-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CCkzJ4r4/9nbYahIKiLCzz2EZWyyJYeMyH5R1Mmbn1RPx7PjODUp3YQmd2fkRxRk gaxcz2H00qR7ARTu2/4rag== 0000943374-96-000008.txt : 19960513 0000943374-96-000008.hdr.sgml : 19960513 ACCESSION NUMBER: 0000943374-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19960510 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BFS BANKORP INC CENTRAL INDEX KEY: 0000820900 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 133475050 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16825 FILM NUMBER: 96559974 BUSINESS ADDRESS: STREET 1: 110 WILLIAM FULTIN STREET CITY: NEW YORK STATE: NY ZIP: 10038-3902 BUSINESS PHONE: 2122274040 MAIL ADDRESS: STREET 1: 110 WILLIAM FULTON STREET CITY: NEW YORK STATE: NY ZIP: 10038-3902 10-Q 1 THIS IS THE FORM 10-Q FOR BFS BANKORP SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996 Commission File Number 0-16825 BFS Bankorp, Inc. (Exact name of registrant as specified in its charter) Delaware 13-3475050 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 110 William Street, New York, New York 10038 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (212) 227-4040 Not applicable (Former name, former address and former fiscal year, if changed since last report) 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 and 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 [ ] Number of shares of common stock, par value $.01 per share outstanding (net of treasury stock) as of April 30, 1996: 1,635,488. PAGE BFS Bankorp Inc. & Subsidiaries Form 10-Q Table of Contents
PART 1 - FINANCIAL INFORMATION PAGE Item 1. Consolidated Financial Statements (Unaudited) Consolidated Statements of Financial Condition 3 as of December 31, 1995 and September 30, 1995 Consolidated Statements of Income for the three 4 months ended December 31, 1995 and 1994 Consolidated Statements of Changes in Stockholders' Equity for the three months ended 5 December 31, 1995 Consolidated Statements of Cash Flows for the 6 three month periods ended December 31, 1995 and 1994 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of the 9 Financial Condition and Results of Operation PART 2 - OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities 20 Item 3. Defaults upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 21 Signature Page 22
PAGE BFS Bankorp, Inc. & Subsidiaries Consolidated Statements of Financial Condition (Unaudited)
March 31, 1996 September 30, 1995 - ------------------------------------------------------------------------------- (Dollars in thousands) Assets: Cash and due from banks $ 4,973 $ 5,978 Federal funds and interest- bearing deposits 5,000 14,000 Securities held to maturity, net (estimated market value of $18,740 and $16,163 at March 31, 1996 and September 30, 1995, respectively) 18,859 16,135 Mortgage-backed securities held to maturity, net (estimated market value of $15,804 and $17,426 at March 31, 1996 and September 30, 1995, respectively) 15,601 17,194 First mortgage and other loans 516,867 496,246 Allowance for loan losses (5,866) (5,359) - ------------------------------------------------------------------------------- Loan, net 511,001 490,887 Premises and equipment, net 2,997 2,671 Real estate owned 583 369 Accrued interest receivable 4,268 4,259 Other assets 3,170 3,658 Total assets $566,452 $555,151 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Liabilities: Deposits 388,992 388,562 Borrowed funds 94,600 94,600 Collateralized mortgage obligatiosn (CMOs) 13,810 15,183 Mortgagors' escrow payments 13,926 10,237 Accrued expenses and other liabilities 9,022 5,757 - ------------------------------------------------------------------------------- Total liabilities 520,350 514,339 - ------------------------------------------------------------------------------- Stockholders' equity: Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued Common stock, $.01 par value, 6,000,000 shares authorized, 1,695,428 issued with 1,635,488 outstanding at March 31, 1996 and 1,694,597 issued and 1,634,627 outstanding at September 30, 1995 17 17 Additional paid-in capital 10,742 10,711 Retained earnings 35,927 30,670 Common stock acquired for Management Recognition Plan (MRP) (19) (21) Common stock in Treasury, at cost; 59,940 shares at March 31, 1996 and September 30, 1995, respectively (565) (565) - ------------------------------------------------------------------------------- Total stockholders' equity 46,102 40,812 - ------------------------------------------------------------------------------- Total liabilities and stockholders' equity $566,452 $555,151 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
BFS Bankorp, Inc. & Subsidiaries Consolidated Statements of Financial Condition (Unaudited)
Three Months Ended Six Months Ended March 31, March 31, - --------------------------------------------------------------------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------- Interest income: First mortgage and other loans $12,699 $ 8,051 $24,813 $15,441 Mortgage-backed securities 290 2,714 592 5,306 Securities held to maturity 348 372 689 661 Federal funds 117 109 301 214 - --------------------------------------------------------------------------- Total interest income 13,454 11,246 26,395 21,622 - --------------------------------------------------------------------------- Interest expense: Deposits 4,026 3,296 8,097 6,428 Borrowed funds 1,696 1,486 3,394 2,687 Collateralized mortgage obligationz 377 424 771 863 - --------------------------------------------------------------------------- Total interest expense 6,099 5,206 12,262 9,978 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Net interest income 7,355 6,040 14,133 11,644 Provision for loan losses - 31 - 204 - --------------------------------------------------------------------------- Net interest income after provision for loan losses 7,355 6,009 14,133 11,440 Other income: Loan fees and service charges 409 393 609 686 Other fees, service charges and other income 221 219 457 467 Gain (loss) on sale of assets, net 926 56 1,011 (90) - --------------------------------------------------------------------------- Total other income 1,556 668 2,077 1,063 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Other expenses: Compensation and benefits 1,875 1,756 3,594 3,350 Occupancy and equipment 578 511 1,105 1,028 Marketing, professional fees and services 406 226 654 445 SAIF deposit insurance premiums 229 215 450 458 Data processing service fees 162 153 319 294 Provision for real estate losses - 139 - 166 Net (income) loss from real estate operations (84) 75 (6) 39 Other 311 313 636 655 - --------------------------------------------------------------------------- Total other expenses 3,477 3,388 6,752 6,435 - --------------------------------------------------------------------------- Income before provision for income tax expense 5,434 3,289 9,458 6,068 Provision for income tax expense 2,456 1,584 4,201 2,926 - --------------------------------------------------------------------------- Net income $ 2,978 $ 1,705 $ 5,257 $ 3,142 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Primary earnings per share $ 1.70 $ 0.99 $ 3.00 $ 1.82 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Fully diluted earnings per share $ 1.70 $ 0.99 $ 3.00 $ 1.82 - --------------------------------------------------------------------------- - ---------------------------------------------------------------------------
BFS Bankorp, Inc. Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Common Additional Stock Common Paid-in Retained Acquired Treasury (In thousands) Stock Capital Earnings for MRP Stock Total - ---------------------------------------------------------------------------------------------------- Six Months Ended March 31, 1996 Balance at September 30, 1995 $ 17 $10,711 $30,670 $(21) $(565) $40,812 Net incomef for quarter ended December 31, 1995 -- -- 2,279 -- -- 2,279 Amortization of MRP stock -- -- -- 1 -- 1 - ---------------------------------------------------------------------------------------------------- Balance at December 31, 1995 17 10,711 32,949 (20) (565) 43,092 Net income for quarter ended March 31, 1996 -- -- 2,978 -- -- 2,978 Incentive stock plan for outside directors issuance -- 31 -- -- -- 31 Amortization of MRP stock -- -- -- 1 -- 1 - ---------------------------------------------------------------------------------------------------- Balance at March 31, 1996 $ 17 $10,742 $35,927 $(19) $(565) $46,102 - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- See accompanying notes to unaudited consolidated financial statements.
PAGE BFS Bankorp, Inc. & Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended Six Months Ended March 31, March 31, - --------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------- Net cash flows from operating activities: $ 2,978 $ 1,705 $ 5,257 $ 3,142 Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of MRP and ESOP 1 3 2 7 Accretion of discounts, net of amortization of premiums (536) (84) (722) (96) (Increase) decrease in other assets (718) (2,111) 488 (2,098) Increase in accrued expenses and other liabilities 2,857 3,773 3,265 1,911 Increase in accrued interest receivable (66) (191) (9) (432) Provisions ofr loan and real estate losses -- 170 -- 370 (Gain) loss on sale of assets, net (842) (56) (926) 90 Incentive stock plan for outside directors issuance 31 31 31 31 Depreciation and amortization 183 168 332 322 - --------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,888 3,408 7,718 3,247 - --------------------------------------------------------------------------------------------- Cash flows from investing activities: Principal payments on mortgage and other loans 24,441 5,074 41,586 10,807 Principal payments on mortgage-backed securities 755 4,858 1,582 6,218 Mortgage and other loans sold 593 2,205 7,699 6,762 Real estate owned sold 6,116 2,127 6,761 5,133 Investments in mortgage and other loans (31,132) (13,971) (74,605) (53,231) Investments in mortgage-backed securities -- (7,170) -- (7,170) Maturities of securities held to maturity 5,245 5,581 13,550 7,528 Purchases of securities held to maturity (7,951) (6,339) (16,274) (10,277) Net additions in premises and equipment (368) (111) (658) (249) - --------------------------------------------------------------------------------------------- Net cash used in operating activities (2,301) (7,746) (20,359) (34,479) - --------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase in deposits, net of interest credited 3,454 1,105 430 4,068 Increase in other borrowings -- 7,805 -- 32,000 Principal payments on collateralized mortgage obligatiosn (706) (673) (1,483) (1,342) Stock options exercised -- 77 -- 77 (Decrease) increase in advance payments by borrowers (4,416) 3,302 3,689 3,948 - --------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (1,668) 11,616 2,636 38,751 - --------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (81) 7,278 (10,005) 7,519 Cash and cash equivalents at beginning of period 10,054 13,986 19,978 13,745 - --------------------------------------------------------------------------------------------- Cash and cash equivalents at ending of period $ 9,973 $ 21,264 $ 9,973 $ 21,264 - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes $ 1,120 $ 540 $ 2,149 $ 2,110 Interest on deposits and borrowed money $ 6,099 $ 3,316 $ 12,262 6,462 Non-cash transactiosn: Transfer from loans to real estate owned $ 3,832 $ 140 $ 5,770 $ 384 Transfer of mortgage-backed securities held for sale, net to mortgage-backed securities held for maturity $ -- $ -- $ -- $103,354 - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- See accompanying notes to unaudited consolidated financial statements.
BFS Bankorp, Inc. & Subsidiaries Notes to Unaudited Consolidated Financial Statements March 31, 1996 Note 1: The accompanying unaudited consolidated financial statements include the accounts of BFS Bankorp, Inc. ("Company") and its wholly owned subsidiary, Bankers Federal Savings FSB ("Bank") and the Bank's wholly owned subsidiaries, BFED I Corporation, Bankers Federal Service Corporation, Fayette Properties, Inc., BFS Credit Corporation, BFS Finance Corporation and the inactive John Street Service Corporation, as of March 31, 1996 and September 30, 1995 and for the three and six month periods ended March 31, 1996 and 1995. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and should be read in conjunction with the consolidated financial statements of the Company for the fiscal year ended September 30, 1995, as presented on form 10-K. As such, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of Management, all necessary adjustments, consisting of normal recurring accruals necessary for fair presentation, have been included. Certain amounts in the 1995 financial statements have been reclassified to conform to the 1996 financial statement presentation. The results of operations for the six month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the entire fiscal year. Note 2: Primary and fully diluted earnings per share are computed based on net income for the three and six month periods ended March 31, 1996 and 1995. The weighted average number of shares of common stock and common stock equivalents used in the computation of primary and fully diluted earnings per share are as follows:
Three Months Ended Six Months Ended March 31, March 31, - -------------------------------------------------------------------------------- 1996 1995 1996 1995 - -------------------------------------------------------------------------------- Number of shares used in the calculation of: Primary earnings per share 1,752,081 1,722,593 1,750,809 1,721,713 Fully diluted earnings per share 1,752,165 1,723,656 1,751,016 1,755,520
Note 3: In the normal course of business, there are outstanding commitments and contingent liabilities which are not reflected in the accompanying financial statements. At March 31, 1996, the Bank had commitments outstanding to originate mortgage loans of approximately $46,779,000, all of which will be secured by multi- family residential properties. In addition, unused lines of credit approximated $178,000 at March 31, 1996. Loans serviced by the Bank for the benefit of others totaled approximately $51,115,000 at March 31, 1996, all of which are on a non-recourse basis. In June, 1995, the Bank renewed an overnight line of credit with the Federal Home Loan Bank of New York ("FHLBNY") in the amount of $26,313,600, which PAGE expires in June, 1996. The Bank utilizes the line of credit as is necessary to meet temporary cash needs and expects to renew the line of credit come June, 1996. As of March 31, 1996, the balance outstanding on the line of credit was $-0-. Note 4: In the first quarter of fiscal 1996, the Company adopted Statement of Financial Standards ("SFAS") No. 114 "Accounting by Creditors for Impairment of a Loan". SFAS 114 generally requires all creditors to account for impaired loans, with the exception of those loans that are accounted for at fair value or at a lower of cost or fair value, at the present value of the expected future cash flows discounted at the loan's effective interest rate. Also in the first quarter of fiscal 1996, the Company adopted SFAS No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". SFAS 118 amends SFAS 114 to permit creditors to use existing methods for recording interest income by eliminating the income recognition provisions of SFAS 114. Creditors may continue to use a cost recovery or cash basis method (or some combination of both) to account for interest income on impaired loans. SFAS No. 114 also provides that in-substance foreclosed loans should not be included in Real Estate Owned but in the loan portfolio for financial reporting purposes. Accordingly, $479,000 of in-substance foreclosed loans at September 30, 1995 were reclassified from Real Estate Owned to First Mortgage and Other Loans. Under SFAS No. 114, a loan is considered impaired when, based on current information, it is probable that the borrower will be unable to pay contractual interest or principal payments as scheduled in the loan agreement. The Company's impaired loans are those nonconsumer loans currently reported as nonaccrual. Impaired loans for which the discounted cash flows, collateral value or market price exceeds the carrying value of the loan do not require an allowance under SFAS No. 114. The allowance for impaired loans for which the discounted cash flows, collateral value or market price is less than the carrying value of the loan is included in the Company's overall allowance for credit losses. The Company recognizes interest income on these loans to the extent received in cash. The following table sets forth impaired loan disclosures (in thousands) as of and for the six months ended March 31, 1996:
Impaired loans with an allowance $ -- Impaired loans without an allowance 7,818 ------- Total impaired loans $ 7,818 ------- ------- Allowance for impaired loans $ -- ------- ------- Average balance of impaired loans during the period $11,821 ------- ------- Interest income recognized on impaired loans during the period $ 6 ------- -------
BFS Bankorp, Inc. & Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations General BFS Bankorp, Inc., a Delaware business corporation, is a holding company whose principal subsidiary is Bankers Federal Savings FSB. The Bank is a federally-chartered savings bank, headquartered in New York City, New York and is insured by the Federal Deposit Insurance Corporation ("FDIC") through the Savings Association Insurance Fund ("SAIF"). The Company was organized at the direction of the Bank in connection with the Bank's conversion from mutual to stock form of organization on May 11, 1988. The primary activity of the Company at this time is its ownership of all outstanding capital stock of the Bank. The Bank is principally engaged in the business of originating multi-family residential first mortgage loans and funding said loans by attracting retail deposits from the general public. At its discretion, the Bank may borrow funds from the FHLBNY as a source of funds in lieu of or in addition to savings growth. The Bank maintains a portion of its assets in investment securities including, but not limited to, US Government and agency securities, mortgage-backed securities and federal funds. Financial Condition The Company's total assets increased by $11.3 million to $566.5 million at March 31, 1996 from $555.2 million at September 30, 1995. The Company's total stockholders' equity increased by $5.3 million to $46.1 million at March 31, 1996 from $40.8 million at September 30, 1995. This increase is primarily the result of the net income recorded by the Company during the six month period ended March 31, 1996. Origination of first mortgage loans totaled $74.6 million and $7.7 million of single family mortgage loans were sold. The funding for these new origination's came primarily from a decrease of $9.0 million in Fed funds and the cash inflows associated with the repayments on loans and mortgage-backed securities, and increased mortgagors' escrow payments. Non-performing assets decreased to $8.4 million, or 1.48% of total assets at March 31, 1996, as compared to $13.7 million, or 2.46% of total assets at September 30, 1995. Loans 90 or more days delinquent decreased to $7.8 million or 1.51% of total loans at March 31, 1996 as compared to $13.3 million and 2.69% of total loans at September 30, 1995. Non-performing assets continue to decline through individual sales of real estate owned, resolutions of previously non-performing assets and minimal new non-performing assets. The following tables illustrate the segregation of the amount of non-performing assets (in thousands) by property type at the dates indicated:
Construction 1-4 Family Multi-family Total - -------------------------------------------------------------------------------------- As of March 31, 1996 Loans 90 days or more delinquent $ -- $1,504 $ 6,314 $ 7,818 Real estate owned -- 332 251 583 - -------------------------------------------------------------------------------------- $ -- $1,836 $ 6,565 $ 8,401 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- As of September 30, 1995 Loans 90 days or more delinquent $ 170 $1,732 $11,410 $13,312 Real estate owned -- 265 104 369 - -------------------------------------------------------------------------------------- $ 170 $1,997 $11,514 $13,681 - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------
The following table is an analysis of the Bank's general allowance for loan losses (in thousands) for the periods indicated:
Three Months Ended Six Months Ended March 31, March 31, ----------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- --------- Beginning Balance $5,635 $4,816 $5,359 $4,684 Provision for loan losses -- 31 -- 204 Chargeoffs One to four family -- 4 10 26 Multi family -- 19 -- 38 Recoveries - multi-family (231) -- (517) -- - --------------------------------------------------------------------------- Net (recoveries) chargeoffs (231) 23 (507) 64 - --------------------------------------------------------------------------- Ending balance $5,866 $4,824 $5,866 $4,824 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Ratio of net chargeoffs to average loans (0.05)% 0.01% (0.10)% 0.02% - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Ratio of allowance to total loans 1.13% 1.36% 1.13% 1.36% - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Ratio of allowance to non-performing loans 75.03% 28.22% 75.03% 28.22% - --------------------------------------------------------------------------- - ---------------------------------------------------------------------------
The following table is an analysis of the Bank's general allowance for real estate losses (in thousands) for the periods indicated:
Three Months Ended Six Months Ended March 31, March 31, ----------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- --------- Beginning Balance $ -- $ -- $ -- $ 207 Provision for loan losses -- 139 -- 166 Chargeoffs One to four family -- 34 -- 34 Multi family -- 105 -- 339 Recoveries - multi-family -- -- -- -- - -------------------------------------------------------------------------- Net (recoveries) chargeoffs -- 139 -- 373 - -------------------------------------------------------------------------- Ending balance $ -- $ -- $ -- $ -- - -------------------------------------------------------------------------- - --------------------------------------------------------------------------
Liquidity and Capital Resources The Bank is required to maintain an average daily balance of liquid assets (cash, certain time deposits, bankers' acceptances, specified United States Government, state or federal agency obligations, shares of certain mutual funds and certain corporate debt securities and commercial paper) equal to a monthly average of not less than a specified percentage of its net withdrawable deposit accounts plus short term borrowings. This liquidity PAGE requirement, which is currently 5%, may be changed from time to time by the Office of Thrift Supervision ("OTS") to any amount within the range of 4% to 10%, depending upon economic conditions and the savings flow of member institutions. OTS regulations also require each member savings institution to maintain an average daily balance of short term liquid assets at a specified percentage (currently 1%) of the total of its net withdrawable deposit accounts and borrowings payable in one year or less. Monetary penalties may be imposed for failure to meet these liquidity requirements. The liquidity of the Bank at March 31, 1996 was 7.86%, which exceeded the then applicable 5% liquidity requirement. The Bank's short term liquidity ratio at March 31, 1996 was 5.92%. The OTS requires the Bank to maintain minimum capital applicable to three categories as defined in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). The three categories are: (1) tangible capital, which is required to be no less than 1.5% of total assets; (2) core or leverage capital, which is required to be no less than 3% of total assets; and (3) risk-based capital, which is required to be no less than 8% of risk-weighted assets. In April, 1991, the OTS proposed raising its core or leverage capital requirement such that all but the highest rated institutions would have a requirement of between 4% and 5% of total assets. The implementation of this proposal could increase the Bank's core or leverage capital requirement. In July, 1992, the OTS announced its revised interest rate risk regulation, which it has adopted and expects to implement shortly. The regulation requires thrifts with "above normal" interest rate risk (measured as a loss of economic value that exceeds 2 percent of an institutions assets under a hypothetical 200 basis point shock in interest rates) to hold capital in an amount equal to half the difference between measured risk and 2 percent, times the requirement. Management's measurement of this risk on the Bank indicates that no additional capital would have been required at the last measurement date. The following table depicts the Bank's regulatory capital for the periods indicated:
Tangible Capital Core Capital Risk-based Capital Amount Percent Amount Percent Amount Percent -------- ------- ------- ------- --------- ------- As of March 31, 1996: Regulatory capital $45,433 8.02% $45,433 8.02% $49,827 14.23% Regulatory requirement 8,496 1.50% 16,992 3.00% 28,006 8.00% - ----------------------------------------------------------------------------------- Excess capital $36,937 6.52% $28,441 5.02% $21,821 6.23% - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- As of September 30, 1995: Regulatory capital $40,080 7.22% $40,080 7.22% $44,418 12.83% Regulatory requirement 8,328 1.50% 16,655 3.00% 27,687 8.00% - ----------------------------------------------------------------------------------- Excess capital $31,752 5.72% $23,425 4.22% $16,731 4.83% - ----------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------
In September, 1992, the OTS, jointly with the other Bank Regulatory agencies, issued regulations implementing the prompt correction provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The regulations define three categories of capital that institutions will be measured against: (1) a risk-based capital ratio which is the ratio of risk-based capital to risk-weighted assets; (2) a Tier 1 capital ratio which is the ratio of Tier 1 or core capital to risk-weighted assets; and (3) a leverage capital ratio which is the ratio of core capital to adjusted total assets. An institution will be deemed well capitalized if its risk-based capital ratio is 10% or more, its Tier 1 capital is 6% or more, and its leverage capital is 5% or PAGE more and it is not subject to an OTS Order or Directive to meet and maintain any other capital level. An institution will be deemed adequately capitalized if its risk-based capital ratio is not less than 8%, its Tier 1 capital is not less than 4%, and its leverage capital is not less than 4%. Any institution with capital levels lower than these would be deemed to be undercapitalized. An institution is deemed significantly undercapitalized if its risk- based capital ratio is less than 6% or its Tier 1 capital ratio is less than 3%. An institution is deemed critically undercapitalized if its Tier 1 capital ratio is less than 2%. Based upon this criteria, the Bank would be deemed to be well capitalized at March 31, 1996. The FDIC Board has reduced the insurance premium assessed on deposits insured by the Bank Insurance Fund ("BIF"). The FDIC reduced the BIF premiums from a range of 23 to 31 basis points, which is the range of premiums currently paid on deposits insured by the SAIF, to a range of 0 to 31 basis points. The FDIC estimated that in excess of 90% of banks whose deposits are insured through the BIF would be assessed at the lowest premium rate. Due to the reserve levels of the SAIF, the FDIC has not proposed a reduction in the SAIF insurance premiums and it is not expected that, absent legislative developments, the insurance premiums assessed on SAIF deposits could be reduced until the end of the decade. The deposits held by the Bank are insured through the SAIF and, although the Bank currently pays the lowest premium assessed on SAIF deposits, the reduction in BIF premiums, without a similar reduction in SAIF premiums, places the Bank at a competitive disadvantage since BIF insured institutions can either: (1) pass through to depositors in the form of higher rates the reduction in deposit premiums, which would cause the Bank to increase rates on its deposits without an offsetting reduction in premium expense; (2) increase BIF insured institutions profitability, which may not be available to the Bank; or (3) a combination of both. Management continues to monitor the situation and is working with the various trade associations the Bank is affiliated with to achieve equality in the insurance premium assessment. Legislation has been proposed in Congress to recapitalize the SAIF fund and possibly consolidate the BIF and SAIF funds. One feature of this proposal calls for a special one-time assessment on all SAIF- insured institutions of up to 80 basis points to bring the SAIF fund up to its required level of capitalization. It is assumed that after this assessment takes place, that the on-going level of insurance premium assessments for the SAIF-insured institutions would be reduced to the same range as the BIF-insured institutions. Based upon the Bank's deposit base at March 31, 1996, the special assessment could cause a charge to earnings of approximately $3.1 million, while a reduction in the insurance premium assessment rate from 23 basis points to 4 basis points would reduce annual premium expenses by approximately $.7 million. It is not known at this time when and if this legislation will be approved and implemented. Results of Operations for the Three Months Ended March 31, 1996 and 1995 Net income for the three months ended March 31, 1996 was $2,978,000 as compared to $1,705,000 for the same quarter in 1995. Increased volume of new multi-family originations, lower non- performing assets, improved margins and increased gains on sale of REO were the primary reasons for the $1,273,000 or 74.7% improvement. The following is a detailed analysis of the components of net income for this period. PAGE Interest Income Total interest income for the quarter ended March 31, 1996 increased by $2,208,000, or 19.6% to $13,454,000 as compared to $11,246,000 for the quarter ended March 31, 1996. Average interest earning assets increased by $49,797,000 to $558,046,000 and the yield on these assets increased by 41 basis points to 9.26% for the period ended March 31, 1996 as compared to $508,249,000 and 8.85% for the same quarter in 1995. The increase was primarily due to increased multi-family mortgage originations at favorable interest rates and lower non-performing assets. Interest income on first mortgage and other loans increased by $4,648,000, or 57.7% to $12,699,000 for the quarter ended March 31, 1996 as compared to $8,051,000 for the same quarter in 1995. The average balance of first mortgage and other loans increased by $154,953,000 to $508,234,000 and the yield increased by 46 basis points to 9.57% as compared to $353,281,000 and 9.12% for the same quarter in 1995. The current quarter increase was primarily the result of the increased lending activity over the past four quarters at attractive interest rates and the dissolution of the multi-family mortgage-backed securities in June, 1995. Included in interest income but excluded from the yield calculation, were interest recoveries of approximately $252,000 and accelerated discounts of approximately $286,000. The interest items were previously reserved due to the delinquent status of the loans that they were associated with. The accelerated discounts were associated with the high level of prepayments that the Bank experienced during the quarter. Interest income on mortgage-backed securities decreased by $2,424,000, or 89.3% to $290,000 for the quarter ended March 31, 1996 as compared to $2,714,000 for the same quarter in 1995. Amortization, prepayments and the dissolution of approximately $102,711,000 of mortgage-backed securities in June, 1995 decreased the average balance by $107,220,000 to $15,975,000 and the yield decreased to 7.26% as compared to $123,195,000 and 8.81% for the same quarter in 1995. Interest income on investment securities decreased by $24,000, or 6.5% to $348,000 for the quarter ended March 31, 1996 as compared to $372,000 for the same quarter in 1995. While the average balance increased by $526,000 to $24,815,000 for the current quarter as compared to $24,289,000 for the same quarter in 1995, the lower interest rate environment over the past twelve months decreased the average yield by 52 basis points to 5.61% from 6.13%. Interest income on federal funds increased by $8,000, or 7.3% to $117,000 for the quarter ended March 31, 1996 as compared to $109,000 for the same quarter in 1995. The primary reason for the increase was a 20.6% increase in the average balance during the current quarter offset by a decrease in the average yield of 70 basis points to 5.13% for the quarter ended March 31, 1996 as compared to 5.83% for the same quarter in 1995. The increase in the average balance was in anticipation of additional multi-family mortgage originations. Interest Expense Total interest expense increased by $893,000, or 17.2% to $6,099,000 for the quarter ended March 31, 1996 as compared to $5,206,000 for the same quarter in 1995. The increase was primarily the result of an increase in average interest bearing liabilities of $38,305,000 to PAGE $497,015,000 from $458,710,000 and an increase in the average cost of funds of 33 basis points to 4.93% from 4.60% for the quarter ended March 31, 1996 as compared to the same quarter in 1995. The increase occurred as part of the funding mechanism for the increased mortgage originations which took place during the past four quarters. Interest expense on deposits increased by $730,000, or 22.2% to $4,026,000 for the quarter ended March 31, 1996 as compared to $3,296,000 for the same quarter in 1995. The primary reasons for the increase were higher interest rates and a shift in balances towards certificates of deposits over the past four quarters. The average cost of deposits increased by 48 basis points to 4.19% for the quarter ended March 31, 1996 as compared to 3.70% for the same quarter in 1995. Interest expense on borrowed funds increased by $210,000, or 14.1% to $1,696,000 for the quarter ended March 31, 1996 as compared to $1,486,000 for the same quarter in 1995. The primary reason for the increase was an increase in the average balance of borrowed funds of $16,101,000 to $95,933,000 for the quarter ended March 31, 1996 as compared to $79,832,000 for the same quarter in 1995. The increase in volume was offset by a decline in the average cost of borrowed funds which dropped by 44 basis points to 7.11% as compared to 7.55%. This decrease in the average cost of borrowed funds was primarily the result of higher rate borrowings that matured during the past four quarters and were replaced by lower rate borrowings. Interest expense on CMO's declined by $47,000, or 11.1% to $377,000 for the quarter ended March 31, 1996 as compared to $424,000 for the same quarter in 1995. The decrease was primarily the result of a $3,792,000 decrease in the average balance of this category due to principal reductions of the debt obligation. This decrease is expected to continue as the average balance declines and the Bank currently has no intention of issuing any new CMO's. Net Interest Income Net interest income increased by $1,315,000, or 21.8% to $7,355,000 for the quarter ended March 31, 1996 as compared to $6,040,000 for the same quarter in 1995. The increase is the result of the net changes to each of the interest income and interest expense generating categories as previously discussed. The Bank's interest spread increased by 8 basis points to 4.33% for the quarter ended March 31, 1996 as compared to 4.25% for the same quarter in 1995 while the interest margin increased by 17 basis points to 4.87% as compared to 4.70%. The ratio of average interest earning assets to average interest bearing liabilities increased to 112.3% for the quarter ended March 31, 1996 as compared to 110.8% for the same quarter in 1995. Provision for Loan Losses The provision for loan losses decreased by $31,000 to $-0- for the quarter ended March 31, 1996 as compared to $31,000 for the same quarter in 1995. The zero provision quarter was predicated upon the continuing trend of decreased delinquencies and the adequate level of allowances as determined during the quarter end review. The amount of loans delinquent 90 days or more has continued to decline as illustrated in the following table: PAGE
March 31, ----------------- Dollar Percent 1996 1995 Change Change -------- -------- -------- --------- Delinquent construction loans $ -- $ 170 $ (170) $(100.00)% Delinquent one to four family loans 1,504 1,990 (486) (24.42)% Delinquent multi-family loans 6,314 17,093 (10,779) (63.06)% - -------------------------------------------------------------------------- Total delinquent loans $ 7,818 $19,253 $(11,435) (59.39)% - -------------------------------------------------------------------------- - --------------------------------------------------------------------------
The decline has been a result of completed foreclosures, loan workouts and minimal new delinquencies in addition to a stabilization in property values due to an improving local real estate market. While this trend is positive for the Bank, it should be noted that the type of lending (multi-family residential) that the Bank has done and intends to do in the future involves larger loans and higher concentration risk and any downturn in the real estate market or non-payment on a large loan could cause this trend to reverse. Other Income Other income increased by $888,000, or 132.9% to $1,556,000 for the quarter ended March 31, 1996 as compared to $668,000 for the same quarter in 1995. The primary reason for the increase is an increase in the net gain on sale of assets in the current quarter due to the sale of several REO properties at prices in excess of the recorded book value. Other Expenses Other expenses increased by $89,000, or 2.6% to $3,477,000 for the quarter ended March 31, 1996 as compared to $3,388,000 for the same quarter in 1995. Compensation and benefits increased by $119,000 or 6.8%, primarily as a result of staff and merit increases. Marketing, professional fees and services increased by $180,000 or 79.7%, primarily as a result of an increased provision for expected legal fees related to past foreclosures and increased marketing expenses. These increases were offset by a zero provision for real estate losses and net income from REO operations. Income Taxes Provision for income taxes increased by $872,000 to $2,456,000 for the quarter ended March 31, 1996 as compared to $1,584,000 for the same quarter in 1995 as a result of higher income before provision for income tax expense offset by the permanent benefit gained from the utilization of the percentage of taxable income method for the bad debt deductions in the calculation of state and local income taxes. Legislation is currently pending at the Federal level which would eliminate utilizing the percentage of taxable income method of bad debt reserves in future years; cause no recapture of pre-1988 bad debt reserves; and cause the recapture of post-1987 bad debt reserves over a six year period. In the absence of any state legislation to the contrary, the passage of the federal legislation would also cause a recapture through expense for previous permanent differences related to bad debt deductions taken at the state and local levels. This federal legislation is tied to the health insurance bill, the timing of the passage of which is uncertain at the present time. Management continues to monitor the situation at the federal and state levels through its' trade association to ensure a fair resolution of this issue. PAGE Results of Operations for the Six Months Ended March 31, 1996 and 1995 Net income for the six months ended March 31, 1996 was $5,257,000 as compared to $3,142,000 for the same period in 1995. Increased volume of new multi-family originations, lower non- performing assets, improved margins and increased gains on sale of REO were the primary reasons for the $2,115,000 or 67.3% improvement. The following is a detailed analysis of the components of net income for this period. Interest Income Total interest income for the six month period ended March 31, 1996 increased by $4,773,000, or 22.1% to $26,395,000 as compared to $21,622,000 for the six month period ended March 31, 1996. Average interest earning assets increased by $57,323,000 to $556,569,000 and the yield on these assets increased by 63 basis points to 9.29% for the six month period ended March 31, 1996 as compared to $499,246,000 and 8.66% for the same period in 1995. The increase was primarily due to increased multi-family mortgage originations at favorable interest rates and lower non-performing assets. Interest income on first mortgage and other loans increased by $9,372,000, or 60.7% to $24,813,000 for the six month period ended March 31, 1996 as compared to $15,441,000 for the same period in 1995. The average balance of first mortgage and other loans increased by $161,381,000 to $505,653,000 and the yield increased by 63 basis points to 9.60% as compared to $344,272,000 and 8.97% for the same period in 1995. The current period increase was primarily the result of the increased lending activity over the past four quarters at attractive interest rates and the dissolution of the multi-family mortgage-backed securities in June, 1995. Included in interest income but excluded from the yield calculation, were interest recoveries of approximately $252,000 and accelerated discounts of approximately $286,000. The interest items were previously reserved due to the delinquent status of the loans that they were associated with. The accelerated discounts were associated with the high level of prepayments that the Bank experienced during the second fiscal quarter. Interest income on mortgage-backed securities decreased by $4,714,000, or 88.8% to $592,000 for the six month period ended March 31, 1996 as compared to $5,306,000 for the same period in 1995. Amortization, prepayments and the dissolution of approximately $102,711,000 of mortgage-backed securities in June, 1995 decreased the average balance by $106,714,000 to $16,376,000 and the yield decreased to 7.23% as compared to $123,090,000 and 8.62% for the same period in 1995. Interest income on investment securities increased by $28,000, or 4.2% to $689,000 for the six month period ended March 31, 1996 as compared to $661,000 for the same period in 1995. Interest income on federal funds increased by $87,000, or 40.7% to $301,000 for the six month period ended March 31, 1996 as compared to $214,000 for the same period in 1995. The primary reason for the increase was a 41.2% increase in the average balance during the current period. The increase in the average balance was in anticipation of additional multi-family mortgage originations. Interest Expense Total interest expense increased by $2,284,000, or 22.9% to $12,262,000 for the six month period ended March 31, 1996 as compared to $9,978,000 for the same period in 1995. The increase was primarily the result of an increase in average interest bearing liabilities of $48,502,000 to $496,337,000 from $447,835,000 and an increase in the average cost of funds of 47 basis points to 4.94% from 4.47% for the six month period ended March 31, 1996 as compared to the same period in 1995. The increase occurred as part of the funding mechanism for the increased mortgage originations which took place during the past four quarters. Interest expense on deposits increased by $1,669,000, or 26.0% to $8,097,000 for the six month period ended March 31, 1996 as compared to $6,428,000 for the same period in 1995. The primary reasons for the increase were higher interest rates and a shift in balances towards certificates of deposits over the past four quarters. The average cost of deposits increased by 58 basis points to 4.19% for the six month period ended March 31, 1996 as compared to 3.61% for the same period in 1995. Interest expense on borrowed funds increased by $707,000, or 26.3% to $3,394,000 for the six month period ended March 31, 1996 as compared to $2,687,000 for the same period in 1995. The primary reason for the increase was an increase in the average balance of borrowed funds of $23,269,000 to $95,267,000 for the six month period ended March 31, 1996 as compared to $71,998,000 for the same period in 1995. The increase in volume was offset by a decline in the average cost of borrowed funds which dropped by 36 basis points to 7.13% as compared to 7.48%. This decrease in the average cost of borrowed funds was primarily the result of higher rate borrowings that matured during the past four quarters and were replaced by lower rate borrowings. Interest expense on CMO's declined by $92,000, or 10.7% to $771,000 for the six month period ended March 31, 1996 as compared to $863,000 for the same period in 1995. The decrease was primarily the result of a $3,773,000 decrease in the average balance of this category due to principal reductions of the debt obligation. This decrease is expected to continue as the average balance declines and the Bank currently has no intention of issuing any new CMO's. Net Interest Income Net interest income increased by $2,489,000, or 21.4% to $14,133,000 for the six month period ended March 31, 1996 as compared to $11,644,000 for the same period in 1995. The increase is the result of the net changes to each of the interest income and interest expense generating categories as previously discussed. The Bank's interest spread increased by 16 basis points to 4.35% for the six month period ended March 31, 1996 as compared to 4.19% for the same period in 1995 while the interest margin increased by 24 basis points to 4.89% as compared to 4.65%. The ratio of average interest earning assets to average interest bearing liabilities increased to 112.1% for the six month period ended March 31, 1996 as compared to 111.5% for the same period in 1995. PAGE Provision for Loan Losses The provision for loan losses decreased by $204,000 to $-0- for the six month period ended March 31, 1996 as compared to $204,000 for the same period in 1995. The zero provision for the first six months of the fiscal year was predicated upon the continuing trend of decreased delinquencies and the adequate level of allowances as determined during the quarter end review. The amount of loans delinquent 90 days or more has continued to decline as illustrated in the following table:
March 31, ----------------- Dollar Percent 1996 1995 Change Change -------- -------- -------- --------- Delinquent construction loans $ -- $ 170 $ (170) $(100.00)% Delinquent one to four family loans 1,504 1,990 (486) (24.42)% Delinquent multi-family loans 6,314 17,093 (10,779) (63.06)% - --------------------------------------------------------------------------- Total delinquent loans $7,818 $19,253 $(11,435) (59.39)% - --------------------------------------------------------------------------- - ---------------------------------------------------------------------------
The decline has been a result of completed foreclosures, loan workouts and minimal new delinquencies in addition to a stabilization in property values due to an improving local real estate market. While this trend is positive for the Bank, it should be noted that the type of lending (multi-family residential) that the Bank has done and intends to do in the future involves larger loans and higher concentration risk and any downturn in the real estate market or non-payment on a large loan could cause this trend to reverse. Other Income Other income increased by $1,014,000, or 95.4% to $2,077,000 for the six month period ended March 31, 1996 as compared to $1,063,000 for the same period in 1995. The primary reason for the increase is an increase in the gain on sale of assets, net in the current period due to the sale of several REO properties at prices in excess of the recorded book value. Other Expenses Other expenses increased by $317,000, or 4.9% to $6,752,000 for the six month period ended March 31, 1996 as compared to $6,435,000 for the same period in 1995. Compensation and benefits increased by $244,000 or 7.3%, primarily as a result of staff and merit increases. Marketing, professional fees and services increased by $209,000 or 47.0%, primarily as a result of an increased provision for expected legal fees related to past foreclosures and increased marketing expenses. These increases were offset by a zero provision for real estate losses and net income from REO operations. Income Taxes Provision for income taxes increased by $1,275,000 to $4,201,000 for the six month period ended March 31, 1996 as compared to $2,926,000 for the same period in 1995 as a result of higher income before provision for income tax expense offset by the permanent benefit gained from the utilization of the percentage of taxable income method for the bad debt deductions in the calculation of state and local income taxes. Legislation is currently pending at the Federal level which would eliminate utilizing the percentage of taxable income method of PAGE bad debt reserves in future years; cause no recapture of pre-1988 bad debt reserves; and cause the recapture of post-1987 bad debt reserves over a six year period. In the absence of any state legislation to the contrary, the passage of the federal legislation would also cause a recapture through expense for previous permanent differences related to bad debt deductions taken at the state and local levels. This federal legislation is tied to the health insurance bill, the timing of the passage of which is uncertain at the present time. Management continues to monitor the situation at the federal and state levels through its' trade association to ensure a fair resolution of this issue. Part 2 - Other Information Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of the security holders of BFS Bankorp, Inc. took place on February 21, 1996. (b) The following director was elected to a three year term: Eldon C. Hanes The following directors' terms of office continue after the meeting: Fredric H. Gould Todd M. Poland James A. Randall (c) The following votes were received (there were no broker non- votes) as to each matter voted on at the annual meeting: (i) Election of director: Eldon C. Hanes: 1,549,188 shares voted For; 4,543 shares voted Against. (ii) The ratification of KPMG Peat Marwick LLP as the Company's auditors: 1,543,104 shares voted For; 8,283 shares voted Against; 2,344 shares Abstained. Each of the matters listed above were therefore approved. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1996. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1995. Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized. BFS Bankorp, Inc. (Registrant) Date: May 9, 1996 By: (s) James A. Randall --------------------------- James A. Randall President, Chief Executive Officer Date: May 9, 1996 By: (s) Gerard A. Perri --------------------------- Gerard A. Perri Senior Vice President, Chief Financial Officer EX-27 2 ART. 9 FDS FOR BFS BANKORP INC. 3/31/96 10-Q
9 1000 6-MOS SEP-30-1995 MAR-31-1996 4973 0 5000 0 0 34460 34544 516867 5866 566452 388992 108410 22948 0 16759 0 0 35343 566452 24813 1582 0 26395 8097 12262 14133 0 0 6752 9458 9458 0 0 5257 3.00 3.00 9.29 8401 0 0 0 5359 10 517 5866 5866 0 0
-----END PRIVACY-ENHANCED MESSAGE-----