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 March 31, 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 April 30, 1997
--------------------- ---------------------------
Common Stock, Par Value $.01 1,235,997
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [ X ]
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
March 31, 1997
INDEX
Part I FINANCIAL INFORMATION
Item 1. Interim Financial Statements..........................................
Consolidated Statements of Income for the Three
months ended March 31, 1997 and 1996, (Unaudited)...................
Consolidated Statements of Financial Condition as
of March 31, 1997, (Unaudited) and December 31, 1996................
Consolidated Statements of Changes in Stockholders' Equity for
the Three months ended March 31, 1997 and 1996, (Unaudited)........
Consolidated Statements of Cash Flows for the Three
months ended March 31, 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......................................................................
Exhibit 3. Amendment to Bylaws .................................................
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
March 31, 1997
-------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Item 1. - 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
MARCH 31,
------------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Interest income:
Real estate loans ........................................ $2,300 2,079
Other loans .............................................. 9 13
Mortgage-backed securities ............................... 317 387
Debt securities .......................................... 237 290
Federal funds sold and cash deposits ..................... 47 89
Securities available for sale ............................ 37 119
Stock in Federal Home Loan Bank .......................... 20 19
------ ------
Total interest income ............................. 2,967 2,996
Interest expense:
Deposits ................................................. 1,548 1,566
------ ------
Net interest income ............................... 1,419 1,430
Provision for loan losses ...................................... 30 30
------ ------
Net interest income after provision for loan losses 1,389 1,400
------ ------
Noninterest income:
Service fee income ....................................... 4 5
Other loan charges ....................................... 38 43
Bank fees and service charges ............................ 38 32
Other .................................................... 11 11
------ ------
Total noninterest income .......................... 91 91
------ ------
<PAGE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(continued)
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Noninterest expense:
Compensation and employee benefits ....................... 695 615
Advertising and business promotion ....................... 42 36
Office occupancy and equipment expense ................... 157 130
Federal deposit insurance premiums ....................... 5 81
Other insurance premiums ................................. 22 23
Mortgage servicing fees .................................. 9 10
Data processing fees ..................................... 45 42
Professional service fees ................................ 65 68
Other .................................................... 83 71
------ ------
Total noninterest expense ......................... 1,123 1,076
------ ------
Income before taxes ............................... 357 415
Income tax expense ............................................. 132 126
------ ------
Net income ........................................ $ 225 289
====== ======
Earnings per share ............................................. $ .19 .21
====== ======
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In Thousands, Except Share Data)
March 31, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks ..................................................... $ 1,481 1,296
Federal funds sold .......................................................... 4,100 1,600
--------- ---------
Total cash and cash equivalents ................................. 5,581 2,896
Securities available for sale, at fair value ................................ 4,951 1,990
Investment securities:
Debt securities (approximate fair value of $14,344
at March 31, 1997 and $15,642 at December 31, 1996) ............ 14,519 15,746
Mortgage-backed securities (approximate fair value of
$19,431 at March 31, 1997 and $20,322 at December 31, 1996) ..... 19,657 20,434
Investment required by law, stock in Federal Home Loan Bank of NY, at cost .. 1,338 1,215
Loans receivable, net ....................................................... 118,526 118,455
Accrued interest receivable ................................................. 999 1,137
Premises and equipment, net ................................................. 2,194 1,921
Real estate owned ........................................................... 89 178
Prepaid expenses and other asset ............................................ 987 916
--------- ---------
Total Assets ........................................... $ 168,841 164,888
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Due to depositors:
Demand deposits ................................................... $ 10,167 10,496
Savings accounts .................................................. 43,548 43,226
Time deposit accounts ............................................. 90,659 86,894
--------- ---------
Total Deposits ............................................... 144,374 140,616
Advance payments by borrowers for property taxes and insurance ......... 949 1,160
Accrued expenses and other liabilities ................................. 1,585 1,441
--------- ---------
Total Liabilities ............................. 146,908 143,217
--------- ---------
<PAGE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
March 31, 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; 1,270,997 shares outstanding at March 31, 1997 and
December 31, 1996 ..................................................... 15 15
Additional paid-in capital ............................................... 14,260 14,260
Retained earnings, substantially restricted .............................. 11,836 11,687
Common stock acquired by :
Employee stock ownership plan ("ESOP") (95,680 shares) ................... (957) (957)
Recognition and retention plan ("RRP") (34,205 shares) ................... (403) (540)
Treasury stock, at cost (224,003 shares at March 31, 1997 and
December 31, 1996) .............................................. (2,840) (2,840)
Net unrealized gain on securities available for sale, net of taxes........... 22 46
--------- ---------
Total Stockholders' Equity ............................................. 21,933 21,671
--------- ---------
Total Liabilities and Stockholders' Equity ............................. $ 168,841 164,888
========= =========
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands) (Unaudited)
NET
UNREALIZED
GAIN (LOSS)
ON COMMON COMMON
ADDITIONAL SECURITIES STOCK STOCK
COMMON PAID-IN RETAINED AVAILABLE ACQUIRED ACQUIRED TREASURY
STOCK CAPITAL EARNINGS FOR SALE BY ESOP BY RRP STOCK TOTAL
----- ------- -------- -------- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended
March 31, 1997
Balance at December 31, 1996 .. $ 15 14,260 11,687 46 (957) (540) (2,840) 21,671
Net income .................... -- -- 225 -- -- -- -- 225
Net unrealized loss on
securities available for sale -- -- -- (24) -- -- -- (24)
RRP shares issued ............. -- -- -- -- -- 137 -- 137
Cash dividends declared ...... -- -- (76) -- -- -- -- (76)
Purchase of Treasury shares ... -- -- -- -- -- -- -- --
----- ------ ------ ---- ----- ------ ------- ------
Balance at March 31, 1997 ..... $ 15 14,260 11,836 22 (957) (403) (2,840) 21,933
===== ====== ====== ===== ===== ====== ====== ======
Three Months Ended
March 31, 1996
Balance at December 31, 1995 .. $ 15 14,221 11,013 88 (1,076) -- -- 24,261
Net income .................... -- -- 289 -- -- -- -- 289
Net unrealized gain on
securities available for sale . -- -- -- (24) -- -- -- (24)
Purchase of Treasury shares .. -- -- -- -- -- -- (1,252) (1,252)
----- ------ ------ ---- ------ ------ ------ ------
Balance at March 31, 1996 ..... $ 15 14,221 11,302 64 (1,076) -- (1,252) 23,274
===== ====== ====== ==== ====== ====== ====== ======
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
------------------
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 .............................................. $ 225 289
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ...................... 42 36
Net accretion on investment securities ............. (2) (5)
Amortization of award of RRP ........................... 137 --
Provision for loan losses .......................... 30 30
Decrease in accrued interest receivable ............ 138 126
Increase in prepaid expense and other assets ....... (71) (144)
Increase in accrued expense and other liabilities .. 159 321
------- -------
Total adjustments ............................. 433 364
------- -------
Net cash provided by operating activities ....... 658 653
------- -------
Cash flows from investing activities:
Proceeds from maturity/paydown of investment securities ...... 1,229 5,614
Purchase of investment securities ............................ -- (6,000)
Purchase of securities available for sale .................... (3,000) --
Purchase of Federal Home Loan Bank stock ..................... (123) (99)
Principal repayments on mortgage-backed securities ........... 777 695
Net (increase) decrease in loans receivable .................. 187 (2,149)
Purchase of loans receivable ................................. (300) (937)
Capital expenditures, net of disposals ....................... (315) (16)
Proceeds from the sale of real estate owned .................. 101 --
------- -------
Net cash used by investing activities .......... (1,444) (2,892)
------- -------
Cash flows from financing activities:
Net increase in deposits ..................................... 3,758 105
Net decrease in advance payments by borrowers for
property taxes and insurance ............................ (211) (399)
Dividends paid ............................................... (76) --
Purchase of treasury stock ................................... -- (1,252)
------- -------
Net cash (used) provided in financing activities 3,471 (1,546)
------- -------
Net (decrease) increase in cash and cash equivalents ......... 2,685 (3,785)
Cash and cash equivalents at beginning of period ............. 2,896 10,453
------- -------
Cash and cash equivalents at end of period ................... $ 5,581 6,668
======= =======
<PAGE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(continued)
Three Months Ended
March 31,
------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid ........................................... $ 1,549 1,569
======= =======
Taxes paid .............................................. $ -- 14
======= =======
Transfer of loans to other real estate owned ................. $ 12 --
======= =======
Net unrealized loss on securities available for sale,
net of taxes .. ........................................... $ (24) (24)
======= =======
Deferred tax benefit on unrealized loss on securities
available for sale ........................................ $ (15) --
======= =======
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<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 consolidated 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"). In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for the fair presentation of the unaudited interim consolidated financial
statements as of and for the period ended March 31, 1997 have been included. The
results of operations for the three months ended March 31, 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 are based on the weighted average number of shares
outstanding, less unallocated employee stock ownership plan shares, during the
period.
For purposes of calculating earnings per share, the weighted average number of
shares outstanding was 1,175,317 and 1,365,547 for the three month periods ended
March 31, 1997 and 1996, respectively.
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 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. 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, investment 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, 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>
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 $2.7 million to
$5.6 million at March 31, 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
was 25.23% and 22.58% at March 31, 1997 and December 31, 1996, respectively.
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 less interest paid on
deposits, was $658,000 and $653,000 for the three months ended March 31, 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 partially offset by principal collections on loans and
mortgage-backed securities and by proceeds from the sale and maturity of
securities, was $1.4 million and $2.9 million for the three months ended March
31, 1997 and 1996, respectively. Net cash provided in financing activities,
consisting primarily of a net increase in deposits offset by a net decrease in
advance payments by borrowers for property taxes and insurance and dividends
paid, was $3.5 million for the three months ended March 31, 1997. Net cash used
by financing activities for the three months ended March 31, 1996 of $1.5
million consisted primarily of the purchase of treasury stock and a net decrease
in advance payments by borrowers for property taxes and insurance offset by a
net increase in deposits.
During the three month period ended March 31, 1996 the Company repurchased
100,000 shares. The average price of treasury shares purchased was $12.52
totaling $1.3 million. The average price paid of $12.52 was approximately 75.1%
of the Company's book value per share of $16.68 at March 31, 1996. 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. The Company announced on October 9, 1996
its intention to repurchase up to an additional 5% of its outstanding shares. As
of March 31, 1997, the Company had not repurchased any shares relative to this
announcement.
<PAGE>
At March 31, 1997, the Bank's capital exceeded each of the capital requirements
of the OTS. At March 31, 1997, the Bank's tangible and core capital levels were
both $21.9 million (13.0% of total adjusted assets) and its risk-based capital
level was $22.6 million (25.2% 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 $ 4.0 million (2.4%) to $168.8 million at March 31, 1997
from $164.9 million at December 31, 1996. This increase occurred as securities
available for sale grew $3.0 million (148.8%) to $5.0 million and federal funds
sold increased $2.5 million (156.3%) to $4.1 million at March 31, 1997.
Additionally, premises and equipment, net increased $273,000 (14.2%) to $2.2
million at March 31, 1997 due primarily to the opening of the Bank's fourth
branch. Offsetting these increases was a decrease in investment securities of
$2.0 million (5.5%) to $34.2 million at March 31, 1997.
At March 31, 1997, total liabilities were $146.9 million representing an
increase of $3.7 million (2.6%) from December 31, 1996. The increase was largely
attributable to a net increase in deposits associated with the opening of a new
branch. Stockholders' equity increased $262,000 to $21.9 million at March 31,
1997 as compared to $21.7 million at December 31, 1996. Retained earnings
increased by $149,000 primarily as a result of net income of the Company for the
three month period ended March 31, 1997 offset by dividends paid totaling
$76,000. Net unrealized gain on securities available for sale, net of taxes
decreased $24,000 to $22,000 at March 31, 1997.
Nonperforming assets increased $129,000 (12.8%) totaling $1.1 million at March
31, 1997, compared with $1.0 million at December 31, 1996. The ratio of
nonperforming loans to total loans receivable, net was .89% at March 31, 1997,
compared with .70% at December 31, 1996. The ratio of nonperforming assets to
total assets at March 31, 1997, was .68% compared with .61% at December 31,
1996.
<PAGE>
Loan Receivable, Net
A summary of loans receivable, net at March 31, 1997 and December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1997 1996
-------- --------
<S> <C> <C>
Loans secured by real estate:
Residential:
Conventional ............................. $ 85,526 84,840
Home Equity .............................. 22,654 22,904
FHA Insured .............................. 3,366 3,511
VA Guaranteed ............................ 2,594 2,810
Commercial and multi-family ................. 4,668 4,532
-------- --------
118,808 118,597
Other loans .................................... 416 523
-------- --------
119,224 119,120
-------- --------
Less:
Unearned discount and net deferred loan fees 22 23
Allowance for loan losses ................... 676 642
-------- --------
698 665
-------- --------
Loans receivable, net .......................... $118,526 118,455
======== ========
</TABLE>
The following table sets forth the information with regard to nonperforming
assets.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------ ------
<S> <C> <C>
Loans on a nonaccrual status ................... $1,030 801
Loans contractually past due 90 days or
more and still accruing interest ............ 21 32
------ ------
Total nonperforming loans ................ 1,051 833
Other real estate owned ........................ 89 178
------ ------
Total nonperforming assets ............... $1,140 1,011
====== ======
</TABLE>
<PAGE>
The following table sets forth the information with regard to changes in the
allowance for loan losses.
<TABLE>
<CAPTION>
For the three months
ended March 31,
---------------------
1997 1996
----- -----
<S> <C> <C>
Balance, beginning of period .................... $ 642 572
Provision charged to operations ................. 30 30
Loans charged off ............................... (2) --
Recoveries on loans previously charged off ...... 6 17
----- -----
Balance, end of period .......................... $ 676 619
===== =====
</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 ended March 31, 1997, compared with the
corresponding period 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. 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.
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 MARCH 31,
----------------------------------------------------------------------------
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) ..... $118,970 $ 2,309 7.87% $103,342 $ 2,092 8.14%
Mortgage-backed securities .... 20,028 317 6.42 24,100 387 6.46
Securities available for sale . 2,458 37 6.10 7,978 119 6.00
Debt securities ............... 14,910 237 6.45 18,649 290 6.25
Other interest-earning asset
including cash equivalents 3,654 47 5.22 6,768 89 5.29
FHLB stock ................... 1,271 20 6.38 1,167 19 6.55
-------- -------- -------- --------
Total interest-earning assets ....... 161,291 2,967 7.46 162,004 2,996 7.44
-------- -------- -------- --------
Savings accounts .............. 37,034 275 3.01 40,165 301 3.01
Money market accounts ......... 6,300 52 3.35 4,359 31 2.86
Demand and NOW accounts (2) ... 10,549 38 1.46 9,232 33 1.44
Certificate accounts .......... 88,250 1,179 5.42 84,754 1,196 5.68
Escrow ........................ 808 4 2.01 990 5 2.03
-------- -------- -------- --------
Total interest-bearing liabilities .. 142,941 1,548 4.39 139,500 1,566 4.51
-------- -------- -------- --------
Net interest income ................. $ 1,419 $ 1,430
======== ========
Net interest rate spread ............ 3.07% 2.93%
==== ====
Net earning assets .................. $ 18,350 $ 22,504
======== ========
Net yield on average
interest-earning assets ...... 3.57% 3.55%
==== ====
Average interest-earning
assets to average
interest-bearing liabilities . 1.13X 1.16X
==== ====
(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
RATE VOLUME ANALYSIS
(In Thousands) (Unaudited)
THREE MONTHS ENDED MARCH 31, 1997
COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1996
INCREASE (DECREASE)
DUE TO
---------------------------------
VOLUME RATE NET
------ ---- ---
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net ................. $ 278 (61) 217
Mortgage-backed securities ............ (68) (2) (70)
Securities available for sale ......... (84) 2 (82)
Debt securities ....................... (63) 10 (53)
Other interest-earning assets ......... (41) (1) (42)
FHLB stock ............................ 2 (1) 1
----- ----- -----
Total interest-earning assets ........... $ 25 (54) (29)
===== ===== =====
Interest-bearing liabilities:
Savings deposits ...................... $ (26) 0 (26)
Money market accounts ................. 17 4 21
Demand and NOW deposits ............... 4 1 5
Certificate accounts .................. 170 (187) (17)
Escrow ................................ (1) 0 (1)
----- ----- -----
Total interest-bearing liabilities ...... $ 165 (183) (18)
===== ===== =====
Change in net interest income ........... $ (11)
=====
</TABLE>
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997
Three months ended March 31, 1997 compared with 1996
Net income for the quarter ended March 31, 1997, was $225,000 or $.19 per share,
a decrease of $64,000 (22.1%) from the comparable quarter of the prior year. The
decrease in net income was primarily attributable to a decrease in net interest
income, an increase in noninterest expense and an increase in income tax
expense. The provision for loan losses and noninterest income was consistent
with the same quarter a year ago. The annualized return on average assets
("ROA") for the current quarter amounted to .54% compared with .70% for the
comparable quarter a year ago. The annualized return on average equity ("ROE")
was 4.19% (on average equity of $21.5 million) compared with 4.90% (on average
equity of $23.8 million) a year earlier.
Interest income for the three months ended March 31, 1997, totaled $3.0 million,
a decrease of $29,000 (0.1%) from 1996's first quarter. Average loans, as a
percentage total interest-earning assets increased from 63.8% during the first
quarter 1996 to 73.8% for the same period in 1997. Meanwhile, the combined
average balances as a percentage of total interest-earning assets of
mortgage-backed securities, securities available for sale and debt securities
decreased from 31.3% in 1996 to 23.2% in 1997. The factors contributing to the
decrease in interest income was an increase in earnings on loans which increased
$217,000 (10.4%) as a result of a $15.6 million (15.1%) increase in the average
balance invested combined with a 27 basis point (3.3%) decrease in average rates
earned. Interest earned on mortgage-backed securities decreased $70,000 (18.1%)
as a result of the combined effect of a $4.1 million (16.9%) decrease in the
average balance invested and a 4 basis point (0.6%) decrease in average rates
earned. Interest income on securities available for sale decreased $82,000
(68.9%) as a result of a decrease of $5.5 million (69.2%) in the average
invested balance offset by an increase of 10 basis points (1.7%) in average
rates earned. Interest income on debt securities decreased $53,000 (18.3%) as a
result of an increase in average rates earned of 20 basis points (3.2%) offset
by a decrease in average invested balances of $3.7 million (20.0%). Earnings on
other interest earning assets, primarily federal funds sold, decreased $42,000
(47.2%) as a result of a $3.1 million (46.0%) decrease in the average invested
balance and a 7 basis point (1.3%) decrease in the average rate earned.
Interest expense for the quarter ended March 31, 1997, amounted to $1.5 million,
$18,000 (1.1%) less than the corresponding quarter of the prior year. The
decrease occurred as a result of a $3.4 million (2.5%) increase in average
interest bearing liabilities to $142.9 million combined with a 12 basis point
(2.7%) decrease in average rates paid to 4.39%. The mix within the deposit
structure changed as the average balances grew in certificate accounts by $3.5
million (4.1%), in money market accounts by $1.9 million (44.5%), and in demand
and NOW accounts by $1.3 million (14.3%). Average savings account balance
declined $3.1 million (7.8%). The decrease in average rates paid on certificate
accounts of 26 basis points (4.6%) to 5.42% was a reflection of general interest
rates and a competitive environment that prevailed during the first quarter of
1997 compared with 1996. The increase in average rates paid on money market
accounts of 49 basis points (17.1%) to 3.35% was due primarily to increased
balances in the higher interest rate tiers of the product structure.
Net interest income for the three months ended March 31, 1997 totaled $1.4
million, $11,000 (0.8%) less than the comparable quarter a year ago. The
interest rate spread increased 14 basis points to 3.07% for the quarter ended
March 31, 1997. The net interest margin for the most recent quarter of 3.57% was
2 basis points greater than the comparable quarter a year ago.
<PAGE>
Provision for Loan Losses
The provision for loan losses amounted to $30,000 for the quarters ended March
31, 1997 and 1996. 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 March 31, 1997, the Bank's allowance for
loan losses totaled $676,000 (0.57% of total loans and 0.64% of nonperforming
loans) compared with $642,000 (0.54% of loans and 0.77% of nonperforming loans)
at December 31, 1996.
Noninterest Income
Noninterest income amounted to $91,000 for the three months ended March 31, 1997
and 1996. Bank fees and service charges increased $6,000 (18.7%) to $38,000
while other loan charges decreased $5,000 (11.6%) to $38,000.
Noninterest Expense
Noninterest expense increased $47,000 (4.4%) to $1.1 million for the three
months ended March 31, 1997, as compared with the same period in 1996.
Compensation and employee benefits increased $80,000 (13.0%) between the
respective quarters. This increase was a result of an increase in retail staff
due to the opening of a new branch, annual merit increases, and increased
employee benefits partially due to increases in the employee stock ownership
plan. Advertising and business promotion increased $6,000 (16.7%) to $42,000
resulting primarily from increased advertising in relation to the new branch
opening. Office occupancy and equipment expense increased $27,000 (20.8%)
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. FDIC premiums decreased $76,000 (93.8%) to $5,000 as a result of
revised premium levels associated with the Savings Association Insurance Fund
("SAIF"). Other insurance premiums, mortgage servicing fees, data processing
fees, professional service fees, and other noninterest expense remained
relatively the same for the quarters ended March 31, 1997 and March 31, 1996.
Income Tax Expense
Income tax expense totaled $132,000 and $126,000 for the three months ended
March 31, 1997 and 1996, respectively. The effective tax rate for the three
months ended March 31, 1997 was 37.0%. The effective tax rate for the three
months ended March 31, 1996 was 30.4% and reflects a reduction in the deferred
tax asset valuation reserve reducing the tax effect on pre-tax income.
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.
<PAGE>
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.
Regulatory Developments
Federal law requires that the FDIC maintain reserves at both the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF") of at
least 1.25% of insured deposits. The reserves are funded through the payment of
insurance premiums by the insured institution members of each fund. The BIF
reached this level during 1995. Upon attainment of the required reserve level,
the FDIC may reduce insurance premiums applicable to BIF-insured institutions
while retaining the premiums applicable to SAIF members, such as the Bank, at
their current levels until the SAIF reaches its required reserve level.
In order to help eliminate this disparity and any competitive disadvantage due
to disparate deposit insurance premium schedules, legislation to recapitalize
the SAIF was enacted in September 1996. The legislation provided for a one-time
assessment to be imposed on all deposits assessed at the SAIF rates, as of March
31, 1995, in order to recapitalize the SAIF. It also provided for the merger of
the BIF and SAIF on January 1, 1999 provided no savings associations then exist.
Management recognized the one-time special assessment in a tax affected charge
to earnings of approximately $558,000 during the quarter ended September 30,
1996. The legislation was intended to fully recapitalize the SAIF fund so that
commercial banks and thrift deposits will be charged FDIC premiums at the same
rate beginning October 1, 1996.
<PAGE>
Prior to the enactment of the legislation a portion of the SAIF assessment
imposed on savings associations was used to repay obligations issued by a
federally chartered corporation to provide financing for resolving the thrift
crisis in the 1980's. Although the SAIF rates are expected to be reduced
significantly, in the near future the minimum assessment paid by SAIF-insured
institutions is not anticipated to be equalized with the minimum BIF rate as a
result of this continuing obligation. The FICO assessment for SAIF insured
institutions will be $0.065 per $100 of deposits while BIF insured institutions
will pay $0.013 per $100 of deposits until the year 2000 when the assessment
will be imposed at the same rate on all FDIC insured institutions.
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
SEPTEMBER 30, 1996
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
(3). Amendment to Bylaws
(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: May 15, 1997 BY: /s/ Joseph H. Giaquinto
-----------------------
Joseph H. Giaquinto
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: May 15, 1997 BY: /s/ David J. Jurczynski
-----------------------
David J. Jurczynski
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Exhibit 3
AMENDMENT TO BYLAWS
- -------------------
WHEREAS, the Board of Directors of SFS Bancorp, Inc. met on January 24, 1996 and
discussed its intentions that the Holding Company continue to be a holding
company of a community oriented financial institution designed to meet the needs
of the communities it serves; and
WHEREAS, the communities of the Holding Company and its subsidiaries currently
serves is primarily the counties of Schenectady, Saratoga, Albany and Rensselaer
in the state of New York ("the primary market area"); and
WHEREAS, substantially all of the Company's loans are secured by property
located within its primary market area and substantially all of its deposits are
obtained from individuals or entities located in its primary market area; and
WHEREAS, the Board of Directors has determined that in order to adequately
assess and best serve the needs of the Holding Company's primary market area a
director must be knowledgeable of and actively involved in the communities the
Holding Company and its subsidiaries serves; and
WHEREAS, the Board of Directors believes, based upon the foregoing, that it
would be appropriate and in the best interest of the Holding Company and its
shareholders to amend the Bylaws to require that all directors be domiciled in
or have their primary place of business located in the Holding Company's primary
market area; and
WHEREAS, the Board of Directors has considered the size and diversity of the
population base of its primary market area, and believes that, if necessary or
if desired there is a sufficient pool of potentially qualified individuals
located therein who would be available for consideration for nomination as a
director of the Holding Company; and now therefore, be it
RESOLVED, that the Board of Directors of the Holding Company hereby approves the
adoption of an amendment to Article II of the Bylaws by adding the following new
Section 10, as follows:
Section 10. Qualifications. Any member of the Board of Directors shall, in
order to qualify as such, be domiciled in or have his or her primary place
of business located in the counties of Schenectady, Saratoga, Albany or
Rensselaer in the state of New York; and
BE IT FURTHER RESOLVED, that the appropriate officers of the Holding Company be
and hereby are authorized and directed to take all action necessary to implement
the foregoing resolutions and any action previously taken by such officers be
and hereby are approved, ratified and confirmed.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-QSB FOR THE FISCAL QUARTER ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,481
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,951
<INVESTMENTS-CARRYING> 34,176
<INVESTMENTS-MARKET> 33,775
<LOANS> 119,202
<ALLOWANCE> 676
<TOTAL-ASSETS> 168,841
<DEPOSITS> 144,374
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,534
<LONG-TERM> 0
15
0
<COMMON> 0
<OTHER-SE> 21,918
<TOTAL-LIABILITIES-AND-EQUITY> 168,841
<INTEREST-LOAN> 2,309
<INTEREST-INVEST> 591
<INTEREST-OTHER> 67
<INTEREST-TOTAL> 2,967
<INTEREST-DEPOSIT> 1,548
<INTEREST-EXPENSE> 1,548
<INTEREST-INCOME-NET> 1,419
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,123
<INCOME-PRETAX> 357
<INCOME-PRE-EXTRAORDINARY> 357
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<YIELD-ACTUAL> 3.57
<LOANS-NON> 1,030
<LOANS-PAST> 21
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 642
<CHARGE-OFFS> 2
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 676
<ALLOWANCE-DOMESTIC> 393
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 283
</TABLE>
