-----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, F77H87picByu2MI9OX2e/zwlZ3qYO3guhQm5Pl5scIyVgzMDo71ib8N13JGl3hBw UF4l1armpy8YjbvirGAeSg== 0000887202-97-000006.txt : 20030406 0000887202-97-000006.hdr.sgml : 20030406 19971124180430 ACCESSION NUMBER: 0000887202-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 DATE AS OF CHANGE: 19971201 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MSB BANCORP INC /DE CENTRAL INDEX KEY: 0000887202 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 061341670 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12177 FILM NUMBER: 97727389 BUSINESS ADDRESS: STREET 1: 35 MATTHEWS ST CITY: GOSHEN STATE: NY ZIP: 10924 BUSINESS PHONE: 9142948100 MAIL ADDRESS: STREET 1: 35 MATTHEWS ST CITY: GOSHEN STATE: NY ZIP: 10924 10-Q 1 QUARTERLY REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-20187 MSB BANCORP, INC. (Exact name of registrant as specified in its charter) Delaware 06-1341670 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 35 Matthews Street, Goshen, New York 10924 (Address of principal executive offices) (Zip Code) (914) 294-8100 (Registrant's telephone number including area code) N/A (Former name, former address and former fiscal year, if changed from 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 Exchange Act of 1934 during the preceding twelve 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 outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding at September 30, 1997 Common Stock, par value $.01 2,844,153 ================================================================================ TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets (Unaudited) -- September 30, 1997 and December 31, 1996..................................................1 Consolidated Statements of Income (Unaudited) -- Quarter and Nine months ended September 30, 1997 and 1996..........................2 Consolidated Statements of Cash Flows (Unaudited) --Nine months ended September 30, 1997 and 1996......................................3 Notes to Unaudited Consolidated Financial Statements...................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................................17 PART II -- OTHER INFORMATION Item 1. Legal Proceedings ....................................................18 Item 2. Changes in Securities and Use of Proceeds.............................18 Item 3. Defaults upon Senior Securities.......................................18 Item 4. Submission of Matters to a Vote of Security Holders...................18 Item 5. Other Information.....................................................18 Item 6. Exhibits and Reports on Form 8-K......................................18 Signatures........................................................... 19 Item 1. Financial Statements MSB Bancorp, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (Unaudited) (dollars in thousands) September 30, December 31, 1997 1996 ------------ ------------ ASSETS Cash and due from banks .......................... $ 16,901 $ 16,375 Federal funds sold ............................... 16,020 32,590 Securities available for sale .................... 58,315 50,685 Mortgage-backed securities available for sale .... 254,601 323,428 Loans, net ....................................... 372,282 338,491 Premises and equipment, net ...................... 14,304 14,869 Accrued interest receivable ...................... 4,740 5,552 Real estate owned ................................ 2,247 915 Goodwill ......................................... 29,734 32,835 Other assets ..................................... 4,847 5,176 --------- --------- Total assets ............................... $ 773,991 $ 820,916 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits ................................. 684,018 736,161 Mortgagors' escrow deposits .................... 2,042 1,849 Accrued expenses and other liabilities ......... 11,521 11,684 ESOP obligations ............................... 273 432 --------- --------- Total liabilities .............................. 697,854 750,126 --------- --------- Stockholders' Equity Preferred stock ($.01 par value; 1,000,000 shares authorized; 600,000 shares issued at September 30, 1997 and December 31, 1996) ..... 6 6 Common stock ($.01 par value; 5,000,000 shares authorized; 3,045,000 shares issued at September 30, 1997 and December 31, 1996) .. 30 30 Additional paid-in capital ....................... 48,059 48,163 Retained earnings ................................ 33,168 32,009 Treasury stock, at cost (200,847 shares and 211,064 shares at September 30, 1997 and ....... (3,941) (4,137) December 31, 1996, respectively) Unallocated ESOP stock ........................... (273) (432) Unallocated BRP stock ............................ (75) (172) Net unrealized loss on securities available for sale ............................ (837) (4,677) --------- --------- Total stockholders' equity ................. 76,137 70,790 --------- --------- Total liabilities and stockholders' equity . $ 773,991 $ 820,916 ========= ========= See accompanying notes to the unaudited consolidated financial statements. MSB Bancorp, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands except shares and per share amounts) For the Quarter Ended September 30 ---------------------------- 1997 1996 ---------------------------- INTEREST INCOME Mortgage loans ................................. $ 6,745 $ 5,816 Other loans .................................... 725 567 Mortgage-backed securities ..................... 4,002 6,527 Securities ..................................... 897 892 Federal funds sold ............................. 749 51 ----------- ----------- Total interest income .................... 13,118 13,853 INTEREST EXPENSE Interest on deposits ........................... 7,001 7,755 Interest on borrowings ......................... 1 18 Interest on ESOP obligation .................... 5 12 ----------- ----------- Total interest expense ................... 7,007 7,785 ----------- ----------- Net interest income ............................ 6,111 6,068 Provision for loan losses ...................... 275 400 ----------- ----------- Net interest income after provision for loan losses ................................... 5,836 5,668 NON-INTEREST INCOME Service fees ................................... 1,180 970 Net realized gains (losses) on sales of securities and mortgage loans ................. 73 (8) Other non-interest income ...................... 32 2 ----------- ----------- 1,285 964 NON-INTEREST EXPENSE Salaries and employee benefits ................. 2,104 2,106 Occupancy and equipment ........................ 817 801 Federal deposit insurance premiums ............. 68 264 Goodwill amortization .......................... 909 920 Other non-interest expense ..................... 1,183 1,122 SAIF recapitalization assessment ................ -- 2,925 ----------- ----------- Total non-interest expense ................ 5,081 8,138 ----------- ----------- Income (loss) before income taxes ............. 2,040 (1,506) Income tax expense (benefit) ................... 810 (648) ----------- ----------- Net income (loss) .............................. $ 1,230 $ (858) =========== =========== Earnings per share ............................. $ 0.33 $ (0.40) Weighted average shares outstanding ............ 2,886,109 2,833,936 =========== =========== For the Nine Months Ended September 30 --------------------------- 1997 1996 --------------- ----------- INTEREST INCOME Mortgage loans ................................. $ 19,804 $ 16,369 Other loans .................................... 1,953 1,553 Mortgage-backed securities ..................... 14,372 18,433 Securities ..................................... 2,604 3,334 Federal funds sold ............................. 1,608 1,029 ----------- ----------- Total interest income .................... 40,341 40,718 INTEREST EXPENSE Interest on deposits ........................... 21,900 22,982 Interest on borrowings ......................... 1 18 Interest on ESOP obligation .................... 21 41 ----------- ----------- Total interest expense ................... 21,922 23,041 ----------- ----------- Net interest income ............................ 18,419 17,677 Provision for loan losses ...................... 850 970 ----------- ----------- Net interest income after provision for loan losses ................................... 17,569 16,707 NON-INTEREST INCOME Service fees ................................... 3,079 2,780 Net realized gains (losses) on sales of securities and mortgage loans ................. 167 80 Other non-interest income ...................... 79 7 ----------- ----------- 3,325 2,867 NON-INTEREST EXPENSE Salaries and employee benefits ................. 6,495 6,284 Occupancy and equipment ........................ 2,407 2,333 Federal deposit insurance premiums ............. 221 741 Goodwill amortization .......................... 2,751 2,596 Other non-interest expense ..................... 3,605 3,609 SAIF recapitalization assessment ............... -- 2,925 ----------- ----------- Total non-interest expense ................ 15,479 18,488 ----------- ----------- Income (loss) before income taxes ............. 5,415 1,086 Income tax expense (benefit) ................... 2,143 440 ----------- ----------- Net income (loss) .............................. $ 3,272 $ 646 =========== =========== Earnings per share ............................. $ 0.84 $ (0.06) Weighted average shares outstanding ............ 2,878,031 2,808,124 =========== =========== See accompanying notes to the unaudited consolidated financial statements. MSB Bancorp, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Nine Months Ended September 30, 1997 1996 -------------- ------------ OPERATING ACTIVITIES Net income ..................................... $ 3,272 $ 646 Adjustments to reconcile net income to net cash provided by operating activities: Realized losses (gains) ........................ (167) (80) Amortization of premiums/discounts on securities 786 872 Proceeds from the sale of student loans ........ 1,209 1,149 Origination of mortgage loans held for sale .... (9,282) (7,909) Proceeds from the sale of mortgage loans ....... 9,600 8,562 Amortization of net deferred loan origination fees ........................................ (98) (137) Depreciation and amortization .................. 951 932 Provisions for loan losses ..................... 850 970 Write-downs on real estate ..................... 66 171 Goodwill amortization .......................... 2,751 2,596 Decrease (increase) in accrued interest receivable .................................. 812 (2,052) Decrease (increase) in prepaid expenses and other assets .................................. (2,572) 434 Increase (decrease) in accrued expenses and other liabilities ............................. 183 (763) Net change in Federal and State income tax payables and receivables ...................... 481 (1,280) Deferred income taxes .......................... (164) (479) Other .......................................... 300 (454) ----------- ----------- Net cash provided by (used in) operating activities .................................. 8,977 $ (3,178) =========== =========== INVESTING ACTIVITIES Net (increase) decrease in loans ............... (38,043) (49,379) Maturities and redemptions of debt securities .. 49 14,142 Purchases of securities available for sale ..... (9,623) (25,391) Proceeds from the sale of securities available for sale .................................... 3,000 31,082 Purchases of mortgage-backed securities available for sale .......................... (53,590) (383,209) Proceeds from the sale of mortgage-backed securities available for sale ................. 109,599 26,368 Repayments of mortgage-backed securities available for sale .......................... 17,505 14,365 Repayments of asset backed securities .......... -- 143 Proceeds from the sale of real estate owned, net 602 343 Purchases of property and equipment ............ (385) (3,980) Cash received in branch acquisition ............ -- 380,299 ----------- ----------- Net cash provided by investing activities .... $ 29,114 $ 5,503 =========== =========== See accompanying notes to the unaudited consolidated financial statements. MSB Bancorp, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Nine Months Ended September 30, 1997 1996 ------------- ------------ FINANCING ACTIVITIES Net change in deposits ......................... $ (52,143) $ (55,321) Net increase (decrease) in mortgagors' escrow deposits .................................... 193 (344) Proceeds from borrowings ...................... -- 12,100 Repayment of ESOP loan ......................... (159) (223) Proceeds from the sale of stock ................ -- 32,078 Payment of cash dividends on common and preferred stock ............................. (2,128) (1,678) Proceeds from the exercise of stock options .... 102 40 ----------- ----------- Net cash used in financing activities .... $ (54,135) $ (13,348) ----------- ----------- Increase (decrease) in cash and cash equivalents $ (16,044) $ (4,667) Cash and cash equivalents at beginning of period $ 48,965 $ 26,814 ----------- ----------- Cash and cash equivalents at end of period ..... $ 32,921 $ 22,147 =========== =========== SUPPLEMENTAL INFORMATION Interest paid on savings deposits .............. $ 21,901 $ 22,969 Income taxes paid (received) ................... 1,558 2,203 Non-cash transactions: Transfer of balances from loans receivable to real estate owned ........................... $ 2,300 $ 778 =========== =========== See accompanying notes to the unaudited consolidated financial statements. MSB Bancorp, Inc. and Subsidiaries NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation In September 1992, MSB Bancorp, Inc. (the "Company") completed the issuance of 1,840,000 shares of common stock in connection with the conversion of Middletown Savings Bank (the "Bank") from a mutual to a stock savings bank (the "Conversion"). Concurrent with the Conversion, the Company acquired all of the Bank's common stock. On January 10, 1996, the Company sold 1,100,000 shares of common stock at $18 per share and 600,000 shares of its 8.75% Cumulative Convertible Preferred Stock, Series A at $21.60 per share. On February 7, 1996, the Company sold an additional 105,000 shares of Common Stock pursuant to the underwriters' exercise of their over-allotment option. The issuance and sale of the shares of Common Stock and Preferred Stock on January 10 and February 7 are hereinafter collectively referred to as the "Offering." Net proceeds from the Offering amounted to $32.1 million. The purpose of the Offering was to raise a significant portion of the additional capital necessary to permit the Bank to qualify as "adequately capitalized" for regulatory capital purposes immediately following the consummation of the acquisition (the "Acquisition") of branches from First Nationwide Bank, A Federal Savings Bank ("First Nationwide"). In September 1995, the Bank entered into an Asset Purchase and Sale Agreement (as amended, the "First Nationwide Agreement") with First Nationwide pursuant to which the Bank acquired certain assets and assumed certain liabilities relating to seven First Nationwide branch offices located in Carmel, Liberty, Mahopac, Monticello, Port Jervis, Warwick and Washingtonville, New York (the "First Nationwide Branches"). The closing took place on January 12, 1996 (the "Closing Date"), whereupon the Bank assumed the deposits (the "First Nationwide Deposits") of the First Nationwide Branches. On January 12, 1996, the First Nationwide Deposits totaled $414.8 million. In addition, the Bank acquired certain assets related to the First Nationwide Branches, including branch facilities and fixed operating assets associated with the First Nationwide Branches at a purchase price of approximately $2.9 million, and certain savings account and overdraft loans, which totaled $1.0 million at January 12, 1996, at face value. On October 27, 1995, the Bank converted from a New York state-chartered savings bank to a federal savings bank in order to facilitate the Acquisition as well as future expansion. In addition, the Bank changed its name to MSB Bank. The Company is a savings and loan holding company subject to the regulation, examination and supervision of the Office of Thrift Supervision (the "OTS"). Prior to the conversion of the Bank to a federal savings bank, the Company was a bank holding company subject to the regulation, examination and supervision of the Federal Reserve Board ("FRB"). The Bank provides banking services to individual and corporate customers, with its business activities concentrated in the New York counties of Orange, Putnam and Sullivan, and the surrounding areas. The consolidated financial statements included herein have been prepared by the Company without audit. In the opinion of management, the quarterly unaudited financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented. Certain information and footnote disclosures normally included in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the information presented not misleading, however, the results for the periods presented are not necessarily indicative of results to be expected for the entire year. The unaudited quarterly and year to date financial statements presented herein should be read in conjunction with the annual audited consolidated financial statements of the Company for the fiscal year ended December 31, 1996. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, MSB Bank and MSB Travel, Inc., and the Bank's wholly owned subsidiary, MSB Financial Services, Inc. Significant inter-company transactions and amounts have been eliminated. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowances for losses and real estate investments. 2. Earnings Per Share Primary earnings per common share is calculated based upon the weighted average common shares outstanding adjusted for common stock equivalents that have a dilutive effect on the per share data. Earnings for the purpose of computing primary earnings per share consists of net income for the period less dividends on preferred stock. Common stock equivalents include stock options. During the first quarter of 1996, the Company sold 600,000 shares of its 8.75% Cumulative Convertible Preferred Stock, Series A in the Offering. This stock is not considered a common stock equivalent but is used in the calculation of fully diluted earnings per share. Since the preferred stock has an anti-dilutive effect on earnings per share for the quarters and nine month periods ended September 30, 1997 and 1996, it has not been incorporated in the calculation; fully diluted and primary earnings per share are the same. 3. Allowance for Loan Losses The allowance for loan losses is increased by provision charged to operations and decreased by charge-offs (net of recoveries). Loans are charged off when, in the opinion of management, the recorded investment in the loan is uncollectible. Management's periodic evaluation of the adequacy of the allowance considers factors such as the Bank's past loan experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay, estimated value of any underlying collateral and current and prospective economic conditions. Management believes that the allowance for loan losses is adequate. While management estimates loan losses using the best available information, such as independent appraisals for significant collateral properties, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding known problem loans, identification of additional problem loans and other factors, both within and outside of management's control. Activity in the allowance for loan losses for the periods indicated is summarized as follows: Quarter Nine Year Ended Months Ended Ended September 30, September 30, December 31, 1997 1996 1997 1996 1996 ------ ------- ------- ------- ------ (Dollars in thousands) Balance at beginning of period ...... ................ $2,238 $1,556 $1,960 $1,659 $1,659 Provision for loan losses ....................... 275 400 850 970 1,400 LOANS CHARGED OFF Real estate .............. 89 175 383 497 634 Other loans .............. 82 6 257 367 485 ----- ------ ------ ------ ------ Total loans charged off ...... 171 181 640 864 1,119 ----- ------ ------ ------ ------ RECOVERIES Real estate .............. -- -- 148 1 1 Other loans .............. 11 7 35 16 19 ----- ------ ------ ------ ------ Total recoveries ......... 11 7 183 17 20 ----- ------ ------ ------ ------ Net charge-offs .......... 160 174 457 847 1,099 ----- ------ ------ ------ ------ Balance at end of period ..... $2,353 $1,782 $2,353 $1,782 $1,960 ====== ====== ====== ====== ====== Ratio of net charge-offs to average net loans outstanding (annualized) ... 0.17% 0.22% 0.26% 0.38% 0.36% ====== ====== ====== ====== ====== 4. Legal Proceedings Except as described below, the Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings in the aggregate are believed by management to be immaterial to the Company's financial condition and results of operations. The Company and its directors are defendants in a lawsuit, Kahn Brothers & Co., Inc. Profit Plan and Trust et al. v. MSB Bancorp, Inc. et al., commenced by stockholders in the Delaware Court of Chancery, New Castle County, on November 22, 1995. (The Company and its directors were defendants in a lawsuit, Pohli v. MSB Bancorp, Inc. et al., commenced by a stockholder in the Delaware Court of Chancery, New Castle County, on November 7, 1995. This action was consolidated with the Kahn litigation.) The plaintiffs, who own in excess of 5% of the outstanding shares of the Common Stock and purport to represent a class consisting of all stockholders except the stockholder defendants, allege that the defendant directors breached their duty of care by failing to become fully informed about the expression of interest of HUBCO, Inc. ("HUBCO"); breached their duty of disclosure to stockholders by not notifying the public or the Company's stockholders of HUBCO's expression of interest; and breached their duty of good faith and fair representation by, among other things, not investigating whether the Acquisition constituted a reasonable alternative for building stockholder value. The plaintiffs further allege that the Company's offering of Common Stock in connection with the Acquisition (the "Common Stock Offering") was not intended to enhance stockholder value, but rather was for the purpose of diluting the ownership and voting strength of existing stockholders and further entrenching existing management and the Board. The plaintiffs sought to enjoin the Common Stock Offering and are also seeking damages equal to the difference between the market price of the Common Stock on September 7, 1995, and $35 (approximately $14,989,000 in the aggregate) or, in the alternative, the difference between the market price of the Common Stock on October 26, 1995, and $25 (approximately $7,394,000 in the aggregate), including interest and attorneys' and other professional fees. In connection with this action, plaintiffs filed a motion seeking expedited discovery and scheduling. On December 6, 1995, in response to the plaintiffs' motion for expedited proceedings, which was treated by the court as an application for a temporary restraining order with respect to the Common Stock Offering, the court denied the plaintiffs' application for such order. On December 12, 1995, the court denied the plaintiffs' motion for re-argument. On December 18, 1995, the Company filed an answer denying all of the substantive allegations in the complaint and seeking, among other things, an order dismissing the complaint with prejudice. Plaintiffs amended their complaint to include allegations relating to an unsolicited merger proposal received by the Company from the First Empire State Corporation ("First Empire") on December 28, 1995. Specifically, the amended complaint alleges, among other things, that the Company's Board of Directors, in breach of its duties of care, loyalty and disclosure, relied on the advice of Bear, Stearns & Co., Inc. ("Bear Stearns"), the Company's financial advisor and underwriter for the Offering, knowing that Bear Stearns could not render independent financial advice regarding the First Empire proposal. The plaintiffs are seeking alternative damages based on these allegations in an amount equal to the difference between the market price of the Common Stock on December 28, 1995 and $26 (approximately $11,560,000 in the aggregate). The Company filed its amended answer on February 1, 1996 denying all of the substantive allegations in the amended complaint and seeking, among other things, an order dismissing the amended complaint with prejudice. The parties have engaged in substantial written discovery and plaintiffs have deposed all of the directors and certain representatives of Bear Stearns. On October 10, 1997, all the defendants served and filed with the Court a motion for summary judgment which seeks the dismissal of all the allegations in plaintiffs' amended complaint. The Company intends to continue to vigorously contest the allegations of wrongdoing in this action. While the Company believes that it has meritorious defenses in these legal actions and is vigorously defending these suits, the legal responsibility and financial impact with respect to these litigation matters cannot presently be ascertained and, accordingly, there is risk that the final resolution of these matters could result in the payment of monetary damages which would be material in relation to the consolidated financial condition or results of operations of the Company. The Company does not believe that the likelihood of such a result is probable and has not established any specific litigation reserves with respect to such matters. Item 2. Management's Discussion and Analysis of Financial Condition and Results Results of Operations General MSB Bancorp, Inc. (the "Company") is the holding company for MSB Bank ("MSB" or the "Bank"). The financial conditions and results of operations of the Company are primarily dependent upon the operations of the Bank. On January 10, 1996, the Company sold 1,100,000 shares of Common Stock at $18 per share and 600,000 shares of its Series A Preferred Stock at $21.60 per share. On February 7, 1996 the Company sold an additional 105,000 shares of Common Stock pursuant to the underwriters' exercise of their over-allotment option. The issuance and sales of the shares of Common Stock and Series A Preferred Stock on January 10 and February 7 are hereinafter referred to, collectively, as the "Offering." Net proceeds from the Offering amounted to approximately $32.1 million. The purpose of the Offering was to raise a significant portion of the additional capital necessary to permit the Bank to qualify as "adequately capitalized" for regulatory capital purposes immediately following the acquisition of seven branches (the "Acquired Branches") from First Nationwide Bank, A Federal Savings Bank ("First Nationwide"), in January, 1996 (the "Acquisition"). The Acquisition closed on January 12, 1996 with the Bank assuming $414.8 million of deposits. The Bank also acquired the related branch facilities and operating assets at a purchase price of $2.9 million and certain deposit-related loans with a face value of $1.0 million. The Company announced a Reengineering Plan (the "Plan") on July 14, 1997 designed to increase the Company's earnings and stockholder value. The major components of the Plan included (i) the reduction of employee costs primarily by certain staff reductions and by reducing the number of hours worked by branch personnel, (ii) reduction of various operating expenses, (iii) fee initiatives, (iv) the introduction of trust and insurance services and (v) the repurchase of up to 5% of the Company's outstanding common stock subject to market conditions. Results of Operations 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 securities portfolios and its cost of funds, consisting primarily of the interest paid on its deposits. The Bank's operating expenses principally consist of employee compensation, occupancy expenses, goodwill amortization, federal despoit insurance premiums and other general and administrative expenses. The Bank's results of operations are also significantly affected by its periodic provision for loan losses and write-downs of real estate owned. Such results are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities. The Company is subject to certain legal proceedings that, if adversely determined, could materially and adversely affect the Company's results of operations. See Part II, Item 1, "Legal Proceedings." The following tables set forth information relating to the Company's consolidated balance sheet and consolidated statements of income for the three and nine month periods ended September 30, 1997 and 1996 and reflect the average yield (not on a tax equivalent basis) on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The average balances of securities available for sale are calculated based on amortized cost. The yields and costs include fees, which are considered adjustments to yields. For the Quarter Ended September 30, -------------------------------------------------------------------------------------------- 1997 1996 ----------------------------------------------- ------------------------------------------- Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ---------- ---------- ----------- ---------- ---------- ---------- (Dollars in thousands) Assets: Interest-earning assets: Mortgage loans, net(1)........... $ 335,889 $ 6,745 7.97% $ 291,912 $ 5,816 7.93% Other loans(1)................... 27,975 725 10.28 20,123 567 11.21 Mortgage-backed securities....... 245,338 4,002 6.47 396,285 6,527 6.55 Other securities................. 57,896 897 6.15 56,558 892 6.27 Federal funds, overnight......... 53,744 749 5.53 3,590 51 5.65 ---------- ---------- ----------- ---------- ---------- ---------- Total interest-earning assets.... 720,842 13,118 7.22 768,468 13,853 7.17 Non-interest earning assets........ 67,612 65,608 ---------- ---------- Total assets..................... $ 788,454 $ 834,076 ========== ========== Liabilities and Retained Earnings: Interest-bearing liabilities: Deposits: Savings accounts............... $ 209,640 1,694 3.21 $ 206,241 1,637 3.16 Super NOW accounts............. 40,332 190 1.87 41,869 202 1.92 Money market accounts.......... 53,038 546 4.08 50,348 523 4.13 Time deposits.................. 347,950 4,571 5.21 406,170 5,393 5.28 Borrowings....................... 72 1 5.51 1,466 18 4.88 ESOP obligation.................. 278 5 7.14 584 12 8.17 ---------- ---------- ----------- ---------- ---------- ---------- Total interest-bearing liabilities.................... 641,310 7,007 4.27 706,678 7,785 4.38 Other liabilities.................. 61,182 58,033 ---------- ---------- Total liabilities............. 712,492 764,711 Retained earnings.................. 75,962 69,365 ---------- ---------- Total liabilities and retained earnings........... $ 788,454 $ 834,076 ========== ========== Net interest income/ interest rate spread(2)........... $ 6,111 2.95% $ 6,068 2.97% ========== =========== ========== ========== Net earning assets/net interest margin(3)................ $ 69,532 3.36% $ 61,790 3.14% ========== =========== ========== ========== Ratio of interest-earning assets to interest-bearing liabilities... 1.11x 1.09x =========== ==========
------------------------ (1) In computing the average balance of loans, non-accrual loans have been included. (2) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (3) Net interest margin represents net interest income divided by average interest-earning assets. For the Nine Months Ended September 30, ------------------------------------------------------------------------------------------- 1997 1996 ------------------------------------------------ ----------------------------------------- Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost (Dollars in thousands) Assets: Interest-earning assets: Mortgage loans, net(1)........... $ 325,170 $ 19,804 8.14% $ 276,603 $ 16,369 7.90% Other loans(1)................... 25,466 1,953 10.25 19,008 1,553 10.91 Mortgage-backed securities....... 291,076 14,372 6.60 374,829 18,433 6.57 Other securities................. 56,172 2,604 6.20 70,033 3,334 6.36 Federal funds, overnight......... 39,729 1,608 5.41 20,144 1,029 4.72 ---------- ---------- --------- ---------- ---------- ---------- Total interest-earning assets.... 737,613 40,341 7.31 769,617 40,178 7.07 Non-interest earning assets........ 65,570 67,696 ---------- ---------- Total assets..................... $ 803,183 $ 837,313 ========== ========== Liabilities and Retained Earnings: Interest-bearing liabilities: Deposits: Savings accounts............... $ 203,209 4,920 3.24 $ 203,490 4,585 3.01 Super NOW accounts............. 39,811 567 1.90 41,610 600 1.93 Money market accounts.......... 52,039 1,609 4.13 50,076 1,296 3.46 Time deposits.................. 375,946 14,803 5.26 409,025 16,501 5.39 Borrowings..................... 25 1 5.35 492 18 4.89 ESOP obligation.................. 354 21 7.93 655 41 8.36 ---------- ---------- --------- ---------- ---------- ---------- Total interest-bearing liabilities.................... 671,384 21,921 4.37 705,348 23,041 4.36 Other liabilities.................. 58,713 61,442 ---------- ---------- Total liabilities............. 730,097 766,790 Retained earnings.................. 73,090 70,523 ---------- ---------- Total liabilities and retained earnings........... $ 803,187 $ 837,313 ========== ========== Net interest income/ interest rate spread(2)........... $ 18,420 2.95% $ 17,677 2.70% ========== ========= ========== ========= Net earning assets/net interest margin(3)................ $ 66,229 3.34% $ 64,269 3.07% ========== ========= ========== ========= Ratio of interest-earning assets to interest-bearing liabilities... 1.10x 1.09x ========= =========
------------------------ (1) In computing the average balance of loans, non-accrual loans have been included. (2) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (3) Net interest margin represents net interest income divided by average interest-earning assets. Financial Condition The Company's total assets were $774.0 million at September 30, 1997, as compared to $820.9 million at December 31, 1996. This decrease is due primarily to a decrease in deposits. For those same dates, deposits decreased $52.1 million to $684.0 million at September 30, 1997, as compared to $736.2 million at December 31, 1996. The decreases in the average balances of deposits are due to Management's strategy to reduce the interest rate paid on certain time deposits. Approximately $27.7 million of time deposits were withdrawn from the Bank in the third quarter of 1997. Many of these time deposits were earning a premium rate. The deposit outflow is also due to disintermediation which is affecting many of the Bank's peer thrift institutions. Securities and mortgage-backed securities available for sale decreased $61.2 million to $312.9 million at September 30, 1997, as compared to $374.1 million at December 31, 1996. Loans, net increased $33.8 million to $372.3 million at September 30, 1997, as compared to $338.5 million at December 31, 1996. Goodwill decreased $3.1 million to $29.7 million at September 30, 1997, as compared to $32.8 million at December 31, 1996. Real estate owned increased $1.3 million to $2.2 million at September 30, 1997, as compared to December 31, 1996. Total stockholders' equity increased $5.3 million to $76.1 million at September 30, 1997, as compared to $70.8 million at December 31, 1996. This increase is due primarily to a $3.8 million decrease in the net unrealized loss on securities available for sale and a $1.2 million increase in retained earnings. The Bank's Tier 1 leverage capital ratio was 6.23% at September 30, 1997. Comparison of Results of Operations General. Net income for the third quarter of 1997 amounted to $1.2 million as compared to a net loss of ($858,000) for the comparable quarter in 1996. For the nine months ended September 30, 1997, net income totaled $3.3 million as compared to $646,000 for the same period in 1996. The results for the third quarter and nine month periods ended September 30, 1996, included a pre-tax charge of $2.9 million related to the recapitalization of the Savings Association Insurance Fund ("SAIF"). Net Interest Income. Net interest income increased $43,000 to $6.1 million for the third quarter of 1997, as compared to the third quarter of 1996. The Company's interest rate spread was 2.95% and 2.79% for the third quarters of 1997 and 1996, respectively. The Company's net interest margin was 3.36% and 3.14%, respectively, for those same periods. For the nine months ended September 30, 1997, net interest income totaled $18.4 million as compared to $17.7 million for the same period in 1996. For the nine months ended September 30, 1997 and 1996, the interest rate spread was 2.95% and 2.70%, respectively. For those periods, the net interest margin was 3.34% and 3.07%, respectively. Interest Income. Interest income was $13.1 million for the third quarter of 1997 as compared to $13.9 million for the same period in 1996. The yield earned on interest-earning assets was 7.22% for the third quarter of 1997 as compared to 7.17% for the same period in 1996. This increase in yield was offset by a decrease of $47.6 million in average interest earnings assets to $720.8 million for the third quarter of 1997, as compared to $768.5 million for the third quarter of 1996. The yield earned on interest-earning assets was 7.31% for the nine months ended September 30, 1997, as compared to 7.07% for the same period in 1996. For the nine month period ended September 30, 1997, average interest earning assets decreased to $737.6 million as compared to $769.6 million for the nine months ended September 30, 1996. The decreases in the balances of average interest-earning assets are due primarily to decreases of $53.7 million and $33.2 million in the average balances of deposits for the quarter and nine month periods of 1997, respectively, as compared to the same periods in 1996. See "Interest Expense." The increases in yields earned were a result of the redeployment of proceeds from the sale of mortgage-backed and other securities into the loan portfolio. Interest income on mortgage loans amounted to $6.7 million in the third quarter of 1997, as compared to $5.8 million for the comparable period in 1996. This increase is due to a $44.0 million or 15.1% increase in the average balance of mortgage loans to $335.9 million during the third quarter of 1997, as compared to $291.9 million for the third quarter of 1996. The average yield earned on mortgage loans remained virtually unchanged at 7.97% for the third quarter of 1997 as compared to 7.93% for the third quarter of 1996. For the nine months ended September 30, 1997, interest income on mortgage loans amounted to $19.8 million, a $3.4 million or 21.0% increase over the $16.4 million earned for the same period in 1996. This increase was due to an increase of $48.6 million in the average balance of mortgage loans to $325.2 million during the nine months ended September 30, 1997 as compared to $276.6 million for the nine months ended September 30, 1996. In addition, the average yield earned increased 24 basis points to 8.14% for those same periods. The growth in the average balance of mortgage loans was due primarily to Management's strategy to redeploy funds received in the Acquisition from the securities portfolio to the loan portfolio and continued loan demand. The increase in the yield earned during the 1997 nine month period is primarily a result of a new ARM product that the Bank began to offer in 1996. These ARMs are primarily 5-year fixed rate loans that convert to 1-year ARMs after the initial 5-year period. These loans are not offered at introductory rates. The increase in yield is also due to the repricing of one-year ARMs that were originated in 1994 and 1995 at introductory rates. These ARMs repriced to higher rates due to the expiration of their initial lower introductory rates. Interest income on other loans amounted to $725,000 for the third quarter of 1997, as compared to $567,000 for the third quarter of 1996. This increase is due to a $7.9 million or 39.0% increase in the average balance of other loans to $28.0 million, which was offset in part by a 93 basis point decrease in the yield earned to 10.28%. For the nine months ended September 30, 1997, interest income on other loans totaled $2.0 million as compared to $1.6 million for the same period in 1996. This increase was primarily due to an increase in the average balance of other loans to $25.5 million for the 1997 period as compared to $19.0 million for the same period in 1996. This increase in the average balance of other loans was partially offset by a 66 basis point decrease in the average yield earned to 10.25% for the nine months ended September 30, 1997, as compared to 10.91% for the same period in 1996. Interest income on mortgage-backed securities amounted to $4.0 million for the third quarter of 1997, as compared to $6.5 million for the same quarter in 1996. This decrease was due primarily to a decrease in the average balance of mortgage-backed securities. For the third quarter of 1997, the average balance of mortgage-backed securities decreased $150.9 million or 38.1% to $245.4 million as compared to $396.3 million for the third quarter of 1996. For the nine months ended September 30, 1997, interest income on mortgage-backed securities totaled $14.4 million, a $4.1 million decrease from the $18.4 million earned for the same period in 1996. For the nine months ended September 30, 1997, the average balance of mortgage-backed securities decreased $83.8 million to $291.1 million as compared to $374.8 million for the same period in 1996. The decrease in the average balances of mortgage-backed securities was a result of Management's strategy to redeploy funds currently invested in securities into the loan portfolio, which typically provides greater yields and to fund deposit outflows. Interest income on other securities amounted to $897,000 for the third quarter of 1997, virtually unchanged from the third quarter of 1996. For the nine months ended September 30, 1997, interest income on other securities totaled $2.6 million as compared to $3.3 million for the same period in 1996. This decrease was primarily the result of a $13.9 million decrease in the average balance of other securities to $56.2 million during the 1997 nine month period as compared to the same period in 1996. In addition, the yield earned on these securities decreased to 6.20% for the nine months ended September 30, 1997 as compared to 6.36% for the same period in the prior year. The decrease in the average balance of other securities is a result of Management's strategy to redeploy funds currently invested in securities into the loan portfolio, which typically provides greater yields. Interest income on Federal funds amounted to $749,000 for the third quarter of 1997, as compared to $51,000 for the third quarter of 1996. This increase in Federal funds interest is due to a $50.2 million increase in the average balance to $53.7 million, which was partially offset by a 12 basis point decrease in the average yield to 5.53%. For the nine months ended September 30, 1997, interest income on Federal funds amounted to $1.6 million as compared to $1.0 million for the same period in 1996. This increase is due to a $10.6 million increase in the average balance of Federal funds to $39.7 million for the nine months ended September 30, 1997, and a 69 basis point increase in the yield earned to 5.41% for the same period. The increase in the average balance of Federal funds is a result of the temporary investment of proceeds from the sale of mortgage-backed and other securities. The securities were sold to provide sufficient liquidity for loan originations and the anticipated outflow of time deposits as a result of Management's decision to reduce the interest rates paid on these deposits (see "Interest Expense"). Interest Expense. Interest expense was $7.0 million for the third quarter of 1997, as compared to $7.8 million for the same quarter in 1996. For the nine months ended September 30, 1997, interest expense totaled $21.9 million as compared to $23.0 million for the same period in 1996. These decreases are primarily due to decreases of $55.4 million and $34.0 million in average interest-bearing liabilities to $641.3 million and $671.4 million for the quarter and nine months ended September 30, 1997, respectively, as compared to $706.7 million and $705.3 million, resepectively, for the quarter and nine months ended September 30, 1996. In addition, for the 1997 third quarter, the average cost of these liabilities was 4.27% as compared to 4.38% for the same period in 1996. The average cost of interest-bearing liabilities remained virtually unchanged in the nine month periods. Interest expense on savings accounts increased $57,000 or 3.5% to $1.7 million for the third quarter of 1997, as compared to $1.6 million for the third quarter 1996. For the nine months ended September 30, 1997, interest expense on savings accounts increased to $4.9 million as compared to $4.6 million for the same period in 1996. These increases were due primarily to increases in the average rates paid on savings accounts. The average rate paid on savings accounts was 3.21% for the third quarter of 1997, as compared to 3.16% for the third quarter of 1996. For the nine months ended September 30, 1997, the average rate paid on savings accounts was 3.24% as compared to 3.01% for the same period of the prior year. The average balances of savings accounts were $209.6 million and $203.2 million for the quarter and nine months ended September 30, 1997, respectively, as compared to $206.2 million and $203.5 million for the same respective periods in 1996. Interest expense on time deposits totaled $4.6 million for the third quarter of 1997, as compared to $5.4 million for the third quarter of 1996. This decrease is due to a $58.2 million or 14.3% decrease in the average balance to $348.0 million and a 7 basis point decrease in the average rate paid to 5.21% from the 1996 to the 1997 quarter. For the nine months ended September 30, 1997, interest expense on time deposits totaled $14.8 million as compared to $16.5 million for the same period in 1996. This decrease was due to a decrease in the average balance of time deposits of $33.1 million to $375.9 million for the 1997 nine month period as compared to $409.0 million for the same period in 1996. In addition, the average cost of these deposits decreased 13 basis points to 5.26%. The decreases in the average balances of deposits are due to Management's strategy to reduce the interest rate paid on certain time deposits. Approximately $27.7 million of time deposits were withdrawn from the Bank in the third quarter of 1997. Many of these time deposits were earning a premium rate. The deposit outflow is also due to disintermediation which is affecting many of the Bank's peer thrift institutions. Provision for Loan Losses. The provision for loan losses was $275,000 and $400,000 for the third quarters of 1997 and 1996, respectively. For the nine months ended September 30, 1997 and 1996, the provision for loan losses totaled $850,000 and $970,000, respectively. Non-performing loans (loans that are 90 days or more past due) amounted to $3.2 million or 0.85% of total loans at September 30, 1997, as compared to $4.8 million or 1.40% of total loans at December 31, 1996 and $5.0 million or 1.53% of total loans at September 30, 1996. Non-performing assets amounted to $5.4 million or 0.70% of total assets, $5.7 million or 0.69% of total assets and $6.0 million or 0.70% of total assets at September 30, 1997, December 31, 1996 and September 30, 1996, respectively. Real estate owned increased $1.3 million to $22.0 million at September 30, 1997, as compared to December 31, 1996. The allowance for loan losses amounted to $2.4 million and $1.8 million at September 30, 1997 and 1996, respectively, which represented 74.3% and 35.4% of non-performing loans at those respective dates. At December 31, 1996, the allowance for loan losses amounted to $2.0 million or 41.1% of non-performing loans. Charge-offs, net of recoveries, totaled $160,000 and $457,000 for the quarter and nine months ended September 30, 1997, as compared to $174,000 and $847,000 for the same respective periods in 1996. In determining the adequacy of its allowance for loan losses, management considers the level of non-performing loans, the current status of the Bank's loan portfolio, changes in appraised values of collateral and general economic conditions. Although the Bank maintains its allowance for loan losses at a level which it considers to be adequate to provide for potential losses, there can be no assurance that such losses will not exceed the current estimated amounts. As a result, higher provisions for loan losses may be necessary in future periods which would adversely affect operating results. Non-Interest Income. Non-interest income amounted to $1.3 million and $964,000 for the third quarters of 1997 and 1996, respectively. This increase is due to a $210,000 increase in service fees, an $81,000 increase in net realized gains on securities and mortgage loan sales and a $30,000 increase in other non-interest income. For the nine months ended September 30, 1997 and 1996, non-interest income totaled $3.3 million and $2.9 million, respectively. This increase is due to a $299,000 increase in service fees, an $87,000 increase in net realized gains on securities and mortgage loan sales and a $72,000 increase in other non-interest income. The increases in service fees are due primarily to changes in MSB's fee structure on deposit products and services. These changes were part of the Plan announced earlier in the third quarter of 1997. Non-Interest Expense. Non-interest expense amounted to $5.1 million and $15.5 million for the quarters and nine months ended September 30, 1997, as compared to $5.2 million and $15.6 million for the same respective periods in 1996 (excluding the SAIF assessment of $2.9 million in 1996). Salaries and employee benefits increased $211,000 or 3.4% to $6.5 million for the nine months ended September 30, 1997, as compared to $6.3 million for the nine months ended September 30, 1996. The increase in salaries and employee benefits for the nine-month period is due primarily to normal salary increases. Federal deposit insurance premiums decreased $196,000 to $68,000 in the third quarter of 1997 as compared to $264,000 for the same period in the prior year and decreased $520,000 to $221,000 for the 1997 nine month period as compared to $741,000 for the same period in 1996. These decreases reflect the lower insurance rates that resulted from the payment of the SAIF special assessment in the third quarter of 1996. The amortization of goodwill resulting primarily from the Company's Acquisition that was completed in the first quarter of 1996 amounted to $909,000 in the third quarter of 1997, virtually unchanged from the third quarter of 1996. For the nine months ended September 30, 1997, goodwill amortization increased $155,000 to $2.8 million, reflecting a full nine months of amortization as compared to 1996. Liquidity and Capital Resources The Company's primary sources of funds are deposits, the proceeds from principal and interest payments on loans and the proceeds from the maturities of investments. Proceeds from securities and loan sales are also a source of funds. While maturities and scheduled amortization of loans and investments are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank is required to maintain an average daily balance of liquid assets and short-term liquid assets as a percentage of net withdrawable deposit accounts plus short-term borrowings as defined by the regulations of the OTS. The minimum required liquidity and short-term liquidity ratios are currently 5.0% and 1.0%, respectively. At September 30, 1997, the Bank's liquidity ratio under OTS regulations was 12.3%, and its short-term liquidity ratio was 9.8%. The primary investing activity of the Company is the origination of loans and the purchase of securities. For the quarter and nine months ended September 30, 1997 and for the year ended December 31, 1996, the Company originated mortgage loans totaling $29.7 million, $73.5 million and $100.1 million, respectively. For those same periods, the Company originated other loans totaling $6.3 million, $15.6 million and $15.9 million, respectively. The Company purchased securities, including mortgage-backed securities, totaling $63.2 million and $408.6 million for the nine months ended September 30, 1997 and fiscal 1996, respectively. The Company's most liquid assets are cash and cash equivalents, which include investments in highly liquid, short-term securities. The levels of these assets are dependent on the Bank's operating, financing, lending and investing activities during any given period. The Company's ratios of cash and due from banks, Federal Funds and investment securities with remaining maturities of one year or less to total deposits were 6.0% at September 30, 1997 and 6.7% at December 31, 1996. At September 30, 1997, cash and cash equivalents, as defined above, totaled $41.1 million as compared to $49.0 million at December 31, 1996. Liquidity management for the Bank is both a daily and long-term function of the Bank's management strategy. Excess funds are generally invested in short-term investments such as Federal funds. In the event that the Bank should require funds beyond its ability to generate them internally, additional sources of funds are available through a $46.0 million line of credit from the Federal Home Loan Bank of New York. In addition, the Bank may access funds, if necessary, through the Federal Reserve Bank of New York discount window. At September 30, 1997, the Bank had outstanding loan commitments of $55.8 million. The Bank anticipates that it will have sufficient funds available to meet its current loan commitments. Time deposits scheduled to mature in one year or less from September 30, 1997, totaled $244.7 million. Management believes that a significant portion of such deposits will remain with the Bank. The Bank is subject to certain minimum leverage, tangible and risk-based capital requirements established by regulations of the OTS. These regulations require savings associations to meet three minimum capital standards: a tangible capital ratio requirement of 1.5% of total assets as adjusted under the OTS regulations; a leverage ratio requirement of 3.0% of core capital to such adjusted total assets; and a risk-based capital ratio requirement of 8.0% of core and supplementary capital to total risk-based assets. The 3.0% core capital requirement has been effectively superseded by the OTS prompt corrective action regulations, which impose a 4.0% core capital requirement for treatment as an "adequately capitalized" thrift and a 5.0% core capital requirement for treatment as a "well capitalized" thrift. In determining the amount of risk-weighted assets for purposes of the risk-based capital requirement, a savings association must compute its risk-based assets by multiplying its assets and certain off-balance sheet items by risk-weights, which range from 0% for cash and obligations issued by the United States Government or its agencies to 100% for consumer and commercial loans, as assigned by the OTS capital regulation based on the risks OTS believes are inherent in the type of assets. At September 30, 1997, the Bank exceeded all of the OTS minimum regulatory capital requirements. The following table sets forth the capital position of the Bank as calculated at September 30, 1997. Tangible Core Risk-Based Amount Percent Amount Percent Amount Percent ------- ------- ------- ------- ------- ------- (Dollars in thousands) Capital as calculated under GAAP .......... $ 75,703 10.16% $ 75,703 10.16% $ 75,703 20.73% Deduct goodwill ....... 29,734 3.99 29,734 3.99 29,734 8.14 Add qualifying general loan loss allowance, as limited by regulation. .......... -- -- -- -- 2,352 0.64 Add unrealized loss on securities available for sale, net of taxes 798 0.10 798 0.10 798 0.22 Deduct equity investments .......... -- -- -- -- 125 0.04 Deduct servicing rights 15 0.00 15 0.00 15 0.00 ------- ----- ------- ----- ------- ----- Capital, as calculated 46,752 6.27% 46,752 6.27% 48,979 13.41% Capital, as required .. 11,177 1.50 29,805 4.00 29,218 8.00 ------- ----- ------- ----- ------- ----- Excess ................ $35,575 4.77% $16,947 2.27% $19,761 5.41% ======= ===== ======= ===== ======= ====== The Board of Directors declared a cash dividend of $0.15 per common share on September 19, 1997 that was payable to stockholders of record on October 9, 1997. The Company has been paying a quarterly cash dividend of $0.15 per common share since the first quarter of 1995 and had been paying a quarterly cash dividend of $0.13 per common share since the third quarter of 1994. Recent Accounting Pronouncements Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") established standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS and requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. SFAS 128 requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods, and earlier application is not permitted. SFAS 128 also requires restatement of all prior period EPS data presented. Management does not expect the adoption of SFAS 128 to have a significant effect on the Company's EPS calculation. Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 does not require a specific format for the financial statement, but requires that an enterprise display an amount representing total comprehensive income for the period in that financial statement. SFAS 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131") requires that public companies report information about segments of their business in their annual financial statements and require them to report selected segment information in their quarterly reports issued to shareholders. SFAS 131 requires entity-wide disclosure about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. SFAS 131 supersedes FASB Statement 14, "Financial Reporting for Segments of a Business Enterprise." SFAS 131 is effective for fiscal years beginning after December 15, 1997. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Applicable. Part II--OTHER INFORMATION Item 1. Legal Proceedings The information set forth in Note 4 to the unaudited consolidated financial statements ("Legal Proceedings") in Part I, Item 1, hereto is incorporated herein by reference. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 11--Computation of Earnings Per Share Exhibit 27--Financial Data schedule* (b) Reports on Form 8-K None * Submitted only with filing in electronic format. 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. MSB Bancorp, Inc. (Registrant) By: /s/ Anthony J. Fabiano Anthony J. Fabiano Senior Vice President and Chief Financial and Accounting Officer November 10, 1997 EXHIBIT 11 COMPUTATION OF NET INCOME PER SHARE For The Quarter Ended September 30, September 30, 1997 1996 ----------- ----------- Net income ....................................... $ 1,230,000 $ (858,000) Preferred stock dividends ...................... 283,500 283,500 ----------- ----------- Net income applicable to common stock .......... $ 946,500 $(1,141,500) =========== =========== Weighted average common shares ................. 2,886,109 2,833,936 Earnings per common share ...................... $ 0.33 $ (0.40) =========== =========== For the Nine months Ended September 30, September 30, 1997 1996 ----------- ----------- Net income ....................................... $ 3,272,000 $ 646,000 Preferred stock dividends ...................... 850,500 819,000 ----------- ----------- Net income applicable to common stock .......... $ 2,421,500 $ (173,000) =========== =========== Weighted average common shares ................. 2,878,031 2,808,124 Earnings per common share ...................... $ 0.84 $ (0.06) =========== =========== Exhibit 27 FINANCIAL DATA SCHEDULE This schedule contains summary financial information extracted from the Company's consolidated balance sheet and the consolidated statement of income and is qualified in its entirety by reference to such financial statements. Item Number Item Description Amount 9-03(1) Cash and due from banks $ 16,901 9-03(2) Interest-bearing assets 0 9-03(3) Federal funds sold 16,020 9-03(4) Trading account assets 0 9-03(6) Investment and mortgage backed securities held for sale 312,916 9-03(6) Investments held to maturity-- carrying value 0 9-03(6) Investments held to maturity-- market value 0 9-03(7) Loans 372,282 9-03(7)(2) Allowance for losses 2,353 9-03(11) Total assets 773,991 9-03(12) Deposits 684,018 9-03(13) Short-term borrowings 0 9-03(15) Other liabilities 13,563 9-03(16) Long-term debt 273 9-03(19) Preferred stock - mandatory redemption 0 9-03(20) Preferred stock - no mandatory redemption 6 9-03(21) Common Stock 30 9-03(22) Other stockholders' equity 76,101 9-03(23) Total liabilities and stockholders' equity 773,991 9-04(1) Interest and fees on loans 21,757 9-04(2) Interest and dividends on investments 16,965 9-04(4) Other interest income 1,619 9-04(5) Total interest income 40,341 9-04(6) Interest on deposits 21,900 9-04((9) Total interest expense 21,922 9-04(10) Net interest income 18,419 9-04(11) Provision for loan losses 850 9-04(13)(h) Investment securities gains/losses 66 9-04(14) Other expenses 15,479 9-04(15) Income/loss before income tax 5,415 9-04(17) Income/loss before extraordinary items 5,415 9-04(18) Extraordinary items, less tax 0 9-04(19) Cumulative change in accounting principles 0 9-04(20) Net income or loss 3,272 9-04(21) Earnings per share - primary 0.84 9-04(21) Earnings per share - fully diluted 0.84 1.B.5 Net yield - interest earning assets 3.34 III.C.1(a) Loans on non-accrual 3,167 III.C.1(b) Accruing loans past due 90 days 0 III.C.1(c) Troubled debt restructuring 601 III.C.2 Potential problem loans 5,631 IV.A.1 Allowance for loan loss-- beginning of period 1,960 IV.A.2 Total charge-offs 640 IV.A.3 Total recoveries 183 IV.A.4 Allowance for loan loss-- end of period 2,353 IV.B.1 Loan loss allowance domestic 0 IV.B.2 Loan loss allowance foreign 0 IV.B.3 Loan loss allowance unallocated 2,353 EX-27 2 9/30/97 FINANCIALS
9 6-MOS DEC-31-1997 JUL-31-1997 DEC-31-1997 16,901 0 16,020 0 312,916 0 0 372,282 2,353 773,991 684,018 0 13,563 273 0 6 30 76,101 773,991 21,757 16,965 1,619 40,341 21,900 21,922 18,419 850 66 15,479 5,415 5,415 0 0 3,272 0.84 0.84 3.34 3,167 0 601 5,631 1,960 640 183 2,353 0 0 2,353
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