diluted basis which represents an increase of
$421,000 (336.8%) from the comparable quarter of the prior year. The increase in
net income was primarily a result of a decrease in noninterest expense combined
with an increase in net interest income after provision for loan losses and
income tax expense and a decrease in noninterest income. The annualized return
on average assets ("ROA") for the current quarter amounted to .68% compared with
- -.30% for the comparable quarter a year ago. The annualized return on average
equity ("ROE") was 5.59% (on average equity of $21.2 million) compared with
- -2.31% (on average equity of $21.7 million) a year earlier.
<PAGE>
Interest income for the three months ended September 30, 1997, totaled $3.2
million, an increase of $185,000 (6.2%) from 1996's third quarter, as average
interest-earning assets increased by $6.4 million (3.9%) to $168.5 million and
average rates earned increased by 14 basis points (1.9%) to 7.45%. The most
significant factor contributing to the increased level of interest income was
the increase in earnings on loans receivable, net which increased $248,000
(11.0%) as a result of a $11.9 million (10.3%) increase in the average
outstanding balance combined with a 3 basis point (0.4%) increase in the average
rate earned. Earnings on mortgage-backed securities decreased $53,000 as a
result of a decrease in the average invested balance of $3.4 million (15.6%).
Earnings on securities available for sale increased $52,000 (110.6%) as a result
of an increase in average invested balance of $2.8 million (88.9%) combined with
an increase in average rates earned of 68 basis points (11.3%).
Interest expense for the quarter ended September 30, 1997, amounted to $1.7
million, $159,000 (10.3%) more than the prior year's third quarter. The increase
occurred as a result of a $7.6 million (5.4%) increase in average interest
bearing liabilities to $149.7 million combined with a 19 basis point (4.4%)
increase in average rates paid to 4.52%. The Bank opened a new branch in March
1997 which has significantly contributed to the increase in average deposits.
The mix within the deposit structure changed as the average balance of
certificate and money market accounts grew $5.9 million (6.9%) and $2.1 million
(36.7%), respectively. The average balance of savings accounts, meanwhile,
declined $1.2 million (3.1%). The increase in average rates paid on certificate
accounts of 24 basis points (4.5%) to 5.62% was a reflection of general interest
rates and a competitive environment that prevailed during the third quarter of
1997 compared with the third quarter of 1996. The increase in average rate paid
on money market accounts of 36 basis points (11.1%) to 3.60% reflects the
increased balances in the higher interest rate tiers of the product structure.
Net interest income for the three months ended September 30, 1997 totaled $1.5
million, $26,000 (1.8%) more than the comparable quarter a year ago. The
interest rate spread decreased 5 basis points to 2.93% for the quarter ended
September 30, 1997 as compared to the quarter ended September 30, 1996; the net
interest margin for the most recent quarter of 3.43% was 9 basis points less
than the comparable quarter a year ago.
Provision for Loan Losses
The provision for loan losses amounted to $30,000 for the quarters ended
September 30, 1997 and 1996, respectively. The Bank utilizes the provision for
loan losses to maintain an allowance for loan losses that it deems appropriate
to provide for known and inherent risks in its loan portfolio. In determining
the adequacy of its allowance for loan losses, management takes into account the
current status of the Bank's loan portfolio and changes in appraised values of
collateral as well as general economic conditions. As of September 30, 1997, the
Bank's allowance for loan losses totaled $752,000 (.58% of total loans and 62.6%
of nonperforming loans) compared with $642,000 (.54% of total loans and 77.1% of
nonperforming loans) at December 31, 1996.
Noninterest Income
Noninterest income decreased to $120,000 for the three months ended September
30, 1997, compared with $146,000 for the corresponding period in the previous
year. The decrease in the three month period ended September 30, 1997 compared
with 1996 was primarily the result of gains taken on the sale of available for
sale securities in 1996 totaling $44,000 offset by an increase in other loan
charges.
<PAGE>
Noninterest Expense
Noninterest expense decreased $918,000 (46.2%) to $1.1 million for the three
months ended September 30, 1997, as compared with the same period in 1996.
Federal deposit insurance premiums decreased $987,000 (97.7%) to $23,000 from
the same period a year ago. The decrease was attributable to a special one-time
assessment of the Savings Association Insurance Fund ("SAIF") insured deposits
totaling $930,000 in the third quarter of 1996 and an ongoing reduction in the
FDIC insurance premiums subsequent to the special assessment. Compensation and
employee benefits increased $39,000 (6.2%) between the respective quarters. This
increase was a result of annual merit increases and increased employee benefits
partially due to increases in the employee stock ownership plan. Office
occupancy and equipment expense increased $32,000 (25.8%) compared to the same
quarter a year ago as a result of increases in depreciation, property taxes and
utilities associated with the opening of the new branch. Advertising and
business promotion decreased $16,000 (57.1%) between the respective quarters as
a result of reduced television advertising and more focused print advertising.
Other insurance premiums, mortgage servicing fees, data processing fees,
professional service fees, and other noninterest expense remained relatively the
same for the quarter ended September 30, 1997 as compared to the quarter ended
September 30, 1996.
Income Tax Expense
Income tax expense totaled $184,000 for the three months ended September 30,
1997 while an income tax benefit of $313,000 was recognized in the three months
ended September 30, 1996. The effective tax rate for the three months ended
September 30, 1997 was 38.3%. The income tax benefit recognized in 1996 reflects
the reduction in pre-tax income resulting from the special one-time SAIF
assessment combined with a reduction of the deferred tax asset valuation reserve
which reduced the tax effect on pre-tax income. There have been no comparable
reductions in the deferred tax asset valuation reserve during the quarter ended
September 30, 1997.
COMPARISONS OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Nine months ended September 30, 1997, compared with nine months ended September
30, 1996
Net income for the nine months ended September 30, 1997, increased by $332,000
(72.6%) and totaled $789,000 compared with $457,000 recognized in the first
three quarters of 1996. Primary and fully diluted earnings per share for the
nine months ended September 30, 1997 was $.67 per share and $.66 per share,
respectively compared to $.36 per share and $.35 per share, respectively for the
same period in 1996. The increase in net income was primarily a result of a
decrease in noninterest expense combined with increases in net interest income
after provision for loan losses and noninterest income offset by an increase in
income tax expense. Return on average assets ("ROA") for the first three
quarters of 1997 amounted to .62% compared with .37% for the comparable period a
year ago. Return on average equity ("ROE") was 4.95% (on average equity of $21.3
million) compared with 2.68% (on average equity of $22.7 million) a year
earlier.
Interest income for the nine months ended September 30, 1997, totaled $9.2
million, an increase of $287,000 (3.2%) from 1996's first three quarters. This
increase was a result of an increase in average interest-earning assets of $3.4
million (2.1%) to $165.4 million and an increase in the average rate earned of
nine basis points (1.2%) to 7.45%. The largest factor contributing to the
<PAGE>
increase in interest income was the increase in earnings on loans receivable
which increased $718,000 (11.1%) as a result of a $13.8 million (12.6%) increase
in the average balance invested offset by a 9 basis point (1.4%) decrease in
average rates earned. Earnings on mortgage-backed securities decreased $174,000
(16.1%) as a result of a decrease in average invested balance of $3.7 million
(16.1%) offset by an increase in average rates earned of one basis point (0.2%).
Earnings on debt securities decreased $125,000 (15.5%) as a result of a decrease
in average invested balance of $2.9 million (17.2%) offset by an increase in
average rates earned of 13 basis points (2.1%). Interest earned on securities
available for sale decreased $54,000 (19.4%) as a result of a $1.7 million
(26.9%) decrease in the average balance invested offset by an increase in the
average rate earned of 62 basis points (10.4%). Earnings on other interest
earning assets, essentially federal funds sold, decreased $84,000 (37.5%) as a
result of the combined effect of a $2.2 million (38.8%) decrease in the average
balance invested and an 11 basis point (2.1%) increase in average rates earned.
Interest expense for the nine months ended September 30, 1997, amounted to $4.9
million, $253,000 (5.5%) more than the corresponding period of the prior year.
The increase occurred as a result of a $5.9 million (4.2%) increase in average
interest bearing liabilities to $146.6 million combined with a 6 basis point
(1.4%) increase in average rates paid to 4.46%. The opening of the new branch
has significantly contributed to the increase in average deposits. The mix
within the deposit structure changed as the average balance of certificate and
money market accounts grew $5.3 million (6.3%) and $2.0 million (39.1%),
respectively. The average balance of savings accounts, meanwhile, declined $2.2
million (5.5%). The increase in average rates paid on certificate accounts of
one basis point (0.2%) to 5.51% was a reflection of general interest rates and a
competitive environment that prevailed during the first three quarters of 1997
compared with 1996. The increase in average rate paid on money market accounts
of 44 basis points (14.5%) to 3.48% reflects the increased balances in the
higher interest rate tiers of the products structure.
Net interest income for the nine months ended September 30, 1997 totaled $4.3
million, $34,000 (0.8%) more than the comparable period a year ago. The interest
rate spread increased three basis points to 2.99% for the nine months ended
September 30, 1997; the net interest margin for the first three quarters of 1997
of 3.49% was four basis points less than the comparable period a year ago.
Provision for Loan Losses
For the nine months ended September 30, 1997 and 1996, the provision for loan
losses totaled $90,000. See "Provision for Loan Losses" at page 18.
Noninterest Income
Noninterest income increased for the nine month period ended September 30, 1997
to $317,000 compared with $310,000 for the corresponding period in the previous
year. Increases in other loan charges and other noninterest income comprised the
majority of the increase from the same period last year. Net gain on the sale of
securities available for sale totaling $8,000 were realized in 1996 while there
were no comparable net gains or losses in 1997.
<PAGE>
Noninterest Expense
Noninterest expense decreased $935,000 (22.4%) to $3.2 million for the nine
months ended September 30, 1997, as compared with the same period in 1996.
Federal deposit insurance premiums decreased $1.1 million (95.6%) to $51,000
from the same period a year ago. The decrease was attributable to a special
one-time assessment of insured deposits to replenish the Savings Association
Insurance Fund ("SAIF") totaling $930,000 in the third quarter of 1996 and an
ongoing reduction in the FDIC insurance premiums subsequent to the special
assessment. Compensation and employee benefits, the largest component of
noninterest expense, increased $139,000 (7.3%) between the respective periods.
This increase was a result of an increase in retail staff due to the opening of
a new branch in March 1997, annual merit increases, and increased employee
benefits partially due to increases in the employee stock ownership plan. Office
occupancy and equipment expense increased $77,000 (19.8%) compared to the same
period a year ago as a result of increases in depreciation, property taxes and
utilities associated with the opening of the new branch. Advertising and
business promotion, other insurance premiums, mortgage servicing fees, data
processing fees, professional service fees, and other noninterest expense
remained relatively the same for the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 1996. Other real estate
writedowns totaled $7,000 for the first three quarters of 1996. There were no
writedowns for the comparable period in 1997.
Income Tax Expense
Income tax expense totaled $508,000 for the nine months ended September 30, 1997
while an income tax benefit of $136,000 was recognized in the nine months ended
September 30, 1996. The effective tax rate for the nine months ended September
30, 1997 was 39.2%. See "Income Tax Expense" at page 18.
Impact of New Accounting Standards
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share", which
establishes standards for computing and presenting earnings per share (EPS).
This statement simplifies the standards for computing EPS making them comparable
to international EPS standards and supersedes Accounting Principals Board
Opinion No. 15, "Earnings per Share" and related interpretations. SFAS No. 128
replaces the presentation of primary EPS with the presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity (such as the Company's stock options). This Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. Earlier application is not permitted. SFAS No. 128
requires restatement of all prior period EPS data presented. Management does not
anticipate the effect of the adoption of SFAS No. 128 to be material.
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS
No. 130). SFAS No. 130 establishes standards for reporting and displaying of
comprehensive income. SFAS No. 130 states that comprehensive income includes the
reported net income of a company adjusted for items that are currently accounted
for as direct entries to equity, such as the mark to market adjustment on
securities available for sale, foreign currency items and minimum pension
liability adjustments. This statement is effective for fiscal years beginning
after December 15, 1997. Management anticipates developing the required
information for inclusion in the 1998 annual consolidated financial statements.
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
SEPTEMBER 30, 1997
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Holding Company and the Bank are not engaged in any legal
proceedings of a material nature at the present time.
Item 2. Changes in Securities
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) Exhibits
None
(b) Reports on Form 8-K
None
<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.
SFS BANCORP, INC.
(Registrant)
DATE: November 14, 1997 BY: /s/ Joseph H. Giaquinto
-----------------------
Joseph H. Giaquinto
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: November 14, 1997 BY: /s/ David J. Jurczynski
-----------------------
David J. Jurczynski
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-Q SB FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,176
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,050
<INVESTMENTS-CARRYING> 31,001
<INVESTMENTS-MARKET> 31,066
<LOANS> 129,529
<ALLOWANCE> 752
<TOTAL-ASSETS> 174,093
<DEPOSITS> 149,854
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,523
<LONG-TERM> 0
0
0
<COMMON> 15
<OTHER-SE> 21,701
<TOTAL-LIABILITIES-AND-EQUITY> 174,093
<INTEREST-LOAN> 7,188
<INTEREST-INVEST> 1,818
<INTEREST-OTHER> 204
<INTEREST-TOTAL> 9,210
<INTEREST-DEPOSIT> 4,892
<INTEREST-EXPENSE> 4,892
<INTEREST-INCOME-NET> 4,318
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,248
<INCOME-PRETAX> 1,297
<INCOME-PRE-EXTRAORDINARY> 1,297
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 789
<EPS-PRIMARY> .67
<EPS-DILUTED> .66
<YIELD-ACTUAL> 3.49
<LOANS-NON> 1,133
<LOANS-PAST> 68
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 642
<CHARGE-OFFS> 9
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 752
<ALLOWANCE-DOMESTIC> 437
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 315
</TABLE>
