-----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, IEFSfKZX7UOxhTnkK/7n9zkb/ZFais36ZxDuhHJgkjKCr3RT+p7s2PUw3BaGQJqp US47v3MNPmZSkdDvyzsm0w== 0000900741-98-000007.txt : 19980817 0000900741-98-000007.hdr.sgml : 19980817 ACCESSION NUMBER: 0000900741-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 98690139 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 JUNE 30, 1998 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.) 615 MERRICK AVENUE, WESTBURY, NEW YORK 11590 (Address of principal executive offices) (Zip Code) (516) 683-4100 (Registrant's telephone number, including area code) 93-22 JAMAICA AVENUE, WOODHAVEN, NEW YORK 11421 (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 8,849,268 shares of the Registrant's common stock outstanding as of August 12, 1998. HAVEN BANCORP, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition as of June 30, 1998 and December 31, 1997 3 Consolidated Statements of Income for the Three Months and Six Months ended June 30, 1998 and 1997 4 Consolidated Statement of Changes in Stockholders' Equity for the Six Months ended June 30, 1998 5 Consolidated Statements of Cash Flows for the Six months ended June 30, 1998 and 1997 6 Notes to Consolidated Financial Statements 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-31 Item 3. Quantitative and Qualitative Disclosure about Market Risk 31 PART II - OTHER INFORMATION Item 1. Legal Proceedings 31 Item 2. Changes in Securities and Use of Proceeds 31 Item 3. Defaults Upon Senior Securities 31 Item 4. Submission of Matters to a Vote of Security Holders 31 Item 5. Other Information 31 Item 6. Exhibits and Reports on Form 8-K 32 Signature Page 2 HAVEN BANCORP, INC. Consolidated Statements of Financial Condition (Dollars in thousands, except for share data) (Unaudited)
June 30, December 31, 1998 1997 -------- ------------ ASSETS Cash and due from banks $ 53,659 $ 35,745 Money market investments 2,217 4,561 Securities available for sale (note 2) 762,925 499,380 Loans held for sale 61,657 - Debt securities held to maturity (estimated fair value of $66,372 in 1997) (note 2) - 66,404 Federal Home Loan Bank of NY stock, at cost 18,140 12,885 Mortgage-backed securities held to maturity (estimated fair value of $163,326 in 1997) (note 2) - 163,057 Loans: First mortgage loans 1,255,712 1,098,894 Cooperative apartment loans 18,855 19,596 Other loans 33,189 32,291 --------- --------- Total loans 1,307,756 1,150,781 Less allowance for loan losses (13,315) (12,528) --------- --------- Loans, net 1,294,441 1,138,253 Premises and equipment, net (note 3) 34,443 27,062 Accrued interest receivable 12,083 12,429 Other assets (note 3) 25,683 15,114 --------- --------- Total assets $2,265,248 $1,974,890 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $1,562,915 $1,365,012 Borrowed funds 525,344 466,794 Mortgagors' escrow balances 10,220 3,234 Due to broker 30,000 10,000 Other liabilities 18,776 16,985 --------- --------- Total liabilities 2,147,255 1,862,025 --------- --------- Stockholders' Equity: Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued - - Common stock, $.01 par value, 30,000,000 shares authorized, 9,918,750 shares issued; 8,849,268 and 8,784,700 shares outstanding at June 30, 1998 and December 31, 1997, respectively 100 100 Additional paid-in capital 51,113 50,065 Retained earnings, substantially restricted 75,714 73,567 Accumulated other comprehensive income: Unrealized gain on securities available for sale, net of tax effect 3,178 1,671 Treasury stock, at cost (1,069,482 and 1,134,050 shares at June 30, 1998 and December 31, 1997) (9,862) (10,246) Unallocated common stock held by Bank's ESOP (1,373) (1,529) Unearned common stock held by Bank's Recognition Plans and Trusts (314) (364) Unearned compensation (563) (399) --------- --------- Total stockholders' equity 117,993 112,865 --------- --------- Total liabilities and stockholders' equity $2,265,248 $1,974,890 ========= =========
See accompanying notes to consolidated financial statements. 3 HAVEN BANCORP, INC. Consolidated Statements of Income (Dollars in thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Interest income: Mortgage loans $23,591 $18,486 $45,330 $35,067 Other loans 823 801 1,610 1,616 Mortgage-backed securities 9,573 8,191 18,504 15,232 Money market investments 42 94 146 190 Debt and equity securities 2,703 4,044 6,105 8,308 ------ ------ ------ ------ Total interest income 36,732 31,616 71,695 60,413 ------ ------ ------ ------ Interest expense: Deposits: Savings accounts 2,700 2,323 5,116 4,551 NOW accounts 341 277 602 495 Money market accounts 514 461 937 859 Certificate accounts 12,615 9,222 24,478 17,691 Borrowings 6,412 5,951 12,918 11,010 ------ ------ ------ ------ Total interest expense 22,582 18,234 44,051 34,606 ------ ------ ------ ------ Net interest income before provision for loan losses 14,150 13,382 27,644 25,807 Provision for loan losses 650 750 1,320 1,450 ------ ------ ------ ------ Net interest income after provision for loan losses 13,500 12,632 26,324 24,357 ------ ------ ------ ------ Non-interest income: Loan fees and servicing income 1,233 254 1,751 504 Savings/checking fees 2,319 1,263 4,130 2,323 Net gain (loss) on sales of interest-earning assets 54 8 406 (16) Insurance annuity and mutual fund fees 1,314 1,003 2,501 1,803 Other 663 299 1,254 540 ------ ------ ------ ------ Total non-interest income 5,583 2,827 10,042 5,154 ------ ------ ------ ------ Non-interest expense: Compensation and benefits 10,387 5,878 17,964 10,892 Occupancy and equipment 2,381 1,646 4,600 2,638 Real estate owned operations, net (88) 76 (39) 184 Federal deposit insurance premiums 222 172 429 364 Other 4,479 3,766 8,494 6,529 ------ ------ ------ ------ Total non-interest expense 17,381 11,538 31,448 20,607 ------ ------ ------ ------ Income before income tax expense 1,702 3,921 4,918 8,904 Income tax expense 471 1,621 1,538 3,299 ------ ------ ------ ------ Net income $1,231 $2,300 $3,380 $5,605 ====== ====== ====== ====== Net income per common share: Basic (1) $ 0.14 $ 0.28 $ 0.40 $ 0.68 ====== ====== ====== ====== Diluted (1) $ 0.13 $ 0.26 $ 0.37 $ 0.64 ====== ====== ====== ======
See accompanying notes to consolidated financial statements. (1) 1997 per share amounts reflect the 2-for-1 stock split effective November 1997. 4 HAVEN BANCORP, INC. Consolidated Statements of Changes in Stockholders' Equity Six Months Ended June 30, 1998 (Unaudited)
Accumulated Other Unallocated Unearned Additional Comprehen- Common Common Common Paid-In Retained sive Treasury Stock Held Stock Held Unearned Total Stock Capital Earnings Income Stock by ESOP by RRP Compensation (Dollars in thousands) ----- ------ ---------- -------- ---------- -------- ----------- ---------- ------------ Balance at December 31, 1997 $112,865 100 50,065 73,567 1,671 (10,246) (1,529) (364) (399) Comprehensive Income: Net income 3,380 - - 3,380 - - - - - Other comprehensive income, net of tax Net unrealized appreciation on certain securities, net of reclassification adjustment 626 - - - 626 - - - - Net unrealized appreciation on Debt and MBS securities transferred from held to maturity to the AFS portfolio(note 2) 881 - - - 881 - - - - ------- Comprehensive income 4,887 - - - - - - - - Dividends declared (note 5) (1,233) - - (1,233) - - - - - Treasury stock issued for deferred compensation plan (14,384 shares) - - 280 - - 86 - - (366) Stock options exercised, net of tax effect (50,184 shares) (note 4) 425 - 127 - - 298 - - - Allocation of ESOP stock and amortization of award of RRP stock and related tax benefits 847 - 641 - - - 156 50 - Amortization of deferred compensation plan 202 - - - - - - - 202 ------- --- ------ ------ ------ ------ ------ ----- ----- Balance at June 30, 1998 $117,993 100 51,113 75,714 3,178 (9,862) (1,373) (314) (563) ======= === ====== ====== ====== ====== ====== ===== =====
FAS 130 Disclosure of Reclassification Adjustment June 30, 1998 Gross Tax Effect Net of Tax ----- ---------- ---------- Comprehensive income items Net unrealized gain arising during period 2,377 605 1,772 Less: reclassification adjustment for net gains included in income 384 119 265 ----- ---- ----- Net unrealized gain on certain securities 1,993 486 1,507 ===== ==== ===== Balance sheet items Accumulated unrealized gain on securities AFS as of June 30, 1998 4,606 1,428 3,178 Accumulated unrealized gain on securities AFS as of December 31, 1997 2,613 942 1,671 ----- ---- ----- Change during the period 1,993 486 1,507 ===== ==== =====
See accompanying notes to consolidated financial statements. 5 HAVEN BANCORP, INC. Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited)
Six months ended June 30, ------------------ 1998 1997 ---- ---- Cash flows from operating activities: Net income $ 3,380 $ 5,605 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of cost of stock benefit plans 1,049 771 Amortization of net deferred loan origination fees (19) (164) Amortization of premiums and accretion of discounts on loans, mortgage-backed and debt securities (994) 255 Provision for loan losses 1,320 1,450 Provision for losses on real estate owned 30 50 Deferred income taxes (465) (792) Net (gain) loss on sales of interest-earning assets (406) 16 Loans originated and purchased for sale, net of proceeds from sales (69,585) - Depreciation and amortization 1,896 563 Decrease (increase) in accrued interest receivable 346 (733) Increase in due to broker 20,000 9,000 Increase (decrease) in other liabilities 1,786 (72) Increase in other assets (10,682) (3,076) ------ ------ Net cash (used in) provided by operating activities (52,344) 12,873 ------ ------ Cash flows from investing activities: Net increase in loans (149,918) (137,895) Proceeds from disposition of assets (including REO) 440 861 Purchases of securities available for sale (337,436) (255,267) Principal repayments and maturities on securities available for sale 78,607 16,172 Proceeds from sales of securities available for sale 182,263 184,016 Principal repayments, maturities and calls on debt securities held to maturity 21,020 2,020 Principal repayments on mortgage-backed securities held to maturity 24,834 15,067 Purchases of FHLB stock, net (5,255) (1,100) Net increase in premises and equipment (9,277) (7,695) ------- ------- Net cash used in investing activities (194,722) (183,821) ------- ------- Cash flows from financing activities: Net increase in deposits 197,903 98,486 Net increase in borrowed funds 58,550 86,160 Increase (decrease) in mortgagors' escrow balances 6,986 (2,123) Payment of common stock dividends (1,228) (1,298) Stock options exercised 425 600 ------- ------- Net cash provided by financing activities 262,636 181,825 ------- ------- Net increase in cash and cash equivalents 15,570 10,877 Cash and cash equivalents at beginning of period 40,306 35,717 ------ ------- Cash and cash equivalents at end of period $55,876 $46,594 ====== ======= Supplemental information: Cash paid during the period for: Interest $43,175 $32,422 Income taxes 1,631 3,946 Additions to real estate owned 434 1,326 Securities purchased, not yet received 30,000 10,000 Mortgage-backed securities and debt securities held to maturity transferred to securities available for sale 183,639 - ======= ======
See accompanying notes to consolidated financial statements. 6 HAVEN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 and 1997 (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 Columbia Federal Savings Bank) ("CFS" or the "Bank") and subsidiaries, as of June 30, 1998 and December 31, 1997 and for the three-month and six-month periods ended June 30, 1998 and 1997, 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 six-month periods ended June 30, 1998 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, 1997. NOTE 2 - DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES ("MBSs"). Under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", 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. At June 30, 1998, the Company transferred its remaining debt and MBSs held to maturity portfolios totaling $183.6 million to securities available for sale. 7 SECURITIES AVAILABLE FOR SALE The amortized cost and estimated fair values of securities available for sale at June 30, 1998 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 $ 85,689 233 (379) 85,543 Corporate Bonds 40,410 4 (61) 40,353 Preferred Stock 4,198 171 - 4,369 ------- ----- ------ ------- 130,297 408 (440) 130,265 ------- ----- ------ ------- MBSs available for sale: GNMA Certificates 703 16 - 719 FNMA Certificates 92,207 642 (465) 92,384 FHLMC Certificates 73,435 1,036 (124) 74,347 CMOs and REMICS 461,677 4,167 (634) 465,210 ------- ----- ------ ------- 628,022 5,861 (1,223) 632,660 ------- ----- ------ ------- Total $758,319 6,269 (1,663) 762,925 ======= ===== ====== =======
The net unrealized gain on securities available for sale at June 30, 1998, was reported as a separate component of stockholders' equity in the amount of $3.2 million, which is net of a tax effect of $1.4 million. NOTE 3 - INTERCOUNTY MORTGAGE, INC. On May 1, 1998 the Bank completed the purchase of the production franchise of Intercounty Mortgage, Inc. ("IMI") from Resource Bancshares Mortgage Group, Inc. ("RBMG"). The Bank paid approximately $5.6 million for IMI's production franchise and fixed assets. The transaction was financed internally and accounted for under the purchase method. IMI primarily originates agency-eligible residential mortgages and in 1997 had loan production of approximately $740 million from six retail offices in New York, New Jersey and Pennsylvania. The business is currently operating as "CFS Intercounty Mortgage Company" ("CFS Intercounty"), a division of the Bank. During the period May 1, 1998 through June 30, 1998, CFS Intercounty originated and purchased $155.4 million in loans. A portion of this production, $3.1 million, was transferred to CFS Bank's portfolio and $90.6 million was sold on a servicing released basis to third-party investors substantially under the terms agreed to in the RBMG purchase agreement. In connection with the acquisition, the Bank recorded goodwill in the amount of $5.1 million. The goodwill is being amortized over 5 years. 8 NOTE 4 - STOCK PLANS. Changes in outstanding options for the benefit of directors, officers and other key employees of the Bank for the six months ended June 30, 1998 are as follows:
Weighted Average Options Exercise Price ------- ---------------- Balance at December 31, 1997 1,231,676 7.90 Granted 98,200 25.81 Forfeited - - Exercised (50,184) 8.47 --------- ----- Balance at June 30, 1998 1,279,692 9.25 ========= ===== Shares exercisable at June 30, 1998 998,759 7.05 ========= =====
NOTE 5 - DIVIDENDS PAYABLE. On June 24, 1998, the Company's Board of Directors approved a quarterly cash dividend of $0.075 per share, payable on July 24, 1998, to shareholders of record as of July 3, 1998. NOTE 6 - RECENT ACCOUNTING/REGULATORY PRONOUNCEMENTS. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". The statement establishes standards for reporting and display of comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company has adopted the provisions of SFAS No. 130 during the first quarter of 1998 and as such was required to: (a) classify items of other comprehensive income by their nature in a financial statement; (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section in its statement of financial condition; and (c) reclassify prior periods presented (see Note 8). In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires that enterprises report certain financial and descriptive information about operating segments in complete sets of financial statements of the Company and in condensed financial statements of 9 interim periods issued to stockholders. SFAS No. 131 also requires that enterprises report certain information about their products and services, geographic areas in which they operate, and their major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997 but does not have to be applied to interim financial statements in the initial year of application. As the requirements of SFAS No. 131 are disclosure-related, its implementation will have no impact on the Company's financial condition or results of operations. In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures about Pensions and Other Post-Retirement Benefits". SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans, but does not change the measurement or recognition of those plans. SFAS No. 132 also standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997 and requires restatement of prior periods presented. As the requirements of SFAS No. 132 are disclosure related, its implementation will have no impact on the Company's financial condition or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999 and does not require restatement of prior periods. Management of the Company currently believes the implementation of SFAS No. 133 will not have a material impact on the Company's financial condition or results of operations as the Company does not currently use derivative instruments as defined in SFAS No. 133. NOTE 7 - NET INCOME PER SHARE OF COMMON STOCK. There were 8,567,111 basic shares outstanding and 9,247,139 diluted shares outstanding for the three months ended June 30, 1998. There were 8,554,785 basic shares outstanding and 9,186,967 diluted shares outstanding for the six months ended June 30, 1998. The weighted average number of shares outstanding does not include 274,694 shares which are unallocated by the Employee Stock Ownership Plan ("ESOP") as of June 30, 1998 in accordance with American Institute of CPAs ("AICPA") Statement of Position ("SOP") 93-6, "Employers' 10 Accounting for ESOPs". Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of 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. NOTE 8 - COMPREHENSIVE INCOME - Comprehensive income, as discussed in Note 6, was $4.0 million and $4.9 million for the three month and six month periods ended June 30, 1998, respectively, and $5.5 million and $6.5 million for the three month and six month periods ended June 30, 1997, respectively. 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 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 and from borrowings primarily in one-to four-family, owner occupied residential mortgage loans held in the Bank's portfolio or to be sold in the secondary market. 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. 11 ANALYSIS OF CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1997 TO JUNE 30, 1998 ASSETS Total assets increased by $290.4 million, or 14.7% to $2.3 billion at June 30, 1998 from $2.0 billion at December 31, 1997. Securities available for sale ("AFS") increased by $263.5 million, or 52.8% to $762.9 million at June 30, 1998 from $499.4 million at December 31, 1997: $183.6 million of the increase was due to the transfer of the Company's entire debt and MBS held-to-maturity portfolios to securities AFS. The transfer was done to enhance liquidity and take advantage of market opportunities. During the six months ended June 30, 1998, the Bank purchased $322.4 million of MBSs, $13.9 million of government agency securities and $1.1 million of Preferred Stock for its AFS portfolio. These purchases were partially offset by sales and principal repayments of $181.9 million and $78.6 million, respectively. Debt securities held to maturity decreased by $66.4 million, or 100% to a zero balance at June 30, 1998 due to principal repayments, maturities and calls totaling $21.0 million and the transfer of $45.4 million of securities to AFS on June 30, 1998. MBSs held to maturity declined by $163.1 million, or 100% to a zero balance at June 30, 1998 due to principal repayments, maturities and calls totaling $24.9 million and the transfer of $138.2 million of securities to AFS on June 30, 1998. There were no purchases of debt securities or MBSs held to maturity during the six months ended June 30, 1998, and no such further purchases are currently anticipated. Net loans increased by $156.2 million, or 13.7% to $1.3 billion at June 30, 1998 from $1.1 billion at December 31, 1997. Loan originations and purchases during the six month period ended June 30, 1998 totaled $294.0 million (comprised of $223.7 million of residential one-to four-family mortgage loans, $62.1 million of commercial real estate and multi-family loans, $7.5 million of equity loans and lines of credit and $0.7 million of construction advances). Originations of residential one-to four-family mortgage loans included purchases of $75.5 million of residential loans in the secondary market to enhance the Bank's internal loan origination volume. During the first half of 1998, principal payments totaled $131.8 million, $0.4 million was transferred to REO and $4.9 million of loans were sold in the secondary market. CFS Intercounty's residential mortgage loan origination volume and wholesale purchases since its acquisition on May 1, 1998 were $155.4 million, of which $3.1 million was transferred to CFS Bank's portfolio and $90.6 million was sold on a servicing released basis to third party investors substantially under the terms agreed to in the RBMG purchase agreement. Effective July 1, 1998, the Bank entered into new correspondent agreements with various investors to realize the full value of the servicing released premiums ("SRPs") when the loans are sold in the secondary market. At June 30, 1998, 12 substantially all of the loans in the pipeline that will be sold in the secondary market, will realize the full benefit of such SRPs. LIABILITIES Deposits increased by $197.9 million, or 14.5% to $1.6 billion at June 30, 1998 from $1.4 billion at December 31, 1997 primarily due to deposit inflows in the Bank's in-store bank branches which had deposits totaling $322.7 million at June 30, 1998 compared to $157.2 million at December 31, 1997. The Bank had forty-five in- store bank branches as of June 30, 1998 compared to thirty-two in- store branches at December 31, 1997. The Bank expects to open fifteen additional in-store bank branches during the remainder of 1998. Core deposits (comprised of checking, savings and money market accounts) were equal to 39.1% of total in-store branch deposits at June 30, 1998 compared to 47.1% in the Bank's eight traditional branches. Overall, core deposits represented 45.5% of total deposits at June 30, 1998 compared to 42.7% at December 31, 1997. Borrowed funds increased by $58.6 million, or 12.5% to $525.3 million at June 30, 1998 from $466.8 million at December 31, 1997 primarily to fund loan origination volume and wholesale purchases of CFS Intercounty during the second quarter of 1998. STOCKHOLDERS' EQUITY Haven Bancorp's stockholders' equity increased to $118.0 million at June 30, 1998 from $112.9 million at December 31, 1997. The increase in stockholders' equity was due to net income of $3.4 million for the six months ended June 30, 1998, an increase of $1.5 million in the unrealized gain on securities AFS (including $881,000 due to the aforementioned transfer of securities held-to- maturity to securities AFS) and $425,000 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 $1.0 million. These increases were partially offset by dividends declared of $1.2 million. 13 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 real estate owned.
June 30, December 31, (Dollars in Thousands) 1998 1997 -------- ------------ Non-accrual loans One-to four-family $ 3,177 3,534 Cooperative 146 698 Multi-family 905 2,531 Non-residential and other 3,497 3,633 ------ ------ Total non-accrual loans 7,725 10,396 ------ ------ Restructured loans One-to four-family 549 679 Cooperative 288 290 Multi-family 1,154 1,167 ------ ------ Total restructured loans 1,991 2,136 ------ ------ Total non-performing loans 9,716 12,532 ------ ------ REO, net One-to four-family 179 126 Cooperative 126 295 Non-residential and other 121 121 ------ ------ Total REO 426 542 Less allowance for REO (61) (87) ------ ------ REO, net 365 455 ------ ------ Total non-performing assets $10,081 12,987 ====== ====== Non-performing loans to total loans 0.74% 1.09% Non-performing assets to total assets 0.45 0.66 Non-performing loans to total assets 0.43 0.63
14 The decrease in non-performing assets was primarily due to a reduction of $1.6 million in non-accrual multi-family loans. In addition, non-accrual residential loans and co-op loans decreased $357,000 and $552,000, respectively, from December 31, 1997. The ratio of non-performing loans to total loans decreased primarily due to the increase of $157.0 million in total loans, as well as the significant decline in non-performing loans during the six month period. The decrease in the ratio of non-performing assets to total assets was primarily due to the increase of $290.4 million in total assets and a $2.9 million decrease in non-performing assets during the six month period. The ratio of non-performing loans to total assets decreased primarily due to the increase of $290.4 million in total assets and a reduction of $2.8 million in non-performing loans between year-end 1997 and June 30, 1998. 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. 15 ALLOWANCE FOR LOAN LOSSES The following table sets forth the changes in the allowance for loan losses for the six months ended June 30, 1998 and 1997:
(Dollars in Thousands) 1998 1997 ------- ------- Balance at beginning of period $12,528 10,704 Charge-offs: Residential (218) (341) Cooperative (256) (762) Multi-family (708) - Non-residential and other (285) (230) ------ ------ Total charge-offs (1,467) (1,333) ------ ------ Recoveries 934 494 ------ ------ Net charge-offs (533) (839) Provision for loan losses 1,320 1,450 ------ ------ Balance at end of period $13,315 11,315 ====== ====== Ratio of net charge-offs during the period to average loans outstanding during the period 0.09% 0.18% Ratio of allowance for loan losses to total loans at the end of the period 1.02 1.15 Ratio of allowance for loan losses to non- performing loans at the end of the period 137.04 96.49
The ratio of net charge-offs to average loans outstanding during the first half of 1998 decreased compared to the same period in 1997 due to the fact that the Bank experienced net charge-offs of $533,000 for the first half of 1998 compared to net charge-offs of $839,000 for the first half of 1997. In addition to the reduction in net charge-offs, average loans outstanding increased $310.2 million, or 33.9% to $1.2 billion for the first half of 1998 from $916.2 million for the same period in 1997. The ratio of allowance for loan losses to total loans decreased for the period due to the increase in average loans outstanding for the quarter. The ratio of allowance for loan losses to non-performing loans increased between the periods due to an increase of $2.0 million in the allowance for loan losses and a decrease of $2.0 million in non- performing loans. The Bank's allowance for loan losses was $13.3 million and $11.3 million at June 30, 1998 and June 30, 1997, respectively, while non-performing loans totaled $9.7 million and $11.7 million, respectively, on those dates. 16 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 purchase of adjustable-rate securities which are expected to help protect net interest margins during periods of rising interest rates. During the first half of 1998, the Bank originated or purchased for its portfolio $84.2 million of residential adjustable-rate mortgages and $56.1 million of adjustable-rate multi-family, commercial real estate and construction loans. The Company expects to increase its adjustable-rate mortgage originations through its CFS Intercounty mortgage division. During the six month period, the Bank purchased $266.9 million of fixed rate debt securities and MBSs to take advantage of higher yields and shorter durations when compared to rates offered on adjustable- rate securities. At June 30, 1998, $319.2 million, or 41.8% of the Company's AFS portfolio were adjustable-rate securities and $443.7 million or 58.2% of the portfolio were fixed-rate securities. Historically, the Company has been able to maintain a substantial level of core deposits (comprised of savings, 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 June 30, 1998, core deposits represented 45.5% of deposits compared to 42.7% of deposits at December 31, 1997. Core deposits for the Bank's eight traditional branches was 47.1% of deposits compared to 39.1% of deposits for the Bank's forty-five in-store bank branches. During the first six months of 1998, savings accounts increased by $50.2 million, net of interest and certificates of deposit increased by $83.6 million, net of interest. The number of checking accounts increased by 27,442, or 28.0% to 125,304 accounts at June 30, 1998 from 97,862 accounts at December 31, 1997. Most of the increase, or 24,354 accounts is attributable to the Bank's in-store bank branches. The balance of certificate accounts outstanding at June 30, 1998, was $888.4 million compared to $781.6 million at December 31, 1997. A major portion of this increase, $90.5 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. In the second quarter of 1998, the Bank introduced the Liquid Asset Savings Account, which pays depositors 5.10% in the first year as a way to attract core deposits and decrease certificate accounts. 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 17 ratio is currently 4%. The Bank's ratio was 6.56% at June 30, 1998 compared to 8.94% at December 31, 1997. The decrease in the liquidity ratio during the six-month period is due to a decline of $43.2 million in U.S. government securities in the Bank's AFS portfolio. The Company's primary sources of funds are deposits, principal and interest payments on loans and MBSs, retained earnings and advances from FHLB-NY. Proceeds from the sale of AFS securities and loans originated for sale 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 Investments, Inc. ("CFSI"). 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 June 30, 1998 and December 31, 1997, cash and short-term investments totaled $55.9 million and $40.3 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 June 30, 1998 totaled $355.0 million. An additional source of funds are repurchase agreements, which totaled $143.7 million at June 30, 1998. As of June 30, 1998, 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)(2) ------ ---------- ------ ---------- ------ ---------- (Dollars in thousands) Capital for regulatory purposes $126,056 5.66% $126,056 5.66% $138,389 12.24% Minimum regulatory requirement 44,534 2.00 89,068 4.00(3) 90,435 8.00 ------- ---- ------- ---- ------- ---- Excess $ 81,522 3.66% $ 36,988 1.66% $ 47,954 4.24% ======= ==== ====== ==== ======= ====
(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. 18 (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 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) Consistent with the minimum ratio to be deemed "adequately capitalized", the required amount is based on 4%. Failure to meet the capital requirements or to be deemed undercapitalized exposes an institution to regulatory sanctions, including limitations on asset growth. 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. 19 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 June 30, 1998 1997 ------------------------ ------------------------ Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------- -------- ------- ------- -------- ------- (Dollars in thousands) Assets: Interest-earning assets: Mortgage loans $1,250,170 $23,591 7.55% $928,692 $18,486 7.96% Other loans 32,841 823 10.02 32,912 801 9.74 Mortgage-backed securities 565,144 9,573 6.78 476,606 8,191 6.87 Money market investments 2,683 42 6.26 6,412 94 5.86 Debt and equity securities 161,806 2,703 6.68 223,057 4,044 7.25 --------- ------ --------- ------ Total interest-earning assets 2,012,644 36,732 7.30 1,667,679 31,616 7.58 Non-interest earning assets 147,818 ------ 73,563 ------ --------- --------- Total assets 2,160,462 1,741,242 ========= ========= Liabilities and stockholders' equity: Interest-bearing liabilities: Savings accounts 411,048 2,700 2.63 372,169 2,323 2.50 Certificate accounts 880,308 12,615 5.73 641,379 9,222 5.75 NOW accounts 184,101 341 0.74 127,746 277 0.87 Money market accounts 57,454 514 3.58 58,405 461 3.16 Borrowed funds 430,229 6,412 5.96 405,371 5,951 5.87 --------- ------ --------- ------ Total interest-bearing liabilities 1,963,140 22,582 4.60 1,605,070 18,234 4.54 Other liabilities 80,298 ------ 31,958 ------ --------- --------- Total liabilities 2,043,438 1,637,028 Stockholders' equity 117,024 104,214 --------- --------- Total liabilities and stockholders' equity $2,160,462 $1,741,242 ========= ========= Net interest income/net interest rate spread $14,150 2.70% $13,382 3.04% ====== ==== ====== ==== Net interest earning assets/net interest margin $49,504 2.81% $62,609 3.21% ====== ==== ====== ==== Ratio of interest-earning assets to interest-bearing liabilities 102.52% 103.90% ====== ======
20
Six months ended June 30, 1998 1997 ------------------------ ------------------------ Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------- -------- ------- ------- -------- ------- (Dollars in thousands) Assets: Interest-earning assets: Mortgage loans $1,193,544 $45,330 7.60% $ 882,851 $35,067 7.94% Other loans 32,837 1,610 9.81 33,333 1,616 9.70 Mortgage-backed securities 551,130 18,504 6.71 446,587 15,232 6.82 Money market investments 5,429 146 5.38 6,440 190 5.90 Debt and equity securities 181,110 6,105 6.74 238,445 8,308 6.97 --------- ------ --------- ------ Total interest-earning assets 1,964,050 71,695 7.30 1,607,656 60,413 7.52 Non-interest earning assets 120,654 ------ 78,734 ------ --------- --------- Total assets 2,084,704 1,686,390 ========= ========= Liabilities and stockholders' equity: Interest-bearing liabilities: Savings accounts 397,875 5,116 2.57 367,371 4,551 2.48 Certificate accounts 852,541 24,478 5.74 624,021 17,691 5.67 NOW accounts 171,595 602 0.70 123,487 495 0.80 Money market accounts 56,357 937 3.33 58,360 859 2.94 Borrowed funds 431,489 12,918 5.99 379,364 11,010 5.80 --------- ------ --------- ------ Total interest-bearing liabilities 1,909,857 44,051 4.61 1,552,603 34,606 4.46 Other liabilities 59,185 ------ 31,255 ------ --------- --------- Total liabilities 1,969,042 1,583,858 Stockholders' equity 115,662 102,532 --------- --------- Total liabilities and stockholders' equity $2,084,704 $1,686,390 ========= ========= Net interest income/net interest rate spread $27,644 2.69% $25,807 3.06% ====== ==== ====== ==== Net interest earning assets/net interest margin $54,193 2.82% $55,053 3.21% ====== ==== ====== ==== Ratio of interest-earning assets to interest-bearing liabilities 102.84% 103.55% ====== ======
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 GENERAL. The Company reported net income of $1.2 million for the three months ended June 30, 1998 compared to net income of $2.3 million for the three months ended June 30, 1997. The $1.1 million decrease was primarily attributable to an increase of $5.8 million in non-interest expenses, which was largely due to the purchase of CFS Intercounty and the ongoing supermarket banking expansion. This was partially offset by an increase of $2.8 million in non- interest income and an increase of $768,000 in net interest income. In addition, the provision for loan losses decreased $100,000 from the same period last year. The provision for income tax expense decreased by $1.2 million due to lower pre-tax income for the period. The CFS Intercounty division operated at a pre-tax loss of approximately $1.1 million due to the Bank's inability under the terms of the purchase agreement to recognize certain servicing released premiums ("SRPs") for Intercounty's loan production 21 pipeline. Effective July 1, 1998, the Bank has entered into correspondent agreements with various investors to sell loans on a servicing released basis, allowing the Bank to realize the full value of the SRPs. INTEREST INCOME. Interest income increased by $5.1 million, or 16.2% to $36.7 million for the three months ended June 30, 1998 from $31.6 million for the three months ended June 30, 1997. The increase was primarily the result of a $5.1 million increase in interest income on mortgage loans, an increase of $1.4 million in interest income on MBSs and an increase of $22,000 in interest income on other loans. These increases were partially offset by decreases in interest income on debt and equity securities and money market investments of $1.3 million and $52,000, respectively. Interest income on mortgage loans increased by $5.1 million, or 27.6% to $23.6 million for the three months ended June 30, 1998, from $18.5 million for the comparable three-month period in 1997, primarily as a result of an increase in average balances of mortgage loans of $321.5 million partially offset by a decrease in the average yield on mortgage loans of 41 basis points. The increase in average balance of mortgage loans between the periods was primarily due to strong mortgage origination volume, including purchases for the entire year of 1997 and the first half of 1998, which totaled $459.8 million and $286.5 million, respectively. These originations included one-to four-family mortgage loans purchased in the secondary market totaling $200.9 million for 1997 and $75.5 million for the first half of 1998, respectively. Mortgage loan origination volume and wholesale loan purchases for CFS Intercounty represented an additional $155.4 million in the second quarter of 1998, of which $3.1 million was transferred to CFS Bank's portfolio and $90.6 million was sold on a servicing released basis to third party investors. The originations for 1997 and the first half of 1998 were partially offset by principal repayments of $151.2 million and $125.2 million, respectively. The origination totals for both periods included loans refinanced of $10.5 million for 1997 and $23.6 million for the first half of 1998. The significant increase in refinanced loans was attributable to the decline in market interest rates. 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 71.6% at June 30, 1997 to 74.6% at June 30, 1998 and the general decline in market interest rates. Interest income on MBSs increased by $1.4 million, or 16.9% to $9.6 million for the three months ended June 30, 1998 from $8.2 million for the comparable three-month period in 1997, primarily due to an increase in average balances of MBSs of $88.5 million which was partially offset by a decrease in the average yield of 9 basis points. During the quarter ended June 30, 1998, the Bank purchased $149.8 million of MBSs for its AFS portfolio and such purchases 22 were partially offset by sales totaling $18.5 million. The emphasis on MBS securities over debt and equity securities was due to the availability of competitive rates along with shorter durations. Interest income on debt and equity securities decreased by $1.3 million, or 33.2% to $2.7 million for the three months ended June 30, 1998 from $4.0 million for the comparable three-month period in 1997, primarily as a result of a decrease in the average balance outstanding of $61.3 million and a decline in yield of 57 basis points. INTEREST EXPENSE. Interest expense increased by $4.4 million, or 23.8% to $22.6 million for the three months ended June 30, 1998 from $18.2 million for the three months ended June 30, 1997. The increase was primarily the result of a $3.9 million increase in interest expense on deposits and an increase of $461,000 in interest expense on borrowings. Interest on deposits increased by $3.9 million, or 31.6% to $16.2 million for the three months ended June 30, 1998 from $12.3 million for the comparable three-month period in 1997. The increase in interest on deposits was primarily due to the average balance which increased by $333.2 million, or 27.8% to $1.53 billion for the three months ended June 30, 1998 from $1.20 billion for the comparable three-month period in 1997. The increase in deposits is primarily attributable to the Bank's continuing in-store banking expansion. At June 30, 1998, the Bank had forty-five in-store bank branches operating with combined deposits totaling $322.7 million compared to twenty-two in-store bank branches at June 30, 1997 with deposits totaling $66.9 million. The increase in the average balance was primarily due to certificate account balances which increased by $238.9 million, or 37.3% to $880.3 million for the three months ended June 30, 1998 from $641.4 million for the comparable three-month period in 1997. Interest expense on certificate accounts increased by $3.4 million, or 36.8% to $12.6 million for the three months ended June 30, 1998 from $9.2 million in the same period in 1997. The average cost of certificate accounts was 5.73% for the second quarter of 1998 compared to 5.75% for the second quarter of 1997. Interest expense on savings accounts increased by $377,000, or 16.2% to $2.7 million for the three months ended June 30, 1998 from $2.3 million in the same period in 1997 primarily due to an increase in average balance due to the Bank's in-store branches, which had $87.6 million in savings balances as of June 30, 1998 compared to $13.7 million as of June 30, 1997. The average balance of savings accounts increased by $38.9 million, or 10.4% to $411.0 million for the three months ended June 30, 1998 from $372.2 million for the second quarter of 1997. The average cost of savings accounts increased by 13 basis points to 2.63% for the period ended June 30, 1998 from 2.50% for the period ended June 30, 1997. During the second quarter of 1998, 23 the Bank introduced the Liquid Asset Savings Account which pays depositors 5.10% during the first year. The average cost of all deposits was 4.22% for the three months ended June 30, 1998 compared to 4.10% for the prior-year period. Interest on borrowed funds increased by $461,000, or 7.7% to $6.4 million for the three months ended June 30, 1998 from $6.0 million for the comparable three-month period in 1997. Borrowed funds on an average basis increased by $24.9 million between the periods primarily to the addition of short-term FHLB advances and securities sold under agreements to repurchase during 1998 in order to fund loans originated and held for sale by CFS Intercounty and to compliment deposit growth as a funding mechanism for mortgage loan originations. The average rate paid on borrowings increased to 5.96% for the three months ended June 30, 1998 from 5.87% for the prior-year period. NET INTEREST INCOME. Net interest income increased by $768,000 to $14.2 million for the three months ended June 30, 1998 from $13.4 million for the three months ended June 30, 1997. The increase is primarily attributable to total interest-earning assets which increased by $345.0 million, or 20.7% to $2.0 billion for the three months ended June 30, 1998 from $1.7 billion in the same period last year. The increase in total interest-earning assets was primarily due to growth in the Bank's mortgage loan portfolio from $928.7 million for the three months ended June 30, 1997 to $1.3 billion for the comparable period in 1998. This was partially offset by the average yield on interest-earning assets which decreased to 7.30% for the three months ended June 30, 1998 from 7.58% for the three month period in 1997. In addition, the average cost of interest-bearing liabilities increased to 4.60% from 4.54% for the three months ended June 30, 1998 and 1997, respectively. Therefore, the net interest spread was 2.70% for the three months ended June 30, 1998 compared to 3.04% for the comparable period in 1997. The differential between the thirty year Treasury Bond and the two year Treasury Note, which are key indices regarding yield curve analyses, was 72 basis points on June 30, 1997, compared to 15 basis points on June 30, 1998. It is unclear how the recent trends in market interest rates, particularly the flat yield curve, will impact net interest income for the remainder of 1998. PROVISION FOR LOAN LOSSES. The Bank provided $650,000 for loan losses for the three months ended June 30, 1998 compared to $750,000 for the comparable three-month period in 1997. The decrease was due to the continuing decline in non-performing assets. NON-INTEREST INCOME. Non-interest income increased by $2.8 million, or 97.5% for the three months ended June 30, 1998 to $5.6 million from $2.8 million for the comparable three month period in 1997. Loan fees and servicing income increased by $979,000 to $1.2 24 million for the second quarter of 1998 compared to $254,000 for the same period in 1997. This increase included $907,000 in loan origination fees generated by CFS Intercounty. Effective July 1, 1998, the Bank entered into correspondent agreements with various investors to sell loans on a servicing released basis. As a result, the Bank will realize the full value of the SRPs on such loan sales, which the Bank expects will have a significant impact on its non-interest income in future periods. Savings and checking fees increased by $1.1 million, or 83.6% to $2.3 million for the second quarter of 1998 compared to $1.3 million for the same period last year. The significant increase in savings and checking fees is due to the number of checking accounts which increased by 46,948, or 59.9% to 125,304 accounts at June 30, 1998 from 78,356 accounts at June 30, 1997 due to the Bank's strategy to continue to attract lower cost deposit balances. A significant portion of this growth is attributable to the Bank's in-store bank branch program. The in-store bank branches generated savings and checking fees of $1.5 million for the second quarter of 1998 compared to $237,000 for the second quarter of last year. Insurance, annuity and mutual fund fees increased by $311,000 due to an increase in sales volume, including $390,000 in revenue from in-store bank branches. The Bank realized a net gain of $54,000 on the sale of interest-earning assets from its AFS portfolio compared to a gain of $8,000 for the same period last year. Finally, miscellaneous income increased by $364,000, or 121.7% to $663,000 for the second quarter of 1998 from $299,000 for the second quarter of 1997. The increase is primarily due to service charge fees on ATM transactions. NON-INTEREST EXPENSE. Non-interest expense increased by $5.8 million, or 50.6% for the three months ended June 30, 1998 to $17.4 million from $11.5 million for the comparable three-month period in 1997. The increase is primarily due to the Bank's in-store branch program which increased non-interest expense by approximately $2.8 million and the acquisition of CFS Intercounty which increased non- interest expense by approximately $2.1 million. Compensation and benefit costs increased by $4.5 million, or 76.7% to $10.4 million for the three months ended June 30, 1998 from $5.9 million for the same period last year. The in-store branch expansion accounted for $1.4 million of the increase in compensation costs. The acquisition of CFS Intercounty during the second quarter of 1998 increased salary costs by an additional $1.7 million. In addition, federal social security taxes increased $177,000 from the prior period due to a higher salary base. Additionally, ESOP compensation increased $137,000 due to the increase in the average price of Haven Bancorp common stock during the quarter. The remainder of the increase in compensation and benefit costs was due to an increase in salary costs for CFSI due to sales volume, normal merit increases and general staff increases due to the Company's growth. Occupancy and equipment costs increased by $735,000, or 44.7% to $2.4 million for the second quarter of 1998 from $1.6 25 million for the same period last year due to the addition of ten supermarket branches during the second half of 1997 and thirteen branches during the first half of 1998. In July 1998, the Company moved its operations to a new headquarters. The occupancy and equipment costs for the Company's headquarters is expected to be approximately $350,000 per quarter. REO operations, net decreased by $164,000 from the same period last year due to higher gains realized on the sale of REO properties. Other operating costs increased by $713,000, or 18.9% to $4.5 million for the three months ended June 30, 1998 from $3.8 million for the same period last year. Miscellaneous operating expenses, including stationery, telephone, postage and insurance, increased by $246,000 and staff placement costs increased by $293,000 from 1997 primarily due to the in-store branch program. Advertising costs increased $89,000 due to the growth in the deposit base over the last twelve months. Also, miscellaneous expenses attributable to CFS Intercounty totaled $231,000 for the quarter. Finally, costs incurred by the Bank's subsidiary, CFSI, increased $183,000 due to higher sales volume. INCOME TAX EXPENSE. Income tax expense was $471,000 for an effective tax rate of 27.8% for the three months ended June 30, 1998 compared to income tax expense of $1.6 million for an effective tax rate of 41.3% for the comparable period in 1997. The decline in the effective tax rate was due to a full quarter's effect of the Bank's REIT subsidiary, Columbia Preferred Capital Corp. ("CPCC"), established during June of 1997, which resulted in certain tax savings. COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 GENERAL. The Company reported net income of $3.4 million for the six months ended June 30, 1998 compared to net income of $5.6 million for the six months ended June 30, 1997. The $2.2 million decrease was primarily attributable to an increase of $10.8 million in non-interest expenses due to the ongoing supermarket banking expansions and the purchase of CFS Intercounty. This was partially offset by an increase of $4.9 million in non-interest income and an increase of $1.8 million in net interest income. In addition, the provision for loan losses decreased $130,000 from $1.4 million for the six months ended June 30, 9197 to $1.3 million for the six months ended June 30, 1998. The provision for income tax expense decreased by $1.8 million due to lower pre-tax income for the period. INTEREST INCOME. Interest income increased by $11.3 million, or 18.7% to $71.7 million for the six months ended June 30, 1998 from $60.4 million for the six months ended June 30, 1997. The increase was primarily the result of a $10.3 million increase in interest income on mortgage loans and an increase of $3.3 million in 26 interest income on MBS securities. These increases were partially offset by a decrease in interest income on debt and equity securities and money market investments of $2.2 million and $44,000, respectively. Interest income on mortgage loans increased by $10.3 million, or 29.3% to $45.3 million for the six months ended June 30, 1998 from $35.1 million for the comparable six-month period in 1997, primarily as a result of an increase in average balances of mortgage loans of $310.7 million, partially offset by a decrease in the average yield on mortgage loans of 34 basis points. The increase in the average balance of mortgage loans between the periods was due to mortgage originations, including purchases, for 1997 and the first half of 1998 which totaled $459.8 million and $286.5 million, respectively. The originations for both periods were partially offset by principal payments of $151.2 million and $125.2 million, respectively. The average yield on mortgage loans decreased to 7.60% for the six months ended June 30, 1998 from 7.94% for the comparable six-month period in 1997. The decrease in the average yield from the prior period was mainly due to the increasing percentage of relatively lower yielding residential mortgages and the overall decline in market interest rates. Interest income on MBSs increased by $3.3 million, or 21.5% to $18.5 million for the six months ended June 30, 1998 from $15.2 million for the comparable six-month period in 1997 primarily due to an increase in average balances of MBSs of $104.5 million which was partially offset by a decrease in the average yield of 11 basis points. During the first half of 1998, the Bank purchased $322.4 million of MBSs for its AFS portfolio and such purchases were partially offset by sales totaling $136.5 million. During the six months ended June 30, 1998, the Bank purchased a total of $337.4 million of securities for its AFS portfolio. The emphasis on MBS securities over debt and equity securities was primarily due to shorter durations. Interest income on debt and equity securities decreased by $2.2 million, or 26.5% to $6.1 million for the six months ended June 30, 1998 from $8.3 million for the comparable six-month period in 1997 primarily as a result of a decrease in average outstanding balances of $57.3 million and a decrease in average yield of 23 basis points. The decrease in the average outstanding balances was primarily due to an emphasis on MBS securities for purchases for the Bank's AFS portfolio due to a better rate structure and shorter duration. INTEREST EXPENSE. Interest expense increased by $9.4 million, or 27.3% to $44.1 million for the six months ended June 30, 1998 from $34.6 million for the six months ended June 30, 1997. The increase was the result of a $7.5 million increase in interest expense on deposits and an increase of $1.9 million in interest expense on borrowings. 27 Interest on deposits increased by $7.5 million, or 31.9% to $31.1 million for the six months ended June 30, 1998 from $23.6 million for the comparable six-month period in 1997. The increase in interest on deposits was primarily due to the average balance which increased by $305.1 million, or 26.0% to $1.5 billion for the six months ended June 30, 1998 from $1.2 billion for the comparable six-month period in 1997. The deposit growth is primarily attributable to the Bank's in-store banking program. At June 30, 1998, the Bank had forty-five in-store bank branches operating with combined deposits totaling $322.7 million compared to twenty-two in-store bank branches at June 30, 1997 with deposits totaling $66.9 million. The increase in average balance was primarily due to certificate account balances which increased by $228.5 million, or 36.6% to $852.5 million for the six months ended June 30, 1998 from $624.0 million for the comparable six-month period in 1997. Interest expense on certificate accounts increased by $6.8 million or 38.4% to $24.5 million for the six months ended June 30, 1998 from $17.7 million in the same period in 1997 primarily due to the growth in average balances. The average cost of certificate accounts was 5.74% for the first half of 1998 compared to 5.67% for the comparable period in 1997. Interest expense on savings accounts increased by $565,000, or 12.4% to $5.1 million for the six months ended June 30, 1998 from $4.6 million in the same period in 1997 primarily due to an increase in average balances of $30.5 million. The average cost of all deposits was 4.21% for the period ended June 30, 1998 compared to 4.02% for the period ended June 30, 1997. Interest on borrowed funds increased by $1.9 million, or 17.3% to $12.9 million for the six months ended June 30, 1998 from $11.0 million for the comparable six-month period in 1997. Borrowed funds on an average basis increased by $52.1 million between the periods due to the addition of short-term FHLB advances and securities sold under agreements to repurchase during 1998 primarily to fund mortgage loan originations and the mortgage loan pipeline of CFS Intercounty which originates mortgage loans primarily for subsequent sale to investors. The average rate paid on borrowings increased to 5.99% for the six months ended June 30, 1998 from 5.80% for the comparable prior year period due to the effect of a full six months of $25.0 million of 10.46% capital securities issued by Haven Capital Trust in February 1997. NET INTEREST INCOME. Net interest income increased by $1.8 million to $27.6 million for the six months ended June 30, 1998 from $25.8 million for the six months ended June 30, 1997. The increase is primarily due to total interest-earning assets which increased $356.4 million, or 22.2% to $2.0 billion for the six months ended June 30, 1998 from the same period last year. This was partially offset by the average yield on interest-earning assets which decreased to 7.30% from 7.52% for the six months ended June 30, 1998 and 1997, respectively. The reduction in the overall yield on 28 interest earning assets is primarily due to a decline in market interest rates and a flat yield curve environment. The average cost on interest-bearing liabilities increased to 4.61% from 4.46% for the six months ended June 30, 1998 and 1997, respectively. The increase in cost of funds was primarily due to the increase in the cost of deposits to 4.21% for the six months ended June 30, 1998 from 4.02% for the six months ended June 30, 1997. The net interest spread was 2.69% for the six months ended June 30, 1998 compared to 3.06% for the comparable period in 1997. PROVISION FOR LOAN LOSSES. The Bank provided $1.3 million for loan losses for the six months ended June 30, 1998 compared to $1.5 million for the comparable six-month period in 1997 due to a decrease in non-performing loans. NON-INTEREST INCOME. Non-interest income increased by $4.9 million, or 94.8% for the six months ended June 30, 1998 to $10.0 million from $5.2 million for the comparable six-month period in 1997. Loan fees and servicing income increased by $1.2 million to $1.8 million for the first six months of 1998 compared to $504,000 for the same period in 1997. The increase was primarily due to $907,000 in loan origination fees generated by CFS Intercounty in May and June. Loan fees and servicing income for the six months ended June 30, 1998 also included a prepayment fee of $280,000 on a commercial real estate loan. Savings and checking fees increased by $1.8 million, or 77.8% to $4.1 million for the first six months of 1998 compared to $2.3 million for the same period last year. The number of checking accounts increased by 46,948 accounts to 125,304 accounts at June 30, 1998 from 78,356 accounts at June 30, 1997. A major portion of this growth, 42,546 accounts, is attributable to the in-store bank branches. The in-store bank branches generated savings and checking fees of $2.6 million for the six months ended June 30, 1998 compared to $336,000 for the first half of 1997. Insurance, annuity and mutual fund fees increased by $698,000 due to an increase in sales volume which included $720,000 in revenue from sales originating from in-store bank branches. The Bank realized a net gain of $406,000 on the sale of interest earning assets from its AFS portfolio compared to a loss of $16,000 for the same period last year. Finally, miscellaneous income increased by $714,000, or 132.2% to $1.3 million for the six months ended June 30, 1998 from $540,000 for the same period last year. The increase is primarily due to service charge fees on ATM transactions. NON-INTEREST EXPENSE. Non-interest expense increased by $10.8 million, or 52.6% for the six months ended June 30, 1998 to $31.4 million from $20.6 million for the comparable six-month period in 1997. The significant increase in non-interest expense is primarily due to the Bank's in-store branch expansion program which accounted for $9.7 million of operating expenses in the first half of 1998 and $2.1 million related to CFS Intercounty since its 29 acquisition on May 1, 1998. Most of the increase in operating expenses is due to an increase of $7.1 million in compensation and benefit costs. The in-store branch expansion accounted for $5.0 million of the increase in compensation costs for the six month period. Also, the acquisition of CFS Intercounty during the second quarter increased salary costs by $1.7 million. Salary costs for the Bank's subsidiary, CFSI, Inc., increased $291,000 due to higher sales volume. In addition, federal social security taxes increased by $312,000 due to a higher salary base. ESOP compensation increased by $233,000 from the same period last year due to the increase in the average price of Haven Bancorp common stock for the period. Occupancy and equipment costs increased by $2.0 million from the comparable period in 1997 primarily due to the Bank's in- store banking program which increased costs by $1.5 million. REO operations, net decreased by $223,000 from 1997 due to an increase in gains realized on the sale of REO properties. Other operating expenses increased by $2.0 million, or 30.1% to $8.5 million for the six months ended June 30, 1998 from $6.5 million for the same period last year. Miscellaneous operating expenses such as stationery, telephone and postage increased by $627,000 from the same period in 1997 primarily due to the in-store branch program. Staff placement costs increased by $77,000 for the six months ended June 30, 1998 also due to the in-store branch program. Advertising costs and costs incurred for computer processing increased by $462,000 and $208,000, respectively due to the growth in the deposit base over the last twelve months. Finally, NYCE fees and check clearing costs increased by $212,000 and $199,000, respectively, from the same period last year due to higher volume as a result of the growth in deposit accounts. INCOME TAX EXPENSE. Income tax expense was $1.5 million for an effective tax rate of 31.3% for the six months ended June 30, 1998 compared to income tax expense of $3.3 million for an effective tax rate of 37.1% for the comparable period in 1997. The decrease in the effective tax rate was primarily due to the establishment of Columbia Preferred Capital Corp. during the second quarter of 1997, which resulted in certain tax savings. Therefore, the tax provision for the first half of 1998 includes the effect of the REIT's operations for six full months. COMPUTER ISSUES FOR THE YEAR 2000. Many of the Company's existing computer systems use two digits to identify the year in the date field. As a result, these systems may not be able to distinguish the year 2000 from the year 1900. If not corrected, these computer systems could fail by or at the year 2000. The Company primarily uses a third party vendor to process its electronic data. This vendor is currently modifying or replacing its computer applications and systems necessary to correct the year 2000 date issue. The Company also utilizes a combination of purchased and contract-based software as well as other third party vendors for a variety of data processing needs. The Company's assessment of 30 potential computer issues for the year 2000 have been substantially completed. Where potential computer issues have been identified, the vendors have committed to definitive dates (in most cases no later than December 31, 1998) to resolve such issues. In the event that the Company's significant vendors do not achieve year 2000 compliance, the Company's operations could be adversely affected. The Company has established contingency plans for these systems for which year 2000 issues will not be corrected. The Company has incurred approximately $65,000 in costs associated with achieving year 2000 compliance. The Company expects to incur approximately $200,000 in additional costs to achieve year 2000 compliance during the remainder of 1998 and in 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK In management's opinion, there has not been a material change in market risk from December 31, 1997 as reported in item 7A of the Company's Form 10-K. 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 June 30, 1998, 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. ITEM 5. OTHER INFORMATION Not applicable. 31 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)10 - Purchase and Assumption Agreement, dated as of March 11, 1998, by and among Intercounty Mortgage, Inc., CFS Bank and Resource Bancshares Mortgage Group, Inc.* (b) 27.1 Financial Data Schedule. (c) None. - --------------------- * Incorporated herein by reference into this document from the Exhibits to Form 8-K, filed on July 2, 1998. 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: August 13, 1998 By: /s/ Philip S. Messina --------------------------- Philip S. Messina President and Chief Executive Officer Date: August 13, 1998 By: /s/ Catherine Califano --------------------------- Catherine Califano Senior Vice President and Chief Financial Officer 32 EX-27 2
9 This schedule contains summary financial information extracted from the Consolidated Statement of Financial Condition at June 30, 1998 and the Consolidated Statement of Operations for the six months Ended June 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1998 JUN-30-1998 53,659 1,414,711 0 0 762,925 0 0 1,307,756 13,315 2,265,248 1,562,915 347,733 58,996 177,611 0 0 100 117,893 2,265,248 46,940 6,251 0 71,695 31,133 44,051 27,644 1,320 406 31,448 4,918 4,918 0 0 3,380 0.40 0.37 2.69 7,725 0 1,991 15,431 12,528 1,467 934 13,315 13,315 0 0 Per share amendments reflect the 2-for-1 stock split effective November 1997. 1997 1996 BASIC 0.68 0.71 DILUTED 0.64 0.68
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