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 June 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 July 31, 1997
--------------------- ---------------------------
Common Stock, Par Value $.01 1,230,997
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [ X ]
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
JUNE 30, 1997
INDEX
Part I FINANCIAL
INFORMATION
Page
Item 1. Financial Statements..................................................
Consolidated Statements of Income for the Three
months ended June 30, 1997 and 1996, (Unaudited)....................
Consolidated Statements of Income for the Six
months ended June 30, 1997 and 1996, (Unaudited)....................
Consolidated Statements of Financial Condition as
of June 30, 1997, (Unaudited) and December 31, 1996.................
Consolidated Statements of Changes in Stockholders' Equity for
the Six months ended June 30, 1997 and 1996, (Unaudited)...........
Consolidated Statements of Cash Flows for the Six
months ended June 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
JUNE 30, 1997
-------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Item 1. - 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
JUNE 30,
---------------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Interest income:
Real estate loans ........................................ $2,375 2,123
Other loans .............................................. 11 8
Mortgage-backed securities ............................... 305 356
Debt securities .......................................... 224 261
Federal funds sold and cash deposits ..................... 56 68
Securities available for sale ............................ 88 112
Stock in Federal Home Loan Bank .......................... 21 19
------ ------
Total interest income ............................. 3,080 2,947
Interest expense:
Deposits ................................................. 1,640 1,527
------ ------
Net interest income ............................... 1,440 1,420
Provision for loan losses ...................................... 30 30
------ ------
Net interest income after provision for loan losses 1,410 1,390
------ ------
Noninterest income:
Gain on (loss) sale of securities ........................ -- (36)
Service fee income ....................................... 4 5
Other loan charges ....................................... 45 41
Bank fees and service charges ............................ 45 33
Other .................................................... 12 30
------ ------
Total noninterest income .......................... 106 73
------ ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(continued)
THREE MONTHS ENDED
JUNE 30,
---------------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Noninterest expense:
Compensation and employee benefits ....................... 665 644
Advertising and business promotion ....................... 20 23
Office occupancy and equipment expense ................... 151 135
Federal deposit insurance premiums ....................... 23 80
Other insurance premiums ................................. 22 22
Mortgage servicing fees .................................. 8 10
Data processing fees ..................................... 43 41
Other real estate writedown .............................. -- 7
Professional service fees ................................ 56 73
Other .................................................... 69 84
------ ------
Total noninterest expense ......................... 1,057 1,119
------ ------
Income before taxes ............................... 459 344
Income tax expense ............................................. 191 51
------ ------
Net income ........................................ $ 268 293
====== ======
Earnings per share ............................................ $ .23 .23
====== ======
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Interest income:
Real estate loans ........................................ $4,675 4,203
Other loans .............................................. 20 21
Mortgage-backed securities ............................... 622 742
Debt securities .......................................... 461 552
Federal funds sold and cash deposits ..................... 103 157
Securities available for sale ............................ 125 231
Stock in Federal Home Loan Bank .......................... 41 38
------ ------
Total interest income ............................. 6,047 5,944
Interest expense:
Deposits ................................................. 3,188 3,093
------ ------
Net interest income ............................... 2,859 2,851
Provision for loan losses ...................................... 60 60
------ ------
Net interest income after provision for loan losses 2,799 2,791
------ ------
Noninterest income:
Gain (loss) on sale of securities ........................ -- (36)
Service fee income ....................................... 8 10
Other loan charges ....................................... 83 84
Bank fees and service charges ............................ 82 66
Other .................................................... 24 40
------ ------
Total noninterest income .......................... 197 164
------ ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(continued)
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Noninterest expense:
Compensation and employee benefits ....................... 1,359 1,259
Advertising and business promotion ....................... 61 59
Office occupancy and equipment expense ................... 309 264
Federal deposit insurance premiums ....................... 28 162
Other insurance premiums ................................. 44 46
Mortgage servicing fees .................................. 17 21
Data processing fees ..................................... 88 83
Other real estate writedown .............................. -- 7
Professional service fees ................................ 121 140
Other .................................................... 152 155
------ ------
Total noninterest expense ......................... 2,179 2,196
------ ------
Income before taxes ............................... 817 759
Income tax expense ............................................. 324 176
------ ------
Net income ........................................ $ 493 583
====== ======
Earnings per share ............................................. $ .42 .44
====== ======
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
June 30, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks .................................................... $ 1,273 1,296
Federal funds sold ......................................................... 3,000 1,600
--------- ---------
Total cash and cash equivalents ................................ 4,273 2,896
Securities available for sale, at fair value ............................... 6,031 1,990
Investment securities:
Debt securities (approximate fair value of $13,661
at June 30, 1997 and $15,642 at December 31, 1996) ............ 13,741 15,746
Mortgage-backed securities (approximate fair value of
$18,774 at June 30, 1997 and $20,322 at December 31, 1996) ..... 18,806 20,434
Investment required by law, stock in Federal Home Loan Bank of NY, at cost . 1,338 1,215
Loans receivable, net ...................................................... 124,168 118,455
Accrued interest receivable ................................................ 1,197 1,137
Premises and equipment, net ................................................ 2,270 1,921
Real estate owned .......................................................... 89 178
Prepaid expenses and other asset ........................................... 936 916
--------- ---------
Total Assets ................................................ $ 172,849 164,888
========= =======
Liabilities and Stockholders' Equity
Liabilities:
Due to depositors:
Demand deposits .................................................. $ 11,119 10,496
Savings accounts ................................................. 44,837 43,226
Time deposit accounts ............................................ 92,045 86,894
--------- ---------
Total Deposits .............................................. 148,001 140,616
Advance payments by borrowers for property taxes and insurance ........ 1,527 1,160
Accrued expenses and other liabilities ................................ 1,767 1,441
--------- ---------
Total Liabilities ........................................... 151,295 143,217
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
(continued)
June 30, December 31,
1996 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; 1,235,997 shares outstanding at June 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 ............................. 12,017 11,687
Common stock acquired by :
Employee stock ownership plan ("ESOP") (95,680 shares) .................. (957) (957)
Recognition and retention plan ("RRP") (34,205 shares) .................. (374) (540)
Treasury stock, at cost (259,003 shares at June 30, 1997 and 224,003 at
December 31, 1996) ............................................. (3,450) (2,840)
Net unrealized gain on securities available for sale, net of tax ........... 43 46
--------- ---------
Total Stockholders' Equity ............................................ 21,554 21,671
--------- ---------
Total Liabilities and Stockholders' Equity ............................ $ 172,849 164,888
========= =========
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)
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>
Six Months Ended June 30, 1997
Balance at December 31, 1996 ......... $ 15 14,260 11,687 (957) (540) 46 (2,840) 21,671
Net income ........................... -- -- 493 -- -- -- -- 493
Net change in unrealized gain on
securities available for sale .. -- -- -- -- -- (3) -- (3)
RRP shares issued and
amortization of award ................ -- -- -- -- 166 -- -- 166
Cash dividends declared ............. -- -- (163) -- -- -- -- (163)
Exercise of stock options ............ -- -- -- -- -- -- 94 94
Purchase of Treasury shares .......... -- -- -- -- -- -- (704) (704)
------- ------- ------- ------- ------- ------- ------- -------
Balance at June 30, 1997 ............. $ 15 14,260 12,017 (957) (374) 43 (3,450) 21,554
======= ======= ======= ======= ======= ======= ======= =======
Six Months Ended June 30, 1996
Balance at December 31, 1995 ......... $ 15 14,221 11,013 (1,076) -- 88 -- 24,261
Net income ........................... -- -- 583 -- -- -- -- 583
Net change in unrealized gain on
securities available for sale...... -- -- -- -- -- (8) -- (8)
Purchase of Treasury shares ......... -- -- -- -- -- -- (2,549) (2,549)
------- ------- ------- ------- ------- ------- ------- -------
Balance at June 30, 1996 ............. $ 15 14,221 11,596 (1,076) -- 80 (2,549) 22,287
======= ======= ======= ======= ======= ======= ======= =======
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)
Six Months Ended
June 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 ............................................................ $ 493 583
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .................................... 91 70
Net accretion on investment securities ........................... (5) (8)
Amortization of award of RRP ..................................... 166 --
Provision for loan losses ........................................ 60 60
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 .................... -- 36
Increase in accrued interest receivable .......................... (60) (13)
Increase in prepaid expense and other assets ..................... (20) (79)
Increase in accrued expense and other liabilities ................ 332 61
------- -------
Total adjustments ........................................... 564 142
------- -------
Net cash provided by operating activities ..................... 1,057 725
------- -------
Cash flows from investing activities:
Proceeds from maturity/paydown of investment securities .................... 2,009 8,678
Purchase of investment securities .......................................... -- (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 ......................... 1,629 2,172
Net increase in loans receivable ........................................... (3,932) (7,188)
Purchase of loans receivable ............................................... (1,852) (2,671)
Capital expenditures, net of disposals ..................................... (440) (320)
Proceeds from sale of available for sale securities ........................ -- 3,964
Proceeds from the sale of real estate owned ................................ 100 8
------- -------
Net cash used by investing activities ................................. (6,659) (1,456)
------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(continued)
Six Months Ended
June 30,
---------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits ........................................ 7,385 (284)
Net increase in advance payments by borrowers for
property taxes and insurance .......................................... 367 34
Proceeds upon exercise of common stock options ............................. 94 --
Dividends paid ............................................................. (163) --
Purchase of Treasury stock ................................................. (704) (2,549)
------- -------
Net cash provided (used) in financing activities ........................... 6,979 (2,799)
------- -------
Net increase (decrease) in cash and cash equivalents .................. 1,377 (3,530)
Cash and cash equivalents at beginning of period ........................... 2,896 10,453
------- -------
Cash and cash equivalents at end of period ................................. $ 4,273 6,923
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid ......................................................... $ 3,188 3,096
Taxes paid ............................................................ 211 342
Transfer of loans to other real estate owned ............................... 11 --
Net change in unrealized gain on securities available for sale, net of
deferred tax benefit of $6 for the six months ended
June 30, 1997.......................................................... (3) (8)
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 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 confirm to
the current periods' presentation. The results of operations for the three and
six months ended June 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 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 1,146,415 and 1,261,669 for the three months ended June
30, 1997 and 1996, respectively, and 1,160,688 and 1,313,608 for the six months
ended June 30, 1997 and 1996, respectively.
<PAGE>
SFS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
JUNE 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, 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, 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 review 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:
o 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;
o 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;
o 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;
o the effect of unforeseen changes in interest rates;
o the effect of changes in business cycles and downturns in the local,
regional, or national economies.
<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 $1.4 million to
$4.3 million at June 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 June 30, 1997, was 23.25%.
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 $1.1 million and $725,000 for the six months
ended June 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, was
$6.7 million and $1.5 million for the six months ended June 30, 1997 and 1996,
respectively. Net cash provided by financing activities for the six months ended
June 30, 1997 of $7.0 million consisted primarily of net increases in deposit
accounts during the period offset by the purchase of treasury stock and the
payment of dividends. Net cash used in financing activities, consisting
primarily of the purchase of treasury stock and by a net decrease in deposit
accounts, was $2.8 million for the six months ended June 30, 1996.
During the six month period ended June 30, 1997 the Company repurchased 42,475
shares. The average price of treasury shares purchased was $16.58 totaling
$704,000. The average price paid of $16.58 was approximately 95.1% of the
Company's book value per share of $17.44 at June 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 June 30, 1997, the Bank's capital exceeded each of the capital requirements
of the OTS. At June 30, 1997, the Bank's tangible and core capital levels were
both $18.3 million (10.5% of total adjusted assets) and its risk-based capital
level was $18.9 million (20.6% 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.
<PAGE>
FINANCIAL CONDITION
Total assets increased $8.0 million (4.8%) to $172.8 million at June 30, 1997
from $164.9 million at December 31, 1996. This increase occurred as loans
receivable, net, grew $5.7 million (4.8%) to $124.2 million at June 30, 1997.
The growth in the loan portfolio consisted primarily of residential mortgage
loans. Securities available for sale increased $4.0 million (203.1%) to $6.0
million at June 30, 1997. Offsetting these increases was a decrease in
investment securities of $3.6 million (10.0%) to $32.6 million.
At June 30, 1997, total liabilities were $151.3 million representing an increase
of $8.1 million (5.6%) 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
decreased $117,000 to $21.6 million at June 30, 1997 as compared to $21.7
million at December 31, 1996 largely as a result of the Company's stock
repurchase program which utilized $704,000 during the period. Retained earnings
increased by $330,000 primarily as a result of net income of the Company for the
six month period ended June 30, 1997 offset by cash dividends declared. Treasury
stock increased $610,000 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 $165,000 (16.3%) totaling $1.2 million at June
30, 1997, compared with $1.0 million at December 31, 1996 as a result of an
increase in residential mortgage non-accrual loans. 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 .88% at June 30, 1997,
compared with .70% at December 31, 1996. The ratio of nonperforming assets to
total assets at June 30, 1997, was .68% compared with .61% at December 31, 1996.
Loan Receivable, Net
A summary of loans receivable, net at June 30, 1997 and December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Loans secured by real estate:
Residential:
Conventional ............................. $ 90,937 84,840
Home Equity .............................. 22,645 22,904
FHA Insured .............................. 3,156 3,511
VA Guaranteed ............................ 2,407 2,810
Commercial and multi-family ................. 5,175 4,532
-------- --------
124,320 118,597
Other loans .................................... 587 523
-------- --------
124,907 119,120
-------- --------
Less:
Unearned discount and net deferred loan fees 21 23
Allowance for loan losses ................... 718 642
-------- --------
739 665
-------- --------
Loans receivable, net .......................... $124,168 118,455
======== ========
</TABLE>
<PAGE>
The following table sets forth the information with regard to nonperforming
assets.
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------ ------
<S> <C> <C>
Loans on a nonaccrual status ................... $1,004 801
Loans contractually past due 90 days or
more and still accruing interest ............ 83 32
------ ------
Total nonperforming loans ................ 1,087 833
Other real estate owned ........................ 89 178
------ ------
Total nonperforming assets ............... $1,176 1,011
====== ======
</TABLE>
The following table sets forth the information with regard to changes in the
allowance for loan losses.
<TABLE>
<CAPTION>
For the six months ended June 30,
1997 1996
----- -----
<S> <C> <C>
Balance, beginning of period ................... $ 642 572
Provision charged to operations ................ 60 60
Loans charged off .............................. (2) (28)
Recoveries on loans previously charged off ..... 18 22
----- -----
Balance, end of period ......................... $ 718 626
===== =====
</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 six months ended June 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.
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 JUNE 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) ..... $122,114 $ 2,386 7.84% $108,319 $ 2,131 7.91%
Mortgage-backed securities .... 19,306 305 6.34 22,891 356 6.25
Securities available for sale . 5,265 88 6.70 7,660 112 5.88
Debt securities ............... 13,987 224 6.42 16,492 261 6.37
Other interest-earning asset
including cash equivalents 4,136 56 5.43 5,164 68 5.30
FHLB stock ................... 1,338 21 6.30 1,216 19 6.28
-------- -------- -------- --------
Total interest-earning assets ....... 166,146 3,080 7.44 161,742 2,947 7.33
-------- -------- -------- --------
Savings accounts .............. 37,285 280 3.01 39,468 296 3.02
Money market accounts ......... 6,859 59 3.45 5,004 38 3.05
Demand and NOW accounts (2) ... 10,625 40 1.51 9,871 35 1.43
Certificate accounts .......... 91,552 1,254 5.49 85,008 1,151 5.45
Escrow ........................ 1,212 7 2.32 1,207 7 2.33
-------- -------- -------- --------
Total interest-bearing liabilities .. 147,533 1,640 4.46 140,558 1,527 4.37
-------- -------- -------- --------
Net interest income ................. $ 1,440 $ 1,420
======== ========
Net interest rate spread ............ 2.98% 2.96%
==== ====
Net earning assets .................. $ 18,613 $ 21,184
======== ========
Net yield on average
interest-earning assets ...... 3.48% 3.53%
==== ====
Average interest-earning
assets to average
interest-bearing liabilities . 1.13 1.15
==== ====
(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SFS BANCORP, INC. AND SUBSIDIARY
Average Balance Data, Interest Rates and Interest Differential
(Dollars in Thousands) (Unaudited)
SIX MONTHS ENDED JUNE 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) ..... $120,551 $ 4,695 7.85% $105,831 $ 4,224 8.03%
Mortgage-backed securities .... 19,665 622 6.38 23,496 742 6.35
Securities available for sale . 3,869 125 6.52 7,819 231 5.94
Debt securities ............... 14,446 461 6.44 17,570 552 6.32
Other interest-earning assets
including cash equivalents 3,901 103 5.32 5,974 157 5.28
FHLB stock .................... 1,305 41 6.34 1,191 38 6.42
Total interest-earning assets ....... 163,737 6,047 7.45 161,881 5,944 7.38
Interest-bearing liabilities:
Savings accounts .............. 37,160 555 3.01 39,816 598 3.02
Money market accounts ......... 6,581 111 3.40 4,681 68 2.92
Demand and NOW accounts (2) ... 10,364 78 1.52 9,552 69 1.45
Certificate accounts .......... 89,910 2,433 5.46 84,881 2,346 5.56
Escrow ........................ 1,011 11 2.19 1,099 12 2.20
Total interest-bearing liabilities .. 145,026 3,188 4.43 140,029 3,093 4.44
Net interest income $2,859 $ 2,851
====== =======
Net interest rate spread 3.02% 2.94%
==== ====
Net earning assets $ 18,711 $ 21,852
======== ========
Net yield on average
interest-earning assets 3.52% 3.54%
===== =====
Average interest-earning
assets to average
interest-bearing liabilities 1.13 1.16
==== ====
(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 JUNE 30, 1997
COMPARED WITH
THREE MONTHS ENDED JUNE 30, 1996
INCREASE (DECREASE)
----------------------------
DUE TO
----------------
VOLUME RATE NET
----- ----- -----
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net ................. $ 252 3 255
Mortgage-backed securities ............ (60) 9 (51)
Securities-available for sale ......... (39) 15 (24)
Debt securities ....................... (43) 6 (37)
Other interest-earning assets ......... (15) 3 (12)
FHLB stock ............................ 2 0 2
----- ----- -----
Total interest-earning assets ........... $ 97 36 133
===== ===== =====
Interest-bearing liabilities:
Savings deposits ...................... $ (19) 3 (16)
Money market accounts ................. 16 5 21
Demand and NOW deposits ............... 1 4 5
Certificate accounts .................. 82 21 103
Escrow ................................ 5 (5) 0
----- ----- -----
Total interest-bearing liabilities ...... $ 85 28 113
===== ===== =====
Change in net interest income ........... $ 20
=====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1996
INCREASE (DECREASE)
----------------------------
DUE TO
----------------
VOLUME RATE NET
----- ----- -----
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net ................. $ 533 (62) 471
Mortgage-backed securities ............ (128) 8 (120)
Securities-available for sale ......... (127) 21 (106)
Debt securities ....................... (105) 14 (91)
Other interest-earning assets ......... (56) 2 (54)
FHLB stock ............................ 3 0 3
----- ----- -----
Total interest-earning assets ........... $ 120 (17) 103
===== ===== =====
Interest-bearing liabilities:
Savings deposits ...................... $ (45) 2 (43)
Money market accounts ................. 34 9 43
Demand and NOW deposits ............... 5 4 9
Certificate accounts .................. 111 (24) 87
Escrow ................................ (1) 0 (1)
----- ----- -----
Total interest-bearing liabilities ...... $ 104 (9) 95
===== ===== =====
Change in net interest income ........... $ 8
=====
</TABLE>
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997
Three months ended June 30, 1997 compared with three months ended
June 30, 1996
Net income for the quarter ended June 30, 1997, was $268,000 or $.23 per share,
a decrease of $25,000 (8.5%) from the comparable quarter of the prior year. The
decrease in net income was primarily a result of an increase in income tax
expense offset by increases in net interest income after provision for loan
losses and noninterest income and a decrease in noninterest expense. The
annualized return on average assets ("ROA") for the current quarter amounted to
.63% compared with .72% for the comparable quarter a year ago. The annualized
return on average equity ("ROE") was 5.06% (on average equity of $21.2 million)
compared with 5.19% (on average equity of $22.7 million) a year earlier.
Interest income for the three months ended June 30, 1997, totaled $3.1 million,
an increase of $133,000 (4.5%) from 1996's second quarter, as average
interest-earning assets increased by $4.4 million (2.7%) to $166.1 million and
average rates earned increased by 11 basis points (1.5%) to 7.44%. The most
significant factor contributing to the increased level of interest income was
the increase in earnings on loans receivable, net which increased $255,000
(12.0%) as a result of a $13.8 million (12.7%) increase in the average
outstanding balance offset by a 7 basis point (0.9%) decrease in the average
rate earned. Earnings on mortgage-backed securities decreased $51,000 as a
result of a decrease in the average invested balance of $3.6 million (15.7%)
offset by an increase in average rates earned of 9 basis points (1.4%). Earnings
on debt securities decreased $37,000 (14.2%) as a result of a decrease in
average invested balance of $2.5 million (15.2%) offset by an increase in
average rates earned of 5 basis points (0.8%).
Interest expense for the quarter ended June 30, 1997, amounted to $1.6 million,
$113,000 (7.4%) more than the year ago quarter. The increase occurred as a
result of a $7.0 million (5.0%) increase in average interest bearing liabilities
to $147.5 million combined with a 9 basis point (2.1%) increase in average rates
paid to 4.46%. 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 $6.5 million (7.7%) and $1.9 million (37.1%), respectively.
The average balance of savings accounts, meanwhile, declined $2.2 million
(5.5%). The increase in average rates paid on certificate accounts of 4 basis
points (0.7%) to 5.49% was a reflection of general interest rates and a
competitive environment that prevailed during the second quarter of 1997
compared with 1996. The increase in average rate paid on money market accounts
of 40 basis points (13.1%) to 3.45% reflects the increased balances in the
higher interest rate tiers of the products structure.
Net interest income for the three months ended June 30, 1997 totaled $1.4
million, $20,000 (1.4%) more than the comparable quarter a year ago. The
interest rate spread increased 2 basis points to 2.98% for the quarter ended
June 30, 1997 as compared to the quarter ended June 30, 1996; the net interest
margin for the most recent quarter of 3.48% was 5 basis points less 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 June
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 June 30, 1997, the
Bank's allowance for loan losses totaled $718,000 (.57% of total loans and 66.1%
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 increased to $106,000 for the three months ended June 30,
1997, compared with $73,000 for the corresponding period in the previous year.
Increases in the three month period ended June 30, 1997 compared with 1996 were
primarily the result of losses taken on the sale of available for sale
securities in 1996.
Noninterest Expense
Noninterest expense decreased $62,000 (5.5%) to $1.1 million for the three
months ended June 30, 1997, as compared with the same period in 1996.
Compensation and employee benefits increased $21,000 (3.3%) between the
respective quarters. 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 $16,000 (11.9%)
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 $57,000 (71.3%) to $23,000 as a result of
revised premium levels associated with the Savings Association Insurance Fund
("SAIF"). 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 quarters ended June 30,
1997 as compared to the quarter ended June 30, 1996. Other real estate
writedowns totaled $7,000 during the second quarter last year. There were no
writedowns in the comparable period in 1997.
Income Tax Expense
Income tax expense totaled $191,000 and $51,000 for the three months ended June
30, 1997 and 1996, respectively. The effective tax rate for the three months
ended June 30, 1997 was 41.6%. The effective tax rate for the three months ended
June 30, 1996 was 14.8% and reflects a reduction in the deferred tax asset
valuation reserve reducing income tax expense. There were no reductions in the
deferred tax asset valuation reserve during the quarter ended June 30, 1997.
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997
Six months ended June 30, 1997, compared with six months ended June 30, 1996
Net income for the six months ended June 30, 1997, decreased by $90,000 (15.4%)
and totaled $493,000 compared with $583,000 realized in the first half of 1996.
Earnings per share for the six months ended June 30, 1997 was $.42 per share
compared to $.44 per share for the same period in 1996. The decrease in net
income was primarily attributable to an increase in income tax expense offset by
increases in net interest income after provision for loan losses and noninterest
income and a reduction in noninterest expense. Return on average assets ("ROA")
for the first half of 1997 amounted to .59% compared with .71% for the
comparable period a year ago. Return on average equity ("ROE") was 4.62% (on
average equity of $21.3 million) compared with 5.04% (on average equity of $23.3
million) a year earlier.
Interest income for the six months ended June 30, 1997, totaled $6.0 million, an
increase of $103,000 (1.7%) from 1996's first half. This increase was a result
of an increase in average interest-earning assets of $1.9 million (1.1%) to
$163.7 million and an increase in the average rate earned of 7 basis points
(0.9%) to 7.45%. The largest factor contributing to the increase in interest
income was the increase in earnings on loans which increased $471,000 (11.2%) as
a result of a $14.7 million (13.9%) increase in the average balance invested
offset by an 18 basis point (2.2%) decrease in average rates earned. Earnings on
mortgage-backed securities decreased $120,000 as a result of a decrease in
average invested balance of $3.8 million (16.3%) offset by an increase in
average rates earned of three basis points (0.5%). Earnings on debt securities
decreased $91,000 (16.5%) as a result of a decrease in average invested balance
of $3.1 million (17.8%) offset by an increase in average rates earned of 12
basis points (1.9%). Interest earned on securities available for sale decreased
$106,000 (45.9%) as a result of a $3.9 million (50.5%) decrease in the average
balance invested combined with an increase in the average rates earned of 58
basis points (9.8%). Earnings on other interest earning assets, essentially
federal funds sold, decreased $54,000 (34.4%) as a result of the combined effect
of a $2.1 million (34.7%) decrease in the average balance invested and a 4 basis
point (0.8%) increase in average rates earned.
Interest expense for the six months ended June 30, 1997, amounted to $3.2
million, $95,000 (3.1%) more than the corresponding period of the prior year.
The increase occurred as a result of a $5.0 million (3.6%) increase in average
interest bearing liabilities to $145.0 million offset by a one basis point
(0.2%) decrease in average rates paid to 4.43%. 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 $5.0 million (5.9%) and $1.9 million (40.6%),
respectively. The average balance of savings accounts, meanwhile, declined $2.7
million (6.7%). The decrease in average rates paid on certificate accounts of 10
basis points (1.8%) to 5.46% was a reflection of general interest rates and a
competitive environment that prevailed during the first half of 1997 compared
with 1996. The increase in average rate paid on money market accounts of 48
basis points (16.4%) to 3.40% reflects the increased balances in the higher
interest rate tiers of the products structure.
Net interest income for the six months ended June 30, 1997 totaled $2.9 million,
$8,000 (0.3%) more than the comparable period a year ago. The interest rate
spread increased 8 basis points to 3.02% for the six months ended June 30, 1997;
the net interest margin for the first half of 1997 of 3.52% was two basis points
less than the comparable period a year ago.
<PAGE>
Provision for Loan Losses
For the six months ended June 30, 1997 and 1996, the provision for loan losses
totaled $60,000. See "Provision for Loan Losses" at page 16.
Noninterest Income
Noninterest income increased for the six month period ended June 30, 1997 to
$197,000 compared with $164,000 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. Losses on the sale of
securities available for sale totaling $36,000 were incurred in 1996 while there
were no comparable losses in 1997.
Noninterest Expense
Noninterest expense decreased $17,000 (0.8%) to $2.2 million for the six months
ended June 30, 1997, as compared with the same period in 1996. Compensation and
employee benefits, the largest component of noninterest expense, increased
$100,000 (7.9%) 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 $45,000 (17.0%) 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. FDIC premiums decreased $134,000 (82.7%) to
$28,000 as a result of revised premium levels associated with the Savings
Association Insurance Fund ("SAIF"). 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
six months ended June 30, 1997 as compared to the six months ended June 30,
1996. Other real estate writedowns totaled $7,000 for the first half of 1996.
There were no writedowns for the comparable period in 1997.
Income Tax Expense
Income tax expense totaled $324,000 and $176,000 for the six months ended June
30, 1997 and 1996, respectively. The effective tax rate for the six months ended
June 30, 1997 was 39.7%. The effective tax rate for the six months ended June
30, 1996 was 23.2% and reflects a reduction in the deferred tax asset valuation
reserve reducing income tax expense. There were no reductions in the deferred
tax asset valuation reserve during the six months ended June 30, 1997.
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.
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.
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.
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
JUNE 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
(a) On April 16, 1997, the Company held its Annual Meeting of
Stockholders.
(b) At the meeting, Joseph H. Giaquinto and Gerald I. Klein were
elected for terms to expire in 2000.
(c) Stockholders voted on the following matters:
(i) the election of the following directors of the Company:
Broker
Votes: For Withheld Non-Votes
------ --- -------- ---------
Joseph H. Giaquinto 1,007,938 50 --
Gerald I. Klein 1,007,933 55 --
(ii) The ratification of the appointment of KPMG Peat Marwick
LLP as independent auditors of the Company for the
fiscal year ending December 31, 1997.
Broker
Votes: For Withheld Abstain Non-Votes
------ --- -------- ------- ---------
1,006,010 240 1,738 --
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: August 14, 1997 BY: /s/ Joseph H. Giaquinto
-----------------------
Joseph H. Giaquinto
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: August 14, 1997 BY: /s/ David J. Jurczynski
-----------------------
David J. Jurczynski
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 JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,273
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,031
<INVESTMENTS-CARRYING> 32,547
<INVESTMENTS-MARKET> 32,435
<LOANS> 124,886
<ALLOWANCE> 718
<TOTAL-ASSETS> 172,849
<DEPOSITS> 148,001
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,294
<LONG-TERM> 0
0
0
<COMMON> 15
<OTHER-SE> 21,539
<TOTAL-LIABILITIES-AND-EQUITY> 172,849
<INTEREST-LOAN> 4,695
<INTEREST-INVEST> 1,208
<INTEREST-OTHER> 144
<INTEREST-TOTAL> 6,047
<INTEREST-DEPOSIT> 3,188
<INTEREST-EXPENSE> 3,188
<INTEREST-INCOME-NET> 2,859
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,179
<INCOME-PRETAX> 817
<INCOME-PRE-EXTRAORDINARY> 817
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 493
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> 3.52
<LOANS-NON> 1,004
<LOANS-PAST> 83
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 642
<CHARGE-OFFS> 2
<RECOVERIES> 18
<ALLOWANCE-CLOSE> 718
<ALLOWANCE-DOMESTIC> 412
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 306
</TABLE>
