-----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, QodI+uTNovNs+BMZfX0k8rs4+mMrBL735Gca5TcEIfo7csYuCm1hVTb0W+Vvr8wd JB6S+2asxeclekYq35xgIw== 0000900741-97-000010.txt : 19971117 0000900741-97-000010.hdr.sgml : 19971117 ACCESSION NUMBER: 0000900741-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAVEN BANCORP INC CENTRAL INDEX KEY: 0000900741 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 113153802 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21628 FILM NUMBER: 97720794 BUSINESS ADDRESS: STREET 1: 93 22 JAMAICA AVE CITY: WOODHAVEN STATE: NY ZIP: 11421 BUSINESS PHONE: 7188477041 MAIL ADDRESS: STREET 1: 93 22 JAMAICA AVE CITY: WOODHAVEN STATE: NY ZIP: 11421 10-Q 1 UNITED STATES 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: 000-21628 HAVEN BANCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 11-3153802 (I.R.S. Employer Identification No.) 93-22 JAMAICA AVENUE, WOODHAVEN, NEW YORK 11421 (Address of principal executive offices) (Zip Code) (718) 850-2500 (Registrant's telephone number, including area code) 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 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. X Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There were 8,783,506 shares of the Registrant's common stock outstanding as of November 13, 1997. HAVEN BANCORP, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition as of September 30, 1997 and December 31, 1996 3 Consolidated Statements of Income for the Three Months and Nine Months ended September 30, 1997 and 1996 4 Consolidated Statement of Changes in Stockholders' Equity for the Nine Months ended September 30, 1997 and 1996 5 Consolidated Statements of Cash Flows for the Nine months ended September 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-33 Item 3. Quantitative and Qualitative Disclosure About Market Risk 33 PART II - OTHER INFORMATION Item 1. Legal Proceedings 33 Item 2. Changes in Securities and Use of Proceeds 33 Item 3. Defaults Upon Senior Securities 33 Item 4. Submission of Matters to a Vote of Security Holders 33 Item 5. Other Information 34 Item 6. Exhibits and Reports on Form 8-K 34 Signature Page 2 HAVEN BANCORP, INC. Consolidated Statements of Financial Condition (Dollars in thousands, except for share data) (Unaudited)
September 30, December 31, 1997 1996 ------------- ------------ ASSETS Cash and due from banks $ 34,993 $ 28,848 Money market investments 5,215 6,869 Securities available for sale (note 2) 419,124 370,105 Debt securities held to maturity (estimated fair value of $87,989 and $96,324 in 1997 and 1996, respectively) (note 2) 88,360 97,307 Federal Home Loan Bank of NY stock, at cost 11,240 9,890 Mortgage-backed securities held to maturity (estimated fair value of $172,434 and $195,682 in 1997 and 1996, respectively) (note 2) 172,736 197,940 Loans: First mortgage loans 1,014,579 793,556 Cooperative apartment loans 19,844 19,936 Other loans 31,852 34,094 --------- --------- Total loans 1,066,275 847,586 Less allowance for loan losses (11,954) (10,704) --------- --------- Loans, net 1,054,321 836,882 Premises and equipment, net 17,134 8,820 Accrued interest receivable 11,761 12,172 Other assets 18,400 14,712 --------- --------- Total assets $1,833,284 $1,583,545 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits (note 3) $1,310,471 $1,137,788 Borrowed funds 390,665 326,433 Mortgagors' escrow balances 5,042 4,621 Due to broker - 1,000 Other liabilities 17,161 14,319 --------- --------- Total liabilities 1,723,339 1,484,161 --------- --------- Stockholders' Equity: Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued - - Common stock, $.01 par value, 10,500,000 shares authorized, 9,918,750 shares issued; 8,772,104 and 8,650,814 shares outstanding at September 30, 1997 and December 31, 1996 100 100 Additional paid-in capital 49,525 48,794 Retained earnings, substantially restricted 71,266 65,092 Unrealized gain (loss) on securities available for sale, net of tax effect 1,669 (840) Treasury stock, at cost (1,146,646 and 1,267,936 shares at September 30, 1997 and December 31, 1996) (10,322) (11,049) Unallocated common stock held by Bank's ESOP (1,609) (1,854) Unearned common stock held by Bank's Recognition Plans and Trusts (182) (267) Unearned compensation (502) (592) --------- --------- Total stockholders' equity 109,945 99,384 --------- --------- Total liabilities and stockholders' equity $1,833,284 $1,583,545 ========= =========
See accompanying notes to consolidated financial statements. Note - Share information has been restated to fully reflect the 2-for-1 stock split effective November 1997. 3 HAVEN BANCORP, INC. Consolidated Statements of Income (Dollars in thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Interest income: Mortgage loans $19,811 $13,715 $54,878 $37,670 Other loans 808 884 2,424 2,781 Mortgage-backed securities 8,541 9,575 23,773 29,617 Money market investments 83 40 273 139 Debt and equity securities 3,332 3,749 11,640 10,674 ------ ------ ------ ------ Total interest income 32,575 27,963 92,988 80,881 ------ ------ ------ ------ Interest expense: Deposits: Passbook accounts 2,387 2,342 6,938 7,027 NOW accounts 277 247 772 704 Money market accounts 470 482 1,329 1,417 Certificate accounts 10,394 8,274 28,085 23,987 Borrowings 5,817 4,627 16,827 12,404 ------ ------ ------ ------ Total interest expense 19,345 15,972 53,951 45,539 ------ ------ ------ ------ Net interest income 13,230 11,991 39,037 35,342 Provision for loan losses 700 700 2,150 2,475 ------ ------ ------ ------ Net interest income after provision for loan losses 12,530 11,291 36,887 32,867 ------ ------ ------ ------ Non-interest income: Loan fees and servicing income 271 293 775 1,517 Savings/checking fees 1,452 867 3,775 2,440 Net (loss) gain on sales of interest-earning assets (7) (11) (23) 88 Insurance annuity and mutual fund fees 1,024 837 2,827 2,329 Other 471 265 1,011 814 ------ ------ ------ ------ Total non-interest income 3,211 2,251 8,365 7,188 ------ ------ ------ ------ Non-interest expense: Compensation and benefits 6,488 3,423 17,380 11,097 Occupancy and equipment 1,760 840 4,398 2,598 Real estate owned operations, net 99 8 283 312 SAIF Recapitalization - 6,800 - 6,800 Federal deposit insurance premiums 165 629 529 1,865 Other 3,502 2,324 10,031 6,812 ------ ------ ------ ------ Total non-interest expense 12,014 14,024 32,621 29,484 ------ ------ ------ ------ Income (loss) before income tax expense (benefit) 3,727 (482) 12,631 10,571 Income tax expense (benefit) 1,276 (559) 4,575 4,610 ------ ------ ------ ------ Net income $2,451 $ 77 $8,056 $5,961 ====== ====== ====== ====== Net income per common share: Primary $ 0.27 $ 0.01 $ 0.89 $ 0.68 ====== ====== ====== ====== Fully diluted $ 0.27 $ 0.01 $ 0.88 $ 0.68 ====== ====== ====== ======
See accompanying notes to consolidated financial statements. Note - Per share amounts have been restated to fully reflect the 2-for-1 stock split effective November 1997. 4 HAVEN BANCORP, INC. Consolidated Statements of Changes in Stockholders' Equity Nine months ended September 30, 1997 and 1996 (Unaudited)
Unrealized Gain (Loss) Unallocated Unearned Additional on Securities Common Common Common Paid-In Retained Available Treasury Stock Held Stock Held Unearned Stock Capital Earnings for Sale Stock by ESOP by RRP Compensation Total ------ ---------- -------- ------------- -------- ----------- ---------- ------------ ----- (In thousands) Balance at December 31, 1996 $100 48,794 65,092 (840) (11,049) (1,854) (267) (592) 99,384 Net income for the nine months ended September 30, 1997 - - 8,056 - - - - - 8,056 Dividends declared (note 5) - - (1,956) - - - - - (1,956) Treasury stock issued for deferred compensation plan (8,988 shares) - 89 - - 54 - - (143) - Stock options exercised, net of tax effect (112,302 shares) (note 4) - - 74 - 673 - - - 747 Change in unrealized loss on securities available for sale, net of tax effect - - - 2,509 - - - - 2,509 Allocation of ESOP stock and amortization of award of RRP stock and related tax benefits - 642 - - - 245 85 - 972 Amortization of deferred compensation plan - - - - - - - 233 233 --- ------ ------ ------ ------ ------ ----- ----- ------- Balance at September 30, 1997 $100 49,525 71,266 1,669 (10,322) (1,609) (182) (502) 109,945 === ====== ====== ====== ====== ====== ===== ===== ======= Balance at December 31, 1995 $ 100 47,281 57,919 2,083 (6,023) (2,197) (644) - 98,519 Net income for the nine months ended September 30, 1996 - - 5,961 - - - - - 5,961 Dividends declared - - (1,646) - - - - - (1,646) Purchase of treasury stock (451,074 shares) - - - - (5,516) - - - (5,516) Stock options exercised, net of tax effect (14,038 shares) - 412 (18) - 88 - - - 482 Treasury stock issued for deferred compensation plans (59,930 shares) - 411 - - 371 - - (782) - Change in unrealized gain (loss) on securities available for sale, net of tax effect - - - (5,067) - - - - (5,067) Allocation of ESOP stock and amortization of award of RRP stock and related tax benefits - 460 - - - 259 350 - 1,069 Amortization of deferred compensation plan - - - - - - - 121 121 ---- ------ ------ ------ ------ ------ ----- ----- ------ Balance at September 30, 1996 $ 100 48,564 62,216 (2,984) (11,080) (1,938) (294) (661) 93,923 ==== ====== ====== ====== ====== ====== ===== ===== ======
See accompanying notes to consolidated financial statements. Note - Share amounts have been restated to fully reflect the 2-for-1 stock split effective November 1997. 5 HAVEN BANCORP, INC. Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited)
Nine months ended September 30, ------------------ 1997 1996 ---- ---- Cash flows from operating activities: Net income $ 8,056 $ 5,961 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of cost of stock benefit plans 1,205 1,190 Amortization of net deferred loan origination fees (401) 235 Amortization of premiums and discounts on loans, mortgage-backed and debt securities 273 (963) Provision for loan losses 2,150 2,475 Provision for losses on real estate owned 100 875 Deferred income taxes (1,252) (5,519) SAIF Recapitalization - 6,800 Net loss (gain) on sales of interest-earning assets 23 (88) Depreciation and amortization 1,010 661 Decrease in accrued interest receivable 411 128 Decrease in due to broker (1,000) (5,000) Increase (decrease) in other liabilities 2,842 (2,022) (Increase) decrease in other assets (2,437) 2,190 ------- ------ Net cash provided by operating activities 10,980 6,923 ------- ------ Cash flows from investing activities: Net increase in loans (217,407) (169,072) Proceeds from disposition of assets (including REO) 1,643 2,562 Purchases of securities available for sale (352,407) (254,969) Principal repayments and maturities on securities available for sale 26,766 63,887 Proceeds from sales of securities available for sale 275,513 237,763 Purchases of debt securities held to maturity - (7,741) Principal repayments, maturities and calls on debt securities held to maturity 8,954 36,511 Purchases of mortgage-backed securities held to maturity - (38,451) Principal repayments on mortgage-backed securities held to maturity 24,996 26,138 Purchases of FHLB stock, net (1,350) - Net (increase) decrease in premises and equipment (9,324) 1,254 ------- ------- Net cash used in investing activities (242,616) (102,118) ------- ------- Cash flows from financing activities: Net increase in deposits 172,683 43,811 Net increase in borrowed funds 64,232 48,429 Increase in mortgagors' escrow balances 421 4,459 Purchase of treasury stock - (5,516) Payment of common stock dividends (1,956) (1,646) Stock options exercised 747 70 ------- ------- Net cash provided by financing activities 236,127 89,607 ------- ------- Net increase (decrease) in cash and cash equivalents 4,491 (5,588) Cash and cash equivalents at beginning of period 35,717 38,854 ------ ------- Cash and cash equivalents at end of period $40,208 $33,266 ====== ======= Supplemental information: Cash paid during the period for: Interest $52,814 $44,208 Income taxes 3,946 7,624 Additions to real estate owned 1,539 3,237 ====== ======
See accompanying notes to consolidated financial statements. 6 HAVEN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 and 1996 (Unaudited) NOTE 1 - BASIS OF PRESENTATION. The accompanying unaudited consolidated financial statements include the accounts of Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") and its wholly- owned subsidiary, CFS Bank, formerly known as Columbia Federal Savings Bank, ("CFS" or the "Bank") and subsidiaries, as of September 30, 1997 and December 31, 1996 and for the three-month and nine-month periods ended September 30, 1997 and 1996, respectively. Material intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all necessary adjustments, consisting only of normal recurring accruals necessary for a fair presentation, have been included. The results of operations for the three-month and nine-month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the entire fiscal year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1996. NOTE 2 - DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES ("MBSs"). Debt and equity securities and MBSs which the Company has the ability and the intent to hold until maturity are carried at cost adjusted for amortization of premiums and accretion of discounts. Debt and equity securities and MBSs to be held for indefinite periods of time and not intended to be held to maturity or on a long-term basis are classified as available for sale securities which are recorded at fair value, with unrealized gains (losses) reported as a separate component of stockholders' equity, net of taxes. 7 SECURITIES AVAILABLE FOR SALE The amortized cost and estimated fair values of securities available for sale at September 30, 1997 are summarized as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- (In thousands) Debt and equity securities available for sale: U.S. Government and Agency obligations $ 78,213 56 (935) 77,334 Preferred Stock 4,133 35 (23) 4,145 ------- ----- ------ ------- 82,346 91 (958) 81,479 ------- ----- ------ ------- MBSs available for sale: GNMA Certificates 946 42 - 988 FNMA Certificates 48,934 738 - 49,672 FHLMC Certificates 67,971 1,608 (5) 69,574 CMOs and REMICS 216,359 2,145 (1,093) 217,411 ------- ----- ------ ------- 334,210 4,533 (1,098) 337,645 ------- ----- ------ ------- Total $416,556 4,624 (2,056) 419,124 ======= ===== ====== =======
The net unrealized gain on securities available for sale at September 30, 1997, was reported as a separate component of stockholders' equity in the amount of $1.7 million, which is net of a tax effect of $915,000. DEBT SECURITIES HELD TO MATURITY The amortized cost, gross unrealized gains and losses and estimated fair values of debt securities held to maturity at September 30, 1997 are summarized as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- (In thousands) U.S. Government and Agency obligations $ 42,980 62 (290) 42,752 Corporate debt securities 45,380 33 (176) 45,237 ------- -- ------ ------- Total $ 88,360 95 (466) 87,989 ======= == ====== =======
It is the Company's intent to hold these securities until maturity and therefore the Company does not expect to realize the current unrealized losses brought about by the current market environment. 8 MORTGAGE-BACKED SECURITIES HELD TO MATURITY The amortized cost, gross unrealized gains and losses and estimated fair values of MBSs held to maturity at September 30, 1997 are summarized as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- (In thousands) FHLMC Certificates $ 29,614 347 (251) 29,710 FNMA Certificates 64,041 227 (1,024) 63,244 CMOs and REMICs 79,081 806 (407) 79,480 ------- ----- ------ ------- Total $172,736 1,380 (1,682) 172,434 ======= ===== ====== =======
It is the Company's intent to hold these securities until maturity and therefore the Company does not expect to realize the current unrealized losses brought about by the current market environment. NOTE 3 - SUPERMARKET BANKING AGREEMENT WITH SHOPRITE STORES IN NEW JERSEY AND CONNECTICUT. On September 2, 1997, Haven Bancorp announced that CFS and ShopRite Stores had entered into licensing agreements under which CFS may open as many as twelve in-store supermarket branches in New Jersey and Connecticut. CFS opened its first in-store branch in Hackensack, New Jersey on November 1, 1997 and will have the right of first refusal to open eight additional in-store branches throughout Bergen County, New Jersey. CFS's first in-store branch in Connecticut will be located in Brookfield and is expected to open during January 1998, and CFS has the right of first refusal to open two additional ShopRite locations in Fairfield County, Connecticut. As of September 30, 1997, the Bank had twenty-four in-store bank branches with deposits totaling $115.9 million located in Queens, Brooklyn, Manhattan, Nassau, Suffolk and Rockland Counties. Due to the Bank's expanding in- store branch network, management believed it was critical to have a unique identity throughout the tri-state region. Consequently, in October, 1997 the Board of Directors changed the name of Columbia Federal Savings Bank to CFS Bank. 9 NOTE 4 - STOCK PLANS. Changes in outstanding options (restated for the 2-for-1 stock split effective November 1997) for the benefit of directors, officers and other key employees of the Bank for the nine months ended September 30, 1997 are as follows:
Weighted Average Options Exercise Price ------- ---------------- Balance at December 31, 1996 1,324,558 $ 7.59 Granted 34,100 17.09 Forfeited (12,000) 12.14 Exercised (112,302) 6.65 --------- ----- Balance at September 30, 1997 1,234,356 $ 7.89 ========= ===== Shares exercisable at September 30, 1997 898,110 $ 6.19 ========= =====
NOTE 5 - DIVIDENDS PAYABLE. On September 17, 1997, the Company's Board of Directors approved a quarterly cash dividend of $0.15 per share, payable on October 17, 1997, to shareholders of record as of September 29, 1997. On October 23, 1997 Haven Bancorp announced that its Board of Directors had declared a stock split in the form of a 100% stock dividend. Shareholders of record on the close of business October 31, 1997, received one additional share of Haven Bancorp common stock for each share they owned as of that date. The new shares will be distributed on November 28, 1997. The total number of shares outstanding increased to 8,772,104 shares as of September 30, 1997. The annual cash dividend per common share will be adjusted to $0.30 per share, or $0.075 per share quarterly, which is unchanged from the present level. NOTE 6 - RECENT ACCOUNTING/REGULATORY PRONOUNCEMENTS. In February, 1997, the Financial Accounting Standard Board ("FASB") issued SFAS No. 128, "Accounting for Earnings Per Share." SFAS No. 128 establishes standards for the computation, presentation and disclosure requirements for earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. SFAS No. 128 simplifies the standards for computing EPS and makes them more compatible with the EPS standards of other countries and with that of the International Accounting Standards Committee ("IASC"). It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the diluted EPS computation. 10 Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the relevant period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15, "Earnings per Share" ("Opinion No. 15"). SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. SFAS No. 128 requires restatement of all prior-period EPS data presented. SFAS No. 128, when adopted, is expected to result in basic EPS being somewhat greater than current primary EPS and diluted EPS not being materially different than current fully diluted EPS. In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS No. 129 establishes standards for disclosing information about an entity's capital structure. It applies to all entities. It supersedes specific disclosure requirements of Opinions 10 and 15 and SFAS No. 47 and consolidates them in SFAS No. 129 for ease of retrieval and for greater visibility to nonpublic entities. SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. It contains no change in disclosure requirements for entities that were previously subject to the requirements of Opinions 10 and 15 and SFAS No. 47. Accordingly, when adopted, SFAS No. 129 is not expected to have a material effect on the Company's financial statements. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 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. This statement does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period in that financial statement. SFAS No. 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. This Statement requires that an enterprise: (1) classify items of other comprehensive income by their nature in a financial statement and (2) 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. 11 SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Company is still assessing the impact of SFAS No. 130 and has not yet concluded how the adoption of SFAS No. 130 will affect its financial statements. On June 30, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". The standard establishes guidance for the way that public companies report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise", but retains the requirement to report information about major customers. It amends SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries", to remove the special disclosure requirements for previously unconsolidated subsidiaries. The newly adopted standard requires that a public company report financial and descriptive information about its reportable operating segments. Operating segments are components of a business about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. This Statement requires that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. It requires reconciliations of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts in the enterprise's general-purpose financial statements. It requires that all public business enterprises report information about the revenues derived from the enterprise's products or services (or groups of similar products and services), about the countries in which the enterprise earns revenues and holds assets, and about major customers regardless of whether that information is used in making operating decisions. However, this Statement does not require an enterprise to report information that is not prepared for internal use if reporting it would be impracticable. This Statement also requires that a public business enterprise report descriptive information about the way that the operating 12 segments were determined, the products and services provided by the operating segments, differences between the measurements used in reporting segment information and those used in the enterprise's general-purpose financial statements, and changes in the measurement of segment amounts from period to period. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. The Company is still assessing the impact of SFAS No. 131 and has not yet concluded how the adoption of SFAS No. 131 will affect its financial statements. NOTE 7 - NET INCOME PER SHARE OF COMMON STOCK. Primary and fully diluted net income per share were determined by dividing net income by the weighted average number of shares outstanding, restated for the 2-for-1 stock split, effective November, 1997. There were 9,171,246 primary shares outstanding and 9,224,852 fully diluted shares outstanding for the three months ended September 30, 1997. There were 9,086,884 primary shares outstanding and 9,199,856 fully diluted shares outstanding for the nine months ended September 30, 1997. The weighted average number of shares outstanding does not include 321,798 shares which are unallocated by the Employee Stock Ownership Plan ("ESOP") as of September 30, 1997 in accordance with American Institute of CPAs ("AICPA") Statement of Position ("SOP") 93-6, "Employers' Accounting for ESOPs". Stock options are regarded as common stock equivalents and are considered in both primary earnings per share and fully diluted earnings per share using the treasury stock method. NOTE 8 - SUBSEQUENT EVENT. On November 7, 1997, the Bank entered into an agreement to purchase an office building in Westbury, Long Island, New York for $7.3 million. The building will be the Company and the Bank's corporate headquarters. The closing is expected to be in late November 1997. 13 Statements made herein that are forward-looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995 are subject to risks and uncertainties that could cause actual results to differ materially. Such risks and uncertainties include, but are not limited to, those related to overall business conditions in the markets in which Haven operates, fiscal and monetary policy, competitive products and pricing, credit risk management, changes in regulations affecting financial institutions and other risks and uncertainties discussed from time to time in the Company's SEC filings, including its 1996 Form 10-K. The Company disclaims any obligation to publicly announce future events or developments, which affect the forward-looking statements herein. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") is the holding company for CFS Bank, formerly known as Columbia Federal Savings Bank ("CFS" or the "Bank"), a federally chartered stock savings bank. CFS converted from a mutual to a stock savings bank on September 23, 1993 in conjunction with the issuance of the Bank's capital stock to Haven Bancorp. Haven Bancorp's business currently consists of the business of the Bank. The Bank's principal business has been and continues to be attracting retail deposits from the general public and investing those deposits, together with funds generated from operations primarily in one-to four-family, owner occupied residential mortgage loans. In addition, in times of low loan demand, the Bank will invest in debt, equity and mortgage-backed securities ("MBSs") to supplement its lending portfolio. The Bank also invests, to a lesser extent, in multi-family residential mortgage loans, commercial real estate loans, equity lines of credit and other marketable securities. The Bank's results of operations are dependent primarily on its net interest income, which is the difference between the interest income earned on its loan and securities portfolios and its cost of funds, which primarily consist of the interest paid on its deposits and borrowed funds. The Bank's net income also is affected by its provision for loan losses as well as non-interest income and operating expenses consisting primarily of compensation and benefits, occupancy and equipment, real estate owned operations, net, federal deposit insurance premiums and other general and administrative expenses. The earnings of the Bank are significantly affected by general economic and competitive conditions, particularly changes in market interest rates, and to a lesser extent, by government policies and actions of regulatory authorities. 14 ANALYSIS OF CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1996 TO SEPTEMBER 30, 1997 ASSETS Total assets increased by $249.7 million, or 15.8% to $1.83 billion at September 30, 1997. Securities available for sale ("AFS") increased by $49.0 million, or 13.2% to $419.1 million at September 30, 1997 from $370.1 million at December 31, 1996. During the nine months ended September 30, 1997, the Bank purchased $307.6 million of MBSs, $31.3 million of government agency securities and $5.9 million of FHLMC Preferred Stock for its AFS portfolio and the Company purchased $7.6 million of other preferred stock issues for its AFS portfolio. These purchases were partially offset by sales from and principal repayments to the AFS portfolio of $275.5 million and $26.8 million, respectively. The purchases for the AFS portfolio during the nine month period ended September 30, 1997 included $41.5 million related to the $85.0 million leverage program which was implemented in February 1997. Debt securities held to maturity declined by $8.9 million, or 9.2% to $88.4 million at September 30, 1997 from $97.3 million at December 31, 1996 mainly due to principal repayments, maturities and calls totalling $9.0 million. MBSs held to maturity declined by $25.2 million, or 12.7% to $172.7 million at September 30, 1997 from $197.9 million at December 31, 1996 also due to principal repayments on the portfolio. There were no purchases of debt securities or MBSs held to maturity during the nine months ended September 30, 1997. Net loans increased by $217.4 million, or 26.0% to $1.05 billion at September 30, 1997 from $836.9 million at December 31, 1996. Loan originations and purchases during the nine month period ended September 30, 1997 totaled $325.3 million (comprised of $234.3 million of residential one-to four-family mortgage loans, $78.6 million of commercial real estate and multi-family loans, $8.6 million of equity loans and lines of credit and $3.8 million of construction advances). Originations of residential one-to four- family mortgage loans included purchases of $128.1 million of residential loans in the secondary market to enhance the Bank's internal loan origination volume. During the nine month period of 1997, principal payments totaled $106.8 million, $1.5 million was transferred to real estate owned ("REO") and $838,000 of loans were sold in the secondary market. LIABILITIES Deposits increased by $172.7 million, or 15.2% to $1.31 billion at September 30, 1997 from $1.14 billion at December 31, 1996 primarily due to deposit inflows in the Bank's in-store bank branches which had deposits totaling $115.9 million at September 30, 1997 compared to $12.1 million at December 31, 1996. The Bank 15 had twenty-four in-store bank branches as of September 30, 1997 compared to four in-store branches at December 31, 1996. The Bank expects to open nine additional in-store bank branches during the fourth quarter of 1997 and twenty-four in 1998; twelve in Pathmark Stores in New York and twelve in ShopRite stores in New Jersey and Connecticut, although there can be no assurance that such schedule will be met. Core deposits (comprised of checking, savings and money market accounts) were equal to 29.6% of total in-store branch deposits at September 30, 1997 compared to 45.9% in the Bank's eight traditional branches. Overall, core deposits represented 44.5% of total deposits at September 30, 1997 compared to 47.2% at December 31, 1996. Borrowed funds increased by $64.2 million, or 19.7% to $390.7 million at September 30, 1997 from $326.4 million at December 31, 1996 primarily due to the addition of $25.0 million of Capital Securities issued by Haven Capital Trust I in February 1997 which are included in borrowed funds in the consolidated statements of financial condition and the addition of an $85.0 million leverage program which was implemented during the first quarter to offset the additional interest expense resulting from the issuance of the Capital Securities. A portion of the increase was offset by the pay-down of short-term borrowings as a result of deposit growth during 1997. STOCKHOLDERS' EQUITY Haven Bancorp's stockholders' equity increased to $109.9 million at September 30, 1997 from $99.4 million at December 31, 1996. The increase in stockholders' equity was due to net income of $8.1 million for the nine months ended September 30, 1997, a reduction of $2.5 million in the unrealized loss on securities AFS and $747,000 related to the exercise of stock options. In addition, the allocation of ESOP stock due to the reduction of the Bank's ESOP debt and the amortization of awards of shares of stock by the Bank's RRPs and amortization of deferred compensation plan increased stockholders' equity by $1.2 million. These increases were partially offset by dividends declared of $2.0 million. 16 NON-PERFORMING ASSETS The following table sets forth information regarding all non- accrual loans (which consist of loans 90 days or more past due and restructured loans that have not yet performed in accordance with their modified terms for the required six-month seasoning period), restructured loans and REO.
September 30, December 31, 1997 1996 (Dollars in Thousands) -------- ------------ Non-accrual loans One-to four-family $ 3,455 4,083 Cooperative 533 431 Multi-family 2,336 1,463 Non-residential and other 4,042 4,756 ------ ------ Total non-accrual loans 10,366 10,733 ------ ------ Restructured loans One-to four-family 682 887 Cooperative 358 486 Multi-family 1,173 1,427 Non-residential and other - 360 ------ ------ Total restructured loans 2,213 3,160 ------ ------ Total non-performing loans 12,579 13,893 ------ ------ REO, net One-to four-family 628 266 Cooperative 345 292 Non-residential and other 451 561 ------ ------ Total REO 1,424 1,119 Less allowance for REO 78 81 ------ ------ REO, net 1,346 1,038 ------ ------ Total non-performing assets $13,925 14,931 ====== ====== Non-performing loans to total loans 1.18% 1.64% Non-performing assets to total assets 0.76 0.94 Non-performing loans to total assets 0.69 0.88
17 The $1.0 million decrease in non-performing assets is due to a decrease of $947,000 in restructured loans and a decrease of $367,000 in non-accrual loans partially offset by a $308,000 net increase in REO. The decrease in non-performing assets was primarily due to the reclassification of six performing restructured real estate loans totaling $947,000 to performing status during the first nine months of 1997. The ratio of non- performing loans to total loans decreased primarily due to total loans which increased by $218.7 million during the nine months. The decreases in the ratios of non-performing assets to total assets and non-performing loans to total assets were due to the aforementioned reduction in restructured loans and an increase of $249.7 million in total assets during the nine-month period ended September 30, 1997. REO, net increased by $308,000, or 29.7% to $1.3 million (net of a $78,000 reserve) at September 30, 1997 from $1.0 million (net of a $81,000 reserve) at December 31, 1996. During the third quarter of 1997, the Bank acquired $213,000 of REO properties, sold $220,000 of REO, and recorded write-downs to fair value of $32,000 on various properties. During the first nine months of 1997, the Bank acquired $1.5 million of REO, sold $677,000 of REO and recorded write-downs to fair value of $558,000 on various properties. The Bank maintains an allowance for loan losses and an allowance for REO, which it believes are adequate for potential losses at each period end. Management's judgment as to potential losses is based on its review of the loan and REO portfolios and its judgment regarding prevailing and anticipated economic conditions and a variety of other factors which have an impact on those portfolios. Although management believes that the allowances are adequate as of the period end, additional provisions may be required in the future. 18 ALLOWANCE FOR LOAN LOSSES The following table sets forth the changes in the allowance for loan losses for the nine months ended September 30, 1997 and 1996:
1997 1996 (Dollars in Thousands) ------- ------- Balance at beginning of period $10,704 8,573 Charge-offs: Residential (369) (703) Cooperative (840) (448) Multi-family - (30) Non-residential and other (257) (360) ------ ------ Total charge-offs (1,466) (1,541) ------ ------ Recoveries 566 807 ------ ------ Net charge-offs (900) (734) Provision for loan losses 2,150 2,475 ------ ------ Balance at end of period $11,954 10,314 ====== ====== Ratio of net charge-offs during the period to average loans outstanding during the period 0.13% 0.15% Ratio of allowance for loan losses to total loans at the end of the period 1.12 1.40 Ratio of allowance for loan losses to non- performing loans at the end of the period 95.03 75.44
The ratio of net charge-offs during the first nine months of 1997 to average loans outstanding decreased primarily due to average loans outstanding which increased $307.8 million, or 47.5% due to originations during the period. The ratio of allowance for loan losses to total loans decreased primarily due to the increase in loans outstanding during 1997. The ratio of allowance for loan losses to non-performing loans increased between the periods due to the decrease in non-performing loans and an increase in the allowance for loan losses. The Bank's allowance for loan losses was $12.0 million and $10.3 million at September 30, 1997 and 1996, respectively, while non-performing loans totalled $12.6 million and $13.7 million, respectively, at those dates. ASSET/LIABILITY MANAGEMENT The Company has attempted to reduce its exposure to interest rate risk through the origination and purchase of ARM loans and the 19 purchase of adjustable-rate securities which are expected to help protect net interest margins during periods of rising interest rates. During the first nine months of 1997, the Bank originated or purchased $129.0 million of residential adjustable-rate mortgages and $67.9 million of adjustable-rate multi-family, commercial real estate and construction loans. During the same period, the Bank purchased $231.1 million of fixed rate debt securities and MBSs to take advantage of higher yields compared to rates offered on adjustable-rate securities. At September 30, 1997, $258.7 million, or 50.7% of the Company's MBS portfolio were adjustable-rate MBSs. In addition, $50.4 million, or 30.4% of the Company's debt securities portfolio were floating rate securities. The adjustable-rate portion of the MBS portfolio is allocated as follows: $249.6 million is in the AFS portfolio and $9.0 million is in the held to maturity portfolio. The Company's adjustable-rate debt securities which total $50.4 million are all AFS securities. Historically, the Company has been able to maintain a substantial level of core deposits (comprised of passbook, money market, NOW and demand accounts) which the Company believes helps to limit interest rate risk by providing a relatively stable, low cost, long-term funding base. At September 30, 1997 core deposits represented 44.5% of deposits compared to 47.2% of deposits at December 31, 1996. Core deposits for the Bank's eight traditional branches was 45.9% compared to 29.6% for the Bank's twenty four in- store bank branches. During the first nine months of 1997, passbook accounts increased by $10.0 million, net of interest and certificates of deposit increased by $124.3 million, net of interest. The number of checking accounts increased by 23,649, or 36.8% to 87,998 at September 30, 1997 from 64,349 at December 31, 1996. Most of the increase, or 19,932 accounts is attributable to the Bank's in-store bank branches. The balance of certificate accounts outstanding at September 30, 1997 was $742.2 million compared to $601.1 million at December 31, 1996. A major portion of the increase, $73.9 million, is attributable to the Bank's in- store branches. The Company expects to attract a higher percentage of core deposits from its in-store bank branch locations as these locations continue to grow and mature. LIQUIDITY AND CAPITAL The Bank is required to maintain minimum levels of liquid assets as defined by regulations of the Office of Thrift Supervision ("OTS"). This requirement, which may be varied by the OTS depending upon economic conditions and deposit flows, is based upon a percentage of withdrawable deposits and short-term borrowings. The required ratio is currently 5%. The Bank's ratio was 8.76% at September 30, 1997 compared to 14.99% at December 31, 1996. The decrease in the liquidity ratio during the nine-month period is due to a decline of $41.4 million in U.S. government securities in the Bank's AFS portfolio due to the Bank's management of the AFS portfolio. 20 The Company's primary sources of funds are deposits, principal and interest payments on loans and MBSs, retained earnings and advances from the Federal Home Loan Bank of NY ("FHLB-NY"). Proceeds from the sale of AFS securities are also a source of funding, as are, to a lesser extent, the sales of annuities and securities brokerage activities conducted by the Bank's subsidiary, CFS Investment Services, Inc., formerly known as Columbia Investment Services, Inc. ("CIS"). While maturities and scheduled amortization of loans and MBSs are somewhat predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, competition and regulatory changes. The Company's most liquid assets are cash and short term investments. The levels of these assets are dependent on the Company's operating, financing, lending and investing activities during any given period. At September 30, 1997 and December 31, 1996, cash and short and intermediate-term investments totaled $40.2 million and $35.7 million, respectively. The Company and the Bank have other sources of liquidity which include debt securities maturing within one year, mortgage loans and MBSs AFS. Other sources of funds include FHLB advances, which at September 30, 1997, totaled $201.1 million. If needed, the Bank may borrow an additional $15.9 million from the FHLB. An additional source of funds are repurchase agreements which the Bank utilized during the first quarter to complete an $85.0 million leverage program. As of September 30, 1997, the Bank exceeded all regulatory capital requirements as detailed in the following table:
Tangible Capital Core Capital Risk-Based Capital -------------------- -------------------- ----------------------- Amount Percentage(1) Amount Percentage(1) Amount Percentage(1)(3) ------ ---------- ------ ---------- ------ ---------- (Dollars in thousands) Capital for regulatory purposes $121,612 6.67% $121,612 6.67% $132,139 14.46% Minimum regulatory requirement 27,347 1.50 54,693 3.00(3) 73,098 8.00 ------- ---- ------- ---- ------- ---- Excess $ 94,265 5.17% $ 66,919 3.67% $ 59,041 6.46% ======= ==== ====== ==== ======= ====
(1) Tangible and core capital are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets. (2) The OTS has incorporated an interest rate risk component into its regulatory capital rule. Under the rule, saving associations with "above normal" interest rate risk exposure would be subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. The OTS has postponed the date 21 that the component will first be deducted from an institution's total capital until an appeals process is developed for the measurement of an institution's interest rate risk. The Bank does not anticipate that the new rule, when implemented, will have a material effect on the Bank's risk-based capital. (3) Although the minimum capital ratio is 3.0%, the OTS regulations provide that generally an institution with less than 4.0% core capital is undercapitalized. Failure to meet the capital requirements or to be deemed undercapitalized exposes an institution to regulatory sanctions, including limitations on asset growth. The OTS noted in the preamble to the final rulemaking for interest rate risk that its intention was to issue a proposal to lower this ratio requirement from 4.0% to 3.0%. ANALYSIS OF CORE EARNINGS The Company's profitability is primarily dependent upon net interest income, which represents the difference between interest and fees earned on loans, MBSs and debt and equity securities, and the cost of deposits and borrowings. Net interest income is dependent on the difference between the average balances and rates earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities. Net income is further affected by non-interest income, non-interest expense and income taxes. 22 The following table sets forth certain information relating to the Company's average consolidated statements of financial condition and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense annualized by the average balance of assets or liabilities, respectively, for the periods shown. Average balances were derived from average daily balances. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yields and costs include fees which are considered adjustments to yields.
Three 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 $1,005,225 $19,811 7.88% $ 679,279 $13,715 8.08% Other loans 32,027 808 10.09 35,023 884 10.10 Mortgage-backed securities 503,448 8,541 6.79 552,471 9,575 6.93 Money market investments 5,137 83 6.46 2,693 40 5.94 Debt and equity securities 183,095 3,332 7.28 224,835 3,749 6.67 --------- ------ --------- ------ Total interest-earning assets 1,728,932 32,575 7.54 1,494,301 27,963 7.49 Non-interest earning assets 88,256 ------ 63,885 ------ --------- --------- Total assets 1,817,188 1,558,186 ========= ========= Liabilities and stockholders' equity: Interest-bearing liabilities: Passbook accounts 376,276 2,387 2.54 373,418 2,342 2.51 Certificate accounts 705,785 10,394 5.89 583,711 8,274 5.67 NOW accounts 137,362 277 0.81 111,174 247 0.89 Money market accounts 55,136 470 3.41 56,989 482 3.38 Borrowed funds 406,126 5,817 5.73 316,095 4,627 5.86 --------- ------ --------- ------ Total interest-bearing liabilities 1,680,685 19,345 4.60 1,441,387 15,972 4.43 Other liabilities 27,636 ------ 20,423 ------ --------- --------- Total liabilities 1,708,321 1,461,810 Stockholders' equity 108,867 96,376 --------- --------- Total liabilities and stockholders' equity $1,817,188 $1,558,186 ========= ========= Net interest income/net interest rate spread $13,230 2.94% $11,991 3.06% ====== ==== ====== ==== Net interest earning assets/net interest margin $48,247 3.06% $52,914 3.21% ====== ==== ====== ==== Ratio of interest-earning assets to interest-bearing liabilities 102.87% 103.67% ====== ======
23
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 $ 922,207 $54,878 7.93% $ 610,837 $37,670 8.22% Other loans 32,900 2,424 9.82 36,498 2,781 10.16 Mortgage-backed securities 467,804 23,773 6.78 574,702 29,617 6.87 Money market investments 6,140 273 5.93 2,947 139 6.29 Debt and equity securities 216,971 11,640 7.15 220,136 10,674 6.47 --------- ------ --------- ------ Total interest-earning assets 1,646,022 92,988 7.53 1,445,120 80,881 7.46 Non-interest earning assets 94,300 ------ 63,520 ------ --------- --------- Total assets 1,740,322 1,508,640 ========= ========= Liabilities and stockholders' equity: Interest-bearing liabilities: Passbook accounts 370,311 6,938 2.50 376,315 7,027 2.49 Certificate accounts 651,189 28,085 5.75 565,507 23,987 5.66 NOW accounts 129,358 772 0.80 109,980 704 0.85 Money market accounts 54,617 1,329 3.24 59,178 1,417 3.19 Borrowed funds 385,190 16,827 5.82 282,141 12,404 5.86 --------- ------ --------- ------ Total interest-bearing liabilities 1,590,665 53,951 4.52 1,393,121 45,539 4.36 Other liabilities 45,013 ------ 23,339 ------ --------- --------- Total liabilities 1,635,678 1,416,460 Stockholders' equity 104,644 92,180 --------- --------- Total liabilities and stockholders' equity $1,740,322 $1,508,640 ========= ========= Net interest income/net interest rate spread $39,037 3.01% $35,342 3.10% ====== ==== ====== ==== Net interest earning assets/net interest margin $55,357 3.16% $51,999 3.26% ====== ==== ====== ==== Ratio of interest-earning assets to interest-bearing liabilities 103.48% 103.73% ====== ======
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 GENERAL. The Company reported net income of $2.5 million for the three months ended September 30, 1997 compared to net income of $77,000 for the three months ended September 30, 1996. The significant increase in earnings was primarily attributable to the fact that non-interest expenses for the third quarter of 1996 included a one-time special assessment of $6.8 million to recapitalize the SAIF insurance fund. Net interest income increased $1.2 million to $13.2 million for the three months ended September 30, 1997 primarily due to an increase in interest income of $4.6 million due to the growth in the mortgage loan portfolio. Non-interest income increased $960,000 when compared to the same period last year mainly due to an increase in savings and checking fees associated with the Bank's in-store branch expansion program. Non-interest expenses, excluding the SAIF recapitalization, 24 increased $4.8 million compared to the same period last year primarily due to costs associated with the Bank's in-store program which included twenty-four locations as of September 30, 1997. Finally, the provision for tax expense increased $1.8 million for the third quarter of 1997 due to pre-tax income which increased $4.2 million. INTEREST INCOME. Interest income increased by $4.6 million, or 16.5% to $32.6 million for the three months ended September 30, 1997 from $28.0 million for the three months ended September 30, 1996. The increase was primarily the result of a $6.1 million increase in interest income on mortgage loans, and an increase of $43,000 in interest income on money market investments. These increases were partially offset by decreases in interest income on MBSs, debt and equity securities and other loans of $1.0 million, $417,000 and $76,000, respectively. Interest income on mortgage loans increased by $6.1 million, or 44.4% to $19.8 million for the three months ended September 30, 1997, from $13.7 million for the comparable three-month period in 1996, primarily as a result of an increase in average balances of mortgage loans of $325.9 million partially offset by a decrease in the average yield on mortgage loans of 20 basis points. The increase in average balance of mortgage loans between the periods was primarily due to mortgage originations, including purchases, for the fourth quarter of 1996 and the first nine months of 1997 which totalled $117.9 million and $316.7 million, respectively. The originations for both periods were partially offset by principal repayments of $18.4 million and $95.9 million, respectively. The decline in the average yield from the prior year was primarily due to the increasing percentage of residential mortgages to total mortgages which increased from 69.4% at September 30, 1996 to 73.2% at September 30, 1997. Interest income on other loans decreased by $76,000, or 8.6% primarily due to a decrease of $3.0 million in average balances outstanding. Interest income on MBSs decreased by $1.0 million, or 10.8% to $8.5 million for the three months ended September 30, 1997 from $9.6 million for the comparable three-month period in 1996, primarily due to a decrease in average balances of MBSs of $49.0 million and a decrease in average yield of 14 basis points. During the first nine months of 1997, the Bank sold $170.1 million of MBSs from its AFS portfolio to fund mortgage loan originations, purchases of loans in the secondary market and also to manage the AFS portfolio to improve yield and shorten duration of various securities. Interest income on debt and equity securities decreased by $417,000, or 11.1% to $3.3 million for the three months ended September 30, 1997 from $3.7 million for the comparable three-month period in 1996, primarily as a result of a decrease in the average balance of $41.7 million, partially offset by the yield which 25 increased 61 basis points. The decline in average balance was due to the sale of callable agency securities which were replaced by adjustable rate CMOs with shorter duration. INTEREST EXPENSE. Interest expense increased by $3.4 million, or 21.1% to $19.3 million for the three months ended September 30, 1997 from $16.0 million for the three months ended September 30, 1996. The increase was the result of a $2.2 million increase in interest expense on deposits and an increase of $1.2 million in interest expense on borrowings. Interest on deposits increased by $2.2 million, or 19.2% to $13.5 million for the three months ended September 30, 1997 from $11.3 million for the comparable three-month period in 1996. The increase in interest on deposits was primarily due to the average balance which increased $149.3 million, or 13.3% to $1.27 billion for the three months ended September 30, 1997 from $1.13 billion for the comparable three-month period in 1996. The increase in deposits is partly attributable to the Bank's in-store banking expansion which was implemented during the second quarter of 1996. At September 30, 1997, the Bank had twenty-four in-store bank branches operating with combined deposits totalling $115.9 million compared to two in-store branches with deposits of $6.2 million as of September 30, 1996. Interest expense on certificate accounts increased by $2.1 million, or 25.6% to $10.4 million for the three months ended September 30, 1997 from $8.3 million in the same period in 1996 and accounted for the major portion of the increase in interest expense for the period. Certificate account average balances increased by $122.1 million, or 20.9% to $705.8 million (which included $81.6 million, or 70% of in-store bank branch balances at September 30, 1997) for the three months ended September 30, 1997 from $583.7 million for the comparable three- month period in 1996. The average cost of certificate accounts was 5.89% for the third quarter of 1997 compared to 5.67% for the comparable 1996 period due to the increase in market interest rates. Interest on borrowed funds increased by $1.2 million, or 25.7% to $5.8 million for the three months ended September 30, 1997 from $4.6 million for the comparable three-month period in 1996. Borrowed funds on an average basis increased by $90.0 million between the periods due to the addition of short-term FHLB advances and securities sold under agreements to repurchase during 1997 as part of a $85.0 million leverage program that was completed during the first quarter of 1997 to offset the additional interest expense resulting from the issuance of $25 million of 10.46% Capital Securities by Haven Capital Trust I in February 1997. The average rate paid on borrowings decreased to 5.73% for the three months ended September 30, 1997 from 5.86% for the comparable prior-year period due to changes in market rates. 26 NET INTEREST INCOME. Net interest income increased by $1.2 million to $13.2 million for the three months ended September 30, 1997 from $12.0 million for the three months ended September 30, 1996. The increase is primarily due to total interest-earning assets which increased by $234.6 million, or 15.7% to $1.73 billion for the three months ended September 30, 1997 from $1.49 billion in the same period last year primarily due to growth in the Bank's mortgage loan portfolio. In addition, the average yield on interest-earning assets increased to 7.54% for the three months ended September 30, 1997 from 7.49% for the three months ended September 30, 1996. This increase was offset by the average cost on interest-bearing liabilities which increased to 4.60% from 4.43% for the three months ended September 30, 1997 and 1996, respectively. The average balance of interest-bearing liabilities increased by $239.3 million, or 16.6% to $1.68 billion for the three months ended September 30, 1997 from $1.44 billion for the three months ended September 30, 1996. The net interest spread was 2.94% for the three months ended September 30, 1997 compared to 3.06% for the comparable period in 1996. PROVISION FOR LOAN LOSSES. The Bank provided $700,000 for loan losses for both the three months ended September 30, 1997 and 1996, respectively. NON-INTEREST INCOME. Non-interest income increased by $960,000, or 42.6% for the three months ended September 30, 1997 to $3.2 million from $2.3 million for the three month period in 1996. Savings and checking fees increased by $585,000, or 67.5% to $1.5 million for the third quarter of 1997 compared to $867,000 for the same period last year. The significant increase in fees is due to the number of checking accounts which increased by 26,719, or 43.6% to 87,998 at September 30, 1997 from 61,279 at September 30, 1996 due to the Bank's strategy to continue to attract lower cost core deposit balances. A significant portion of the growth in checking accounts, approximately 20,357, is attributable to the Bank's in- store bank branch program. The in-store bank branches generated savings and checking fees of $507,000 for the third quarter of 1997 compared to $23,000 for the third quarter of 1996. Insurance, annuity and mutual fund fees increased by $187,000, or 22.3% between the period due to an increase in sales volume, including $211,000 in revenue from in-store bank branches. Other non- interest income increased $206,000, or 77.7% to $471,000 for the three months ended September 30, 1997 from $265,000 for the prior year period. The increase was due to fee income of $82,000 on the sale of stamps via the ATM machines, a new service implemented during 1997. In addition, referral fees and miscellaneous income increased $20,000 and $85,000, respectively. NON-INTEREST EXPENSE. Non-interest expense decreased by $2.0 million, or 14.3% for the three months ended September 30, 1997 to $12.0 million from $14.0 million for the comparable three-month 27 period in 1996. The decrease in non-interest expenses was due to the fact that the third quarter of 1996 included a one-time special assessment of $6.8 million for the recapitalization of the SAIF insurance fund. However, a major portion of this savings was offset by operating expenses totalling $3.3 million incurred for the Bank's in-store branch expansion program. Compensation and benefit costs increased by $3.1 million, or 89.5% to $6.5 million for the three months ended September 30, 1997 from $3.4 million for the same period last year. The in-store branch expansion accounts for $1.8 million of the increase in compensation costs since the Bank has hired approximately 250 new employees for the in-store program as of September 30, 1997. Salary costs for the Bank's subsidiary, CIS, Inc., increased $155,000 due to higher sales volume. The remainder of the increase in salary costs was due to normal merit increases. In addition, federal social security taxes increased $136,000 from the prior period due to a higher salary base. Pension expense increased $661,000 since the Bank's retire- ment plan was frozen as of July 1, 1996 and the results for the prior period included the reversal of pension accruals booked previously during 1996. Occupancy and equipment costs increased $920,000 primarily due to the Bank's in-store banking program which accounted for $831,000 of the increase. REO operations, net increased $91,000 from the comparable period last year due to a decline in profits realized from the sale of properties. The significant decrease in the federal deposit insurance premium costs of $464,000 was due to a decrease in the assessment rate from 23 basis points in 1996 to 6.48 basis points in 1997. Finally, miscellaneous operating costs increased $1.2 million, or 50.7% to $3.5 million for the third quarter of 1997 compared to $2.3 million for the third quarter of 1996. Operating expenses including stationery, telephone, postage, insurance and miscellaneous costs increased $562,000 primarily due to the Bank's in-store branch expansion program. Consulting fees increased $127,000 from the same period last year also due to the in-store expansion. The cost of EDP services provided to the Bank increased $187,000 primarily due to growth in deposit accounts. The costs incurred for advertising increased $150,000 due to the growth in both the loan portfolio and deposit base. INCOME TAX EXPENSE. Income tax expense was $1.3 million for an effective tax rate of 34.2% for the three months ended September 30, 1997 compared to an income tax credit of $559,000 for the prior year period. The decrease in the effective tax rate was due, in part, to the switch to the percentage of taxable income ("PTI") method for calculating the bad debt deduction for New York City and to the establishment of a REIT subsidiary, Columbia Preferred Capital Corp. ("CPCC"), effective June 9, 1997, which resulted in certain tax savings. 28 COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 GENERAL. The Company reported net income of $8.1 million for the nine months ended September 30, 1997 compared to net income of $6.0 million for the nine months ended September 30, 1996. The $2.1 million increase was primarily attributable to net interest income and non-interest income which increased $3.7 million and $1.2 million, respectively. In addition, the provision for loan losses declined $325,000 from the previous period. These increases were partially offset by non-interest expenses which increased by $3.1 million primarily due to the Bank's in-store branch expansion program. INTEREST INCOME. Interest income increased by $12.1 million, or 15.0% to $93.0 million for the nine months ended September 30, 1997 from $80.9 million for the nine months ended September 30, 1996. The increase was primarily the result of a $17.2 million increase in interest income on mortgage loans, an increase of $966,000 in interest income on debt and equity securities, and an increase of $134,000 in interest income on money market investments. These increases were partially offset by a decrease in interest income on MBSs and other loans of $5.8 million and $357,000, respectively. Interest income on mortgage loans increased by $17.2 million, or 45.7% to $54.9 million for the nine months ended September 30, 1997 from $37.7 million for the comparable nine-month period in 1996, primarily as a result of an increase in average balances of mortgage loans of $311.4 million, partially offset by a decrease in the average yield on mortgage loans of 29 basis points. The increase in the average balance of mortgage loans between the periods was due to mortgage originations, including purchases. The average yield on mortgage loans decreased to 7.93% for the nine months ended September 30, 1997 from 8.22% for the comparable nine- month period in 1996 mainly due to the increasing percentage of relatively lower yielding residential mortgages. Interest income on other loans decreased by $357,000, or 12.8% to $2.4 million for the nine months ended September 30, 1997 from $2.8 million for the comparable period in 1996 primarily due to a decrease of $3.6 million in average balances outstanding and a decrease of 34 basis points in average yield. Interest income on MBSs decreased by $5.8 million, or 19.7% to $23.8 million for the nine months ended September 30, 1997 from $29.6 million for the comparable nine-month period in 1996 primarily due to a decrease in average balances of MBSs of $106.9 million. During 1996, sales of MBSs from the AFS portfolio exceeded purchases due to funding needed for mortgage loan originations and the purchase of loans in the secondary market. For the first nine months of 1997, the Bank placed a greater 29 emphasis on MBSs reflecting management's strategy to improve duration and yield of the AFS portfolio with MBSs rather than debt and equity securities. Interest income on debt and equity securities increased by $966,000, or 9.1% to $11.6 million for the nine months ended September 30, 1997 from $10.7 million for the comparable nine-month period in 1996 primarily as a result of an increase in average yield of 68 basis points. The increase in the average yield was due to the purchase of debt and equity securities yielding approximately 7.3% which were designated as AFS, offsetting sales yielding approximately 6.9%. INTEREST EXPENSE. Interest expense increased by $8.4 million, or 18.5% to $54.0 million for the nine months ended September 30, 1997 from $45.5 million for the nine months ended September 30, 1996. The increase was the result of a $4.0 million increase in interest expense on deposits and an increase of $4.4 million in interest expense on borrowings. Interest on deposits increased by $4.0 million, or 12.0% to $37.1 million for the nine months ended September 30, 1997 from $33.1 million for the comparable nine-month period in 1996. The increase in interest on deposits was primarily due to the average balance which increased $94.5 million, or 8.51% to $1.21 billion for the nine months ended September 30, 1997 from $1.11 billion for the comparable nine-month period in 1996. The deposit growth is primarily attributable to the Bank's in-store banking program which was implemented during the second quarter of 1996. The increase in average balance was primarily due to certificate account balances which increased $85.7 million, or 15.2% to $651.2 million for the nine months ended September 30, 1997 from $565.5 million for the comparable nine-month period in 1996. Interest expense on certificate accounts increased by $4.1 million, or 17.1% to $28.1 million for the nine months ended September 30, 1997 from $24.0 million in the same period in 1996 primarily due to the growth in average balances primarily in the in-store branches. The average cost of certificate accounts was 5.75% for the first nine months of 1997 compared to 5.66% for the comparable period in 1996. Interest expense on passbook accounts decreased by $89,000, or 1.3% to $6.9 million for the nine months ended September 30, 1997 from $7.0 million in the same period in 1996 primarily due to a decrease in average balances due to customers seeking higher yielding investment opportunities including the Bank's certificate of deposit accounts. The average cost of all deposits was 4.11% for the period ended September 30, 1997 compared to 3.98% for the period ended September 30, 1996. Interest on borrowed funds increased by $4.4 million, or 35.7% to $16.8 million for the nine months ended September 30, 1997 from $12.4 million for the comparable nine-month period in 1996. 30 Borrowed funds on an average basis increased by $103.0 million between the periods due to the addition of $25.0 million of Capital Securities issued by Haven Capital Trust I in February 1997 which are included in borrowed funds and the addition of an $85.0 million leverage program which was implemented during the first quarter to offset the additional interest expense resulting from the issuance of the Capital Securities. NET INTEREST INCOME. Net interest income increased by $3.7 million to $39.0 million for the nine months ended September 30, 1997 from $35.3 million for the nine months ended September 30, 1996. The increase is primarily due to total interest-earning assets which increased $200.9 million, or 13.9% to $1.65 billion for the nine months ended September 30, 1997 from $1.45 billion for the same period last year primarily due to the growth in the Bank's mortgage loan portfolio. In addition, the average yield on interest-earning assets increased to 7.53% from 7.46% for the nine months ended September 30, 1997 and 1996, respectively. This increase was offset by the average cost on interest-bearing liabilities which increased to 4.52% from 4.36% for the nine months ended September 30, 1997 and 1996, respectively. The net interest spread was 3.01% for the nine months ended September 30, 1997 compared to 3.10% for the comparable period in 1996. PROVISION FOR LOAN LOSSES. The Bank recorded $2.2 million for loan losses for the nine months ended September 30, 1997 compared to $2.5 million for the comparable nine-month period in 1996. NON-INTEREST INCOME. Non-interest income increased by $1.2 million, or 16.4% for the nine months ended September 30, 1997 to $8.4 million from $7.2 million for the comparable nine-month period in 1996. The results for 1996 included $597,000 in loan prepayment fees. Savings and checking fees increased by $1.3 million, or 54.7% to $3.8 million for the first nine months of 1997 compared to $2.4 million for the same period last year due to the increase in the number of checking accounts. The in-store bank branches generated savings and checking fees of $843,000 of the $1.3 million increase for the nine months ended September 30, 1997. Insurance, annuity and mutual fund fees increased by $498,000 due to an increase in sales volume which included $357,000 in revenue from sales originating from in-store bank branches. The Bank realized a net loss of $23,000 on the sale of securities from its AFS portfolio compared to a gain of $88,000 for the same period last year. NON-INTEREST EXPENSE. Non-interest expense increased by $3.1 million, or 10.6% for the nine months ended September 30, 1997 to $32.6 million from $29.5 million for the comparable nine-month period in 1996. The significant increase in operating expenses is primarily due to the Bank's in-store branch expansion program which accounted for $6.9 million of operating expenses in the first nine 31 months of 1997. Compensation and benefit costs increased by $6.3 million, or 56.6% for the nine months ended September 30, 1997 to $17.4 million from $11.1 million for the prior period. The in- store branch expansion accounts for $3.9 million of the increase in compensation costs. Salary costs for the Bank's subsidiary, CIS, Inc., increased by $419,000 due to higher sales volume. The remainder of the increase in salary costs was due to normal merit increases. In addition, federal social security taxes increased $391,000 from the prior period due to a higher salary base. ESOP compensation increased $162,000 from the same period last year due to the increase in the average price of Haven Bancorp common stock for the period. The cost incurred for hospitalization and group life insurance increased $180,000 from the comparable period last year due to the increase in staff. Finally, pension expense increased $250,000 since the results for 1996 reflect the reversal of pension accruals since the plan was frozen as of July 1, 1996. Occupancy and equipment costs increased $1.8 million primarily due to the Bank's in-store banking program which accounted for $100% of the increase. REO operations, net decreased $29,000 from the comparable period last year due to a decline in loss provisions booked for the REO portfolio. The results for the first nine months of 1996 included a one-time special assessment of $6.8 million which was used to recapitalize the SAIF insurance fund. The significant decrease in the federal deposit insurance premium costs of $1.3 million was due to a decrease in the assessment rate from 23 basis points in 1996 to 6.48 basis points in 1997 primarily due to the SAIF recapitalization previously discussed. Finally, miscellaneous operating costs increased $3.2 million, or 47.3% to $10.0 million for the nine months ended September 30, 1997 compared to $6.8 million for the same period last year. Operating expenses including stationery, telephone, postage, insurance and miscellaneous costs increased approximately $998,000 due to the Bank's in-store branch program. Consulting fees increased $346,000 from 1996 primarily due to the implementation of the in-store branch program. Professional fees increased $136,000 from 1996 due to professional services related to the formation of CPCC. The cost of EDP services provided to the Bank increased $328,000 due to the growth in deposit accounts. The costs for advertising and NYCE fees increased $289,000 and $108,000, respectively, due to the growth in both the loan portfolio and deposit base. Operating expenses for CIS, Inc., the Bank investment subsidiary increased $170,000 due to higher sales volume. Miscellaneous operating losses increased $457,000 from the same period last year due to the 1996 results which included the reversal of a $389,000 reserve regarding claims which were subsequently paid by Nationar, an entity that previously provided check collection services for the Bank. INCOME TAX EXPENSE. Income tax expense was $4.6 million for an effective tax rate of 36.2% for the nine months ended September 30, 1997 compared to income tax expense of $4.6 million for an 32 effective tax rate of 43.6% for the comparable period in 1996. The decrease in the effective tax rate is due to several factors: First, during the first quarter of 1997, a deferred tax liability of $330,000 was reversed related to the potential recapture of the New York City tax bad debt reserve which was no longer necessary due to New York City tax legislation enacted earlier this year. The New York City tax law was amended in the first quarter of 1997 to conform to the New York State tax treatment for bad debt reserves. The legislation "decouples" New York State's and New York City's thrift bad debt provisions from the federal tax law and allows for the use of the percentage of taxable income method ("PTI") for computing the tax bad debt reserves. The second factor which contributed to the tax savings when compared to the prior period was the switch to the PTI method for calculating the bad debt deduction for New York City. The final factor contributing to the decline in the effective tax rate for 1997 was the establishment of CPCC during the second quarter of 1997 which resulted in certain tax savings. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In February, 1983, a burglary of the contents of safe deposit boxes occurred at a branch office of the Bank. At September 30, 1997, the Bank has a class action lawsuit related thereto pending, whereby the plaintiffs are seeking recovery of approximately $12.9 million in actual damages and an additional $12.9 million of unspecified damages. The Bank's ultimate liability, if any, which might arise from the disposition of these claims cannot presently be determined. Management believes it has meritorious defenses against these actions and has and will continue to defend its position. Accordingly, no provision for any liability that may result upon adjudication has been recognized in the accompanying consolidated financial statements. The Company is involved in various other legal actions arising in the ordinary course of business, which in the aggregate, are believed by management to be immaterial to the financial position of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 33 ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 27.1 Financial Data Schedule. (b) The Company filed Form 8-K on October 28, 1997 regarding the declaration on October 23, 1997 of a stock split in the form of a 100% stock dividend. 34 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. HAVEN BANCORP INC. (Registrant) Date: November 14, 1997 By: /s/ Philip S. Messina --------------------------- Philip S. Messina President and Chief Executive Officer Date: November 14, 1997 By: /s/ Catherine Califano --------------------------- Catherine Califano Senior Vice President and Chief Financial Officer
35 EX-27 2
9 This schedule contains summary financial information extracted from the Consolidated Statement of Financial Condition at September 30, 1997 and the Consolidated Statement of Operations for the 9 months Ended September 30, 1997. 1,000 9-MOS DEC-31-1997 SEP-30-1997 34,993 1,229,298 0 0 419,124 261,096 260,423 1,066,275 11,954 1,833,284 1,310,471 303,821 22,203 86,844 0 0 100 109,845 1,833,284 57,302 35,686 0 92,988 37,124 53,951 39,037 2,150 (23) 32,621 12,631 12,631 0 0 8,056 0.89 0.88 3.16 10,366 0 2,213 22,850 10,704 1,466 566 11,954 11,954 0 0
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